AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1999
REGISTRATION NO. 333-90881
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SAVVIS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 6719 43-1809960
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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SAVVIS COMMUNICATIONS CORPORATION
12007 SUNRISE VALLEY DRIVE
RESTON, VA 20191
(877) 728-8474
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
---------------
STEVEN M. GALLANT, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
SAVVIS COMMUNICATIONS CORPORATION
12007 SUNRISE VALLEY DRIVE
RESTON, VA 20191
(877) 728-8474
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
---------------
Copies to:
CHRISTINE M. PALLARES, ESQ. ANDREW R. SCHLEIDER, ESQ.
HOGAN & HARTSON L.L.P. JEANNE M. CAMPANELLI, ESQ.
885 THIRD AVENUE SHEARMAN & STERLING
NEW YORK, NY 10022 599 LEXINGTON AVENUE
(212) 409-9800 NEW YORK, NY 10022
(212) 848-4000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any jurisdiction where their offer or sale is not permitted.
PROSPECTUS (SUBJECT TO COMPLETION DATED DECEMBER 9, 1999)
ISSUED _____________, 1999
___________ SHARES
SAVVIS COMMUNICATIONS CORPORATION [LOGO]
COMMON STOCK
SAVVIS Communications Corporation is offering shares of its common
stock. This is our initial public offering and no public market currently exists
for our shares. We anticipate that the initial public offering price will be
between $___ and $__ per share.
We have filed an application for our common stock to be quoted on the
Nasdaq National Market under the symbol "SVVS."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. PLEASE READ THE RISK
FACTORS BEGINNING ON PAGE ___ BEFORE MAKING A DECISION TO INVEST IN OUR COMMON
STOCK.
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Underwriting
discounts and
Price to Public commissions Proceeds to SAVVIS
--------------- ----------- ------------------
<S> <C> <C> <C>
Per share $ $ $
Total $ $ $
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We have granted the underwriters the right to purchase up to an
additional ____ shares to cover over-allotments.
______________ expects to deliver the shares to purchasers on ___________.
----------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SHARES OF COMMON STOCK OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Joint Bookrunners
Merrill Lynch & Co. Morgan Stanley Dean Witter
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TABLE OF CONTENTS
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PAGE PAGE
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Prospectus Summary........................... 5 Management......................................... 74
Risk Factors................................. 12 Transactions with Affiliates....................... 83
Forward-Looking Statements................... 26 Principal Stockholders............................. 84
Use of Proceeds.............................. 27 Description of Capital Stock....................... 86
Dividend Policy.............................. 27 Shares Available for Future Sale................... 89
Capitalization............................... 28 Underwriters....................................... 91
Dilution..................................... 29 Validity of the Shares............................. 93
Unaudited Pro Forma Consolidated Experts............................................ 93
Financial Statements....................... 31 Where You May Find Additional
Selected Historical Consolidated Information..................................... 93
Financial Data............................. 36 Index to Financial Statements...................... F-1
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.............................. 38
Business..................................... 48
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WE HAVE NOT TAKEN ANY ACTION TO PERMIT A PUBLIC OFFERING OF THE SHARES
OF COMMON STOCK OUTSIDE THE UNITED STATES OR TO PERMIT THE POSSESSION OR
DISTRIBUTION OF THIS PROSPECTUS OUTSIDE THE UNITED STATES. PERSONS OUTSIDE THE
UNITED STATES WHO COME INTO POSSESSION OF THIS PROSPECTUS MUST INFORM THEMSELVES
ABOUT AND OBSERVE ANY RESTRICTIONS RELATING TO THE OFFERING OF THE SHARES OF
COMMON STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS OUTSIDE OF THE UNITED
STATES.
---------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR
TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANY OTHER PERSON TO
PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER TO SELL THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU
SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS PROSPECTUS IS ACCURATE ONLY
AS OF THE DATE ON THE FRONT COVER OF THIS PROSPECTUS. OUR BUSINESS, FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND PROSPECTUS MAY HAVE CHANGED SINCE THAT
DATE.
---------------------------
Until ________, _____, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
---------------------------
GENERAL INFORMATION
Market data and certain industry forecasts used throughout this
prospectus were obtained from internal surveys, market research, publicly
available information and industry publications. Industry publications generally
state that the information contained in those publications has been obtained
from sources believed to be reliable, but that the accuracy and completeness of
such information is not guaranteed. Similarly, internal surveys, industry
forecasts and market research,
<PAGE>
while believed to be reliable, have not been independently verified, and neither
we nor the underwriters make any representations as to the accuracy of such
information.
Pro forma adjustments show the impact of how the transfer of the
network assets, the acquisition of us by Bridge, and the consummation of this
offering, might have affected the historical financial statements had they
occurred at an earlier date.
---------------------------
<PAGE>
PROSPECTUS SUMMARY
The information below is only a summary of more detailed information
included in other sections of this prospectus. This summary may not contain all
the information that is important to you or that you should consider before
buying shares in the offering. The other information is important, so please
read this entire prospectus carefully.
The terms "SAVVIS," "we," "us" and "our" as used in this prospectus
refer to SAVVIS Communications Corporation, formerly SAVVIS Holdings
Corporation, and its subsidiaries, except where by the context it is clear that
such terms mean only SAVVIS Communications Corporation. The term "Bridge" refers
to Bridge Information Systems, Inc. and its subsidiaries, which owns
approximately 75% of our common stock.
Unless otherwise indicated, all information in this prospectus assumes
the underwriters do not exercise their over-allotment option and reflects our
72,000-for-1 stock split of our outstanding common stock, issued in connection
with the acquisition of us by Bridge, which took place on July 22, 1999. We are
currently negotiating to enter into a network services agreement and other
related agreements with Bridge, which are described under "Business -- Bridge
Relationship." The information in this prospectus also assumes that the transfer
of the network assets from Bridge to SAVVIS and the execution of the network
services agreement and other related agreements, that we expect to be completed
by December 31, 1999, have been completed.
SAVVIS
We are a leading provider of high quality, high performance global
networking and Internet solutions to medium and large businesses, multinational
corporations and Internet service providers. We currently offer a wide range of
managed data network services, high bandwidth Internet access, virtual private
networks, Internet security services and colocation services.
THE SAVVIS PROACTIVE(SM) NETWORK
The SAVVIS ProActive(SM) Network was created through the combination
of the Bridge network, which was constructed to meet the exacting requirements
of the financial services industry worldwide, and the SAVVIS network, which was
constructed to provide high quality Internet access in the United States.
Bridge utilizes the SAVVIS ProActive(SM) Network to deliver Bridge's
content and applications to over 5,000 financial institutions, including 75 of
the top 100 banks in the world and 45 of the top 50 brokerage firms in the
United States. We provide services, through Bridge, to Chase Manhattan Bank and
Morgan Stanley Dean Witter and directly to approximately 700 customers,
including ebay Inc., CDNow, Inc. and Sage Networks, Inc.
The SAVVIS ProActive(SM) Network was constructed to meet the real-time
data delivery requirements of the most demanding customers. Our network is one
of the largest data networks in the world, has been operational since 1996 and
has over 6,000 buildings on-net in 75 of the world's major commercial centers in
47 countries. We expect to be connected to 81 cities in 52 countries by the
beginning of 2000. Our network architecture is based on asynchronous transfer
mode, or ATM, frame relay and Internet protocol, or IP, architectures.
Additionally, our 75 city global system connects to eight PrivateNAPs(SM), which
will be expanded to twelve by March 2000, allowing our global network to by-pass
the congested public Internet access points. This network design enables us to
5
<PAGE>
provide real-time packet delivery and guarantee low latency and low packet loss.
The network also allows us to tailor our service offerings to our customers'
needs and to offer a range of quality of service levels.
We are enhancing the capabilities of our network and the services which
can be offered on it through the upgrade and expansion of our colocation
facilities. During 2000, we expect to complete upgrades and construction of over
250,000 square feet of colocation space in eight U.S. cities and London.
HISTORY
Over the last four years Bridge, a leading provider of financial
content, constructed one of the most sophisticated IP/ATM networks in the world.
Bridge's network was built to serve some of the largest financial institutions
and institutional investors in the world. These active financial market
participants rely on information received continuously from Bridge to make
trading and investment decisions throughout the business day. Bridge must
deliver this information instantaneously and reliably. Accordingly, Bridge built
a highly redundant fault tolerant network to deliver volume intensive, real time
financial data and news to over 250,000 trading terminals around the globe.
From January 1996 to November 1999, Bridge IP network connections grew
from 250 to 10,000, a compound average annual growth rate of over 160%. During
1999 Bridge IP network connections have increased an average of 600 per month,
or 250% in the aggregate. This growth has occurred as Bridge has converted
customer connections from legacy protocols to IP, together with new
subscriptions for IP delivered products. Bridge's proprietary network monitoring
and customer support systems manage over 10,000 routers and servers, which we
believe is the largest managed IP network in the world. Additionally, Bridge has
a highly experienced group of network engineers, technical support
representatives and customer call center personnel to support their services.
The SAVVIS network was designed to provide high quality Internet access
services through its 22 city system, including eight PrivateNAPs(SM), which
allow our customers' traffic to bypass the congested public Internet access
points. The high performance of SAVVIS Internet access service has been
independently verified by Keynote Systems in a study in which we have
consistently been rated among the top three Internet backbone providers for
performance based on mean file download times throughout 1999.
In connection with our acquisition of Bridge's IP network and the
related agreements, Bridge will transfer certain highly skilled people to us and
we will purchase certain other support services from them. Additionally, we have
entered into a network services agreement with Bridge which commits Bridge to
purchase at least $ ____ million of network services from us each year through
______, 2009.
COMPETITIVE STRENGTHS
Our target customers are those businesses that are intensive users of
data communications that require a high quality of service for their Internet,
intranet and extranet needs. Our competitive strengths in servicing these
customers include:
6
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LARGE, SOPHISTICATED CUSTOMER BASE. We currently provide real-time
managed data services to Bridge to enable the delivery of Bridge content and
applications to over 5,000 financial institutions worldwide. These companies are
among the world's most demanding users of corporate data services, and the
SAVVIS ProActive(SM) Network was designed and is operated to high standards of
speed and redundancy to satisfy their requirements. With the SAVVIS
ProActive(SM) Network in place, the marginal cost of providing additional
services to these customers is low. Additionally, the marginal cost of making
our high quality services available to new customers, including medium and small
businesses, and new vertical markets is also low. We believe providing service,
through Bridge, to the world's leading financial institutions will significantly
advance our brand building efforts and enhance our prospects for winning new
business.
UNIQUE NETWORK ENGINEERED FOR REAL-TIME PERFORMANCE. Our network
architecture allows us to deliver real-time, volume intensive data services to
the most demanding customers. In order to achieve this, we designed our network
to be highly redundant, including multiple backbone, local loop and Internet
connections. In addition, our system of PrivateNAPs(SM) allows our Internet
traffic to bypass the heavily congested public access points of the Internet,
thereby reducing data loss and latency, and improving reliability and
performance. We also use proprietary routing and network management policies to
enhance our network efficiency and to maintain a high quality of service. The
reliability and functionality of our network allows us to provide our customers
with a range of services and quality of service levels that we believe are
unique to the industry.
GLOBAL ON-NET PRESENCE. We operate one of the largest managed data
networks in the world, reaching 47 countries, with facilities in 75 major
cities, including 53 international cities and 22 U.S. cities. These cities
generate a significant percentage of the world's total data traffic and we
intend to continue to extend the scope of our network by connecting an
additional 24 cities in 2000. Currently, the network has over 6,000 buildings
on-net. These on-net buildings are typically occupied by multiple businesses to
which we can deliver our services with low marginal cost.
SINGLE SOURCE SERVICE OFFERING. We provide our customers with a single
source for a wide range of global networking, Internet, and colocation
solutions. Our global networking solutions include managed data, virtual private
network and dial-up access services. Our Internet-related services include
dedicated access, digital subscriber line, or DSL, and Internet security
services. All of our services are offered as service only, turnkey solutions or
fully managed solutions depending on customer requirements and the capabilities
of their internal information technology staff.
WORLD-CLASS SERVICE THROUGH PROPRIETARY SYSTEMS. Our global network
operations center in St. Louis and our regional network operations centers in
London and Singapore are equipped with sophisticated, proprietary network
monitoring, management, reporting and diagnostic tools for network
troubleshooting. These systems enable real-time remote monitoring and management
of our network equipment and customer service. Our customers have a single point
of contact, on a 24x365 basis, for support inquiries and receive prompt
notification of events that might impact service quality, such as network
congestion, equipment failures and network or power outages. Our unique global
network also enables us to provide our customers an extremely high level of
service. We commit this level of service to our customers in writing in service
level agreements. Our service level agreements are guarantees to our customers
of high quality service measured in terms of network availability, latency,
packet loss and other metrics.
7
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BUSINESS STRATEGY
Our strategy is to tap the rapidly growing market for reliable, high
speed data communications and Internet services. In pursuit of this strategy, we
intend to:
o provide a single source for high quality Internet and managed network
solutions;
o expand our network and PrivateNAP(SM) infrastructure;
o exploit our on-net building presence;
o capitalize on Bridge's relationships to penetrate its customer base;
o grow domestic and international distribution channels;
o provide enabling infrastructure for e-commerce solutions; and
o develop and market new services.
Our principal executive office is located at 12007 Sunrise Valley
Drive, Reston, Virginia 20191, and our telephone number is (877) 728-8474.
8
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THE OFFERING
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Common stock offered.................................................... ___________ shares.
Common stock to be outstanding after this offering....................... ___________ shares.
Over-allotment option.................................................... ___________ shares.
Use of proceeds.......................................................... We will receive net proceeds from this
offering of approximately $_____
million, assuming a per share price of
$_______. We expect to use the net
proceeds primarily for capital
expenditures relating to our network
expansion, to fund sales, marketing and
other operating expenses and other
general corporate purposes.
Dividend policy.................................................... We do not intend to pay dividends on our
common stock for the foreseeable
future. We plan to retain any earnings
for use in the operation of our business
and to fund future growth.
Nasdaq National Market symbol...................................... "SVVS"
</TABLE>
This information is based on our shares outstanding on _________,
_______. This information excludes ______________ shares of common stock
underlying options granted under our stock option plans outstanding as of
_________, _______ at a weighted average exercise price of $____ per share.
9
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SUMMARY CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except per share amounts)
We derived the summary historical consolidated financial data presented
below as of and for each of the three years in the period ended December 31,
1998 from our audited consolidated financial statements. We derived the summary
historical consolidated financial data presented below for the six months ended
June 30, 1998, the period from January 1, 1999 to April 6, 1999 and the period
from April 7, 1999 to June 30, 1999 and as of June 30, 1999 from our unaudited
consolidated financial statements. We prepared the unaudited financial
statements on substantially the same basis as our audited financial statements
and, in our opinion, the unaudited financial statements include all adjustments
necessary for a fair presentation of the results of operations for those
periods. Historical results are not necessarily indicative of the results to be
expected in the future, and results of interim periods are not necessarily
indicative of results for the entire year. You should read the information set
forth below together with the discussion under "Unaudited Pro Forma Consolidated
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements and the notes
to those financial statements that are in the back of this prospectus.
On April 7, 1999, Bridge acquired all our equity securities and
accounted for the acquisition as a purchase transaction. Since the purchase
transaction resulted in our company becoming a wholly-owned subsidiary of
Bridge, SEC rules required us to establish a new basis of accounting for the
purchased assets and liabilities. As such, the accounting for the purchase
transaction has been "pushed down" to the books of SAVVIS. As a result, the
purchase price has been allocated, on a preliminary basis, to the underlying
assets purchased and liabilities assumed based on their estimated fair market
values at the acquisition date. The resulting impact in our financial statements
was to increase intangibles, goodwill and other liabilities, to decrease fixed
assets, and to increase additional paid-in capital. The unaudited historical
consolidated balance sheet data as of June 30, 1999 and consolidated statement
of operations data for the period from April 7, 1999 through June 30, 1999 give
effect to our acquisition by Bridge and are labeled "Successor." Unaudited
historical financial data for the periods prior to the acquisition are labeled
"Predecessor."
Pro forma data for the year ended December 31, 1998 and the six months
ended June 30, 1999 give effect to the acquisition of our company by Bridge, our
purchase of network assets from Bridge, and the sale of common stock in this
offering as if they had occurred at the beginning of 1998 for the statement of
operations data and at June 30, 1999 for the balance sheet data. For more
detailed information on the pro forma financial data, see "Unaudited Pro Forma
Consolidated Financial Statements."
EBITDA represents earnings (loss) before depreciation and amortization,
interest income and expense and income tax expense (benefit). We have included
information concerning EBITDA because we understand that such information is
used by investors as one measure of a company's operating performance. EBITDA is
not determined in accordance with generally accepted accounting principles, is
not indicative of cash used by operating activities and should not be considered
in isolation or as an alternative to, or more meaningful than, measures of
operating performance determined in accordance with generally accepted
accounting principles. Additionally, you should not use EBITDA as a comparison
between companies, as all companies may not calculate it in a similar manner.
10
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PREDECESSOR PREDECESSOR SUCCESSOR
---------------------------- -------------------- -----------
HISTORICAL PRO FORMA HISTORICAL HISTORICAL PRO FORMA
---------------------------- ----------- -------------------- ----------- ----------
PERIOD PERIOD
FROM FROM
YEAR SIX MONTHS JANUARY 1 APRIL 7 SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED TO TO ENDED
--------------------------- DECEMBER 31, JUNE 30, APRIL 6, JUNE 30, JUNE 30,
1996 1997 1998 1998 1998 1999 1999 1999
-------- -------- --------- ----------- ------- ------- -------- --------
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STATEMENT OF OPERATIONS DATA:
Revenues $ 290 $ 2,758 $ 13,674 $ 13,674 $ 5,092 $5,440 $ 5,913 $ 11,353
Direct costs and operating expenses:
Data communications and operations 1,044 11,072 20,889 20,889 9,329 6,429 6,303 12,732
Selling, general and administrative 1,204 5,130 12,245 12,245 4,553 4,651 5,355 10,006
Depreciation and amortization 153 631 2,208 28,398 943 793 3,037 14,346
-------- -------- --------- -------- --------- -------- ---------- --------
Total direct costs and operating
expenses 2,401 16,833 35,342 61,532 14,825 11,873 14,695 37,084
-------- -------- --------- -------- --------- -------- ---------- --------
Loss from operations (2,111) (14,075) (21,668) (47,858) (9,733) (6,433) (8,782) (25,731)
Interest expense, net 60 427 75 5,075 209 235 453 3,188
-------- -------- --------- -------- --------- -------- ---------- --------
Net loss $(2,171) $(14,502) $(21,743) (52,933) $ (9,942) $ (6,668) $(9,235) $(28,919)
======== ======== ========= ======== ========= ========= ========== ========
Basic and diluted net loss per share $(2.42) $(15.69) $(16.28) $(8.06) $(4.51) $(0.13)
Weighted average number of shares 895,764 933,922 1,482,151 1,350,341 1,670,709 72,000,000
OTHER FINANCIAL DATA:
EBITDA $(1,958) $(13,444) $(19,460) $(19,460) $(8,790) $(5,640) $(5,745) $(11,385)
Capital expenditures 884 697 1,688 -- 772 275 368 --
Cash used in operating activities (1,293) (10,502) (20,560) -- (11,548) (6,185) (6,120) --
Cash used in investing activities (884) (697) (2,438) -- (1,522) (275) (368) --
Cash provided by financing activities 2,740 12,024 24,121 -- 16,961 4,533 6,424 --
<CAPTION>
PREDECESSOR SUCCESSOR
--------------------------- --------------
HISTORICAL HISTORICAL PRO FORMA
--------------------------- -------------- --------------
AS OF DECEMBER 31,
--------------------------- AS OF JUNE AS OF JUNE 30,
1996 1997 1998 30, 1999 1999
-------- -------- -------- ------------ --------------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 573 $1,398 $ 2,521 $ 530 $ 70,030
Goodwill and intangibles, net -- 1,197 36,098 36,098
Total assets 1,888 4,313 11,454 45,292 164,792
Debt and capital lease obligations 1,126 9,495 2,759 16,322 66,322
Redeemable preferred stock, net of
discount and deferred financing costs 500 5,261 37,937 -- --
Stockholders' equity (deficit) (693) (15,395) (35,157) 22,511 92,011
</TABLE>
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RISK FACTORS
You should consider carefully the following risks and the other
information in this prospectus before deciding to invest in our common stock. If
any of the following risks actually occurs, our business, prospects, financial
condition and results of operations could be materially adversely affected, and
the market price of the common stock could decline. See "Forward-Looking
Statements."
RISKS RELATED TO OUR BUSINESS
A SIGNIFICANT PORTION OF OUR REVENUES IS EXPECTED TO COME FROM BRIDGE,
AND THE LOSS OF BRIDGE AS A CUSTOMER OR REDUCED DEMAND FROM BRIDGE WOULD
MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
Bridge is expected to be our largest customer for the foreseeable
future. Under the network services agreement, Bridge has agreed to purchase from
us network services of at least $___ million annually through 2009, although the
agreement could be terminated prior to its term under certain circumstances or
Bridge could unexpectedly be unable to perform its obligations under the
agreement. In addition, Bridge is entitled to terminate its network services
agreement with us following a change of control. This could reduce the amount a
third party would be willing to pay for us. The loss of Bridge as a customer, or
reduced demand from Bridge, would materially reduce our expected revenues.
OUR LIMITED HISTORY MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR
PERFORMANCE.
Although we began operations in 1995, we only began offering data
network and colocation services in September 1999. We expect to generate a
substantial portion of our revenues from these services. In addition, many of
our executive officers and key technical employees joined us recently, and we
have adopted our business strategies recently. Because of our limited operating
history, you have very limited operating and financial data about us upon which
to base an evaluation of our performance and prospects and an investment in our
common stock. Therefore, you should consider and evaluate our prospects in light
of the risks and difficulties frequently encountered by rapidly growing
companies, particularly companies in the rapidly evolving data networking,
Internet access and colocation markets.
OUR HISTORICAL FINANCIAL INFORMATION WILL NOT BE COMPARABLE TO OUR
FUTURE FINANCIAL PERFORMANCE.
We recently acquired Bridge's network assets and entered into an
agreement to provide managed data network services to Bridge. As a result, the
historical financial information included in this prospectus will not
necessarily reflect our results of operations, financial position and cash flows
in the future or what our results of operations, financial position and cash
flows would have been had the transfer of assets from Bridge been effected, had
we provided data network services to Bridge under the network services
agreement, had we received certain services from Bridge under the technical
services agreement and the administrative services agreement or had we provided
data network and colocation services to other customers during the periods
presented. Our results of operations, financial position and cash flows
subsequent to the transfer are not and will not be comparable to prior periods.
12
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WE EXPECT TO CONTINUE TO INCUR SUBSTANTIAL LOSSES AND NEGATIVE
OPERATING CASH FLOW.
We incurred operating losses of approximately $2.2 million, $14.5
million and $21.7 million in 1996, 1997 and 1998, respectively, and had negative
cash flows from operating activities for each of these years. As a result of
such operating losses and working capital deficiencies, our independent
auditors' report on our 1997 financial statements included an explanatory
paragraph regarding our ability to continue as a going concern. We also had an
operating loss of approximately $15.9 million, and net cash used in operating
activities of approximately $12.3 million, in the first six months of 1999. We
expect our operating expenses to increase significantly, especially in the areas
of operations and sales and marketing, as we continue to develop and expand our
business. As a result, we will need to increase our revenues significantly to
generate cash flow from our operations. In addition, the amount we charge Bridge
for its use of the network as the network existed on the date of the transfer of
the network to us is based on an amount equal to our cash costs of operating the
network. If Bridge does not purchase additional services from us to meet its
customers' needs or if our costs of operating the network do not decline, the
Bridge network services agreement will not generate either positive cash flow or
income for us. We expect to incur significant net losses and negative cash flow
from operating activities at least through 2002.
OUR FAILURE TO MANAGE OUR GROWTH EFFECTIVELY COULD IMPAIR OUR BUSINESS.
We expect our business to continue to grow rapidly, which may
significantly strain our management, financial, customer support, sales,
marketing and administrative resources, as well as our network operations and
our management and billing systems. Such a strain on our managerial, operational
and administrative capabilities could adversely affect the quality of our
services and our ability to generate revenues. To manage our growth effectively,
we will have to further enhance the efficiency of our operational support and
other back office systems, and of our financial systems and controls. We will
also have to expand, train and manage our employees to handle the increased
volume and complexities of our business. We rely on Bridge to provide certain
services to us and we have no control over Bridge's ability to accommodate our
growth. In addition, if we fail to project traffic volume and routing
preferences correctly, or fail to determine the appropriate means of expanding
our network, we could lose customers, make inefficient use of our network, and
have higher costs and lower profit margins.
We have recently acquired a substantial proportion of our network
assets from Bridge, assumed contracts from Bridge for various communications
links, colocation space and service relationships and hired approximately 90
employees from Bridge. Our failure to employ systems and procedures that will
manage effectively the acquired assets, the contract base and the employees
would materially adversely affect our business.
OUR SUBSTANTIAL ONGOING RELATIONSHIPS WITH BRIDGE ARE CRITICAL TO OUR
SUCCESS. IF BRIDGE TERMINATES ANY OF THESE RELATIONSHIPS, OUR BUSINESS
PROSPECTUS WILL BE IMPAIRED.
Bridge provides and is expected to continue to provide to us many
technical, administrative and operational services and related support
functions, including technical and customer support service and project
management in the procurement and installation of equipment. Bridge also has
agreed to provide to us certain additional administrative and operational
services, such as payroll and certain accounting functions, benefit management
and office space. See "Business--Bridge Relationship." If Bridge unexpectedly
stops providing these services for any reason, we could face significant
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challenges and costs in assuming these services or finding an alternative to
Bridge. This could impair our operations and could harm our financial results.
WE ARE CONTROLLED BY PARTIES WHOSE INTERESTS MAY NOT BE ALIGNED WITH
YOURS.
Bridge and Welsh, Carson, Anderson & Stowe, or Welsh Carson, a private
equity firm, own approximately 75% and 12% of our common stock, respectively. In
addition, Welsh Carson owns approximately 39% of Bridge's fully diluted capital
stock. Consequently, Bridge, directly, and Welsh Carson, indirectly, control us
and are in a position to elect a majority of our board of directors and control
all matters affecting us.
Some decisions concerning our operations or financial structure may
present conflicts of interest between Bridge and Welsh Carson and our other
stockholders. For example, Welsh Carson may make investments in other entities
engaged in the telecommunications business, some of which may compete with us.
Also, Bridge and Welsh Carson are under no obligation to bring us any investment
or business opportunities of which they are aware, even if opportunities are
within our scope and objectives.
We have entered into a number of agreements with Bridge relating to the
operation of our network and under which we provide managed data network
services to Bridge and Bridge provides certain support services to us. Conflicts
may arise in the negotiation of extensions or amendments to these agreements or
their enforcement. In addition, our chairman of the board and acting president
and chief executive officer is also chief technology officer at Bridge. See
"Transactions with Affiliates."
WE WILL REQUIRE ADDITIONAL CAPITAL TO CONDUCT OUR BUSINESS, BUT WE
PRESENTLY DO NOT HAVE A CREDIT FACILITY OR OTHER SOURCE OF FUNDING.
As we develop and expand our business, we will require significant
capital to fund our capital expenditures, operating deficits and working capital
needs, as well as our debt service requirements. We believe that our existing
cash, cash equivalents, short-term investments and anticipated vendor financing,
together with the net proceeds from this offering, will be sufficient to meet
our capital requirements through the end of 2000. We currently estimate that we
will make approximately $160 million of capital expenditures in 2000, and expect
to make significant capital expenditures in the following years. In addition, we
expect to continue to incur significant negative EBITDA at least through 2001.
The actual amounts and timing of our future capital requirements may vary
significantly from our estimates. Our capital needs may exceed our current
expectations because of such factors as acquisitions that we may make, changes
in the demand for our services, regulatory developments, the competitive
environment in our markets or if we fail to expand our business as expected. In
that case, we may need to seek capital or seek additional capital sooner than we
expect and such additional financing may not be available on acceptable terms or
at all. If we are unable to raise additional capital when needed, we may have to
delay or abandon some or all of our expansion plans or otherwise forego market
opportunities. We do not currently have a credit facility from which we could
access additional capital.
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WE DEPEND ON KEY PERSONNEL. IF WE ARE UNABLE TO HIRE AND RETAIN
QUALIFIED PERSONNEL, WE MAY BE UNABLE TO IMPLEMENT OUR BUSINESS STRATEGY
EFFECTIVELY.
Our future performance depends to a significant degree on the continued
contributions of our management team, sales force and key technical personnel.
The industries in which we compete are characterized by a high level of employee
mobility and aggressive recruiting of skilled personnel. As a result, we may
have difficulty in hiring and retaining highly skilled employees. Our continued
success depends on our ability to attract, retain and motivate highly skilled
employees. In particular, our business plan contemplates the significant
expansion of our sales and marketing staff. We also are currently seeking to
hire a new chief executive officer. Our acting president and chief executive
officer was appointed in November 1999. Prior to that date he was, and continues
to be, the chief technology officer at Bridge. As a result, he will not devote
all of his time to his responsibilities at SAVVIS.
THE INTERNATIONAL SCOPE OF OUR OPERATIONS MAY ADVERSELY AFFECT OUR
BUSINESS.
We expect a significant portion of our growth will come from
international operations. We expect to face certain general risks associated
with the conduct of an international business. These risks include:
o longer payment cycles;
o problems in collecting accounts receivable;
o regulatory restrictions or prohibitions on the provision of our
services;
o tariffs and other trade barriers;
o fluctuations in currency rates and foreign exchange controls that
restrict or prohibit repatriation of funds;
o political risks; and
o potentially adverse tax consequences of operating in multiple
jurisdictions.
FAILURES IN OUR NETWORK OPERATIONS CENTER OR NETWORK COULD DISRUPT OUR
ABILITY TO PROVIDE OUR DATA NETWORKING, INTERNET ACCESS AND COLOCATION SERVICES,
WHICH COULD EXPOSE US TO LIABILITY AND INCREASE OUR CAPITAL COSTS.
Our ability to successfully implement our business plan depends upon
our ability to provide high quality, reliable services. Interruptions in our
ability to provide our data networking, Internet access and colocation services
to our customers could adversely affect our business and reputation. Our
operations depend upon our ability to protect our equipment and our network
infrastructure, including our connections to our backbone providers, and our
customers' data and equipment, against damage from natural disasters, as well as
power loss, telecommunications failure and similar events. Despite the
precautions that we have taken or may take in the future, such as building
significant redundancy into our network, the occurrence of a natural disaster or
other unanticipated
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problem could result in interruptions in the services we provide to our
customers and could seriously harm our business and business prospects.
WE ARE HIGHLY DEPENDENT ON OUR SUPPLIERS, AND ANY INTERRUPTIONS COULD
IMPAIR OUR SERVICE TO OUR CUSTOMERS.
If we are unable to obtain required products or services from
third-party suppliers on a timely basis and at an acceptable cost, we may be
unable to provide our data networking, Internet access and colocation services
on a competitive and timely basis. We are dependent on other companies to supply
various key components of our infrastructure, including network equipment,
backbone connectivity, local loops and Internet access. If our suppliers fail to
provide products or services on a timely basis, we may be unable to meet our
customer service commitments and as a result we may experience increased costs
or loss of revenue.
IF WE ARE UNABLE TO EXPAND OUR NETWORK AS EXPECTED, OUR RESULTS OF
OPERATIONS WOULD BE ADVERSELY AFFECTED.
Our success will depend on our ability to continue to expand our
network on a timely basis. A number of factors could hinder the expansion of our
network. These factors include cost overruns, the unavailability of appropriate
facilities, communications capacity or additional capital, strikes, shortages,
delays in obtaining governmental or other third-party approvals, natural
disasters and other casualties, and other events that we cannot foresee. In
addition, expanding or enhancing our network, including through hardware or
software upgrades, could result in unexpected interruptions of services to our
customers.
IF OUR ESTIMATES REGARDING OUR TRAFFIC LEVELS ARE NOT CORRECT, WE MAY
HAVE TOO MUCH OR TOO LITTLE CAPACITY.
We rely on other carriers to provide certain transmission services.
Because our leased capacity costs are generally fixed monthly payments based on
the capacity made available to us, failing to correctly estimate the
transmission capacity we will need could increase the cost and reduce the
quality of our services. Underestimation of traffic levels could lead to a
shortage of capacity, requiring us to lease more capacity, which may be at
unfavorable rates, or could lead to a lower quality of service because of
increased packet loss and latency. Overestimation of traffic levels, because our
traffic volumes decrease or do not grow as expected, would result in idle
capacity, thereby increasing our per-unit costs.
OUR BRAND IS NOT AS WELL KNOWN AS SOME OF OUR COMPETITORS'. FAILURE TO
DEVELOP BRAND RECOGNITION COULD HURT OUR ABILITY TO COMPETE EFFECTIVELY.
We need to strengthen our brand awareness to realize our strategic and
financial objectives. Many of our competitors have well-established brands
associated with the provision of data networking, Internet access and colocation
services. As part of our brand-building efforts, we expect to increase our
marketing budget substantially, as well as our marketing activities, including
advertising, tradeshows and direct response programs. The promotion and
enhancement of our brand also will depend on our success in continuing to
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provide high quality data networking, Internet access and colocation services.
We cannot assure you that we will be able to maintain these levels of quality.
ANY BREACH OF SECURITY OF OUR NETWORK COULD NEGATIVELY IMPACT OUR
BUSINESS.
