AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 2000
REGISTRATION NO. 333-90881
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 6
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
SAVVIS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<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)
</TABLE>
------------------
SAVVIS COMMUNICATIONS CORPORATION
12007 SUNRISE VALLEY DRIVE
RESTON, VA 20191
(703) 453-7500
(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
(703) 453-7500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
Copies to:
<TABLE>
<S> <C>
CHRISTINE M. PALLARES, ESQ. ANDREW R. SCHLEIDER, ESQ.
HOGAN & HARTSON L.L.P. SHEARMAN & STERLING
885 THIRD AVENUE 599 LEXINGTON AVENUE
NEW YORK, NY 10022 NEW YORK, NY 10022
(212) 409-9800 (212) 848-4000
</TABLE>
------------------
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. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) AGGREGATE OFFERING PRICE (2) REGISTRATION FEES (3)
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value......... 19,550,000 $ 25.00 $488,750,000 $130,081
</TABLE>
- --------------------------------------------------------------------------------
(1) The amount of the securities registered includes any securities which the
underwriters have options of purchasing to cover over-allotments.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(3) Includes $32,137 paid herewith and includes $20,850 paid on November 12,
1999 and $77,094 paid on December 30, 1999.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 31, 2000
P R O S P E C T U S
- -------------------
17,000,000 SHARES
[GRAPHIC OMITTED]
SAVVIS COMMUNICATIONS CORPORATION
COMMON STOCK
---------------
This is SAVVIS Communications Corporation's initial public offering of
common stock. SAVVIS Communications Corporation is selling 14,875,000 shares and
Bridge Information Systems, Inc., currently a 69% stockholder of SAVVIS, is
selling 2,125,000 shares.
We expect the public offering price to be between $22.00 and $25.00 per
share. Currently, no public market exists for the shares. The shares have been
approved for quotation on the Nasdaq National Market, subject to notice of
issuance, under the symbol "SVVS."
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 10 OF THIS PROSPECTUS.
---------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- ------
<S> <C> <C>
Public offering price ...................................... $ $
Underwriting discount ...................................... $ $
Proceeds, before expenses, to SAVVIS ....................... $ $
Proceeds, before expenses, to the selling stockholder ...... $ $
</TABLE>
The underwriters may also purchase up to an additional 2,550,000 shares
from the selling stockholder at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover
over-allotments. It is expected that approximately $125 million of the net
proceeds to SAVVIS will be paid by SAVVIS to Bridge.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares will be ready for delivery on or about , 2000.
---------------
Joint Book-Running Managers
MERRILL LYNCH & CO. MORGAN STANLEY DEAN WITTER
---------------
BEAR, STEARNS & CO. INC.
---------------
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
---------------
The date of this prospectus is , 2000.
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 it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
MAP OF THE WORLD SHOWS LOCATIONS OF SAVVIS' PRIVATENAPSSM, PLANNED
PRIVATENAPSSM, ATM SWITCHES, FRAME RELAY SWITCHES AND TRANSMISSION CAPACITY)
[GRAPHIC OMITTED]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary ................................................................... 3
Risk Factors ......................................................................... 10
Forward-Looking Statements ........................................................... 22
Use of Proceeds ...................................................................... 23
Dividend Policy ...................................................................... 23
Capitalization ....................................................................... 24
Dilution ............................................................................. 25
Unaudited Pro Forma Consolidated Financial Statements ................................ 26
Selected Historical Consolidated Financial Data ...................................... 31
Management's Discussion and Analysis of Financial Condition and Results of Operations 33
Business ............................................................................. 41
Relationship with Bridge ............................................................. 60
Management ........................................................................... 64
Transactions with Affiliates ......................................................... 74
Principal Stockholders and Selling Stockholder ....................................... 75
Description of Capital Stock ......................................................... 78
Shares Available for Future Sale ..................................................... 81
Underwriting ......................................................................... 82
Validity of the Shares ............................................................... 86
Experts .............................................................................. 86
Change in Certifying Accountants ..................................................... 86
Where You May Find Additional Information ............................................ 86
Index to Consolidated Financial Statements ........................................... F-1
</TABLE>
---------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT, AND THE UNDERWRITERS HAVE NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE
YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT
INFORMATION, YOU SHOULD NOT RELY ON IT. WE ARE NOT, AND THE UNDERWRITERS 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
PROSPECTS MAY HAVE CHANGED SINCE THAT DATE.
MARKET DATA AND SEVERAL INDUSTRY FORECASTS USED THROUGHOUT THIS PROSPECTUS
WERE OBTAINED FROM MARKET RESEARCH, PUBLICLY AVAILABLE INFORMATION AND INDUSTRY
PUBLICATIONS.
<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, a Delaware corporation, formerly SAVVIS
Holdings Corporation, and its subsidiaries, except where by the context it is
clear that such terms mean only SAVVIS Communications Corporation.
Unless otherwise indicated, all information in this prospectus assumes the
underwriters do not exercise their over-allotment option and reflects the
72,000-for-1 stock split of our outstanding common stock on July 22, 1999.
SAVVIS is a subsidiary of Bridge Information Systems, Inc., or Bridge, which
owns approximately 69% of SAVVIS' outstanding common stock.
SAVVIS
OUR BUSINESS
We are a rapidly growing provider of high quality, high performance global
data networking and Internet-related services to medium and large businesses,
multinational corporations and Internet service providers. We currently offer
the following services:
o MANAGED DATA NETWORKING SERVICES that provide secure, high quality data
communication links over our network to connect a customer's
geographically dispersed offices, known as intranets, or to connect with
its customers and suppliers, known as extranets.
o HIGH BANDWIDTH INTERNET ACCESS SERVICES including dedicated access and
digital subscriber line, commonly known as DSL, services and Internet
security services which connect our customers to the Internet at high
speeds.
o COLOCATION SERVICES that allow our customers to locate their
mission-critical content and networking hardware in our data centers which
provide a highly secure, fault tolerant environment.
Simultaneously with the closing of this offering, we will acquire the
Internet protocol network assets of Bridge and the employees of Bridge who have
operated that network. This transfer will significantly expand our managed data
networking services, which we began offering in September 1999. Upon the
transfer of the Bridge network to us and pursuant to a network services
agreement between Bridge and us, Bridge will pay us for the use of the SAVVIS
ProActiveSM Network to deliver Bridge's content and applications to over 4,500
financial institutions, including 75 of the top 100 banks in the world and 45 of
the top 50 brokerage firms in the United States. Following the network transfer,
these entities will remain customers of Bridge. We currently provide Internet
access services directly to approximately 850 customers.
THE SAVVIS PROACTIVESM NETWORK
The SAVVIS ProActiveSM Network was created through the combination, in
September 1999, 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. Both of these networks have been operational since 1996 and
we refer to the combined network as the "SAVVIS ProActiveSM Network."
3
<PAGE>
The SAVVIS ProActiveSM Network interconnects over 6,000 buildings in 83 of
the world's major commercial cities in 43 countries. Our network architecture is
based on the following technologies:
o asynchronous transfer mode, commonly known as ATM, which supports the
transmission of all kinds of content and allows data to be prioritized;
o frame relay, which is a shared network technology commonly used in
communications networks; and
o Internet protocol, a communications protocol that is a core element of the
Internet and is used on computers, but that cannot currently reliably
deliver real-time data, unless operated over an ATM network, such as the
SAVVIS ProActiveSM Network.
Additionally, our 83 city global system connects to eight private Internet
access points, which we call PrivateNAPsSM, where our network connects to a
number of Internet service providers, including Sprint Corporation, Cable &
Wireless plc and UUNET, an MCI Worldcom company.
These PrivateNAPsSM, which will be expanded to 12 by March 2000, use our
proprietary routing policies to reduce data loss and enhance performance by
avoiding the congested public access points on the Internet. We measure the
performance of our access services using data loss and transmission delay,
commonly known as latency, measurements. The high performance of our Internet
access services has been verified by our analysis of data collected by Keynote
Systems, Inc., an independent research firm, which showed that we had the second
best mean download time in 1999.
RELATIONSHIP WITH BRIDGE
In April 1999, we were acquired by Bridge. Bridge is a global provider of
high quality, real-time and historical financial information, including coverage
of equities, fixed income, foreign exchange and commodities, which it delivered
to an estimated 235,000 trading terminals around the globe as of December 31,
1999. On September 10, 1999, Bridge sold in a private placement approximately
25% of its equity ownership in SAVVIS to existing stockholders of Bridge. Bridge
currently owns approximately 69% of our outstanding common stock and, after
completion of this offering, will own approximately 56% of our outstanding
common stock. Investment partnerships sponsored by Welsh, Carson, Anderson &
Stowe, or Welsh Carson, a sponsor of private equity funds with extensive
experience in the communications and information services industries, currently
owns approximately 38% of Bridge's outstanding voting stock and approximately
11% of our outstanding common stock and, after completion of this offering, will
own approximately 10% of our outstanding common stock.
Over the last four years, Bridge constructed a sophisticated network based
on Internet protocol and ATM technologies to service some of the largest
financial institutions and institutional investors in the world. These 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 high volume, real-time
financial data and news around the globe.
Since January 1996, Bridge has converted a substantial portion of its
customers from less technologically advanced protocols to its Internet protocol
network. As of December 31, 1999, of Bridge's estimated 235,000 terminals, an
estimated 135,000 terminals were connected to the SAVVIS ProActiveSM Network.
Bridge has advised us that it intends to convert the remaining 100,000 terminals
on its other networks to the SAVVIS ProActiveSM Network over the next three
years. As Bridge converts terminals, we expect it to order additional
connections from us under the network services agreement. As of December 31,
1999, Bridge's proprietary network
4
<PAGE>
monitoring and customer support systems managed over 10,000 routers and over
11,000 servers. Additionally, Bridge has a highly experienced group of network
engineers, technical support representatives and customer call center personnel
to support its services and has agreed to make their services available to us.
Acquisition of Bridge's Network Assets and Ongoing Relationship with
Bridge. Simultaneously with the closing of this offering, we will acquire
Bridge's Internet protocol network assets and the employees of Bridge who
operate them, and we will enter into a network services agreement with Bridge
that commits Bridge to purchase at least $105 million, $132 million and $145
million of network services from us in 2000, 2001 and 2002, respectively.
Thereafter, Bridge will be required to purchase at least 80% of their network
requirements from us, declining to 60% in 2006 through the end of the agreement
in 2010. We will incur losses from the operation of the network under the
network services agreement, and had the network services agreement been in
effect in 1999, Bridge would have represented approximately 83% of our 1999
revenues. We have instituted a lead referral program for Bridge's approximately
500 sales representatives worldwide to generate sales leads for us. We will also
enter into a number of other agreements with Bridge under which Bridge will
transfer a number of highly skilled people to us and we will purchase various
support services from it.
Preferential Distribution. We will also pay to Bridge a $58 million
preferential distribution with a portion of the proceeds of this offering.
BUSINESS STRATEGY
Our objective is to tap the rapidly growing market for reliable, high speed
data communications and Internet services. Key elements of our strategy to
achieve this objective include:
o providing a single source for managed data network services and high
quality Internet services;
o capitalizing on Bridge's relationships to penetrate its customer base;
o targeting potential customers in buildings already connected to our
network;
o expanding our network and PrivateNAPSM infrastructure;
o growing domestic and international distribution channels;
o providing enabling infrastructure for e-commerce services; and
o developing and marketing new services.
COMPETITIVE STRENGTHS
Our target customers are businesses that are intensive users of data
communications and require high quality service for their global data networking
and Internet needs. We believe our competitive strengths in servicing these
customers include:
o large number of sophisticated users already connected to our network;
o network engineered for real-time performance;
o global network presence;
o single source service offering; and
o world-class service through proprietary systems.
5
<PAGE>
WE HAVE INCURRED SIGNIFICANT LOSSES AND NEGATIVE CASH FLOW IN THE PAST AND
EXPECT TO INCUR SIGNIFICANT LOSSES AND NEGATIVE CASH FLOW AT LEAST THROUGH 2002.
We incurred losses of approximately $2.2 million, $14.0 million and $20.0
million in 1996, 1997 and 1998 and had negative cash flow from operating
activities of $1.3 million, $10.5 million and $20.6 million in these years. We
also had losses of $8.1 million and negative cash flow from operating activities
of $6.2 million for the period from January 1, 1999 to April 6, 1999 and losses
of approximately $22.6 million, and negative cash flows from operating
activities of approximately $9.9 million, from April 7, 1999 to September 30,
1999. We expect to incur significant net losses and negative cash flow from
operating activities at least through 2002. As of September 30, 1999, our
accumulated deficit was approximately $22.6 million, which reflects our losses
only since Bridge acquired our company on April 7, 1999.
OTHER RISK FACTORS
You should consider carefully the following risk factors, the information
contained in "Risk Factors" and the other information in this prospectus before
deciding to invest in our common stock:
o 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 affect our business;
o if Bridge is unable to meet its financial commitments to us, we will be
materially adversely affected;
o our limited operating history, and the fact that we only recently began
offering data networking and colocation services, makes it difficult for
you to evaluate our performance; and
o our historical financial information will not be comparable to our future
financial performance.
Our principal executive office is located at 12007 Sunrise Valley Drive,
Reston, Virginia 20191, and our telephone number is (703) 453-7500.
6
<PAGE>
THE OFFERING
Common stock offered
by us 14,875,000 shares
Common stock offered by the
selling stockholder.... 2,125,000 shares
-----------------
Total................. 17,000,000 shares
-----------------
Shares outstanding after
this offering........... 92,610,933 shares
Over-allotment option.... 2,550,000 shares
Use of proceeds......... We will receive net proceeds from this offering of
approximately $326 million, assuming a per share
price of $23.50. We intend to use these net proceeds
to pay the $63 million cash portion of the purchase
price for the Bridge network assets, for capital
expenditures relating to our network expansion, and
for other general corporate purposes. In addition, a
portion of the net proceeds of this offering will be
used to pay a $58 million preferential distribution
to Bridge and repay approximately $4 million of
indebtedness owed to Bridge.
We will not receive any proceeds from the sale of
shares by the selling stockholder.
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"
This information is based on our shares outstanding on January 25, 2000.
This information excludes 3,518,419 shares of common stock underlying options
granted under our stock option plans outstanding as of December 31, 1999 at an
exercise price of $.50 per share.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
We derived the summary historical consolidated financial data presented
below as of and for each of the three years ended December 31, 1996, 1997 and
1998 from our audited consolidated financial statements. We derived the summary
historical consolidated financial data presented below for the nine months ended
September 30, 1998, the period from January 1, 1999 to April 6, 1999 and the
period from April 7, 1999 to September 30, 1999 and as of September 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 this 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. The accounting for the purchase transaction has been "pushed down"
to the financial statements of SAVVIS. Therefore, the purchase price has been
allocated to the underlying assets purchased and liabilities assumed based on
the estimated fair market values of these assets and liabilities on the
acquisition date. As a result of the application of fair value accounting,
intangibles, goodwill, other liabilities and stockholders' equity were increased
in the SAVVIS unaudited consolidated balance sheet. The SAVVIS unaudited
historical consolidated balance sheet data as of September 30, 1999 and
unaudited consolidated statement of operations data for the period from April 7,
1999 through September 30, 1999 give effect to our acquisition by Bridge and are
labeled "Successor." The SAVVIS unaudited historical financial data for the
periods prior to the acquisition are labeled "Predecessor."
On September 10, 1999, Bridge sold in a private placement approximately 25%
of its equity ownership in SAVVIS to existing stockholders of Bridge, including
Welsh Carson which purchased from Bridge a 12% interest in SAVVIS at that time.
Pro forma data for the year ended December 31, 1998 and the nine months
ended September 30, 1999 give effect to, as if they had occurred at the
beginning of 1998 for the statement of operations data and at September 30, 1999
for the balance sheet data, the acquisition of our company by Bridge, our
purchase of the network assets from Bridge for $88 million, including the
incurrence of capital lease obligations to Bridge of $25 million, the payment of
a $58 million preferential distribution to Bridge and the sale in this offering
of the shares required to generate the $125 million of cash to be paid to Bridge
in respect of these items. For more detailed information on the pro forma
financial data, see "Unaudited Pro Forma Consolidated Financial Statements."
We calculate EBITDA as earnings (loss) before depreciation and
amortization, interest income and expense and income tax expense (benefit). We
have included information concerning EBITDA because our management believes that
in our industry such information is a relevant measurement of a company's
financial performance and liquidity. 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, EBITDA as used in this prospectus may not be comparable to
similarly titled measures of other companies, as other companies may not
calculate it in a similar manner.
8
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------------------
HISTORICAL PRO FORMA
-------------------------------------------- --------------
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
-------------------------------------------- --------------
1996 1997* 1998* 1998*
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues ..................... $ 290 $ 2,758 $ 13,674 $ 13,674
Direct costs and
operating expenses:
Data communications
and operations ............. 1,044 11,072 20,889 20,889
Selling, general and
administrative ............. 1,204 5,130 12,245 12,245
Depreciation and
amortization ............... 153 631 2,288 45,876
Impairment of assets ........ -- -- -- --
------------ ------------ ------------ ------------
Total direct costs and
operating expenses.......... 2,401 16,833 35,422 79,010
------------ ------------ ------------ ------------
Loss from operations ......... (2,111) (14,075) (21,748) (65,336)
Interest expense, net ........ (60) (482) (100) (1,739)
------------ ------------ ------------ ------------
Net loss before minority
interest and
extraordinary item .......... (2,171) (14,557) (21,848) $ (67,075)
============
Minority interest in losses,
net of accretion ............ -- 547 (147)
Extraordinary gain on
debt extinguishment,
net of tax .................. -- -- 1,954
------------ ------------ ------------
Net loss ..................... $ (2,171) $ (14,010) $ (20,091)
============ ============ ============
Basic and diluted net loss
per common share ............ $ (.06) $ (.38) $ (.39) $ (.87)
============ ============ ============ ============
Weighted average shares
outstanding ................. 35,396,287 36,904,108 58,567,482 77,309,840
============ ============ ============ ============
OTHER FINANCIAL DATA:
EBITDA ....................... $ (1,958) $ (12,897) $ (17,653)
Capital expenditures ......... 884 697 1,688
Cash used in operating
activities .................. (1,293) (10,502) (20,560)
Cash used in investing
activities .................. (884) (697) (2,438)
Cash provided by
financing activities ........ 2,740 12,024 24,121
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------ ---------------
HISTORICAL
------------------------------ HISTORICAL PRO FORMA
NINE MONTHS PERIOD FROM PERIOD FROM NINE MONTHS
ENDED JANUARY 1 TO APRIL 7 TO ENDED
SEPTEMBER 30, APRIL 6, SEPTEMBER 30, SEPTEMBER 30,
--------------- -------------- --------------- --------------
1998* 1999* 1999 1999
--------------- -------------- --------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues ..................... $ 8,914 $ 5,440 $ 12,192 $ 17,632
Direct costs and
operating expenses:
Data communications
and operations ............. 14,609 6,429 13,095 19,524
Selling, general and
administrative ............. 7,353 4,751 11,142 15,893
Depreciation and
amortization ............... 1,556 817 9,747 30,185
Impairment of assets ........ -- 1,383 -- 1,383
------------ ------------ ------------ ------------
Total direct costs and
operating expenses.......... 23,518 13,380 33,984 66,985
------------ ------------ ------------ ------------
Loss from operations ......... (14,604) (7,940) (21,792) (49,353)
Interest expense, net ........ (138) (135) (782) (1,682)
------------ ------------ ------------ ------------
Net loss before minority
interest and
extraordinary item .......... (14,742) (8,075) (22,574) $ (51,035)
============
Minority interest in losses,
net of accretion ............ (147) -- --
Extraordinary gain on
debt extinguishment,
net of tax .................. 1,954 -- --
------------ ------------ ------------
Net loss ..................... $ (12,935) $ (8,075) $ (22,574)
============ ============ ============
Basic and diluted net loss
per common share ............ $ (.26) $ (.14) $ (.31) $ (.66)
============ ============ ============ ============
Weighted average shares
outstanding ................. 56,735,597 66,018,388 72,000,000 77,309,840
============ ============ ============ ============
OTHER FINANCIAL DATA:
EBITDA ....................... $ (11,241) $ (7,123) $ (12,045)
Capital expenditures ......... 1,308 275 855
Cash used in operating
activities .................. (15,530) (6,185) (9,945)
Cash used in investing
activities .................. (2,058) (275) (855)
Cash provided by
financing activities ........ 24,445 4,533 12,189
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR PRO FORMA
---------------------------------- --------------------- --------------
HISTORICAL HISTORICAL
---------------------------------- --------------------- AS OF
AS OF DECEMBER 31,
---------------------------------- AS OF SEPTEMBER 30, SEPTEMBER 30,
1996 1997* 1998* 1999 1999
-------- ------------ ------------ --------------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................... $573 $ 1,398 $ 2,521 $ 1,983 $203,541
Goodwill and intangibles, net ................ -- -- 1,406 30,322 30,322
Total assets ................................. 1,888 4,313 11,663 41,422 330,980
Debt and capital lease obligations ........... 1,126 8,814 2,759 23,237 44,456
Redeemable stock, net of discount and deferred
financing costs ............................. 500 5,261 36,186 -- --
Stockholders' equity (deficit) ............... (693) (14,903) (33,197) 9,172 277,511
</TABLE>
* As discussed in Note 14 to our Consolidated Financial Statements, 1997, 1998
and predecessor 1999 amounts have been restated.
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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.
We have separated the risks into three groups:
o risks related to our business;
o risks related to our industry; and
o risks related to this offering.
If any of the following risks actually occurs, our business, prospects,
financial condition and results of operations could be materially adversely
affected. In any such case, the market price of our common stock could decline
and you could lose all or most of your investment in our company.
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.
Upon the closing of this offering, we will enter into a network services
agreement with Bridge whereby Bridge will become our largest customer. Under the
network services agreement, Bridge will commit to purchase at least of $105
million of network services from us in 2000. Assuming we had received these
minimum revenues for the first year of the agreement in 1999, Bridge would have
represented approximately 83% of our 1999 revenues. The network services
agreement with Bridge could be terminated prior to its term if we default in our
performance under this agreement, including if we fail to meet our service level
commitments, or Bridge is unable to perform its obligations under the agreement.
The loss of Bridge as a customer, or reduced demand from Bridge, would
materially reduce our expected revenues and, consequently, would have a material
adverse effect on our business.
BRIDGE IS HIGHLY LEVERAGED, HAS HAD SIGNIFICANT NET LOSSES AND NEGATIVE CASH
FLOW TO DATE AND IS REQUIRED TO MAKE A SIGNIFICANT DEBT REPAYMENT BY JUNE 30,
2000. IF BRIDGE IS UNABLE TO MEET ITS FINANCIAL COMMITMENTS TO US, WE MAY BE
ADVERSELY AFFECTED.
We will rely on Bridge to meet its financial commitments to us. For the
fiscal years ended December 31, 1996, 1997 and 1998, Bridge has informed us that
it had net losses of approximately $61 million, $69 million and $143 million.
For the nine months ended September 30, 1999, Bridge had net losses of
approximately $132 million and had negative cash flows from operating activities
of approximately $76 million. Bridge has also informed us it continued to use
cash in its operating activities and generate losses for the three months ended
December 31, 1999.
As of September 30, 1999, Bridge had $1,240 million of indebtedness, $470
million of redeemable preferred stock and a stockholders' deficit of $414
million. In the three months ended December 31, 1999, Bridge incurred an
additional $100 million of indebtedness under a bridge loan agreement.
Under the terms of its indebtedness, following the completion of this
offering, Bridge is required to repay approximately $350 million of its
indebtedness on or before June 30, 2000. Bridge will receive aggregate proceeds
from this offering of approximately $175 million from its sale of our shares,
our purchase of the network assets, the payment of the preferential distribution
and the repayment of a portion of our indebtedness to Bridge.
We cannot assure you that Bridge will have sufficient sources of capital
to:
o meet its capital expenditure, debt service and working capital
requirements, including its obligations to us under the network services
agreement; or
o satisfy its remaining requirement to repay $175 million of its
indebtedness by June 30, 2000.
The failure by Bridge to meet these requirements could have a material
adverse effect on our operations and the price of our common stock.
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<PAGE>
THE AUDIT REPORT ACCOMPANYING BRIDGE'S 1998 FINANCIAL STATEMENTS WILL CONTAIN
AN EXPLANATORY PARAGRAPH REGARDING BRIDGE'S ABILITY TO CONTINUE AS A GOING
CONCERN.
As a result of losses, working capital deficiencies and other liquidity
issues, including the fact that this offering has not yet occurred, Bridge's
independent auditors' report on its 1998 financial statements will include an
explanatory paragraph regarding its ability to continue as a going concern.
IF THE AMORTIZATION PERIODS FOR BRIDGE'S INTANGIBLES WOULD HAVE BEEN SHORTER,
BRIDGE'S LOSSES WOULD HAVE INCREASED.
At September 30, 1999, Bridge's unamortized goodwill and intangibles
resulting from acquisitions was approximately $863.9 million, or approximately
54% of total assets. Goodwill is the excess of cost over the fair value of the
net assets of businesses acquired. We cannot assure you that Bridge will ever
realize the value of such goodwill. This goodwill is being amortized on a
straight-line basis over 3 to 40 years. Bridge will continue to evaluate on a
regular basis whether events or circumstances have occurred that indicate all or
a portion of the carrying amount of goodwill may no longer be recoverable, in
which case an additional charge to earnings would become necessary. Although at
September 30, 1999 the net unamortized balance of goodwill is not considered to
be impaired under generally accepted accounting principles, any such future
determination requiring the write-off of a significant portion of unamortized
goodwill could have a material adverse effect on Bridge's financial condition or
results of operations. If Bridge had used amortization periods of no longer than
ten years, the net loss would have been $68.7 million, $86 million, $180.7
million and $180 million for the periods ended December 31, 1996, 1997, 1998 and
September 30, 1999, respectively.
OUR PRIOR OPERATIONS WERE FUNDED BY BRIDGE. HOWEVER, BRIDGE IS NOT PERMITTED TO
FUND OUR OPERATIONS IN THE FUTURE.
We have experienced recurring losses from operations and cash flow
deficiencies which, since April of 1999, have been funded by Bridge. While
Bridge has funded our operations through 1999, Bridge is not permitted under the
terms of its indebtedness to fund our operations in the future.
BRIDGE MAY BE ENTITLED TO TERMINATE THE NETWORK SERVICES AGREEMENT OR COLLECT
LIQUIDATED DAMAGES IF WE ARE NOT ABLE TO MEET QUALITY OF SERVICE LEVELS.
Pursuant to the network services agreement with Bridge, we have agreed that
the network will perform in accordance with specific quality of service
standards within 12 months from the date we acquire the network. In the event we
do not meet the required quality of service levels, Bridge will be entitled to
credits and, in the event of a material breach of such quality of services
levels, Bridge will be entitled to terminate the network services agreement and,
whether or not the network service agreement is terminated, collect up to $50
million as liquidated damages once during any 36-month period.
OUR LIMITED HISTORY, AND THE FACT THAT WE ONLY RECENTLY BEGAN OFFERING DATA
NETWORKING AND COLOCATION SERVICES, MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR
PERFORMANCE.
Although we began commercial operations in 1996, we only recently began
offering data networking and colocation services. We expect to generate a
substantial portion of our revenues from these services in the future. 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.
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<PAGE>
OUR HISTORICAL FINANCIAL INFORMATION WILL NOT BE COMPARABLE TO OUR FUTURE
FINANCIAL PERFORMANCE.
Upon completion of this offering, we will acquire Bridge's Internet
protocol network assets and enter into an agreement to provide data networking
services to Bridge. As a result, the historical financial information included
in this prospectus will not necessarily be comparable to our results of
operations, financial position and cash flows in the future once we have
acquired Bridge's network assets and entered into the network services and
related agreements.
WE EXPECT TO CONTINUE TO INCUR SUBSTANTIAL LOSSES AND HAVE NEGATIVE OPERATING
CASH FLOW.
We incurred losses of approximately $2.2 million, $14.0 million and $20.0
million in 1996, 1997 and 1998 and had negative cash flows from operating
activities of $1.3 million, $10.5 million and $20.6 million in these years. We
expect to incur significant net losses, negative cash flow from operating
activities and negative EBITDA at least through 2002.
THE AUDIT REPORTS ACCOMPANYING OUR 1996, 1997 AND 1998 FINANCIAL STATEMENTS
CONTAINED AN EXPLANATORY PARAGRAPH REGARDING OUR ABILITY TO CONTINUE AS A GOING
CONCERN.
As a result of losses and working capital deficiencies, our independent
auditors' report on our 1996, 1997 and 1998 financial statements included an
explanatory paragraph regarding our ability to continue as a going concern. The
independent auditors' report on our 1998 financial statements when originally
issued did not contain such an explanatory paragraph due to Bridge's commitment
and ability to finance our operations. Because of current limitations in
Bridge's financing arrangements, such financial support cannot be relied upon in
the future. As a result, such explanatory paragraph was added to the independent
auditors' report upon its reissuance in January 2000.
WE EXPECT OUR OPERATING EXPENSES TO INCREASE SIGNIFICANTLY.
From the acquisition by Bridge of our company on April 7, 1999 through
September 30, 1999, we had a loss of approximately $22.6 million and net cash
used in operating activities of approximately $9.9 million. As of September 30,
1999, our accumulated deficit was approximately $22.6 million, which reflects
only our losses since Bridge acquired our company on April 7, 1999. We expect
our operating expenses to increase significantly, especially in the areas of
data communications and operations, as a result of the acquisition of Bridge's
network assets, 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.
WE WILL INCUR LOSSES FROM THE OPERATION OF THE NETWORK TO PROVIDE SERVICES TO
BRIDGE UNDER THE NETWORK SERVICES AGREEMENT UNTIL WE USE THE NETWORK EITHER TO
PROVIDE ADDITIONAL SERVICES TO BRIDGE OR NEW CUSTOMERS.
Under the network services agreement that we will enter into with Bridge,
the amount we charge Bridge for the use of the network as configured on the date
of the transfer is based on the cash costs of operating that network. As a
result, we will incur losses from the operation of the network to provide
services to Bridge until we use the network either to provide additional
services to Bridge not currently covered by the network services agreement, such
as connecting new customers of Bridge or adding additional connections to
existing customers or to provide services to new customers. We cannot guarantee
that we will sell enough additional services to become profitable.
WE ARE OBLIGATED TO PROVIDE NETWORK SERVICES TO BRIDGE FOR A PERIOD OF FIVE
YEARS AFTER THE TERMINATION OF THE NETWORK SERVICES AGREEMENT AT THE RATES IN
EFFECT AT THE DATE OF THE AGREEMENT'S TERMINATION.
We are required to provide network services to Bridge under the network
services agreement for a period of up to five years subsequent to the
termination of the agreement. These services must be provided to Bridge at the
rates being paid by Bridge at the date of the agreement's termination. If the
price to be paid by Bridge is less than the cost incurred by us to provide the
service, such services will be provided at a loss to us.
12
<PAGE>
THE PURCHASE OF THE NETWORK ASSETS FROM BRIDGE WILL RESULT IN A PREFERENTIAL
DISTRIBUTION TO BRIDGE.
Because we will record the network assets to be purchased from Bridge at
Bridge's historical net book value, the excess of the payments to Bridge over
the net book value, currently estimated at $58 million, will be treated for
accounting purposes as a preferential distribution to Bridge. As a result our
stockholders' equity will be reduced and you will experience a dilution in
tangible book value per share.
IF WE ARE NOT ABLE TO RAISE ADDITIONAL CAPITAL, WE MAY HAVE TO DELAY SOME OR ALL
OF OUR EXPANSION PLANS.
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 only through the end of 2000. We currently estimate
that we will make approximately $149 million of capital expenditures in 2000,
exclusive of our purchase of the network assets from Bridge, and we expect to
make significant capital expenditures in the following years. In addition, we
expect to incur significant net losses, negative cash flow from operating
activities and negative EBITDA at least through 2002. 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
factors such as acquisitions that we may make, changes in the demand for our
services, regulatory developments, the competitive environment in our markets or
failure to expand our business as expected. In that case, we may need to 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.
IF WE ARE NOT RELEASED FROM REGULATION UNDER THE BANK HOLDING COMPANY ACT, WE
WOULD NOT BE ABLE TO EXPAND OUR BUSINESS AS WE EXPECT.