Our network may be vulnerable to unauthorized access, computer viruses
and other disruptive problems caused by customers, employees or others. Computer
viruses, unauthorized access or other disruptive problems could lead to
interruptions, delays or cessation of service to our customers. Unauthorized
access also could potentially jeopardize the security of confidential
information stored in the computer systems of our customers, which might result
in our liability to our customers, and also might deter potential customers.
Although we intend to continue to implement security measures, we may be unable
to implement these measures in a timely manner or, if and when implemented,
these measures could be circumvented as a result of accidental or intentional
actions. In the past, some of these security measures have occasionally been
circumvented by third parties. Eliminating computer viruses and alleviating
other security problems may require interruptions, delays or cessation of
service to our customers and these customers' end users and may result in a loss
of customers and damage to our reputation.
WE MAY NOT BE ABLE TO MEET THE OBLIGATIONS UNDER OUR SERVICE LEVEL
AGREEMENTS.
We have service level agreements with many of our Internet access
customers, as well as many of our networking customers, in which we provide
various guarantees regarding our levels of service. See "Business--Customer
Service--Service Level Agreements." If we fail to provide the levels of service
required by these agreements, our customers may be entitled to terminate their
relationship with us or receive service credits for their accounts. If a
significant number of customers become entitled to exercise, and do exercise,
these rights, our revenues could be materially reduced.
WE MAY MAKE ACQUISITIONS OR ENTER INTO JOINT VENTURES OR STRATEGIC
ALLIANCES, EACH OF WHICH IS ACCOMPANIED BY INHERENT RISKS.
If appropriate opportunities present themselves, we may make
acquisitions or investments or enter into joint ventures or strategic alliances
with other companies. Risks commonly encountered in such transactions include:
o the difficulty of assimilating the operations and personnel of the
combined companies;
o the risk that we may not be able to integrate the acquired services,
products or technologies with our current services, products and
technologies;
o the potential disruption of our ongoing business;
o the inability to retain key technical and managerial personnel;
o the inability of management to maximize our financial and strategic
position through the successful integration of acquired businesses;
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o increases in reported losses as a result of charges for in-process
research and development and amortization of goodwill and other
intangible assets;
o adverse impact on our annual effective tax rate;
o difficulty in maintaining controls, procedures and policies; and
o the impairment of relationships with employees, suppliers and customers
as a result of any integration.
WE HAVE NOT RECEIVED ALL REQUIRED THIRD PARTY CONSENTS AND APPROVALS IN
ORDER TO EFFECTUATE THE TRANSFER OF CERTAIN NETWORK ASSETS FROM BRIDGE.
The transfer of several portions of the network required contractual
consents from certain of Bridge's counterparties or regulatory approvals in
certain jurisdictions. Although we are presently in the process of attaining
these consents and approvals, we were not able to complete this process by the
closing date and Bridge continues to own and operate those portions of the
network. Under the master establishment and transition agreement with Bridge,
once the requisite consents and approvals have been acquired in each
jurisdiction, we will have an obligation to purchase the assets from Bridge in
that jurisdiction. Until such time, Bridge will operate the facilities on our
behalf for an agreed upon compensation. If Bridge is not permitted to operate
the network on our behalf in any of these jurisdictions, our ability to service
customers in those jurisdictions could be materially impaired.
WE FACE REGULATORY RESTRICTIONS IN A NUMBER OF COUNTRIES THAT HAVE
DELAYED AND MAY PREVENT US FROM ACQUIRING OR OPERATING BRIDGE ASSETS LOCATED IN
THESE COUNTRIES.
Regulatory restrictions in a number of countries have delayed and may
prevent us from acquiring all of the Bridge network assets located in these
countries as part of the Bridge asset transfer. These countries include:
o Europe--Greece, Hungary, Italy and Poland;
o Africa--South Africa;
o Middle East--Bahrain, Kuwait, Saudi Arabia and the United Arab
Emirates;
o Asia Pacific--China, Macau, Malaysia, Taiwan and Thailand; and
o The Americas/Caribbean--Mexico, Peru and Venezuela.
Under the Bridge agreements, Bridge has agreed to operate the assets in
these countries until we receive the requisite approvals. We will be obligated
to acquire these assets from Bridge in these countries at book value at any time
during the next 10 years, once we have received the required approvals. See
"Business--Bridge Relationship." We cannot assure you, however, that we will be
able to comply with the regulatory and other requirements necessary to exercise
our rights to acquire these assets. Until we exercise
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our rights to acquire any of these assets, Bridge has agreed to operate these
assets and bill us for the costs of operation. See "Business--Bridge
Relationship."
In all countries where we have acquired Bridge assets, we are permitted
to deliver the existing network services to Bridge, but not necessarily data
networking services to third parties.
WE MAY EXPERIENCE FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS.
Our quarterly operating results have fluctuated in the past and are
likely to fluctuate significantly from quarter to quarter in the future due to a
variety of factors, many of which are beyond our control. Accordingly, we
believe that period-to-period comparisons of our results of operations are not
meaningful and should not be relied upon as indications of future performance.
Some of the factors that could cause our revenues and operating results to
fluctuate include the following:
o demand for and market acceptance of our data networking, Internet
access and colocation services;
o the timing and magnitude of capital expenditures, including costs
relating to the expansion of operations;
o increasing sales, marketing and other operating expenses;
o our ability to obtain, and the pricing for, local loop connections;
o our practice of purchasing transmission capacity before customers are
secured and our ability to generate revenues for our services;
o changes in the prices we pay Internet backbone providers;
o changes in our revenue mix between usage-based and fixed rate pricing
plans;
o fluctuations in the duration of the sales cycle for our services;
o the compensation of our sales personnel based on achievement of
periodic sales quotas;
o the announcement or introduction of new or enhanced services by our
competitors or us; and
o conditions specific to the data networking, Internet access and
colocation services industries and general economic factors.
It is possible that in some future periods our results of operations
may fall below the expectations of public market analysts and investors. In this
event, the price of our common stock may fall. You should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
future performance.
OUR FAILURE TO BE YEAR 2000 COMPLIANT COULD MATERIALLY AFFECT OUR
BUSINESS.
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The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. As a result,
our computer programs that have date-sensitive software and software of
companies into which our network is interconnected may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failures or miscalculations causing disruptions of operations, including a
temporary inability to process transactions, send invoices or engage in similar
normal business activities. If the systems of other companies on whose services
we depend or with whom our systems interconnect are not year 2000 compliant, it
could disrupt our operations and cause us to lose revenue as we seek to remedy
any problems. The year 2000 issue is discussed at greater length in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of Year 2000 Issue."
WE MAY BE LIABLE FOR THE MATERIAL THAT CONTENT PROVIDERS DISTRIBUTE
OVER OUR NETWORK.
The law relating to the liability of private network operators for
information carried on or disseminated through their networks is currently
unsettled. We may become subject to legal claims relating to the content
disseminated on our network. For example, lawsuits may be brought against us
claiming that material on our network on which one of our customers relied was
inaccurate. Claims could also involve matters such as defamation, invasion of
privacy and copyright infringement. Content providers operating private networks
have been sued in the past, sometimes successfully, based on the content of
material. If we need to take costly measures to reduce our exposure to these
risks, or are required to defend ourselves against such claims, our business
could be adversely affected.
RISKS RELATED TO OUR INDUSTRY
DATA NETWORKING, INTERNET ACCESS AND COLOCATION SERVICES ARE NEW AND
RAPIDLY GROWING MARKETS, BUT THIS GROWTH MAY NOT CONTINUE.
The market for data network services has been growing rapidly. If the
data network services market or our share of that market does not grow as
expected, our revenues could be less than expected.
The market for Internet access services and related products and
services, such as colocation services, is in an early stage of growth. As a
consequence, current and future competitors are likely to introduce competing
Internet access services and related products,
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and it is difficult to predict the rate at which the market will grow or at
which new or increased competition will result in market saturation. We face the
risk that the market for high performance Internet access services and related
products may fail to develop or develop more slowly than we expect, or that our
services may not achieve widespread market acceptance. This market has only
recently begun to develop, is evolving rapidly and likely will attract an
increasing number of providers. Furthermore, we may be unable to market and sell
our services successfully and cost-effectively to a sufficiently large number of
customers. Finally, if the Internet becomes subject to a form of central
management, or if Internet backbone providers establish an economic settlement
arrangement regarding the exchange of traffic between backbones, the problems of
congestion, latency and data loss addressed by our Internet access services
could be largely resolved and our ability to compete for business in this market
could be adversely affected.
Critical issues concerning the commercial use of the Internet remain
unresolved and may hinder the growth of Internet use, especially in the business
market that we target. Despite growing interest in the varied commercial uses of
the Internet, many businesses have been deterred from purchasing Internet access
services for a number of reasons, including inconsistent or unreliable quality
of service, lack of availability of cost-effective, high-speed options, a
limited number of local access points for corporate users, inability to
integrate business applications on the Internet, the need to deal with multiple
and frequently incompatible vendors and a lack of tools to simplify Internet
access and use. Capacity constraints caused by growth in the use of the Internet
may, if left unresolved, impede further development of the Internet to the
extent that users experience delays, transmission errors and other difficulties.
Further, the adoption of the Internet for commerce and communications,
particularly by those individuals and enterprises that have historically relied
upon alternative means of commerce and communication, generally requires an
understanding and acceptance of a new way of conducting business and exchanging
information. In particular, enterprises that have already invested substantial
resources in other means of conducting commerce and exchanging information may
be particularly reluctant or slow to adopt a new strategy that may make their
existing personnel and infrastructure obsolete. The failure of the market for
business related Internet solutions to further develop could cause our revenues
to grow more slowly than anticipated and reduce the demand for our Internet
access and colocation services.
THE MARKETS FOR DATA NETWORKING, INTERNET ACCESS AND COLOCATION ARE
HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
The markets for data networking, Internet access and colocation
services are extremely competitive, and there are few significant barriers to
entry. We expect that competition will intensify in the future, and we may not
have the financial resources, technical expertise, sales and marketing abilities
or support capabilities to compete successfully in our markets. Many of our
existing competitors have greater market presence, engineering and marketing
capabilities and financial, technological and personnel resources than we do. As
a result, as compared to us, our competitors may:
o develop and expand their networking infrastructures and service
offerings more efficiently or more quickly;
o adapt more rapidly to new or emerging technologies and changes in
customer requirements;
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o take advantage of acquisitions and other opportunities more
effectively;
o develop products and services that are superior to ours or have greater
market acceptance;
o adopt more aggressive pricing policies and devote greater resources to
the promotion, marketing, sale, research and development of their
products and services;
o make more attractive offers to our existing and potential employees;
o establish cooperative relationships with each other or with third
parties; and
o more effectively take advantage of existing relationships with
customers or exploit a more widely recognized brand name to market and
sell their services.
Our competitors include:
o backbone providers that may provide us connectivity services, including
AT&T, Cable & Wireless USA, GTE Internetworking, ICG Communications,
Inc., Sprint Corporation and UUNet Technologies, Inc., a subsidiary of
MCI Worldcom, Inc.;
o global, national and regional telecommunications companies, including
regional Bell operating companies and providers of satellite bandwidth
capacity; and
o global, national and regional Internet service providers.
We expect that new competitors will enter our market. Such new
competitors could include computer hardware, software, media and other
technology and telecommunications companies, as well as satellite and cable
companies. A number of telecommunications companies and online service providers
currently offer, or have announced plans to offer or expand, their network
services. Further, the ability of some of these potential competitors to bundle
other services and products with their network services could place us at a
competitive disadvantage. Various companies are also exploring the possibility
of providing, or are currently providing, high-speed data services using
alternative delivery methods, including the cable television infrastructure,
direct broadcast satellites, wireless cable and wireless local loop. In
addition, Internet backbone providers may make technological developments, such
as improved router technology, that will enhance the quality of their services.
OUR FAILURE TO ACHIEVE DESIRED PRICE LEVELS COULD IMPACT OUR ABILITY TO
ACHIEVE PROFITABILITY OR POSITIVE CASH FLOW.
We expect competition and other factors to continue to cause pricing
pressure in the markets we serve. Prices for our services have decreased
significantly in recent years. In addition, by bundling their services and
reducing the overall cost of their solutions, telecommunications companies that
compete with us may be able to provide customers with reduced communications
costs in connection with their data networking, Internet
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access or colocation services, thereby significantly increasing pricing pressure
on us. We may not be able to offset the effects of any such price reductions
even with an increase in the number of our customers, higher revenues from
enhanced services, cost reductions or otherwise. In addition, we believe that
the data networking, Internet access and colocation industries are likely to
continue to encounter consolidation in the future. Increased price competition
or consolidation could result in increased price and other competition in our
markets, which could result in an erosion of our market share, revenues and
operating margins and could prevent us from becoming profitable.
NEW TECHNOLOGIES COULD DISPLACE OUR SERVICES OR RENDER THEM OBSOLETE.
New technologies or industry standards have the potential to replace or
provide lower cost alternatives to our services. The adoption of such new
technologies or industry standards could render our existing services obsolete
or unmarketable. For example, our services rely on the continued widespread
commercial use of the set of protocols, services and applications for linking
computers known as IP. Alternative sets of protocols, services and applications
for linking computers could emerge and become widely adopted. Improvements in IP
could emerge that would allow for the assignment of priorities to data packets
in order to ensure their delivery in the manner customers prefer, as well as
other improvements, which could eliminate one advantage of the ATM architecture
of our network. We cannot guarantee that we will be able to identify new service
opportunities successfully and develop and bring new products and services to
market in a timely and cost-effective manner, or that products, software and
services or technologies developed by others will not render our products and
services non-competitive or obsolete. In addition, we cannot assure you that our
products or services will achieve or sustain market acceptance or be able to
address effectively the compatibility and interoperability issues raised by
technological changes or new industry standards. If we fail to anticipate the
emergence of, or obtain access to, a new technology or industry standard, we may
incur increased costs if we seek to use those technologies and standards or our
competitors that use such technologies may use them more cost-effectively than
we do.
THE DATA NETWORKING AND INTERNET ACCESS INDUSTRIES ARE HIGHLY REGULATED
IN MANY OF THE COUNTRIES IN WHICH WE PLAN TO PROVIDE SERVICE, WHICH COULD
RESTRICT OUR ABILITY TO CONDUCT BUSINESS INTERNATIONALLY.
We are subject to varying degrees of regulation in each of the
jurisdictions in which we provide services. Local laws and regulations, and
their interpretation, differ significantly among those jurisdictions. Future
regulatory, judicial and legislative changes may have a material adverse effect
on our ability to deliver services within various jurisdictions.
National regulatory frameworks that are consistent with the policies
and requirements of the World Trade Organization have only recently been, or are
still being, put in place in many countries outside the U.S. and certain
European countries. These nations are in the early stages of providing for and
adapting to a liberalized telecommunications market. As a result, in these
markets, we may encounter more protracted and difficult procedures to obtain
licenses and negotiate interconnection agreements.
Our operations are dependent on licenses and authorizations that we
acquire from governmental authorities in each jurisdiction in which we operate.
These licenses and
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authorizations generally contain clauses pursuant to which we may be fined or
our license may be revoked in certain circumstances. Such revocation may be on
short notice, at times as short as 30 days' written notice to us. We may not be
able to obtain or retain the licenses necessary for our operations. In addition,
in connection with the transfer of the Bridge assets, we need to obtain licenses
from certain non-U.S. jurisdictions in order to provide our services in those
jurisdictions. In particular, we may not be able to obtain the required license
in Japan on a timely basis or at all.
ADOPTION OR MODIFICATION OF GOVERNMENT REGULATIONS RELATING TO THE
INTERNET COULD HARM OUR BUSINESS.
There is currently only a small body of laws and regulations directly
applicable to access to or commerce on the Internet. However, existing laws have
been applied to Internet transactions in a number of cases. Moreover, due to the
increasing popularity and use of the Internet, international, national, federal,
state and local governments may adopt laws and regulations that affect the
Internet. The nature of any new laws and regulations and the manner in which
existing and new laws and regulations may be interpreted and enforced cannot be
predicted accurately. The adoption of any future laws or regulations might
decrease the growth of the Internet, decrease demand for our services, impose
taxes or other costly technical requirements or otherwise increase the cost of
doing business on the Internet or in some other manner have a significantly
harmful effect on us or our customers. The U.S. government also may seek to
regulate some segments of our activities as it has with basic telecommunications
services. Moreover, the applicability to the Internet of existing laws governing
intellectual property ownership and infringement, copyright, trademarks, trade
secret, obscenity, libel, employment, personal privacy and other issues is
uncertain and developing. We cannot predict accurately the impact, if any, that
future laws and regulations or changes in laws and regulations may have on our
business.
RISKS RELATED TO THIS OFFERING
YOU MAY NOT BE ABLE TO RESELL YOUR STOCK AT OR ABOVE THE INITIAL PUBLIC
OFFERING PRICE.
Before this offering, there has not been an active trading market for
our common stock. The initial public offering price will be determined by
negotiations between the representatives of the underwriters and us. See
"Underwriters -- Pricing of the Offering" for a discussion of the factors to be
considered in determining the public offering price. The Nasdaq Stock Market has
experienced extreme price and volume fluctuations that have particularly
affected the market prices of equity securities of many technology,
telecommunications and computer companies. These price and volume fluctuations
have often been unrelated or disproportionate to the operating performance of
these companies. The market price of our common stock could be subject to
fluctuations due to other factors, including:
o actual or anticipated fluctuations in our operating results;
o announcement of technological innovations; and
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o mergers and strategic alliances in the data networking and Internet
access industries.
We cannot assure you that you will be able to sell your shares at or
above the initial public offering price.
A SIGNIFICANT NUMBER OF OUR SHARES ARE ELIGIBLE FOR RESALE. THEIR
RESALE COULD REDUCE OUR STOCK PRICE AND IMPAIR OUR ABILITY TO RAISE FUNDS IN NEW
STOCK OFFERINGS.
After the completion of this offering, we will have a large number of
shares of common stock outstanding and available for resale beginning at various
points of time in the future. Sales of substantial amounts of shares of our
common stock in the public market after this offering, or the perception that
those sales will occur, could cause the market price of our common stock to
decline. Those sales also might make it more difficult for us to sell equity and
equity-related securities in the future at a time and at a price that we
consider appropriate. For more detailed information, see "Shares Eligible for
Future Sale."
OUR MANAGEMENT WILL HAVE BROAD DISCRETION OVER ALLOCATION OF PROCEEDS
FROM THIS OFFERING.
We expect that the net proceeds to us from the sale of the
______________ shares of common stock we are offering will be approximately
$____ million, after deducting the underwriting discounts and commissions and
estimated offering expenses. Our management will have discretion to allocate the
net proceeds to uses they deem appropriate. We may be unable to yield a
significant return on any investment of the proceeds.
OUR CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW CONTAIN
PROVISIONS THAT COULD DISCOURAGE A TAKEOVER.
Our certificate of incorporation and Delaware law contain provisions
which may make it more difficult for a third party to acquire us, including
provisions that give the board of directors the power to issue shares of
preferred stock. See "Description of Capital Stock" for a discussion of these
provisions.
We have also chosen to be subject to Section 203 of the Delaware
General Corporation Law, which prevents a stockholder of more than 15% of a
company's voting stock from entering into certain business combinations with
that company.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
The price you will pay for our common stock will be substantially
higher than the pro forma tangible book value per share of our outstanding
common stock. As a result, you will experience immediate and substantial
dilution in tangible book value per share, and our current stockholders will
experience an immediate increase in the tangible book value per share of their
shares of common stock. Furthermore, to the extent that we issue additional
shares of common stock in connection with acquisitions, or other outstanding
options or warrants to purchase common stock are exercised, you will be diluted
further. For more detailed information, see "Dilution."
25
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements based on our
current beliefs and assumptions. These beliefs and assumptions are based on
information currently available to us. These forward-looking statements are
subject to risks and uncertainties. Forward-looking statements include the
information concerning our possible or assumed future results of operations set
forth under the sections entitled "Summary," "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Forward-looking statements are not guarantees of performance. Our
future results and requirements may differ materially from those described in
the forward-looking statements. Many of the factors that will determine these
results and requirements are beyond our control. In addition to the risks and
uncertainties discussed in "Summary," "Business" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," you should
consider those discussed under "Risk Factors."
These forward-looking statements speak only as of the date of this
prospectus. We do not intend to update or revise any forward-looking statements
to reflect events or circumstances after the date of this prospectus, including
changes in our business strategy or planned capital expenditures, or to reflect
the occurrence of unanticipated events.
26
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from this offering will be
approximately $_____ million, or $____ million if the underwriters exercise
their over-allotment option in full. This is based on an initial public offering
price of $_____ per share, the midpoint of the range set forth on the cover page
of this prospectus and after deducting estimated underwriting discounts and
commissions and offering expenses payable by us.
We expect to use the net proceeds of this offering to expand our
network and for general corporate purposes, including funding operating losses,
working capital and capital expenditures. We also may use a portion of the net
proceeds of this offering for acquisitions or investments. We have no present
commitments or agreements with respect to any material acquisition or
investment. Pending the application of the proceeds towards one of the uses
described above, we intend to invest the net proceeds in short-term,
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock,
and we do not intend to pay any cash dividends on our common stock in the
foreseeable future. We intend to retain any earnings to finance the expansion of
our business and for general corporate purposes.
27
<PAGE>
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of June 30, 1999:
o on an actual basis, after adjusting for the "push down" accounting in
connection with the acquisition of our company by Bridge (see footnote
1 to our unaudited financial statements that are in the back of this
prospectus), and
o as adjusted to give effect to the following transactions, assuming
they occurred on June 30, 1999:
o our purchase of the network assets from Bridge; and
o our receipt of proceeds of $75 million in this offering, less
estimated discounts, commissions and expenses payable by us.
See "Unaudited Pro Forma Consolidated Financial Statements," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
our financial statements and the notes to those financial statements that are in
the back of this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
--------------------------------
(UNAUDITED)
-----------
(IN THOUSANDS, EXCEPT SHARE DATA)
ACTUAL AS ADJUSTED
------ -----------
<S> <C>
Cash and cash equivalents $ 530
-------
Capitalized lease obligations, including current maturities 5,022
Due to Bridge under notes and sublease obligations 11,300
-------
16,322
Stockholder's equity:
Common stock. $.01 par value per share; 125,000,000
shares authorized, 72,000,000 issued and outstanding
(actual), and _______ issued and oustanding (as
adjusted) 720
Additional paid-in capital 31,026
Retained deficit (9,235)
--------
Total stockholder's equity 22,511
========
Total capitalization $38,833
========
</TABLE>
28
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was
approximately $_______ million or approximately $__________ per share of common
stock. Pro forma net tangible book value per share represents our pro forma net
tangible book value, which is total tangible assets less total liabilities,
divided by the number of shares of common stock outstanding on that date on a
pro forma basis. Dilution per share is the difference between the amount per
share paid by purchasers of shares of common stock in this offering and the net
tangible book value per share of shares of common stock offered by us in this
offering. After giving effect to our sale of the ____ shares of common stock
offered in this offering at an assumed initial public offering price of $___ per
share, the midpoint of the range indicated on the cover of this prospectus, our
pro forma net tangible book value as of June 30, 1999 would have been $___
million, or $___ per share. This represents an immediate increase in pro forma
net tangible book value to existing stockholders of $___ per share and an
immediate dilution to new investors of $___ per share. The following table
illustrates this per share dilution, assuming no exercise of the underwriters'
over-allotment option:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share........................................ $
Pro forma net tangible book value per share before this
offering .......................................................................... $( )
Increase in pro forma net tangible book value per share attributable
to new investors................................................................... _______
Pro forma net tangible book value per share after this offering......................... _______ _______
Dilution per share to new investors .................................................... $_____ _______
</TABLE>
Assuming the underwriters exercise their over-allotment option in full,
our adjusted pro forma net tangible book value as of June 30, 1999 would have
been approximately $___ per share, representing an immediate increase in net
tangible book value of $___ per share to our existing stockholders and an
immediate dilution to new investors in net tangible book value of $___ per
share.
The following table summarizes, as of June 30, 1999 (assuming the sale
of ____ shares of common stock offered in this offering at a price of $ _____
per share), the number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by the existing
stockholders and by new the investors (before deducting the estimated
underwriting discounts and commissions and other expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
----------------------------- --------------------------- -------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... % $ % $
New investors.................. % $ % $
Total...................... 100% $ 100% $
==== ====
</TABLE>
The discussion and table above assumes none of the options outstanding
under our stock option plans as of June 30, 1999 are exercised. As of June 30,
1999, there were
29
<PAGE>
options outstanding to purchase a total of ____________ shares
of common stock at a weighted average price of $____ per share. To the extent
that any of these options are exercised, you will be diluted further.
30
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated statement of operations for the six
months ended June 30, 1999 and for the year ended December 31, 1998 give effect
to the following, as if each had occurred on January 1, 1998:
o the acquisition of our company by Bridge in April 1999; and
o our purchase of the network assets from Bridge in _________.
The unaudited pro forma consolidated balance sheet as of June 30, 1999
gives effect to the following, as if each had occurred on June 30, 1999 :
o our purchase of the network assets from Bridge and our issuance
of a note to Bridge and the execution of subleases in connection
with the purchase;
o our receipt of proceeds of $75 million in this offering, less
estimated discounts, commissions and expenses payable by us.
As a result of SEC rules and as discussed in note 1 to our unaudited
consolidated financial statements in the back of this prospectus, we have
applied "push down" accounting to our historical financial statements. In these
unaudited pro forma consolidated financial statements, "Predecessor " represents
the historical results of our operations prior to the purchase of our company by
Bridge on April 7, 1999. "Successor" represents the historical consolidated
balance sheet and results of our operations for the period subsequent to that
purchase and the effects of the "push down" from April 7, 1999 through June 30,
1999.
The network assets purchased from Bridge, or to be purchased under the
call right, are recorded in the unaudited pro forma consolidated financial
statements at Bridge's historical net book value of those assets. Because under
the network services agreement, we will be paid a fixed amount representing our
estimated total cash costs of operating the network as it existed at the time of
our purchase, the pro forma effects of the purchase of the assets shown in the
unaudited pro forma consolidated statements of operations reflect only non-cash
operating costs and other non-operating costs. Operating costs contemplated by
these payments from Bridge, and therefore not reflected in the pro forma
adjustments, include direct costs of leasing lines, local loops and switches,
salaries and related benefits incurred in operating and maintaining the network
assets, and certain other general and administrative costs. Costs which are
reflected in the pro forma adjustments include depreciation and amortization
expense and interest expense associated with the financing of the assets.
Under the network services agreement, the amount to be paid by Bridge for
network services will be fixed for the first three years; however, Bridge has
agreed to guarantee certain minimum annual revenue amounts to us for the ten
year term of the agreement. We estimate the annual cash costs of operating the
network as it currently exists to be approximately $______; however, if our
actual costs of operating the network are higher than amounts we receive under
the agreement, we could incur higher losses.
The pro forma adjustments and the assumptions on which they are based are
further described in the accompanying notes to the unaudited pro forma
consolidated financial statements. You should read the unaudited pro forma
consolidated financial statements together with our historical financial
statements and the notes to those financial statements that are in the back of
this prospectus.
The pro forma consolidated financial statements are for illustrative
purposes only. You should not rely on the unaudited pro forma consolidated
financial statements as being indicative of the results that actually would have
occurred if the transactions had occurred on the dates indicated or that may be
obtained in the future.
31
<PAGE>
<TABLE>
<CAPTION>
SAVVIS COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL ADJUSTMENTS
----------------------------------------------------------------------------------
PREDECESSOR SUCCESSOR BRIDGE ACQUSITION PURCHASE OF PRO FORMA
SAVVIS SAVVIS OF SAVVIS NETWORK ASSETS
----------- --------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 5,440 $ 5,913 $ 11,353
----------- ----------- ----------- -------------- ---------
Direct costs and operating expenses:
Data communications and operations 6,429 6,303 12,732
Selling, general and administrative 4,651 5,355 10,006
Depreciation and amortization 793 3,037 $ 2,183 (1) $ 8,333 (3) 14,346
----------- ----------- ----------- -------------- ---------
Total direct costs and operating expenses 11,873 14,695 2,183 8,333 37,084
----------- ----------- ----------- -------------- ---------
Loss from operations (6,433) (8,782) (2,183) (8,333) (25,731)
Net interest expense 235 453 2,500 (4) 3,188
----------- ----------- ----------- -------------- ---------
Net loss $(6,668) $(9,235) $(2,183) $(10,833) $(28,919)
=========== =========== =========== ============== =========
Basic and diluted net loss per share $ (4.51) $ (0.13) (7)
=========
Weighted average number of shares 1,670,709 72,000,000 (7)
=========== =========== =========
</TABLE>
See notes to the unaudited pro forma consolidated financial statements.
32
<PAGE>
<TABLE>
<CAPTION>
SAVVIS COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ADJUSTMENTS
----------------------------------
HISTORICAL BRIDGE PURCHASE OF PRO FORMA
PREDECESSOR ACQUSITION OF NETWORK ASSETS
SAVVIS SAVVIS
----------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 13,674 $ 13,674
----------------- ------------- ------------- ------------
Direct costs and operating expenses:
Data communications and operations 20,889 20,889
Selling, general and administrative 12,245 12,245
Depreciation and amortization 2,208 9,523 (2) 16,667 (3) 28,398
----------------- ------------- ------------- ------------
Total direct costs and operating expenses 35,342 9,523 16,667 61,532
----------------- ------------- ------------- ------------
Loss from operations (21,668) (9,523) (16,667) (47,858)
Net interest expense 75 5,000 (4) 5,075
----------------- ------------- ------------- ------------
Net loss $ (21,743) $ (9,523) $ (21,667) $ (52,933)
================= ============= ============= ============
Basic and diluted net loss per share $ (16.28) (7)
================= ============
Weighted average number of shares 1,482,151 (7)
================= ============
</TABLE>
See notes to the unaudited pro forma consolidated financial statements.
33
<PAGE>
<TABLE>
<CAPTION>
SAVVIS COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ADJUSTMENTS
----------------------------------
ASSETS: HISTORICAL PURCHASE OF SALE OF COMMON PRO FORMA
NETWORK ASSETS STOCK AS ADJUSTED
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 530 $ 69,500 (6) $ 70,030
Accounts receivable, net 2,603 2,603
Other current assets 421 421
------------ ------------- ------------ -----------
Current assets 3,554 69,500 73,054
Property, plant and equipment 5,300 $50,000 (5) 55,300
Goodwill and intangible assets 36,098 36,098
Other long-term assets 340 340
------------ ------------- ------------ ------------
Total $45,292 $50,000 $69,500 $164,792
============ ============= ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accounts payable $ 3,731 $ 3,731
Accrued expenses 799 799
Current portion of capital lease obligations 1,211 1,211
Due to Bridge 11,300 -- 11,300
Other accrued liabilities 1,458 1,458
------------ ------------- ------------ ------------
Current liabilites 18,499 -- 18,499
Due to Bridge -- $50,000(5) 50,000
Long-term portion of capital lease obligations 3,811 3,811
Other liabilties 471 471
------------ ------------- ------------ ------------
Total liabilites 22,781 50,000 72,781
Stockholder's deficit 22,511 69,500(6) 92,011
------------ ------------- ------------ ------------
Total $45,292 $50,000 $69,500 $164,792
============ ============= ============ ============
</TABLE>
See notes to the unaudited pro forma consolidated financial statements.
34
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1) To record depreciation and the amortization expense of $6,014 associated
with fixed assets, intangible assets and excess of purchase price over fair
value of net assets acquired when Bridge acquired our company. These
expenses were offset by the reversal of amortization and depreciation
expense of $3,831 associated with SAVVIS' previously acquired fixed assets,
intangible assets and the excess of purchase price over fair value of net
assets acquired of Interconnected Associates, Inc., which SAVVIS acquired
in 1998. Amortization was calculated on a straight line basis over one to
ten years.
2) To record the depreciation and amortization expense of $11,731 associated
with fixed assets, intangible assets and excess of purchase price over fair
value of net assets acquired when Bridge acquired our company. These
expenses were offset by the reversal of depreciation and amortization
expense of $2,208 associated with SAVVIS' previously acquired fixed assets,
intangible assets and the excess of purchase price over fair value of net
assets acquired of Interconnected Associates, which SAVVIS acquired in
1998. Amortization was calculated on a straight line basis over one to ten
years.
3) To reflect depreciation and amortization on the network assets acquired
from Bridge, assuming all such assets were purchased from Bridge on January
1, 1998. Depreciation has been computed based on using the straight line
method with an estimated remaining life of assets of three years.
4) To reflect interest expense on borrowings from Bridge and under sublease
arrangements assuming that network assets with a $50 million net book value
were purchased from Bridge on January 1,1998, and assuming an efffective
borrowing rate of 10%.
5) To reflect the purchase of network assets together with related borrowings
from Bridge and the sublease from Bridge, assuming a purchase price equal
to Bridge's net book value of such assets.
6) To reflect the proceeds, net of issuance costs, from the sale of common
stock in this offering.
7) Pro forma loss per share is calculated using the total shares of common
stock that will be outstanding after this offering.
35
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except per share amounts)
We derived the selected historical consolidated financial data presented
below as of and for each of the three years in the period ended December 31,
1998 from our audited consolidated financial statements. Our consolidated
financial statements as of and for the years ended December 31, 1996, and 1997
have been audited by Ernst & Young LLP, independent auditors. Our consolidated
financial statements as of and for the year ended December 31, 1998 have been
audited by Deloitte & Touche LLP, independent auditors.