State Street Corporation, a bank holding company, currently owns
approximately 7.7% of the outstanding voting capital stock of Bridge on a fully
diluted basis and approximately 2% of our outstanding common stock. State Street
also has the right to elect one member of Bridge's board of directors. At the
time State Street made its investment in Bridge in 1996, State Street agreed
with the Federal Reserve Board to regard Bridge as a subsidiary of State Street
for purposes of the Bank Holding Company Act, and Bridge agreed to restrict its
activities and its investments to those permitted for bank holding company
subsidiaries under Regulation Y of the Federal Reserve Board. At the time Bridge
acquired us in April 1999, State Street and Bridge agreed that we also would be
regarded as a bank holding company subsidiary and subject to the applicable
restrictions on our activities. Permitted activities for a bank holding company
subsidiary include the transmission of data, provided that no more than 30% of
the revenue generated by a bank holding company subsidiary from that activity is
derived from the transmission of data that is not financial, banking or economic
in nature. Accordingly, in connection with Bridge's acquisition of our company
in April 1999, Bridge undertook to ensure that at least 70% of our revenue would
be derived from the transmission of qualifying data. We believe that the
services we will provide to Bridge under the network services agreement will
satisfy this requirement initially.
In the event State Street does not comply with its agreement to cooperate
with us to ensure that, by the close of business on April 30, 2000, we will no
longer be subject to the activity and investment restrictions of Regulation Y,
our revenues from Bridge and/or revenues from the transmission of other
qualifying data will need to represent at least 70% of our total revenue. As a
result, we may not be able to expand our business as currently contemplated.
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,
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<PAGE>
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 and
third-party providers to handle the increased volume and complexities of our
business. 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.
OUR SUBSTANTIAL ONGOING RELATIONSHIPS WITH BRIDGE WILL BE CRITICAL TO OUR
SUCCESS. IF BRIDGE TERMINATES ANY OF THESE RELATIONSHIPS, OUR BUSINESS
PROSPECTS WILL BE IMPAIRED.
Bridge will 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 will also provide to us additional administrative and operational
services, such as payroll and accounting functions, benefit management and
office space. If Bridge unexpectedly stops providing these services for any
reason, we could face significant challenges and costs in assuming these
services or finding an alternative to Bridge. This could impair our operations,
adversely affect our reputation and harm our financial results.
In addition, we will sublease from Bridge some of the network assets that
Bridge currently leases from General Electric Capital Corporation, or GECC. The
aggregate amount of our capitalized lease obligations to Bridge will be
approximately $25 million. We will not have a direct relationship with GECC. If
Bridge fails to perform its obligations under its agreement with GECC, our
rights to such network assets may be impaired.
WE ARE CONTROLLED BY PARTIES WHOSE INTERESTS MAY NOT BE ALIGNED WITH YOURS.
Bridge and investment partnerships sponsored by Welsh Carson owned
approximately 69% and 11% of our outstanding common stock, respectively, prior
to this offering. In addition, Welsh Carson partnerships own approximately 38%
of Bridge's outstanding voting stock. Consequently, Bridge controls us and is in
a position to elect our entire board of directors and control all matters
affecting us. In addition, Welsh Carson may be deemed to be a controlling person
of Bridge.
Some decisions concerning our operations or financial structure may present
conflicts of interest between Bridge and Welsh Carson and our other
stockholders. For example, Bridge or 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 to us
any investment or business opportunities of which they are aware, even if these
opportunities are within our scope and objectives.
Upon the completion of this offering, we will enter into a number of
agreements with Bridge relating to the acquisition of Bridge's global Internet
protocol network and to our provision of global data networking services to
Bridge and Bridge will provide various support services to us. Because we are
controlled by Bridge, we cannot assure you that these agreements are comparable
to those that would have been reached had the terms been negotiated on an
arm's-length basis.
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.
In particular, we depend on Robert McCormick, our Chairman of the Board and
Chief Executive Officer. Mr. McCormick was appointed Chief Executive Officer in
November 1999. In addition, our business plan contemplates the significant
expansion of our sales and marketing staff. 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 future performance depends on our
ability to attract, retain and motivate highly skilled employees.
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FAILURES IN OUR NETWORK OR WITH THE NETWORK OPERATIONS CENTER 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 network infrastructure,
including connections to our communications transmission, or backbone,
providers, and our customers' data and equipment, against damage from natural
disasters, as well as power loss, telecommunications failure and similar events.
The occurrence of a natural disaster or other unanticipated 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, the connections from our customers to our network, which
we call local access, and connection to other Internet network providers. If our
suppliers fail to provide products or services on a timely basis and at an
acceptable cost, 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, cost-effective 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 several data transmission services. We
generally lease data transmission capacity before we have secured customers and
our leased capacity costs are typically fixed monthly payments based on the
capacity made available to us. Our failure to correctly estimate transmission
capacity could increase the cost or 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 data 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.
WE HAVE EXPERIENCED CUSTOMER TURNOVER IN THE PAST AND MAY CONTINUE TO DO SO IN
THE FUTURE. IF WE CONTINUE TO EXPERIENCE CUSTOMER TURNOVER WITHOUT A
CORRESPONDING GROWTH IN NEW CUSTOMERS, OUR BUSINESS MAY BE ADVERSELY AFFECTED.
Customer turnover in the Internet access business is high. Customer loss
results in loss of future revenue from subscribers who discontinue or reduce
their services. Customer loss occurs for several reasons, such as voluntary
disconnection by subscribers who choose to switch to a competing service
15
<PAGE>
and termination by Internet access providers for nonpayment of bills or abuse of
the network. We have experienced customer turnover in the past and as our
subscriber base grows and the industry matures, our customer loss may continue
or even increase. If, in the future, we were to lose a large number of customers
without signing contracts with new customers, there could be an adverse impact
on our business.
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. The promotion and enhancement of our brand also will depend in part on
our success in continuing to provide high quality Internet access services and
in providing high quality data networking and colocation services. We cannot
assure you that we will be able to maintain or achieve 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 and these
customers' end users. 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. We may be unable to implement security 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, security measures
employed by others have 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.
Any breach of security on our network 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
in which we provide various guarantees regarding our levels of service. In
addition, the network services agreement with Bridge will have required levels
of service and we offer service level agreements to other data networking
customers. 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 Bridge or a significant
number of other 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
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 FACE REGULATORY RESTRICTIONS IN A SIGNIFICANT NUMBER OF COUNTRIES THAT HAVE
DELAYED AND MAY PREVENT US FROM ACQUIRING OR OPERATING BRIDGE ASSETS LOCATED IN
THESE COUNTRIES.
Regulatory restrictions in the following 16 countries are expected to
prevent us from acquiring, as part of the Bridge network asset transfer which
will occur simultaneously with the completion of the offering, the Bridge
network assets located in these countries. These assets represent approximately
4% of the net book value of the assets to be acquired from Bridge. These
countries include:
o Europe--Greece, Ireland, Hungary 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 and Venezuela.
We will be obligated to acquire these assets from Bridge in these countries
at book value once we have received the required approvals. We cannot assure
you, however, that we will be able to comply with the regulatory and other
requirements necessary to allow us to acquire these assets. In all countries
where we have received regulatory approval to acquire and operate the Bridge
assets, we will be permitted to deliver network services to Bridge, but not
necessarily data networking services to third parties.
NUMEROUS FACTORS MAY CAUSE FLUCTUATIONS IN OUR QUARTERLY REVENUES AND OPERATING
RESULTS, AS WELL AS IMPACT OUR LONG-TERM VIABILITY.
Our quarterly revenues and operating results have fluctuated in the past
and are likely to fluctuate significantly from quarter to quarter in the future
due to a number of factors. These factors include the following:
o demand for and market acceptance of our data networking, Internet access
and colocation services;
o the fixed nature of approximately 75% of our costs;
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 the compensation of our sales personnel based on achievement of periodic
sales quotas;
o our ability to generate revenues for our services;
o changes in our revenue mix between usage-based and fixed rate pricing
plans; and
o fluctuations in the duration of the sales cycle for our services.
Other factors, which are beyond our control, may also affect us, including:
o conditions specific to the data networking, Internet access and colocation
services industries, as well as general economic factors;
o the announcement or introduction of new or enhanced services by our
competitors;
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o our ability to obtain, and the pricing for, local access connections; and
o changes in the prices we pay Internet backbone providers.
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. In addition, these factors may impact our long-term
viability.
It is possible that in some future periods our results of operations may
fall below the expectations of 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.
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.
According to International Data Corporation, an independent research firm,
the market for data networking services has been growing rapidly. If the data
networking services market does not grow as expected, or our anticipated share
of that market does not grow as expected, our revenues could be less than
expected.
In addition, the market for Internet access and related services, such as
colocation services, is in an early stage of growth. As a consequence, current
and future competitors are likely to introduce competing services, 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 and related services may fail to
develop or may develop more slowly than we expect, or that our services may not
achieve widespread market acceptance. Furthermore, we may be unable to market
and sell our services successfully and cost-effectively to a sufficiently large
number of customers.
WIDESPREAD COMMERCIAL USE OF THE INTERNET MAY BE HAMPERED BY POOR PERFORMANCE.
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.
GROWTH IN INTERNET ACCESS BUSINESS MAY BE HAMPERED BY SOME COMPANIES' RELUCTANCE
TO ADOPT INTERNET STRATEGIES FOR COMMERCE AND COMMUNICATION.
The adoption of Internet strategies 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
18
<PAGE>
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 services to further develop
could cause our revenues to grow more slowly than anticipated and reduce the
demand for our Internet access and colocation services.
OUR ABILITY TO COMPETE FOR INTERNET ACCESS BUSINESS MAY BE WEAKENED IF THE
PROBLEMS OF INTERNET CONGESTION, TRANSMISSION DELAYS AND DATA LOSS ARE
RESOLVED.
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 data networks, 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.
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 these markets. Many of our
existing Internet access data networking and colocation 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;
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 plc, GTE Internetworking, ICG Communications, Inc.,
Sprint Corporation and UUNET, an MCI Worldcom company;
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 the data networking, Internet
access and colocation markets. 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 data networking services. Further, the ability of some
of these potential competitors to bundle other services and products with their
data networking services could place us
19
<PAGE>
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, all optical networks, wireless
cable and wireless local access. In addition, Internet backbone providers may
benefit from 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 and will serve after the Bridge asset transfer.
Prices for data networking, Internet access and colocation services have
decreased significantly in recent years, and we expect significant price
declines in the future. In addition, by bundling their services and reducing the
overall cost of their services, telecommunications companies that compete with
us may be able to provide customers with reduced communications costs in
connection with their data networking, Internet 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 in these markets could
result in an erosion of our 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 Internet access services and the data
networking and colocation services that we will provide after the Bridge asset
transfer. The adoption of such new technologies or industry standards could
render these services obsolete or unmarketable. For example, these services rely
on the continued widespread commercial use of the set of protocols, services and
applications for linking computers known as Internet protocol. Alternative sets
of protocols, services and applications for linking computers could emerge and
become widely adopted. Improvements in Internet protocol 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 current and future services
non-competitive or obsolete. In addition, we cannot assure you that our current
and future 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 and standards 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 SERVICES, WHICH COULD RESTRICT OUR
ABILITY TO CONDUCT BUSINESS INTERNATIONALLY.
Following the Bridge asset transfer, we will be 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 several
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.
20
<PAGE>
Following the Bridge asset transfer, our operations will be dependent on
licenses and authorizations from governmental authorities in each foreign
jurisdiction in which we plan to operate. These licenses and authorizations
generally will contain clauses pursuant to which we may be fined or our license
may be revoked. 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 a number of non-U.S.
jurisdictions in order to provide our services in those jurisdictions.
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, trademark, 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
A SIGNIFICANT NUMBER OF OUR SHARES ARE ELIGIBLE FOR RESALE AND BRIDGE INTENDS TO
SELL ADDITIONAL SHARES OF OUR COMMON STOCK IN THE FUTURE. THIS COULD REDUCE OUR
STOCK PRICE AND IMPAIR OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.
Immediately after the completion of this offering, we will have 92,610,933
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. In particular, Bridge has indicated to us that it intends
in the future to sell a portion of its shares of our common stock which may
include sales in the open market or in private placements or sales to strategic
investors.
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 common stock in
this offering will be approximately $201 million, after deducting the payments
to Bridge, the underwriting discounts and commissions and estimated offering
expenses. Our management will have broad discretion to allocate these 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.
21
<PAGE>
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 business combinations set forth under Section
203 with that company.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
Assuming an offering price of $23.50 per share, the midpoint of the range
shown on the cover page of this prospectus, the price you will pay for our
common stock in this offering will be substantially higher than the negative
$.29 pro forma tangible book value per share of our outstanding common stock as
of September 30, 1999. As a result, you will experience immediate dilution of
$20.65 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 of $3.14.
WE HAVE GRANTED STOCK OPTIONS AT A PRICE SIGNIFICANTLY LOWER THAN THE PUBLIC
OFFERING PRICE.
Between July and December 31, 1999, we granted options to purchase
approximately 8.5 million shares of our common stock at an exercise price of
$.50 per share. As of December 31, 1999, options to purchase approximately 3.5
million shares of our common stock remained outstanding. The holders of these
options have the right to acquire shares of our common stock at a price
significantly lower than the initial public offering price.
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.
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 "Prospectus Summary," "Business," "Relationship with
Bridge" 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. Except as required by law, 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.
22
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from this offering will be approximately
$326 million. This is based on an initial public offering price of $23.50 per
share, the midpoint of the range shown on the cover page of this prospectus and
after deducting estimated underwriting discounts and commissions and offering
expenses payable by us.
Of the net proceeds of this offering we expect to pay an aggregate of
approximately $125 million to Bridge. Of this amount, approximately $63 million
will represent the portion of the purchase price of Bridge's Internet protocol
network assets not subject to capital leases, approximately $4 million will be
used to reduce existing outstanding debt to Bridge and approximately $58 million
will be paid to Bridge as a preferential distribution. In the event we receive
gross proceeds of more than $350 million from the sale of common stock in this
offering, 50% of the excess will be applied to any remaining outstanding debt to
Bridge. As of December 31, 1999, we had approximately $25 million of outstanding
debt to Bridge consisting of term notes maturing one year after the completion
of this offering, bearing interest at 8% per annum, the proceeds of which were
used for working capital purposes. The remaining net proceeds will be used for
operating expenses, capital expenditures and for general corporate purposes. 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 capital expenditures, acquisitions or investments. 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.
We will purchase Bridge's Internet protocol network assets simultaneously
with the closing of this offering. The closing of this offering is conditioned
on the acquisition of those assets and our and Bridge's entering into the
network services agreement.
We will not receive any proceeds from the sale of shares by the selling
stockholder.
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.
23
<PAGE>
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of September 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 on a pro forma, as adjusted basis to give effect to our receipt of proceeds
of $326 million in this offering, net of discounts, commissions and
expenses payable by us, and the use of an aggregate of $125 million of the
proceeds to pay to Bridge a portion of the purchase price for the
acquisition of network assets, to reduce existing outstanding debt to
Bridge, and to pay a $58 million preferential distribution to Bridge.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-------------------------
PRO FORMA
AS
ACTUAL ADJUSTED
------------ ------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Cash and cash equivalents .................................. $ 1,983 $ 203,541
========= =========
Capitalized lease obligations, including current maturities $ 5,967 $ 30,967
Due to Bridge under notes .................................. 17,270 13,489
--------- ---------
Subtotal ............................................... 23,237 44,456
--------- ---------
Stockholders' equity:
Common stock $.01 par value per share; 125,000,000
shares authorized, 72,000,000 issued and outstanding
(actual), and 86,875,000 issued and oustanding (pro
forma asadjusted) ....................................... 720 869
Additional paid-in capital .............................. 31,026 357,216
Preferential distribution ............................... -- (58,000)
--------- ---------
Total additional paid-in capital ....................... 31,026 299,216
Accumulated deficit ..................................... (22,574) (22,574)
--------- ---------
Total stockholders' equity ............................. 9,172 277,511
--------- ---------
Total capitalization .................................... $ 32,409 $ 321,967
========= =========
</TABLE>
24
<PAGE>
DILUTION
Our net tangible book value as of September 30, 1999 was approximately
negative $21 million or approximately negative $.29 per share of common stock.
Net tangible book value per share represents total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding on that
date. Dilution per share is the difference between the amount per share paid by
purchasers of shares of common stock in this offering and the pro forma, as
adjusted net tangible book value per share reflecting this offering, the
purchase of the network assets from Bridge and the preferential distribution to
Bridge. After giving effect to our sale of the 14,875,000 shares of common stock
offered in this offering at an assumed initial public offering price of $23.50
per share, the midpoint of the range shown on the cover of this prospectus, our
pro forma, as adjusted, net tangible book value as of September 30, 1999 would
have been $247 million, or $2.85 per share. This represents an immediate
increase in pro forma net tangible book value to existing stockholders of $3.14
per share and an immediate dilution to new investors of $20.65 per share. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share .......... $ 23.50
Net tangible book value per share as of September 30,
1999 ................................................. $ (.29)
Increase attributable to new investors ................ 3.14
------
Pro forma, as adjusted, net tangible book value per share
after this offering ..................................... 2.85
--------
Dilution in pro forma net tangible book value per share to
new investors ........................................... $ 20.65
========
</TABLE>
The following table summarizes, as of September 30, 1999, assuming the sale
of 14,875,000 shares of common stock offered by us in this offering at a price
of $23.50 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 the new investors, before deducting the estimated
underwriting discounts and commissions and other expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED CASH CONSIDERATION(1) AVERAGE CASH PRICE
------------------------ -------------------------- -------------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- -------------- --------- -------------------
<S> <C> <C> <C> <C> <C>
Bridge (2) ................................ 53,870,279 62% $ -- 0% $ --
Other stockholders ........................ 18,129,721 21% 9,064,861 2% 0.50
---------- -- ------------ - ------
Existing stockholders ..................... 72,000,000 9,064,861
New investors in this offering(3) ......... 14,875,000 17% 349,562,500 98% $ 23.50
---------- -- ------------ -- -------
Total .................................... 86,875,000 100% $358,627,361 100%
========== === ============ ===
</TABLE>
- ----------------
(1) Cash consideration does not include the value of Bridge stock exchanged in
Bridge's acquisition of us on April 7, 1999, and the cash consideration of
$9,064,861 represents the gross amount received by Bridge in its private
placement of our stock to Bridge's stockholders.
(2) Includes 2,125,000 shares to be sold in this offering by Bridge, at the
offering price of $23.50.
(3) Represents only the shares sold in this offering by SAVVIS.
The discussion and table above assumes that none of the options outstanding
under our stock option plans as of September 30, 1999 are exercised. As of
September 30, 1999, there were options outstanding to purchase a total of
6,063,840 shares of common stock at an exercise price of $.50 per share. To the
extent that any of these options are exercised, you will be diluted further.
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated statement of operations for the nine
months ended September 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;
o our sale in the offering of the shares required to generate the $125
million to be paid to Bridge for the $63 million cash component of the
purchase price for Bridge's network assets, the $58 million preferential
distribution and to reduce approximately $4 million of existing
outstanding debt to Bridge, estimated at 5,309,840 shares; and
o our purchase and sublease of the network assets from Bridge.
The unaudited pro forma consolidated balance sheet as of September 30, 1999
gives effect to the following, as if each had occurred on September 30, 1999:
o our receipt of proceeds of $326 million in this offering, net of
estimated discounts, commissions and expenses payable by us;
o our purchase and sublease of the network assets from Bridge;
o our use of proceeds of this offering to pay a portion of the purchase
price of the network assets; and
o the payment of $58 million as a preferential distribution and to repay
approximately $4 million of indebtedness to Bridge.
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 September
30, 1999.
The network assets to be purchased from Bridge are recorded in the
unaudited pro forma consolidated financial statements at Bridge's historical net
book value of those assets. As a result of regulatory restrictions, we will not
be able to acquire, as part of the initial network transfer, network assets in
approximately 16 countries. We have the right to purchase the assets in these
countries at their net book value, once we have received the regulatory
approvals. Only the assets in jurisdictions where all requisite consents and
approvals from third parties to transfer the assets from Bridge have been
obtained are included in these unaudited pro forma consolidated financial
statements. Additionally, we will pay to Bridge a preferential distribution of
$58 million, which will be treated as a reduction in stockholders' equity.
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.
26
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------------------
HISTORICAL BRIDGE
--------------------------- ACQUISITION OF PURCHASE OF
PREDECESSOR SUCCESSOR SAVVIS NETWORK ASSETS PRO FORMA
------------- ------------- ------------------ -------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Revenues ....................... $ 5,440 $ 12,192 $ 17,632
---------- ---------- -------------
Direct costs and operating
expenses:
Data communications and
operations .................. 6,429 13,095 19,524
Selling, general and
administrative .............. 4,751 11,142 15,893
Depreciation and
amortization ................ 817 9,747 $ (879) (1) $ 20,500 (3) 30,185
Impairment of assets .......... 1,383 -- -- -- 1,383
---------- ---------- -------- ---------- -------------
Total direct costs and operating
expenses ...................... 13,380 33,984 (879) 20,500 66,985
---------- ---------- -------- ---------- -------------
Loss from operations ........... (7,940) (21,792) 879 (20,500) (49,353)
Interest expense, net .......... (135) (782) (765) (4) (1,682)
---------- ---------- ---------- -------------
Net loss ....................... $ (8,075) $ (22,574) $ 879 $ (21,265) $ (51,035)
========== ========== ======== ========== =============
Basic and diluted net loss per
common share .................. $ (0.12) $ (0.31) $ (0.66) (7)
========== ========== =============
Weighted average shares
outstanding ................... 66,018,388 72,000,000 77,309,840 (7)
========== ========== =============
</TABLE>
See notes to the unaudited pro forma consolidated financial statements.
27
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------------------
BRIDGE
HISTORICAL ACQUISITION OF PURCHASE OF
PREDECESSOR SAVVIS NETWORK ASSETS PRO FORMA
------------- ------------------ -------------------- ---------------------
<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 .................... 2,288 $ 16,255 (2) $ 27,333 (3) 45,876
----------- --------- -------- -------------
Total direct costs and operating expenses ......... 35,422 16,255 27,333 79,010
----------- ----------- ---------- -------------
Loss from operations .............................. (21,748) (16,255) (27,333) (65,336)
Interest expense, net ............................. (100) (1,639) (4) (1,739)
----------- ---------- -------------
Net loss .......................................... $ (21,848) $ (16,255) $ (28,972) $ (67,075)
=========== =========== ========== =============
Basic and diluted loss per common share ........... $ (.37) $ (.87)
=========== =============
Weighted average shares outstanding ............... 58,567,482 77,309,840 (7)
=========== =============
</TABLE>
See notes to the unaudited pro forma consolidated financial statements.
28
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
----------------------------------------
PURCHASE OF
NETWORK ASSETS,
PREFERENTIAL
DISTRIBUTION
SALE OF COMMON AND REPAYMENT PRO FORMA
HISTORICAL STOCK OF DEBT AS ADJUSTED
------------ ------------------- -------------------- ------------
<S> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 1,983 $ 326,339 (6) $ (124,781)(5) $ 203,541
Accounts receivable, net ............................. 2,106 2,106
Other current assets ................................. 489 489
--------- ---------
Total current assets ............................. 4,578 326,339 (124,781) 206,136
Property, plant and equipment ........................ 5,995 88,000 (5) 93,995
Goodwill and intangible assets ....................... 30,322 30,322
Other long-term assets ............................... 527 527
--------- ---------
Total ......................................... $ 41,422 $ 326,339 $ (36,781) $ 330,980
========= =========== ============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable ..................................... $ 5,089 $ 5,089
Accrued expenses ..................................... 1,095 1,095
Current portion of capital lease obligations ......... 1,986 $ 8,000 (5) 9,986
Due to Bridge ........................................ 17,270 (3,781)(5) 13,489
Other accrued liabilities ............................ 2,385 2,385
--------- ---------
Total current liabilities ........................ 27,825 4,219 32,044
Long-term portion of capital lease obligations 3,981 17,000 (5) 20,981
Other liabilities .................................... 444 444
--------- ---------
Total liabilities ................................ 32,250 21,219 53,469
STOCKHOLDERS' EQUITY:
Common Stock ......................................... 720 $ 149 (6) 869
Additional paid-in capital ........................... 31,026 326,190 (6) (58,000)(5) 299,216
Accumulated deficit .................................. (22,574) (22,574)
--------- ---------
Total stockholders' equity ....................... 9,172 326,339 (58,000) 277,511
--------- ----------- ------------ ---------
Total ......................................... $ 41,422 $ 326,339 $ (36,781) $ 330,980
========= =========== ============ =========
</TABLE>
See notes to the unaudited pro forma consolidated financial statements.
29
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1) To record depreciation and amortization expense of $9,685 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 historical amortization and depreciation expense
of $10,564. Since a significant portion of these assets acquired had an
estimated useful life of one year, the pro forma entry to give effect to the
acquisition of SAVVIS by Bridge as of January 1, 1998 resulted in a net
reduction of pro forma depreciation and amortization in the nine months
ended September 30, 1999.
2) To record depreciation and amortization expense of $18,543 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 historical depreciation and amortization expense
of $2,288.
3) To reflect depreciation and amortization on the additional $88,000 net book
value of the network assets acquired and subleased from Bridge. Depreciation
on such assets, excluding approximately $6,000 of uninstalled equipment, has
been computed using the straight line method with an estimated remaining
life of assets of three years.
4) To reflect interest expense on capitalized leases assuming that network
assets with an $82,000 net book value, plus $6,000 in equipment awaiting
installation, are purchased or leased from Bridge at net book value.
5) To reflect the purchase of network assets together with the capitalized
leases from Bridge, assuming a purchase price of approximately $88,000 with
the payment of $63,000 of the purchase price in cash from the proceeds of
this offering, and $25,000 in the form of capital lease obligations. These
amounts exclude the net book value of assets outside the United States that
may be purchased in the future, once we obtain regulatory approvals.
Additionally, to reflect payment of $58,000 as a preferential distribution
to Bridge, which has been reflected as a reduction of stockholders' equity,
and the payment of $3,781 to Bridge to reduce existing outstanding debt.
6) To reflect the proceeds, net of issuance costs, from the sale of 14,875,000
shares of common stock in this offering, at an assumed initial public
offering price of $23.50 per share.
7) Pro forma loss per share is calculated assuming the sale of the number of
shares of common stock that will generate an amount of proceeds to pay a
total of $125,000 to Bridge, consisting of $63,000 for the network assets
not subject to capital leases, $58,000 as a preferential distribution and
$3,781 to reduce existing outstanding debt.
30
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
We derived the selected historical consolidated financial data presented
below as of and for each of the three years ended December 31, 1996, 1997 and
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 began commercial
operations in 1996.
We derived the selected consolidated financial data presented below for the
nine months ended September 30, 1998, the period from January 1 to April 6,
1999, and the period from April 7 to September 30, 1999 and as of September 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 this 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. The accounting for the purchase transaction has been "pushed down"
to the financial statements of SAVVIS. Therefore, the purchase price has been
allocated to the underlying assets purchased and liabilities assumed based on
the estimated fair market values of these assets and liabilities at the
acquisition date. As a result of the application of fair value accounting,
intangibles, goodwill, other liabilities and stockholders' equity were increased
in the SAVVIS unaudited consolidated balance sheet. The SAVVIS unaudited
historical consolidated balance sheet data as of September 30, 1999 and
unaudited consolidated statement of operations data for the period from April 7,
1999 through September 30, 1999 reflect our acquisition by Bridge and are
labeled "Successor." The SAVVIS historical financial data for the periods prior
to the acquisition are labeled "Predecessor."
On September 10, 1999, Bridge sold in a private placement approximately 25%
of its equity ownership in SAVVIS to existing shareholders of Bridge, at which
time Welsh Carson purchased from Bridge a 12% interest in SAVVIS at that time.
We calculate EBITDA as earnings (loss) before depreciation and
amortization, interest income and expense and income tax expense (benefit). We
have included information concerning EBITDA because our management believes that
in our industry such information is a relevant measurement of a company's
financial performance and liquidity. 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, EBITDA as used in this prospectus may not be comparable to
similarly titled measures of other companies, as other companies may not
calculate it in a similar manner.
31
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------------------------------------------------------
PERIOD FROM
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED JANUARY 1 TO
-------------------------------------------- SEPTEMBER 30, APRIL 6,
1996 1997* 1998* 1998* 1999*
-------------- -------------- -------------- ------------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ...................................... $ 290 $ 2,758 $ 13,674 $ 8,914 $ 5,440
Direct costs and operating expenses:
Data communications and operations 1,044 11,072 20,889 14,609 6,429
Selling, general and administrative .......... 1,204 5,130 12,245 7,353 4,751
Depreciation and amortization ................ 153 631 2,288 1,556 817
Impairment of assets ......................... -- -- -- -- 1,383
------------ ----------- ----------- ----------- ------------
Total direct costs and operating
expenses .................................. 2,401 16,833 35,422 23,518 13,380
------------ ----------- ----------- ----------- ------------
Loss from operations .......................... (2,111) (14,075) (21,748) (14,604) (7,940)
Interest expense, net ......................... (60) (482) (100) (138) (135)
------------ ----------- ----------- ----------- ------------
Net loss before minority interest and
extraordinary item ........................... (2,171) (14,557) (21,848) (14,742) (8,075)
Minority interest in losses, net of
accretion .................................... -- 547 (147) (147) --
Extraordinary gain on debt
extinguishment, net of tax ................... -- -- 1,954 1,954 --
------------ ----------- ----------- ----------- ------------
Net loss ...................................... $ (2,171) $ (14,010) $ (20,041) $ (12,935) $ (8,075)
============ =========== =========== =========== ============
Net loss attributable to common
stockholders ................................. $ (2,171) $ (14,161) $ (22,666) $ (14,674) $ (9,025)
============ =========== =========== =========== ============
Basic and diluted net loss per share
before extraordinary item .................... $ (.06) $ (.38) $ (.42) $ (.29) $ (.14)
Extraordinary gain on debt
extinguishment, net of tax ................... -- -- .03 .03 --
------------ ----------- ----------- ----------- ------------
Basic and diluted loss per common
share ........................................ $ (.06) $ (.38) $ (.39) $ (.26) $ (.14)
============ =========== =========== =========== ============
Weighted average shares outstanding ........... 35,396,287 36,904,108 58,567,482 56,735,597 66,018,388
============ =========== =========== =========== ============
OTHER FINANCIAL DATA:
EBITDA ........................................ $ (1,958) $ (12,897) $ (17,653) $ (11,241) $ (7,123)
Capital expenditures .......................... 884 697 1,688 1,308 275
Cash used in operating activities ............. (1,293) (10,502) (20,560) (15,530) (6,185)
Cash used in investing activities ............. (884) (697) (2,438) (2,058) (275)
Cash provided by financing activities ......... 2,740 12,024 24,121 24,445 4,533
<CAPTION>
SUCCESSOR
--------------
PERIOD FROM
APRIL 7 TO
SEPTEMBER 30,
1999
--------------
(DOLLARS IN
THOUSANDS,
EXCEPT
SHARE AMOUNTS)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ...................................... $ 12,192
Direct costs and operating expenses:
Data communications and operations 13,095
Selling, general and administrative .......... 11,142
Depreciation and amortization ................ 9,747
Impairment of assets ......................... --
-----------
Total direct costs and operating
expenses .................................. 33,984
-----------
Loss from operations .......................... (21,792)
Interest expense, net ......................... (782)
-----------
Net loss before minority interest and
extraordinary item ........................... (22,574)
Minority interest in losses, net of
accretion .................................... --
Extraordinary gain on debt
extinguishment, net of tax ................... --
-----------
Net loss ...................................... $ (22,574)
===========
Net loss attributable to common
stockholders ................................. $ (22,574)
===========
Basic and diluted net loss per share
before extraordinary item .................... $ (.31)
Extraordinary gain on debt
extinguishment, net of tax ................... --
-----------
Basic and diluted loss per common
share ........................................ $ (.31)
===========
Weighted average shares outstanding ........... 72,000,000
===========
OTHER FINANCIAL DATA:
EBITDA ........................................ $ (12,045)
Capital expenditures .......................... 855
Cash used in operating activities ............. (9,945)
Cash used in investing activities ............. (855)
Cash provided by financing activities ......... 12,189
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------------------- --------------
AS OF DECEMBER 31,
-------------------------------------- AS OF
SEPTEMBER 30,
1996 1997* 1998* 1999
-------- ------------ ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................. $ 573 $ 1,398 $ 2,521 $ 1,983
Goodwill and intangibles, net .............. -- -- 1,406 30,322
Total assets ............................... 1,888 4,313 11,663 41,422
Debt and capital lease obligations ......... 1,126 8,814 2,759 23,237
Redeemable stock, net of discount and
deferred financing costs .................. 500 5,261 36,186 --
Stockholders' equity (deficit) ............. (693) (14,903) (33,197) 9,172
</TABLE>
* As discussed in Note 14 to our Consolidated Financial Statements, information
regarding 1997, 1998 and predecessor 1999 have been restated.