We derived the selected consolidated financial data presented below for the
six months ended June 30, 1998, the period from January 1 to April 6, 1999, and
the period from April 7 to June 30, 1999 and as of June 30, 1999 from our
unaudited consolidated financial statements. We prepared the unaudited financial
statements on substantially the same basis as our audited financial statements
and, in our opinion, the unaudited financial statements include all adjustments
necessary for a fair presentation of the results of operations for those
periods. Historical results are not necessarily indicative of the results to be
expected in the future, and results of interim periods are not necessarily
indicative of results for the entire year. You should read the information set
forth below together with the discussion under the "Unaudited Pro Forma
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
the notes to those financial statements that are in the back of this prospectus.
On April 7, 1999, Bridge acquired all our equity securities and accounted
for the acquisition as a purchase transaction. Since the purchase transaction
resulted in our company becoming a wholly-owned subsidiary of Bridge, SEC rules
required us to establish a new basis of accounting for the purchased assets and
liabilities. As such, the accounting for the purchase transaction has been
"pushed down" to the books of SAVVIS. As a result, the purchase price has been
allocated, on a preliminary basis, to the underlying assets purchased and
liabilities assumed based on their estimated fair market values at the
acquisition date. The resulting impact in our financial statements was to
increase intangibles, goodwill and other liabilities, to decrease fixed assets,
and to increase additional paid-in capital. The unaudited historical
consolidated balance sheet data as of June 30, 1999 and consolidated statement
of operations data for the period from April 7, 1999 through June 30, 1999 give
effect to our acquisition by Bridge and are labeled "Successor." Unaudited
historical financial data for the periods prior to the acquisition are labeled
"Predecessor."
EBITDA represents earnings (loss) before depreciation and amortization,
interest income and expense and income tax expense (benefit). We have included
information concerning EBITDA because we understand that such information is
used by investors as one measure of a company's operating performance. EBITDA is
not determined in accordance with generally accepted accounting principles, is
not indicative of cash used by operating activities and should not be considered
in isolation or as an alternative to, or more meaningful than, measures of
operating performance determined in accordance with generally accepted
accounting principles. Additionally, you should not use EBITDA as a comparison
between companies, as all companies may not calculate it in a similar manner.
36
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------------------------------------- -------------
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED PERIOD FROM PERIOD FROM
JUNE 30, JANUARY 1 TO APRIL 7 TO
APRIL 6, JUNE 30,
--------------------------------
1996 1997 1998 1998 1999 1999
--------- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 290 $ 2,758 $ 13,674 $ 5,092 $ 5,440 $ 5,913
Direct costs and operating expenses:
Data communications and operations 1,044 11,072 20,889 9,329 6,429 6,303
Selling, general and administrative 1,204 5,130 12,245 4,553 4,651 5,355
Depreciation and amortization 153 631 2,208 943 793 3,037
--------- ---------- ---------- ------------ ------------ -----------
Total direct costs and operating
expenses 2,401 16,833 35,342 14,825 11,873 14,695
--------- ---------- ---------- ------------ ------------ -----------
Loss from operations (2,111) (14,075) (21,668) (9,733) (6,433) (8,782)
Interest expense, net 60 427 75 209 235 453
--------- ---------- ---------- ------------ ------------ -----------
Net loss $ (2,171) $ (14,502) $ (21,743) $ (9,942) $ (6,668) $ (9,235)
========= ========== ========== ============ ============ ===========
Net loss available to common
stockholders $ (2,171) $ (14,653) $ (24,134) $ (10,887) $ (7,540) $ (9,235)
========= ========== ========== ============ =========== ===========
Basic and diluted net loss per share $ (2.42) $ (15.69) $ (16.28) $ (8.06) $ (4.51) $ (0.13)
Weighted average number of shares 895,764 933,922 1,482,151 1,350,341 1,670,709 72,000,000
OTHER FINANCIAL DATA:
EBITDA $ (1,958) $ (13,444) $ (19,460) $ (8,790) $ (5,640) $ (5,745)
Capital expenditures 884 697 1,688 772 275 368
Cash used in operating activities (1,293) (10,502) (20,560) (11,548) (6,185) (6,120)
Cash used in investing activities (884) (697) (2,438) (1,522) (275) (368)
Cash provided by financing activities 2,740 12,024 24,121 16,961 4,533 6,424
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------- ---------------
AS OF DECEMBER 31,
---------------------------------- AS OF JUNE 30,
1996 1997 1998 1999
---------- ------------ -------- ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents 573 1,398 2,521 530
Goodwill and intangibles, net -- -- 1,197 36,098
Total assets 1,888 4,313 11,454 45,292
Debt and capital lease obligations 1,126 9,495 2,759 16,322
Redeemable preferred stock, net of discount
and deferred financing costs 500 5,261 37,937 --
Stockholders' equity (deficit) (693) (15,395) (35,157) 22,511
</TABLE>
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with our financial
statements and the notes to those financial statements that are in the back of
this prospectus.
OVERVIEW
We are a leading provider of high quality, high performance global
networking and Internet solutions to medium and large businesses, multinational
corporations and Internet service providers. The SAVVIS ProActive(SM) Network
was constructed to meet the real-time data delivery requirements of the most
demanding customers. Our network architecture is based on ATM, frame relay and
IP architectures. Additionally, our global system of 75 switching points
connects to eight PrivateNAPs(SM), allowing us to by-pass the congested public
Internet access points. This network design enables us to provide real-time
packet delivery and guarantee low latency and low packet loss.
We began commercial operations in 1996, offering Internet access
services to local and regional Internet service providers. Our customer base has
grown from 15 customers at the end of 1996 to approximately 700 currently. With
the acquisition of the Bridge IP network and the related network services
agreement, we now also provide service, through Bridge, to over 5,000 customers
in the financial services industry.
On March 4, 1998, we acquired Interconnected Associates, Inc., a
regional Internet service provider serving approximately 170 customers in
Seattle, Washington and Portland, Oregon, for $750,000 in cash and shares of our
common stock with a fair value of $583,000. We accounted for the acquisition
using the purchase method of accounting.
On April 7, 1999, we were acquired by Bridge in a stock-for-stock
transaction that was accounted for as a "purchase transaction" under Accounting
Principles Board Opinion No. 16. Under the terms of the transaction, Bridge
issued approximately 3,011,000 shares of its common stock together with
approximately 239,000 options and warrants on its common stock in exchange for
all of our outstanding equity securities. Since the purchase transaction
resulted in our company becoming a wholly owned subsidiary of Bridge, SEC rules
require us to establish a new basis of accounting for the assets purchased and
liabilities assumed. As a result, the purchase price has been allocated, on a
preliminary basis, to the underlying assets purchased and liabilities assumed
based on estimated fair market value of such assets and liabilities on the
acquisition date, and the difference between the purchase price and the fair
market value was recorded as goodwill. The accounting for the purchase
transaction has been "pushed down" to our books. The impact of the acquisition
on our balance sheet was to increase intangibles, goodwill, other liabilities
and additional paid in capital, and to decrease fixed assets.
On ___, 1999, we acquired Bridge's global IP network and entered into
the network services agreement with Bridge. Because substantially all of our
cash costs incurred for operating the network will be charged to Bridge under
the network services agreement, incremental revenues from non-Bridge customers
are likely to have higher incremental operating margins.
Bridge also has agreed to provide to us certain services, including
technical support, customer support and project management in the procurement
and installation of
38
<PAGE>
equipment. In addition, Bridge has agreed to provide to us certain additional
administrative and operational services, such as payroll and certain accounting
functions, benefit management and office space, until we develop the
capabilities to perform these services ourselves. We expect to generally develop
these capabilities by the end of 2000. For a more detailed description of our
arrangements with Bridge, see "Business--Bridge Relationship."
REVENUE. Our revenue is derived primarily from the sale of data
networking, Internet access and colocation services. Through December 31, 1998,
our revenue was primarily derived from the sale of Internet access services to
local and regional Internet service providers in the United States. Beginning in
late 1998, we expanded our service offering to corporate customers as well. With
the acquisition of Bridge's network assets, we expanded our operations
internationally and began to offer additional services, such as data networking,
virtual private network, Internet security and colocation services, to corporate
customers on an international basis using our expanded network.
We charge each customer an initial installation fee that typically
ranges from $500 to $5,000 and a monthly fee that varies depending on the
services provided, the bandwidth used and the quality of service level chosen.
Our customer agreements are typically for 12 to 36 months. As of June 30, 1999,
approximately 7% of our customer agreements, representing approximately 6% of
our revenues for the month of June 1999, were month-to-month and were able to be
terminated on 30 days' notice. We expect the proportion of customers on
month-to-month agreements will continue to decrease as we add new customers and
our sales force continues to pursue longer renewals.
Prices for telecommunication services, including the services we offer,
have decreased significantly over the past several years and we expect this
trend to continue for the foreseeable future.
We expect that a substantial portion of our revenues will be generated
by our network services agreement with Bridge. The agreement requires Bridge to
use our global network for the delivery of its financial information services to
its customers and for its internal managed data network needs through
__________, 2009. For the first three years of the agreement, Bridge is required
to pay to us a fixed price of $__ million per year, subject to certain
adjustments, for use of the network as it existed on the date Bridge transferred
it to us. The agreement also provides for pricing adjustments as Bridge's
customer base and networking needs change. In addition, Bridge has agreed to
minimum annual revenue of approximately $__ million for the 10-year term of the
agreement.
Bridge has been converting its customers from legacy protocols to IP
over the last four years. Bridge expects to continue converting customers to IP
and as they do so Bridge will order additional services from SAVVIS under the
network services agreement. The following chart presents the growth in Bridge's
IP network from January 1996 through November 1999.
BRIDGE IP NETWORK CONNECTIONS
JAN-96 JAN-97 JAN-98 JAN-99 NOV-99
250 1,100 2,500 4,000 10,00O
While we expect our revenues from Bridge to continue to increase, we
expect them to decrease as a percentage of our total revenues as we continue to
expand our data networking, Internet access and colocation customer base. We
believe data networking
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and colocation services will increase as a percentage of our non-Bridge
recurring revenues as we expand these service offerings.
DIRECT COSTS AND EXPENSES. Direct costs and expenses are comprised of
the following items:
Data communications and operations. Data communications and operations
expenses include the cost of:
o connections to other Internet backbone providers;
o leasing local loops;
o backbone connections;
o engineering salaries and related benefits;
o other related repairs and maintenance items;
o leasing routers and switches;
o leasing colocation space; and
o installing local loops at customer sites.
These costs will also include the cost of the network monitoring as
well as the customer help desk services that will be provided by Bridge under
the technical services agreement. Data communications and operations expenses
will increase significantly with the inclusion of the Bridge network. In
addition, we expect that these costs will increase in total dollars as we expand
our network and increase our customer base, but we expect that they will
decrease as a percentage of revenues.
Selling, general and administrative. Selling, general and
administrative expenses include the cost of:
o sales and marketing salaries and related benefits;
o advertising and direct marketing;
o sales commissions and referral payments;
o office rental;
o administrative support personnel;
o bad debt expense; and
o travel.
We anticipate that these expenses will increase significantly in total
dollars as we add more sales personnel and administrative support personnel and
increase our marketing initiatives to support the acquisition of the Bridge
network and for the
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expansion of our customer base. Annual facility expenses are expected to
increase significantly beginning in the year 2000 as a result of the newly
leased headquarters facility in Herndon, Virginia. Our incremental cost will
approximate $2.5 million per year. We expect that selling, general and
administrative expenses will decrease as a percentage of revenues.
Depreciation and amortization. Depreciation and amortization expense
consists primarily of the depreciation and amortization of communications
equipment, capital leases, goodwill and intangibles. We expect these expenses to
increase as we make significant investments in the network as we expand our
business. Generally, depreciation is calculated using the straight-line method
over the useful life of the associated asset, which ranges from three to five
years. Goodwill resulting from our acquisition by Bridge is being amortized over
ten years and other intangibles are being amortized over one to five years.
Interest expense. Historical interest expense is related to debt to
banks, convertible notes, loans from Bridge and capitalized leases. In
connection with our purchase of the Bridge network assets, we entered into
subleases with Bridge relating to their capitalized leases for network equipment
that Bridge could not directly assign to us. We also issued a $__ million
promissory note to Bridge in connection with the purchase of the Bridge network
assets. As a result, our interest expense will increase.
Income tax expense. We incurred operating losses from inception through
June 30, 1999 and, therefore, have not recorded a provision for income taxes in
our historical financial statements. We have recorded a valuation allowance for
the full amount of our net deferred tax assets because we believe that the
future realization of the tax benefit is uncertain. As of December 31, 1998, we
had net operating loss carry forwards of approximately $30 million. Section 382
of the Internal Revenue Code restricts the utilization of net operating losses
and other carryover tax attributes upon the occurrence of an ownership change,
as defined. Such an ownership change occurred during 1999 as a result of the
acquisition of our company by Bridge. Management believes that this limitation
will not materially restrict our ability to utilize the net operating losses
over the carryforward periods ranging from 15 to 20 years.
RESULTS OF OPERATIONS
The historical financial information included in this prospectus will
not reflect our future results of operations, financial position and cash flows.
Our results of operations, financial position and cash flows subsequent to the
purchase of Bridge's network and the commencement of the related agreements will
not be comparable to prior periods. In addition, we cannot assure you that we
have correctly estimated the costs of providing services to Bridge, Bridge's
data network service requirements, and the costs of the technical and
administrative services we will require to pursue our business plan.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
The following discussion compares the combined results of operations of
SAVVIS and our predecessor for the six months ended June 30, 1999, with those of
our predecessor for the six months ended June 30, 1998. The combined results
consist of the sum of the
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financial data from January 1, 1999 through April 6, 1999 for the predecessor
and from April 7, 1999 through June 30, 1999 for SAVVIS.
Revenue. Revenue was approximately $11.4 million for the first half of
1999, compared to approximately $5.1 million for the first half of 1998, an
increase of more than 123%. This $6.3 million increase was primarily due to
increased marketing and sales efforts and the resulting increase in the number
of customers as well as increased services to existing customers.
Data Communications and Operations. Data communications and operations
expenses were approximately $12.7 million for the first half of 1999 compared to
approximately $9.3 million for the first half of 1998, a 36% increase. This
approximately $3.4 million increase was due to costs associated with the
expansion of our network and the increase in our customer base, and the hiring
of additional engineering personnel.
Selling, General and Administrative. Selling, general and
administrative expenses were approximately $10.0 million for the first half of
1999, compared to approximately $4.6 million for the first half of 1998, an
increase of 117%. This approximately $5.4 million increase was due to the
increase in the size of our sales force in connection with our increased
marketing efforts. As a result, our personnel expenses and the related
recruiting and travel costs, sales, marketing and administrative departmental
costs and professional service expenses increased accordingly.
Depreciation and Amortization. Depreciation and amortization expenses
were approximately $3.8 million for the first half of 1999, compared to
approximately $.9 million for the first half of 1998, an increase of 322%.
Approximately $2.4 million of this approximately $2.9 million increase was
attributed to the amortization of goodwill and other intangibles resulting from
Bridge's acquisition of our company effective April 7, 1999, while the remaining
increase primarily resulted from increased capital expenditures for equipment in
connection with the continuing expansion of our network.
Interest Expense, Net. Interest expense, net was approximately $.7
million for the first six months of 1999, compared to approximately $.2 million
for the six months ended June 30, 1998, an increase of 250%. The approximately
$.5 million increase in interest expense, net was attributable to an increase in
amounts due to Bridge and an increase in capitalized lease obligations incurred
to expand the network.
Net Loss. Net loss was approximately $15.9 million for the first half
of 1999, compared to approximately $9.9 million for the first half of 1998, a
61% increase.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenue. Revenue was $13.7 million in 1998 compared to $2.8 million in
1997, an increase of 389%. This $10.9 million increase was primarily due to
increased marketing and sales efforts and the resulting substantial increase in
the number of customers.
Data Communications and Operations. Data communications and operations
expenses were $20.9 million in 1998, compared to $11.1 million in 1997, an
increase of 88%. This $9.8 million increase was due to costs associated with the
expansion of our network and the increase in the customer base.
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Selling, General and Administrative. Selling, general and
administrative expenses were $12.2 million in 1998, compared to $5.1 million in
1997, an increase of 139%. The principal increase in these expenses resulted
from the increased size of our sales force in the second half of 1998. Marketing
and administrative costs also increased in 1998 to support the increased number
of customers.
Depreciation and Amortization. Depreciation and amortization expenses
were $2.2 million in 1998, compared to $.6 million in 1997, an increase of 267%.
Depreciation and amortization expense increased due to the purchase of
communications equipment for the expansion of our network and the acquisition of
Interconnected Associates.
Interest Expense, Net. Interest expense, net was $.1 million in 1998,
compared to $.4 million in 1997, a decrease of 75%. This $.3 million decrease
was directly attributed to the conversion of certain of our convertible notes
into equity securities in connection with our corporate reorganization in March
1998 and interest income earned on proceeds received in the transaction.
Net Loss. Net loss was $21.7 million in 1998, compared to $14.5 million
in 1997, a 50% increase.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Revenue. Revenue was $2.8 million in 1997 compared to $.3 million in
1996 (our first full year of operations), an increase of 833%. This $2.5 million
increase was primarily due to increased marketing and sales efforts and the
resulting increase in the number of customers.
Data Communications and Operations. Data communications and operations
expenses were $11.1 million in 1997, compared to $1.0 million in 1996, an
increase of 1,010%. This $10.1 million increase was due to costs associated with
the expansion of our network and the increase in our customer base.
Selling, General and Administrative. Selling, general and
administrative expenses were $5.1 million in 1997, compared to $1.2 million in
1996, an increase of 325%. This $3.9 million increase was primarily attributable
to the expansion of our business, including personnel expenses, sales and
marketing costs and professional services expenses.
Depreciation and Amortization. Depreciation and amortization expenses
were $.6 million in 1997, compared to $.2 million in 1996, an increase of 250%.
This $.4 million increase is attributable to the purchase of communications
equipment for the expansion of our network.
Interest Expense, Net. Interest expense, net was $.4 million in 1997,
compared to $.1 million in 1996, an increase of 300%. This $.3 million increase
is attributable to interest on capitalized lease obligations that we entered
into in 1997 and the interest on convertible notes and bank debt.
Net Loss. Net loss was $14.5 million in 1997, compared to $2.2 million
in 1996, an increase of 559%.
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LIQUIDITY AND CAPITAL RESOURCES
We have historically generated negative cash flows from operations. We
generated negative cash flows from operations of $1.3 million, $10.5 million and
$20.6 million for 1996, 1997 and 1998, respectively, and $11.5 million and $12.3
million for the first six months of 1998 and 1999, respectively.
From January 1, 1996 through August 31, 1999, we have expended $76
million for operating purposes and for the construction, maintenance and
expansion of our network. Net cash used in investing activities was
approximately $.9 million, $.7 million and $2.4 million for 1996, 1997 and 1998,
respectively, and $1.5 million for the first six months of 1999. Net cash used
in investing activities in each period primarily reflects purchases of property
and equipment not financed with capital leases. In March 1998, we used
approximately $.8 million in cash and stock with a fair value of approximately
$.6 million to acquire Interconnected Associates. See note 5 to our audited
financial statements that are in the back of this prospectus. Net cash provided
by financing activities was $2.7 million, $12.0 million and $24.1 million for
1996, 1997 and 1998, respectively, and $11.0 million for the first six months of
1999. We obtained funds through issuances of equity securities and convertible
notes, bank financing, capital lease obligations and advances from Bridge
pursuant to demand notes. As of September 30, 1999, we had outstanding demand
loans from Bridge of approximately $16.6 million.
In 1999, we expect our capital expenditures, excluding the purchase of
the Bridge IP network, will total approximately $25 million. The majority of
this expenditure is allocated to the rollout of ATM customer premises equipment,
the build out of our colocation facilities, and the deployment of our new dial
platform. We expect to have capital expenditures of approximately $160 million
in 2000 as we continue the build out of colocation facilities, the deployment of
ATM devices, and the expansion of our network to 24 new cities.
In ______ 1999, we acquired certain network assets from Bridge in
exchange for $_____ million of indebtedness and capitalized lease obligations.
In connection with our acquisition of Bridge's network assets, Bridge
assigned to us certain agreements for the purchase of communications services.
To obtain the suppliers' consents to such assignments, in several instances,
Bridge was required to guarantee our performance under these agreements. In the
event Bridge is ever required to make payments to these suppliers on our behalf,
Bridge will be entitled to reduce its payments to us under the network services
agreement in a like amount. We are currently discussing with several of these
suppliers the release of Bridge from its guarantee obligations in exchange for
the placement of deposits or stand-by letters of credit by us. We estimate that
we may be required to deposit up to a total of $__ million for such purposes.
We have arrangements with various suppliers of communications services
that require us to maintain minimum spending levels, some of which increase over
time. We are able to choose among a variety of communications services offered
by these suppliers to meet these spending minimums. We are currently exceeding
all of our spending minimums and expect to continue to do so as our network
requirements expand. However, if our network requirements were to decrease, we
could be obligated to make payments to these suppliers for services we do not
need.
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Although we plan to invest significantly in equipment and in network
expansion, we have no material commitments for such items at this time. As we
expand our network, increase our employee base to support our expanded
operations and invest in our marketing and sales organizations, we expect to
have significant cash requirements for the foreseeable future.
We believe that the net proceeds of this offering, together with our
existing cash and cash equivalents, and anticipated vendor financings, will be
sufficient to fund our capital needs through the end of 2000. See "Risk Factors
- -- Risk Related to Our Business." We intend to continue to seek equity or debt
financing from external sources to meet our cash needs after that date. We
cannot assure you that such additional funding will be available on terms
satisfactory to us or at all.
IMPACT OF THE YEAR 2000
Many computers, software, and other equipment include computer code in
which calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are widely expected to increase in frequency and severity as the year
2000 approaches, and are commonly referred to as the "Year 2000 problem."
General Readiness Assessment. The Year 2000 problem may affect the
network infrastructure, computers, software and other equipment that we use,
operate or maintain for our operations. As a result, we have formalized our Year
2000 compliance plan, which has been substantially implemented by a team
assigned this task. As part of our Year 2000 compliance plan, the project team
has compiled a listing of all mission-critical items, both developed internally
and purchased from outside sources, that may be impacted by the Year 2000
problem. We then obtained information from the independent third parties whose
products or services we use to identify the Year 2000 readiness of all
mission-critical items. Substantially all mission-critical items that were found
not to be compliant were then upgraded to a compliant version, model or release.
Mission-critical items that were internally developed were created with Year
2000 compliance in mind, and have been thoroughly tested. We have purchased and
developed all of our hardware and software since 1995. As a result, we have no
legacy systems that are most commonly afflicted with Year 2000 problems.
Costs of assessing and addressing Year 2000 compliance. The costs of
upgrading the various hardware or software that were found not to be compliant
were not material. The majority of the cost of assessing and addressing Year
2000 compliance issues was absorbed into normal operating expense and salary
structures.
Risks associated with Year 2000 problems. We believe that we have
identified and resolved all Year 2000 problems that could significantly harm our
business operations. However, we believe that it is not possible to determine
with complete certainty that all Year 2000 problems affecting us have been
identified or corrected. The number of devices and systems that could be
affected and the interactions among these devices and systems are numerous.
In such cases where we do not have the ability to perform our own tests
on third party technologies, we have sought statements of compliance from our
vendors. No one can
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accurately predict which Year 2000-related failures will occur or the severity,
timing, duration, or financial consequences of these potential failures. As a
result, we believe that the following are possible:
o A significant number of operational inconveniences and
inefficiencies for us, our suppliers and our customers that will
divert management's time and attention, and financial and human
resources from ordinary business activities;
o Possible business disputes and claims, including claims under our
Service Level Agreements, due to Year 2000 problems experienced by
our customers and incorrectly attributed to our services or
performance, which we believe will be resolved in the ordinary
course of business;
o A few serious business disputes alleging that we failed to comply
with the terms of customer contracts or industry standards of
performance, some of which could result in litigation or contract
termination;
o One or more of our telecommunication and/or Internet access
providers may encounter difficulties related to the Year 2000
problem and, as a result, may not be able to send data to or
receive data from one or more of our PrivateNAPs(SM).
Contingency Plans. We believe our company is Year 2000 compliant.
Therefore, our contingency plans mostly take the form of fast and efficient
responses to Year 2000 problems identified as they materialize. Specifically:
o We will have staff from each of our technical departments present
on site at midnight on December 31, 1999, as well as additional
staff "on call."
o We will also make arrangements with vendors of key
mission-critical equipment and software to ensure that they have
staff present or "on call" to immediately address any issues that
arrive with the Year 2000.
o Where feasible, we will have backup systems in place so that we
may transition functionality from affected systems.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. This standard will
be effective for us for the fiscal years and quarters beginning after June 15,
2000, and requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. We are currently evaluating the impact of this standard.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." This standard requires companies to expense the costs of start-up
activities and organization costs as incurred and is effective for fiscal years
beginning after December 15, 1998. We do not
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expect that adoption of this standard will have a material impact on our results
of operations.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
Our adoption of this standard did not affect our financial position, results of
operations or cash flows for any period presented.
QUALITATIVE AND QUANTITATIVE MARKET RISKS
Our primary market risk exposures relate to changes in interest rates.
With the transfer of assets from Bridge, we will also be exposed to changes in
foreign currency exchange rates.
INTEREST RATES
Our financial instruments that are sensitive to changes in interest
rates are our borrowings from Bridge. As of December 31, 1998, the aggregate
fair value of our borrowings approximated their carrying value.
FOREIGN CURRENCY
Although our functional currency is the United States dollar, a
significant portion of our revenue will be derived from our sales and operations
outside the United States after the asset transfer. In the future, we expect to
derive a significant portion of our revenue and incur a significant portion of
our operating costs outside the United States, and changes in foreign currency
exchange rates may have a significant effect on our results of operations. In
the future, we may engage in hedging transactions to mitigate foreign exchange
risk.
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BUSINESS
We are a leading provider of high quality, high performance global
networking and Internet solutions to medium and large businesses, multinational
corporations and Internet service providers. Bridge Information Systems, one of
the leading content providers to the financial services industry, utilizes the
SAVVIS ProActive(SM) Network to deliver Bridge's content and applications to
over 5,000 financial institutions including 75 of the top 100 banks in the
world. We currently offer a wide range of managed data network services, high
bandwidth Internet access, virtual private networks, Internet security services
and colocation services. We provide services to approximately 700 customers,
including ebay Inc., CDNow, Inc. and Sage Networks, Inc. and through Bridge to
over 5,000 customers,including Morgan Stanley Dean Witter and Chase Manhattan
Bank.
The SAVVIS ProActive(SM) Network was constructed to meet the real-time
data delivery requirements of the most demanding customers. Our network is one
of the largest data networks in the world, has been operational since 1996 and
has over 6,000 buildings on-net in 75 of the world's major commercial centers in
47 countries. Our network architecture is based on asynchronous transfer mode,
or ATM, frame relay and Internet protocol, or IP, architectures. Additionally,
our 75-city global system connects to eight PrivateNAPs(SM), which will be
expanded to 12 by March 2000, allowing us to by-pass the congested public
Internet access points. This network design enables us to provide real-time
packet delivery and guarantee low latency and low packet loss. The network also
allows us to tailor our service offerings to our customers' needs and to offer a
range of quality of service levels. The high performance of our Internet access
service has been independently verified by Keynote Systems in a study in which
we have consistently been rated among the top three Internet backbone providers
for performance based on mean file download times throughout 1999.
We began commercial operations in 1996, offering Internet access
services to local and regional Internet service providers. In April 1999, we
were acquired by Bridge, a global provider of real-time and historical financial
information and news regarding stocks, bonds, foreign exchange, and commodities
to the financial services industry. Bridge has approximately 250,000 network
terminals installed worldwide. Over the last four years Bridge IP network
connections have grown from 250 to 10,000, and during 1999 have increased an
average of 600 per month, or 250%. For the twelve months ended September 30,
1999, Bridge generated over $1.2 billion in revenues. Bridge is a privately held
company based in St. Louis, Missouri, whose principal shareholder is Welsh,
Carson, Anderson & Stowe, a leading private equity firm.
In order to deliver real-time financial information to its customers
around the world, Bridge developed a highly redundant global network based on
ATM, frame relay and IP technologies. We constructed our network using identical
technologies and, in most cases, the same types of network equipment, greatly
facilitating the interconnection and integration of the networks in September
1999. On ________ __, 1999, in exchange for $_____ million of indebtedness and
capital lease obligations, Bridge transferred its global network to us, creating
the seamless global data network which we operate today. Bridge agreed to use
our services for the delivery of its financial content and services through 2009
and will guarantee annual revenue to us of approximately $__ million through
that date. In addition, we agreed to purchase certain customer support,
technical and administrative,
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services from Bridge. Before giving effect to this offering, Bridge owned
approximately 75% of our outstanding common stock.
MARKET OVERVIEW
Market Opportunity. As the Internet has emerged as a strategic
component of business, investment in Internet services has begun to increase
dramatically. According to International Data Corporation, the demand for US
Internet and e-commerce services was $2.9 billion in 1997 and is expected to
grow to $22 billion by 2002, a 50% compound annual growth rate. In addition,
demand for data transport services is growing rapidly as evidenced by
International Data Corporation's estimate that Internet service providers'
corporate access revenues will grow from $2.9 billion in 1998 to $12 billion by
2003, a 32.5% compound annual growth rate. We believe a significant Internet
market will continue to be Internet infrastructure and usage. According to Zona
research, this market will grow to an estimated $142 billion in 2001,
approximately half of which will represent bandwidth cost.
Internet network services. Since the commercialization of the Internet
in the early 1990s, businesses have rapidly established corporate Internet sites
and connectivity as a means to expand customer reach and improve communications
efficiency. Internet access service is now one of the fastest growing segments
of the global telecommunications services market. According to International
Data Corporation, the number of Internet users worldwide reached 38 million in
1996 and is forecasted to grow to over 170 million by the year 2000. Internet
access services represent the means by which Internet service providers
interconnect businesses to the Internet or to corporate intranets and extranets.
Access services include dial-up access for mobile workers and small businesses
and high-speed dedicated access used primarily by mid-sized and larger
organizations. In addition to Internet access services, Internet services
providers are increasingly providing a range of value-added services, including
shared and dedicated Web hosting and server colocation, security services, and
advanced applications such as IP-based voice, fax and video services.
Corporate data network services. Other than Internet-related services,
the majority of business' data communications today take place over private or
managed corporate data and electronic data interchange networks. According to
International Data Corporation, the market for data network services in the U.S.
grew from approximately $3.0 billion in 1997 to approximately $5.5 billion in
1998. International Data Corporation expects that the market for data network
services in the U.S. will continue to grow rapidly to reach approximately $12.8
billion in 2003.
Today organizations employ local data networks, local area networks or
LANs, to interconnect personal computers and workstations. The highly successful
use of LANs for information-sharing, messaging and other applications has led
organizations to aggressively deploy wide area networks, or WANs, which
effectively interconnect LANs and replicate their functionality across a much
broader geographic area. The demand for WANs has grown as a result of today's
competitive business environment. Factors stimulating higher demand include the
need to provide broader and more responsive customer service and to operate
faster and more effectively between operating units, suppliers and other
business partners. In addition, as businesses become more global in nature, the
ability to access business information across the enterprise has become a
competitive necessity.
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Convergence between the Internet and corporate data networking. Today,
many businesses are utilizing Internet-related services as lower-cost
alternatives to certain traditional telecommunications services. The ubiquitous
nature and relatively low cost of the Internet have resulted in its widespread
use for certain applications, most notably Web access and e-mail. IP has become
the communications protocol of choice for the desktop and the LAN. As a result,
IP WAN implementation requires no protocol conversion, reducing overhead and
improving performance. Many corporations are connecting their remote locations
using intranets to enable more efficient communications with employees,
providing remote access for mobile workers and reducing telecommunications costs
by using value-added services such as IP-based fax and video-conferencing.
Industry analysts expect the market for both IP-based data networking
services and Internet access to grow rapidly as companies increase their use of
the Internet, intranets, extranets and privately managed IP networks. According
to industry analyst Forrester Research, Inc., an independent research firm, the
total market for Internet services is projected to grow from $6.2 billion in
1997 to approximately $49.7 billion in 2002, with approximately $27.9 billion in
the enterprise market segment and $21.8 billion in the consumer market segment.
Rapid growth in e-commerce. While most corporations' early use of the
Internet was to establish an Internet marketing presence, businesses today are
using the Internet much more aggressively: to generate new revenues, to increase
efficiency through improved communications with suppliers and other business
partners, and to improve internal communications. The rapid growth of e-commerce
encompasses both business-to-business and business-to-consumer communications
and transactions, and the projected growth of these markets over the next five
years is dramatic. Forrester Research projects that the market for
business-to-business e-commerce will grow from $43 billion in 1998 to $1.3
trillion in 2003. In addition, Forrester Research projects that the market for
business-to-consumer e-commerce will grow from $8 billion to $108 billion over
the same period.
Outsourcing of Internet-related services. In order to capitalize fully
on the new opportunities presented by the Internet and e-commerce, businesses
will require robust data communications and infrastructure services capable of
supporting mission-critical applications. We believe that an increasing number
of businesses will seek to outsource these services to third-party providers for
several reasons. First, the rapid growth of Internet-related businesses has
created a shortage of information technology personnel skilled in IP and
e-commerce development. Second, many companies believe that establishing
leadership in their industry with respect to Internet-related services is
important to the future of their business. Given this posture, time to market is
critical and turning to a specialized, third-party provider can often shorten
time to market. Finally, many infrastructure services require significant
up-front investment. Many companies will choose to preserve their capital to
invest in activities that are integral to their business strategy and seek to
develop their infrastructure by purchasing services rather than investing in
networks, systems and equipment.
Rapid growth in colocation and Web site hosting. While in the past only
the largest companies provisioned their own data networking services, until
recently businesses of all sizes typically housed, maintained and monitored
their own web and content servers. As Internet-enabled applications become
mission-critical, larger and more difficult to develop and maintain and require
increasing amounts of investment, we believe a substantial
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number of businesses will outsource their colocation and web site hosting
requirements to third parties. Forrester Research projects that the web site
hosting business, including colocation, dedicated and shared hosting, will grow
from less than $1 billion in 1998 to almost $15 billion by 2003. We believe that
companies seeking IP expertise, high levels of security, fault-tolerant
infrastructure, local and remote support and the cost benefits of a shared
infrastructure will be most likely to outsource these services.
Limitations of Internet protocol and the Internet. Despite the
remarkable, rapid success of IP, the Internet faces limitations that may serve
as a bottleneck between the full potential of IP and its use in mission-critical
applications. First, in IP routing, packet data travels through the network
without a pre-defined path or guaranteed delivery. Individual packets may travel
separate paths and arrive at the network destination at different times. Second,
IP packets cannot be identified as belonging to one class of traffic or another.
For example, in a given flow of IP packets it is not possible to separate
"real-time" traffic, such as voice-over-IP, from lower priority traffic, such as
e-mail. Each of these issues limits the utility of IP for mission-critical,
real-time enterprise networks. While we believe that an improved version of IP
will be implemented, the timing and efficiency of these improvements remain
uncertain.
Bottlenecks at Network Access Points. The Internet is a network of
networks. Communication among these networks takes place at access points where
they interconnect. Despite the near ubiquity of the Internet, there are only a
few major public network access points. However, since the introduction of
network access points, the volume of Internet traffic has increased
dramatically, often overwhelming network access points' capacity to handle the
smooth exchange of traffic. The public network access points are now space
constrained, have inadequate power and air conditioning, have poor security,
often employ legacy switching technologies, have limited or no available
maintenance or support staff, and are not centrally managed. No single entity
has the economic incentive or ability to facilitate problem resolution, to
optimize peering, or to bring about centralized routing administration. As a
consequence of the lack of coordination and in order to avoid the increasing
congestion at the public network access points, selected backbone providers have
established connections at private network access points, thereby connecting
pairs of backbones for the exchange of traffic and bypassing public network
access points.
COMPETITIVE STRENGTHS
Our target customers are those businesses that are intensive users of
data communications that require a high quality of service for their Internet,
intranet and extranet needs. Our competitive strengths in servicing these
customers include:
LARGE, SOPHISTICATED CUSTOMER BASE. We currently provide real-time
managed data services to Bridge to enable the delivery of Bridge content and
applications to over 5,000 financial services firms including 75 of the top 100
banks in the world and 45 of the top 50 brokerage firms in the U.S. These
companies are among the world's most demanding users of corporate data services,
and the SAVVIS ProActive(SM) Network was designed and is operated to high
standards of speed and redundancy to satisfy their requirements. With the SAVVIS
ProActive(SM) Network in place, the marginal cost of providing additional
services to these customers is low. Additionally, the marginal cost of making
our high quality services available to new customers, including medium and small
businesses, and new vertical markets is also low. We believe providing service,
through
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Bridge, to the world's leading financial institutions will significantly advance
our brand building efforts and enhance our prospects for winning new business.
UNIQUE NETWORK ENGINEERED FOR REAL-TIME PERFORMANCE. Our network
architecture allows us to deliver real-time, volume intensive data services to
the most demanding customers. In addition, the high performance of our Internet
access service has been independently verified by Keynote Systems in a study in
which we have consistently been rated among the top three Internet backbone
providers for performance based on mean file download times throughout 1999. In
order to achieve this, we designed our network to be highly redundant, including
multiple backbone, local loop and Internet connections. In addition, our system
of PrivateNAPs(SM) allows our Internet traffic to bypass the heavily congested
public access points of the Internet, thereby reducing data loss and latency,
and improving reliability and performance. We also use proprietary routing and
network management policies to enhance our network efficiency and to maintain a
high quality of service. The reliability and functionality of our network allows
us to provide our customers with a range of services and quality of service
levels that we believe are unique to the industry.
GLOBAL ON-NET PRESENCE. We operate one of the largest managed data
networks in the world, reaching 47 countries, with facilities in 75 major
cities, including 53 international cities and 22 U.S. cities. These cities
generate a significant percentage of the world's total data traffic and we
intend to continue to extend the scope of our network by connecting an
additional 24 cities in 2000. Currently, the network has over 6,000 buildings
on-net. These on-net buildings are typically occupied by multiple businesses to
which we can deliver our services with low marginal cost.
SINGLE SOURCE SERVICE OFFERING. We provide our customers with a single
source for a wide range of global networking, Internet, and colocation
solutions. Our global networking solutions include managed data, virtual private
network and dial-up access services. Our Internet-related services include
dedicated access, digital subscriber line, or DSL, and Internet security
services. All of our services are offered as service only, turnkey solutions or
fully managed solutions depending on customer requirements and the capabilities
of their internal information technology staff.
WORLD-CLASS SERVICE THROUGH PROPRIETARY SYSTEMS. Our global network
operations center in St. Louis and our regional network operations centers in
London and Singapore are equipped with sophisticated, proprietary network
monitoring, management, reporting and diagnostic tools for network
troubleshooting. These systems enable real-time remote monitoring and management
of our network equipment and customer service. Our customers have a single point
of contact, on a 24x365 basis, for support inquiries and receive prompt
notification of events that might impact service quality, such as network
congestion, equipment failures and network or power outages. Our unique global
network also enables us to provide our customers an extremely high level of
service. We commit this level of service to our customers in writing in service
level agreements, or SLAs. Our SLAs are guarantees to our customers of high
quality service measured in terms of network availability, latency, packet loss
and other metrics.
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BUSINESS STRATEGY
Our strategy is to tap the rapidly growing market for reliable high
speed data communications and Internet services. In pursuit of this strategy, we
intend to:
PROVIDE A SINGLE SOURCE FOR HIGH QUALITY INTERNET AND MANAGED NETWORK
SOLUTIONS. Data communications, and the Internet, are mission-critical to
thousands of businesses worldwide and the market for these services continues to
grow rapidly. Corporations are continually expanding and enhancing existing
networks and deploying new solutions in response to this growth. By providing a
wide range of solutions for both Internet and managed data solutions, we offer a
single source solution to the key challenges faced by corporate information
technology managers implementing Internet, intranet and extranet applications.
Since the requirements and internal capabilities of customers vary
significantly, we offer solutions as a service only, or on a turnkey or fully
managed basis.
CAPITALIZE ON BRIDGE RELATIONSHIPS TO PENETRATE ITS CUSTOMER BASE. We
intend to aggressively market our services to the over 5,000 Bridge customers
already connected to our network through both our sales force and the over 500
Bridge sales representatives around the world. We provide incentives to Bridge
employees to refer Bridge customers to us. Since Bridge customers are already on
our network, we believe we will enjoy significant time-to-market, cost and
quality advantages and enhanced customer retention when delivering our services
to these customers.
EXPLOIT OUR ON-NET BUILDING PRESENCE. We intend to actively market our
services to the businesses in the over 6,000 buildings worldwide connected to
our network. These buildings are generally located in downtown areas of major
cities and are typically occupied by multiple businesses. Because this network
is already in place, we expect to enjoy time-to-market, cost and quality
advantages when delivering services to current and new customers located in
these buildings.
EXPAND OUR NETWORK AND PRIVATE NAP(SM) INFRASTRUCTURE. We intend to
leverage the substantial investments we have made in network infrastructure,
service capabilities and support organizations to service new customer segments,
including large corporations in other targeted vertical markets, medium and
small businesses and Internet service providers. We intend to continue to expand
our network infrastructure to connect new cities and new buildings to our
network. Over the next two years, we expect to establish facilities in 48
additional cities worldwide. We believe that this expansion will allow us to
continue to expand our customer base, improve our service offering and improve
our economies of scale. We also intend to continue the expansion of our
PrivateNAPs(SM) with the addition of four PrivateNAPs(SM) in early 2000. Given
the high volume of traffic currently carried on our network, we are also
evaluating the purchase of local and long haul fiber to further reduce network
operating costs.
GROW DOMESTIC AND INTERNATIONAL DISTRIBUTION CHANNELS. We intend to
aggressively grow our distribution channels. We expect to significantly increase
the size of our current sales force for both global networking solutions and
Internet access services in 2000 and enter into distribution arrangements with
companies licensed to provide our services in markets where we do not directly
hold such licenses. We will also attempt to establish relationships with our
Internet service provider customers who are interested in cross-selling our
global networking solutions to their existing customer base. Finally, we
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intend to partner with content providers (in addition to Bridge) to develop
bundled content and network services targeted at vertical markets other than the
financial services industry.
PROVIDE ENABLING INFRASTRUCTURE FOR E-COMMERCE SOLUTIONS. We believe
that many of our target customers, particularly the financial services companies
to whom we currently deliver Bridge content and applications, are aggressively
pursuing e-commerce strategies. Our unique network architecture, highly
available domestic and international dial access platforms and industry leading
security solutions will enable businesses to communicate with customers and
suppliers over the Internet and secure extranets. As a result, we are well
positioned to help our customers capitalize on the substantial anticipated
growth in e-commerce.
DEVELOP AND MARKET NEW SERVICES. We intend to continue to develop new
services, such as voice and video, that will enable us to further leverage our
existing network infrastructure and our existing customer base. For example, we
have deployed ATM to the edge of our network and intend to aggressively deploy
ATM devices at customer premises allowing for the provision of multiple network
applications with different quality of service levels over the same local loop
and customer equipment. The deployment of these devices will allow our customers
to combine services that they may currently buy from multiple vendors, each on a
different network, onto our network at a reduced cost. We are also in the
process of upgrading and expanding our colocation facilities to over 250,000
square feet of space, and expect to offer complex web hosting services at these
facilities. We intend to further expand our relationship with Bridge to develop
tailored product offerings which bundle news, financial content and trading
applications with our data networking services. We also intend to develop
bundled content or applications and network services with other trading partners
targeted at new vertical markets.
THE SAVVIS SOLUTION
We believe that SAVVIS is well positioned to solve the major problems
facing Internet and data networking customers today. We designed the SAVVIS
ProActive(SM) Network to offer a guaranteed, superior level of performance for
both Internet and data networking services. We deliver a comprehensive range of
high performance, quality of service differentiated solutions, including global
networking, Internet access, intranets, extranets, colocation and other
services.
A common feature among all of our services is that we provide our
customers with substantial flexibility to choose among a range of offerings,
including service only, turnkey solutions and fully managed solutions. With
service only, the customer is responsible for the design and integration of its
network solution and the purchase of network hardware, relying on us only for
network services. With a turnkey solution we are responsible for the design,
implementation and integration of the solution, but the customer manages the
solution after it has been deployed. With a managed offering, we are responsible
for the design, implementation, integration and ongoing support of the customer
solution.
GLOBAL NETWORKING SOLUTIONS. The SAVVIS ProActive(SM) Network provides
a reliable, high quality environment to transfer private corporate data among
offices, employees, customers and suppliers. Because all of our global
networking solutions are carried over a single network, we are able to offer
these services on a cost-effective basis
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relative to legacy private line networks, while providing comparable quality and
security and significant improvements in redundancy, flexibility and
scalability.
Managed Data Networking. Managed data network services provide data
communication links over a shared network environment. Because we
operate, manage and monitor our global data network end-to-end, we are
able to provide our customers with higher performance and greater
reliability than solutions that utilize the public Internet. Customers
can connect to our global network using ATM, frame relay or IP
protocols. Customers contract for connectivity to our global data
network and configure software-based permanent virtual circuits, or
PVCs, that emulate much of the functionality of private lines, but with
improved scalability and redundancy and the ability to "burst" beyond
the stated capacity of the PVC. Our managed data network solutions are
designed for those customers that require a very high level of quality
and security for their networking solutions.
Virtual Private Network Services. For our customers who want to realize
the cost benefits of a shared network but do not require the level of
performance and security of our managed data network solutions, we
offer our Internet-based virtual private network, or VPN, solutions.
VPNs utilize the near-ubiquity of the Internet to provide
cost-effective connectivity for businesses with large numbers of sites,
mobile workers or sites that do not have high bandwidth requirements or
that are in remote locations. A typical Internet-based VPN supports
dial-up access, resulting in extensive geographic coverage and,
together with the implementation of tunneling, encryption,
authentication and access control technologies, can establish a secure
link between the mobile worker and the corporate network environment.
One of our primary competitive advantages is that our Internet-based
VPN customers are served by our high performance Internet backbone.
Packet Transport Services. We offer point-to-point data connection
services, which are implemented as ATM or frame relay PVCs, for
customers requiring high bandwidth point-to-point network
communications.
Dial Access. By the end of 1999, we plan to offer local dial access in
over 20 U.S. markets, toll free dial access for all other U.S. markets
as well as international dial access. By the middle of 2000, we expect
to provide local dial access in approximately 100 U.S. cities,
increasing to approximately 300 U.S. cities by the end of 2000. Our
dial access service will enable mobile workers, telecommuters and
small-office and home-office users to connect to our high quality
global data network. This service is targeted at those businesses with
extensive extranets designed for e-commerce services and companies with
a significant number of mobile workers that demand reliable,
high-quality, dial-up solutions.
INTERNET ACCESS SERVICES. We offer our customers in the U.S. a broad
range of Internet access services designed to meet the varied needs of corporate
customers and regional Internet service providers. Our Internet access services
range from high-speed continuous access provided by dedicated telephone circuits
to lower-cost dial-up services. The principal features of our Internet access
services are the high performance, reliability and flexibility provided by the
SAVVIS ProActive(SM) Network and our 75 city global network that is connected to
our system of PrivateNAPs(SM) allowing our customers to by pass the congested
public Internet access points. We plan to make these services available
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to certain of our customers outside the U.S. beginning in the third quarter of
2000. The high performance of our Internet access service has been independently
verified by Keynote Systems in a study in which we have consistently been rated
among the top three Internet backbone providers for performance based on mean
file download times throughout 1999.
Dedicated Access. We offer customers T-3 service (up to 45 Mbps) and
T-1 service (up to 1.544 Mbps), with the option of full channel
dedicated bandwidth, fractional channel bandwidth or burstable
bandwidth. We also provide all required IP addresses, primary and
secondary domain name service, newsfeed service, and network time
protocol.
Ethernet Service. For customers that seek a cost-effective 100% fiber
optic network solution for high-speed Internet access, we offer our 10
Mbps Ethernet service. Our Ethernet service transmits information
through a customer's existing LAN router. This service is an
intermediate upgrade between T-1 service and fractional T-3 service.
DSL Service. For commercial customers that seek a cost-effective
continuous connectivity solution for high-speed Internet access, we
offer symmetric digital subscriber line, or DSL, services (up to 1.544
Mbps). DSL services transmit information through a customer's existing
copper telephone lines by encoding the information in a digital format.
We currently offer DSL services in 12 U.S. cities, and we expect to add
service to approximately 12 additional cities by the end of 2000.
Wholesale Internet Access. We provide wholesale Internet access to
local and regional Internet service providers who use our network to
connect their customers to the Internet.
Internet Security Services. For companies using the Internet,
protection from internal and external threats to their corporate
network is extremely important. We offer a broad range of security
solutions designed to provide a customer with the ability to:
o authenticate users attempting to gain access to its network;
o prevent intruders from accessing its network;
o protect the integrity of the content on its network; and
o encrypt secured transmissions of company data through the Internet.
We evaluate and assess a customer's security needs, recommend
appropriate security solutions, and implement, manage, monitor and
maintain these solutions. We also perform security audits to find
deficiencies in a customer network and in host computers attached to
that network and recommend appropriate solutions. Our security
solutions are offered in conjunction with Netrex, Inc., a leading
worldwide Internet security provider.
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COLOCATION SERVICES. We offer customers a secure,
fault-tolerant environment in which to locate their mission-critical
content and networking hardware. We are in the process of upgrading and
expanding our colocation facilities to over 250,000 square feet of
space. These state-of-the-art facilities will be located directly on
our network backbone to provide high quality, cost-effective Internet
access and hosting to the web sites of our colocation customers. We
expect to complete upgrades and expansions during 2000 in Boston,
London, New York, St. Louis, Los Angeles, San Francisco, Dallas,
Chicago and Washington, D.C. By using our colocation facilities,
customers will enjoy a highly secure, fault-tolerant environment and
direct access to our global data network and avoid significant capital
outlays required to construct such facilities on their own. Customers
will have physical and remote access to our colocation facilities on a
24x365 basis to manage, monitor and maintain their equipment, or they
may engage us to provide support services. Our colocation services are
targeted at content providers, Internet-centric businesses and
application service providers.
SALES AND MARKETING
We contact potential new customers through our direct sales force and
our recently implemented lead referral program. Our direct salespeople together
with our sales engineers develop sales proposals for potential new customers.
After a sale is completed and the customer solution is installed, the client
solutions team assumes the management of the customer relationship, handling
support issues and selling additional services and connectivity as the
customer's business grows.
Direct Sales. Our direct sales force consisted of approximately 100
sales representatives and sales engineers in the U.S. as of October 31, 1999.
Our direct sales force is specialized along product lines, which enables our
sales representatives to develop an expertise in a specific product area,
including customer applications and requirements. This specialization also
allows us to customize our sales compensation arrangements to the sales cycle,
revenue and margin characteristics of each product. All sales representatives
take part in an extensive training program designed to develop in-depth
technical expertise so they can better understand customers' complex networking
needs and develop customized solutions.
Our sales force is divided between our Global Networking Sales Division
and our Internet Access Sales Division. We employ a distributed sales model for
global networking sales to facilitate a consultative sales approach. Because we
only recently began marketing our global networking services, our global
networking sales force currently consists of eight personnel based in six major
cities in the U.S. We intend to rapidly expand our sales force and establish a
sales presence in 14 additional cities worldwide by the end of the first quarter
of 2000. In contrast, we have a centralized sales model for our Internet Access
Sales Division. Our Internet access sales force consists of over 100
representatives based in Reston, Virginia. We intend to locate additional
centralized sales teams in Europe, Asia and Latin America by the end of 2001.
Bridge Lead Referrals. We expect to capitalize on our relationship with
Bridge, a major content provider to financial services companies, to generate
sales leads in the financial services market. Bridge has approximately 500 sales
representatives worldwide, located in the world's key financial centers. These
sales representatives support a customer base of over 5,000 financial services
companies. Because our network is already
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connected to over 6,000 buildings around the world to deliver Bridge content to
these customers, we are able to deploy additional services and solutions to
these customers in a rapid, cost-effective and scaleable manner. In addition to
Bridge, we believe that additional content providers will be interested in
establishing lead referral programs. A relationship with SAVVIS will enable a
content provider to deliver their service in a real-time, high quality manner
and provide an incremental revenue opportunity through a lead referral
commission.
Alternate Channels. In addition to relationships with content
providers, we intend to develop new distribution arrangements with
Internet-related and communications companies. Many of these companies lack our
global network infrastructure or sales and technical support expertise for high
value-added data services. By partnering with us, these carriers can generate
additional revenues, provide a more complete service bundle and reduce customer
churn. We intend to pursue distribution opportunities with Internet service
providers, competitive local exchange carriers, DSL companies and other
communications and Internet-related companies in the U.S., Europe, Asia and
Latin America.
Client Solutions Team. Our client solutions team is responsible for
customer relationship management. The team alerts customers when their bandwidth
utilization approaches capacity and advises customers on methods to improve the
performance and security of their network using additional SAVVIS services. This
team is also able to cross-sell to existing customers additional services, such
as advising a managed data client on Internet and e-commerce services.
Marketing. Our marketing programs are designed to build national and
global awareness of the SAVVIS brand name and its association with high
performance, high quality corporate networking solutions. We use brand awareness
and direct marketing programs to generate leads, accelerate the sales process,
retain existing customers and promote new products to existing customers. Our
print advertisements are placed in trade journals, newspapers and
special-interest publications. We participate in industry trade shows, such as
Networld+InterOP, IT Expo and Internet World. At the recent 1999
Networld+InterOP show, our VPNs were named the "Best of Show" for WAN services.
We also use direct mail, e-newsletters, fax blasts, surveys, telemarketing,
Internet marketing, seminars (on-line and on-site), collateral materials,
advertising, welcome kits and direct response programs to communicate with
existing customers and to reach potential new customers. Many of these marketing
programs are co-funded by our technology partners and suppliers. Our marketing
programs are targeted at information technology executives, as well as senior
marketing and finance managers. We closely track the impact and effectiveness of
our primary marketing programs.
Sales Force Automation. We use our proprietary sales force automation
system to manage all pre-sales communications with our prospective customers.
All distribution and tracking of sales leads occur through this system. Sales
leads are imported from data sources such as corporate web sites, telemarketing,
direct mail and national advertising campaigns, and assigned regionally to the
desktops of the appropriate sales representatives. All contact with these
prospects is documented in the sales force automation system through every step
of the sales cycle, from initial contact to contract receipt. In addition, this
system allows sales management to monitor the sales activity of their specific
sales representatives and generate sales forecasts based on that activity.
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Further, our sales force automation system tracks all marketing communications
with the prospect allowing us to measure the effectiveness of various collateral
materials and marketing campaigns in an effort to maximize our marketing
dollars. Lastly, our sales people use our sales force automation system to track
and manage their personal sales prospects and to send customized packages of
sales literature, brochures and faxes directly from their computer desktops,
thereby improving sales efficiency.
CUSTOMERS
We currently provide services to approximately 700 customers with
Bridge as our largest customer. We deliver Bridge content and applications to
over 5,000 customers, including 45 of the top 50 brokerage firms in the U.S. and
75 of the top 100 banks in the world. Other than Bridge,
no individual customer
accounted for more than 5% of our revenues during the six months ended June 30,
1999. We also provide services to many Internet service providers and
Internet-centric businesses. The following is a list of some of our largest
customers, other than Bridge, based on monthly billings for September 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
CDM On-Line, Inc. Fastlane Communications, Inc. Planet Digital Network Technologies, Inc.
CDNow, Inc. IMIGIS, Inc.
Charter Communications International, InfoSpace.com, Inc. Sage Networks, Inc.
Inc.
ebay, Inc. Omron Electronics, Inc. Vscape International, Inc.
Encyclopedia Brittanica, Inc. Pentele Data Inc. Worknet Communications, Inc.
Everyones Internet, Inc. Ziplink, LLC
</TABLE>
Our contracts with our customers are typically for one to three years
in length. The Bridge network services agreement is for ten years. See "--Bridge
Relationship." Many of our customer contracts contain service level agreements,
or SLAs, that provide for service credits should we fail to maintain specified
levels of quality. For the six months ended June 30, 1999, we incurred de
minimis amounts of service credits.
CUSTOMER SERVICE
Our goal is to provide the highest level of customer service in the
industry. We believe that high quality customer service is critical to
attracting new customers and to satisfying the rapidly growing networking
requirements of our existing customers. Our comprehensive approach to customer
service and satisfaction includes a focus on
o providing written guarantees of service quality,
o providing services, turnkey solutions or fully managed solutions
tailored to meet customer needs, and
o providing effective management, monitoring and support for our
customers' data networks.
We believe our network architecture, proprietary routing policies and
industry leading service level agreements provide our customers with very high
service quality. We are able to offer our customers different levels of service
priority for their different data
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transmission needs over one high-quality global network. For example, e-commerce
and real-time applications (such as voice) can be assigned the highest level of
quality of service, while other applications, such as e-mail, can be assigned a
lower priority of service. By assigning the highest level of service only to
mission-critical or real-time applications, customers can lower their overall
data services costs without compromising their networking requirements.
Customer Call Centers. Customer support personnel located in call
centers in St. Louis, Missouri, London, England and Singapore handle service
inquiries from our customers on a 24x365 basis, provide this service in eight
local languages, are organized in client teams and are highly trained to
identify and resolve customer issues rapidly and completely. Our customer call
center support services are supplied to us by Bridge under a year technical
services agreement. Bridge reported to us that in September 1999 its call
centers answered an average of 6,000 calls per week, maintained an average hold
time of under 15 seconds and resolved 98% of customer issues with front-line
support personnel. To track trouble tickets and customer information, Bridge
uses a proprietary management platform based on Vantive enterprise software, a
highly scalable platform for problem tracking and customer record access and
maintenance that is easily accessible by personnel at all of our network
operations centers. We use an integrated client/circuit information database
that allows our customer support personnel to quickly access a customer's
profile from any of our support centers. In our local markets we have also
contracted to have available to us over 270 field technicians who are experts in
IP, Unix, NT, and ISDN technology and who are generally able to respond to
customer requests within two hours.
Management, Monitoring and Maintenance. We provide our customers with
detailed monitoring, reporting and management tools that allow them to review
their usage patterns, network availability, outage events, latency and packet
loss. These tools allow our customers to evaluate the performance of our service
against our service level guarantee as well as review utilization and
performance data to facilitate their network planning and design activities.
Service Level Agreements. The consistent, reliable performance of the
SAVVIS ProActive(SM) Network enables us to provide effective SLAs to our
customers. We believe that companies unable to support a commensurate level of
predictable network performance will not be able to provide SLAs with value to
the customer or will do so at substantial risk to their own business.
SAVVIS PROACTIVE(SM) NETWORK INFRASTRUCTURE
OVERVIEW
The SAVVIS ProActive(SM) Network is one of the largest managed data
networks in the world, reaching 47 countries, with facilities in 75 major
cities, including 53 international cities and 22 U.S. cities. Our network has
over 6,000 buildings on-net worldwide and is based on an ATM, frame relay and IP
architecture. In addition, our network incorporates eight PrivateNAPs(SM), which
will be expanded to 12 by March 2000, allowing our Internet traffic to bypass
congested public Internet access points.
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We have designed our network to enable us to offer our customers high
speed, high quality, a range of quality of service levels and multiple levels of
redundancy. Our network is designed with:
Open System Architectures. Our network is based on an ATM, frame relay
and IP architecture. These are open systems networking protocols that are in
widespread use in data communications. IP is the most commonly used and fastest
growing networking protocol in the world. By carrying IP on our network, we
generally allow our customers to connect to their customers, suppliers and
remote offices using equipment already installed in their networks and the
networks to which they connect. Additionally, by using ATM and frame relay in
our backbone, we enhance network utilization and quality of service, and we are
able to easily communicate with third party networks for the delivery of traffic
on and off our network without procuring special interface technologies or
devices.
Quality of Service Differentiation. Our network architecture allows us
to offer and guarantee different levels of service priority for customers'
different data transmission needs. For example, e-commerce and real-time
applications, such as voice, can be assigned the highest level of priority,
while other applications, such as e-mail, can be assigned a lower priority of
service. By offering a quality of service differentiated product, we enable
customers to select a price/performance combination that is appropriate for
their needs. As we deploy ATM in the first quarter of 2000 to the customer
premise, customers will be able to run multiple applications (Internet access,
Bridge content, intranet, private voice, etc.) over the same equipment and local
loop, thereby saving on local network transport and equipment costs.
High Reliability. We utilize multiple, redundant circuits, switches and
physical locations to substantially reduce the effects of a single point of
failure within our network. This redundancy, combined with our switching and
routing equipment, generally enables us to automatically reroute traffic when a
failure occurs, resulting in higher overall network performance and integrity.
Our backbone switches also incorporate high levels of equipment-specific
redundancies, resulting in higher levels of availability than those found in
basic routing platforms. We also employ uninterruptable power supplies and/or
electric generator back-ups at each switching facility, designed to limit the
impact of local power outages on our network.
GLOBAL NETWORK COMPONENTS
The components of our network include the following:
Switching Facilities. We have deployed over 175 Lucent ATM and frame
relay switches, providing a highly redundant switch backbone throughout our
global network. We have over 300 backbone routers installed in our network and
have approximately 10,000 Nortel routers located in office buildings and on
Bridge's customers' premises. Our switches are located in secure facilities,
which provide highly reliable, direct access to high-speed telecommunications
infrastructure. In each switching facility, we rent space, install networking
equipment, including ATM or frame relay switches, routers and high-speed analog
and digital modems.
Backbone Capacity. Our network is designed with a highly redundant
backbone infrastructure, including diversely routed long haul and local loop
connections from multiple carriers. We interconnect our switching facilities
through high speed lines leased
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from a variety of carriers, including Qwest Communications International, Inc.,
MCI WorldCom, Inc. and IXC Communications, Inc. Our leased line connections
range in capacity from DS-3s and OC-3s in the U.S., to fractional and full DS-1s
and DS-3s internationally. To enhance our redundancy, we lease ATM service from
Sprint Corporation. This service is delivered using the highest quality of
service mode available and our service connections range in capacity from DS-3
through OC-12. The combination of our leased lines and Sprint ATM service makes
our transmission backbone fully redundant so that at least two diverse paths
exist between all of our switching facilities. The "fault tolerant"
configuration of our network allows data packets to travel on many alternate
paths to connect points on our network.
PrivateNAPs(SM). For our customers' Internet traffic, we have built
private network access points, or PrivateNAPs(SM), where we connect to the
Internet backbones operated by Sprint Corporation, Cable & Wireless plc and
UUNet Technologies, Inc. At each of our PrivateNAPs(SM), we are connected to
these carriers through transit agreements that allow us to connect to their
Internet networks for a monthly fee. Since we are a paying customer of each of
these Internet backbone providers, we believe we realize better response times,
installation intervals, enhanced service levels and greater routing flexibility
than Internet service providers that rely solely on free public or private
peering arrangements. We currently operate eight PrivateNAPs(SM) in the U.S. and
plan to add four additional PrivateNAPs(SM) in early 2000. In addition, to
enhance our carrier redundancy, at each of our PrivateNAPs(SM), we connect to
other Internet backbones through free peering arrangements. We have free peering
arrangements in place with AboveNet Communications, Inc., DIGEX, Incorporated,
Exodus Communications, Inc., Frontier GlobalCenter, Level 3 Communications, LLC,
PSINet Inc. and Williams Communications Group, Inc. These peering arrangements
allow for settlement-free, direct connections between networks, where local loop
charges are generally split evenly between the applicable parties. Smaller
Internet service providers typically connect to our network through transit
agreements that allow them to connect to our network for a fee.
Our PrivateNAP(SM) architecture combined with our proprietary routing
policies enables us to route customer traffic directly onto the Internet
backbone of its destination for a substantial portion of global Internet
addresses. This network architecture allows our customers' Internet traffic to
generally bypass congested public Internet network access points, thereby
reducing data loss and latency and improving reliability and performance. In
addition, customers directly connected to the same PrivateNAP(SM) get one-hop
access when communicating with each other, and two customers connected to
different PrivateNAPs(SM) enjoy two-hop access when communicating with each
other, in both cases completely bypassing the public Internet.
Dial Access Platforms. We are currently deploying 25 Nortel dial access
platforms in over 20 cities in the U.S., which we expect to have completed by
the end of 1999. By mid-2000, we expect to have deployed dial access in
approximately 100 U.S. cities, increasing to approximately 300 U.S. cities by
the end of 2000. Our dial coverage will be supplemented by toll free dial access
where we do not have local dial access, and by the end of 2000 the platforms
will contain over 20,000 ports.
Colocation. We are in the process of upgrading and expanding our
Internet colocation facilities to over 250,000 square feet of space. We expect
to complete the upgrade and expansion during 2000 in Boston, London, New York,
St. Louis, Los Angeles,
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San Francisco, Dallas, Chicago and Washington, D.C. All of these facilities will
be served by multiple OC-48 carriers for local loop access. Development is
underway to elevate these facilities to state-of-the-art levels with high
availability, mission-critical environments, including uninterruptable power
supplies, back-up generators, fire suppression, separate cooling zones and
seismically braced racks. These facilities will be accessible on a 24x365 basis,
both locally and remotely, and will have high levels of physical security. These
facilities include two fully redundant colocation facilities in St. Louis,
Missouri, each of which will contain approximately 90,000 square feet,
approximately 60,000 of which will be subleased to Bridge.
NETWORK OPERATIONS CENTER
We have a global network operations center in St. Louis, Missouri,
which operates on a 24x365 basis and is staffed by over 20 skilled technicians.
We also have regional network operations centers, in London and Singapore. These
regional centers operate for the 12 hours per day of peak business activity in
their respective regions, ensuring 24 hour backup for the St. Louis facility.
From our network operations centers, we are able to remotely monitor our network
components, including our PrivateNAPs(SM), and perform network diagnostics and
equipment surveillance. We use sophisticated, proprietary network management
platforms based on the Lucent NavisCore, HP OpenView, and Nortel Optivity
programs to monitor and manage our switching facilities and our routers.
TECHNOLOGY OVERVIEW
Private networks. Private networks typically comprise a number of
private, leased lines that interconnect multiple corporate locations. The
advantages of private lines include quality, since capacity is reserved for the
exclusive use of the network owner, and security, since the owner's data
transmissions are not commingled with those of other customers. Private line
networks have been most popular in the U.S., where capacity prices are lowest.
While private lines are typically secure and reliable, they do not use network
capacity efficiently and are not flexible or scalable as changes in network
topology are implemented.
Shared networks. Until recently, prices for long-haul
telecommunications capacity outside of the U.S., particularly international
capacity, were relatively expensive. Since the advent of data networking, only
users with extremely high capacity requirements invested in private networks in
these locations. Most other users employed shared networking technologies,
whereby multiple corporate locations would be interconnected with the data
network of a major telecommunications carrier or value-added network service
provider for carriage to the appropriate destination.
X.25 was an early open shared network protocol that was designed to
support mission-critical communications over analog networks. X.25 has been
extremely popular outside of the U.S., where until recently private line
networks have remained expensive, and in developing markets where the
telecommunications infrastructure is sometimes unreliable. X.25 contemplates
extensive error detection and data recovery processes, which slows the effective
rate of transmission.