32
<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 rapidly growing provider of high quality, high performance global
data networking and Internet-related services to medium and large businesses,
multinational corporations and Internet service providers. To provide our
Internet access services, we use the SAVVIS ProActiveSM Network, a data
communications network that uses our eight PrivateNAPsSM and our proprietary
routing policies to reduce data loss and enhance performance by avoiding the
congested public access points on the Internet.
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 850.
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 an estimated 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
required us to establish a new basis of accounting for the assets purchased and
liabilities assumed. As a result, the purchase price has been allocated to the
underlying assets purchased and liabilities assumed based on estimated fair
market value of these 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 financial statements. The impact of the acquisition on our balance sheet, as
a result of the application of fair value accounting, was to increase
intangibles, goodwill, other liabilities and stockholders' equity. As a result
of the acquisition and the "push down" accounting, our results of operations
following the acquisition, particularly our depreciation and amortization, are
not comparable to our results of operations prior to the acquisition.
On September 10, 1999, Bridge sold in a private placement approximately 25%
of its equity ownership in SAVVIS to the existing stockholders of Bridge, at
which time Welsh Carson purchased from Bridge a 12% interest in SAVVIS at that
time.
Simultaneously with the completion of this offering, we will acquire
Bridge's global Internet protocol network, which has been integrated with our
network since September 1999, for total consideration of approximately $88
million and we will pay a preferential distribution to Bridge of $58 million. At
that time, we will enter into a 10-year network services agreement with Bridge
under which we will provide managed data networking services to Bridge. The
purchase will substantially increase our depreciation and amortization. Our fees
will be based upon the cash cost to Bridge of operating the network as
configured on October 31, 1999, as adjusted for changes to the network related
to Bridge's network requirements through the date of transfer. Our fees for
additional services provided following the date of transfer will be set for a
three-year term based on an agreed price schedule reflecting the estimated cost
to provide the services. The price schedule for additional services will be
subject to annual review and will be mutually agreed upon or determined by
binding arbitration. Bridge has agreed to pay us a minimum of $105 million, $132
million and $145 million for network services in 2000, 2001 and 2002,
respectively.
33
<PAGE>
In addition, Bridge has agreed that the amount paid to us under the
agreement for the fourth, fifth and sixth years will not be less than 80% of the
total amount paid by Bridge and its subsidiaries for Internet protocol data
transport services in each of the fourth, fifth and sixth years; and the amount
paid to us under the agreement for the seventh through tenth years will not be
less than 60% of the total amount paid by Bridge and its subsidiaries for
Internet protocol data transport services in each of those years.
Because under the network services agreement the amounts paid to us for the
services to be provided over the original network acquired from Bridge are based
upon the cash cost to operate the original network, the purchase of the network
and provision of services under the network services agreement will result in
losses and negative cash flow from operations until we can sell additional
services over that network to Bridge or other customers. However, because Bridge
is paying us the cash cost to operate the original network and the estimated
total cost for additional network facilities, we expect any additional revenues
generated from the use of the network to generate higher incremental operating
margins.
Bridge will also agree to provide to us various services, including
technical support, customer support and project management in the procurement
and installation of equipment. In addition, Bridge will agree to provide to us
additional administrative and operational services, such as payroll and
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.
Revenue. Our revenue will be 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 also began to offer Internet security and colocation services to
corporate customers. Beginning in September 1999, we began to offer managed data
networking services.
We charge each customer an initial installation fee that typically ranges
from $500 to $5,000 and a fixed 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 December 31,
1999, approximately 6% of our customer agreements, representing approximately 6%
of our revenues for the month of December 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. Assuming we had received the minimum
revenues under the network services agreement for the first year of the
agreement in 1999, Bridge would have represented approximately 83% of our 1999
revenues. As of December 31, 1999, Bridge had an estimated 135,000 trading
terminals connected to the SAVVIS ProActiveSM Network and an estimated 100,000
trading terminals connected over networks using older protocols. Bridge has
informed us that it expects to convert its remaining customers to the Internet
protocol network over the next three years. We expect that, to the extent these
customers are converted, Bridge will order additional services from us under the
network services agreement. We cannot assure you that any of these customers
will be converted or as to what schedule any conversions will be completed.
While we expect our revenues from Bridge to increase, we expect them to
decrease as a percentage of our total revenues as we expand our data networking,
Internet access and colocation customer base. We believe data networking and
colocation services will increase as a percentage of our non-Bridge recurring
revenues as we expand these service offerings.
34
<PAGE>
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 service providers;
o leasing local access lines;
o transmission 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 access lines at customer sites.
These costs will also include the cost of the network operations center, as
well as the customer help desk and other 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 expansion of our customer base. Annual facility expenses are
expected to increase significantly beginning in the year 2000 as a result of
newly leased headquarters facility in Herndon, Virginia. Our incremental cost
will approximate $2 million per year. We expect noncash compensation expense
will materially increase as a result of stock options granted to employees of
SAVVIS and Bridge. During the period from October through December 1999, we
granted 2,843,258 stock options with an exercise price of $.50 per share.
Noncash compensation cost based upon the difference between the exercise price
and the imputed fair value of our common stock as of the respective option grant
dates totalling approximately $53 million will be recorded over the vesting
periods of such options, which periods range from immediate up to four years.
Approximately $2 million of noncash compensation expense will be recorded in the
fourth quarter of 1999.
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
three years and other intangibles are being amortized over one to three years.
35
<PAGE>
Interest expense. Historical interest expense is related to indebtedness to
banks, convertible notes, loans from Bridge and capitalized leases. In
connection with our purchase of Bridge's Internet protocol network assets, we
will enter into capitalized leases with Bridge relating to their capitalized
leases for network equipment that Bridge could not directly assign to us. As a
result, our interest expense will increase.
Income tax expense. We incurred operating losses from inception through
September 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 may restrict our ability to utilize the net operating losses
over the carryforward periods ranging from 15 to 20 years.
As we expand our network, increase our employee base to support our
expanded operations and invest in our marketing and sales operations, we expect
our losses, net cash used in operating activities and negative EBITDA to
increase substantially for the foreseeable future.
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.
Subsequent to the issuance of our financial statements for the years ended
December 31, 1997 and 1998, we determined that the Class A shares of our
subsidiary represented a minority interest to which losses should be allocated
and for which accretion on the Class A shares and related convertible notes
should be recorded at an effective rate of 20%. We also concluded that the
exchange of these instruments for Class B preferred stock in March of 1998
should be treated as a debt extinguishment, with recognition of an extraordinary
item, and as the purchase of minority interest .
Period from January 1, 1999 to April 6, 1999 (Predecessor)
For the period from January 1, 1999 to April 6, 1999, which is the day
before the acquisition by Bridge of our company, revenue was approximately $5.4
million. Data communications and operations expenses for the period were
approximately $6.4 million, and selling, general and administrative expenses
were approximately $4.8 million. Depreciation and amortization expenses for the
period January 1, 1999 to April 6, 1999 were approximately $.8 million. An asset
impairment charge of approximately $1.4 million was also recorded during this
period. Interest expense, net, was $.1 million and the net loss for the period
was approximately $8.1 million.
Period from April 7, 1999 to September 30, 1999 (Successor)
For the period from April 7, 1999, which is the date of the acquisition by
Bridge of our company, to September 30, 1999, revenue increased to approximately
$12.2 million. Data communications and operations expenses for the period were
approximately $13.1 million, and selling, general and administrative expenses
increased to approximately $11.1 million. Depreciation and amortization expenses
for the period January 1, 1999 to April 6, 1999, increased to approximately $9.7
million, due to the amortization of goodwill and other intangible assets
associated with the acquisition by Bridge. Interest expense, net, was $.8
million and the net loss for the period was approximately $22.6 million.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
The following discussion compares combined information of SAVVIS and our
predecessor for the nine months ended September 30, 1999, with those of our
predecessor for the nine months ended September 30, 1998. The combined
information consists of the sum of the financial data from
36
<PAGE>
January 1, 1999 through April 6, 1999 for the predecessor and from April 7, 1999
through September 30, 1999 for SAVVIS. The acquisition by Bridge resulted in a
new basis of accounting, which impacted depreciation and amortization in the
period subsequent to April 7, 1999.
Revenue. Revenue was approximately $17.6 million for the first nine months
of 1999, compared to approximately $8.9 million for the first nine months of
1998, an increase of 98%. This $8.7 million increase was primarily due to
increased marketing and sales efforts and the resulting increase in the number
of customers to 705 from 422, as well as a nominal increase in services to
existing customers.
Data Communications and Operations. Data communications and operations
expenses were approximately $19.5 million for the first nine months of 1999
compared to approximately $14.6 million for the first nine months of 1998, a 34%
increase. This approximately $4.9 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 $15.9 million for the first nine months of 1999,
compared to approximately $7.4 million for the first nine months of 1998, an
increase of 115%. This approximately $8.5 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.
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 increase in the number
of customers from 102 to 476.
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.
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
$2.3 million in 1998, compared to $.6 million in 1997, an increase of 283%.
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 $.5 million in 1997, a decrease of 80%. This $.4 million decrease
was directly attributed to the conversion of a portion 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 $20.0 million in 1998, which included a $1.9
million extraordinary gain on debt extinguishment, compared to $14.0 million in
1997, a 43% 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 year of operations. This $2.5 million increase was primarily due to
increased marketing and sales efforts and the resulting increase in the number
of customers from 15 to 102.
Data Communications and Operations. Data communications and operations
expenses were $11.1 million in 1997, compared to $1.0 million in 1996. This
$10.1 million increase was due to costs associated with the expansion of our
network and the increase in our customer base.
37
<PAGE>
Selling, General and Administrative. Selling, general and administrative
expenses were $5.1 million in 1997, compared to $1.2 million in 1996. 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. 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 $.5 million in 1997,
compared to $.1 million in 1996. This $.4 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 $14.0 million in 1997, compared to $2.2 million in
1996. In 1997, $.5 million of our losses were allocated to our minority
interest, net of accretion.
LIQUIDITY AND CAPITAL RESOURCES
We have historically generated negative cash flows from operations. We
generated negative cash flows from operations of $15.5 million and $16.1 million
for the first nine months of 1998 and 1999, respectively, and $1.3 million,
$10.5 million and $20.6 million for 1996, 1997 and 1998, respectively.
From January 1, 1996 through September 30, 1999, we expended approximately
$90 million for operating purposes and for the construction, maintenance and
expansion of our network. Net cash used in investing activities was
approximately $1.1 million for the first nine months of 1999, and $.9 million,
$.7 million and $2.4 million for 1996, 1997 and 1998, respectively. 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 $16.7 million for the first nine months of 1999, and
$2.7 million, $12.0 million and $24.1 million for 1996, 1997 and 1998,
respectively. We obtained funds through issuances of equity securities and
convertible notes, bank financing, capital lease obligations and advances from
Bridge. As of September 30, 1999, we had outstanding loans from Bridge of
approximately $17.3 million.
We expect our capital expenditures will total approximately $1.2 million
for 1999. We expect to have capital expenditures, excluding the purchase of the
Bridge network assets, of approximately $149 million in 2000 as we build out
colocation facilities, deploy ATM devices and expand our network to 24 new
cities.
Upon completion of this offering, we will acquire Bridge's Internet
protocol network assets for total consideration of approximately $88 million. Of
this amount, $25 million will be paid by entering into a capital lease
obligation with Bridge. The remaining purchase price of $63 million will be paid
with a portion of the net proceeds of this offering. In the event we receive
more than $350 million gross proceeds from the sale of common stock in this
offering, 50% of the excess will be applied to the balance of the remaining
outstanding debt to Bridge. We will also pay to Bridge, out of the offering
proceeds, a $58 million preferential distribution.
In connection with our purchase of the network assets, we will also enter
into a network services agreement with Bridge under which we will provide Bridge
with managed data networking services. Because under the network services
agreement the amounts paid to us for the services to be provided over the
original network acquired from Bridge are based upon the cash cost to operate
the original network, the purchase of the network and provisions of services
under the network services the agreement will result in losses and negative cash
flow from operations until we can sell additional services over the network to
Bridge or other customers.
In connection with our acquisition of Bridge's network assets, Bridge will
assign to us numerous agreements for the purchase of communications services. We
are currently discussing with several of these suppliers the placement of
deposits or stand-by letters of credit by us. We estimate that we may be
required to deposit approximately $5 million for such purposes.
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We have arrangements with various suppliers of communications services that
require us to maintain minimum spending levels, some of which increase over
time. Our aggregate minimum spending level is approximately $28 million in 2000.
In specific instances, we are able to choose among a variety of communications
services offered 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.
Although we plan to invest significantly in equipment and in network
expansion, except as described in the preceding paragraph, 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, will allow us to continue in business as a
going concern and will be sufficient to fund our operating and capital needs for
a year following this offering. We are currently in discussions with two
separate vendors to obtain vendor financing for network equipment purchases. In
the absence of proceeds from this offering, our cash and cash equivalents would
not be sufficient and we would be required to seek capital from external sources
and curtail expansion plans. We will need to raise a significant amount of
capital to fund our capital expenditures, operating deficits, working capital
needs and debt service requirements after 2000. We intend to seek equity or debt
financing from external sources to meet our cash needs after 2000. 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 commonly referred to as the "Year 2000 problem."
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.
The costs of upgrading the various hardware or software that were found not
to be compliant, as well as the cost of assessing and addressing Year 2000
compliance issues, were approximately $100,000. These costs were absorbed into
normal operating expense and salary structures.
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. As amended by Statement of
Financial Accounting Standards No. 137, 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 expect that adoption of this
standard will have a material impact on our results of operations.
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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.
Following the purchase of Bridge's global Internet protocol network assets, we
expect to expand our business internationally, and as a result, we will be
exposed to changes in foreign currency exchange rates.
Our financial instruments that are sensitive to changes in interest rates
are our borrowings from Bridge, all of which were entered into for other than
trading purposes. These term notes mature one year after the completion of this
offering and bear interest at a fixed rate of 8%. In addition, in connection
with our purchase of Bridge's network assets, we expect to issue a three-year
promissory note that will bear interest at an annual rate of 10%. Because the
interest rate on these notes is fixed, changes in interest rates will not
directly impact our cash flows. As of December 31, 1998, the aggregate fair
value of our borrowings approximated their carrying value.
Changes in foreign exchange rates do not currently impact our results of
operations. Upon our purchase of Bridge's Internet protocol network assets and
our entry into the network service agreement at the completion of this offering,
we expect approximately 18% of our revenue from Bridge to be derived from
operations outside the United States, and approximately 17% of our direct costs
to be incurred outside the United States. Because our foreign revenue will
closely match our foreign costs, we do not anticipate that changes in foreign
exchange rates will have a material impact on our results of operations. We may
engage in hedging transactions to mitigate foreign exchange risk.
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BUSINESS
We are a rapidly growing provider of high quality, high performance global
data networking and Internet-related services to medium and large businesses,
multinational corporations and Internet service providers. Upon transfer of the
Bridge network to us and pursuant to a network services agreement between Bridge
and us, Bridge, one of the leading content providers to the financial services
industry, will pay us for the use of the SAVVIS ProActiveSM Network to deliver
Bridge's content and applications to over 4,500 financial institutions,
including 75 of the top 100 banks in the world and 45 of the top 50 brokerage
firms in the United States. Following the network transfer, these entities will
remain customers of Bridge. We currently offer a wide range of managed data
network services, high bandwidth Internet access services and colocation
services.
The SAVVIS ProActiveSM Network was constructed to meet the real-time data
delivery requirements of the demanding customers of the financial services
industry. Our network has been operational since 1996 and has over 6,000
buildings on-net in 83 of the world's major commercial centers in 43 countries.
Our network architecture is based on ATM, frame relay and Internet protocol
technologies. Additionally, our 83-city global system connects to eight
PrivateNAPsSM, which will be expanded to 12 by March 2000, allowing us to bypass
the congested public Internet access points. This network design enables us to
provide real-time data delivery and guarantee low latency and low data 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 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. As of December 31, 1999 Bridge had an
estimated 235,000 network terminals installed worldwide of which an estimated
135,000 terminals were connected to the SAVVIS ProActiveSM Network. Bridge
expects to connect the remaining 100,000 terminals to our network over the next
three years. Bridge is a privately held company whose principal shareholder is
Welsh Carson, a sponsor of private equity funds with extensive experience in the
communication and information services industries. The high performance of our
Internet access services has been verified by our analysis of data collected by
Keynote Systems, Inc., which showed that we had the second best mean download
time in 1999. We currently provide Internet access services directly to
approximately 850 customers.
Following the Bridge asset transfer, our revenue will be 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.
We charge each customer an initial installation fee that typically ranges
from $500 to $5,000 and a monthly fixed 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 December 31,
1999, approximately 6% of our customer agreements, representing approximately 6%
of our revenues for the month of December 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.
RELATIONSHIP WITH BRIDGE
In April 1999, we were acquired by Bridge, a leading provider of content to
financial services companies. Upon the completion of this offering, we will
purchase Bridge's global Internet protocol network, which has been integrated
with our network since September 1999, for total consideration of approximately
$88 million. As a result, the SAVVIS ProActiveSM Network will interconnect over
6,000 buildings in 83 of the world's major commercial cities in 43 countries.
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In addition, upon completion of this offering, we will enter into a 10-year
network services agreement with Bridge that commits Bridge to purchase at least
$105 million, $132 million and $145 million of network services from us in 2000,
2001 and 2002, respectively. Thereafter, Bridge will be required to purchase at
least 80% of its network services from us, declining to 60% in 2006 through the
end of the agreement in 2010. We will also enter into a number of other
agreements with Bridge that contemplate, among other things, the transfer of
Bridge's technical and support personnel to us, and our purchase from Bridge of
support and administrative services, including help-desk services and network
operations center services.
Following the completion of this offering and the purchase of Bridge's
network assets, we will become a provider of managed data networking services to
Bridge. At that time, we will connect Bridge to over 4,500 of its financial
services company customers, including 75 of the top 100 banks in the world and
45 of the top 50 brokerage firms in the United States, to allow Bridge to
deliver its content and applications. While the over 4,500 financial services
companies will remain customers of Bridge and we will only derive revenue from
Bridge for delivering Bridge content and applications to these companies, we
intend to aggressively market our services to occupants of the 6,000 buildings
connected to the SAVVIS ProActiveSM Network, in particular to Bridge's customer
base.
MARKET OVERVIEW
Market opportunity. As the Internet has emerged as a strategic business
component, investment in Internet services has begun to increase dramatically.
According to International Data Corporation, an independent research firm, the
demand for U.S. 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.
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 users 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 Internet protocol-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
United States 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 United States will continue to grow rapidly to reach
approximately $12.8 billion in 2003.
Today, organizations employ local data networks, or local area networks, to
interconnect personal computers and workstations. The highly successful use of
local area networks for information-sharing, messaging and other applications
has led organizations to aggressively deploy wide area networks, which
effectively interconnect local area networks and replicate their functionality
across a much broader geographic area. The demand for wide area networks 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
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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.
Convergence between the Internet and corporate data networking. Today, many
businesses are utilizing Internet-related services as lower-cost alternatives to
several traditional telecommunications services. The near ubiquity and
relatively low cost of the Internet have resulted in its widespread use for
specific applications, most notably web access and e-mail. Internet protocol has
become the communications protocol of choice for the desktop and for local area
networks. As a result, Internet protocol wide area network 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 Internet protocol-based fax and video-conferencing.
Industry analysts expect the market for both Internet protocol-based data
networking services and Internet access to grow rapidly as companies increase
their use of the Internet, intranets extranets and privately managed Internet
protocol 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.
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 third
parties, 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, Inc. 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, Inc. 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 high quality, reliable and flexible 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 Internet protocol 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 number of businesses will outsource
their colocation and web site hosting requirements to third parties. Forrester
Research, Inc. 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 Internet
protocol 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 Internet protocol, the Internet faces limitations that may
serve as a bottleneck between the full
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potential of Internet protocol and its use in mission-critical applications.
First, in Internet protocol 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,
Internet protocol packets cannot be identified as belonging to one class of
traffic or another. For example, in a given flow of Internet protocol packets it
is not possible to separate "real-time" traffic, such as voice over Internet
protocol, from lower priority traffic, such as e-mail. Each of these issues
limits the utility of Internet protocol for mission-critical, real-time
enterprise networks. While we believe that an improved version of Internet
protocol 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 older, less technologically advanced 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 of data networks, 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, connecting to other backbone providers 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 global data
networking and Internet needs. Our competitive strengths in servicing these
customers include:
Large number of sophisticated users connected to our network. Bridge uses
the SAVVIS ProActiveSM Network to deliver its content and applications to over
4,500 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. Because these financial
services firms depend on up-to-the-minute information and cutting edge
technology to successfully compete in their businesses, they are demanding users
of corporate data services. The SAVVIS ProActiveSM Network was designed and is
operated to high standards of speed and redundancy to satisfy their
requirements, with multiple backbone connections, local access lines and ATM
switches. With the SAVVIS ProActiveSM Network in place, the marginal cost of
providing additional services to existing Bridge 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 to Bridge to enable them to deliver
content to the world's major financial institutions will significantly advance
our brand building efforts and enhance our prospects for winning new business.
Network engineered for real-time performance. Our network architecture
allows us to deliver data services to the demanding customers that require
real-time delivery of large volumes of data, such as financial services
participants that rely on data sent on our network to make trading and
investment decisions throughout the day. The high performance of our Internet
access services has been verified by our analysis of data collected by Keynote
Systems, Inc., which showed that we had the second best mean download time in
1999. In order to achieve this, we designed our network to be highly redundant,
including multiple backbone connections, local access lines and Internet
connections. In addition, our system of PrivateNAPsSM 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.
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Global network presence. Our network will reach 43 countries, with
facilities in 83 major cities, including 58 international cities and 25 U.S.
cities. We intend to continue to extend the scope of our network by connecting
an additional 24 cities in 2000. We have over 6,000 buildings connected to our
network. Because our network is already connected to these buildings as a result
of our relationship with Bridge, we can deliver our services to Bridge's
customers and the other tenants with low marginal cost and a time-to-market
advantage.
Single source service offering. We provide our customers with a single
source for a wide range of global data networking, Internet access and
colocation services. Our global data networking services include managed data,
virtual private network and dial-up access services. Our Internet-related
services include dedicated access, DSL and Internet security services. All of
our services are offered on a service-only basis and a fully managed basis, with
service and equipment included, depending on customer requirements and the
capabilities of their internal information technology staff.
World-class service through proprietary systems. The global data network
operations center in St. Louis and regional network operations centers in London
and Singapore are equipped with sophisticated 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 can contact us 24 hours a day, 365 days a year, with
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 global data network, based on the combination of ATM
technology and our PrivateNAPsSM, also enables us to provide our customers with
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 and data loss.
BUSINESS STRATEGY
Our objective is to tap the rapidly growing market for reliable, high speed
data communications and Internet services. In pursuit of this objective, we
intend to:
Provide a single source for managed data network services and high quality
Internet services. Data communications and the Internet are mission-critical to
thousands of businesses worldwide and, according to industry studies, the market
for these services continues to grow rapidly. Corporations are continually
expanding and enhancing existing networks and deploying new services in response
to this growth. By providing a wide range of services for both Internet and
managed data networking services, 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 our services on
a service-only basis and a fully managed basis, with service and equipment
included.
Capitalize on Bridge relationships to penetrate its customer base. We
intend to aggressively market our services to the over 4,500 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
connected to our network, we believe we enjoy significant time-to-market, cost
and quality advantages and enhanced customer retention when delivering our
services to these customers.
Target potential customers in buildings connected to our network. We intend
to actively market our services to the businesses in the over 6,000 buildings
worldwide that are connected to our network. These buildings are generally
located in central business districts of major cities and are typically occupied
by multiple businesses. Because our 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 PrivateNAPsSM infrastructure. We intend to leverage
the substantial investments made in our network infrastructure and service and
support capabilities to service new customer segments, including large
corporations in other targeted vertical markets, medium and small
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businesses and Internet service providers. We intend to continue to expand our
data 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 offerings and improve
our economies of scale. We also intend to continue the expansion of our
PrivateNAPsSM with the addition of four PrivateNAPsSM in early 2000. Given the
high volume of traffic that is 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 sales force for both global data networking services 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 data networking services to their existing customer base.
Provide enabling infrastructure for e-commerce services. We believe that
many of our target customers, particularly the financial services companies that
receive Bridge content and applications, are aggressively pursuing e-commerce
strategies. We believe that our network architecture of ATM technology and
PrivateNAPsSM, highly available domestic and international dial access platforms
and security services will enable businesses to communicate with customers and
suppliers over the Internet and secure websites. As a result, we believe that 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
network infrastructure and our 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 access lines 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 data center 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.
SAVVIS SERVICES
We believe that we are well positioned to solve the major problems
currently facing Internet and data networking customers. We designed the SAVVIS
ProActiveSM 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 products, including data
networking, Internet access, intranets, extranets, colocation and other
services.
A common feature among all of the services that we provide to our customers
is the substantial flexibility to choose among a range of offerings, including
on a service-only basis and a fully managed basis. On a service-only basis, the
customer is responsible for the design and integration of its network and the
purchase of network hardware, relying on us only for network services. On a
fully managed basis, we are responsible for the design, implementation,
integration and ongoing support of the customer's network.
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Global Data Networking Services
The SAVVIS ProActiveSM Network provides a reliable, high quality
environment to transfer private corporate data among offices, employees,
customers and suppliers because our network uses multiple backbones, switches
and local connections to attain a high level of redundancy and is monitored 24
hours a day, 365 days a year. Because all of our global data networking services
are carried over a single network, we are able to offer these services on a
cost-effective basis relative to less technologically advanced private line
networks, while providing comparable quality and security and significant
improvements in redundancy, flexibility and scalability.
Managed Data Networking. Managed data networking services provide data
communication links over a shared network environment. Because we operate,
manage and monitor our global network end-to-end, we are able to provide our
customers with higher performance and greater reliability than networks that
utilize the public Internet. Customers can connect to our data network using
ATM, frame relay or Internet protocol technologies. Customers contract for
connectivity to our global network and configure software-based permanent
virtual circuits 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 permanent virtual circuits. Our managed data networking
services are designed for those customers that require a very high level of
quality and security for their networking services.
Virtual Private Network Services. For 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 networking services, we offer our
Internet-based virtual private network services. Virtual private networks
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 virtual private network 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 virtual private network customers are served by our high
performance network.
Packet Transport Services. We offer point-to-point data connection
services, which are implemented as ATM or frame relay permanent virtual
circuits, for customers requiring high bandwidth point-to-point network
communications.
Dial Access. By the end of 2000, 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 2001, we expect to provide local
dial access in approximately 100 U.S. cities, increasing to approximately 300
U.S. cities by the end of 2001. 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 who demand reliable, high-quality dial-up
services.
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 ProActiveSM
Network that is connected to our system of PrivateNAPsSM allowing our customers
to bypass the congested public Internet access points. We plan to make these
services available outside the U.S. beginning in the third quarter of 2000. The
high performance of our Internet access services has been verified by our
analysis of data collected by Keynote Systems, Inc., which showed that we had
the second best mean download time in 1999.
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Dedicated Access. We offer customers a range of bandwidth options, from 128
kilobits per second to 155 Mbps on a fully dedicated or burstable basis. We also
provide all required Internet protocol 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 technology for high-speed Internet access, we offer our 10 Mbps Ethernet
service. Our Ethernet service transmits information through a customer's
existing local area network router. This service is an intermediate upgrade
between our 1.5 Mbps service and our fractional 45 Mbps service.
DSL Service. For commercial customers that seek cost-effective continuous
connectivity for high-speed Internet access, we offer symmetric DSL services at
speeds up to 1.5 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 16 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 services 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 services, and implement, manage, monitor and maintain these services.
We also perform security audits to find deficiencies in a customer network and
in host computers attached to that network and recommend appropriate services.
Our security services utilize the products and services of Netrex, Inc., a
well-known Internet security provider.
Colocation Services
We offer customers a secure, fault-tolerant environment in which to locate
their mission-critical content and networking hardware. We provide these
services in colocation data center facilities that are currently being upgraded
and expanded to over 250,000 square feet of space. These state-of-the-art
facilities are located directly on our network 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 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 have physical and remote access to our colocation
facilities 24 hours a day, 365 days a year, 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 services are implemented, 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.
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Direct Sales. Our direct sales force consisted of approximately 100 sales
representatives and sales engineers in the U.S. as of December 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 data networking services, our global
data networking sales force currently consists of eight people 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
approximately 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. As of December 31, 1999, Bridge
had approximately 500 sales representatives worldwide, located in the world's
key financial centers. These sales representatives support a customer base of
over 4,500 financial services companies already connected to our network. We
expect to be able to provide these businesses with additional services 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 its 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 network
infrastructure or sales and technical support expertise for high value-added
data services. By entering into relationships with us, these companies will be
able to 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 networking 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 data networking services and Internet services. 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 1999 Networld+InterOP show,
our virtual private network services were named the "Best of Show" for wide area
network services. We also use direct mail, e-newsletters, widespread fax
distributions, surveys, telemarketing, Internet marketing, on-line and on-site
seminars, collateral materials, advertising, welcome kits and direct response
programs to communicate with existing customers and to reach potential new
customers. Many of these marketing
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programs are co-funded by our 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.
Further, our sales force automation system tracks all marketing communications
with the prospective customers, 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 850 customers. Upon
completion of the Bridge asset transfer, Bridge will enter into a network
services agreement with us and will be our largest customer. Assuming we had
received the minimum revenues under the network services agreement for the first
year of the agreement in 1999, Bridge would have represented approximately 83%
of our 1999 revenues. We expect that Bridge will account for a significant
percentage of our revenues during 2000. No individual customer accounted for
more than 5% of our revenues during the nine months ended September 30, 1999. We
also provide services to many Internet service providers and Internet-centric
businesses.
Our contracts with our customers are typically for one to three years in
length. The Bridge network services agreement will be for ten years. Many of our
customer contracts contain service level agreements that provide for service
credits should we fail to maintain specified levels of quality.
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 and retaining customers and to satisfying the rapidly growing data
networking requirements and Internet services needs of these customers. Our
comprehensive approach to customer service and satisfaction includes a focus on:
o providing written guarantees of service quality;
o providing services on a service only basis and a fully managed basis,
with service and equipment included, that are 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 transmission needs over one high-quality
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
data networking requirements.
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Customer Call Centers. Customer support personnel located in call centers
in St. Louis, Missouri, London, England and Singapore handle service inquiries
from our customers 24 hours a day, 365 days a year, and provide this service in
eight languages. These personnel 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
ten-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 or
Bridge have available to us over 270 field technicians who are experts in
Internet protocol, 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 data
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 ProActiveSM Network enables us to provide effective service level
agreements to our customers. We believe that companies unable to support a
commensurate level of predictable network performance will not be able to
provide service level agreements with value to the customer or will do so at
substantial risk to their own business.
SAVVIS PROACTIVESM NETWORK INFRASTRUCTURE
Overview
The following description of the SAVVIS ProActiveSM Network gives effect to
the acquisition of Bridge's Internet protocol network which will be completed
simultaneously with the completion of this offering.
The SAVVIS ProActiveSM Network reaches 43 countries, with facilities in 83
major cities, including 58 international cities and 25 U.S. cities. Our network
interconnects over 6,000 buildings worldwide and is based on ATM, frame relay
and Internet protocol technologies. In addition, our network incorporates eight
PrivateNAPsSM, which will be expanded to 12 in early 2000 and which allow our
Internet traffic to bypass the congested public Internet access points.
We have designed our network to enable us to offer our customers high
speed, high quality services, as well as 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 ATM, frame relay and
Internet protocol technologies. These are open systems networking protocols that
are in widespread use in data communications. Internet protocol is the most
commonly used and fastest growing networking protocol in the world. By carrying
Internet protocol 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 network, 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,
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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 devices at the customer premises in the first
quarter of 2000, customers will be able to run multiple applications, such as
Internet access, intranet and private voice, over the same equipment and local
access, 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. There are over 175 Lucent ATM and frame relay
switches, providing a highly redundant switch backbone deployed throughout the
SAVVIS ProActiveSM Network. We have over 300 backbone routers installed and
there are 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 access
connections from multiple carriers. We interconnect our switching facilities
through high speed lines leased from a variety of carriers, including Qwest
Communications International, Inc., MCI Worldcom, Inc. and Broadwing, Inc.,
formerly known as IXC Communications, Inc. Our leased line connections range in
capacity from 45 Mbps through 155 Mbps in the U.S. and 45 Mbps 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 45 Mbps through 620 Mbps. The
combination of our leased lines and Sprint ATM service makes our transmission
backbone highly 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.