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Today, ATM, frame relay and IP are driving the migration of traffic
from private line networks to shared networks and from legacy open protocols
such as X.25 to newer architectures.
Frame Relay. Frame relay evolved from X.25 networks and today is widely
used for applications such as LAN-to-LAN communications. Unlike X.25, frame
relay does not perform any complex error detection or error recovery of data. As
a result, it is a simpler and faster technology. Frame relay circuits are
effective to create a network of interconnected sites because each site needs
only one link into the frame relay network to communicate with all other sites.
Frame relay is less costly than point-to-point private networks, and its
software-defined "virtual circuits" make it easier to alter network topology as
connectivity requirements change. One limitation of the frame relay protocol is
its application for real-time services. Frame relay packets are variable in
length, and as large data files transit the network they can cause delays at key
aggregation and switching points, often causing other traffic to be delayed.
These delays can materially degrade the quality of real-time services such as
voice and video.
ATM. The ATM protocol was specifically designed to support the
transmission of all types of content, including data, video and voice, over a
single network. ATM is unique in its ability to prioritize cells to ensure that
real-time data takes priority over less time-sensitive material when transiting
the network. This enables service providers to offer service guarantees with a
greater degree of confidence and facilitates the introduction of real-time
services that are difficult under other protocols. Additionally, ATM data cells
are small and fixed in size, facilitating high speed switching at speeds up to
2.5 billion bits per second. One limitation of ATM is that the benefits created
by the small, fixed nature of ATM cells also create incremental traffic on the
network. Each cell requires its own identification and addressing information,
which is repeated in each of many individual ATM cells that comprise a given
data transmission. The replication of this "header" information generates
additional overhead for the network, requiring the network operator to provision
additional transmission capacity.
IP. IP is a simple, highly scalable protocol that is a core element of
the architecture of the Internet and can be used across most network
technologies in use today. IP has also become the communications protocol of
choice for the desktop and the LAN, thus data networking over IP requires no
protocol conversion, reducing overhead and improving performance. The protocol
does not distinguish among classes of traffic, which limits its ability to
deliver real-time services.
Our Solution. We have built the SAVVIS ProActive(SM) Network to take
advantage of the rapid growth of IP in corporate networks, to offer customers
the ability to run multiple applications on a single network and to allow
customers to choose the quality of service level which best meets their needs.
By building our network to run IP over ATM we allow our customers to overcome
the limitations of IP and designate the level of priority to be accorded to
their traffic.
COMPETITION
The market that we serve is intensely competitive. We expect to face
significant additional competition in the future from existing competitors and
new market entrants. Many of our competitors have greater financial, technical
and marketing resources, larger
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customer bases, greater name recognition and more established relationships in
the industries that we operate in than we do.
We believe that a highly reliable network infrastructure, a broad range
of quality products and services, a knowledgeable sales force and the quality of
customer support are the primary competitive factors in our targeted market and
that price is generally secondary to these factors. We believe that we currently
operate one of the largest managed IP/ATM networks in the world and are
presently positioned to compete favorably with respect to most of these factors.
Our current and potential competitors in the market include:
Data Networking Companies. Several data networking companies such as
Equant N.V., Infonet Services Corporation, Concert Management Services Inc. and
Global One offer data networking solutions to business customers worldwide.
These services include ATM and frame relay, private line, Internet access and
network outsourcing. These companies have significant experience in offering
tailored services and market their expertise in providing these services and
related technology. There are also a number of new entrants, such as Digital
Island Inc., that are targeting specific niches to deliver customers' data
traffic worldwide.
Internet Service Providers. Our current and potential competitors in
the market include Internet service providers with a significant regional,
national or global presence targeting business customers, such as Apex Global
Information Services, Inc., AT&T Corp., GTE Internetworking, ICG Communications,
Inc., Intermedia Communications Inc., PSINet Inc., Sprint Corporation, UUNet
Technologies, Inc., Concentric Network Corporation and Verio Inc. Many of these
companies are developing Internet based virtual private network services that
attempt to replicate some or all of the functionality of our managed data
networking services.
Telecommunications Carriers. Many large carriers, including AT&T Corp.,
British Telecommunications plc, Cable & Wireless plc, MCI WorldCom, Inc.,
Deutsche Telekom AG and Sprint Corporation offer data networking and Internet
access services. They compete with us by bundling various services such as local
and long distance voice, data transmission, and video services to their business
customers. We believe that there is a move toward horizontal integration by
telecommunications companies through acquisitions of or joint ventures with ISPs
to meet the Internet access and data networking requirements of business
customers. Accordingly, we expect to experience increased competition from these
telecommunications carriers
Other Competitors. Because we offer a broad range of services, we
encounter competition from numerous businesses which provide one or more similar
services. For example, we expect to compete with companies such as Exodus
Communications, Inc., Qwest Communications International Inc., Global Crossing
Ltd., DIGEX, Incorporated and Level 3 Communications, Inc. in the colocation
facilities market.
BRIDGE RELATIONSHIP
In _____, 1999, we acquired Bridge's network and entered into a number
of agreements with Bridge.
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Master Establishment and Transition Agreement. The master establishment
and transition agreement transferred Bridge's global IP network to us. Under
this agreement, a Bridge subsidiary that owned all of Bridge's U.S. network
assets transferred them to one of our subsidiaries. The transfers of non-U.S.
assets will be effected under local transfer agreements to be entered into by
the appropriate Bridge and SAVVIS subsidiaries.
The transfer of several portions of the Bridge network required
contractual consents from certain of Bridge's counterparties or regulatory
approvals in certain jurisdictions which, as of the closing date, had not yet
been obtained. Bridge will continue to own and operate those portions of the
network while we continue to seek the appropriate consent. Under the master
establishment and transition agreement, once the requisite consents and
approvals have been acquired in each jurisdiction, we will have an obligation to
purchase the assets from Bridge in that jurisdiction. Until such time, Bridge
will operate the facilities on our behalf for an agreed upon compensation. Our
obligation to acquire these assets expires upon the later of
___________________, 2009, or expiration of the network services agreement.
Under this agreement, we have become responsible for all liabilities
associated with Bridge's IP network other than contractual liabilities solely
attributable to goods or services delivered prior to the transfer from Bridge.
Bridge makes certain limited representations in the agreement relating to
corporate authority, title and existence of the assets being transferred, as
well as that the transfer is of the entire network, other than the assets that
could not be transferred, and that the network is in compliance with certain
operational standards contained in the network services agreement. The agreement
further provides that we will indemnify Bridge for certain representations and
warranties and with respect to our responsibility for our assumed liabilities.
Network Services Agreement. Under the network services agreement,
Bridge has agreed to use our network for the collection and distribution of the
financial information provided by Bridge to its customers and for Bridge's
internal managed data network needs through ______, 2009. For the first three
years of the agreement, Bridge is required to pay to us annual payments of $__
million, subject to certain adjustments, for use of our network as it existed on
the date Bridge transferred it to us. The agreement also provides for pricing
adjustments as Bridge's customer base and networking needs change, including as
Bridge continues to convert customers from legacy protocols to IP. In addition,
Bridge has agreed to purchase at least $__ million of network services from us
each year for the 10-year term of the agreement.
We will charge Bridge for additional bandwidth and additional customers
based on the price prevailing at the time the new service is ordered. Additions
to the existing network will be charged at a rate established on an annual
basis. If we and Bridge cannot agree on this annual rate, and Bridge still
desires for us to provide such service, then we will submit prices to an
independent arbitrator who will assign the price quoted by the party that in the
arbitrator's opinion came closest to quoting a fair market price. In those
instances where the addition is outside of the existing network, we will
negotiate the terms of such expansion with Bridge on a case-by-case basis,
including any additional charges to be paid to us by Bridge to defray the cost
of such expansion. Again, if we cannot reach agreement with Bridge, and Bridge
still desires for us to provide such service, then we will
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submit prices to an independent arbitrator who will assign the price quoted by
the party that in the arbitrator's opinion came closest to quoting a fair market
price.
Bridge has agreed that during the term of the network services
agreement and for a period of three years after that term, Bridge will not
compete with us anywhere in the world in providing packet-data transport network
services, other than investments in a competitor not to exceed 10% of that
competitor. If Bridge seeks to solicit offers from other providers for data
networking services, we have a right of first offer to negotiate with Bridge to
provide any new services that Bridge desires. If Bridge and we do not agree on a
price, we also have the right to meet any new third-party offer.
If there is a change in the controlling interest in SAVVIS, which
includes the acquisition by a single party of more than 50% of the voting power
of SAVVIS or of substantially all of SAVVIS' assets, or if there is a
liquidation or dissolution of SAVVIS, then Bridge will have the right to
terminate the network services agreement.
We also agree that the network will perform in accordance with certain
quality of service standards.
Equipment Colocation Permit. Certain purchased network assets are
located in premises currently leased by Bridge. Bridge has agreed to allow us to
colocate this equipment in these premises. We will be entitled to keep our
equipment in those locations for a period of time coterminous with the
underlying rights which Bridge has to such facility, subject to the receipt of
any required landlord consents. Our costs for this space will be a total of
$____________ per year.
Technical Services Agreement. Pursuant to the technical services
agreement, Bridge provides us with certain services, including help desk
support, installation, maintenance and repair of equipment, customer related
services such as processing service orders and provisioning interconnection, and
managing the colocation of third-party equipment in our facilities. This
agreement will remain in effect so long as the network services agreement is in
effect. Rates for the services provided under this agreement are fixed for three
years. Thereafter, we will negotiate new rates and if we and Bridge cannot agree
on new rates, then we will submit prices to an independent arbitrator who will
assign the price quoted by the party that in the arbitrator's opinion came
closest to quoting a fair market price.
Administrative Services Agreement. For a period of three years, and
from then on from year to year until Bridge or we terminate this agreement,
Bridge will provide us with certain administrative services, including payroll
and certain accounting functions, benefit management and the provision of office
space. We have the right to take over one or more of these functions before the
termination of the agreement. Bridge will charge us for these services in a
manner which is intended to permit Bridge to recover the costs of providing the
services, but without any profit.
Local Network Access Agreement. In certain non-U.S. jurisdictions, the
charges which we pay for the local circuit between our distribution frame, which
usually is located in a central office of the local telecommunications provider,
and the Bridge customer premises, will be charged back to Bridge at a rate
intended to recover our costs.
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Promissory Note. We paid for the Bridge network assets partially with a
five-year promissory note. The promissory note bears interest, payable
semi-annually, at a rate of 10% per annum and is subordinated to senior
indebtedness. Principal will be payable at maturity.
REGULATORY MATTERS
As with any provider of global networking and Internet access services,
we face regulatory and market access barriers in various countries resulting
from restrictive laws, policies and licensing requirements. In our six major
markets, which consist of the United States, the United Kingdom, Germany,
France, Italy and Japan, our current and planned data networking and Internet
access services are now open to competition, and in some cases no license is
required. We believe that we are authorized to provide data networking and
Internet access services as an independent operator under the applicable
telecommunications regulations in all of our major markets, except that in Japan
we are currently authorized to provide data networking services only to Bridge.
In most other countries that we believe represent significant revenue
potential, our current and planned data networking and Internet access services
are now open to competition, although in most cases a license is required. In
some of these countries, we are authorized to provide our data networking and
Internet access services to Bridge and third parties. However, in the remainder
of these countries, we are authorized to offer data networking services only to
Bridge, or to offer only data networking services, but not Internet access
services, to Bridge and third parties.
In addition, we face regulatory and market access barriers in countries
in which we do not operate but in which we have an obligation to purchase the
Bridge IP network assets that we have not already acquired. See
"Business--Bridge Relationship." These Bridge network assets generally could not
be transferred to us as part of the Bridge asset transfer because of
telecommunications licensing or other regulatory requirements.
We are in the process of seeking regulatory approvals in some countries
to offer additional services or to offer services to third parties. We cannot
assure you that we will obtain any of these approvals.
WORLD TRADE ORGANIZATION AGREEMENT AND ITS IMPLICATIONS
On February 15, 1997, 69 countries at the World Trade Organization
reached an agreement to liberalize market access and introduce national
treatment in basic telecommunications services. Since then, two of the 69
participants have submitted improved basic telecommunications schedules and
three World Trade Organization members who did not participate in the
negotiations have submitted commitments, bringing the total number of
governments with basic telecommunications schedules to 72. In February 1998, the
results of the World Trade Organization negotiations on market access for basic
telecommunications services formally entered into force and became binding on
the signatory countries.
Despite the World Trade Organization agreement, regulatory obstacles
continue to exist in a number of signatory countries. First, some signatory
countries made only limited commitments in terms of the services that they were
willing to liberalize and the timeframe in which they were willing to do so.
Second, some less developed signatory
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countries are not well prepared for competition or for effectively regulating a
liberalized market; gaining the requisite experience and expertise is likely to
be a long and difficult process. Finally, even in liberalized countries, there
remains considerable "post-liberalization red tape," such as complicated
licensing rules, certain foreign ownership limits, high fees and undeveloped
competition and interconnection safeguards.
Corporate Presence. In a number of jurisdictions, we are permitted to
provide data networking or Internet access services to local customers only
after first establishing a corporate presence, by way of either the
incorporation of a subsidiary or the registration of a branch or representative
office. It is our policy to establish such a local presence in each of the
jurisdictions where such a presence is legally required.
REGULATORY ANALYSIS BY SERVICE TYPE
Data Networking Services. The core of our data networking services
business is the provision of managed data networking services to corporate
customers. The managed data networking services that we provide are generally
characterized as data transmission services or value added services for
licensing purposes. We are authorized by law or by license (either individual
license or a general authorization obtainable by simple notification or
declaration by an automatic "class" license) to provide these services in the
foreign countries in which we generate significant revenue from data networking
services. In the European Union member countries, such services may be provided
upon, at most, the satisfaction of a simple registration, notification or
authorization procedure.
Internet Access Services. The Internet access services that we provide
generally do not require any authorization beyond those we already hold for
managed data networking services and value added services. However, because the
regulation of Internet access is ill-defined or in flux in some countries, there
is a risk that customers are using our network to access the Internet in
countries that may prohibit, or wish to prohibit, such access. We may limit this
risk by discontinuing such access if measures are taken or threatened by the
pertinent authorities to restrict the use of our network for Internet access.
SUBSTANTIVE REGULATION IN KEY MARKETS
The regulatory regimes applicable to our six major markets, which
consist of the United States, the United Kingdom, Germany, France, Italy and
Japan, as well as that of the European Union, are summarized below.
United States. The regulatory framework governing the provision of
telecommunications services in the United States permits us to offer all of our
current and planned data networking services without significant legal
constraints. We may provide these services either on a resale basis or a
facilities basis. To the extent that a future service requires prior
authorization, either by the Federal Communications Commission, or FCC, or by a
state public utility commission, we believe there is no significant risk that
such an application would be denied or would face processing delays that would
have a material adverse effect on us.
Nevertheless, services offered over the Internet or using IP protocol
may present distinct regulatory issues, as is also the case in the European
Union. The regulatory classification and treatment of some of these services has
not been resolved authoritatively in the United States, and it is possible that
certain Internet-related services will be subject
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to prior authorization and to as yet undefined terms and conditions under which
such authorizations may be granted.
The provision of basic telecommunications services on a common carrier
basis is subject to regulation in the United States. An entity that provides
such services on a common carrier basis is classified as a telecommunications
carrier. Interstate and international common carrier services provided by a
telecommunications carrier are subject to the FCC's jurisdiction under Title II
of the Communications Act. Intrastate telecommunications services are subject to
regulation by the relevant state Public Utility Commission.
We believe that our products and services are not subject to
regulation, but there is some risk that the FCC or a state commission could
determine that our products and services should require specific authorization
or other regulations. If that were to be the case, these regulatory requirements
could include prior authorization requirements, tariffing requirements and the
payment of contributions to federal and state-created subsidy mechanisms
applicable to providers of telecommunications services. Some of these
contributions would be required whether or not we would be subject to
authorization or tariff requirements.
There also is some uncertainty about the regulatory status of voice
services provided on packet-switched, IP networks. If we were to offer voice
services in the future, there is some risk that those services could be subject
to regulation and that those services could be treated similarly to voice
services provided over conventional circuit-switched network facilities for
purposes of making payments to local telephone companies for origination and
termination of calls and for other purposes.
European Union. In the last ten years, the EU has established a
comprehensive and flexible regulatory system, culminating in the full
liberalization of telecommunication networks and services effective on January
1, 1998. By that date, 10 EU member countries were required to adopt a fully
liberalized telecommunications regime. These countries are Austria, Belgium,
Denmark, Finland, France, Germany, Italy, Netherlands, Sweden and the United
Kingdom. The remaining EU member countries were allowed to delay full
liberalization of their telecommunications regime until December 1, 1998, in the
case of Spain, and January 1, 2000 in the case of Luxembourg, Ireland, Portugal
and Greece. Currently, only Greece and Portugal do not have a fully liberalized
telecommunications regime.
The process of opening up the telecommunications markets in the EU was
achieved through EU legislation called directives. Directives are addressed to
and binding on EU member countries and require implementation into national law.
There are two types of EU Directives relating to telecommunications: first,
directives adopted by the European Commission aimed at liberalizing EU markets
and, second, directives adopted by the European Council aimed at ensuring that a
minimum set of harmonized rules, to ensure fair competition, applies throughout
the EU. All 15 EU member countries were obligated to incorporate the principles
contained in these directives into their respective domestic legal frameworks.
However, the impact of the EU directives has been affected in some cases by late
or inadequate implementation, as well as the irregular enforcement by the
domestic regulatory authorities of some EU member states.
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United Kingdom. The Telecommunications Act of 1984 provides the
regulatory framework for the provision of telecommunications services in the
United Kingdom. The authorization regime established by this act is largely
infrastructure based (i.e., "systems" are licensed, with licenses for the
provision of specific services being the exception), and is based on licenses,
rather than regulations or other generally applicable instruments. There are two
broad types of licenses, individual and class. Finally, with minor exceptions,
regulatory treatment under this act does not hinge on whether the license
applies to data or voice.
We provide our managed data networking services and value added
services on an international basis under the telecommunication services class
license. This license authorizes the provision of telecommunications of any
description, other than international switched voice, broadcasting and
conditional access services. This license allows the connection of the
licensee's telecommunications system to essentially any other licensed system,
and allows the commercial supply of services to third parties from up to 20
premises. Internet access services are not subject to additional
service-specific regulation.
Germany. The legal framework for the deregulation in the
telecommunications sector in Germany was transformed by the Telecommunications
Act of 1996, which became effective on August 1, 1996, and its implementing
ordinances adopted since then. This act has liberalized most telecommunications
services, subject to a licensing regime that is fundamentally in conformity with
European Community law. However, some telecommunications services, such as
asynchronous DSL, are not liberalized. Nevertheless, our existing service
portfolio of managed data networking services and value added services can be
provided in Germany upon notifying the regulatory authorities, which we have
done.
France. The legal framework for regulation in the telecommunications
sector in France was transformed by the Telecommunications Act of 1996, which
became effective on July 28, 1996, and subsequent decrees on interconnection,
universal service, numbering, licensing and rights-of-way. This act has
liberalized most telecommunications services, subject to a licensing regime that
is fundamentally in conformity with European Community law. The data networking
services we provide, whether managed data networking services or Internet access
services, currently do not require any form of authorization.
Italy. Pursuant to Law No. 103/1995 and subsequent decrees, the
provision of telecommunications services in Italy is subject to the granting of
two specific authorizations from the Ministry of Communications. One
authorization is in respect of provision of telecommunications services through
direct access to the public network (including, for example, Internet services),
and one authorization is in respect of provision of packet - and circuit -
switched data services or simple resale of capacity (including, for example,
data transmission). For the provision of telecommunications services through
switched access to the public network a notice must be filed with the Ministry
of Communication. Voice telephony and telecommunications infrastructures are
subject to an individual license. We are in the process of filing the two
requests for authorization.
Japan. The legal framework for regulation in the telecommunications
sector in Japan is the Telecommunications Business Law. This law requires a
special type 2 license if a company makes its international communication
facility, including privately leased international lines, available to any third
party for the purpose of telecommunication by
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that third party. In this context, the term "telecommunication" encompasses the
act of data transmission. Accordingly, if the Japanese entity provides its
customers access to an overseas database through its leased lines, it will be
required to obtain a special type 2 license. However, if a Japanese entity were
to replicate the database in Japan and permit access to the database from within
the country, the Telecommunications Business Act would not apply, even if all
the information were transmitted directly to the database from an overseas
parent or subsidiary. Under the Telecommunications Business Act, information
transfers exclusively between the parent and its subsidiary are exempt from
licensing. Moreover, if the Japanese entity provides Internet access services
directly or indirectly through the local Internet access providers that hold a
type 1 license or a special type 2 license, it will only be required to obtain a
general type 2 license. We are in the process of applying for a special type 2
license.
REGULATORY ASSESSMENT OF OTHER MARKETS
Europe (excluding EU member countries). Telecommunications services are
liberalized in varying degrees in European countries that are not EU member
countries. As a matter of practice, Switzerland and Norway conform their
regulatory frameworks to the EU model. By contrast, in Hungary, upon filing the
necessary notification, a foreign owned subsidiary may provide limited data
networking services to a defined group and, upon receipt of necessary licenses,
may provide Internet access services. In Poland, however, minimum local
ownership requirements limit greatly the extent to which data networking or
Internet access services may be provided.
Asia (excluding Japan). Regulatory regimes vary greatly in character
throughout Asia. At the liberalized end of the range, countries such as
Australia and New Zealand have liberalized policies that require no licenses to
provide data networking and Internet access services. Other countries, such as
Japan and Taiwan, are open to competition, but require service providers to
comply with extensive licensing procedures. At the more restrictive end,
countries such as Indonesia and India require some minimum level of domestic
ownership in order to provide data networking and Internet access services.
INTELLECTUAL PROPERTY
We rely on a combination of patent, copyright, trademark, trade secret
and other intellectual property law, nondisclosure agreements and other
protective measures to protect our proprietary technology. We also enter into
confidentiality and invention assignment agreements with our employees and
consultants and control access to and distribution of our proprietary
information. Despite our efforts to protect our proprietary rights, departing
employees and other unauthorized parties may attempt to copy or otherwise obtain
and use our products and technology. Monitoring unauthorized use of our products
and technology is difficult, and we cannot be certain that the steps we have
taken will prevent misappropriation of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as in
the United States.
EMPLOYEES
As of October 31, 1999, we employed 195 full-time persons, 56 of whom
were engaged in engineering, operations and customer service, 112 in sales and
marketing, and 27 in finance and administration. None of our employees is
represented by a labor union,
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and we have not experienced any work stoppages to date. We consider our employee
relations to be good.
FACILITIES
Our executive offices are located in Reston, Virginia and consist of
approximately 10,500 square feet that are leased under an agreement that expires
in 2004. We lease facilities for our network operations center, sales offices
and network equipment in a number of metropolitan areas and specific cites. We
also lease approximately 10,000 square feet from Bridge in St. Louis, Missouri.
We are negotiating a ten and a half year lease for an 80,000 square foot
facility in Herndon, Virginia to house our executive management, sales and
marketing personnel and our Washington, D.C. Internet colocation facility. We
believe that our existing facilities, including the additional space, are
adequate for our current needs and that suitable additional or alternative space
will be available in the future on commercially reasonable terms as needed.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. We are not currently involved in
any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the names and ages of our directors and
executive officers and the positions they hold with our company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert McCormick........................ 34 Acting President and Chief Executive Officer and
Chairman of the Board
Ian D. Brown............................ 30 Executive Vice President-- Sales and Marketing
Communications
Richard Bubenik......................... 38 Executive Vice President and Chief Technical Officer
David J. Frear.......................... 43 Executive Vice President, Chief Financial Officer and
Director
James D. Mori........................... 44 Executive Vice President and Chief Operating Officer
Steven M. Gallant....................... 40 Vice President, General Counsel and Secretary
Clyde A. Heintzelman.................... 61 Director
Thomas E. McInerney..................... 58 Director
Patrick J. Welsh........................ 56 Director
Thomas M. Wendel........................ 63 Director
</TABLE>
ROBERT MCCORMICK has served as Chairman of our board of directors since
April 1999. He has also served as our Acting President and Chief Executive
Officer since November 11, 1999. He is Executive Vice President and Chief
Technical Officer of Bridge, and has held various engineering, design and
development positions at Bridge since joining Bridge in 1988. Mr. McCormick
attended the University of Colorado at Boulder.
IAN D. BROWN has served as our Executive Vice President -- Sales and
Marketing Communications since August 1998. From August 1997 to July 1998, Mr.
Brown served as Vice President of Business Internet Connectivity Sales at
Intermedia Communications. From August 1995 to August 1997, he served as Vice
President of Sales at DIGEX Incorporated, a national Internet services provider
that was acquired by Intermedia Communications, Inc. in July 1996. From October
1992 to July 1995, Mr. Brown was employed by Intercom Systems where he served as
Director of Sales. Mr. Brown received a B.S., cum laude, in Political Science
from Shepherd College.
RICHARD BUBENIK joined us in December 1996 and has served as our Executive
Vice President
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<PAGE>
and Chief Technical Officer since July 1999. Dr. Bubenik served as our Assistant
Vice President -- Engineering from December 1996 to September 1997, Vice
President -- Engineering from October 1997 to April 1999 and Senior Vice
President Network Engineering from April 1999 to July 1999. Prior to joining us,
Dr. Bubenik was a Software Development manager for Ascom Nexion, a network
switch/router equipment supplier. Dr. Bubenik holds a Ph.D. in Computer Science
from Rice University, M.S. and B.S. degrees in Computer Science from Washington
University and a B.S. degree in Electrical Engineering from Washington
University.
DAVID J. FREAR has served as our Executive Vice President and Chief
Financial Officer since July 1999, and as a director of our company since
October 1999. Mr. Frear was an independent consultant from August 1998 until
June 1999. From October 1993 to July 1998, Mr. Frear was Senior Vice President
and Chief Financial Officer of Orion Network Systems Inc., a Nasdaq listed
international satellite communications company that was acquired by Loral Space
& Communications in March 1998. Mr. Frear was Chief Financial Officer of
Millicom Incorporated, a Nasdaq listed international cellular paging and cable
television company, from 1990 to 1993. He previously was an investment banker at
Bear, Stearns & Co., Inc. and Credit Suisse. Mr. Frear received his C.P.A. in
1979 and received an M.B.A. degree from the University of Michigan.
JAMES D. MORI has served as our Executive Vice President and Chief
Operating Officer since October 1999. Prior to joining us, Mr. Mori was employed
by Sprint Corporation as National Account Manager (from April 1987 to December
1989), Branch Manager (from January 1990 to December 1991), Regional Sales
Director (from January 1992 to March 1996), Vice President -- Sales (from March
1996 to February 1997) and Area Director (from February 1997 to October 1999).
From January 1980 to March 1987, Mr. Mori served as National Account Manager of
Digital Equipment Corporation, Southwestern Bell and AT&T Information Systems.
Mr. Mori received a B.S. in Business Administration from the University of
Missouri.
STEVEN M. GALLANT has served as our Vice President, General Counsel and
Secretary since December 1996. Prior to joining us, Mr. Gallant was a partner
with The Stolar Partnership where he specialized in the areas of corporate
finance, mergers and acquisitions and general corporate law. Mr. Gallant
received a B.A. from the University of Denver, a J.D. from Washington University
and an L.L.M. in Taxation from New York University.
CLYDE A. HEINTZELMAN has served as a director of our company since December
1998. He served as our President and Chief Executive Officer from December 1998
to November 10, 1999. From May 1995 to December 1998, Mr. Heintzelman served as
Chief Operating Officer and President of DIGEX Incorporated. From January 1995
to April 1995, he was a consultant. In January 1992, he participated in founding
CSI, a company focused on building hardware and software products for switched
wide area networks using ISDN technology, and from January 1992 to December
1994, he served as Vice President -- Sales & Marketing of CSI. Mr. Heintzelman
serves as a director of Optelecom, Inc., a Nasdaq listed company, and Net-2000
and TCS, both private companies. Mr. Heintzelman received a B.A. in Marketing
from the University of Delaware.
THOMAS E. MCINERNEY has served as a director of our company since October
1999. Mr. McInerney has served as a general partner of Welsh, Carson, Anderson &
Stowe, a private equity firm that is a principal stockholder of our company, and
other associated partnerships, since 1987. Prior to joining Welsh Carson, Mr.
McInerney was President and Chief Executive Officer of Dama Telecommunications
Corporation, a voice and data communications services company which he
co-founded in 1982. Mr. McInerney has also been President of the Brokerage
Services Division and later Group Vice President -
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<PAGE>
Financial Services of ADP, with responsibility for the ADP divisions that serve
the securities, commodities, bank, thrift and electronic funds transfer
industries. He has also held positions with the American Stock Exchange,
Citibank and American Airlines. Mr. McInerney is a director of Mede America
Corporation, The BISYS Group, Inc., Centennial Cellular Corp., The Cerplex
Group, Inc. and Spectra Site Holdings, Inc. He is also a director of Bridge and
several other private companies. Mr. McInerney received a B.A. from St. Johns
University, and attended New York University Graduate School of Business
Administration.
PATRICK J. WELSH has served as a director of our company since October
1999. Mr. Welsh was a co-founder of Welsh Carson, a principal stockholder of our
company, and has served as a general partner of Welsh Carson and affiliated
entities since 1979. Prior to 1979, Mr. Welsh was president and a director of
Citicorp Venture Capital, Ltd., an affiliate of Citicorp engaged in venture
capital investing. Mr. Welsh serves as a director of Accredo Health,
Incorporated. He also serves as a director of Bridge and several other private
companies. Mr. Welsh received a B.A. from Rutgers University and an M.B.A. from
the University of California at Los Angeles.
THOMAS M. WENDEL has served as a director of our company since April 1999.
He has been Chairman of the Board of Bridge since January 1996, and President
and Chief Executive Officer of Bridge since September 1995. From 1986 to
September 1995, Mr. Wendel served as founding President and Chief Executive
Officer of Liberty Brokerage, Inc., a United States government securities
brokerage firm. From 1982 to 1986 Mr. Wendel was with Paine Webber Inc., where
he held several senior management positions including Chief Financial Officer
and head of Operations and Systems. Mr. Wendel also served as Executive Vice
President and Managing Director of Paine Webber where he was responsible for
investment banking involving thrifts and commercial banks, mortgage sales and
trading, and mortgage banking. Prior to 1982, Mr. Wendel was Senior Vice
President and Chief Financial Officer of Pan American World Airways. While at
Pan American, he also held several senior management positions including overall
responsibility for Data Systems and Communications, Airline Planning, Property
and Facilities, Corporate Budgets, Treasury, Accounting, Aircraft Sales, and
Office Services. Mr. Wendel holds a B.S. in Mathematics, an M.A. in Economics,
an M.B.A., and several academic honors including Phi Kappa Phi and a National
Defense Graduate Fellowship in Mathematics. He was the co-author of Introduction
to Data Processing and COBOL published by McGraw-Hill in 1969.
Members of our board of directors are elected each year at our annual
meeting of stockholders, and serve until the next annual meeting of stockholders
and until their respective successors have been elected and qualified. Our
officers are elected annually by our board of directors and serve at the board's
discretion.
AGREEMENT WITH DIRECTOR
On November 9, 1999, we entered into an agreement with Mr. Heintzelman in
connection with his resignation as our President and Chief Executive Officer as
of November 10, 1999. Pursuant to the agreement, Mr. Heintzelman has agreed to
serve on our board of directors for a one-year term that will expire in November
of 2000. See "--Arrangements with Executive."
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has established an audit committee and a
compensation committee. The audit committee consists of Thomas E. McInerney,
Patrick J. Welsh and Thomas M. Wendel. The responsibilities of the audit
committee include:
o recommending to our board of directors an independent audit firm
to audit our financial statements and to perform services related
to the audit;
o reviewing the scope and results of the audit with our independent
auditors;
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<PAGE>
o considering the adequacy of our internal accounting control
procedures; and
o considering auditors' independence.
The compensation committee determines the salaries and incentive
compensation of our management and key employees and administers our stock
option plan. The compensation committee consists of Thomas E. McInerney and
Robert McCormick.
COMPENSATION INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, no member of our board of directors served
as an officer or employee of our company or any of our subsidiaries prior to or
while serving on our compensation committee. In 1998, none of our executive
officers served as a director or member of the compensation committee of another
entity, any of whose executive officers served on our board of directors or on
our compensation committee.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from us for
their services, although we reimburse them for out-of-pocket expenses related to
attending meetings of the board of directors.
EXECUTIVE COMPENSATION
The following table provides you with information about compensation we
paid to our Chief Executive Officers and to the other three most highly
compensated executive officers employed by us as of December 31, 1998, whose
salaries and bonuses for such year were in excess of $100,000 on an annualized
basis. We use the term "named executive officers" to refer to these officers in
this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING STOCK
SALARY BONUS OPTIONS
NAME AND PRINCIPAL POSITION
<S> <C> <C> <C>
Clyde A. Heintzelman (1)....................... $ 18,909 -- 77,834
Martin C. Sanderson (2)........................ $190,000 -- 6,131
Robert B. Murphy, Jr. (3)...................... $140,000 $99,000 5,431
Michael E. Gaddis (4).......................... $142,000 $70,000 5,518
Andrew G. Gladney (5).......................... $150,000 -- 6,103
</TABLE>
- ------------
(1) Mr. Heintzelman became our President and Chief Executive Officer in
December 1998. He resigned from these positions on November 10, 1999.
(2) Mr. Sanderson served as our President and Chief Executive Officer until
October 1998.