PrivateNAPsSM. For our customers' Internet traffic, we have built private
network access points, or PrivateNAPsSM, where we connect to the Internet
backbones operated by Sprint Corporation, Cable & Wireless plc and UUNET, an MCI
Worldcom company. At each of our PrivateNAPsSM, 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, service levels and routing flexibility than Internet
service providers that rely solely on free public or private peering
arrangements. We currently operate eight PrivateNAPsSM in the U.S. and plan to
add four additional PrivateNAPsSM in early 2000. In addition, to enhance our
carrier redundancy, at each of our PrivateNAPsSM, we connect to other Internet
backbones through peering arrangements where each party to the peering
arrangement agrees to carry the other party's traffic for free. We have 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
access 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.
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Our PrivateNAPSM 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 PrivateNAPSM get one-hop
access, meaning their data pass through only one router, when communicating with
each other, and two customers connected to different PrivateNAPsSM enjoy two-hop
access, meaning their data pass through only two routers, 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 2000. By mid-2001, we expect to have deployed dial access in
approximately 100 U.S. cities, increasing to approximately 300 U.S. cities by
the end of 2001. Our dial coverage will be supplemented by toll free dial access
where we do not have local dial access, and by the end of 2001 the platforms are
expected to contain over 20,000 ports.
Colocation. We are in the process of upgrading and expanding our Internet
colocation data center 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, San Francisco, Dallas, Chicago and Washington,
D.C. All of these facilities will be served by multiple 2.5 gigabits per second
connections for local 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 24 hours a day, 365 days a year, 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 Centers
Our global network operations center, which is owned and managed by Bridge
and located in St. Louis, Missouri, operates 24 hours a day, 365 days a year,
and is staffed by over 20 of our skilled technicians. We also have regional
network operations centers in London and Singapore. These regional centers
operate for ensuring backup for the St. Louis facility. From these network
operations centers, we remotely monitor the components of the SAVVIS ProActiveSM
Network, including our PrivateNAPsSM, and perform network diagnostics and
equipment surveillance. The network operations centers 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.
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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.
Today, ATM, frame relay and Internet protocol are driving the migration of
traffic from private line networks to shared networks and from older 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 local area network-to-local area network
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.
Internet Protocol. Internet protocol 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. Internet protocol has also become
the communications protocol of choice for the desktop and the local area
network, thus data networking over Internet protocol 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 Network. We have built the SAVVIS ProActiveSM Network to take advantage
of the rapid growth of Internet protocol 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 Internet protocol over ATM, we allow our
customers to overcome the limitations of Internet protocol and designate the
level of priority to be accorded to their traffic.
COMPETITION
The markets that we serve are intensely competitive. In addition, 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 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 markets and
that price is generally secondary to these factors. We believe that we presently
are well positioned to compete favorably with respect to most of these factors.
Our current and potential competitors in our targeted markets include:
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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 services 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., Cable & Wireless plc, GTE Internetworking, ICG
Communications, Inc., Intermedia Communications Inc., PSINet Inc., Sprint
Corporation, UUNET, an MCI Worldcom company, 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
Internet service providers 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 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.
REGULATORY MATTERS
As with any provider of global data networking and Internet access
services, we face regulatory and market access barriers in various countries
resulting from restrictive laws, policies and licensing requirements. Our six
major markets consist of the United States, the United Kingdom, Germany, France,
Italy and Japan. Data networking and Internet access services are now open to
competition in all of these foreign markets, but a license is required, except
for France where no license is required. We believe that we are licensed to
provide data networking and Internet access services as an independent operator
under the applicable telecommunications regulations in the United Kingdom, that
in France we are authorized to provide such services without any license and
that in Germany we have notified the necessary authorities to allow us to
provide such services. In Italy, the provision of such services to only Bridge
does not require any license, and we have filed the application for the
appropriate licenses to offer such services to the general public as well. In
Japan, we are currently authorized to provide data networking services only to
Bridge and are in the process of making application for the appropriate license
to offer services to third parties.
In most other countries that we believe represent significant revenue
potential, our data networking and Internet access services are now open to
competition, although in most cases a license is required. In some of these
countries, including Australia, Denmark, Finland, Hong Kong, The Netherlands and
Norway, we are authorized to provide data networking and Internet access
services to Bridge and third parties. However, in the remainder of these
countries, including Brazil, Canada, Chile, India, Indonesia and the
Philippines, 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. Our business plan does not contemplate selling
significant services outside of the U.S., except to Bridge, in the near term.
Therefore, we do not believe that our inability to offer services to third
parties in these countries is significant.
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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 Internet protocol network assets that we have not already acquired in the
Bridge asset transfer. These Bridge network assets generally will 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 services to Bridge and third parties, including Greece, Ireland, Hungary,
Malaysia, Taiwan, Thailand, Mexico and Venezuela. Although we expect the asset
transfer to occur in Greece, Ireland, Hungary, Poland, Taiwan, Mexico, and
Venezuela within one year after the completion of this offering we cannot assure
you that we will obtain any of these approvals. We do not believe that the
failure to obtain these licenses will have a material impact on our revenues as
we do not expect revenues from non-U.S. customers to be substantial in the near
term.
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 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, 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. We have established or will 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 providing 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 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 expect to
generate significant revenue from data networking services. In the European
Union member countries, such services may be provided upon the satisfaction of a
simple registration, notification or authorization procedure, in some cases,
without the need for any formality.
Internet Access Services. The Internet access services that we provide in
the U.S. do not require any authorization. The Internet access services that we
offer outside of the U.S. generally do not require any authorization beyond
those required 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.
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Substantive Regulation in Key Markets
The regulatory regimes applicable to the United States, the United Kingdom,
Germany, France, Italy and Japan, which will be our six major markets following
the Bridge asset transfer, as well as that of the European Union, are summarized
below.
United States. We believe that the regulatory framework governing the
provision of telecommunications services in the United States permits us to
offer all of our planned data networking services without significant legal
constraints. We provide these services on a resale basis or a facilities basis.
To the extent that any of these planned or future services require 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 Internet 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
various Internet-related services will be subject 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 the products and services we offer 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 be subject to 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 data 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 European Union 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, ten European Union member countries were required to
adopt a fully liberalized telecommunications regime. These countries are
Austria, Belgium, Denmark, Finland, France, Germany, Italy, The Netherlands,
Sweden and the United Kingdom. The five remaining European Union countries,
Luxembourg, Ireland, Spain, Portugal and Greece, were allowed a derogation
allowing them to delay the full liberalization of their telecommunications
regime until a later date. As a result, Luxembourg liberalized its
telecommunications regime on July 1, 1998; Spain and Ireland liberalized on
December 1, 1998; and Portugal liberalized on January 1, 2000. Currently, only
Greece is not required to have a fully liberalized telecommunications regime.
Greece is required to liberalize on December 31, 2000.
The process of opening up the telecommunications markets in the European
Union was achieved through European Union legislation called directives.
Directives are addressed to and binding on European Union member countries and
require implementation into national law. There are two types of European Union
Directives relating to telecommunications: first, directives adopted by the
European Commission aimed at liberalizing European Union markets and, second,
directives adopted by the
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European Council aimed at ensuring that a minimum set of harmonized rules, to
ensure fair competition, applies throughout the European Union. All 15 European
Union member countries were obligated to incorporate the principles contained in
these directives into their respective domestic legal frameworks. However, the
impact of the European Union 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 European Union member states.
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, meaning that "systems" are licensed, with licenses for the
provision of specific services being the exception. This authorization regime
also 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 Telecommunications Services License, which is a
class license. This license authorizes the provision of fixed telecommunications
services of any description, other than international voice services,
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 in conformity with European Community law in all
material respects. However, some telecommunications services, such as
asynchronous DSL, are not liberalized. Nevertheless, the managed data networking
services and value added services that we offer 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 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 to the general public is subject to the
granting of two specific authorizations from the Ministry of Communications. One
authorization relates to provision of telecommunications services through direct
access to the public network, including Internet access services, and one
authorization relates to provision of packet- and circuit-switched data services
or simple resale of capacity, including 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 that third party. In this context, the term
"telecommunication" encompasses the act of data transmission. Accordingly, if a
company 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
company were to replicate the database in Japan and permit access to the
database from within the country, the Telecommunications Business Law would not
apply, even if all the information were transmitted directly to the database
from an overseas parent company or subsidiary.
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Under the Telecommunications Business Law, information transfers exclusively
between a parent company and its subsidiary are exempt from licensing. Moreover,
if a company 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, in
general. We are in the process of applying for a special type 2 license.
Regulatory Assessment of Other Markets
Europe, excluding European Union member countries. Telecommunications
services are liberalized in varying degrees in European countries that are not
European Union member countries. As a matter of practice, Switzerland and Norway
conform their regulatory frameworks to the European Union 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
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 to persons other than
Bridge.
INTELLECTUAL PROPERTY
We do not own any patents or registered trademarks, except for our business
name and several product names for which we are in the process of applying, nor
do we hold any material licenses, franchises or concessions. We 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 December 31, 1999, we employed 212 full-time persons, 67 of whom were
engaged in engineering, operations and customer service, 117 in sales and
marketing, and 28 in finance and administration. None of our employees is
represented by a labor union, 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 sales offices and network equipment in a
number of metropolitan areas and specific cities. 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. colocation data center 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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RELATIONSHIP WITH BRIDGE
This is an offering of shares of common stock of SAVVIS and not Bridge. The
following information has been provided because a significant portion of
revenues of SAVVIS is expected to come from Bridge. Purchasers of our common
stock will not acquire an interest in Bridge.
You should read Bridge's financial statements and the notes thereto, as
well as the Management's Discussion and Analysis of Financial Condition and
Results of Operations of Bridge that are included in the back of this
prospectus.
The following selected financial information for the years ended December
31, 1996, 1997 and 1998 was derived from Bridge's audited financial statements.
The financial information for the nine months ended September 30, 1999 was
provided by Bridge and is unaudited.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED DECEMBER 31, ENDED
------------------------------------------- SEPTEMBER 30,
1996 1997 1998 1999
------------- ----------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
- ----------------------------
Revenues ...................................... $ 269,312 $ 409,926 $ 892,141 $ 958,435
Loss from operations (1) ...................... (40,543) (33,647) (69,046) (66,140)
Net loss (1) .................................. (60,796) (68,610) (142,861) (134,377)
OTHER FINANCIAL DATA:
- --------------------
EBITDA before acquisition related
writeoffs .................................... 25,113 50,902 160,260 153,712
Acquisition related write-offs ................ 6,500 5,396 28,709 --
Cash (used in) provided by operating
activities ................................... (19,484) 10,404 46,304 (76,025)
Cash used in investing activities ............. (292,449) (56,948) (498,936) (123,847)
Cash provided by financing activities ......... 322,679 43,384 473,812 203,542
</TABLE>
- ----------
(1) Bridge has used amortization periods ranging from three years to 40 years
for goodwill and other intangibles. If they had used amortization periods of
no longer than ten years, the loss from operations would have been $48.6
million, $51.0 million, $106.9 million and $111.8 million and the net loss
would have been $68.7 million, $86 million, $180.7 million and $180 million
for the periods ended December 31, 1996, 1997, 1998 and September 30, 1999,
respectively.
Bridge has informed us it continued to use cash in its operating activities
for the fiscal quarter ended December 31, 1999 and that the cash used in
operating activities in 1999 was primarily due to temporary working capital
pressures experienced in the course of integrating its recent acquisitions, as
well as declines in revenues primarily resulting from higher than expected
cancellations of subscriptions of products of acquired companies due to non-Year
2000 compliant products, client rationalization of market data services costs
and reductions in users due to mergers among Bridge clients.
The increases in working capital are attributable to
o Accounts receivable increases of $75.8 million resulting from (1) billing
delays resulting from conversions from the non-Year 2000 compliant
billing systems of acquired companies to the Bridge billing system and
(2) billing issues resulting from the migration of customers from the
less technologically advanced protocol products of acquired companies to
Bridge's new technology products; and
o Accounts payable decreases of $46.6 million resulting from the payment of
one-time accruals related to companies acquired in 1998.
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BRIDGE RELATIONSHIP
Upon completion of this offering, we will acquire Bridge's Internet
protocol network and enter into a number of agreements with Bridge.
Master Establishment and Transition Agreement. The master establishment and
transition agreement transfers Bridge's global Internet protocol network to us
for $150 million. Under this agreement, a Bridge subsidiary that owns all of
Bridge's U.S. network assets will transfer 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 requires contractual
consents from some of Bridge's counterparties or regulatory approvals in several
jurisdictions which, as of the closing date, may not yet be obtained. Bridge
will continue to own and operate those portions of the network while we continue
to seek the appropriate consents. 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. In jurisdictions where we expect the purchase to occur within
one year of the closing date of the Bridge asset transfer, Bridge will operate
the facilities on our behalf and we will reimburse Bridge for all costs directly
associated with the use, maintenance and operation of those assets and we will
be paid for the use of those assets by Bridge under the network services
agreement. We expect the asset transfer to occur in Greece, Ireland, Hungary,
Poland, Taiwan, Thailand, Mexico and Venezuela within one year from the closing
date of the Bridge transfer. Our obligation to acquire these assets expires upon
the later of ten years from the closing date or expiration of the network
services agreement.
Under the master establishment and transition agreement, Bridge will be
responsible for all liabilities associated with its Internet protocol network
prior to the transfer to us, and we will be responsible for liabilities after
the transfer. Bridge will make several 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. The agreement will further provide
that we will indemnify Bridge for breaches of our representations and warranties
and with respect to our responsibility for our assumed liabilities.
Network Services Agreement. Under the network services agreement, we will
agree to provide Bridge with networks for the collection and distribution of the
financial information provided by Bridge to its customers and for Bridge's
internal managed data network needs for ten years from the closing date. The
agreement may be extended by Bridge for an additional five-year period by giving
us notice one year before the expiration of the initial ten-year term. Upon
termination of the agreement, we will be required to continue to provide network
services to Bridge for an additional five years, at rates in effect at the
termination date.
The purchase will substantially increase our depreciation and amortization,
and as a result we will incur significant losses. For the first year of the
agreement, our fees will be based upon the cash cost to Bridge of operating the
network as configured on the date we acquired the original network. Our fees for
additional services, following the closing of the transfer, will be set for a
three-year term based on an agreed payment schedule reflecting the estimated
cost to provide the services. The price schedule for additional services will be
subject to annual review and will be mutually agreed upon or determined by
binding arbitration. Bridge has agreed to pay us a minimum of $105 million, $132
million and $145 million for network services in 2000, 2001 and 2002,
respectively.
In addition, Bridge has agreed that the amount paid to us under the
agreement for the fourth, fifth and sixth years will not be less than 80% of the
total amount paid by Bridge and its subsidiaries for Internet protocol data
transport services; and the amount paid to us under the agreement for the
seventh through tenth years will not be less than 60% of the total amount paid
by Bridge and its subsidiaries for Internet protocol data transport services.
In addition we will charge Bridge for additional bandwidth and additional
connections at a rate established on an annual basis. In those instances where
the addition is outside of the existing network, we will negotiate the terms of
the expansion with Bridge on a case-by-case basis, including
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any additional charges to be paid to us by Bridge to defray the cost of such
expansion. If we cannot reach agreement with Bridge on the annual rate or on the
additional charges, 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.
We have also agreed that, beginning twelve months after the date of the
transfer of the network, the network will perform in accordance with specific
quality of service standards. If those standards are not met with respect to a
customer site in any month, Bridge will be entitled to receive, upon request, a
credit for one month's charges for that site. The Bridge network services
agreement will contain quality of service levels and will provide for credits if
the levels are not maintained. In addition, a material breach of the service
levels would allow Bridge to terminate the agreement and/or collect up to $50
million as liquidated damages not more than once in any 36-month period.
The agreement will provide for the creation of a strategic advisory
committee comprised of three of our senior executives and three from Bridge,
with an additional outside consultant to be appointed by both parties. The
mission of the committee will be to review the performance of the network, to
serve as a forum for the consideration and discussion of issues related to the
network, and to discuss issues related to the future development of the SAVVIS
ProActiveSM Network in the context of the relationship of SAVVIS and Bridge. We
will agree to use our commercially reasonable best efforts to comply with the
recommendations of the committee.
Bridge will agree that during the term of the network services agreement
and for the next five years after the termination of this agreement, 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
the outstanding capital stock of that competitor.
So long as Bridge is the beneficial owner of 20% of our outstanding voting
securities, we have agreed not to provide any of our stockholders with voting or
registration rights superior to the voting or registration rights of Bridge
other than as required by law.
Local Network Access Agreement. In most jurisdictions outside the United
States, the charges that 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.
Equipment Colocation Permits. Some network assets to be purchased are
located in premises currently leased by Bridge. The permits provide us, subject
to the receipt of required landlord consents, with the ability to keep the
equipment that is being purchased from Bridge in the facilities in which they
are currently located. We will have no interest in or rights to the real estate
other than the right to enter the facilities for the purpose of maintaining the
equipment and to place a rack with equipment in the premises. According to this
arrangement, we will occupy a minimal amount of space, generally less than 100
square feet, in each of the premises. The permits, approximately thirty in
total, are for a term that is coterminous with the underlying rights which
Bridge has to such facilities, which range from one to ten years. Our costs for
these colocation permits, which are fixed costs, are estimated to be less than
$75,000 per year.
Technical Services Agreement. Pursuant to the technical services agreement,
Bridge will provide us with services, including help desk support, installation,
maintenance and repair of equipment, customer related services such as
processing service orders and provisioning interconnection. In addition, Bridge
will agree to manage the colocation of third-party equipment in our facilities,
which includes facilities management, such as power, heating, air conditioning,
lighting and other utilities and installation, monitoring and maintenance of
equipment. Bridge also will manage our network operation centers. 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 the first
year. We expect the aggregate amount of payments to Bridge under the technical
services, agreement in 2000 will be approximately $1.1 million. After the first
year, we will negotiate new rates, and if we and Bridge cannot agree on new
rates, then we
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will submit prices to an independent arbitrator who will assign the price quoted
by the party that in the arbitrator's opinion comes closest to quoting a fair
market price. Bridge is required to meet quality of service standards set forth
in the agreement, and, if Bridge fails to meet the standards, we will be
entitled to a refund of all amounts paid for the non-complying service plus the
costs we incurred to have that service provided by a third party.
Administrative Services Agreement. For a period of three years, and from
then on from year to year until Bridge or we terminate the agreement, Bridge
will provide us with various administrative services, including payroll and
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 that is intended to permit Bridge to recover the costs of providing the
services.
Promissory Note. To the extent we do not pay for the purchase price for the
Bridge network assets in cash we will issue to Bridge a three-year promissory
note. The promissory note will bear interest, payable semi-annually, at an
annual rate of 10%. Principal will be payable at maturity.
GECC Sublease. In connection with the acquisition of the network assets, we
will sublease from Bridge some of the network assets that Bridge leases from
GECC. The aggregate amount of these capital leases is estimated to be $25
million. The terms of the GECC sublease are meant to mirror the GECC master
lease. At the end of the lease term, Bridge will have the right to acquire these
assets from GECC for $1, and we will have the right to acquire these assets from
Bridge for $1.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the names and ages of our directors, executive
officers and significant employees and the positions they hold with our company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert A. McCormick ........... 34 Chief Executive Officer and
Chairman of the Board
Jack M. Finlayson ............. 45 President and Chief Operating Officer
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 General
Manager -- Americas
Clyde A. Heintzelman .......... 61 Director
Thomas E. McInerney ........... 58 Director
Patrick J. Welsh .............. 56 Director
Thomas M. Wendel .............. 63 Director
Steven M. Gallant ............. 40 Vice President, General Counsel and
Secretary
</TABLE>
ROBERT A. MCCORMICK has served as the Chairman of our board of directors
since April 1999 and as our Chief Executive Officer since November 1999. Mr.
McCormick served as Executive Vice President and Chief Technical Officer of
Bridge from January 1997 to December 1999, and held various engineering, design
and development positions at Bridge from 1988 to January 1997. Mr. McCormick
attended the University of Colorado at Boulder.
JACK M. FINLAYSON has served as our President and Chief Operating Officer
since December 31, 1999. From June 1998 to December 31, 1999, Mr. Finlayson
served as Senior Vice President of Global Crossing Holdings, Ltd. and President
of Global Crossing International, Ltd., a provider of Internet and long
distance communications facilities and services. Prior to joining Global
Crossing, Mr. Finlayson was employed by Motorola, Inc., a provider of
integrated communications solutions and embedded electronic solutions, as
Corporate Vice President and General Manager of the Americas Cellular
Infrastructure Group from March 1994 to February 1998, and as Corporate Vice
President and General Manager of the Asia Pacific Cellular Infrastructure Group
from March 1998 to May 1998. Prior to joining Motorola, Mr. Finlayson was
employed by AT&T as Sales Vice President of Business Network Sales for the
Southeastern United States. Mr. Finlayson received a B.S. degree in Marketing
from LaSalle University, an M.B.A. degree in Marketing from St. Joseph
University and a post M.B.A. certification in Information Management from St.
Joseph's University.
RICHARD BUBENIK joined us in December 1996 and has served as our Executive
Vice President 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. From May 1993
to December 1996, 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 in the telecommunications
industry 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
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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 General
Manager--Americas since October 1999. Prior to joining us, Mr. Mori was
employed by Sprint Corporation as National Account Manager from April 1987 to
December 1989, as Branch Manager from January 1990 to December 1991, as
Regional Sales Director from January 1992 to March 1996, as Vice President --
Sales from March 1996 to February 1997 and as 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.
CLYDE A. HEINTZELMAN has served as a director of our company since December
1998. Mr. Heintzelman has served as the President of Net2000 Communications,
Inc., a provider of broadband business telecommunications services, since
November 1999. From December 1998 to November 1999, Mr. Heintzelman served as
our President and Chief Executive Officer and from May 1995 to December 1998, he
served as Chief Operating Officer and President of DIGEX Incorporated, a
national Internet services provider that was acquired by Intermedia
Communications, Inc. in July 1996. From January 1995 to April 1995, he was an
independent consultant and provided services primarily to Hekimian Laboratories,
Inc., a developer of data network testing capabilities. 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 that develops, manufactures and sells fiber optic
communications products and laser systems, Net2000 Communications, and Tata
Consultancy Services, a software and services company. 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, 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 -- 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 serves as 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
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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.
STEVEN M. GALLANT has served as our Vice President, General Counsel and
Secretary since December 1996. From July 1991 to December 1996, 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.
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. Following
the completion of this offering, we intend to comply with the requirements of
the Nasdaq National Market regarding independent directors. Our officers are
elected annually by our board of directors and serve at the board's discretion.
In November 1999, we entered into an agreement with Mr. Heintzelman in
connection with his resignation as our President and Chief Executive Officer.
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 2000.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has established an audit committee and a
compensation committee. The audit committee and the compensation committee
consist 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;
o considering the adequacy of our internal accounting control procedures;
and
o considering auditors' independence.
The compensation committee is responsible for determining the salaries and
incentive compensation of our management and key employees and administering
our stock option plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Wendel, a director of our company, is also President, Chief Executive
Officer and Chairman of the Board of Bridge. Messrs. McInerney and Welsh serve
as directors of our company, as well as directors of Bridge. In addition,
Messrs. McInerney and Welsh are general partners of Welsh Carson, which
sponsors investment partnerships, two of which are among our principal
stockholders and are also principal stockholders of Bridge.
In 1999, none of our executive officers served as a director or member of
the compensation committee of another entity whose executive officers had served
on our board of directors or on our compensation committee.
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DIRECTOR COMPENSATION
Directors who are also employees of our company will not receive additional
compensation for serving as a director. Each director who is not an employee of
our company will receive an annual retainer of $15,000, together with a grant of
options to purchase shares of our common stock under our stock option plan at an
exercise price equal to fair market value on the date of grant. On January 3,
2000. Messrs. Welsh, Wendel and McInerney each received 15,000 options to
purchase shares of our common stock under our stock option plan at an exercise
price of $.50 per share. The options will vest immediately on the date of grant,
but if a director ceases to serve on our board of directors, we will have the
right to repurchase these shares at the lower of the exercise price or the fair
market value of the shares. Our right to repurchase these shares will be
terminated with respect to one fourth of the shares on each of the first,
second, third and fourth anniversaries of the date of the option grant.
EXECUTIVE COMPENSATION
The following table provides you with information about compensation earned
during fiscal 1999 by our Chief Executive Officers and the other two most highly
compensated executive officers employed by us, whose salaries and bonuses for
such year were in excess of $100,000. We use the term "named executive officers"
to refer to these officers in this prospectus.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-----------------
ANNUAL COMPENSATION SECURITIES ALL
-------------------- UNDERLYING STOCK OTHER
NAME AND PRINCIPAL POSITION SALARY OPTIONS COMPENSATION
- ------------------------------------ -------------------- ----------------- -----------------
<S> <C> <C> <C>
Robert A. McCormick(2) ............. $ 45,139 750,000 --
Chief Executive Officer and
Chairman of the Board
Clyde A. Heintzelman(3) ............ 218,146 218,224 $ 330,400(6)
David J. Frear(4) .................. 122,276 400,000 2,400(7)
Executive Vice President and
Chief Financial Officer
Richard Bubenik(5) ................. 159,258 306,732 2,400(7)
Executive Vice President and
Chief Technical Officer .........
</TABLE>
- ---------------------
(1) In accordance with the rules of the SEC, the compensation described in this
table does not include medical, group life insurance or other benefits
received by the named executive officers that are available generally to all
salaried employees and various perquisites and other personal benefits
received by the named executive officers, which do not exceed the lesser of
$50,000 or 10% of any officer's salary and bonus disclosed in this table.
(2) Mr. McCormick became our Chief Executive Officer in November 1999, but
continued serving as the Executive Vice President and Chief Technology
Officer of Bridge through December 1999. He was compensated for all of his
services by Bridge.
(3) Mr. Heintzelman became our President and Chief Executive Officer in December
1998 and resigned from these positions in November 1999.
(4) Mr. Frear became our Executive Vice President and Chief Financial Officer in
July 1999.
(5) Mr. Bubenik joined us in December 1996 and became our Executive Vice
President and Chief Technical Officer in July 1999.
(6) Consists of $328,000 payable to Mr. Heintzelman in connection with his
resignation and $2,400 of matching contributions made under our 401(k) plan.
(7) Consists of matching contributions made under our 401(k) plan.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table shows grants of stock options to each of the named
executive officers during 1999. The percentages in the table below are based on
options to purchase a total of 5,159,508 shares of our common stock granted to
our employees and directors in 1999. 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.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
NUMBER OF PRICE APPRECIATION FOR
SECURITIES OPTION TERM
UNDERLYING PERCENT OF TOTAL EXERCISE ------------------------
OPTIONS OPTIONS GRANTED TO PRICE PER EXPIRATION
NAME GRANTED EMPLOYEES IN 1999 SHARE DATE 5% 10%
- ---------------------------------- ------------ -------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert A. McCormick (1) .......... 750,000 14.5% $ 0.50 7/22/09 $610,836 $972,653
Clyde A. Heintzelman (2) ......... 218,224 4.2% 0.50 7/22/09 177,732 283,008
David J. Frear (3) ............... 400,000 7.8% 0.50 7/22/09 325,779 518,749
Richard Bubenik (4) .............. 306,732 5.9% 0.50 7/22/09 249,817 397,792
</TABLE>
- ---------------------
(1) All these options vested on the date of grant. If Mr. McCormick were to
resign, we would have the right to repurchase up to 454,500 of the shares
that have been purchased by Mr. McCormick upon exercise of these options at
the lower of $0.50 per share or the fair market value of the shares. This
right will be terminated with respect to 79,500 shares on the first
anniversary of the date of the option grant and with respect to the balance
of the shares at the rate of 125,000 shares on each of the second, third and
fourth anniversaries of the date of grant.
(2) All these options vested on the date of Mr. Heintzelman's resignation.
(3) All these options vested on the date of grant. If Mr. Frear were to resign,
we would have the right to repurchase the shares that have been purchased by
Mr. Frear upon exercise of these options at the lower of $.50 per share or
the fair market value of the shares. This right will be terminated with
respect to 100,000 shares upon completion of this offering and with respect
to the balance of the shares at the rate of 8,333 shares per month beginning
on the first anniversary of the date of the option grant through the fourth
anniversary of the date of grant. Our right to repurchase these shares will
be terminated in the event of a change in control of our company.
(4) Currently, these options are exercisable at the rate of 4,167 each month. On
June 30, 2000, a total of 12,500 options will become exercisable, and
beginning on June 30, 2000, 6,250 options will become exercisable each
month.
AGGREGATE OPTION EXERCISES IN 1999 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth as of December 31, 1999, for each of the
named executive officers listed:
o the total number of shares received upon exercise of options during
1999;
o the value realized upon that exercise;
o the total number of unexercised options to purchase our common stock;
and
o the value of such options which were in-the-money at December 31, 1999.
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There was no public trading market for our common stock as of December 31,
1999. Accordingly, in order to present the values realized upon exercise of
options and the values of unexercised in-the-money options shown below we
subtracted the applicable exercise price from a price of $23.50 per share, the
midpoint of the price range for our common stock shown on the cover page of this
prospectus.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY
DECEMBER 31, 1999 OPTIONS AT DECEMBER 31, 1999
----------------------------- ----------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------------- -------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. McCormick .......... 750,000 $17,250,000 -- -- -- --
Clyde A. Heintzelman ......... 218,224 5,019,152 -- -- -- --
David J. Frear ............... 400,000 9,200,000 -- -- -- --
Richard Bubenik .............. 40,065 921,495 0 266,667 0 $6,133,341
</TABLE>
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. On December 7, 1999, the board adopted an
amendment to the stock option plan approving an increase in the number of shares
of common stock available for issuance under the plan, and our stockholders
approved the amendment on that same date. The purpose of our 1999 stock option
plan is to enhance our ability to attract, retain and compensate highly
qualified employees and other individuals providing us with services. 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 December 31, 1999,
options to purchase 3,518,419 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 12,000,000 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 our 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 either
100% of the fair market value of our common stock on the date of grant or less
than par value in the case of incentive stock options and less than par value
only in the case of non-qualified stock options. To qualify as incentive stock
options, options must meet various 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 any grants to 10% 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,
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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, as well as
remove any restrictions on such 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 corporate transactions involving our company as
listed below, 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 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
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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
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 restrictions, 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 specified executive officers,
then,
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unless a number of 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.
401(K) PLAN
In January, 1998, we adopted a tax-qualified employee savings and
retirement plan covering all of our employees. Under this 401(k) plan, employees
may elect to reduce their current compensation by a maximum pre-tax amount equal
to the lesser of 15% of eligible compensation or the statutorily prescribed
annual limit, which was $10,000 in 1998, and have the amount of this reduction
contributed to the 401(k) plan. The trustee under the 401(k) plan, at the
direction of each participant, invests the assets of the 401(k) plan in any of
four investment options. The 401(k) plan is intended to qualify under Section
401 of the Internal Revenue Code so that contributions by employees to the
401(k) plan, and income earned on plan contributions, are not taxable to
employees until withdrawn, and so that the contributions by employees will be
deductible by us when made. We may make matching or additional contributions to
the 401(k) plan, in amounts to be determined annually by the board of directors.
Employees are immediately 100% vested in their individual contributions and vest
25% per year in our contributions beginning with their second year of service,
becoming 100% vested in their fifth year of service. Vesting in our
contributions also occurs upon attainment of retirement age, death or
disability. The 401(k) plan provides for hardship withdrawals and employee
loans.
ARRANGEMENTS WITH EXECUTIVE OFFICERS
Arrangement with Mr. Heintzelman. Mr. Heintzelman became our President and
Chief Executive Officer under an employment agreement dated December 4, 1998. On
November 12, 1999, we entered into an additional agreement with Mr. Heintzelman
in connection with his resignation, entitling him to continue to receive his
base salary of approximately $20,800 per month 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. Under the
agreement dated November 12, 1999, Mr. Heintzelman agreed to serve on our board
of directors for a one-year term that will expire in November of 2000. While Mr.
Heintzelman will not separately be compensated for his services on the board of
directors during this one-year term, he will continue to be eligible to
participate in benefit plans as though he had remained employed by us. All of
Mr. Heintzelman's stock options vested fully on the date of his resignation and
Mr. Heintzelman has exercised all of his options since that date.