(3) Mr. Murphy served as our Executive Vice President and Chief Financial
Officer until April 1999.
(4) Mr. Gaddis served as our Executive Vice President and Chief Technical
Officer until July 1999.
(5) Mr. Gladney served as our Vice President - Marketing until January 1999.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
As a result of our acquisition by Bridge in April 1999, all of the
options to purchase shares of our common stock outstanding at that time vested
and were converted into the right to purchase shares of Bridge common stock at a
ratio of approximately one Bridge share for each twelve SAVVIS shares. On July
22, 1999, our board of directors granted our employees that were employed on
that date the right to convert their options to purchase Bridge common stock
into options to purchase shares of our common stock at a ratio of 1 to 1. Mr.
Heintzelman, the only named executive officer employed by us at that time, has
elected to exercise this right.
The following table shows grants of stock options to each of the named
executive officers during 1998. The percentages in the table below are based on
options to purchase a total of 192,715 shares of our common stock granted under
our stock option plan in 1998 to our employees and directors. The exercise price
per share of each option was equal to the fair market value of the common stock
on the date of grant as determined by the compensation committee of our board of
directors. Potential realizable values are net of exercise price before taxes
and are based on the assumption that our common stock appreciates at the annual
rate shown, compounded annually, from the date of grant until the expiration of
the ten-year term. The numbers are calculated based on the requirements of the
SEC and do not reflect our estimate of future stock price growth.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
--------------------------------------------------------------------- ANNUAL
RATES OF STOCK
NUMBER OF PRICE
SECURITIES APPRECIATION FOR OPTION
UNDERLYING PERCENT OF TOTAL EXERCISE TERM
OPTIONS OPTIONS GRANTED TO PRICE PER EXPIRATION ------------------------
NAME GRANTED (1) EMPLOYEES IN 1998 SHARE(1) DATE 5% 10%
-------- ------------------ ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Clyde A. Heintzelman.......... 28,635 $3.59 12/4/08 $167,467 $266,636
49,199 40.4% 9.58 12/4/08 767,741 1,222,499
Martin C. Sanderson........... 6,131 3.2% 9.58 5/7/08 95,673 152,343
Robert B. Murphy, Jr.......... 5,431 2.8% 9.58 5/7/08 84,749 134,950
Michael E. Gaddis............. 5,518 2.9% 9.58 5/7/08 86,107 137,112
Andrew G. Gladney............. 6,103 3.2% 9.58 4/20/99 95,236 151,647
</TABLE>
- -------------
(1) As adjusted to reflect the events described above.
FISCAL YEAR-END OPTION VALUES
The following table presents summary information with respect to
options to purchase shares of our common stock owned by the named executive
officers as of December 31, 1998. None of the named executive officers exercised
stock options in 1998. There was no public trading market for our common stock
as of December 31, 1998. Accordingly, we calculated the values of unexercised
in-the-money options shown below on the basis of the assumed initial public
offering price of $_____ per share, less the applicable exercise price per
share, multiplied by the number of shares underlying those options.
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY
DECEMBER 31, 1998(1) OPTIONS AT DECEMBER 31, 1998
-------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Clyde A. Heintzelman................ 25,939 51,895 $ $
Martin C. Sanderson................. 8,125 0
Robert B. Murphy, Jr................ 5,196 9,427
Michael E. Gaddis................... 9,970 12,468
Andrew G. Gladney................... 2,561 3,542
</TABLE>
- --------------
(1) As adjusted to reflect the events described in the first paragraph under
the heading "Option Grants in Last Fiscal Year."
STOCK OPTION PLAN
Background. On July 22, 1999, our board of directors approved the
adoption of our 1999 SAVVIS stock option plan, and our stockholders approved the
stock option plan on the same date. The purpose of our 1999 stock option plan is
to enhance our ability to attract, retain and compensate highly qualified
persons. The option plan permits the granting of options to purchase shares of
common stock intended to qualify as incentive stock options under the Internal
Revenue Code of 1986, or the Internal Revenue Code, and options that do not
qualify as incentive stock options, or non-qualified options. Grants may be made
under our stock option plan to employees and directors of our company or any
related company and to any other individual whose participation in the stock
option plan is determined by our board of directors to be in our best interests.
As of October 25, 1999, options to purchase 6,401,340 shares of common stock
were outstanding under the stock option plan. No options may be granted under
the stock option plan after July 22, 2009.
The number of shares of common stock available for issuance under the
option plan is 8,000,000 shares, subject to adjustment for stock dividends,
splits and other similar events. If any shares of common stock covered by a
grant are not purchased or are forfeited, or if a grant otherwise terminates
without delivery of any shares of common stock subject to the option, then the
number of shares of common stock counted against the total number of shares
available under the stock option plan with respect to such grant will, to the
extent of any such forfeiture or termination, again be available for making
grants under the stock option plan.
The stock option plan is administered by the compensation committee.
The compensation committee has the full power and authority to take all actions
and to make all determinations required or provided for under the plan, any
option, or option agreement, to the extent such actions are consistent with the
terms of the plan. The board of directors may take any action the compensation
committee is authorized to take. To the extent permitted by law, the
compensation committee or board may delegate its authority under the plan to a
member of the board or one of our executive officers.
Option Terms. The option price of each option will be determined by the
compensation committee. However, the option price may not be less than 100% of
the fair market value of our common stock on the date of grant in the case of
incentive stock options or less than par value in the case of non-qualified
stock options. To qualify as incentive stock options, options must meet certain
federal tax requirements, including limits on the value of shares subject to
incentive stock options which first become exercisable in any one calendar year,
and a shorter term and higher minimum exercise price in the case of
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<PAGE>
certain large stockholders.
The term of each option will be fixed by the compensation committee.
The compensation committee will determine at what time or times each option may
be exercised and the period of time, if any, after retirement, death, disability
or termination of employment during which options may be exercised. However, all
options shall automatically vest upon a termination of employment caused by the
optionee's death, disability, or retirement. Options may be made exercisable in
installments, and the compensation committee may accelerate the exercisability
of options. Except to the extent otherwise expressly set forth in an option
agreement relating to a non-qualified option, options are not transferable other
than by will or the laws of descent and distribution. The compensation committee
may include in any option agreement any provisions relating to forfeitures of
options that it deems appropriate, including prohibitions on competing with our
company and other detrimental conduct.
If an optionee elects to exercise his or her option, he or she must pay
the option exercise price in full either in cash or cash equivalents. To the
extent permitted by the option agreement or the compensation committee, the
optionee may also pay the option exercise price by the delivery of common stock
to the extent that the common stock is publicly traded, or other property. The
compensation committee may also allow the optionee to defer payment of the
option price, or may cause us to loan the option price to the optionee or to
guarantee that any shares to be issued will be delivered to a broker or lender
in order to allow the optionee to borrow the option price. If the compensation
committee so permits, the exercise price may also be delivered to us by a broker
pursuant to irrevocable instructions to the broker from the participant.
Corporate Transactions. Options granted under the stock option plan
will terminate in connection with certain types of corporate transactions
involving our company, except to the extent the options are continued or
substituted for in connection with the transaction. In the event of a
termination of the options in connection with a corporate transaction and
subject to any limitations imposed in an applicable option agreement, the
options will be fully vested and exercisable for a period to be determined by
the board of directors immediately before the completion of the corporate
transaction. A corporate transaction occurs in the event of:
o a dissolution or liquidation of our company;
o a merger, consolidation or reorganization of our company with one
or more other entities in which our company is not the surviving
entity;
o a sale of substantially all of our assets to another person or
entity; or
o any transaction (including, without limitation, a merger or
reorganization in which our company is the surviving entity)
approved by the board that results in any person or entity (other
than persons who are holders of stock of our company at the time
the plan was approved by the stockholders and other than an
affiliate) owning 80 percent or more of the combined voting power
of all classes of our stock.
The board of directors may also in its discretion and only to the
extent provided in an option agreement cancel outstanding options in connection
with a corporate transaction. Holders of cancelled options will receive a
payment for each cancelled option.
Amendments and Termination. The board of directors may at any time
amend or discontinue the
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<PAGE>
stock option plan, except that the maximum number of shares available for grant
as incentive stock options and the class of persons eligible to receive grants
under the plan may not be changed without stockholder approval.
Adjustments for Stock Dividends and Similar Events. The compensation
committee will make appropriate adjustments in outstanding awards to reflect
common stock dividends, splits and other similar events.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. The grant of an option will not be a taxable
event for the optionee or us. An optionee will not recognize taxable income upon
exercise of an incentive stock option (except that the alternative minimum tax
may apply). Any gain realized upon a disposition of common stock received
pursuant to the exercise of an incentive stock option will be taxed as long-term
capital gain if the optionee holds the shares for at least two years after the
date of grant and for one year after the date of exercise, known as the holding
period requirement. We will not be entitled to any business expense deduction
with respect to the exercise of an incentive stock option, except as discussed
below.
For the exercise of an option to qualify for the foregoing tax
treatment, the optionee generally must be an employee of our company or a
subsidiary from the date the option is granted through a date within three
months before the date of exercise of the option. In the case of an optionee who
is disabled, the three-month period for exercise following termination of
employment is extended to one year. In the case of an employee who dies, both
the time for exercising incentive stock options after termination of employment
and the holding period for common stock received pursuant to the exercise of the
option are waived.
If all of the foregoing requirements are met except the holding period
requirement mentioned above, the optionee will recognize ordinary income upon
the disposition of the common stock in an amount generally equal to the excess
of the fair market value of the common stock at the time the option was
exercised over the option exercise price (but not in excess of the gain realized
on the sale). The balance of the realized gain, if any, will be capital gain. We
will be allowed a business expense deduction to the extent the optionee
recognizes ordinary income subject to Section 162(m) of the Internal Revenue
Code, as summarized below.
If an optionee exercises an incentive stock option by tendering common
stock with a fair market value equal to part or all of the option exercise
price, the exchange of shares will be treated as a nontaxable exchange. This
nontaxable treatment would not apply, however, if the optionee had acquired the
shares being transferred pursuant to the exercise of an incentive stock option
and had not satisfied the holding period requirement summarized above. If the
exercise is treated as a nontaxable exchange, the optionee would have no taxable
income from the exchange and exercise, other than minimum taxable income as
discussed above, and the tax basis of the shares exchanged would be treated as
the substituted basis for the shares received. If the optionee used shares
received pursuant to the exercise of an incentive stock option, or another
statutory option, as to which the optionee had not satisfied the applicable
holding period requirement, the exchange would be treated as a taxable
disqualifying disposition of the exchanged shares.
If, pursuant to an option agreement, we withhold shares in payment of
the option price for incentive stock options, the transaction should generally
be treated as if the withheld shares had been sold in a disqualifying
disposition after exercise of the option, so that the optionee will realize
ordinary income
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<PAGE>
with respect to such shares. The shares paid for by the withheld shares should
be treated as having been received upon exercise of an incentive stock option,
with the tax consequences described above. However, the Internal Revenue Service
has not ruled on the tax treatment of shares received on exercise of an
incentive stock option where the option exercise price is paid with withheld
shares.
Non-Qualified Options. The grant of an option will not be a taxable
event for the optionee or us. Upon exercising a non-qualified option, an
optionee will recognize ordinary income in an amount equal to the difference
between the exercise price and the fair market value of the common stock on the
date of exercise. However, if the optionee is subject to certain restrictions
imposed by the securities laws, the measurement date will be deferred, unless
the optionee makes a special tax election within 30 days after exercise. Upon a
subsequent sale or exchange of shares acquired pursuant to the exercise of a
non-qualified option, the optionee will have taxable gain or loss, measured by
the difference between the amount realized on the disposition and the tax basis
of the shares. This difference generally is the amount paid for the shares plus
the amount treated as ordinary income at the time the option was exercised.
If we comply with applicable reporting requirements and with the
restrictions of Section 162(m) of the Internal Revenue Code, we will be entitled
to a business expense deduction in the same amount and generally at the same
time as the optionee recognizes ordinary income. Under Section 162(m) of the
Internal Revenue Code, if the optionee is one of certain specified executive
officers, then, unless certain exceptions apply, we are not entitled to deduct
compensation with respect to the optionee, including compensation related to the
exercise of shares options, to the extent such compensation in the aggregate
exceeds $1.0 million for the taxable year. Options issuable under the stock
incentive plan are intended to comply with the exception to Section 162(m) for
"performance-based" compensation.
If the optionee surrenders common stock in payment of part or all of
the exercise price for non-qualified options, the optionee will not recognize
gain or loss with respect to the shares surrendered, regardless of whether the
shares were acquired pursuant to the exercise of an incentive stock option, and
the optionee will be treated as receiving an equivalent number of shares
pursuant to the exercise of the option in a nontaxable exchange. The basis of
the shares surrendered will be treated as the substituted tax basis for an
equivalent number of option shares received and the new shares will be treated
as having been held for the same holding period as had expired with respect to
the transferred shares. The difference between the total option exercise price
and the total fair market value of the shares received pursuant to the exercise
of the option will be taxed as ordinary income. The optionee's basis in the
additional shares will be equal to the amount included in the optionee's income.
If, pursuant to an option agreement, we withhold shares in payment of
the option price for non-qualified options or in payment of tax withholding, the
transaction should generally be treated as if the withheld shares had been sold
for an amount equal to the exercise price after exercise of the option.
ARRANGEMENTS WITH EXECUTIVE
Mr. Heintzelman became our President and Chief Executive Officer under an
employment agreement dated December 4, 1998. In connection with his resignation
as of November 10, 1999, we entered into an additional agreement with Mr.
Heintzelman, entitling him to continue to receive his base salary through
December 3, 2000. In addition, under these agreements, Mr. Heintzelman is
entitled to a prorated portion of his bonus for 1999 in an amount to be
established by our board of directors, but in no event less than 25% of his
annual base salary. All of Mr. Heintzelman's stock options vested fully on the
date of his resignation.
In his employment agreement, Mr. Heintzelman agreed to preserve the
confidentiality and the proprietary nature of all information relating to us and
our business for three years after the term of his agreements ends. In addition,
Mr. Heintzelman is obligated under his agreement not to compete with us and not
to solicit the business of our customers for one year following the term of his
employment agreement.
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for one year after his agreement ends.
TRANSACTIONS WITH AFFILIATES
As of September 30, 1999, we had outstanding demand loans from Bridge
of approximately $16.6 million. These loans bear interest at a rate of 8% per
annum. We used the proceeds of these loans to fund our working capital
requirements.
We entered into several agreements with Bridge, including a Master
Establishment and Transition Agreement, an Equipment Colocation Permit, a
Network Services Agreement, an Administrative Services Agreement, a Technical
Services Agreement and a Local Network Agreement. In connection with these
agreements we executed a promissory note in favor of Bridge. The terms of these
agreements and the note are described under the heading "Business -- Bridge
Relationship".
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PRINCIPAL STOCKHOLDERS
The following table provides you with information about the beneficial
ownership of shares of our common stock as of September 30, 1999, and as
adjusted to reflect the sale of shares in this offering, by:
o each person who, to our knowledge, beneficially owns more than 5%
of our common stock;
o each of our directors and named executive officers; and
o all our directors and executive officers as a group.
Beneficial ownership is determined under the rules of the SEC and includes
voting or investment power with respect to the common stock.
Unless indicated otherwise below, the address for each listed director and
officer is SAVVIS Communications Corporation, 12007 Sunrise Valley Drive,
Reston, Virginia 20191. The persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where applicable
and the information contained in this table and the notes that follow. The total
number of shares of common stock outstanding used in calculating the percentage
for each person named in the table includes the shares of common stock
underlying options held by that person that are exercisable within 60 days of
September 30, 1999, but excludes shares of common stock options held by all
other persons. Percentage of beneficial ownership is based on 72,000,000 shares
of common stock outstanding as of September 30, 1999, and _______________ shares
of common stock outstanding after completion of this offering.
<TABLE>
<CAPTION>
Amount and Percentage Beneficially Owned
Nature of -----------------------------
Beneficial Before After
Name and Address Ownership Offering Offering
---------------- -------- -------- --------
<S> <C> <C> <C>
Bridge Information Systems, Inc.(1).............. 53,870,279 74.8% --%
Welsh, Carson, Anderson &
Stowe (2)..................................... 8,844,642 12.3% --%
Clyde A. Heintzelman (3)......................... 218,224 * --%
Martin C. Sanderson.............................. -- * --%
Michael E. Gaddis................................ 7,284 * --%
Robert B. Murphy, Jr............................. 5,177 * --%
Andrew G. Gladney................................ 16,413 * --%
Robert McCormick (4)............................. 500,000 * --%
Thomas M. Wendel (5)............................. 450,000 * --%
Patrick J. Welsh (6)............................. 8,843,413 12.3% --%
Thomas E. McInerney (7).......................... 8,883,118 12.3% --%
All executive officers and directors
as a group (11 persons).......................... 10,144,344 14.1% --%
</TABLE>
- ------------
* Less than one percent.
(1) The address of Bridge Information Systems, Inc. is 717 Office Parkway, St.
Louis, Missouri 63141.
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<PAGE>
(2) Includes 4,635,958 shares of common stock held by Welsh, Carson, Anderson &
Stowe VI, L.P.("WCAS VI"), 3,475,566 shares held by Welsh, Carson, Anderson
& Stowe VII, L.P. ("WCAS VII"), 65,357 shares held by WCAS Information
Partners, L.P. ("WCAS IP") and 667,761 shares held by WCAS Capital Partners
II, L.P. ("WCAS CP II"). The respective sole general partners of WCAS VI,
WCAS VII, WCAS IP and WCAS CP II are WCAS VI Partners, L.P., WCAS VII
Partners, L.P., WCAS INFO Partners and WCAS CP II Partners. The individual
general partners of each of these partnerships include some or all of Bruce
K. Anderson, Russell L. Carson, Anthony J. de Nicola, James B. Hoover,
Thomas E. McInerney, Robert A. Minicucci, Charles G. Moore, III, Andrew M.
Paul, Paul B. Qucally, Rudolph E. Rupert, Jonathan M. Rather, Lawrence B.
Sorrel, Richard H. Stowe, Laura M. VanBuren and Patrick J. Welsh. The
individual general partners who are also directors of SAVVIS are Patrick J.
Welsh and Thomas E. McInerney. Each of the foreging persons may be deemed
to be the beneficial owner of the common stock owned by the limited
partnerships of whose general partner he or she is a general partner. WCAS
VI, WCAS VII, WCAS IP and WCAS CP II, in the aggregate, own approximately
38.5% of the outstanding equity securities of Bridge.
(3) Includes 218,224 shares subject to options that are exercisable within 60
days of September 30, 1999.
(4) Includes 500,000 shares subject to options that are exercisable within 60
days of September 30, 1999.
(5) Includes 450,000 shares subject to options that are exercisable within 60
days of September 30, 1999.
(6) Includes 8,779,285 shares held by Welsh, Carson, Anderson & Stowe, as
described in note 2 above.
(7) Includes 8,844,642 shares held by Welsh, Carson, Anderson & Stowe, as
described in note 2 above.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 125,000,000 shares of common
stock, par value $.01 per share, and 50,000,000 shares of preferred stock, par
value $.01 per share, the rights, preferences and privileges of which may be
established from time to time by our board of directors. As of September 30,
1999, 72,000,000 shares of our common stock were outstanding and no shares of
our preferred stock were outstanding. As of September 30, 1999, we had 140
stockholders.
After this offering, we will have outstanding __________ shares of
common stock. If the underwriters exercise their over-allotment option,
_________ shares of common stock will be outstanding. The following is a
description of our capital stock.
COMMON STOCK
Each holder of record of common stock of record is entitled to one vote
for each share on all matters properly submitted to the stockholders for their
vote. Our certificate of incorporation does not allow cumulative voting for the
election of directors, which means that the holders of a majority of the shares
voted can elect all the directors then standing for election. Subject to
preferences that may be applicable to any preferred stock outstanding at the
time, holders of our common stock are entitled to receive ratable dividends, if
any, as may be declared from time to time by our board of directors out of funds
legally available for that purpose. In the event of our liquidation, dissolution
or winding up, holders of common stock would be entitled to share in our assets
remaining after the payment of liabilities and liquidation preferences on any
outstanding preferred stock. Holders of our common stock have no preemptive or
conversion rights or other subscription rights and there are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are, and the shares of common stock offered by us in this
offering will be, when issued and paid for, fully paid and non-assessable. The
rights, preferences and privileges of holders of common stock may be adversely
affected by the rights of the holders of shares of any series of preferred stock
that we may authorize and issue in the future.
PREFERRED STOCK
The board of directors is authorized, subject to Delaware law, without
stockholder approval, from time to time to issue up to an aggregate of
50,000,000 shares of preferred stock in one or more series. The board of
directors may fix the rights, preferences and privileges of the shares of each
series and any qualifications, limitations or restrictions. Issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of our outstanding voting
stock. We have no present plans to issue any shares of preferred stock.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, our certificate
of incorporation provides that our directors will not be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
o for any breach of the director's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
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<PAGE>
o under Section 174 of the Delaware General Corporation Law, relating to
unlawful dividends or unlawful stock purchases or redemptions; or
o for any transaction from which the director derives an improper
personal benefit.
As a result of this provision, we and our stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Our certificate of incorporation and bylaws provide for the
indemnification of our directors and officers to the fullest extent authorized
by the Delaware General Corporation Law. In addition, our certificate of
incorporation provides that if the Delaware General Corporation Law is amended
to authorize the further elimination or limitation of the liability of a
director, then the liability of our directors will be eliminated or limited to
the fullest extent permitted by the amended Delaware Law. The indemnification
provided under our certificate of incorporation and bylaws includes the right to
be paid expenses in advance of any proceeding for which indemnification may be
had, provided that the payment of these expenses incurred by a director or
officer in advance of the final disposition of a proceeding may be made only
upon delivery to us of an undertaking by or on behalf of the director or officer
to repay all amounts paid in advance if it is ultimately determined that the
director or officer is not entitled to be indemnified.
We believe that the provisions in our certificate of incorporation and
bylaws are necessary to attract and retain qualified persons as directors and
officers.
ANTI-TAKEOVER PROVISIONS
Provisions of Delaware law and our certificate of incorporation and
bylaws summarized below could hinder or delay an attempted takeover of us. These
provisions could have the effect of discouraging attempts to acquire us or
remove incumbent management even if some or a majority of our stockholders
believe this action to be in their best interest, including attempts that might
result in the stockholders receiving a premium over the market price for their
shares of common stock.
Certificate of Incorporation and By-law Provision
Under our bylaws, only the board of directors, the Chairman or Vice
Chairman of the board, the board of directors and the President may call special
meetings of stockholders. The stockholders may not call a special meeting.
Our bylaws also provide that any action required or permitted to be
taken at a stockholders' meeting may be taken without a meeting, without prior
notice and without a vote, if the action is taken by persons who would be
entitled to vote at a meeting and who hold shares having voting power equal to
not less than the minimum number of votes that would be necessary to authorize
or take the action at a meeting at which all shares entitled to vote were
present and voted.
The foregoing provisions could have the effect of delaying until the
next stockholders' meeting stockholder actions which are favored by the holders
of a majority of our outstanding voting securities. These provisions may also
discourage another person or entity from making a tender offer for our common
stock because such person or entity, even if it acquired a majority of our
outstanding voting securities,
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<PAGE>
would be able to take action as a stockholder, such as electing new directors or
approving a merger, only at a duly called stockholders meeting.
Delaware Anti-Takeover Law
We will be subject to the provisions of Section 203 of the Delaware
General Corporation Law regulating corporate takeovers. Section 203 prevents a
Delaware corporation, including those that are listed on the Nasdaq National
Market, from engaging, under certain circumstances, in a "business combination,"
which includes a merger or sale of more than 10% of the corporation's assets,
with any "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder. An
interested stockholder is a stockholder who owns 15% or more of the
corporation's outstanding voting stock, as well as affiliates and associates of
that person. This is the case unless:
o the transaction that resulted in the stockholder's becoming an
interested stockholder was approved by the board of directors
prior to the date the interested stockholder attained that status;
o upon completion of the transaction that resulted in the
stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction began,
excluding those shares owned by (1) persons who are directors and
also officers and (2) employee stock compensation plans in which
employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or
o on or after the date the interested stockholder attained that
status, the business combination is approved by the board of
directors and authorized at an annual or special meting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested
stockholder.
A Delaware corporation may "opt out" of Section 203 with an express
provision in its original certificate of incorporation or an express
stockholder's amendment approved by at least a majority of the outstanding
voting shares. We have not "opted out" of the provisions of the Section 203.
This statutory provision could prohibit or delay mergers or other takeover or
change-in-control attempts with respect to SAVVIS and, accordingly, may
discourage attempts to acquire us.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ____________.
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SHARES AVAILABLE FOR FUTURE SALE
Following this offering, we will have _________ shares of our common
stock outstanding, assuming the underwriters do not exercise their
over-allotment option (_______ shares if the underwriters exercise their
over-allotment option in full). All of the shares (including any subject to the
over-allotment option) we sell in this offering will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares purchased by our affiliates, as that term is defined in Rule 144 under
the Securities Act, may generally only be sold in compliance with the
limitations of Rule 144 below.
The remaining __________ shares of common stock outstanding following
this offering are restricted securities under the terms of the Securities Act.
Sales of certain of the restricted shares to be outstanding upon completion of
this offering will be limited by lock-up agreements as described below.
RULE 144
In general, under Rule 144, a stockholder who owns restricted shares
that have been outstanding for at least one year is entitled to sell, within any
three-month period, a number of these restricted shares that does not exceed the
greater of:
o 1% of the then outstanding shares of common stock, or
approximately _________ shares immediately after this offering,
or
o the average weekly trading volume in the common stock on the
Nasdaq National Market during the four calendar weeks preceding
filing of a notice on Form 144 with respect to the sale.
In addition, our affiliates must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement, to
sell shares of common stock that are not restricted securities. Sales under Rule
144 are also governed by manner of sale provisions and notice requirements, and
current public information about us must be available.
Under Rule 144(k), a stockholder who is not currently, and who has not
been for at least three months before the sale, an affiliate of ours and who
owns restricted shares that have been outstanding for at least two years may
resell these restricted shares without compliance with the above requirements.
The one- and two-year holding periods described above do not begin to run until
the full purchase price is paid by the person acquiring the restricted shares
from us or an affiliate of ours.
RULE 701
In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors who purchases shares of
our common stock from us in connection with a compensatory stock or option plan
or other written agreement is eligible to resell those shares 90 days after the
effective date of this offering in reliance on Rule 144, but without compliance
with some of the restrictions, including the holding period, contained in Rule
144.
LOCK-UP AGREEMENTS
All of our officers and directors, and several of our stockholders, who
will hold an aggregate of ____________ shares of common stock after this
offering closes, will sign lock-up agreements with the underwriters. Under the
terms of these agreements, they will agree, among other things, not to offer,
sell
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<PAGE>
or agree to sell, directly or indirectly, or otherwise dispose of any shares of
common stock or any securities convertible into or exercisable or exchangeable
for shares of common stock, include swap etc. for a period of 180 days after the
date of this prospectus. Transfers or dispositions can be made sooner with the
prior written consent of the underwriters.
Stock Options
As soon as practicable after this offering, we intend to file a
registration statement under the Securities Act covering 8,000,000 shares of
common stock reserved for issuance under our 1999 Stock Option Plan, and we
expect the registration statement to become effective upon filing. As of October
25, 1999, options to purchase 6,486,382 shares of common stock were outstanding.
Accordingly, shares registered under this registration statement will, provided
options have vested and Rule 144 volume limitations applicable to our affiliates
are complied with, be available for sale in the open market shortly after this
offering closes, and in the case of our officers, directors and stockholders who
have entered into lock-up agreements, after the 180-day lock-up agreements
expire.
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<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an
underwriting agreement dated the date of this prospectus, the underwriters named
below, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan
Stanley & Co. Incorporated, are acting as representatives have severally agreed
to purchase, and we have agreed to sell to them, severally, the respective
number of shares of common stock set forth opposite the names of such
underwriters below:
Number
Name of Shares
---- ---------
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
=========
The underwriters are offering the shares of common stock subject to
their acceptance of the shares from us and subject to prior sale. The
underwriting agreement provides that the obligations of the several underwriters
to pay for and accept delivery of the shares of common stock offered hereby are
subject to the approval of various legal matters by their counsel and to certain
other conditions. The underwriters are obligated to take and pay for all of the
shares of common stock offered hereby, if any such shares are taken. However,
the underwriters are not required to take or pay for the shares covered by the
underwriters' over-allotment option described below.
The underwriters initially propose to offer part of the shares of
common stock directly to the public at the public offering price set forth on
the cover page hereof and part to various dealers at a price that represents a
concession not in excess of $_________ a share under the public offering price.
Any underwriter may allow, and such dealers may reallow, a concession not in
excess of $_________ a share to other underwriters or to various dealers. After
the initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives.
We have granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of ________
additional shares of common stock at the public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the shares of common stock offered
hereby. To the extent such option is exercised, each underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of common stock as the number set forth
next to such underwriter's name in the preceding table bears to the total number
of shares of common stock set forth next to the names of all underwriters in the
preceding table. If the underwriters' option is exercised in full, the total
price to the public would be $_________, the total underwriters' discounts and
commissions would be $__________ and total proceeds to us would be $__________.
The underwriters have informed us that they do not intend to confirm
sales to discretionary accounts to exceed five percent of the total number of
shares of common stock offered by them.
We estimate that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $___ million.
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Application has been made for quotation of the common stock on the
Nasdaq National Market under the symbol "SVVS."
Each of SAVVIS and the directors, executive officers and some
stockholders of SAVVIS has agreed that, without the prior written consent of the
underwriters, it will not, during the period ending 180 days after the date of
this prospectus:
o offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend or otherwise
transfer or dispose of, directly or indirectly, any shares of
common stock or any securities convertible into or exercisable or
exchangeable for common stock; or
o enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of
ownership of the common stock,
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
o the sale of shares to the underwriters;
o the issuance by SAVVIS of shares of common stock upon the
exercise of an option or a warrant or the conversion of a
security outstanding on the date of this prospectus of which the
underwriters have been advised in writing;
o transactions by any person other than SAVVIS relating to shares
of common stock or other securities convertible or exchangeable
for shares of common stock acquired in open market transactions
after the completion of the offering; or
o issuances of certain shares of common stock or options to
purchase shares of common stock pursuant to our employee benefit
plans as in existence on the date of this prospectus.
In order to facilitate the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot in connection with
the offering, creating a short position in the common stock for their own
account. In addition, to cover over-allotments or to stabilize the price of the
common stock, the underwriters may bid for, and purchase, shares of common stock
in the open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or a dealer for distributing shares of
common stock in the offering, if the syndicate repurchases previously
distributed common stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the common stock above independent market
levels. The underwriters are not required to engage in these activities, and may
end any of these activities at any time.
SAVVIS and the underwriters have agreed to indemnify each other against
various liabilities, including liabilities under the Securities Act.
From time to time, ______________ has provided, and continues to
provide, investment banking services to SAVVIS and Bridge for which they have
received customary fees and commissions.
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<PAGE>
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiations
between SAVVIS and the representatives. Among the factors to be considered in
determining the initial public offering price will be the future prospects of
SAVVIS and its industry in general, sales, earnings and certain other financial
and operating information of SAVVIS in recent periods, the price-earnings
ratios, price-sales ratios, market prices of securities and financial and
operating information of companies engaged in activities similar to those of
SAVVIS.
The estimated initial public offering price range set forth on the
cover page of this preliminary prospectus is subject to change as a result of
market conditions and other factors.
VALIDITY OF THE SHARES
The validity of the shares of common stock offered through this
prospectus will be passed upon for us by Hogan & Hartson L.L.P., New York, New
York. Certain legal matters relating to the securities will be passed upon for
the underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The consolidated financial statements of SAVVIS Holdings Corporation as
of December 31, 1998 and for the year ended December 31, 1998 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing in this prospectus, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of SAVVIS Communications
Corporation, a wholly owned subsidiary of SAVVIS Holdings Corporation, as of
December 31, 1997 and for each of the two years in the period ended December 31,
1997, included in this prospectus have been audited by Ernst & Young, LLP,
independent auditors, as set forth in their report dated April 23, 1998 (which
contains an explanatory paragraph describing conditions that raise substantial
doubt about the company's ability to continue as a going concern) appearing in
this prospectus, and are included in reliance on such reports given upon the
authority of such firm as experts in accounting and auditing.
WHERE YOU MAY FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under
the Securities Act with respect to the common stock to be sold in this offering.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules to the registration
statement. For further information with respect to us and the common stock to be
sold in this offering, we refer you to the registration statement and the
exhibits and schedules filed as part of the registration statement. Statements
contained in this prospectus concerning the contents of any contract or any
other document are not necessarily complete. If a contract or document has been
filed as an exhibit to the registration statement, we refer you to the copy of
the contract or document that has been filed. Each statement in this prospectus
relating to a contract or document filed as an exhibit is qualified in all
93
<PAGE>
respects by the filed exhibit. The registration statement, including exhibits
and schedules filed with it, may be inspected without charge at the SEC's public
reference rooms at:
o Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
o Seven World Trade Center, 13th Floor, New York, New York 10048;
or
o Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
Copies of all or any part of the registration statement may be obtained
from such office after payment of fees prescribed by the SEC. Please call the
SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. The SEC also maintains a Web site that contains registration
statements, reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC at
http://www.sec.gov.
We intend to provide our stockholders with annual reports containing
consolidated financial statements audited by an independent public accounting
firm.
94
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SAVVIS HOLDINGS CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheet as of June 30, 1999 (unaudited) F-2
Consolidated Statements of Operations for the period April 7 to June 30, 1999, the period
January 1 to April 6, 1999 and the six month period ended June 30, 1998 (unaudited) F-3
Consolidated Statement of Changes in Stockholders' Equity for the period
January 1, 1999 to June 30, 1999 (unaudited) F-4
Consolidated Statements of Cash Flows for the period April 7 to June 30, 1999, the period
January 1 to April 6, 1999 and the six month period ended June 30, 1998 (unaudited) F-5
Notes to Consolidated Financial Statements (unaudited) F-7
Independent Auditors' Report - Deloitte & Touche LLP F-10
Independent Auditors' Report - Ernst & Young LLP F-11
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-12
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 F-13
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended
December 31, 1998, 1997 and 1996 F-14
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 F-16
Notes to Consolidated Financial Statements F-18
</TABLE>
F-1
<PAGE>
SAVVIS HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEET - UNAUDITED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1999
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 530
Accounts receivable, less allowance for doubtful accounts of $200 2,603
Prepaid expenses 418
Other current assets 3
------------
Total current assets 3,554
PROPERTY AND EQUIPMENT - Net (Note 3) 5,300
GOODWILL AND INTANGIBLE ASSETS - Net of
Accumulated amortization of $2,369 36,098
OTHER LONG-TERM ASSETS 340
TOTAL $ 45,292
============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,731
Accrued expenses 799
Due to Bridge Information Systems 11,300
Current portion of capital lease obligations (Note 5) 1,211
Other accrued liabilities (Note 4) 1,458
------------
Total current liabilities 18,499
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION (Note 5) 3,811
OTHER ACCRUED LIABILITIES 471
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value, 125,000,000 shares
authorized, 72,000,000 shares issued and outstanding 720
Additional paid-in capital 31,026
Accumulated deficit (9,235)
------------
Total stockholder's equity 22,511
------------
TOTAL $ 45,292
============
</TABLE>
See notes to unaudited consolidated financial statements.
F-2
<PAGE>
SAVVIS HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
----------------- --------------------------------
PERIOD FROM PERIOD FROM SIX MONTHS
APRIL 7 TO JANUARY 1 TO ENDED JUNE 30,
JUNE 30, 1999 APRIL 6, 1999 1998
----------------- --------------------------------
<S> <C> <C> <C>
REVENUES $ 5,913 $ 5,440 $ 5,092
DIRECT COSTS AND OPERATING EXPENSES:
Data communications and operations 6,303 6,429 9,329
Selling, general and administrative 5,355 4,651 4,553
Depreciation and amortization 3,037 793 943
----------- ---------- ----------
Total direct costs and operating expenses 14,695 11,873 14,825
----------- ---------- ----------
LOSS FROM OPERATIONS (8,782) (6,433) (9,733)
INTEREST EXPENSE, NET (453) (235) (209)
----------- ---------- ----------
LOSS BEFORE INCOME TAXES (9,235) (6,668) (9,942)
INCOME TAXES -- -- --
----------- ---------- ----------
NET LOSS (9,235) (6,668) (9,942)
PREFERRED STOCK DIVIDENDS (628) (587)
AMORTIZATION OF DEFERRED
FINANCING COSTS AND DISCOUNT ON
SERIES C PREFERRED STOCK -- (244) (358)
----------- ---------- ----------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS $ (9,235) $ (7,540) $ (10,887)
=========== ========== ==========
BASIC AND DILUTED LOSS
PER COMMON SHARE $ (0.13) $ (4.51) $ (8.06)
=========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING
72,000,000 1,670,709 1,350,341
=========== ========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
F-3
<PAGE>
SAVVIS HOLDINGS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES AMOUNTS
-------------------------------- --------------------------------------------------
ADDITIONAL DEFERRED
COMMON TREASURY COMMON PAID-IN COMPEN- ACCUMULATED
STOCK STOCK STOCK CAPITAL SATION DEFICIT
----- ----- ----- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 1,753,751 127,838 $ 2 $5,954 $ (78) $(40,971)
Issuance of common stock upon
exercise of stock options 68,333 -- -- 28 -- --
Recognition of deferred compensation -- -- -- -- 78 --
Acquisition of the Company by Bridge
Information Systems 70,177,916 (127,838) 718 25,044 -- 40,971
Net loss (9,235)
----------- --------- ------ --------- -------- --------
BALANCE, JUNE 30, 1999 72,000,000 -- $720 $31,026 $ -- $ (9,235)
=========== ========= ====== ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
AMOUNTS TOTAL
---------- ----------------
TREASURY
STOCK
-----
<S> <C> <C>
BALANCE, JANUARY 1, 1999 $ (64) $(35,157)
Issuance of common stock upon
exercise of stock options -- 28
Recognition of deferred compensation -- 78
Acquisition of the Company by Bridge
Information Systems 64 66,797
Net loss (9,235)
---------- -----------
BALANCE, JUNE 30, 1999 $ -- $ 22,511
========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
F-4
<PAGE>
SAVVIS HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------- -----------------------------------------
SUCCESSOR PREDECESSOR
------------------- -----------------------------------------
PERIOD FROM PERIOD FROM SIX MONTHS ENDED
APRIL 7 TO JUNE 30, JANUARY 1 TO APRIL 6, JUNE 30,
1999 1999 1988
------------------- -------------------- -----------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net cash used in operating activities $ (6,120) $ (6,185) $ (11,548)
INVESTING ACTIVITIES:
Capital expenditures - net (368) (275) (772)
Acquisition of IXA, net of cash acquired -- -- (750)
----------- ----------- -----------
Net cash used in investing activities (368) (275) (1,522)
----------- ----------- -----------
FINANCING ACTIVITIES:
Purchase of treasury stock -- -- (15)
Proceeds from common stock issuance -- -- 1
Exercise of stock options -- 28 --
Proceeds from Series C preferred stock issuance -- -- 15,487
Proceeds from issuance of Series C warrants -- -- 2,713
Payment of Series C deferred financing costs -- -- (1,440)
Principal payments under capital lease
obligations (176) (182) (306)
Proceeds from issuance of senior convertible
bridge notes -- -- 1,800
Principal payments on borrowings from senior
bridge notes -- -- (1,053)
Proceeds from borrowings from Bridge
Information Systems Notes 6,600 4,700 --
Principal payments on borrowings from bank
notes payable -- (13) (226)
----------- ----------- -----------
Net cash provided by financing activities 6,424 4,533 16,961
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (64) (1,927) 3,891
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 594 2,521 1,398
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 530 $ 594 $ 5,289
=========== =========== ===========
</TABLE>
See notes to unaudited consolidated financial statements. (Continued)
F-5
<PAGE>
SAVVIS HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------- --------------------------------------
SUCCESSOR PREDECESSOR
------------------ --------------------------------------
PERIOD FROM PERIOD FROM SIX MONTHS ENDED
APRIL 7 TO JUNE JANUARY 1 TO JUNE 30,
30, 1999 APRIL 6, 1999 1998
--------------- ------------- -----------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Non-cash investing and financing activities:
Debt incurred under capital lease obligations $ -- $2,634 $1,018
Preferred stock dividends accrued -- 628 587
Amortization of deferred financing costs -- 76 177
Accretion of preferred stock discount -- 168 181
Senior convertible notes exchanged for
preferred stock -- -- 9,200
Issuance of common stock in acquisition
of IXA -- -- 583
Cash paid during the year for interest 97 99 123
</TABLE>
See notes to unaudited consolidated financial statements. (Concluded)
F-6
<PAGE>
SAVVIS HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
1. PRESENTATION
The accompanying unaudited consolidated financial statements of
Savvis Holdings Corporation (the "Company" or "Savvis") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions of Article 10 of
Regulation S-X. Accordingly, the interim financial statements do not
include all of the information and footnotes required by generally
accepted accounting principles for annual financial statements.
On April 7, 1999 (the "acquisition date"), Savvis was acquired by
Bridge Information Systems ("Bridge") in an all stock transaction that was
accounted for as a "purchase transaction" under Accounting Principles
Board Opinion No. 16. Pursuant to the terms of the transaction, Bridge
issued 3,250,000 shares of Bridge common stock in exchange for all the
outstanding equity interests of Savvis. In accordance with the accounting
requirements of the Securities and Exchange Commission, purchase
transactions that result in one entity becoming substantially wholly-owned
by the acquirer establish a new basis of accounting in the acquired
entity's records for the purchased assets and liabilities. Thus, the
purchase price has been allocated, on a preliminary basis, to the
underlying assets purchased and liabilities assumed based on their
estimated fair market values at the acquisition date. The resulting impact
in the unaudited consolidated financial statements was to increase
intangibles, goodwill and other liabilities, to decrease fixed assets, and
to increase additional paid in capital.
In the opinion of the Company's management, the accompanying
unaudited consolidated financial statements contain all adjustments
necessary to present fairly the Company's financial position as of June
30, 1999 and the results of operations and cash flows for the period
subsequent to the Company's purchase by Bridge through June 30 (successor)
and from January 1, 1999 through April 6, 1999 (predecessor) and the six
months ended June 30, 1998 (predecessor). The results of operations are
not necessarily indicative of results that may be expected for any other
interim period or for the full year.
The financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended
December 31, 1998 included elsewhere in this prospectus. Except as
described above, the accounting policies used in preparing these
consolidated financial statements are the same as those described in the
December 31, 1998 consolidated financial statements.
F-7
<PAGE>
2. BUSINESS COMBINATIONS
As discussed in Note 1, Bridge issued 3,250,000 shares of Bridge
common stock for all the outstanding equity interests of Savvis. The total
cost of the acquisition exceeded the fair value of Savvis' net assets by
$23,767 which is being amortized over 10 years. In addition, a portion of
the purchase price was allocated to the following tangible and intangible
assets:
<TABLE>
<CAPTION>
ALLOCATED
ASSET PURCHASE PRICE LIFE
----- -------------- ----
<S> <C> <C>
Property and equipment $ 5,600 36-60 months
Trademark 9,500 60
Non-compete agreement 2,700 12
Other intangibles 2,500 12
</TABLE>
Also, in connection with the acquisition, Bridge assumed liabilities of Savvis
in the amount of $11,687.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30,
1999:
<TABLE>
<S> <C>
Computer equipment $ 532
Communications equipment 795
Purchased software 74
Furniture and fixtures 333
Leasehold improvements 258
Equipment under capital lease obligations 3,926
------
5,918
Less: accumulated depreciation (618)
------
Property and equipment, net $5,300
======
</TABLE>
F-8
<PAGE>
4. ACCRUED LIABILITIES
Other accrued liabilities consist of the following at June 30,
1999:
<TABLE>
<S> <C>
Deferred rent $ 196
Accrued interest 206
Loss lease accrual 163
Intercompany payable to Bridge Information Systems 104
Other 789
--------
$ 1,458
========
</TABLE>
5. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable consisted of borrowings by the Company from Bridge.
The outstanding balance on the notes was $11,300 at June 30, 1999 and
interest accrues at a rate of 8% per annum. The carrying value of the note
approximates fair value at June 30, 1999.
The Company leases various equipment under capital leases. Future
minimum lease payments under capital leases are as follows at June 30,
1999:
<TABLE>
<S> <C>
1999 (Six months) $ 595
2000 2,428
2001 2,425
2002 454
--------
Total capital lease obligations 5,902
Less amount representing interest (880)
Less current portion (1,211)
--------
Long-term capital lease obligations $ 3,811
========
</TABLE>
6. SUBSEQUENT EVENTS
STOCK SPLIT - On July 22, 1999, the Board of Directors of the
Company declared a 72,000-for-1 stock split on the Company's shares of
common stock. As a result, the Company had 125 million shares authorized,
72 million shares issued and outstanding with a $.01 par value for each
share of common stock. All references to shares outstanding for the
successor company have been adjusted retroactively for the stock split.
* * * * * *
F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Savvis Holdings Corporation:
We have audited the accompanying consolidated balance sheet of Savvis
Holdings Corporation and subsidiaries (the "Company") as of December 31, 1998,
and the related consolidated statements of operations, changes in stockholders'
deficit, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Savvis Holdings Corporation
and subsidiaries as of December 31, 1998, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
August 12, 1999
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of Savvis Communications Corporation:
We have audited the accompanying consolidated balance sheet of Savvis
Communications Corporation and subsidiaries (the "Company"), a wholly owned
subsidiary of SAVVIS Holdings Corporation, as of December 31, 1997 and the
related consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for each of the two years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Savvis Communications Corporation
and subsidiaries as of December 31, 1997 and the results of their operations and
their cash flows for each of the two years in the period ended December 31, 1997
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has incurred operating losses and
has a working capital deficiency. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
/s/ ERNST & YOUNG, LLP
St. Louis, Missouri
April 23, 1998
F-11
<PAGE>
SAVVIS HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,521 $ 1,398
Accounts receivable, less allowance for doubtful accounts of $149 in
1998 and $128 in 1997 2,649 623
Prepaid expenses 120 304
Other current assets 21 29
----------- ---------
Total current assets 5,311 2,354
PROPERTY AND EQUIPMENT - Net (Note 6) 4,753 1,906
GOODWILL AND INTANGIBLE ASSETS - Net of accumulated amortization of $423 1,197 --
OTHER LONG-TERM ASSETS 193 53
----------- ---------
TOTAL $ 11,454 $ 4,313
=========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 4,498 $ 3,993
Accrued compensation payable 1,140 326
Deferred revenue 71 359
Notes payable to bank - current portion (Note 7) 13 220
Current portion of capital lease obligations (Note 7) 1,097 318
Other accrued liabilities 206 274
----------- ---------
Total current liabilities 7,025 5,490
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION (Note 7) 1,649 491
NOTES PAYABLE TO BANK (Note 7) -- 13
SENIOR CONVERTIBLE NOTES (Note 7) -- 5,400
SENIOR CONVERTIBLE BRIDGE NOTES (Note 7) -- 3,053
COMMITMENTS AND CONTINGENCIES (Note 11)
REDEEMABLE PREFERRED STOCK (Note 4):
Series A, $.01 par value, 1,000,000 shares authorized, 480,228 issued and
outstanding in 1997 -- 5,261
Series A, $.001 par value, 517,410 shares authorized, 502,410
issued and outstanding, liquidation preference of $5,345 5,345 --
Series B, $.001 par value, 5,649,241 shares authorized, 5,649,241
issued and outstanding, liquidation preference of $5,649 5,649 --
Series C, $.001 par value, 30,000,000 shares authorized,
30,000,000 issued and outstanding, liquidation preference of $30,000 - net of 26,943 --
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 50,000,000 shares authorized, 1,753,751 issued
and outstanding in 1998 ($.01 par value, 38,000,00 authorized,
1,000,894 issued and outstanding in 1997) 2 10
Additional paid-in capital 5,954 1,481
Accumulated deficit (40,971) (16,837)
Deferred compensation (78) --
Treasury stock (64) (49)
----------- ---------
Total stockholders' deficit (35,157) (15,395)
----------- ---------
TOTAL $ 11,454 $ 4,313
=========== =========
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
SAVVIS HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Service $12,827 $2,395 $194
Installation 538 317 82
Other 309 46 14
---------- --------- -------
Total revenue 13,674 2,758 290
---------- --------- -------
DIRECT COSTS AND OPERATING EXPENSES:
Data communications and operations 20,889 11,072 1,044
Selling, general and administrative 12,245 5,130 1,204
Depreciation and amortization 2,208 631 153
---------- --------- -------
Total direct costs and operating expenses 35,342 16,833 2,401
---------- --------- -------
LOSS FROM OPERATIONS (21,668) (14,075) (2,111)
NONOPERATING INCOME (EXPENSE):
Interest income 383 -- --
Interest expense (458) (427) (60)
---------- --------- -------
Total nonoperating income (expense) (75) (427) (60)
---------- --------- -------
LOSS BEFORE INCOME TAXES (21,743) (14,502) (2,171)
INCOME TAXES (Note 10) -- -- --
---------- --------- -------
NET LOSS (21,743) (14,502) (2,171)
PREFERRED STOCK DIVIDENDS (1,821) (151) --
AMORTIZATION OF DEFERRED
FINANCING COSTS AND DISCOUNT ON
SERIES C PREFERRED STOCK (570) -- --
---------- --------- -------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS $ (24,134) $(14,653) $(2,171)
========== ========= =======
BASIC AND DILUTED LOSS
PER COMMON SHARE $ (16.28) $ (15.69) $ (2.42)
========== ========= =======
WEIGHTED AVERAGE SHARES OUTSTANDING 1,482,151 933,922 895,764
========== ========= =======
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
SAVVIS HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF SHARES AMOUNTS
--------------------------- ----------------------------------------
ADDITIONAL DEFERRED
COMMON TREASURY COMMON PAID-IN COMPEN-
STOCK STOCK STOCK CAPITAL SATION
----- ----- ----- ------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 776,050 -- $ 8 $ 93 $ --
Issuance of common stock 224,844 -- 2 1,366 --
Issuance of common stock upon
exercise of stock options -- -- -- 22 --
Net loss
---------- --------- ------ ------- -------
BALANCE, DECEMBER 31, 1996 1,000,894 -- 10 1,481 --
Purchase of shares for treasury -- 122,838 -- -- --
Dividends declared on Series A
Preferred Stock
Net loss
---------- --------- ------ ------- -------
BALANCE, DECEMBER 31, 1997 1,000,894 122,838 10 1,481 --
Transfer to additional paid-in capital related
to change in par value -- -- (9) 9 --
Issuance of common stock 50 -- -- 1 --
Issuance of in-the-money options 171 (78)
Issuance of common stock for
acquisition of IXA 728,575 -- 1 582 --
Issuance of common stock upon
exercise of stock options 24,232 -- -- 10 --
Dividends declared on Series C
Preferred Stock
Amortization of deferred financing costs and
discount on Series C Preferred Stock
Purchase of shares for treasury -- 5,000 -- -- --
Issuance of Series C warrants (Note 3) -- -- -- 3,700 --
Net loss ---------- --------- ------ ------- -------
BALANCE, DECEMBER 31, 1998 1,753,751 127,838 $ 2 $ 5,954 $ (78)
========== ========= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS TOTAL
--------------------------- -------------
ACCUMULATED TREASURY
DEFICIT STOCK
------- -----
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ (13) $ -- $ 88
Issuance of common stock 1,368
Issuance of common stock upon
exercise of stock options -- -- 22
Net loss (2,171) -- (2,171)
----------- -------- -----------
BALANCE, DECEMBER 31, 1996 (2,184) -- (693)
Purchase of shares for treasury -- (49) (49)
Dividends declared on Series A (151) -- (151)
Preferred Stock
Net loss (14,502) -- (14,502)
----------- -------- ----------
BALANCE, DECEMBER 31, 1997 (16,837) (49) (15,395)
Transfer to additional paid-in capital related
to change in par value --
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
AMOUNTS TOTAL
--------------------------- -------------
ACCUMULATED TREASURY
DEFICIT STOCK
------- -----
<S> <C> <C> <C>
Issuance of common stock -- -- 1
Issuance of in-the-money options -- -- 93
Issuance of common stock for
acquisition of IXA -- -- 583
Issuance of common stock upon
exercise of stock options -- -- 10
Dividends declared on Series C
Preferred Stock (1,821) -- (1,821)
Amortization of deferred financing costs and
discount on Series C Preferred Stock (570) -- (570)
Purchase of shares for treasury -- (15) (15)
Issuance of Series C warrants (Note 3) 3,700
Net loss (21,743) -- (21,743)
----------- -------- ----------
BALANCE, DECEMBER 31, 1998 $ (40,971) $ (64) $ (35,157)
=========== ======== ==========
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE>
SAVVIS HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(21,743) $(14,502) $(2,171)
Reconciliation of net loss to net cash used in
operating activities:
Depreciation and amortization 2,208 631 153
Gain on early extinguishment of lease obligations
(18) -- --
Compensation expense relating to the issuance
of options
93 -- --
Net changes in operating assets and liabilities net of effect of
acquisition:
Accounts receivable (1,885) (527)
(96)
Other current assets
63 4 (33)
Other assets (141) (53) --
Prepaid expenses 183 (250)
(53)
Accounts payable 3,316 676
61
Deferred revenue (288) 294
65
Other accrued liabilities 585 166
907
Net cash used in operating activities (20,560) (10,502) (1,293)
INVESTING ACTIVITIES:
Capital expenditures - net (1,688) (697) (884)
Acquisition of IXA (750) -- --
Net cash used in investing activities (2,438) (697) (884)
------ ---- ----
FINANCING ACTIVITIES:
Purchase of treasury stock (15) (49) --
Proceeds from common stock issuance 1 -- 1,369
Exercise of stock options 10 -- 22
Proceeds from Series A preferred stock issuance -- 250 500
Proceeds from Series C preferred stock issuance 22,500 -- --
Proceeds from issuance of Series C warrants 3,700 -- --
Payment of Series C deferred financing costs (1,747) -- --
Principal payments under capital lease obligations (793) (218) (20)
Proceeds from issuance of senior convertible notes -- 5,400 --
Proceeds from issuance of senior convertible
bridge notes 1,800 3,053 --
Principal payments on borrowings from senior
convertible bridge notes (1,053) -- --
Proceeds from borrowings from notes payable -- 3,725 950
Principal payments on borrowings from bank notes
payable (282) (137) (81)
Net cash provided by financing activities 24,121 12,024 2,740
</TABLE>
(Continued)
F-16
<PAGE>
SAVVIS HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 1,123 $ 825 $ 563
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,398 573 10
-------- -------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,521 $ 1,398 $ 573
======== ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Non-cash investing and financing activities:
Debt incurred under capital lease obligations $ 2,835 $ 718 $ 277
Forgiveness of capital lease obligations in
exchange for property 279 -- --
Preferred stock dividends 1,821 151 --
Amortization of financing costs 234 -- --
Accretion of preferred stock discount 336 -- --
Senior convertible notes exchanged for preferred
stock 9,200 -- --
Issuance of common stock in acquisition of IXA 583 -- --
Cash paid for interest 262 227 24
</TABLE>
See notes to consolidated financial statements. (Concluded)
F-17
<PAGE>
SAVVIS HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -Savvis Holdings Corporation ("Holdings"), together with
its wholly owned subsidiary, Savvis Communications Corporation ("SCC"),
and its predecessor company, Savvis Communications Enterprises L.L.C.
("LLC"), are referred to herein as the "Company". The Company provides
high-speed Internet access and high-end private Intranet services to
corporations throughout the United States. The Company also offers
colocation services, network operations, and related engineering services.
The Company's operations are subject to certain risks and
uncertainties, including, among others, actual and prospective competition
by entities with greater financial and other resources, risks associated
with the development of the Internet market, risks associated with growth
and domestic expansion, risks associated with limited experience in the
market, technology and regulatory risks, and dependence upon sole and
limited source suppliers.
PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of Holdings, SCC and LLC. On March 4, 1998
the Company entered into a transaction, which is discussed below, that
modified the corporate structure so that Holdings became the holding
company of SCC.
On July 31, 1997, SCC formed the LLC as a prerequisite to
obtaining $5,400 in financing through the issuance of senior convertible
promissory notes. The LLC functioned as SCC's primary operating entity,
owning all customer contracts entered into in connection with the
business, from July 30, 1997 until it was merged back into the Company on
April 30, 1998.
Ownership of the LLC was split between Class B shares, of which
SCC owned all 8,750,000 shares, and Class A shares, of which the LLC's
senior convertible promissory noteholders owned all 5,400,000 shares. Both
classes of stock had equal voting rights and liquidation preferences. The
distinction between the two was that the Class A shares had priority to
the allocation of profits and losses of the LLC up to $5,400.
No portion of the 1997 net loss of the LLC was assigned to the
Class A minority interest in the LLC, and as such, these financial
statements reflect all of the LLC's 1997 net loss. This treatment was
deemed appropriate, as the minority shareholders interest in the LLC,
along with the $5,400 in senior convertible promissory notes, was
converted into Series B convertible preferred stock of Holdings on March
4, 1998. The LLC was subsequently merged into SCC on April 30, 1998 and
SCC's Class B shares in the LLC and the senior noteholders' Class A
interest in the LLC were terminated. See Note 3 for further discussion of
the corporate reorganization.
All intercompany balances and transactions have been eliminated
in consolidation.
CASH AND CASH EQUIVALENTS - All highly liquid investments with a
maturity of three months or less are considered to be cash equivalents.
F-18
<PAGE>
PROPERTY AND EQUIPMENT - Property and equipment are recorded at
cost and depreciated using the straight-line method over estimated useful
lives of three to five years. Leasehold improvements are amortized over
the term of the related lease.
OTHER ASSETS - Other assets consist primarily of deposits for
network services.
EQUIPMENT UNDER CAPITAL LEASES - The Company leases certain of
its data communications equipment and other fixed assets under capital
lease agreements. The assets and liabilities under capital leases are
recorded at the lesser of the present value of aggregate future minimum
lease payments, including estimated bargain purchase options, or the fair
value of the assets under lease. Assets under these capital leases are
amortized over the terms of the leases, which are generally three years.
GOODWILL AND INTANGIBLE ASSETS - Goodwill is being amortized over
ten years and intangible assets over one to two years, all using the
straight-line method. The goodwill life was determined at the acquisition
date based on market and industry factors.
LONG-LIVED ASSETS - The Company periodically evaluates the net
realizable value of long-lived assets, including intangible assets,
goodwill and property and equipment, relying on a number of factors
including operating results, business plans, economic projections and
anticipated future cash flows. An impairment in the carrying value of an
asset is recognized when the expected future operating cash flows to be
derived from the asset are less than its carrying value. In addition, the
Company's evaluation considers nonfinancial data such as market trends,
product and development cycles, and changes in management's market
emphasis. There has been no impairment recognized during the years ended
1998, 1997 and 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of
borrowings are estimated by discounting the future cash flows using
borrowing rates for similar arrangements with similar maturities.
REVERSE STOCK SPLIT - On September 4, 1997, the Board of
Directors of the Company declared a 1-for-20 reverse stock split on the
Company's shares of common and Series A preferred stock. The par value of
shares of common and Series A preferred stock remained $0.01 per share
until the formation of Savvis Holdings in March of 1998, at which time the
par value changed to $0.001 per share. All references in the financial
statements referring to shares, per share amounts, options, and warrants
have been adjusted retroactively for the reverse stock split.
REVENUE RECOGNITION - Service revenues consist primarily of
monthly Internet access service fees, which are fixed monthly amounts.
Services were billed one month in advance in both 1997 and 1996. Services
were billed in the current month beginning in March of 1998. Payments
received in advance of providing services are deferred until the period
such services are provided. Equipment sales and installation charges are
recognized when equipment is delivered and installation is completed.
ADVERTISING COSTS - Advertising costs are expensed as incurred.
INCOME TAXES - SCC was originally incorporated as an S
Corporation under the provisions of the Internal Revenue Code. Under S
Corporation provisions, SCC generally did not pay any federal or state
corporate income tax on its taxable income. Instead, SCC's taxable loss
was reported by the stockholders on their individual income tax returns.
Effective November 12, 1996, SCC changed its tax status from an S
Corporation to a C Corporation. Accordingly, income taxes for the Company
for fiscal 1998 and 1997 are accounted for under the liability method,
which provides for the establishment of deferred tax assets and
liabilities for the net tax effects of
F-19
<PAGE>
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and for income tax purposes.
EMPLOYEE STOCK OPTIONS - The Company accounts for employee stock
options in accordance with Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees. Under APB No. 25, the
Company recognizes compensation cost based on the intrinsic value of the
equity instrument awarded as determined at grant date. The Company is also
subject to disclosure requirements under Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation which
requires pro forma information as if the fair value method prescribed by
SFAS No. 123 had been applied (see Note 9).
NEW ACCOUNTING STANDARDS - In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 131, Disclosures about Segments of an Enterprise
and Related Information, which establishes standards for the way that
public enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued.
SFAS No. 131 is effective for years beginning after December 15, 1997. The
statement has not had an impact on the Company's financial statement
disclosures as its financial statements reflect how the "chief operating
decision maker" manages the business, i.e., as a single segment.
In June 1997, FASB issued SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. SFAS
No. 130 is effective for years beginning after December 15, 1997. The
statement has not had an impact on the Company's financial statements as
the Company has no other comprehensive income to report.
In February 1997, FASB issued SFAS No. 128, Earnings Per Share,
which replaced primary and fully diluted earnings per share with basic and
diluted earnings per share. SFAS No. 128 is effective for years ending
after December 31, 1997. All loss per share amounts for all periods have
been presented to conform to SFAS No. 128. All stock options and warrants
outstanding have been excluded from the computation of diluted loss per
share, as their effect would be antidilutive, and accordingly, there is no
reconciliation between basic and diluted loss per share for each of the
years presented.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 98-5, Reporting on the
Costs of Start-Up Activities. This standard requires companies to expense
the costs of start-up activities and organization costs as incurred. In
general, SOP 98-5 is effective for fiscal years beginning after December
15, 1998. The adoption of SOP 98-5 is not expected to have a material
impact on the Company's results of operations.
In June 1998, FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and
reporting standards for derivative instruments and hedging activities.
SFAS No. 133 was amended by SFAS No. 137, which delays the effective date
of SFAS No. 133 to fiscal years and quarters beginning after June 15,
2000. SFAS No. 133 requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The Company is assessing the
requirements of SFAS No. 133 and the effects, if any, on the Company's
financial position, results of operations and cash flows.
CONCENTRATIONS OF CREDIT RISK - Financial instruments that
potentially subject the Company to concentrations of credit risk consist
principally of accounts receivable. This risk is limited due to the large
number of customers comprising the Company's customer base. The
F-20
<PAGE>
Company periodically reviews the credit quality of its customers and
generally does not require collateral.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
RECLASSIFICATIONS - Certain 1997 and 1996 information has been
reclassified to conform to the 1998 presentation.
2. SUBSEQUENT EVENTS
PURCHASE BY BRIDGE INFORMATION SYSTEMS, INC. - On April 7, 1999,
the Company was purchased by Bridge Information Systems, Inc. ("Bridge").
Pursuant to the terms of the transaction, Bridge issued 3,250,000 shares
of Bridge common stock in exchange for all outstanding equity interests of
the Company. To effect the transaction, the Series A, B and C Preferred
Shareholders received their respective liquidation preferences (see Note
4) in the form of Bridge common stock. The Company's Series C warrant
holders also exercised their warrants and participated with the other
common shareholders and employee option holders in exchanging their common
shares for remaining Bridge common shares. Series A warrant holders and
those holding common warrants with a strike price per warrant of $4.13
exchanged their warrants for warrants to purchase Bridge common stock.
Company stock options outstanding at the date of the transaction were
converted into options to purchase Bridge common stock. Subsequent to the
purchase, Bridge has the intent to support and fund operations of Savvis
throughout fiscal year 1999.
STOCK SPLIT - On July 22, 1999, the Board of Directors of the
Company declared a 72,000-for-1 stock split on the Company's shares of
common stock. As a result, the Company had 125 million shares authorized,
72 million shares issued and outstanding with a $.01 par value for each
share of common stock. Due to the acquisition by Bridge, the stock split
has not been reflected in the financial statements.
STOCK OPTION ACTIVITY - Also on July 22, 1999, the Company's
Board of Directors adopted a new stock option plan and authorized 8
million stock options to be granted under the plan. Between July and
October 1999, the Company granted options to purchase 3,674,000 shares of
the its common stock to certain employees of Bridge Information Systems,
Inc. In that same period, the Company granted options to purchase up to
2,575,250 shares of its common stock to certain employees. All of these
options were granted pursuant to the 1999 Stock Option Plan. On that same
date, the Company offered its employees an election to convert options to
purchase 236,882 shares of common stock of Bridge into options to purchase
236,882 shares of common stock of Savvis.
PRIVATE PLACEMENT (UNAUDITED) - On September 10, 1999, Bridge,
100% parent of Savvis, sold in a private placement 18,129,721 shares of
Savvis common stock to Bridge shareholders.
F-21
<PAGE>
3. CORPORATE REORGANIZATION AND FINANCING TRANSACTIONS
The Company was originally organized in November 1995 and
operated as SCC. Subsequently, the Company entered into the following
transactions:
In 1996, SCC issued 46,996 shares of Series A convertible
preferred stock at a price of $10.64 per share. In conjunction with the
issuance, 175,047 warrants to purchase Series A preferred stock were
issued. The warrants had an exercise period of five years from the date of
issue at an exercise price of $10.64, which approximated the market value
of the stock at the date of issuance.
Between February 7 and July 31, 1997, SCC entered into the
following transactions:
o Issuance of convertible notes to investors totaling $3,700.
These notes, along with a $500 convertible note issued in 1996
plus accrued interest, were converted into 409,736 shares of
Series A convertible preferred stock at a price of $10.64 per
share on July 31, 1997. The 175,047 warrants to purchase
Series A preferred stock were canceled upon conversion of the
notes on July 31, 1997.
On July 31, 1997, SCC formed the LLC, which functioned as SCC's
primary operating entity, as a prerequisite for the following
transactions:
o Issuance of senior convertible notes (senior notes) for
$5,400. In return for lending the LLC $5,400, the senior
noteholders received 5.4 million Class A shares of the LLC for
an aggregate nominal fee of $1,000. The senior notes were
unsecured, accrued interest at a rate of 8% per annum, and had
a term of five years.
Between October 31 and December 31, 1997, LLC entered into the
following transactions:
o Issuance of $3,100 in senior convertible bridge notes ("senior
bridge notes").
o Issuance of 349,228 five-year detachable warrants in
conjunction with the issuance of the senior bridge notes. (See
discussion below regarding subsequent exchange)
o Issuance of 23,496 shares of Series A convertible preferred
stock at a price of $10.64 per share.
During 1998 an additional $1,800 of LLC senior bridge notes were
issued.