In his employment agreement of December 4, 1998, 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 this agreement
not
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<PAGE>
to compete with us and not to solicit the business of our customers for one year
following the term of his employment agreement. He will assist in the transition
of his position and help to ensure our ability to retain our key employees. Mr.
Heintzelman has also released our company, Bridge and our and Bridge's employees
and directors from all claims arising from his employment.
Arrangement with Mr. Finlayson. On December 28, 1999, we entered into an
agreement with Mr. Finlayson pursuant to which he agreed to serve as our
President and Chief Operating Officer effective December 31, 1999. Under his
agreement, Mr. Finlayson is entitled to a base salary of $400,000 per year. In
addition, he will be eligible to receive an annual incentive bonus of up to
$600,000 based on the achievement of mutually agreed to objectives. Mr.
Finlayson will be entitled to a minimum annual incentive bonus of $400,000 for
the year ended 2000. Mr. Finlayson will be entitled to benefits commensurate
with those available to other senior executives.
In connection with his employment, Mr. Finlayson received options to
purchase 650,000 shares of our common stock at an exercise price of $.50 per
share, 200,000 of which vested on December 31, 1999. Mr. Finlayson has the right
to sell 50,000 shares underlying these options immediately, and the remaining
150,000 shares on a monthly pro rata basis over the calendar year 2000. The
remaining 450,000 shares will vest on January 3, 2000, and become saleable on a
monthly pro rata basis over calendar years 2001, 2002 and 2003. Mr. Finlayson
may sell all of his shares in the event of a change in control of our company,
the sale of substantially all of our assets, if we terminate his employment
without cause, or if he resigns for good reason. However, if we terminate Mr.
Finlayson's employment for good cause, we will have the right to buy all shares
not yet saleable at the price he paid for the shares. Mr. Finlayson will have
the right to exercise all vested options for one year after the termination of
his employment unless his employment was terminated for cause.
In the event we terminate Mr. Finlayson's employment without cause or if he
terminates his employment for good reason, he will be entitled to receive a lump
sum severance payment equal to his then current base annual salary, which shall
not be less than his highest annual salary paid by us. In the event of a change
in control of our company, Mr. Finlayson has agreed to remain with our company
for a period of up to twelve months if the new management requests him to do so.
We will reimburse Mr. Finlayson for any parachute taxes he would incur under the
Internal Revenue Code as a result of such a change in control. We may terminate
Mr. Finlayson's employment for cause at any time without notice, in which case
he will not be entitled to any severance benefits.
Arrangement with Mr. Frear. On June 14, 1999, we entered into an
arrangement with Mr. Frear pursuant to which he agreed to serve as our Chief
Financial Officer. As part of this arrangement, Mr. Frear is entitled to an
annual base salary of $250,000, subject to periodic review and adjustment, and a
discretionary annual bonus of approximately 50% of his base salary, based on his
personal and overall corporate performance. Mr. Frear is entitled to medical,
disability, 401(k), life insurance and other benefits in accordance with our
general policies.
In connection with his employment, Mr. Frear received 400,000 options to
purchase shares of our common stock at an exercise price of $.50 per share. All
of Mr. Frear's options have vested. In the event Mr. Frear were to resign, we
would have the right to repurchase the shares that have been purchased by Mr.
Frear upon exercise of the options at fair market value or $.50 per share,
whichever is lower. This repurchase right will be terminated with respect to a
total of 100,000 shares at the completion of this offering and with respect to
the balance of the shares at the rate of 8,333 shares per month beginning on the
first anniversary of the date of the option grant through the fourth anniversary
of the date of grant. Our right to repurchase these shares will be terminated in
the event of a change in control of our company. In addition, upon completion of
this offering, Mr. Frear will receive a number of options equal to .25% of our
then outstanding shares of common stock on a fully diluted basis at an exercise
price per share equal to the public offering price. The options have a term of
ten years.
If we were to terminate Mr. Frear's employment without cause, or if Mr.
Frear were to terminate his employment for good reason, Mr. Frear would be
entitled to salary continuation and continuation of all benefits for one year
following the termination of his employment and a pro rata payment of his bonus
through the date of termination. In addition, our right to repurchase his shares
would be terminated.
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Arrangement with Mr. Mori. On September 30, 1999, we entered into an
agreement with Mr. Mori pursuant to which he became our Executive Vice President
and General Manager -- Americas effective October 1, 1999. Under his agreement,
Mr. Mori is entitled to an annual base salary of $200,000, as well as a
discretionary bonus of 50% to 100% of his base salary based on his personal and
overall corporate performance. We also granted Mr. Mori options to purchase
225,000 shares of our common stock at an exercise price of $.50 per share. All
of Mr. Mori's options have vested. In the event Mr. Mori were to resign, we
would have the right to repurchase any shares that have been purchased by Mr.
Mori upon exercise of the options at fair market value or $.50 per share,
whichever is lower. This repurchase right is terminated at a rate of 4,687
shares per month and will terminate on the fourth anniversary of the date of
grant. Under his agreement, Mr. Mori is entitled to benefits commensurate with
those available to Bridge executives of comparable rank.
If we were to terminate Mr. Mori's employment without cause prior to the
second anniversary of his employment, Mr. Mori would be entitled to receive a
severance payment of $450,000. In the event we terminate Mr. Mori's employment
without cause after the second anniversary of his employment, and either we are
not a public company or we are a public company and our shares on the date of
termination trade at a price less than $15 per share, Mr. Mori would also
receive a payment of $450,000. Mr. Mori will receive a similar payment if he
were to resign as a result of an acquisition of more than 30% of our voting
shares by an entity other than Bridge, if he were to be instructed to relocate
from the St. Louis metropolitan area, or if he were to be reassigned to a
position entailing materially reduced responsibilities or opportunities for
compensation.
TRANSACTIONS WITH AFFILIATES
Mr. Wendel, a director of our company, is also President, Chief Executive
Officer and Chairman of the Board of Bridge. Mr. McCormick, our Chief Executive
Officer and the Chairman of our Board, served as the Executive Vice President
and Chief Technical Officer of Bridge through December 1999. Messrs. McInerney
and Welsh serve as directors of our company, as well as directors of Bridge. In
addition, Messrs. McInerney and Welsh are general partners of Welsh Carson,
which sponsors investment partnerships, two of which are among our principal
stockholders and are also principal stockholders of Bridge.
As of December 31, 1999, we had outstanding term notes to Bridge of
approximately $25 million. These loans mature one year after the completion of
this offering and bear interest at a rate of 8% per year. We used the proceeds
of these loans to fund our working capital requirements.
We will enter 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, the GECC Sublease and a local network services agreement. In
connection with these agreements, we will execute a promissory note in favor of
Bridge. The terms of these agreements and the note are described under the
heading "Relationship with Bridge."
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<PAGE>
PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER
OWNERSHIP OF OUR COMMON STOCK
The following table provides you with information about the beneficial
ownership of shares of our common stock as of January 25, 2000, 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;
o all our directors and executive officers as a group; and
o the selling stockholder.
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
January 25, 2000, but excludes shares of common stock underlying options held by
all other persons. Percentage of beneficial ownership is based on 77,735,933
shares of common stock outstanding as of January 25, 2000, and 92,610,933 shares
of common stock outstanding after completion of this offering.
<TABLE>
<CAPTION>
SHARE BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING OWNED AFTER OFFERING
-------------------------- -------------------------
SHARES
NAME NUMBER PERCENTAGE BEING SOLD NUMBER PERCENTAGE
- --------------------------------------------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Bridge Information Systems, Inc. (1) ........ 53,870,279 69.3% 2,125,000 51,745,279 55.9%
Welsh, Carson, Anderson & Stowe (2) ......... 8,844,642 11.4% -- 8,844,642 9.6%
Clyde A. Heintzelman ........................ 218,224 * -- 218,224 *
Robert A. McCormick ......................... 750,000 * -- 750,000 *
David J. Frear .............................. 400,000 * -- 400,000 *
Richard Bubenik (3) ......................... 48,390 * -- 48,390 --
Thomas M. Wendel ............................ 500,000 * -- 500,000 *
Patrick J. Welsh (4) ........................ 8,843,413 11.4% -- 8,843,413 9.6%
Thomas E. McInerney (5) ..................... 8,883,118 11.4% -- 8,883,118 9.6%
All executive officers and directors as a
group (7 persons) .......................... 10,863,868 14.0% 10,863,868 11.7%
</TABLE>
- ---------------------
* Less than one percent.
(1) Does not include shares held by Welsh, Carson, Anderson & Stowe, as
described in note 2 below. The address of Bridge Information Systems, Inc.
is 3 World Financial Center, New York, New York 10281.
(2) Includes 4,635,958 shares of common stock held by Welsh, Carson, Anderson &
Stowe VI, L.P., or WCAS VI, 3,475,566 shares held by Welsh, Carson, Anderson
& Stowe VII, L.P., or WCAS VII, 65,357 shares held by WCAS Information
Partners, L.P., or WCAS IP and 667,761 shares held by WCAS Capital Partners
II, L.P., or 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. Queally, Rudolph E. Rupert, Jonathan M. Rather, Lawrence B.
Sorrel, Richard H.
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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% of the outstanding equity
securities of Bridge. The address of Welsh, Carson, Anderson & Stowe is 320
Park Avenue, New York, NY 10022.
(3) Includes 8,333 shares of common stock subject to options that are
exercisable within 60 days of January 25, 2000.
(4) Includes 8,779,285 shares held by Welsh, Carson, Anderson & Stowe, as
described in note 2 above.
(5) Includes 8,844,642 shares held by Welsh, Carson, Anderson & Stowe, as
described in note 2 above.
For a description of material relationships between us and the selling
stockholder, see "Transactions with Affiliates."
OWNERSHIP OF BRIDGE CLASS A COMMON STOCK AND BRIDGE SERIES D PREFERRED STOCK
The following table provides you with information about the beneficial
ownership of shares of Bridge's Class A common stock and Bridge's Series D
preferred stock as of December 31, 1999, by:
o each of our directors and named executive officers; and
o all of 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 Class A common stock and the
Series D preferred stock. 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 Class A common stock outstanding used in calculating the
percentage for each person named in the table includes the shares of Class A
common stock underlying options held by that person that are exercisable within
60 days of December 31, 1999, but excludes shares of Class A common stock
underlying options held by all other persons. Percentage of beneficial ownership
is based on 37,018,168 shares of Bridge Class A common stock and 1,950,000
shares of Bridge Series D preferred stock outstanding as of December 31, 1999.
As of December 31, 1999, none of our executive officers or directors owned any
shares of Bridge's Series E preferred stock or Series F preferred stock.
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF PERCENT OF
CLASS A COMMON PERCENT OF SERIES D PREFERRED SERIES D PREFERRED
STOCK BENEFICIALLY CLASS A COMMON STOCK STOCK BENEFICIALLY STOCK BENEFICIALLY
NAME AND ADDRESS OWNED BENEFICIALLY OWNED OWNED OWNED
- --------------------------------- -------------------- ---------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Robert A. McCormick (1) ......... 118,000 * -- --
Clyde A. Heintzelman ............ -- -- -- --
David J. Frear .................. -- -- -- --
Richard Bubenik ................. -- -- -- --
Thomas M. Wendel (2) ............ 680,050 1.8% -- --
Patrick J. Welsh ................ 21,449,846(3) 57% (5) 438,400(6) 22% (5)
Thomas E. McInerney ............. 21,543,540(4) 58% (5) 440,598(7) 23% (5)
All named executive officers and
directors as a group (7 persons) 22,496,666 60% (5) 443,848 23% (5)
</TABLE>
- ----------------
(1) Includes 118,000 shares of Class A common stock subject to options that are
exercisable within 60 days of December 31, 1999.
(2) Includes 680,050 shares of Class A common stock subject to options that are
exercisable within 60 days of December 31, 1999.
(3) Includes 12,989,080 shares of Bridge's Class A common stock held by WCAS VI,
6,324,767 shares of Class A common stock held by WCAS VII, and 1,980,923
shares of Class A common stock held by WCAS CP II.
(4) Includes 12,989,080 shares of Bridge's Class A common stock held by WCAS VI,
6,324,767 shares of Class A common stock held by WCAS VII, 155,728 shares of
Class A common stock held by WCAS IP and 1,980,923 shares held by WCAS CP
II.
(5) Bridge's 1,950,000 shares of Series D preferred stock and 1,500,000 shares
of Series E preferred stock are presently convertible into 243,750,000
shares and 7,146,260 shares, respectively, of Bridge's Class A common stock.
Both series of preferred stock are presently entitled to vote with the Class
A common stock on all matters and have voting power equal to the number of
shares of Class A common stock into which they are convertible. None of the
persons or Welsh Carson entities referred to in the table or any notes
thereto own any shares of Bridge Series E preferred stock or Series F
preferred stock. Accordingly, the percentage of total ordinary voting power
represented by the combined ownership of Class A common stock and Series D
preferred stock shown for Messrs. Welsh and McInerney and all named
executive officers and directors as a group would be 38%, 38% and 39%,
respectively.
(6) Includes 92,679 shares of Bridge's Series D preferred stock held by WCAS VI
and 342,471 shares of Series D preferred stock held by WCAS VII.
(7) Includes 92,679 shares of Bridge's Series D preferred stock held by WCAS VI,
342,471 shares of Series D preferred stock held by WCAS VII and 3,498 shares
of Series D preferred stock held by WCAS IP.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 250,000,000 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 January 25, 2000,
77,735,933 shares of our common stock were outstanding and no shares of our
preferred stock were outstanding. As of January 25, 2000, we had 357
stockholders.
COMMON STOCK
Each holder of record of common stock 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;
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
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<PAGE>
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 and the President may call special meetings of
stockholders. The stockholders may not call a special meeting.
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, 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, in several 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 meeting of stockholders by the affirmative vote of
at least two-thirds of the outstanding voting stock that is not owned by
the interested stockholder.
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<PAGE>
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 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 ChaseMellon
Shareholder Services.
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<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
Following this offering, we will have 92,610,933 shares of our common stock
outstanding. All of the shares 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 77,735,933 shares of common stock outstanding following this
offering are restricted securities under the terms of the Securities Act. Sales
of a large portion of the restricted shares to be outstanding upon completion of
this offering will be limited by lock-up agreements.
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
926,109 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.
STOCK OPTIONS
Following 180 days after this offering, we intend to file a registration
statement under the Securities Act covering 12,000,000 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 December 31, 1999,
options to purchase approximately 3.5 million 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>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co.
Incorporated, Bear, Stearns & Co. Inc., Banc of America Securities LLC and CIBC
World Markets Corp. are acting as representatives of the underwriters named
below. Subject to the terms and conditions set forth in a purchase agreement
among us, the selling stockholder and the underwriters, we and the selling
stockholder have agreed to sell to the underwriters, and the underwriters
severally have agreed to purchase from us and the selling stockholder, the
number of shares listed opposite their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------ -----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated .............................
Morgan Stanley & Co. Incorporated .........
Bear, Stearns & Co. Inc. ..................
Banc of America Securities LLC ............
CIBC World Markets Corp. ..................
Total .................................... 17,000,000
==========
</TABLE>
The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of the shares are purchased. If an underwriter
defaults, the purchase agreement provides the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.
We and the selling stockholder have agreed to indemnify the underwriters
against liabilities specified in the purchase agreement, including liabilities
under the Securities Act, or to contribute to payments the underwriters may be
required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreement, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us and the selling stockholder that the
underwriters propose initially to offer the shares to the public at the initial
public offering price on the cover page of this prospectus and to dealers at
that price less a concession not in excess of $ per share. The underwriters may
allow, and the dealers may reallow, a discount not in excess of $ per share to
other dealers. After this offering, the public offering price, concession and
discount may be changed.
82
<PAGE>
The following table shows the public offering price, underwriting discount
and proceeds before expenses to SAVVIS and the selling stockholder. The
information assumes either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
----------- ---------------- ------------
<S> <C> <C> <C>
Public offering price ......................... $ $ $
Underwriting discount ......................... $ $ $
Proceeds, before expenses, to SAVVIS .......... $ $ $
Proceeds, before expenses, to the selling
stockholder .................................. $ $ $
</TABLE>
The underwriting discount is currently expected to be approximately % of
the public offering price. Some of the underwriters may be deemed, under the
National Association of Securities Dealers' Rules of Fair Practice, to have
received additional underwriting compensation. The expenses of the offering, not
including the underwriting discount, are estimated at $2,250,000 and are payable
by us and the selling stockholder. These expenses consist of the following:
o a registration fee of $130,081;
o an NASD filing fee of $30,500;
o Nasdaq National Market listing fee of $95,000;
o estimated blue sky fees and expenses of $10,000;
o estimated printing and engraving expenses of $500,000;
o estimated legal fees and expenses of $600,000;
o estimated accounting fees and expenses of $575,000;
o estimated transfer agent fees and expenses of $3,500; and
o estimated miscellaneous fees and expenses of $305,919.
OVER-ALLOTMENT OPTION
The selling stockholder has granted an option to the underwriters to
purchase up to 2,550,000 additional shares at the public offering price less the
underwriting discount. The underwriters may exercise this option for 30 days
from the date of this prospectus solely to cover any over-allotments. If the
underwriters exercise this option, each will be obligated, subject to conditions
contained in the purchase agreements, to purchase a number of additional shares
proportionate to that underwriter's initial amount reflected in the above table.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 7.5% of the shares offered by this prospectus for
sale to some of our and Bridge's directors, officers, employees and their
immediate family and business associates. Our senior management will determine
whether or not a business associate will be included in this program. If these
persons purchase reserved shares, this will reduce the number of shares
available for sale to the general public. Any reserved shares which are not
orally confirmed for purchase within one day of the pricing of this offering may
be offered by the underwriters to the general public on the same terms as the
other shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We, the selling stockholder and our executive officers and directors have
agreed, with exceptions, not to sell or transfer any common stock for 180 days
after the date of this prospectus without first
83
<PAGE>
obtaining the written consent of Merrill Lynch and Morgan Stanley. Specifically,
we and these other individuals have agreed not to directly or indirectly:
o offer, pledge, sell or contract to sell any common stock,
o sell any option or contract to purchase any common stock,
o purchase any option or contract to sell any common stock,
o grant any option, right or warrant for the sale of any common stock,
o lend or otherwise dispose of or transfer any common stock,
o request or demand that we file a registration statement related to the
common stock, or
o enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition. The shares of our common stock held by the selling
stockholder, other than the shares to be sold in the offering, have been pledged
to secure indebtedness of the selling stockholder. The lenders of such
indebtedness have not agreed to the provisions mentioned above.
QUOTATION ON THE NASDAQ NATIONAL MARKET
The shares have been approved for quotation on the Nasdaq National Market,
subject to notice of issuance, under the symbol "SVVS."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
us, the selling stockholder and the representatives. In addition to prevailing
market conditions, the factors to be considered in determining the initial
public offering price are:
o the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us,
o our financial information,
o the history of, and the prospects for, our company and the industry in
which we compete,
o an assessment of our management, its past and present operations, and the
prospects for, and timing of, our future revenues,
o the present state of our development, and
o the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also
possible that after the offering the shares will not trade in the public market
at or above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.
NASD REGULATIONS
The representatives and their affiliates may, from time to time, engage in
transactions with, and perform services for, us and our affiliates in the
ordinary course of their business. In particular, affiliates of Merrill Lynch,
Morgan Stanley and CIBC World Markets Corp. are lenders under Bridge's senior
secured credit facility and an affiliate of Merrill Lynch is a lender under
Bridge's bridge loan, and they will receive in excess of ten percent of the net
proceeds of this offering. Because more than ten percent of
84
<PAGE>
the net proceeds of the offering may be paid to members or affiliates of
members of the National Association of Securities Dealers, Inc. participating
in the offering, the offering will be conducted in accordance with NASD Conduct
Rule 2710(c)(8). This rule requires that the public offering price of an equity
security be no higher than the price recommended by a qualified independent
underwriter which has participated in the preparation of the registration
statement and performed its usual standard of due diligence with respect to
that registration statement. Bear, Stearns & Co. Inc. has agreed to act as
qualified independent underwriter for the offering. The price of the shares
will be no higher than that recommended by Bear, Stearns & Co. Inc.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the shares is completed, SEC rules may limit the
underwriters and selling group members from bidding for and purchasing our
common stock. However, the representatives may engage in transactions that
stabilize the price of the common stock, such as bids or purchases to peg, fix
or maintain that price.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover page of this prospectus, the representatives may reduce that short
position by purchasing common stock in the open market. The representatives may
also elect to reduce any short position by exercising all or part of the
over-allotment option described above. Purchases of the common stock to
stabilize its price or to reduce a short position may cause the price of the
common stock to be higher than it might be in the absence of such purchases.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares in
the open market to reduce the underwriters' short position or to stabilize the
price of such shares, they may reclaim the amount of the selling concession from
the underwriters and selling group members who sold those shares. The imposition
of a penalty bid may also affect the price of the shares in that it discourages
resales of those shares.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in such transactions or that these transactions, once commenced,
will not be discontinued without notice.
OTHER RELATIONSHIPS
The underwriters and their respective affiliates provide and have provided
banking, advisory and other financial services to SAVVIS and Bridge and some of
their affiliates in the ordinary course of the underwriters' businesses and may
do so from time to time in the future. The underwriters have received customary
compensation in connection with these transactions.
An affiliate of Morgan Stanley & Co. Incorporated owns 1,396,177 shares of
Bridge's class A common stock. Pursuant to an offer made by Bridge to all of its
accredited investor shareholders, on September 10, 1999 an affiliate of Morgan
Stanley & Co. Incorporated purchased 457,507 units from Bridge for an aggregate
purchase price of $915,014. Each unit consists of one share of common stock of
SAVVIS and $1.50 principal amount of Bridge subordinated notes.
On October 12, 1999, Goldman Sachs Credit Partners L.P. and Merrill Lynch
Capital Corporation, an affiliate of Merrill Lynch, committed to make available
to Bridge up to $100 million in aggregate principal amount of senior
subordinated bridge loans, subject to terms and conditions set forth in the
commitment letter. On November 24, 1999, Goldman, Sachs and Merrill Lynch
Capital loaned $50 million to Bridge pursuant to a bridge loan agreement. On
December 31, 1999, Bridge borrowed another $50 million under the bridge loan
agreement, $15 million of which came from Merrill Lynch Capital. If the bridge
loan is not repaid 12 months after closing date, Bridge is required to deliver
warrants to purchase Bridge common stock to Goldman, Sachs and Merrill Lynch
Capital. Each of Goldman, Sachs and Merrill Lynch Capital received customary
compensation in connection with this transaction.
85
<PAGE>
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.
Several 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 Communications Corporation,
as of December 31, 1998, and for the year then ended, as restated, included in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing in this prospectus, which contains
an explanatory paragraph describing conditions that raise substantial doubt as
to our company's ability to continue as a going concern and an explanatory
paragraph relating to the restatement, 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,
as of December 31, 1997, as restated, and for the years ended December 31, 1997,
as restated, and 1996, included in this prospectus, have been audited by Ernst &
Young, LLP, independent auditors, as set forth in their report dated April 23,
1998, except for Note 14 as to which the date is January 25, 2000, which
contains an explanatory paragraph describing conditions that raise substantial
doubt about the company's ability to continue as a going concern. This report
appears in this prospectus, and is included in reliance on such report given
upon the authority of such firm as experts in accounting and auditing.
CHANGE IN CERTIFYING ACCOUNTANTS
Upon our acquisition by Bridge on April 7, 1999, Deloitte & Touche LLP,
Bridge's independent accountants, replaced Ernst & Young LLP who had been our
independent accountants for the years ended December 31, 1996 and 1997. Ernst &
Young LLP's reports on our financial statements for each of those years were
unqualified, but included an explanatory paragraph surrounding uncertainties
regarding our ability to continue as a going concern. The decision to change
auditors was precipitated by the acquisition and was approved by the board of
directors.
During the two years in the period ended December 31, 1997, and subsequent
thereto, there were no disagreements with Ernst & Young LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to their satisfaction,
would have caused them to make reference to the subject matter of the
disagreements in connection with their reports.
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
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.
86
<PAGE>
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.
87
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SAVVIS COMMUNICATIONS CORPORATION
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Consolidated Balance Sheet as of September 30, 1999 (unaudited) .......................... F-2
Consolidated Statements of Operations for the nine month period ended September 30, 1998
(As
Restated), the period January 1 to April 6, 1999 (As Restated) and the period April 7 to
September 30, 1999 (unaudited) .......................................................... F-3
Consolidated Statement of Changes in Stockholders' Equity for the period January 1, 1999
to
September 30, 1999 (As Restated) (unaudited) ............................................ F-4
Consolidated Statements of Cash Flows for the nine month period ended September
30, 1998 (As
Restated), the period January 1 to April 6, 1999 (As Restated) and the period April 7 to
September 30, 1999 (unaudited) .......................................................... F-5
Notes to Consolidated Financial Statements (unaudited) ................................... F-6
Independent Auditors' Report - Deloitte & Touche LLP ..................................... F-11
Independent Auditors' Report - Ernst & Young LLP ......................................... F-12
Consolidated Balance Sheets as of December 31, 1997 (As Restated) and 1998 (As Restated) . F-13
Consolidated Statements of Operations for the years ended December 31, 1996, 1997 (As
Restated)
and 1998 (As Restated) .................................................................. F-14
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended
December
31, 1996, 1997 (As Restated) and 1998 (As Restated) ..................................... F-15
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 (As
Restated)
and 1998 (As Restated) .................................................................. F-16
Notes to Consolidated Financial Statements ............................................... F-17
</TABLE>
BRIDGE INFORMATION SYSTEMS, INC.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results of Operations .... F-31
Independent Auditors' Report ............................................................. F-41
Consolidated Balance Sheets as of December 31, 1997 and 1998 ............................. F-42
Consolidated Statements of Operations and Comprehensive Loss for the years ended
December 31, 1996, 1997 and 1998 ........................................................ F-43
Consolidated Statements of Deficiency in Net Assets for the years ended December 31, 1996,
1997 and 1998 ........................................................................... F-44
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and F-45
1998.
Notes to Consolidated Financial Statements ............................................... F-46
Condensed Consolidated Balance Sheet as of September 30, 1999 (unaudited) ................ F-63
Condensed Consolidated Statements of Operations and Comprehensive Loss for the nine-month
period ended September 30, 1998 and 1999 (unaudited) .................................... F-64
Condensed Consolidated Statements of Cash Flows for the nine month period ended
September 30, 1998 and 1999 (unaudited) ................................................. F-65
Notes to Unaudited Condensed Consolidated Financial Statements ........................... F-66
</TABLE>
F-1
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEET - UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
--------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................................. $ 1,983
Accounts receivable, less allowance for doubtful accounts of $355...................... 2,106
Prepaid expenses ...................................................................... 479
Other current assets .................................................................. 10
---------
Total current assets ............................................................... 4,578
PROPERTY AND EQUIPMENT -- Net (Note 3) ................................................... 5,995
GOODWILL AND INTANGIBLE ASSETS -- Net of accumulated amortization of $8,144............... 30,322
OTHER LONG-TERM ASSETS ................................................................... 527
---------
TOTAL .............................................................................. $ 41,422
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ...................................................................... $ 5,089
Accrued expenses ...................................................................... 1,095
Due to Bridge Information Systems ..................................................... 17,270
Current portion of capital lease obligations (Note 4) ................................. 1,986
Other accrued liabilities ............................................................. 2,385
---------
Total current liabilities .......................................................... 27,825
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION (NOTE 4) ................................. 3,981
OTHER ACCRUED LIABILITIES ................................................................ 444
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' 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 ................................................................... (22,574)
---------
Total stockholders' equity ......................................................... 9,172
---------
TOTAL .............................................................................. $ 41,422
=========
</TABLE>
See notes to unaudited consolidated financial statements.
F-2
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
--------------------------------- --------------
NINE MONTHS PERIOD FROM
ENDED PERIOD FROM APRIL 7 TO
SEPTEMBER 30, JANUARY 1 TO SEPTEMBER 30,
1998 APRIL 6, 1999 1999
--------------- --------------- --------------
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C>
REVENUES ...................................................... $ 8,914 $ 5,440 $ 12,192
DIRECT COSTS AND OPERATING EXPENSES:
Data communications and operations ........................... 14,609 6,429 13,095
Selling, general and administrative .......................... 7,353 4,751 11,142
Depreciation and amortization ................................ 1,556 817 9,747
Impairment of assets ......................................... -- 1,383 --
----------- ----------- -----------
Total direct costs and operating expenses .................. 23,518 13,380 33,984
----------- ----------- -----------
LOSS FROM OPERATIONS .......................................... (14,604) (7,940) (21,792)
INTEREST EXPENSE, NET ......................................... (138) (135) (782)
----------- ----------- -----------
LOSS BEFORE INCOME TAXES, MINORITY INTEREST, AND
EXTRAORDINARY ITEM ........................................... (14,742) (8,075) (22,574)
Income Taxes .................................................. -- -- --
Minority Interest in Losses, net of accretion ................. (147)
-----------
LOSS BEFORE EXTRAORDINARY ITEM ................................ (14,889) (8,075) (22,574)
Extraordinary gain on debt extinguishment, net of tax ......... 1,954 -- --
----------- ----------- -----------
NET LOSS ...................................................... (12,935) (8,075) (22,574)
PREFERRED STOCK DIVIDENDS ..................................... (1,370) (706) --
AMORTIZATION OF DEFERRED FINANCING COSTS AND DISCOUNT
ON SERIES B AND C PREFERRED STOCK ............................ (369) (244) --
----------- ----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS .................. $ (14,674) $ (9,025) $ (22,574)
=========== =========== ===========
BASIC AND DILUTED LOSS PER COMMON SHARE BEFORE
EXTRAORDINARY ITEM ........................................... $ (.29) $ (.14) $ (0.31)
EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENT ..................... .03 -- --
----------- ----------- -----------
BASIC AND DILUTED LOSS PER COMMON SHARE ....................... $ (.26) $ (.14) $ (.31)
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING ........................... 56,735,597 66,018,388 72,000,000
=========== =========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
F-3
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF SHARES AMOUNTS
---------------------------- ----------------------------------------------------------
ADDITIONAL DEFERRED ACCUMULATED
COMMON TREASURY COMMON PAID-IN COMPEN- DEFICIT TREASURY
STOCK STOCK STOCK CAPITAL SATION (AS RESTATED) STOCK
------------ --------------- -------- ------------ ---------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 .............. 69,299,809 5,051,543 $693 $ 5,263 $ (78) $ (38,638) $ (64)
Issuance of common stock upon
exercise of stock options ........... 2,700,191 -- 27 1 -- -- --
Recognition of deferred
compensation ........................ -- -- -- -- 78 -- --
Net loss for the period prior to
acquisition ......................... -- -- -- -- -- (9,025) --
Acquisition of the Company by
Bridge Information Systems .......... -- (5,051,543) -- 25,762 -- 47,663 64
Net loss for the period subsequent
to acquisition ...................... -- -- -- -- -- (22,574) --
---------- ---------- ---- ------- ----- --------- -----
BALANCE, SEPTEMBER 30, 1999 ........... 72,000,000 -- $720 $31,026 $ -- $ (22,574) $ --
========== ========== ==== ======= ===== ========= =====
<CAPTION>
TOTAL
-------------
<S> <C>
BALANCE, JANUARY 1, 1999 .............. $ (32,824)
Issuance of common stock upon
exercise of stock options ........... 28
Recognition of deferred
compensation ........................ 78
Net loss for the period prior to
acquisition ......................... (9,025)
Acquisition of the Company by
Bridge Information Systems .......... 73,489
Net loss for the period subsequent
to acquisition ...................... (22,574)
---------
BALANCE, SEPTEMBER 30, 1999 ........... $ 9,172
=========
</TABLE>
See notes to unaudited consolidated financial statements.
F-4
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
--------------------------------------- -------------------
NINE MONTHS PERIOD FROM
ENDED SEPTEMBER PERIOD FROM JANUARY APRIL 7 TO
30, 1998 1 TO APRIL 6, 1999 SEPTEMBER 30, 1999
----------------- --------------------- -------------------
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net cash used in operating activities ................. $ (15,530) $ (6,185) $ (9,945)
INVESTING ACTIVITIES:
Capital expenditures -- net ........................... (1,308) (275) (855)
Acquisition of IXA, net of cash acquired .............. (750) -- --
--------- -------- --------
Net cash used in investing activities ............... (2,058) (275) (855)
--------- -------- --------
FINANCING ACTIVITIES:
Purchase of treasury stock ............................ (15) -- --
Proceeds from common stock issuance ................... 5 -- --
Exercise of stock options ............................. -- 28 --
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..... (503) (182) (381)
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 ........................... -- 4,700 12,570
Principal payments on borrowings from bank
notes payable ....................................... (242) (13) --
--------- -------- --------
Net cash provided by financing activities ............. 24,445 4,533 12,189
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ........................................... 6,857 (1,927) 1,389
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......... 1,398 2,521 594
--------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............... $ 8,255 $ 594 $ 1,983
========= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Debt incurred under capital lease obligations ......... $ 1,059 $ 2,634 $ 1,153
Preferred stock dividends accrued ..................... 1,370 706 --
Amortization of deferred financing costs and
accretion of preferred stock discount ............... 369 244 --
Senior convertible notes exchanged for preferred
stock ............................................... 7,617 -- --
Issuance of common stock in acquisition of IXA ........ 583 -- --
Cash paid during the year for interest ................ 165 99 267
</TABLE>
See notes to unaudited consolidated financial statements.
F-5
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
1. PRESENTATION
The accompanying unaudited consolidated financial statements of Savvis
Communications Corporation, a Delaware corporation, formerly 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 a
wholly-owned subsidiary of 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 approximately 3,011,000 shares of its common stock, together with
239,000 options and warrants to purchase its common stock, in exchange for all
the outstanding equity interests of Savvis. This transaction was valued at
approximately $31,746 based on the fair value of the securities exchanged, as
determined by independent valuation specialists, and the direct costs of the
acquisition. 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 to the underlying
assets purchased and liabilities assumed based on their estimated fair market
values at the acquisition date. As a result of the application of fair value
accounting, intangibles, goodwill, other liabilities and additional paid-in
capital were increased, in the Savvis unaudited consolidated financial
satements.
On September 10, 1999, Bridge sold in a private placement approximately 25%
of its equity ownership in Savvis to existing shareholders of Bridge.
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments, which are of a normal
recurring nature, necessary to present fairly the Company's financial position
as of September 30, 1999 and the results of operations and cash flows for the
period subsequent to the Company's purchase by Bridge through September 30
(successor) and from January 1, 1999 through April 6, 1999 (predecessor) and the
nine months ended September 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 three years in the
period 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 consolidated
financial statements for the three years in the period ended December 31, 1998.
The unaudited financial statements for the predecessor periods have been
restated to reflect the recording of minority interest related to redeemable
Class A shares of the Company's subsidiary and to record accretion on Class A
shares and related convertible notes at an effective rate of 20%. The exchange
of these instruments for Class B preferred stock in March of 1998 has been
restated to be treated as a debt extinguishment and the purchase of a minority
interest.
F-6
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS) - (CONTINUED )
2. BUSINESS COMBINATIONS
As discussed in Note 1, Bridge issued approximately 3,011,000 shares of its
common stock, together with 239,000 options and warrants to purchase its 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 3 years. In addition, a portion of the purchase price was
allocated to the following tangible and intangible assets:
<TABLE>
<CAPTION>
ALLOCATED LIFE
ASSETS PURCHASE PRICE (IN MONTHS)
- -------------------------------- ---------------- ------------
<S> <C> <C>
Property and equipment ......... $5,600 36
Trademark ...................... 9,500 36
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 $12,321.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30, 1999:
<TABLE>
<S> <C>
Computer equipment ................................ $ 641
Communications equipment .......................... 1,025
Purchased software ................................ 104
Furniture and fixtures ............................ 334
Leasehold improvements ............................ 372
Equipment under capital lease obligations ......... 5,079
--------
7,555
Less: accumulated depreciation .................... (1,560)
--------
Property and equipment, net ....................... $ 5,995
========
</TABLE>
4. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable consisted of borrowings by Savvis from Bridge. The
outstanding balance on the notes was $17,270 at September 30, 1999 and interest
accrues at a rate of 8% per annum. The carrying value of the notes approximates
fair value at September 30, 1999.
F-7
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED (DOLLARS IN
THOUSANDS EXCEPT SHARE AMOUNTS) - (CONTINUED)
4. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS--(CONTINUED)
Savvis leases various equipment under capital leases. Future minimum lease
payments under capital leases at September 30, 1999 are as follows:
<TABLE>
<S> <C>
1999 (Three months) ............................ $ 370
2000 ........................................... 2,948
2001 ........................................... 2,940
2002 ........................................... 634
--------
Total capital lease obligations ............. 6,892
Less amount representing interest .............. (925)
Less current portion ........................... (1,986)
--------
Long-term capital lease obligations ......... $ 3,981
========
</TABLE>
5. 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 have been adjusted retroactively for the stock split.
6. STOCK OPTION ACTIVITY
As discussed in Note 1, upon Bridge's acquisition of the Company on April
7, 1999, all outstanding Savvis stock options were exchanged for Bridge stock
options and included as part of the purchase consideration based upon the fair
value of Bridge options issued. Subsequently, 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 September 1999, the
Company granted options to purchase 3,639,000 shares of its common stock to
certain employees of Bridge. In that same period, the Company granted options to
purchase up to 2,300,008 shares of its common stock to certain of its employees.
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 plan. Under the provisions of APB 25, no compensation
expense was recorded as the $.50 exercise price approximated the estimated fair
value of the stock at the date of the grant, as determined by an independent
valuation specialist. 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 assumed a risk-free interest rate of approximately 5.0%, 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 $.07. For purposes
of pro forma disclosures, the estimated fair value of the options is amortized
to expense over the options' estimated vesting period.
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 not have been significantly
different than the net loss reported.
F-8
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED (DOLLARS IN
THOUSANDS EXCEPT SHARE AMOUNTS) - (CONTINUED)
7. RELATED PARTY TRANSACTIONS
In connection with Bridge's acquisition of the Company, as discussed in
Note 1, Bridge has funded the Company's operations during 1999. At September 30,
1999, the Company had amounts payable to Bridge of $17,270. See Note 8 for a
discussion of other relationships between the Company and Bridge arising from
the execution of the Master Establishment and Transition Agreement and other
related agreements.
8. SUBSEQUENT EVENTS
Public Offering -- The Board of Directors of SAVVIS has authorized
management of the Company to file a registration statement with the Securities
and Exchange Commission for the initial public offering of the Company's common
stock. The Company contemplates using a portion of the proceeds from the
proposed public offering to finance a portion its purchase of Bridge's Internet
protocol network assets and to pay Bridge a preferential distribution of $58
million as discussed below. The remaining proceeds will be used to finance
growth.
Asset Purchase and Preferential Distribution -- Simultaneous with the
completion of the public offering, the Company will purchase or sublease
Bridge's global Internet protocol network assets for approximately $92,000 less
the book value of all the assets not transferred because of regulatory
restrictions (the "Call Assets") (approximately $4,000). The purchase price of
the assets will be paid with offering proceeds. For accounting purposes, the
assets are to be transferred from Bridge to Savvis at their historical net book
value of approximately $88,000. The Company will also pay a $58 million
preferential distribution to Bridge. In addition, this agreement establishes a
right for Savvis to purchase the Call Assets at their net book values. At the
time any call right is exercised, such assets will be recorded at their net book
value.
At the time of the asset purchase, the Company will also enter into a
10-year network services agreement with Bridge under which the Company will
provide managed data networking services to Bridge. For the first year of the
agreement, the Company's fees will be based upon the cash cost to Bridge of
operating the network as configured on the date the Company acquire it, fees for
additional services provided following the closing of the transfer will be set
for a three-year term based on an agreed payment schedule reflecting the
estimated cost to provide the services. Bridge has agreed to pay us a minimum of
$105 million, $132 million and $145 million for network services in 2000, 2001
and 2002, respectively.
In addition, Bridge has agreed that the amount to be paid under the
agreement for the fourth, fifth and sixth years will not be less than 80% of the
total amount paid by Bridge and its subsidiaries for Internet protocol data
transport services; and the amount to be paid under the agreement for the
seventh through tenth years will not be less than 60% of the total amount paid
by Bridge and its subsidiaries for Internet protocol data transport services.
Upon transfer of the assets, Bridge is also to provide various services,
including technical support, customer support and project management in the
procurement and installation of equipment. In addition, Bridge is to provide
additional administrative and operational services, such as payroll and
accounting functions, benefit management and office space, until the Company
develops the capabilities to perform these services.
Some network assets to be purchased are located in premises currently
leased by Bridge. The permits provide the Company, subject to the receipt of
required landlord consents, with licenses to keep the equipment that is being
purchased from Bridge in the facilities in which they are currently located.
According to this arrangement, the Company will occupy a minimal amount of
space, generally less than 100 square feet, in each of the premises. The permits
are for a term that is coterminous with the underlying rights which Bridge has
to such facilities, which range from one to ten years. Costs for this space are
estimated to be less than $75 per year.
F-9
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED (DOLLARS IN
THOUSANDS EXCEPT SHARE AMOUNTS) - (CONTINUED)
Stock Options -- During the period from October through December 1999, the
Company granted 2,843,258 stock options to employees of SAVVIS and Bridge with
an exercise price of $.50 per share. Noncash compensation cost based upon the
difference between the exercise price and the imputed fair value of the
Company's stock as of the respective option grant dates totalling approximately
$53,000 will be recorded over the vesting periods of such options, which periods
range from immediate up to four years. Approximately $2,000 of noncash
compensation expense will be recorded in the fourth quarter.
Severance -- In November 1999, in connection with the resignation of its
President, the Company agreed to provide severance benefits, to include
approximately one year's base salary, a 1999 performance bonus of not less than
25% of base salary, and other miscellaneous benefits. Approximately $360 will be
accrued in the fourth quarter related to this severance arrangement.
* * * * * *
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Savvis Communications Corporation:
We have audited the accompanying consolidated balance sheet of Savvis
Communications Corporation and subsidiaries, formerly SAVVIS Holdings
Corporation (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 Communications
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.
We have not audited any financial statements of the Company for any period
subsequent to December 31, 1998. However, as discussed in Note 13 to the
financial statements, the Company has experienced recurring losses from
operations and cash flow deficiencies which have been funded by Bridge
Information Systems, Inc. ("Bridge"), of which the Company is a majority-owned
subsidiary. As further discussed in Note 13, Bridge has not committed to fund
the Company's operations in the future. These matters raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 13. The 1998 financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 14, the consolidated financial statements for the year
ended December 31, 1998 have been restated.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
August 12, 1999, except for Note 13 as to which the date is January 14, 2000,
and Note 14 as to which the date in January 25, 2000.
F-11
<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"), 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.
As discussed in Note 14, the consolidated financial statements for the year
ended December 31, 1997 have been restated.
/s/ ERNST & YOUNG, LLP
St. Louis, Missouri
April 23, 1998, except for Note 14 as to which the date is January 25, 2000
F-12
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1998
------------ ------------
(AS RESTATED, SEE NOTE 14)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................................. $ 1,398 $ 2,521
Accounts receivable, less allowance for doubtful accounts of $128 in
1997 and $149 in 1998..................................................... 623 2,649
Prepaid expenses ........................................................... 304 120
Other current assets ....................................................... 29 21
--------- ---------
Total current assets .................................................... 2,354 5,311
PROPERTY AND EQUIPMENT -- Net (Note 6) ...................................... 1,906 4,753
GOODWILL AND INTANGIBLE ASSETS -- Net of accumulated amortization of
$503........................................................................ -- 1,406
OTHER LONG-TERM ASSETS ...................................................... 53 193
--------- ---------
TOTAL ....................................................................... $ 4,313 $ 11,663
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable ........................................................... $ 3,812 $ 4,498
Accrued compensation payable ............................................... 326 1,140
Deferred revenue ........................................................... 359 71
Notes payable to bank -- current portion (Note 7) .......................... 220 13
Current portion of capital lease obligations (Note 7) ...................... 318 1,097
Other accrued liabilities .................................................. 274 206
--------- ---------
Total current liabilities ............................................... 5,309 7,025
--------- ---------
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION (NOTE 7) .................... 491 1,649
NOTES PAYABLE TO BANK (NOTE 7) .............................................. 13 --
SENIOR CONVERTIBLE NOTES (NOTE 7) ........................................... 4,719 --
SENIOR CONVERTIBLE BRIDGE NOTES (NOTE 7) .................................... 3,053 --
COMMITMENTS AND CONTINGENCIES (NOTE 11) .....................................
MINORITY INTEREST ........................................................... 370 --
REDEEMABLE STOCKS (NOTES 1 AND 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......................... -- 3,898
Series C, $.001 par value, 30,000,000 shares authorized, 30,000,000 issued
and outstanding, liquidation preference of $30,000 -- net of
unamortized discount ..................................................... -- 26,943
STOCKHOLDERS' DEFICIT:
Common stock; $.01 par value, 125,000,000 authorized, 39,550,519 issued
and outstanding in 1997, 69,299,809 issued and outstanding in 1998 ....... 396 693
Additional paid-in capital ................................................. 1,095 5,263
Accumulated deficit ........................................................ (16,345) (39,011)
Deferred compensation ...................................................... -- (78)
Treasury stock ............................................................. (49) (64)
--------- ---------
Total stockholders' deficit ................................................ (14,903) (33,197)
--------- ---------
TOTAL ....................................................................... $ 4,313 $ 11,663
========= =========
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1997 1998
-------------- -------------- --------------
(AS RESTATED, SEE NOTE 14)
<S> <C> <C> <C>
REVENUES:
Service ...................................................... $ 194 $ 2,395 $ 12,827
Installation ................................................. 82 317 538
Other ........................................................ 14 46 309
----------- ----------- -----------
Total revenue ............................................. 290 2,758 13,674
----------- ----------- -----------
DIRECT COSTS AND OPERATING EXPENSES:
Data communications and operations ........................... 1,044 11,072 20,889
Selling, general and administrative .......................... 1,204 5,130 12,245
Depreciation and amortization ................................ 153 631 2,288
----------- ----------- -----------
Total direct costs and operating expenses ................. 2,401 16,833 35,422
----------- ----------- -----------
LOSS FROM OPERATIONS .......................................... (2,111) (14,075) (21,748)
NONOPERATING INCOME (EXPENSE):
Interest income .............................................. -- -- 383
Interest expense ............................................. (60) (482) (483)
----------- ----------- -----------
Total nonoperating income (expense) ....................... (60) (482) (100)
----------- ----------- -----------
LOSS BEFORE INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY
ITEM ......................................................... (2,171) (14,557) (21,848)
INCOME TAXES (NOTE 10) ........................................ -- -- --
Minority Interest in Losses, net of accretion ................. -- 547 (147)
----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM ................................ (2,171) (14,010) (21,995)
Extraordinary gain on debt extinguishment, net of tax ......... -- -- 1,954
----------- ----------- -----------
NET LOSS ...................................................... (2,171) (14,010) (20,041)
PREFERRED STOCK DIVIDENDS ..................................... -- (151) (2,054)
AMORTIZATION OF DEFERRED FINANCING COSTS AND DISCOUNT ON
SERIES B AND C PREFERRED STOCK ............................... -- -- (571)
----------- ----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS .................. $ (2,171) $ (14,161) $ (22,666)
=========== =========== ===========
BASIC AND DILUTED LOSS PER COMMON SHARE BEFORE EXTRAORDINARY
ITEM ......................................................... $ (.06) $ (.38) $ (.42)
EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENT ..................... -- -- .03
----------- ----------- -----------
BASIC AND DILUTED LOSS PER COMMON SHARE ....................... $ (.06) $ (.38) $ (.39)
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING ........................... 35,396,287 36,904,108 58,567,482
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-14
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NUMBER OF SHARES
-------------------------
COMMON TREASURY
STOCK STOCK
------------ ------------
<S> <C> <C>
BALANCE, JANUARY 1, 1996 ............. 30,665,765 --
Issuance of common stock ............ 8,884,754 --
Issuance of common stock upon
Exercise of stock options .......... -- --
Net loss ............................ -- --
---------- --
BALANCE, DECEMBER 31, 1996 ........... 39,550,519 --
Purchase of shares for treasury ..... -- 4,853,967
Dividends declared on Series A
Preferred Stock .................... -- --
Net loss ............................ -- --
---------- ---------
BALANCE, DECEMBER 31, 1997 ........... 39,550,519 4,853,967
Issuance of common stock ............. 1,976 --
Issuance of in-the-money options ..... -- --
Issuance of common stock for
acquisition of IXA .................. 28,789,781 --
Issuance of common stock upon
exercise of stock options ........... 957,533 --
Dividends declared on Series C
Preferred Stock ..................... -- --
Amortization of deferred financing
costs and discount on Series C
Preferred Stock ..................... -- --
Purchase of shares for treasury ...... -- 197,576
Issuance of Series C warrants
(Note 3) ............................ -- --
Net loss ............................. -- --
---------- ---------
BALANCE, DECEMBER 31, 1998 ........... 69,299,809 5,051,543
========== =========
<CAPTION>
AMOUNTS
---------------------------------------------------------------------------
(AS RESTATED,
ADDITIONAL SEE NOTE 14)
COMMON PAID-IN DEFERRED ACCUMULATED TREASURY
STOCK CAPITAL COMPENSATION DEFICIT STOCK TOTAL
-------- ------------ -------------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 ............. $ 307 $ (206) $ -- $ (13) $ -- $ 88
Issuance of common stock ............ 89 1,279 -- -- -- 1,368
Issuance of common stock upon
Exercise of stock options .......... -- 22 -- -- -- 22
Net loss ............................ -- -- -- (2,171) -- (2,171)
----- ------ ----- --------- ----- ---------
BALANCE, DECEMBER 31, 1996 ........... 396 1,095 -- (2,184) -- (693)
Purchase of shares for treasury ..... -- -- -- -- (49) (49)
Dividends declared on Series A
Preferred Stock .................... -- -- -- (151) -- (151)
Net loss ............................ -- -- -- (14,010) -- (14,010)
----- ------ ----- --------- ----- ---------
BALANCE, DECEMBER 31, 1997 ........... 396 1,095 -- (16,345) (49) (14,903)
Issuance of common stock ............. -- 1 -- -- -- 1
Issuance of in-the-money options ..... -- 171 (78) -- -- 93
Issuance of common stock for
acquisition of IXA .................. 287 296 -- -- -- 583
Issuance of common stock upon
exercise of stock options ........... 10 -- -- -- -- 10
Dividends declared on Series C
Preferred Stock ..................... -- -- -- (2,054) -- (2,054)
Amortization of deferred financing
costs and discount on Series C
Preferred Stock ..................... -- -- -- (571) -- (571)
Purchase of shares for treasury ...... -- -- -- -- (15) (15)
Issuance of Series C warrants
(Note 3) ............................ -- 3,700 -- -- -- 3,700
Net loss ............................. -- -- -- (20,041) -- (20,041)
----- ------ ----- --------- ----- ---------
BALANCE, DECEMBER 31, 1998 ........... $ 693 $5,263 $ (78) $ (39,011) $ (64) $ (33,197)
===== ====== ===== ========= ===== =========
</TABLE>
See notes to consolidated financial statements
F-15
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------- -------------
(AS RESTATED, SEE NOTE 14)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ........................................................... $ (2,171) $ (14,010) $ (20,041)
Reconciliation of net loss to net cash used in Operating ..........
Depreciation and amortization ................................... 153 631 2,288
Extraordinary gain on early extinguishment of debt .............. -- -- (1,954)
Minority interest in losses, net of accretion ................... -- (547) 147
Discount Accretion .............................................. 55 25
Compensation expense relating to the issuance of options . -- -- 93
Net changes in operating assets and liabilities
- net of effect of acquisition:
Accounts receivable ............................................ (96) (527) (1,885)
Other current assets ........................................... (33) 4 63
Other assets ................................................... -- (53) (141)
Prepaid expenses ............................................... (53) (250) 183
Accounts payable ............................................... 676 3,316 61
Deferred revenue ............................................... 65 294 (288)
Other accrued liabilities ...................................... 166 585 889
-------- --------- ---------
Net cash used in operating activities ......................... (1,293) (10,502) (20,560)
-------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures - net ........................................ (884) (697) (1,688)
Acquisition of IXA ................................................ -- -- (750)
-------- --------- ---------
Net cash used in investing activities ......................... (884) (697) (2,438)
-------- --------- ---------
FINANCING ACTIVITIES:
Purchase of treasury stock ........................................ -- (49) (15)
Proceeds from common stock issuance ............................... 1,369 -- 1
Exercise of stock options ......................................... 22 -- 10
Proceeds from Series A preferred stock issuance ................... 500 250 --
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 ................ (20) (218) (793)
Proceeds from issuance of senior convertible notes ................ -- 4,483 --
Proceeds from issuance of Class A shares of subsidiary ............ 917
Proceeds from issuance of senior convertible bridge notes ......... -- 3,053 1,800
Principal payments on borrowings from senior convertible
bridge notes .................................................... -- -- (1,053)
Proceeds from borrowings from notes payable ....................... 950 3,725 --
Principal payments on borrowings from bank notes payable . (81) (137) (282)
-------- --------- ---------
Net cash provided by financing activities ..................... 2,740 12,024 24,121
-------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS .......................... $ 563 $ 825 $ 1,123
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ....................... 10 573 1,398
-------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR ............................. $ 573 $ 1,398 $ 2,521
======== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Debt incurred under capital lease obligations ................... $ 277 $ 718 $ 2,835
Forgiveness of capital lease obligations in exchange for
property ....................................................... -- -- 279
Preferred stock dividends ....................................... -- 151 2,054
Amortization of financing costs ................................. -- -- 234
Accretion of preferred stock discount ........................... -- -- 569
Senior convertible notes exchanged for preferred stock .......... -- -- 7,617
Issuance of common stock in acquisition of IXA .................. -- -- 583
Cash paid for interest .......................................... 24 227 262
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- SAVVIS Communications Corporation, a Delaware corporation,
formerly Savvis Holdings Corporation ("Holdings"), together with its wholly
owned subsidiary, Savvis Communications Corporation, a Missouri corporation
("SCC"), and its predecessor company, Savvis Communications Enterprises L.L.C.
("LLC"), are referred to herein collectively as the "Company". The Company was
formed in November 1995 with $101 of capital and commenced commercial operations
in 1996. 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 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 Company's 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.
A portion of the 1997 net loss of the LLC was allocated to the Class A
minority interest in the LLC. 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. The
exchange of the senior notes and Class A stock for the Series B convertible
preferred has been accounted for as the extinguishment of debt and the purchase
of minority interest. At the date of issuance the Series B convertible preferred
was deemed to have a fair value of $3,700 which resulted in the recognition of
an extraordinary gain on extinguishment of the notes of approximately $1,954 and
the establishment of $290 of goodwill.
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.
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.
F-17
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED)
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 1996, 1997 and 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The fair value of borrowings is
estimated by discounting the future cash flows using borrowing rates for similar
arrangements with similar maturities.
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 and 72 million shares
issued and outstanding with a $.01 par value for each share of common stock. All
references to shares, options and warrants outstanding have been adjusted
retroactively for the stock split.
REVENUE RECOGNITION AND DEFERRED REVENUE -- Service revenues consist
primarily of monthly Internet access service fees, which are fixed monthly
amounts. Services were billed one month in advance in both 1996 and 1997. For
all years, any services billed and payments received in advance of providing
services are deferred until the period such services are earned. 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 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 8).
F-18
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
(CONTINUED)
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 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 1996 and 1997 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
F-19
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUBSEQUENT EVENTS - (CONTINUED)
issued approximately 3,011,000 shares of its common stock together with 239,000
options and warrants to purchase its 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 OPTION ACTIVITY (UNAUDITED) -- 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 plan. Between July and October 1999, the
Company granted options to purchase 3,639,000 shares of its common stock to
selected employees of Bridge Information Systems, Inc. In that same period, the
Company granted options to purchase up to 2,300,008 shares of its common stock
to selected employees. All of these options were granted pursuant to the 1999
Stock Option Plan.
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.
PROPOSED PUBLIC OFFERING OF COMMON STOCK (UNAUDITED) -- The Board of
Directors of SAVVIS has authorized management of the Company to file a
registration statement with the Securities and Exchange Commission for the
initial public offering of the Company's common stock. The Company contemplates
using the proceeds from the proposed public offering to finance a portion of its
purchase of Bridge's Internet protocol network assets, for payment of a
preferential distribution to Bridge, for capital expenditures and general
corporate purposes, and to finance its growth.
3. CORPORATE REORGANIZATION AND FINANCIAL 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.
F-20
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. CORPORATE REORGANIZATION AND FINANCIAL TRANSACTIONS - (CONTINUED)
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 13,799,812 five-year detachable warrants in conjunction with the
issuance of the senior bridge notes. (See discussion below regarding
subsequent exchange.)
oIssuance 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 63,488,349 shares of $.001 par common stock of Holdings in
exchange for all of the $.01 par common stock of SCC.
o Issuance of 22,000,000 shares of Class C Preferred Stock and 299,466,125
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 13,799,812 warrants to purchase common stock at a strike price of
$.10 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 and 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 108,896,798 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
F-21
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. REDEEMABLE PREFERRED STOCK AND STOCK WARRANTS - (CONTINUED)
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 142.0413 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
142.0413 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 of the Series B
Preferred shall be entitled to convert each share of Series B Preferred into
13.3497 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 13.3497 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 13.6122
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.
F-22
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. REDEEMABLE PREFERRED STOCK AND STOCK WARRANTS - (CONTINUED)
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.
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 13,799,812 warrants to purchase common
stock at a strike price of $.10 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 408,362,922 of detachable
warrants to purchase common stock of the Company for a price below $.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 28,789,781 shares
of the Company's common stock.
F-23
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. BUSINESS COMBINATION - (CONTINUED)
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.
<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>
1997 1998
------------ ------------
<S> <C> <C>
Revenues .......... $ 4,474 $ 13,903
Net loss .......... (14,002) (20,318)
</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>
1997 1998
---------- -----------
<S> <C> <C>
Computer equipment ...................................... $ 259 $ 837
Communications equipment ................................ 1,000 1,771
Purchased software ...................................... 104 182
Furniture and fixtures .................................. 58 383
Leasehold improvements .................................. 88 217
Equipment under capital lease obligations ............... 995 3,553
------ --------
2,504 6,943
Less accumulated depreciation and amortization .......... (598) (2,190)
------ --------
$1,906 $ 4,753
====== ========
</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.
Accumulated amortization for equipment under capital leases for 1997 and 1998
was $209 and $831, respectively. Amortization expense for 1996, 1997 and 1998
was $814, $186 and $23, respectively.
F-24
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable and convertible notes payable consisted of the following at
December 31:
<TABLE>
<CAPTION>
1997 1998
----------- --------
<S> <C> <C>
Senior convertible notes, interest at 8%, converted to Series B
preferred stock of Holdings on March 4, 1998 ...................... $ 4,538 $ --
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................. 85 13
Note payable to bank, interest at 9.25%, monthly principal and
interest payments of $8, matured August 1, 1998.................... 148 --
------- -----
7,824 13
Less current portion ............................................... (220) (13)
------- -----
Long-term portion .................................................. $ 7,604 $ --
======= =====
</TABLE>
The carrying value of the notes approximated fair value at December 31,
1997 and 1998. 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>
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 19,757,596 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 8,087,100 options under this plan during 1997.
Additionally, on July 8, 1997, the Company granted an employee 790,304
options to purchase the Company's common stock at $.07 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 15,072,319
options to be granted under the plan. As part of this amendment, the Board of
Directors authorized the existing option holders to exchange
F-25
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. EMPLOYEE STOCK OPTIONS - (CONTINUED)
their options for incentive stock options priced at $.01 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 9,228,655 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 $.01 per share, the
existing estimated fair market value of the Company's common stock at the time.
An additional 21,389,890 options were also granted during 1997 under the same
terms as the incentive options. Two option holders, representing 238,356
options, elected not to exchange, and accordingly, these options remained
outstanding under their original terms at the end of 1997. Of these options,
214,647 were forfeited during 1998.
In 1998, the Company's Board of Directors established the 1998 stock option
plan, under which it authorized 111,149,677 and granted 91,926,998 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 1996, 1997 and 1998 assumes a risk-free interest rate of 6.7 percent,
6.2 percent and 5.0 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 below $.01 per share in 1996, 1997 and 1998,
respectively. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting periods.
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 as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------- -------------
<S> <C> <C> <C>
Net loss attributable to common
stockholders:
As reported ........................ $ (2,171) $ (14,161) $ (22,666)
Pro forma .......................... (2,171) (14,175) (22,696)
Basic and diluted net loss per share:
As reported ........................ $ (.06) $ (.38) $ (.39)
Pro forma .......................... (.06) (.38) (.39)
</TABLE>
F-26
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. EMPLOYEE STOCK OPTIONS - (CONTINUED)
The following table summarizes stock option activity for the three years
ended December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF
SHARES WEIGHTED
OF COMMON PRICE AVERAGE
STOCK OPTIONS PER EXERCISE
(IN THOUSANDS) SHARE PRICE
---------------- ---------------- ---------
<S> <C> <C> <C>
Balance, December 31, 1995 ....................... -- $ -- $ --
Granted ......................................... 1,625 .01 0.01
-----
Balance, December 31, 1996 ....................... 1,625 .01 0.01
Granted ......................................... 39,496 .01 - .07 0.02
Forfeited ....................................... (245) .03 0.03
Cancelled ....................................... (9,229) .01 - .04 0.03
------
Balance, December 31, 1997 ....................... 31,647 .01 - .07 0.01
Granted ......................................... 91,927 .01 - .02 0.02
Exercised ....................................... (958) .01 0.01
Forfeited ....................................... (7,416) .01 - .02 0.01
------
Balance, December 31, 1998 ....................... 115,200 $.01 - $ .07 $ 0.02
=======
Options exercisable at December 31, 1996 ......... --
=======
Options exercisable at December 31, 1997 ......... 7,271 $.01 - $ .07 $ 0.02
=======
Options exercisable at December 31, 1998 ......... 28,051 $.01 - $ .07 $ 0.01
=======
</TABLE>
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
SHARES REMAINING EXERCISE SHARES EXERCISE
(IN THOUSANDS) LIFE PRICE (IN THOUSANDS) PRICE
- ---------------- ----------- ---------- ---------------- ---------
<S> <C> <C> <C> <C>
13,542 9.93 $ .01 12,267 $ .01
25,995 8.81 .01 10,325 .01
74,849 9.59 .02 4,658 .02
24 8.08 .04 10 .04
790 8.50 .07 790 .07
---------- ------
115,200 9.51 $ .02 28,051 $ .02
========== ======
</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. All
employees may contribute a percentage of their base salary, subject to
limitations. The plan was put into place during 1998. All employer contributions
are discretionary under plan provisions. 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,
1996, 1997, and 1998 as the potential deferred tax benefit of $208, $3,044, and
$6,853, respectively, resulting primarily from the net operating losses, was
fully offset by a provision to provide a valuation allowance against such
deferred tax benefit.
F-27
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. INCOME TAXES - (CONTINUED)
The components of deferred income tax assets and liabilities are as follows
at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ......... $ 3,234 $ 10,215
Other .................................... 44 87
-------- ---------
Gross deferred tax assets ............. 3,278 10,302
Deferred tax liabilities:
Intangible assets ........................ -- (109)
Other .................................... (26) (88)
-------- ---------
Net deferred tax assets ............... 3,252 10,105
Valuation allowances ...................... (3,252) (10,105)
-------- ---------
$ -- $ --
======== =========
</TABLE>
At December 31, 1997 and 1998, the Company recorded a valuation allowance
of $3,252 and $10,105, respectively, against the net deferred tax asset due to
the uncertainty of its ultimate realization. The valuation allowance increased
by $3,044 from December 31, 1996 to December 31, 1997 and by $6,853 from
December 31, 1997 to December 31, 1998.
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 may affect the Company's ability to utilize
the net operating losses over the 20-year carryforward period.
At December 31, 1998, the Company had 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 the years ended December 31:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Pretax loss ...................................... 34% 34% 34%
Federal income tax portion of changes in
valuation allowance ............................. (10) (16) (32)
Minority interest in net operating loss .......... -- (18) (1)
S Corporation loss ............................... (24) -- --
Other - net ...................................... -- -- (1)
--- --- ------
Effective income tax rate ........................ 0% 0% 0%
=== === =====
</TABLE>
F-28
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
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,
1996, 1997 and 1998, was $110, $1,924, and $1,905, 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 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>
13. GOING CONCERN MATTERS
The Company has experienced recurring losses from operations and cash flow
deficiencies which, since April of 1999, have been funded by Bridge, of which
the Company is a majority-owned consolidated subsidiary. While Bridge has funded
the Company's operations through 1999, Bridge has not committed to fund the
Company's operations in the future. These matters raise substantial doubt as to
the Company's ability to continue as a going concern. Management intends to fund
operations and other cash flow needs with the proceeds of an initial public
offering in the first quarter of 2000. There can be no assurances that such an
offering will be consummated. If an offering is not consummated, management
intends to seek other financing and otherwise alter its business plans.