On March 3, 1998, the Company's owners formed Holdings. At this
time, Holdings entered into the following transactions:
o Issuance of 502,410 shares of Series A Preferred Stock in
Holdings in exchange for all outstanding Series A Preferred
Stock of SCC (480,228 shares) plus accrued dividends.
o Issuance of 15,000 warrants to purchase Series A Preferred
Stock of Holdings at $10.64 per share in exchange for an equal
amount of Series A Preferred Stock Warrants of SCC with the
same strike price. The exercise period for these warrants
expires on May 29, 2002.
o Conversion of $5,400 in senior notes and accrued interest of
$249 to 5,649,241 Class B shares of the LLC. These Class B
shares were then immediately exchanged for an equal number of
shares of Series B Preferred Stock in Holdings. In conjunction
with the transaction, the 5.4 million Class A shares of the
LLC were cancelled.
o Issuance of 1,606,682 shares of $.001 par common stock of
Holdings in exchange for all of the $.01 par common stock of
SCC.
F-22
<PAGE>
o Issuance of 22,000,000 shares of Class C Preferred Stock and
7,578,506 detachable Series C common stock warrants of
Holdings for $18,200 in cash and exchange of $3,800 of LLC
senior bridge notes. The remaining senior bridge notes were
repaid from the proceeds of the financing.
o Issuance of 349,228 warrants to purchase common stock at a
strike price of $4.13 were exchanged for an equal amount of
warrants to purchase common stock of SCC with the same strike
price. The warrants expire on the earlier of ten years from
the date of issuance or five years from the date of an initial
public offering.
On July 1, 1998, Holdings issued an additional 8,000,000 shares
of Series C Preferred Stock and 2,755,821 detachable common stock warrants
for $8,000 in cash.
The Company, based on an independent valuation, assigned $3,700
to the value of the detachable Series C common stock warrants issued in
the March 1998 and July 1998 transactions. The $3,700 was recorded as a
discount on the preferred stock and an increase in additional paid in
capital. Financing costs of $1,800 were recorded as a discount against the
preferred stock. This resulted in $24,600 of value assigned to the Series
C Preferred Stock, with the difference between such value and the $30,000
redemption value being amortized through the mandatory redemption date.
Amortization is being charged to accumulated deficit.
4. REDEEMABLE PREFERRED STOCK AND STOCK WARRANTS
HOLDINGS SERIES A PREFERRED STOCK - The Series A Preferred ranks
junior to the Series C Preferred and the Series B Preferred, but senior to
all other classes of stock as to liquidation, dividends, redemptions, and
any other payment or distribution with respect to capital stock. The
Series A Preferred shall be redeemed on December 31, 2003, after (i) all
shares of Series C Preferred have been redeemed by payment in full of the
aggregate Series C liquidation preference and (ii) all shares of Series B
Preferred have been redeemed by payment in full of the aggregate Series B
redemption price. The mandatory redemption price for each share of the
Series A Preferred shall be equal to the greater of the Series A
liquidation preference or the fair market value per share of the Series A
Preferred, as determined in accordance with the Certificate of
Incorporation. Holders of the Series A Preferred shall be entitled to
convert each share of Series A Preferred into 3.5946 shares of common
stock. The Series A conversion ratio is subject to adjustment in
connection with certain issuances of capital stock of the holders and as
otherwise set forth in the Certificate of Incorporation. Each holder of
Series A Preferred shall be required to convert all of its shares of
Series A Preferred, at the then-effective Series A conversion ratio, upon
(i) the vote of 66 2/3 percent of the then-outstanding shares of Series A
Preferred or (ii) upon the demand of the Company in connection with the
public offering and sale of shares of capital stock of the Company
resulting in gross proceeds of at least $10,000. Holders of Series A
Preferred shall be entitled to vote on all matters on which the common
stockholders may vote. Each share of Series A Preferred shall be entitled
to 3.5946 votes. The Series A Preferred holders are not entitled to
dividends.
HOLDINGS SERIES B PREFERRED STOCK - The Series B Preferred ranks
junior to the Series C Preferred, but senior to all other classes of the
Company's stock as to liquidation, dividends, redemptions, and any other
payment or distribution with respect to capital stock. The Series B
Preferred shall be redeemed on December 31, 2003 after all shares of
Series C Preferred have been redeemed by payment in full of the aggregate
Series C liquidation preference. The mandatory redemption price for each
share of the Series B Preferred shall be equal to the greater of the
Series B liquidation preference or the then-applicable fair market value
per share of the Series B Preferred, as determined in accordance with the
Certificate of Incorporation. At any time, holders
F-23
<PAGE>
of the Series B Preferred shall be entitled to convert each share of
Series B Preferred into 0.337838 share of common stock. The Series B
conversion ratio is subject to adjustment in connection with certain
issuances of capital stock of the Company and as otherwise set forth in
the Certificate of Incorporation. Each holder of Series B Preferred shall
be required to convert all of its shares of Series B Preferred, at the
then-effective Series B conversion ratio, upon (i) the vote of 66 2/3
percent of the then-outstanding shares of Series B Preferred and the
Series A Preferred (voting together as a class) or (ii) upon the demand of
the Company in connection with the public offering and sale of shares of
capital stock of the Company resulting in gross proceeds of at least
$10,000. Holders of Series B Preferred shall be entitled to vote on all
matters on which the common stockholders may vote. Each share of Series B
Preferred shall be entitled to approximately 0.33784 vote. The Series B
Preferred holders are not entitled to dividends.
HOLDINGS SERIES C PREFERRED STOCK - The Series C Preferred ranks
senior to all other classes of stock of the Company as to liquidation,
dividends, redemptions, and any other payments and has a liquidation
preference equal to the Series C price per share of $1 plus accrued and
unpaid dividends ("liquidation preference"). Dividends accrue quarterly at
8 percent and may be paid in cash, and to the extent not paid in cash,
such dividends will be added to the liquidation preference of the Series C
Preferred for the first five years at the option of the Company;
thereafter dividends are payable in cash. The Series C Preferred shall be
redeemed on December 31, 2003 at a mandatory price equal to the
liquidation preference. The Company is required, upon the demand of
holders of at least 25 percent of the outstanding Series C Preferred, to
redeem all of the Series C Preferred upon a change of control, failure to
make any required dividend payments, and certain other conditions as
defined in the agreement. The Company has the option to redeem the Series
C Preferred in whole or in part upon ten business days' notice for an
amount equal to the liquidation preference. Holders of Series C Preferred
shall be entitled to vote on all matters on which the common stockholders
may vote and are entitled to 0.34448 vote per share. In addition, the
Certificate of Incorporation provides that for so long as at least 1
million shares of Series C Preferred are outstanding, the holders of 66
2/3 percent of the Series C Preferred shall be entitled to elect four of
the Company's seven directors.
SCC SERIES A PREFERRED STOCK - SCC Series A Preferred, which was
exchanged on March 4, 1998 for Holdings Series A Preferred plus accrued
dividends, ranked senior to all other then outstanding classes of stock as
to liquidation, dividends, redemptions, and any other payment or
distribution with respect to capital stock. The Series A Preferred was
redeemable beginning February 2002 and continuing through 2004 at the
mandatory redemption price. The mandatory redemption price for each share
of the Series A Preferred was equal to the greater of the Series A
original issuance price or the fair market value per share of the Series A
Preferred, as determined in accordance with the Certificate of
Incorporation, plus accrued and unpaid dividends. Effective August 1,
1997, the terms of the Series A Preferred were amended to entitle the
holders to a dividend rate of 8 percent per annum on the Original Series A
Issuance Price. Holders of the Series A Preferred were entitled to convert
each share of Series A Preferred into such number of fully paid and
nonassessable shares of common stock as determined by dividing the
Original Series A Issuance Price ($10.64) by the conversion price of such
series (Series A Conversion Price) in effect at the time of conversion.
The initial Series A Conversion Price per share was the Original Series A
Issuance Price, subject to certain adjustment provisions of the Agreement.
Each holder of Series A Preferred was required to convert all of its
shares of Series A Preferred, at the then-effective Series A conversion
ratio, upon (i) written consent of 70 percent of the then-outstanding
shares of Series A Preferred or (ii) upon the demand of the Company in
connection with the public offering and sale of shares of capital stock of
the Company resulting in gross proceeds of at least $10,000. Holders of
Series A Preferred were entitled to vote on all matters on which the
common stockholders could vote. Each share of Series A Preferred was
entitled to the number of votes equal to the number of shares of Common
Stock into which such shares of Series A Preferred were convertible.
F-24
<PAGE>
See Note 2 for discussion of the redemption of all of the
Holdings Preferred Stock subsequent to December 31, 1998.
COMMON STOCK WARRANTS - SCC issued 349,228 warrants to purchase
common stock at a strike price of $4.13 per warrant in October 1997 in
conjunction with the issuance of the senior bridge notes. These warrants
were subsequently exchanged for an equal amount of warrants to purchase
common stock of Holdings with the same strike price and remained
outstanding as of December 31, 1998. The warrants expire on the earlier of
10 years from the date of issuance or five years from the date of an
initial public offering. Management believes the value of the warrants is
insignificant.
SERIES C WARRANTS - In connection with the issuance of Series C
Preferred Stock in March and July of 1998, the Company issued 10,334,327
of detachable warrants to purchase common stock of the Company for $.01
per share. The warrants were assigned a value of $3,700. The warrants are
exercisable at any time except that no more than 75 percent of the
warrants are exercisable prior to March 3, 2000. The warrants expire 10
years from date of issuance. The warrants provide, subject to certain
clawback provisions in the event of a qualified public offering, the
Series C Preferred holders with 44.88 percent of the common stock of the
Company on a fully diluted basis. All Series C warrants were outstanding
as of December 31, 1998.
SERIES A WARRANTS - SCC issued 15,000 warrants to purchase Series
A Preferred shares of the Company for $10.64 per share to certain
investors and consultants for the performance of services on May 28, 1997.
These warrants vested immediately. Compensation expense recorded with
respect to these warrants was $160 in 1997. These warrants were
subsequently exchanged for an identical number of warrants to purchase
Series A Preferred shares of Holdings on March 4, 1998 and remained
outstanding as of December 31, 1998.
5. BUSINESS COMBINATION
On March 4, 1998, the Company acquired all of the outstanding
shares of Interconnected Associates, Inc. ("IXA") for $750 in cash and
728,575 shares of the Company's common stock. IXA, which commenced
operations in 1994, was a regional Internet service provider serving
approximately 200 customers from facilities in Seattle and Portland. The
acquisition was accounted for using the purchase method of accounting.
F-25
<PAGE>
A summary of the cash and non-cash components of the acquisition
is as follows:
<TABLE>
<S> <C>
Fair value of intangible assets acquired, including goodwill $1,620
Fair value of property acquired 369
Net liabilities assumed (656)
--------
Total purchase price 1,333
Fair value of common stock issued (583)
--------
Total cash paid $ 750
========
</TABLE>
The following summarized pro forma (unaudited) information
assumes that the acquisition consummated in 1998 had occurred at the
beginning of each period:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues $ 13,903 $ 4,474
Net loss (22,020) (14,494)
</TABLE>
In management's opinion, the pro forma combined results of
operations are not indicative of the actual results that would have
occurred had the acquisition been consummated as of that time or of future
operations of the combined companies under the ownership and operation of
the Company.
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Computer equipment $ 837 $ 259
Communications equipment 1,771 1,000
Purchased software 182 104
Furniture and fixtures 383 58
Leasehold improvements 217 88
Equipment under capital lease obligations 3,553 995
--------- -------
6,943 2,504
Less accumulated depreciation and amortization (2,190) (598)
--------- --------
$ 4,753 $1,906
========= ========
</TABLE>
Effective January 1, 1998, the Company decreased the estimated
remaining useful lives of its computer equipment, communications equipment
and software from five years to three years to more closely reflect the
actual service lives of such equipment. The effect of the change was to
increase depreciation expense and net loss by approximately $486 for the
year ended December 31, 1998.
F-26
<PAGE>
Accumulated amortization for equipment under capital leases for
1998 and 1997 was $831 and $209, respectively. Amortization expense for
1998, 1997 and 1996 was $814, $186 and $23, respectively.
7. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable and convertible notes payable consisted of the
following at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Senior convertible notes, interest at 8%, converted to Series
B preferred stock of Holdings on March 4, 1998 $ -- $5,400
Senior convertible bridge notes, interest at 8%, converted
to Series C preferred stock of Holdings on March 4, 1998 -- 3,053
Note payable to bank, interest at 9.375%, monthly principal
and interest payments of $6, matured February 14, 1999 13 85
Note payable to bank, interest at 9.25%, monthly principal
and interest payments of $8, matured August 1, 1999 148
-------- --------
13 8,686
Less current portion (13) (220)
-------- --------
Long-term portion $ -- $ 8,466
======== ========
</TABLE>
The carrying value of the notes approximates fair value at
December 31, 1998 and 1997. The senior notes and senior bridge notes were
unsecured, accrued interest at a rate of 8% per annum, and had a term of
five years. See Note 3 for discussion of the conversion of senior
convertible and senior bridge notes. The notes payable to the bank are
secured by property and equipment purchased with the proceeds and a
general lien on the assets of the Company. The note bearing the 9.25% rate
was paid off during 1998.
The Company leases various equipment under capital leases.
Future minimum lease payments under capital leases are as
follows:
<TABLE>
<S> <C>
1999 $ 1,343
2000 1,187
2001 614
-------
Total capital lease obligations 3,144
Less amount representing interest (398)
Less current portion (1,097)
-------
Long-term capital lease obligations $ 1,649
=======
</TABLE>
F-27
<PAGE>
8. EMPLOYEE STOCK OPTIONS
Prior to 1997, the Company granted non-qualified stock options to
its employees as directed by the Company's Board of Directors. In January
1997, the Company established the 1997 stock option plan, under which it
is authorized to grant up to 500,000 of either incentive stock options or
non-qualified stock options to it employees. Options under this plan
become exercisable over a three-year vesting period from the date of grant
and expire ten years after the date of grant. The Company issued 204,658
options under this plan during 1997.
Additionally, on July 8, 1997, the Company granted an employee
20,000 options to purchase the Company's common stock at $2.96 per share.
These options vested immediately and have a ten-year life.
Effective October 15, 1997, the Company's Board of Directors
amended and restated the 1997 stock option plan and authorized an
additional 381,431 options to be granted under the plan. As part of this
amendment, the Board of Directors authorized the existing option holders
to exchange their options for incentive stock options priced at $.40 per
share, with a vesting period of four years from the employee's start date.
The incentive options vest 6/48 six months from the employee's start date
and then 1/48 monthly thereafter. Accordingly, options with respect to
233,547 shares of the Company's common stock were cancelled, and new
options with respect to the same number of shares were granted with an
exercise price of $.40 per share, the existing estimated fair market value
of the Company's common stock at the time. An additional 541,308 options
were also granted during 1997 under the same terms as the incentive
options. Two option holders, representing 6,032 options, elected not to
exchange, and accordingly, these options remained outstanding under their
original terms at the end of 1997. Of these options, 5,432 were forfeited
during 1998.
In 1998, the Company's Board of Directors established the 1998
stock option plan, under which it authorized to grant 2,812,834 and
granted 2,326,371 options. These options vest on varying bases over four
years beginning at the later date of six months after the employee's start
date or the grant date, and expire 10 years from the grant date.
The Company has elected to follow APB Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25") and related interpretations in
accounting for its employee stock option plans. Under the provisions of
APB 25, compensation expense is recognized to the extent the value of the
Company's stock exceeds the exercise price of options at the date of
grant. During 1998, the Company recognized $93 of compensation expense for
option grants in 1998 with strike prices that were below the value of the
Company's stock.
Pro forma information regarding net income is required by SFAS
No. 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method of SFAS No. 123. The
fair value of these options was estimated at the date of grant using the
minimum value method. Under this method, the expected volatility of the
Company's common stock is not estimated, as there is no market for the
Company's common stock in which to monitor stock price volatility. The
calculation of the fair value of the options granted in 1998, 1997 and
1996 assumes a risk-free interest rate of 5.0 percent, 6.2 percent and 6.7
percent, respectively, an assumed dividend yield of zero, and an expected
life of the options of three years. The weighted average fair value of
options granted was $.17, $.07 and $.03 per share in 1998, 1997 and 1996,
respectively. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options' vesting
periods.
F-28
<PAGE>
Had compensation cost for the Company's stock option plan been
determined consistent with the provisions of SFAS No. 123 based on the
fair value at the grant date, the Company's pro forma net loss would have
been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net loss:
As reported $(21,743) $(14,502) $(2,171)
Pro forma $(21,773) $(14,516) $(2,171)
Basic and diluted net loss per share:
As reported $(16.28) $(15.69) $(2.42)
Pro forma $(14.69) $(15.71) $(2.42)
</TABLE>
The following tables summarizes stock option activity for the
three years ended December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
SHARES PRICE AVERAGE
OF COMMON PER EXERCISE
STOCK OPTIONS SHARE PRICE
------------- ----- --------
<S> <C> <C> <C>
Balance, December 31, 1995 -- $ $ --
Granted 41,129 .20 0.20
----------
Balance, December 31, 1996 41,129 .20 0.20
Granted 999,513 .40 - 2.96 0.67
Forfeited (6,208) 1.20 1.20
Cancelled (233,547) .20 - 1.60 1.29
----------
Balance, December 31, 1997 800,887 .20 - 2.96 0.46
Granted 2,326,371 .30 - .80 0.73
Exercised (24,232) .40 0.40
Forfeited (187,700) .20 - .80 0.38
----------
Balance, December 31, 1998 2,915,326 $.30 - $2.96 $ 0.67
==========
Options exercisable at December 31, 1996 -- $ --
==========
Options exercisable at December 31, 1997 184,008 $.20 - $2.96 $ 0.68
==========
Options exercisable at December 31, 1998 709,881 $.30 - $2.96 $ 0.50
==========
</TABLE>
F-29
<PAGE>
The following table summarizes information about the options
outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
SHARES LIFE PRICE SHARES PRICE
------ ---- ----- ------ -----
<S> <C> <C> <C> <C>
342,696 9.93 0.30 310,437 0.30
657,855 8.81 0.40 261,301 0.40
1,894,175 9.59 0.80 117,889 0.80
600 8.08 1.60 254 1.60
20,000 8.50 2.96 20,000 2.96
--------- --------
2,915,326 9.51 $0.67 709,881 $0.50
========= ========
</TABLE>
9. EMPLOYEE SAVINGS PROGRAM
The Company sponsors an employee savings plan that qualifies as a
defined contribution arrangement under Section 401(k) of the Internal
Revenue Code. Participating employees may contribute a percentage of their
base salary, subject to certain limitations. The plan was put into place
during 1998 and the Company made no contributions to the plan during 1998.
10. INCOME TAXES
No provision for income taxes was provided for the years ended
December 31, 1998, 1997, and 1996 as the potential deferred tax benefit of
$6,853, $3,044, and $208, respectively, resulting primarily from the net
operating losses, was fully offset by a provision to provide a valuation
allowance against such deferred tax benefit.
The components of deferred income tax assets and liabilities are
as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 10,215 $ 3,234
Other 87 44
------------ ----------
Gross deferred tax assets 10,302 3,278
Deferred tax liabilities:
Intangible assets (109) --
Other (88) (26)
------------- -----------
Net deferred tax assets 10,105 3,252
Valuation allowances (10,105) (3,252)
------------- -----------
$ -- $ --
============= ===========
</TABLE>
F-30
<PAGE>
At December 31, 1998 and 1997, the Company recorded a valuation
allowance of $10,105 and $3,252, respectively, against the net deferred
tax asset due to the uncertainty of its ultimate realization. The
valuation allowance increased by $6,853 from December 31, 1997 to December
31, 1998 and by $3,044 from December 31, 1996 to December 31, 1997.
Section 382 of the Internal Revenue Code restricts the
utilization of net operating losses and other carryover tax attributes
upon the occurrence of an ownership change, as defined. Such an ownership
change occurred during 1998 as a result of the corporate reorganization
and financing transactions (see Note 3). Management believes such
limitation will not restrict the Company's ability to utilize the net
operating losses over the 20-year carryforward period.
At December 31, 1998, the Company has approximately $30,000 in
U.S. Federal net operating loss carryforwards expiring between 2011 and
2018.
The effective income tax rate differed from the statutory federal
income tax rate as follows for December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Pretax loss 34% 34% 34%
Federal income tax portion of changes in valuation allowance
(32) (16) (10)
Minority interest in net operating loss (1) (18)
S Corporation loss (24)
Other - net (1) (0) (0)
----- ----- ------
Effective income tax rate 0% 0% 0%
===== ===== ======
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Company leases communications equipment and office space
under various operating leases. Future minimum lease payments at December
31, 1998 are as follows:
<TABLE>
<CAPTION>
NETWORK OTHER OFFICE
EQUIPMENT EQUIPMENT SPACE TOTAL
--------- --------- ----- -----
<S> <C> <C> <C> <C>
1999 $ 378 $158 $1,106 $1,642
2000 1,115 126 1,086 2,327
2001 101 906 1,007
2002 38 918 956
2003 13 932 945
Thereafter 901 901
--------- ------ -------- -------
Total $ 1,493 $436 $5,849 $7,778
========= ====== ======== =======
</TABLE>
Rental expense under operating leases for the years ended
December 31, 1998, 1997 and 1996, was $1,905, $1,924, and $110,
respectively.
EMPLOYMENT AGREEMENT - On December 4, 1998 the Company entered
into an employment agreement with the Company's new President and Chief
Executive Officer. In connection with his employment, the executive
received an option to purchase the number of shares of the Company's
common stock, which constituted 5% of the current fully diluted number
F-31
<PAGE>
of all shares of common stock. One-third of the options vested immediately
with the balance to vest over 42 months. All unvested options vested
immediately upon the purchase of the Company by Bridge. See Note 2 for
discussion of the purchase.
LITIGATION - The Company is subject to various legal proceedings
and other actions arising out of the normal course of business. While the
results of such proceedings and actions cannot be predicted, management
believes, based on the advice of legal counsel, that the ultimate outcome
of such proceedings and actions will not have a material adverse effect on
the Company's financial position, results of operations or cash flows.
12. VALUATION AND QUALIFYING ACCOUNTS
Activity in the Company's allowance for doubtful accounts was as follows:
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
YEAR EXPENSES DEDUCTIONS END OF YEAR
------------ -------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1996 $ -- $ 16 $ -- $ 16
December 31, 1997 16 254 (142) 128
December 31, 1998 128 278 (257) 149
</TABLE>
* * * * * *
F-32
<PAGE>
________ Shares
SAVVIS Communications Corporation
Common Stock
--------------
PROSPECTUS
--------------
, 1999
Merrill Lynch & Co.
Morgan Stanley Dean Witter
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the common stock being registered. All amounts shown are
estimates except for the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount
------
<S> <C>
SEC registration fee.................................................................... $ 20,850
NASD filing fee......................................................................... 8,000
Nasdaq National Market listing fee...................................................... *
Blue sky fees and expenses.............................................................. *
Accounting fees and expenses............................................................ *
Legal fees and expenses................................................................. *
Printing and engraving expenses......................................................... *
Transfer agent fees and expenses........................................................ *
Miscellaneous expenses.................................................................. *
-------------
Total.............................................................................. $ *
==============
</TABLE>
- ---------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, a
corporation may indemnify its directors, officers, employees and agents and its
former directors, officers, employees and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The Delaware General
Corporation Law provides, however, that such person must have acted in good
faith and in a manner such person reasonably believed to be in (or not opposed
to) the best interests of the corporation and, in the case of a criminal action,
such person must have had no reasonable cause to believe his or her conduct was
unlawful. In addition, the Delaware General Corporation Law does not permit
indemnification in an action or suit by or in the right of the corporation,
where such person has been adjudged liable to the corporation, unless, and only
to the extent that, a court determines that such person fairly and reasonably is
entitled to indemnity for costs the court deems proper in light of liability
adjudication. Indemnity is mandatory to the extent a claim, issue or matter has
been successfully defended.
The Registrant's certificate of incorporation contains provisions that
provide that no director of the Registrant shall be liable for breach of
fiduciary duty as a director, except for (1) any breach of the directors' duty
of loyalty to the Registrant or its stockholders; (2) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of the
law; (3) liability under Section 174 of the Delaware General Corporation Law; or
(4) any transaction from which the director derived an improper personal
II-1
<PAGE>
benefit. The indemnification provided under the Registrant's certificate of
incorporation includes the right to be paid expenses in advance of any
proceeding for which indemnification may be had, provided that the director or
officer undertakes to repay such amount if it is determined that the director or
officer is not entitled to indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the Registrant's formation on March 3, 1998, it has issued and
sold the securities described below in the following unregistered transactions:
(1) On March 4, 1998, in connection with its formation, the
Registrant issued 1,606,682 shares of its common stock in
exchange for all of the outstanding common stock of SAVVIS
Communications Corporation, a Missouri corporation ("SCC"), in
connection with the reorganization of SCC and SAVVIS
Communications Enterprises, L.L.C., a Missouri limited liability
company (the "LLC").
(2) Between March and July 1998, in a series of related transactions,
the Registrant sold to First Union Capital Partners, Inc., BCI
Growth IV, L.P. and R-H Capital Partners, L.P. a total of
18,226,228 shares of its Series C Redeemable Preferred Stock for
$18,226,228; to J.P. Morgan Investment Corporation and Sixty Wall
Street SBIC Fund, L.P. a total of 8,000,000 shares of its Series
C Redeemable Preferred Stock for $8,000,000; and to the holders
of convertible promissory notes of SCC and the LLC a total of
3,773,772 shares of its Series C Redeemable Preferred Stock in
exchange for all the outstanding notes. The Registrant issued to
these investors warrants to purchase up to a total of 10,334,327
shares of its common stock, at an exercise price of $.01 per
share.
(3) On March 4, 1998, the Registrant issued 502,410 shares of its
Series A Convertible Preferred Stock in exchange for all of the
outstanding shares of SCC's Series A Convertible Preferred Stock.
In addition, the Registrant issued warrants to purchase up to
15,000 shares of its Series A Convertible Preferred Stock at an
exercise price of $10.64 per share in exchange for warrants to
purchase an equal amount of shares of SCC's Series A Convertible
Preferred Stock, and warrants to purchase up to 349,228 shares of
its common stock at an exercise price of $4.13 per share in
exchange for warrants to purchase an equal amount of shares of
SCC's common stock.
(4) On March 4, 1998, the Registrant issued 5,649,241 shares of its
Series B Convertible Preferred Stock in exchange for an equal
amount of Class B shares of the LLC.
(5) On March 4, 1998, the Registrant issued 728,575 shares of its
common stock in exchange for the outstanding securities of
Interconnected Associates, Inc.
(6) Between May 1998 and March 1999, the Registrant issued options to
purchase a total of 1,560,968 shares of its common stock to a
total of 177 employees, at exercise prices ranging from $.40 to
$1.10 per share. These options were granted under the
Registrant's 1998 Stock Option Plan.
(7) Between July and October 1999, the Registrant granted options to
purchase 3,674,000 shares of the Registrant's common stock to 121
employees of Bridge Information Systems, Inc. at an exercise
price of $.50 per share. In that same period, the Registrant
granted options to purchase up to 2,575,250 shares of its common
stock to 92 of its
II-2
<PAGE>
employees at an exercise price of $.50 per share. All of these
options were granted pursuant to the Registrant's 1999 Stock
Option Plan. On that same date, the Registrant offered its
employees an election to convert options to purchase 236,882
shares of common stock of Bridge into options to purchase 236,882
shares of common stock of the Registrant at an exercise price of
$.50 per share.
(8) During 1998 and 1999, Registrant issued 92,565 shares of its
common stock pursuant to the exercise of stock options by its
employees for an aggregate purchase price of $36,100.
The Registrant issued the securities described above in reliance on the
exemptions from registration provided by Section 4(2) of the Securities Act, or
Regulation D promulgated under Section 4(2) of the Securities Act, or, with
respect to issuances to employees, or employees of Bridge, Rule 701 promulgated
under Section 3(b) of the Securities Act, as transactions by an issuer not
involving a public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation as provided under Rule 701. The
recipients of securities in these transactions represented their intentions to
acquire these securities for investment only and not with a view to or for sale
in connection with any distribution of the securities. In addition, appropriate
legends were affixed to the instruments representing the securities issued in
these transactions. All recipients had adequate access, through their
relationships with the Registrant, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Number Exhibit Description
- ------ -------------------
<S> <C>
1.1* Form of Underwriting Agreement
3.1** Amended and Restated Certificate of Incorporation of the Registrant
3.2** Amended and Restated Bylaws of the Registrant
4.1* Form of Common Stock Certificate
5.1* Opinion of Hogan & Hartson L.L.P. as to the validity of the shares being offered
10.1** 1999 Stock Option Plan
10.2* Form of Incentive Stock Option Agreement under the 1999 Stock Option Plan
10.3* Form of Non-Qualified Stock Option Agreement under the 1999 Stock Option Plan
10.4* Form of Non-Qualified Stock Option Agreement under the 1999 Stock Option Plan
10.5* Form of Non-Qualified Stock Option Agreement under the 1999 Stock Option Plan
10.6* Amended and Restated Agreement and Plan of Merger, dated March 9, 1999, among the Registrant, SAVVIS Acquisition
Corp. and Bridge Information Systems, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.7* Employment Agreement, dated December 4, 1998, between the Registrant and Clyde A. Heintzelman
10.8* Master Establishment and Transition Agreement between the Registrant and Bridge Information Systems, Inc.
10.9* Administrative Services Agreement between SAVVIS Communications Corporation and Bridge Information Systems, Inc.
10.10* Equipment Collocation Permit between the Registrant and Bridge Information Systems, Inc.
10.11* Local Network Access Agreement between the Registrant and Bridge Information Systems, Inc.
10.12* Network Services Agreement between SAVVIS Communications Corporation and Bridge Information Systems, Inc.
10.13* Transfer Agreement between the Registrant and Bridge Information Systems, Inc.
10.14* Promissory Note made by the Registrant and payable to the order of Bridge Information Systems, Inc.
11.1* Statement regarding computation of net income per share
21.1** Subsidiaries of the Registrant
23.1** Consent of Deloitte & Touche LLP
23.2** Consent of Ernst & Young LLP
23.3* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
24.1** Power of attorney (included in the signature page to this registration
statement)
27.1** Financial Data Schedule
</TABLE>
- -----------
* To be filed by amendment.
** Previously filed.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as may be
required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of St. Louis, State of Missouri, on December 9, 1999.
SAVVIS COMMUNICATIONS CORPORATION
By: /s/ Robert McCormick
-------------------------------
Robert McCormick
Acting President and Chief
Executive Officer and Chairman
of the Board
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons, in the
capacities indicated below, on the dates indicated.
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert McCormick Acting President and Chief Executive December 9, 1999
- -------------------- Officer and Chairman of the Board
Robert McCormick (principal executive officer)
/s/ David J. Frear* Executive Vice President, Chief December 9, 1999
- ------------------ Financial Officer and Director
David J. Frear (principal financial officer and
principal accounting officer)
/s/ Clyde A. Heintzelman* Director December 9, 1999
- -------------------------
Clyde A. Heintzelman
/s/ Thomas McInerney* Director December 9, 1999
- -------------------------
Thomas McInerney
/s/ Patrick Welsh* Director December 9, 1999
- -------------------------
Patrick Welsh
/s/ Thomas M. Wendel* Director December 9, 1999
- ---------------------
Thomas M. Wendel
</TABLE>
*By: /s/ Robert McCormick
---------------------
Robert McCormick
Attorney-in-Fact
and Agent
II-7
<PAGE>
EXHIBIT INDEX
Number Exhibit Description
<TABLE>
<CAPTION>
<S> <C>
1.1* Form of Underwriting Agreement
3.1** Amended and Restated Certificate of Incorporation of the Registrant
3.2** Amended and Restated Bylaws of the Registrant
4.1* Form of Common Stock Certificate
5.1* Opinion of Hogan & Hartson L.L.P. as to the validity of the shares being offered
10.1** 1999 Stock Option Plan
10.2* Form of Incentive Stock Option Agreement under the 1999 Stock Option Plan
10.3* Form of Non-Qualified Stock Option Agreement under the 1999 Stock Option Plan
10.4* Form of Non-Qualified Stock Option Agreement under the 1999 Stock Option Plan
10.5* Form of Non-Qualified Stock Option Agreement under the 1999 Stock Option Plan
10.6* Amended and Restated Agreement and Plan of Merger, dated March 9, 1999, among the Registrant, SAVVIS Acquisition
Corp. and Bridge Information Systems, Inc.
10.7* Employment Agreement, dated December 4, 1998, between the Registrant and Clyde A. Heintzelman
10.8* Master Establishment and Transition Agreement between the Registrant and Bridge Information Systems, Inc.
10.9* Administrative Services Agreement between SAVVIS Communications Corporation and Bridge Information Systems, Inc.
10.10* Equipment Collocation Permit between the Registrant and Bridge Information Systems, Inc.
10.11* Local Network Access Agreement between the Registrant and Bridge Information Systems, Inc.
10.12* Network Services Agreement between SAVVIS Communications Corporation and Bridge Information Systems, Inc.
10.13* Transfer Agreement between the Registrant and Bridge Information Systems, Inc.
10.14* Promissory Note made by the Registrant and payable to the order of Bridge Information Systems, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
11.1* Statement regarding computation of net income per share
21.1** Subsidiaries of the Registrant
23.1** Consent of Deloitte & Touche LLP
23.2** Consent of Ernst & Young LLP
23.3* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
24.1** Power of attorney (included in the signature page to this registration statement)
27.1** Financial Data Schedule
</TABLE>
- -----------
* To be filed by amendment.
** Previously filed.