F-29
<PAGE>
SAVVIS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
14. RESTATEMENT
Subsequent to the issuance of its financial statements for the years ended
December 31, 1997 and 1998, the Company determined that the Class A shares of
its subsidiary represented a minority interest to which losses should be
allocated and for which accretion on the Class A shares and related convertible
notes should be recorded at an effective rate of 20%. The Company also concluded
that the exchange of these instruments for Class B preferred stock in March of
1998 should be treated as a debt extinguishment, with recognition of an
extraordinary gain, and as the purchase of a minority interest. The Company's
financial statements have been restated to correct the accounting for the above.
A summary of the significant effects of the restatement are as follows.
<TABLE>
<CAPTION>
1997 1998
---------------------------- --------------------------
AS AS
PREVIOUSLY PREVIOUSLY
FOR THE YEAR ENDED DECEMBER 31: REPORTED AS RESTATED REPORTED AS RESTATED
- ------------------------------------------ ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Depreciation and amortization ............ $ 631 $ 631 $ 2,208 $ 2,288
Interest expense ......................... 427 482 458 483
Loss before income taxes, minority
interest and extraordinary item ......... (14,502) (14,557) (21,743) (21,848)
Minority interest in losses, net of
accretion ............................... -- 547 -- (147)
Extraordinary item, net of tax ........... -- -- -- (1,954)
Net loss ................................. (14,502) (14,010) (21,743) (20,041)
Preferred stock accretion ................ 151 151 1,821 2,054
Net Loss attributable to common
stockholders ............................ (14,653) (14,161) (24,134) (22,666)
Basic and diluted loss per common share
before extraordinary item ............... (.40) (.38) (.41) (.42)
Extraordinary gain on debt
extinguishment .......................... -- -- -- .03
Basic and diluted loss per common share. (.40) (.38) (.41) (.39)
At December 31:
Goodwill and intangibles, net ........... -- -- 1,197 1,406
Accounts payable ........................ 3,993 3,812 4,498 4,498
Minority interest ....................... -- 370 -- --
Accumulated deficit ..................... (16,837) (16,345) (40,971) (39,011)
Senior convertible notes ................ 5,400 4,719 -- --
Stockholders' deficit ................... (15,395) (14,903) (35,157) (33,197)
</TABLE>
******
F-30
<PAGE>
BRIDGE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BRIDGE
The following discussion should be read together with the more detailed
information in Bridge's historical consolidated financial statements, including
the related notes thereto, appearing elsewhere in this prospectus. The results
shown herein are not necessarily indicative of the results to be expected in any
future periods. This discussion contains forward-looking statements based on
current expectations which involve risks and uncertainties. Actual results and
the timing of events could differ materially from the forward-looking statements
as a result of a number of factors.
OVERVIEW
Bridge is a global provider of high-quality, real time and historical
financial information, including market data, news and analytical tools.
Bridge's customers are investment and commercial banks, money managers,
investment advisors, broker/dealers, traders, exchanges, corporations and
governmental agencies. Bridge's products include a wide range of computer
workstations, market data feeds and web-browser-based applications that provide
comprehensive market data, in-depth news, powerful analytical tools and trading
room integration systems.
During the period 1996 through September 30, 1999, Bridge made several
acquisitions as outlined below which resulted in significant increases in
Bridge's revenues, expenses, intangible assets, debt and redeemable preferred
stock.
On July 26, 1996, Bridge acquired all of the outstanding shares of
Knight-Ridder Financial, Inc. ("KRF") for approximately $272.8 million in a
business combination accounted for as a purchase. The purchase was financed
through the sale of approximately $155.5 million of Series D redeemable
preferred stock of Bridge and through a portion of the proceeds obtained from a
$160 million term loan. The total cost of the acquisition was approximately
$273.5 million, which exceeded the fair value of the net assets of KRF by $203.2
million. This excess is being amortized over 40 years. In addition,
approximately $6.5 million of the purchase price was allocated to purchased
research and development, which was expensed to acquisition related expense in
1996. In 1997, Bridge recognized non-recurring costs of approximately $5.4
million comprised of customer credits for downtime and other conversion costs
related to the closure of KRF's data center which are included in restructuring
and acquisition related expense.
On July 15, 1997, Bridge acquired all of the outstanding shares of
Telesphere Corporation ("Telesphere") for approximately $34.5 million in a
business combination accounted for as a purchase. Bridge acquired Telesphere for
450,000 shares of Series A common stock of Bridge (valued at approximately $3.3
million), approximately $3 million in an 11% senior subordinated note of Bridge
and approximately $28.6 million in cash. The total cost of the acquisition was
approximately $34.8 million, which exceeded the fair market value of the net
assets of Telesphere by approximately $27.6 million. This excess is being
amortized over 20 years.
On May 29, 1998, Bridge acquired all the outstanding shares of Dow Jones
Markets Holdings, Inc., ("Telerate") for approximately $510 million in a
business combination accounted for as a purchase. Bridge acquired Telerate for
1,500,000 shares of Series E preferred stock of Bridge (valued at approximately
$150 million) and approximately $360 million in cash, which was financed through
the proceeds obtained from a loan under Bridge's senior secured credit
agreement. The total cost of the acquisition was approximately $511.6 million,
which exceeded the fair market value of the net assets of Telerate by
approximately $184.1 million. This excess is being amortized over 30 years. In
addition approximately $22 million of the purchase price was allocated to
purchased research and development, which was expensed to acquisition related
expenses in 1998. In 1998, Bridge also recognized non-recurring costs of
approximately $6.7 million, comprised of other conversion costs related to the
closure of redundant offices, which are included in acquisition related
expenses.
On November 10, 1998, Bridge acquired the financial information business
assets of ADP Financial Information Services ("ADP") for approximately $154.2
million in a business combination accounted for as a purchase. Bridge acquired
the assets in exchange for 900,000 shares of Series F preferred stock of Bridge
(valued at approximately $90 million) and approximately $64.2 million in cash
which was financed
F-31
<PAGE>
through proceeds obtained from a loan under Bridge's senior secured credit
agreement. The total cost of the acquisition was approximately $154.5 million,
which exceeded the fair market value of the net assets of ADP Financial
Information Services by approximately $99.8 million. This excess is being
amortized over 20 years.
On April 7, 1999, Bridge acquired SAVVIS Communications Corporation, f/k/a
SAVVIS Holdings Corporation, ("SAVVIS"), in an all stock transaction that was
accounted for as a purchase. Pursuant to the terms of the transaction, Bridge
issued approximately 3,011,000 shares of common stock, together with
approximately 239,000 options and warrants to purchase common stock in exchange
for all the outstanding equity interest of SAVVIS. The purchase price has been
allocated to the underlying assets purchased and liabilities assumed based on
their estimated fair market values at the acquisition date. The total cost of
the acquisition exceeded the fair value of SAVVIS' net assets by approximately
$23.8 million, which is being amortized over 3 years. In addition, approximately
$20.3 million of the purchase price was allocated to property and equipment,
trademarks, non-compete agreements and other intangibles, which are being
amortized over 1 to 5 years. Also, in connection with the acquisition, Bridge
assumed net liabilities of SAVVIS in the amount of approximately $12.3 million.
Subsequent to the acquisition, on September 10, 1999, Bridge sold in a private
placement approximately 25% of its ownership to Bridge shareholders for
approximately $9.0 million.
The net value of goodwill and other intangible assets arising from past
acquisitions was $863.9 million on September 30, 1999. Bridge's determination of
the amortization period for these assets was based on management's estimates of
their useful lives which they believe were consistent with accounting precedent
and practice on the dates of the acquisitions. Had management assumed shorter
useful lives, amortization charges would have been higher, increasing Bridge's
operating losses. Since the completion of these acquisitions, there has been
considerable debate, both within the accounting profession and among government
agencies, about the appropriateness of useful life assumptions beyond 5 to 10
years. Were Bridge to amortize all goodwill over 10 years and other intangibles
over no more than 5 years, net losses would have been $68.7 million, $86.0
million and $180.7 million for 1996, 1997 and 1998, respectively, and $115.3
million and $180.0 million for the nine months ended September 30, 1998 and
1999, respectively.
Revenues.
Bridge's revenues include fees for information services, transaction
services, equipment sales, customer data fees and other revenues.
Information services. Information services revenues are derived from
subscription charges to clients for the use of Bridge's real time and historical
information and news on equities, fixed income, foreign exchange, derivatives
and commodities. Information services revenues are billed 1 to 12 months in
advance and are recognized in the period the related services are provided.
Transaction services. Bridge's wholly owned subsidiaries, Bridge Trading
Company ("Bridge Trading"), Bridge International Broking Ltd.-Hong Kong ("Bridge
Broking-Hong Kong") and Bridge International Broking (U.K.) Limited ("Bridge
Broking-U.K.") provide securities order routing and execution services , or
transaction services, to many of Bridge's institutional clients. Bridge Trading,
Bridge Broking-Hong Kong and Bridge Broking-U.K. are registered broker-dealers
under securities laws of the United States, Hong Kong and the United Kingdom,
respectively. Transaction services revenues represent the net commissions and
fees earned from providing the transactions services in excess of the value of
the subscription charges recorded as information services revenues. Transaction
services are recorded on the trade date of the relevant security transaction.
Equipment sales. Bridge is a value added reseller for Sun Microsystems,
Inc. Equipment sales revenues are derived from the sale of computer equipment to
clients. Equipment sales are recorded upon delivery of the equipment.
Customer data fees. Customer data fees revenues represent fees and
royalties charged by Bridge to clients for the right for clients to use the data
of third party data suppliers subscribed for through Bridge's information
system. Pursuant to contracts with the third party data suppliers, Bridge remits
a portion of such fees and royalties to the data suppliers.
F-32
<PAGE>
Other revenues. Other revenues primarily consist of sales of computer
software and printed information products and charges for systems installation
and maintenance.
Operating Expenses.
Operating expenses include employee related expenses, depreciation and
amortization, technology related expenses, equipment cost of sales, customer
data fees, transaction services related expenses, data acquisition related
expenses, facilities related expenses and general and administrative expenses.
Employee related. Employee related expenses include, in addition to
employee salaries and bonuses, payroll taxes, Bridge's 401(k) and pension
contributions, health insurance costs, travel and entertainment and other
miscellaneous employee costs.
Depreciation and amortization. Depreciation and amortization expenses
consist of (1) depreciation of buildings, leasehold improvements, furniture and
fixtures and equipment used in Bridge's data centers, sales and administrative
offices, the global data network and client's offices; and (2) amortization of
goodwill and other intangible assets principally resulting from Bridge's
acquisitions. Generally, depreciation is calculated using the straight-line
method over the useful life of the associated asset, which ranges from 3 to 5
years for equipment and software and 5 to 32 years for buildings, improvements,
furniture and fixtures. Goodwill is being amortized over 3 to 40 years and other
intangible assets over 1 to 20 years, all using the straight-line method.
Technology related. Technology related expenses consist of communication
and equipment charges incurred to operate Bridge's global data network. The
network serves to both collect data from Bridge's data suppliers and to
distribute data to Bridge's clients. Following SAVVIS' initial public offering
and the transfer of Bridge Internet Protocol network to SAVVIS, Bridge's
payments under the Network Services Agreement will be reflected here.
Equipment cost of sales. Equipment cost of sales is directly related to
equipment sales revenues and represents the cost of equipment acquired for
resale to clients.
Customer data fees. Customer data fees expenses represent fees and
royalties paid by Bridge to data suppliers for the right for clients to use the
suppliers' data obtained through Bridge's information system.
Transaction services related. Transaction services related expenses,
primarily clearing, floor brokerage and specialist fees, are directly related to
transaction services revenue. All fees for executed transactions are recorded on
the trade date of the relevant securities transaction.
Data acquisition related. Data acquisition related expenses consist of fees
and royalties paid by Bridge to data suppliers for Bridge's right to obtain and
redistribute the suppliers' data.
Facilities related. Facilities related expenses include costs related to
Bridge's leased facilities in approximately 90 cities throughout the world.
General and administrative. General and administrative expenses include
voice communications costs, professional services fees, insurance, property and
other general taxes, marketing and advertising expenses, shipping and freight
expenses and other miscellaneous expenses.
Acquisition related. Acquisition related expenses, primarily purchased
research and development expenses, are one-time costs directly related to
acquisitions made in the respective years.
Interest expense. Interest expense is related to debt to banks,
subordinated debt and capital leases.
Income taxes. Income tax expense primarily consists of taxes paid in the
local jurisdictions of Bridge's foreign subsidiaries. Bridge incurred operating
losses in the United States and, therefore, has not recorded a provision for
income taxes in its historical financial statements. Bridge has recorded a
valuation allowance for the full amount of its net deferred tax assets because
it believes that the future realization of the tax benefit is uncertain.
Loss on early extinguishment of debt. Losses on early extinguishment of
debt represent the write-off of deferred financing costs upon prepayment of
debt.
F-33
<PAGE>
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Telerate was acquired on May 29, 1998; therefore, only four months of
Telerate's results are included in the results of operations for the nine months
ended September 30, 1998. ADP was acquired on November 10, 1998; therefore, none
of its results are included in the results of operations for the nine months
ended September 30, 1998. The results of operations for the nine months ended
September 30, 1999 include the results of Telerate and ADP for the full nine
months. SAVVIS was acquired on April 7, 1999; therefore, its results of
operations are included from the date of acquisition through September 30, 1999.
Revenues.
Information services. Information services revenues were $651.2 million for
the first nine months of 1999 compared to $398.8 million for the first nine
months of 1998, an increase of 63%. This $252.4 increase primarily resulted from
the acquisitions of Telerate and ADP. The net revenue increase resulting from
the acquisitions was $245.3 million. The remaining growth in revenue was due to
increased marketing and sales efforts for the new technology products, offset by
losses of old technology products due to some products not being Year 2000
compliant, client rationalization of market data services costs and reductions
in users due to mergers among clients. The affect of these pressures on Bridge's
revenues increased in the fourth quarter of 1999 primarily as a result of Year
2000 issues.
Transaction services. Transaction services revenues were $55.6 million for
the first nine months of 1999 compared to $40.0 million for the first nine
months of 1998, an increase of 39%. This $15.6 million increase was primarily
due to increased marketing and sales efforts and the resulting increase in
transaction volume.
Equipment sales. Equipment sales revenues were $73.9 million for the first
nine months of 1999 compared to $52.1 million for the first nine months of 1998,
an increase of 42%. This $21.8 million increase was primarily due to increased
marketing and sales efforts and the resulting increase in sales volume.
Customer data fees. Customer data fees were $149.6 million for the first
nine months of 1999 compared to $74.5 million for the first nine months of 1998,
an increase of 101%. This $75.1 million increase primarily resulted from the
acquisitions of Telerate and ADP. The net revenue increase resulting from the
acquisitions was $69.6 million. The balance of the increase is directly related
to the growth in the installed subscription base of information services
revenues excluding acquisitions.
Other revenues. Other revenues were $16.0 million for the first nine months
of 1999 compared to $12.5 million for the first nine months of 1998, an increase
of 28%. This $3.5 million increase primarily resulted from the acquisitions of
Telerate and ADP. The net revenue increase resulting from the acquisitions was
$3.0 million.
Operating Costs and Expenses.
Employee related. Employee related expenses were $297.9 million for the
first nine months of 1999 compared to $182.4 million for the first nine months
of 1998, an increase of 63%. This $115.5 million increase primarily resulted
from the acquisitions of Telerate, ADP and SAVVIS. The net expense increase
resulting from the acquisitions was $97.5 million. The balance of the increase
primarily related to the increases in employees in the news and customer
services functions and annual wage increases.
Depreciation and amortization. Depreciation and amortization was $211.9
million for the first nine months of 1999 compared to $133.4 million for the
first nine months of 1998, an increase of 59%. This $78.5 million increase
primarily resulted from the acquisitions of Telerate and ADP. The net expense
increase resulting from the acquisitions was $72.6 million. The balance of the
increase primarily resulted from increased equipment purchases related expansion
of the global data network and client conversion to new technology products.
Technology related. Technology related expenses were $142.5 million for the
first nine months of 1999 compared to $58.8 million for the first nine months of
1998, an increase of 142%. Of this $83.7 million increase, the net expense
increase resulting from the acquisitions of Telerate, ADP and SAVVIS was $55.3
million, and the remainder primarily resulted from overlapping network costs
incurred as Bridge converted clients from the legacy networks of KRF and
Telerate to the Bridge Internet Protocol network.
F-34
<PAGE>
Equipment cost of sales. Equipment cost of sales was $68.0 million for the
first nine months of 1999 compared to $48.1 million for the first nine months of
1998, an increase of 41%. This $19.9 million increase is directly related to the
increase in equipment sales revenues.
Customer data fees. Customer data fees were $122.2 million for the first
nine months of 1999 compared to $69.2 million for the first nine months of 1998,
an increase of 77%. This $53.0 million increase is directly related to the
increase in customer data fees revenues, and primarily resulted from the
acquisitions of Telerate and ADP. The net expense increase resulting from the
acquisitions was $46.7 million. The balance of the increase is directly related
to the growth in the installed subscription base of information services
revenues excluding acquisitions.
Transaction services related. Transaction services related expenses were
$21.5 million for the first nine months of 1999 compared to $18.5 million for
the first nine months of 1998, an increase of 16%. This $3.0 million increase is
directly related to the increase in transaction services revenues.
Data acquisition related. Data acquisition related expenses were $62.3
million for the first nine months of 1999 compared to $27.4 million for the
first nine months of 1998, an increase of 127%. This $34.9 million increase
primarily resulted from the acquisitions of Telerate and ADP. The net expense
increase resulting from the acquisitions was $28.0 million. The balance
primarily resulted from purchases of additional fixed income and foreign
exchange data suppliers.
Facilities related. Facilities related expenses were $45.2 million for the
first nine months of 1999 compared to $20.8 million for the first nine months of
1998, an increase of 117%. This $24.4 million increase primarily resulted from
the acquisitions of Telerate and ADP. The expense increase resulting from the
acquisitions was $21.3 million.
General and administrative. General and administrative expenses were $53.1
million for the first nine months of 1999 compared to $36.4 million for the
first nine months of 1998, an increase of 46%. This $16.7 million increase
primarily resulted from the acquisitions of Telerate, ADP and SAVVIS. The net
expense increase resulting from the acquisitions was $12.5 million. The balance
of the increase primarily resulted from increased expenditures for marketing and
advertising.
Acquisition related. Acquisition related expenses, primarily purchased
research and development expenses, were $28.7 million for the first nine months
of 1998 resulting from the Telerate acquisition.
Other Income and Expense.
Interest income. Interest income was $2.2 million for the first nine months
of 1999 compared to $1.3 million for the first nine months of 1998, an increase
of 69%. This $.9 million increase was primarily due to larger cash balances
available for short-term investment subsequent to the Telerate acquisition.
Interest expense. Interest expense was $68.1 million for the first nine
months of 1999 compared to $41.3 million for the first nine months of 1998, an
increase of 65%. This $26.8 million increase is attributable to the bank debt
incurred to finance portions of the Telerate and ADP acquisitions and to provide
additional working capital.
Provision for income taxes. The provision for income taxes was $10.3
million for the first nine months of 1999 compared to $6.7 million for the first
nine months of 1998, an increase of 54%. This $3.6 million net expense increase
resulted from the acquisition of Telerate.
Loss on extinguishment of debt. The loss on extinguishment of debt was $3.0
million for the first nine months of 1998 and resulted from the refinancing of
bank debt in connection with the acquisition of Telerate.
Net loss. Net loss was $134.4 million for the first nine months of 1999
compared to $90.8 million for the first nine months of 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues.
Information services. Information services revenues were $621.6 million in
1998 compared to $280.4 million in 1997, an increase of 122%. This $341.2
increase primarily resulted from the acquisition of Telerate whose revenues for
1998 were $307.8 million. The remaining growth in revenues was due to increased
marketing and sales efforts for the new technology products.
F-35
<PAGE>
Transaction services. Transaction services revenues were $55.7 million in
1998 compared to $41.5 million in 1997, an increase of 34%. This $14.2 million
increase was primarily due to increased marketing and sales efforts and the
resulting increase in transaction volume.
Equipment sales. Equipment sales revenues were $68.1 million in 1998
compared to $43.3 million in 1997, an increase of 57%. This $24.8 million
increase was primarily due to increased marketing and sales efforts and the
resulting increase in sales volume.
Customer data fees. Customer data fees were $127.2 million in 1998 compared
to $36.4 million in 1997, an increase of 249%. This $90.8 million increase
primarily resulted from the acquisition of Telerate whose revenues for 1998 were
$73.0 million. The remaining growth in revenues primarily resulted from Bridge
becoming responsible for invoicing Nasdaq fees to clients and from the increase
in information services revenues.
Other revenues. Other revenues were $19.5 million in 1998 compared to $8.4
million in 1997, an increase of 132%. This $11.1 million increase primarily
resulted from the acquisition of Telerate whose revenues for 1998 were $10.0
million.
Operating Costs and Expenses.
Employee related. Employee related expenses were $285.7 million in 1998
compared to $143.0 million in 1997, an increase of 100%. This $142.7 million
increase primarily resulted from the acquisition of Telerate whose expenses for
1998 were $115.1 million. The balance of the increase primarily resulted from
the increases in employees in the news, customer service and accounting
functions and from annual wage increases.
Depreciation and amortization. Depreciation and amortization was $203.9
million in 1998 compared to $83.7 million in 1997, an increase of 144%. This
$120.2 million increase primarily resulted from the acquisition of Telerate
whose expenses for 1998 were $93.9 million. The balance of the increase
primarily resulted from increased equipment purchases related expansion of the
global data network and increases in data center computer capacity for the
development of new Telerate products.
Technology related. Technology related expenses were $98.3 million in 1998
compared to $44.0 million in 1997, an increase of 123%. This $54.3 million
increase primarily resulted from the acquisition of Telerate whose expenses for
1998 were $37.0 million. The balance of the increase primarily resulted from
expansion of the Internet Protocol network and increases in the number of
information services clients.
Equipment cost of sales. Equipment cost of sales was $62.5 million in 1998
compared to $39.2 million in 1997, an increase of 59%. This $23.3 million
increase is directly related to the increase in equipment sales revenues.
Customer data fees. Customer data fees were $109.7 million in 1998 compared
to $31.5 million in 1997, an increase of 248%. This $78.2 million increase is
directly related to the increase in customer data fees revenues, and primarily
resulted from the acquisition of Telerate whose expenses for 1998 were $57.6
million. The remaining growth in revenues primarily resulted from Bridge
becoming responsible for invoicing Nasdaq fees to clients and from the increase
in information services revenues.
Transaction services related. Transaction services related expenses were
$26.2 million in 1998 compared to $20.7 million in 1997, an increase of 27%.
This $5.5 million increase is directly related to the increase in transaction
services revenues.
Data acquisition related. Data acquisition related expenses were $40.9
million in 1998 compared to $21.0 million in 1997, an increase of 95%. This
$19.9 million increase primarily resulted from the acquisition of Telerate whose
revenues for 1998 were $24.1 million, offset by reductions in costs due to
termination of redundant feeds from third party data suppliers.
Facilities related. Facilities related expenses were $45.6 million in 1998
compared to $18.9 million in 1997, an increase of 141%. This $26.7 million
increase primarily resulted from the acquisition of Telerate whose expenses for
1998 were $34.8 million, offset by the closure of redundant office facilities.
F-36
<PAGE>
General and administrative. General and administrative expenses were $59.7
million in 1998 compared to $36.1 million in 1997, an increase of 65%. This
$23.6 million increase primarily resulted from the acquisition of Telerate whose
expenses for 1998 were $22.9 million.
Acquisition related. Acquisition related expenses, primarily purchased
research and development expenses, were $28.7 million in 1998 compared to $5.4
million in 1997, an increase of 431%. The 1998 and 1997 expenses were directly
related to the acquisitions of Telerate and Telesphere, respectively.
Other Income and Expense.
Interest income. Interest income was $2.8 million in 1998 compared to $.7
million in 1997, an increase of 300%. This $2.1 million increase is primarily
due to larger cash balances available for short-term investment subsequent to
the Telerate acquisition.
Interest expense. Interest expense was $62.9 million in 1998 compared to
$30.5 million in 1997, an increase of 106%. This $32.4 million increase is
attributable to the bank debt incurred to finance portions of the Telerate and
ADP acquisitions.
Provision for income taxes. The provision for income taxes was $10.4
million in 1998 compared to $.6 million in 1997, an increase of 1,633%. This
$9.8 million increase resulted from the acquisition of Telerate.
Loss on early extinguishment of debt. The loss on early extinquishment of
debt was $3.0 million in 1998 compared to $4.2 million in 1997, a decrease of
$1.2 million. The loss in 1998 resulted from the refinancing of bank debt in
connection with the acquisition of Telerate. The loss in 1997 also resulted from
the refinancing of bank debt, the purpose of which was to provide additional
working capital.
Net loss. Net loss was $142.9 million in 1998 compared to $68.6 million in
1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
KRF was acquired on July 26, 1996, therefore, only five months of KRF's
results are included in the results of operations for the year ended December
31, 1996. A full year of KRF's results is included in the results of operations
for the year ended December 31, 1997.
Revenues.
Information services. Information services revenues were $280.4 million in
1997 compared to $173.4 million in 1996, an increase of 62%. This $107.0
increase primarily resulted from the acquisition of KRF and from growth in
revenue due to increased marketing and sales efforts for the new technology
products.
Transaction services. Transaction services revenues were $41.5 million in
1997 compared to $38.0 million in 1996, an increase of 9%. This $3.5 million
increase was primarily due to increased marketing and sales efforts and the
resulting increase in transaction volume.
Equipment sales. Equipment sales revenues were $43.3 million in 1997
compared to $29.1 million in 1996, an increase of 49%. This $14.2 million
increase was primarily due to increased marketing and sales efforts and the
resulting increase in sales volume.
Customer data fees. Customer data fees were $36.4 million in 1997 compared
to $24.2 million in 1996, an increase of 50%. This $12.2 million increase
primarily resulted from the acquisition of KRF and from growth in other
information services revenues.
Other revenues. Other revenues were $8.4 million in 1997 compared to $4.5
million in 1996, an increase of 87%. This $3.9 million increase primarily
resulted from the acquisition of KRF.
Operating Costs and Expenses.
Employee related. Employee related expenses were $143.0 million in 1997
compared to $107.7 million in 1996, an increase of 33%. This $35.3 million
increase primarily resulted from the acquisition of KRF and annual wage
increases, offset by reductions in KRF personnel as functions were integrated
during the course of 1997.
F-37
<PAGE>
Depreciation and amortization. Depreciation and amortization were $83.7
million in 1997 compared to $59.1 million in 1996, an increase of 42%. This
$24.6 million increase primarily resulted from the acquisition of KRF.
Technology related. Technology related expenses were $44.0 million in 1997
compared to $29.5 million in 1997, an increase of 49%. This $14.5 million
increase primarily resulted from the acquisition of KRF and expansion of the
Internet Protocol network, offset by elimination of redundant backbone networks.
Equipment cost of sales. Equipment cost of sales was $39.2 million in 1997
compared to $26.1 million in 1996, an increase of 50%. This $13.1 million
increase is directly related to the increase in equipment sales revenues.
Customer data fees. Customer data fees were $31.5 million in 1997 compared
to $22.1 million in 1996, an increase of 43%. This $9.4 million increase is
directly related to the increase in customer data fees revenues, and primarily
resulted from the acquisition of KRF and from growth in other information
services revenues.
Transaction services related. Transaction services related expenses were
$20.7 million in 1997 compared to $17.0 million in 1996, an increase of 22%.
This $3.7 million increase is directly related to the increase in transaction
services revenues.
Data acquisition related. Data acquisition related expenses were $21.0
million in 1997 compared to $14.1 million in 1996, an increase of 49%. This $6.9
million increase primarily resulted from the acquisition of KRF.
Facilities related. Facilities related expenses were $18.9 million in 1997
compared to $13.4 million in 1996, an increase of 41%. This $5.5 million
increase primarily resulted from the acquisition of KRF and the addition of the
world headquarters office in New York, offset by the closure of redundant office
facilities in New York and other cities in the United States.
General and administrative. General and administrative expenses were $36.1
million in 1997 compared to $14.3 million in 1996, an increase of 152%. This
$21.8 million increase primarily resulted from the acquisition of KRF.
Acquisition related. Acquisition related expenses, primarily purchased
research and development expenses, were $5.4 million in 1997 compared to $6.5
million in 1996, a decrease of 17%. The 1997 and 1996 expenses were directly
related to the acquisitions of KRF and Telesphere, respectively.
Other Income and Expense.
Interest income. Interest income was $.7 million in 1997 compared to $.7
million in 1996. The average cash balances available for short-term investment
during 1997 and 1996 were approximately the same.
Interest expense. Interest expense was $30.5 million in 1997 compared to
$20.9 million in 1996, an increase of 46%. This $9.6 million increase is
attributable to the bank debt incurred to finance a portion of the KRF
acquisition.
Provision for income taxes. The provision for income taxes was $.6 million
in 1997 compared to $.2 million in 1996, an increase of 200%. This $.4 million
increase resulted from the acquisition of KRF.
Loss on early extinguishment of debt. The loss on early extinquishment of
debt was $4.2 million in 1997 resulting from the refinancing of bank debt to
provide additional working capital.
Net loss. Net loss was $68.6 million in 1997 compared to $61.0 million in
1996.
LIQUIDITY AND CAPITAL RESOURCES
Bridge's business has required significant cash to fund acquisitions,
capital expenditures, debt service costs and ongoing operations. Bridge has
historically funded and expects to fund future operating and capital
requirements through cash flows from operations, borrowings under its credit
facilities, debt financings, equity financings and sales of assets, including
future sales of SAVVIS stock.
F-38
<PAGE>
Bridge's net cash provided by (used in) operating activities was $(19.5)
million, $10.4 million and $46.3 million in fiscal 1996, 1997 and 1998,
respectively. The positive net cash generated from operations in fiscal 1997 and
1998 was due to increasing cash flows from operations as costs were reduced
through the integration of acquired companies. For the nine months ended
September 30, 1999, net cash provided by (used in) operating activities was
$(76.0) million compared to $(6.3) million for the comparable period in 1998.
Bridge continued to use cash in its operating activities for the fourth quarter
of 1999. The increase in use in 1999 was primarily due to working capital
pressures experienced in the course of integrating Bridge's recent acquisitions,
as well as declines in revenues primarily resulting from higher than expected
cancellations of subscriptions for products of acquired companies due to (1)
non-Year 2000 compliant products, (2) client rationalization of market data
services cost and (3) reduction in users due to mergers among clients. The
increases in working capital are attributable to:
o Accounts receivable increases of $75.8 million resulting from (1) billing
delays resulting from conversions from the non-Year 2000 compliant billing
systems of acquired companies to the Bridge billing system and (2) billing
issues resulting from the migration of customers from the less
technologically advanced protocol products of acquired companies to
Bridge's new technology products;
o Accounts payable decreases of $46.6 million resulting from the payment of
one-time accruals related to companies acquired in 1998.
Bridge's net cash used in investing activities was $292.4 million, $56.9
million and $498.9 million in fiscal 1996, 1997 and 1998, respectively, and
$386.8 million and $123.8 million for the nine months ended September 30, 1999
and 1998, respectively. The principal uses have been for acquisitions and
capital expenditures, primarily computer and communications network equipment
and general working capital.
Bridge's cash provided by financing activities was $322.7 million, $43.4
million and $473.8 million in fiscal 1996, 1997 and 1998, respectively, and
$411.7 million and $203.6 million for the nine months ended September 30, 1998
and 1999, respectively. The funds raised through financing activities have
primarily been from sales of redeemable preferred stock and issuances of
long-term debt.
As of September 30, 1999, Bridge had $1,240 million of indebtedness, $470
million of redeemable preferred stock and a stockholders' deficit of $414
million. In the three months ended December 31, 1999, Bridge incurred an
additional $100 million of indebtedness under a bridge loan agreement.
Under the terms of Bridge's indebtedness, following the completion of this
offering, Bridge is required to repay approximately $350 million of its
indebtedness on or before June 30, 2000. Bridge will receive aggregate proceeds
of approximately $175 million from the sale of a portion of its SAVVIS shares
held by Bridge, the sale of the network assets to SAVVIS, the payment by SAVVIS
of a $58 million preferential distribution and the repayment of a portion of
SAVVIS' indebtedness to Bridge.
There can be no assurances that Bridge will have sufficient sources of
capital to:
o meet its capital expenditure, debt service and working capital
requirements, and
o satisfy its remaining requirement to repay approximately $175 million of
its indebtedness by June 30, 2000.
Bridge expects its capital expenditures will total approximately $164
million in 1999. Bridge expects to have capital expenditures of $70 million in
2000 due to:
o elimination of capital spending for network equipment as a result of the
sale of Bridge's network assets to SAVVIS,
o reduction in the number of client conversions from older technology
products to Bridge's new technology products, and
o a reduction in spending on leasehold improvements as the consolidation of
acquired companies office facilities of acquired companies comes to a
conclusion.
F-39
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. This statement establishes accounting and
reporting standards for derivative instruments, and for hedging activities. SFAS
No. 133 was amended by SFAS No. 137 that delays the effective date of SFAS No.
133 to fiscal years and quarters beginning after June 15, 2000. SFAS No. 133
will require Bridge to record all derivatives on the balance sheet at fair
value. Changes in derivative fair value will either be recognized in earnings as
offsets to the changes in fair value of related hedged assets, liabilities and
firm commitments or, for forecasted transactions, deferred and recorded as a
component of other stockholders' equity until the hedged transactions occur and
are recognized in earnings. Bridge is currently evaluating the impact of the
standard on Bridge. The impact of SFAS No. 133 will depend on a variety of
factors, including future interpretive guidance, the future level of hedging
activity, the types of hedging instruments used and the effectiveness of such
instruments.
QUALITATIVE AND QUANTITATIVE MARKET RISKS
Bridge's primary market risk exposures relate to changes in interest rates
and foreign currency Exchange rates.
Bridge's financial instruments that are sensitive to changes in interest
rates are Bridge's borrowings under senior secured credit facilities,
subordinated debt and capital leases, all of which were entered into for other
than trading purposes. The senior secured credit loans and capital leases have
floating interest rates, thus changes in rates will directly impact Bridge's
cash flows. Approximately one-half of the outstanding senior secured credit loan
balances are hedged through interest rate swaps to lessen the impact of changes
in interest rates. The subordinated debt has a fixed interest rate, thus changes
in interest rates will not directly impact Bridge's cash flows.
Approximately 36% of Bridge's revenue is derived from operations outside
the United States, and approximately 34% of Bridge's costs are incurred outside
the United States. Currently, the only material foreign currency exchange risk
relates to monthly fees received from Bridge's Japanese distributor, which are
denominated in Japanese yen. Bridge has hedged that exposure for 2000 through
the purchase of forward exchange contracts.
F-40
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Bridge Information Systems, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Bridge
Information Systems, Inc. and Subsidiaries ("Bridge") as of December 31, 1997
and 1998, and the related consolidated statements of operations and
comprehensive loss, deficiency in net assets, and cash flows for each of the
three years in the period ended December 31, 1998. These consolidated financial
statements are the responsibility of Bridge'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 Bridge Information Systems, Inc.
and Subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
We have not audited any financial statements of Bridge for any period subsequent
to December 31, 1998. However, as discussed in Note 21 to the consolidated
financial statements, at December 31, 1999, Bridge did not comply with certain
of the restrictive covenants contained in its Secured Credit Agreement (the
"Agreement"). As a result, Bridge agreed, among other things, to modify the
principal payments due under the Agreement and to cause one of its subsidiaries,
SAVVIS, to complete a public offering of its equity securities by February 29,
2000. These matters raise substantial doubt about Bridge's ability to continue
as a going concern. Bridge's plans in regard to these matters are also described
in Note 21. The financial statements do not include any adjustments that might
result from any outcome of this uncertainty.
April 30, 1999, except for Note 21 as to which the date is January 28, 2000
[THE ABOVE REPORT IS IN THE FORM WHICH WILL BE FURNISHED BY DELOITTE & TOUCHE
LLP UPON COMPLETION OF THEIR SUBSEQUENT EVENTS REVIEW AND OTHER PROCEDURES IN
CONNECTION WITH THE ISSUANCE OF THEIR CONSENT ASSUMING NO EVENTS HAVE OCCURRED
THAT WOULD AFFECT THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO.]
F-41
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PAR VALUE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1997 1998
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 12,949 $ 33,318
Restricted cash equivalents ............................................ -- 3,387
Accounts receivable, net of allowance for doubtful accounts of $12,090
(1997) and $32,671 (1998) ............................................ 53,494 157,443
Inventory .............................................................. 1,195 8,405
Other current assets (Note 5) .......................................... 10,548 60,292
---------- ----------
Total current assets ................................................ 78,186 262,845
PROPERTY AND EQUIPMENT, Net ............................................. 103,243 238,690
GOODWILL AND INTANGIBLE ASSETS, Net ..................................... 274,552 935,445
OTHER LONG-TERM ASSETS (Note 5) ......................................... 21,037 83,822
---------- ----------
TOTAL .................................................................. $ 477,018 $1,520,802
========== ==========
LIABILITIES AND DEFICIENCY IN NET ASSETS
CURRENT LIABILITIES:
Accounts payable ....................................................... $ 17,809 $ 38,572
Accrued employee compensation and benefits ............................. 9,546 42,170
Accrued exchange fees .................................................. 4,799 19,067
Other liabilities and accrued expenses ................................. 26,787 137,579
Deferred revenue ....................................................... 8,714 16,060
Current portion of loss contract accruals (Note 8) ..................... -- 21,918
Current maturities of loss lease accruals (Note 9) ..................... 6,067 14,007
Current maturities of long-term debt and capital lease obligations
(Note 10) ............................................................ 17,820 51,022
---------- ----------
Total current liabilities ........................................... 91,542 340,395
LOSS CONTRACT ACCRUALS, Net (Note 8) .................................... -- 104,967
LOSS LEASE ACCRUALS EXCLUDING CURRENT MATURITIES (Note 9) ............... 17,718 24,381
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS EXCLUDING CURRENT
MATURITIES (Note 10) ................................................... 306,166 833,271
OTHER LONG-TERM LIABILITIES ............................................. 2,923 56,569
---------- ----------
Total liabilities ................................................... 418,349 1,359,583
---------- ----------
MINORITY INTEREST (Note 3) .............................................. 1,297 1,494
---------- ----------
REDEEMABLE PREFERRED STOCK (Note 14) .................................... 204,811 456,785
---------- ----------
COMMITMENT AND CONTINGENCIES (Note 19)
DEFICIENCY IN NET ASSETS:
Class A common stock, $.01 par value, 85 million shares authorized,
33,403,631 (1997) and 33,934,475 (1998) shares issued (Notes 3 and 13) 334 339
Class B common stock, $.01 par value, 15 million shares authorized, none
issued (Note 13) .....................................................
Additional paid-in capital (common) .................................... 181,512 187,934
Accumulated deficit .................................................... (326,076) (480,910)
Cumulative translation adjustments ..................................... (2,959) (4,173)
Treasury stock at cost, 20,000 shares .................................. (250) (250)
---------- ----------
Total deficiency in net assets ...................................... (147,439) (297,060)
---------- ----------
TOTAL .................................................................. $ 477,018 $1,520,802
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-42
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
--------------------------------------------
1996 1997 1998
<S> <C> <C> <C>
REVENUES:
Information services ............................. $ 173,420 $ 280,384 $ 621,602
Transaction services ............................. 37,982 41,533 55,683
Equipment sales .................................. 29,134 43,262 68,146
Customer data fees ............................... 24,247 36,379 127,175
Other revenues ................................... 4,529 8,368 19,535
--------- --------- ----------
269,312 409,926 892,141
OPERATING COSTS AND EXPENSES:
Employee related ................................. 107,749 142,975 285,664
Depreciation and amortization .................... 59,115 83,719 203,885
Technology related ............................... 29,505 43,954 98,335
Equipment cost of sales .......................... 26,102 39,243 62,485
Customer data fees ............................... 22,147 31,547 109,709
Transaction services related ..................... 16,978 20,670 26,208
Data acquisition related ......................... 14,051 21,046 40,869
Facilities related ............................... 13,402 18,937 45,616
General and administrative ....................... 14,306 36,086 59,707
Acquisition related (Note 3) ..................... 6,500 5,396 28,709
--------- --------- ----------
309,855 443,573 961,187
--------- --------- ----------
OPERATING LOSS .................................... (40,543) (33,647) (69,046)
OTHER INCOME (EXPENSE):
Interest income .................................. 747 739 2,818
Interest expense ................................. (20,864) (30,502) (62,865)
Minority interest in net income of consolidated
subsidiary ..................................... -- (78) (381)
Other, net ....................................... 41 (312) 119
--------- --------- ----------
(20,076) (30,153) (60,309)
--------- --------- ----------
LOSS BEFORE INCOME TAXES .......................... (60,619) (63,800) (129,355)
PROVISION FOR INCOME TAXES (Note 11) .............. (177) (634) (10,480)
LOSS BEFORE EXTRAORDINARY ITEM .................... (60,796) (64,434) (139,835)
Extraordinary Item-loss on early extinguishment of
debt, net (Note 10) ............................ -- (4,176) (3,026)
--------- --------- ----------
NET LOSS .......................................... (60,796) (68,610) (142,861)
OTHER COMPREHENSIVE LOSS:
Foreign currency translation adjustment .......... 598 (2,361) (1,214)
--------- --------- ----------
COMPREHENSIVE LOSS ................................ $ (61,394) $ (70,971) $ (144,075)
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-43
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF DEFICIENCY IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS EXCEPT PAR VALUE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A COMMON STOCK
----------------------------------------
$.01 PAR VALUE,
85,000,000 SHARES
AUTHORIZED
----------------------------------------
ADDITIONAL
SHARES AMOUNT PAID-IN CAPITAL
------------- -------- -----------------
<S> <C> <C> <C>
BALANCE -- JANUARY 1, 1996 ..... 24,398,232 $ 244 $ 123,196
Equity offering ................ 8,347,263 83 53,914
Employee stock transactions 5,000 83
Accrued dividends on
redeemable preferred
stock .........................
Foreign currency translation
adjustments ...................
Net Loss .......................
BALANCE -- DECEMBER 31,
1996 .......................... 32,750,495 $ 327 $ 177,193
Issuance of common stock ....... 500,000 5 3,620
Employee stock transactions
(Note 15) ..................... 153,136 2 699
Accrued dividends on
redeemable preferred
stock (Note 14) ...............
Accretion of redeemable
preferred stock to
redemption value
(Note 14) .....................
Foreign currency
translation adjustments .......
Net loss .......................
BALANCE -- DECEMBER 31,
1997 .......................... 33,403,631 $ 334 $ 181,512
Common stock issued as
part of the acquisition of
Wall Street on Demand
(Note 3) ...................... 388,644 4 6,020
Employee stock
transactions (Note 15) ........ 142,200 1 402
Accrued dividends on
redeemable preferred
stock (Note 14) ...............
Accretion of redeemable
preferred stock to
redemption value (Note
14) ...........................
Foreign currency translation adjustments .......
Net loss .......................
BALANCE -- DECEMBER 31,
1998 .......................... 33,934,475 $ 339 $ 187,934
========== ===== =========
<CAPTION>
TREASURY STOCK
--------------------
AT COST
--------------------
ACCUMULATED
OTHER
ACCUMULATED COMPREHENSIVE
DEFICIT LOSS SHARES AMOUNT TOTAL
--------------- -------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE -- JANUARY 1, 1996 ..... $ (186,003) 20,000 $ (250) $ (62,813)
Equity offering ................ 53,997
Employee stock transactions 83
Accrued dividends on
redeemable preferred
stock ......................... (3,031) (3,031)
Foreign currency translation
adjustments ................... (598) (598)
Net Loss ....................... (60,796) (60,796)
----------- -----------
BALANCE -- DECEMBER 31,
1996 .......................... $ (249,830) $ (598) 20,000 $ (250) $ (73,158)
Issuance of common stock ....... 3,625
Employee stock transactions
(Note 15) ..................... 701
Accrued dividends on
redeemable preferred
stock (Note 14) ............... (7,496) (7,496)
Accretion of redeemable
preferred stock to
redemption value
(Note 14) ..................... (140) (140)
Foreign currency
translation adjustments ....... (2,361) (2,361)
Net loss ....................... (68,610) (68,610)
----------- -----------
BALANCE -- DECEMBER 31,
1997 .......................... $ (326,076) $ (2,959) 20,000 $ (250) $ (147,439)
Common stock issued as
part of the acquisition of
Wall Street on Demand
(Note 3) ...................... 6,024
Employee stock
transactions (Note 15) ........ 403
Accrued dividends on
redeemable preferred
stock (Note 14) ............... (11,880) (11,880)
Accretion of redeemable
preferred stock to
redemption value (Note
14) ........................... (93) (93)
Foreign currency
translation adjustments ....... (1,214) (1,214)
Net loss ....................... (142,861) (142,861)
----------- -----------
BALANCE -- DECEMBER 31,
1998 .......................... $ (480,910) $ (4,173) 20,000 $ (250) $ (297,060)
=========== ========= ====== ======= ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-44
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER
31
--------------
1996
--------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................................. $ (60,796)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization .......................................................... 59,115
Purchased research and development ..................................................... 6,500
Amortization of discount on subordinated debt and deferred financing costs ............. 2,056
Extraordinary loss on early extinguishment of debt ..................................... --
Gain on sale of investments in companies ............................................... (154)
Deferred revenue ....................................................................... (870)
Minority interest in loss of consolidated subsidiary ................................... --
Changes in assets and liabilities net of effects of acquisitions:
Restricted cash ........................................................................ (20,000)
Accounts receivable, net ............................................................... (5,876)
Inventory .............................................................................. --
Other assets ........................................................................... (1,680)
Loss contracts accrual, net ............................................................ --
Loss lease accruals, net ............................................................... (1,212)
Accounts payable and other accrued expenses ............................................ 3,433
Other long-term liabilities ............................................................ --
----------
Net cash provided by (used in) operating activities ................................... (19,484)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (Note 3) ............................................ (264,663)
Investment in unconsolidated subsidiaries .............................................. --
Capital expenditures, net .............................................................. (27,381)
Software development costs ............................................................. (2,218)
Sale of investments in companies ....................................................... 1,813
----------
Net cash used in investing activities ................................................. (292,449)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of redeemable preferred stock ....................................... 184,355
Proceeds from sale of common stock ..................................................... 13,900
Proceeds from issuance of long-term debt ............................................... 183,500
Redemption of redeemable preferred stock ............................................... (1,973)
Payments on long-term debt ............................................................. (41,055)
Payments on capital lease obligations .................................................. (11,596)
Fees incurred in financing activities .................................................. (4,535)
Dividends paid by subsidiary ........................................................... --
Employee stock transactions ............................................................ 83
----------
Net cash provided by financing activities ............................................. 322,679
----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS .......................... (56)
----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................................... 10,690
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ............................................. 7,023
----------
CASH AND CASH EQUIVALENTS, END OF YEAR ................................................... $ 17,713
==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during year for:
Interest ............................................................................... $ 19,762
Income taxes ........................................................................... 109
Debt incurred under capital lease obligations ........................................... 5,799
Accrued dividends on redeemable preferred stock ......................................... 3,031
Accretion of redeemable preferred stock to redemption value ............................. --
Conversion of redeemable preferred stock and accrued dividends to common stock .......... 9,056
Conversion of subordinated debt and accrued interest to common stock .................... 31,301
<PAGE>
<CAPTION>
FOR THE
ENDED D
FOR THE YEARS ENDED DECEMBER 31 3
---------------------------------------
1997 1998
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................................. $ (68,610) $ (142,861)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization .......................................................... 83,719 203,885
Purchased research and development ..................................................... -- 22,000
Amortization of discount on subordinated debt and deferred financing costs ............. 2,161 3,421
Extraordinary loss on early extinguishment of debt ..................................... 4,176 3,026
Gain on sale of investments in companies ............................................... -- --
Deferred revenue ....................................................................... (1,423) (45,699)
Minority interest in loss of consolidated subsidiary ................................... 78 381
Changes in assets and liabilities net of effects of acquisitions:
Restricted cash ........................................................................ 20,000 (3,387)
Accounts receivable, net ............................................................... (13,480) 25,469
Inventory .............................................................................. -- (2,179)
Other assets ........................................................................... 623 (4,850)
Loss contracts accrual, net ............................................................ -- (13,350)
Loss lease accruals, net ............................................................... (4,574) (1,347)
Accounts payable and other accrued expenses ............................................ (12,266) (7,313)
Other long-term liabilities ............................................................ -- 9,108
---------- -----------
Net cash provided by (used in) operating activities ................................... 10,404 46,304
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (Note 3) ............................................ (32,767) (426,620)
Investment in unconsolidated subsidiaries .............................................. -- (1,700)
Capital expenditures, net .............................................................. (11,004) (58,428)
Software development costs ............................................................. (13,177) (12,188)
Sale of investments in companies ....................................................... -- --
---------- -----------
Net cash used in investing activities ................................................. (56,948) (498,936)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of redeemable preferred stock ....................................... 10,000 --
Proceeds from sale of common stock ..................................................... 362 --
Proceeds from issuance of long-term debt ............................................... 267,000 803,000
Redemption of redeemable preferred stock ............................................... -- --
Payments on long-term debt ............................................................. (218,197) (288,532)
Payments on capital lease obligations .................................................. (11,950) (23,028)
Fees incurred in financing activities .................................................. (4,532) (17,847)
Dividends paid by subsidiary ........................................................... -- (184)
Employee stock transactions ............................................................ 701 403
---------- -----------
Net cash provided by financing activities ............................................. 43,384 473,812
---------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS .......................... (1,604) (811)
---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................................... (4,764) 20,369
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ............................................. 17,713 12,949
---------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR ................................................... $ 12,949 $ 33,318
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during year for:
Interest ............................................................................... $ 28,323 $ 46,567
Income taxes ........................................................................... 306 10,303
Debt incurred under capital lease obligations ........................................... 39,556 46,341
Accrued dividends on redeemable preferred stock ......................................... 7,496 11,880
Accretion of redeemable preferred stock to redemption value ............................. 140 93
Conversion of redeemable preferred stock and accrued dividends to common stock .......... -- --
Conversion of subordinated debt and accrued interest to common stock .................... -- --
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-45
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. DESCRIPTION OF BRIDGE
Bridge Information Systems, Inc., together with its wholly-owned
subsidiaries ("Bridge"), is an international financial information company that
provides a comprehensive resource of financial data and interpretive
applications for investment professionals around the world. Bridge offers
real-time and historical information and news on equities, fixed income, foreign
exchange, derivatives and commodities and provides a wide array of flexible
analytic applications to aid in the interpretation of such data. Bridge also
provides transaction services, through its wholly-owned subsidiaries, Bridge
Trading Company ("Trading"), Bridge International Broking Ltd. - Hong Kong
("BBH") and Bridge International Broking (U.K.) Limited ("BBU"), comprehensive
valuations on fixed income securities, computer equipment sales and systems
integration and information delivery technology, including private network
services, for the financial community.
Bridge's clients include institutional investors, brokerage firms, research
analysts, exchanges and other enterprises throughout the world. No individual
customer comprises a significant portion of Bridge's revenues. Bridge receives
data from more than 1,000 exchanges and contributing sources in 100 countries
with no single supplier comprising a significant percentage.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION-- The consolidated financial statements of
Bridge include the accounts of Bridge Information Systems, Inc. and its
subsidiaries after elimination of intercompany accounts and transactions.
REVENUE RECOGNITION-- Information services and other revenues are billed
one to twelve months in advance in certain markets and are recognized in the
period the related services are provided. Prepayments are included in deferred
revenue. Equipment sales are recognized upon delivery of the equipment.
CASH AND CASH EQUIVALENTS-- Bridge considers highly liquid investment
instruments with remaining terms of three months or less at time of acquisition
to be cash equivalents.
RESTRICTED CASH EQUIVALENTS-- Regulations require the Japanese trading
branch and India subsidiary to maintain restricted cash.
NEW ACCOUNTING STANDARDS-- In 1998, Bridge adopted Statement of Financial
Accounting Standards ("SFAS") 130, "Reporting Comprehensive Income."
Comprehensive income is defined as net income (loss) plus certain items that are
recorded directly to shareholders' equity. Bridge's only component of
comprehensive income (loss) in addition to net loss is the cumulative foreign
translation adjustments which are $176, $(2,361) and $(1,214), net of tax
effects for the years ended December 31, 1996, 1997, and 1998, respectively.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. This statement establishes accounting and
reporting standards for derivative instruments, and for 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
will require Bridge to record all derivatives on the balance sheet at fair
value. Changes in derivative fair value will either be recognized in earnings as
offsets to the changes in fair value of related hedged assets, liabilities, and
firm commitments or, for forecasted transactions, deferred and recorded as a
component of other stockholders' equity until the hedged transactions occur and
are recognized in earnings. Bridge is currently evaluating the impact of the
standard on Bridge. The impact of SFAS No. 133 will depend on a variety of
factors, including future interpretive guidance, the future level of hedging
activity, the types of hedging instruments used, and the effectiveness of such
instruments.
F-46
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - (CONTINUED)
SECURITIES TRANSACTIONS-- Securities transactions and the related
commission revenue and expense are recorded on a trade date basis. In the normal
course of business, the trading companies' activities involve the execution,
settlement and financing of various securities transactions through their
clearing brokers. The resulting receivables from the clearing brokers are
available to the trading companies on a settlement date basis. These activities
may expose the trading companies to off-balance-sheet risk in the event the
customer or other party is unable to fulfill its contractual obligations. The
trading companies, through their clearing brokers, continually monitor their
customers' activities. At December 31, 1997 and 1998, receivables from clearing
brokers totaled $2,034 and $3,398, respectively, and are included in accounts
receivable.
Securities owned and securities sold, but not yet purchased, are carried at
market value and unrealized gains and losses are reflected in transaction
services revenue. Securities owned totaled $520 and $43 at December 31, 1997 and
1998, respectively, and are included in other current assets (see Note 5).
Securities sold, but not yet purchased ("short positions"), totaled $186 and $9
at December 31, 1997 and 1998, respectively, and are included in other
liabilities and accrued expenses. In the normal course of business, the trading
companies assume short positions in their inventory. The establishment of short
positions exposes the trading companies to off-balance sheet risk in the event
of price increases. The trading companies attempt to control such risk by
monitoring the market value on a daily basis.
INVENTORIES-- Inventories which consist of computer equipment to be
installed at customer sites are stated at the lower of cost (generally on an
average cost basis) or market.
PROPERTY AND EQUIPMENT-- Property and equipment is recorded at cost less
accumulated depreciation and amortization. Property additions and improvements
are capitalized while maintenance and repairs are expensed as incurred. Upon
retirement or disposition, the cost and related accumulated depreciation and
amortization are removed from the accounts and any gain or loss is included in
the results of operations. Depreciation and amortization is computed using the
straight-line method based on estimated useful lives as follows:
<TABLE>
<S> <C>
Building, improvements and furniture and fixtures ......... 5 - 32 years
Computer, communications equipment and software ........... 3 - 5 years
</TABLE>
GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS-- Goodwill is being
amortized over 20 to 40 years and other intangible assets are being amortized
over 1 to 20 years, all using the straight-line method. Bridge periodically
assesses the recoverability of the cost of its goodwill and identifiable
intangible assets based on a review of projected undiscounted cash flows. As of
December 31, 1997 and 1998, no impairment had been identified.
DEFERRED FINANCING COSTS-- Deferred financing costs are amortized to
interest expense over the life of the related debt based on a method that
approximates the effective interest method.
SOFTWARE DEVELOPMENT COSTS-- In April 1998, the Accounting Standards
Executive Committee of AICPA issued Statement of Position 98-1 (SOP),
"Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use." The SOP is effective for financial statements for fiscal years beginning
after December 15, 1998. As permitted by the SOP, Bridge adopted the provisions
of the SOP effective January 1, 1997.
All costs, primarily employee compensation and benefits related to
conceptual formulation, design and testing of possible software projects
(preliminary project stage), are expensed as incurred. Upon completion of
preliminary project stage, costs incurred in the development of software are
capitalized until the software is released to production. Software development
costs of $12,015 and
F-47
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - (CONTINUED)
$16,896 (net of accumulated amortization of $5,488 and $10,604) are included in
other assets at December 31, 1997 and 1998, respectively, and research and
development expense totaled $8,443, $2,620, and $6,575 for the years ended
December 31, 1996, 1997, and 1998, respectively. Unamortized capitalized costs
determined to be in excess of the net realizable value of the products are
expensed to depreciation and amortization expense at the date of such
determination. As of December 31, 1997 and 1998, no impairment had been
identified.
Amortization is provided over an estimated economic life of the software
(generally 1 to 3 years) using the straight-line method and commences when the
software is released into production. Amortization expense totaled $1,767,
$3,673, and $7,307 for the years ended December 31, 1996, 1997, and 1998,
respectively. The accumulated amortization and related software development
costs are removed from their respective accounts effective in the year following
full amortization.
PREPAID COMMISSION EXPENSE-- Commissions paid at the beginning of the
subscription to sales representatives and managers for successful customer
referrals and renewals are deferred and expensed over the length of the
subscription. This policy is consistent with others in the financial information
business and matches commissions more closely with the revenue earned from the
related subscriptions.
INCOME TAXES-- Bridge files consolidated federal and state income tax
returns and its foreign subsidiaries file various income tax returns in the
respective foreign jurisdictions. Deferred tax assets and liabilities are
determined based on the differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. In addition, the amount of any
future tax benefits is reduced by a valuation allowance to the extent such
benefits are not expected to be realized.
Except for selective dividends, Bridge intends to reinvest the unremitted
earnings of its non-U.S. subsidiaries and postpone their remittance
indefinitely. Accordingly, no provision for U.S. income taxes was required on
such earnings during the three years ended December 31, 1996, 1997, and 1998.
FOREIGN CURRENCY TRANSLATION-- The financial position and results of
operations of Bridge's foreign subsidiaries are measured using local currency as
the functional currency. Revenues and expenses of such subsidiaries have been
translated into U.S. dollars at average exchange rates prevailing during the
period. Assets and liabilities have been translated at the rates of exchange at
the balance sheet date. Translation adjustments are recorded as a component of
other comprehensive income.
STOCK-BASED COMPENSATION ARRANGEMENTS-- Bridge accounts for employee stock
options in accordance with Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations. Under
APB No. 25, Bridge recognizes compensation cost based on the intrinsic value of
the equity instrument awarded as determined at grant date.
Bridge is also subject to disclosure requirements under Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes the recognition of compensation expense
based on the fair value of options as determined on the grant date. However,
SFAS No. 123 allows companies to continue applying APB No. 25 if certain pro
forma disclosures are made assuming hypothetical fair value method application
(see Note 15).
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS-- The
preparation of financial statements in conformity with generally accepted
accounting principles requires Bridge management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-48
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - (CONTINUED)
RECLASSIFICATIONS-- Certain reclassifications have been made in the 1996
and 1997 financial statements to conform to the 1998 presentation.
3. BUSINESS COMBINATIONS
On July 26, 1996, Bridge acquired all of the outstanding shares of
Knight-Ridder Financial, Inc. ("KRF") for $272,827 in a business combination
accounted for as a purchase. The purchase was financed through the sale of
$155,500 of Series D redeemable preferred stock (see Note 14) and through a
portion of the proceeds obtained from a $160,000 term loan from a bank. The
total cost of the acquisition was $273,461, which exceeded the fair value of the
net assets of KRF by $203,162 which is being amortized over 40 years (see Notes
2 and 7). In addition, $6,500 of the purchase price was allocated to purchased
research and development, which was expensed to acquisition related expense in
1996. In 1997, Bridge recognized non-recurring costs of $5,396 comprised of
customer credits for downtime and other conversion costs related to the closure
of KRF's data center which are included in acquisition related expense.
On January 1, 1997, Bridge acquired an 80% common stock interest in Dunai
Financial Systems Pty Limited ("DFS") in exchange for $1,491 in cash and a 100%
interest in one of Bridge's subsidiaries, Equinet Pty Limited, with a carrying
value of $2,621 plus additional acquisition costs of $264. Bridge also deposited
$500 into an escrow account under the terms of a Shareholders Agreement which
will be released to the minority shareholders upon its termination and the sale
of the remainder interest to Bridge. The total cost of the acquisition exceeded
the fair value of the net assets acquired by $3,433 which is amortized over 20
years. The minimum purchase price for the minority interest shares is $1,650 and
may be greater if DFS exceeds targeted revenues and earnings. If certain annual
performance targets are met over a four-year period, the minority shareholders
can increase their profit share by 1.875% annually or receive a bonus. The
minority shareholders can also obtain an additional profit share of 2.5% if the
performance targets are achieved in the fourth year of the management agreement.
Bridge is obligated to purchase the shares owned by the minority shareholders
upon termination of the Shareholders Agreement. The agreement may be terminated
by Bridge or the minority shareholders at the end of the initial four-year term
or by Bridge prior to the end of the initial term if certain financial
performance targets are not met.
On January 7, 1997, Bridge entered into an Asset Purchase Agreement to
purchase all of the assets, primarily software, of Ease Technologies, Inc. for
$1,415 in cash.
On July 15, 1997, Bridge acquired all of the outstanding shares of
Telesphere Corporation for $34,486 in a business combination accounted for as a
purchase. Bridge received 100% of Telesphere for 450,000 shares of Series A
common stock (valued at $3,263), a $2,975 11% Senior Subordinated Note and
$28,550 in cash. The total cost of the acquisition was $34,788, which exceeded
the fair value of the net assets of Telesphere by $27,540 which is being
amortized over 20 years (see Notes 2 and 7).
On May 29, 1998, Bridge acquired all the outstanding shares of Dow Jones
Markets Holdings, Inc., (DJM) for $510,000 in a business combination accounted
for as a purchase. Bridge received 100% of DJM for 1,500,000 shares of Series E
preferred stock (valued at $150,000) and $360,000 in cash which was financed
through the proceeds obtained from a loan under Bridge's Secured Credit
Agreement (see Note 10). The total cost of the acquisition was $511,648, which
exceeded the fair market value of the net assets of DJM by $184,116, which is
being amortized over 30 years (see Notes 2 and 7). In addition $22,000 of the
purchase price was allocated to purchased research and development, which was
expensed to acquisition related expenses in 1998. In 1998, Bridge also
recognized non-recurring costs of $6,709, comprised of other conversion costs
related to the closure of redundant offices, which are included in acquisition
related expenses.
F-49
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. BUSINESS COMBINATIONS - (CONTINUED)
On October 20, 1998, Bridge acquired all the outstanding shares of Wall
Street on Demand (WSOD) for $21,000 in a business combination accounted for as a
purchase. Bridge received 100% of WSOD for 388,644 shares of Series A common
stock (valued at $6,024) and $14,976 in cash which was financed through the
proceeds obtained from a loan under Bridge's Secured Credit Agreement (see Note
10). The total cost of the acquisition was $21,090, which exceeded the fair
market value of the net assets of WSOD by $19,683, which is being amortized over
20 years (see Notes 2 and 7).
On November 10, 1998, Bridge acquired the financial information business
assets of ADP Financial Information Services (ADP) for $154,177 in a business
combination accounted for as a purchase. Bridge received the assets for 900,000
shares of Series F preferred stock (valued at $90,000) and $64,177 in cash which
was financed through the proceeds obtained from a loan under Bridge's Secured
Credit Agreement (see Note 10). The total cost of the acquisition was $154,496,
which exceeded the fair market value of the net assets of ADP by $99,783, which
is being amortized over 20 years (see Notes 2 and 7).
Goodwill lives are determined at the acquisition date based on such factors
as market penetration, name recognition, geographic coverage and infrastructure
of the acquired entities. Market, industry and other factors at the date of
acquisition are also considered.
A summary of the cash and non-cash components of the acquisitions is as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -------------
<S> <C> <C> <C>
Fair value of assets acquired, including goodwill .......... $333,958 $ 48,247 $1,138,412
Liabilities assumed ........................................ 61,131 8,589 453,235
Minority interest .......................................... -- 1,219 --
-------- -------- ----------
Total purchase price ....................................... 272,827 38,439 685,177
Acquisition fees ........................................... 634 566 2,057
-------- -------- ----------
Total cost of the acquisitions ............................. 273,461 39,005 687,234
Common stock issued ........................................ -- 3,263 6,024
Preferred stock issued ..................................... -- -- 240,000
Subordinated debt issued ................................... -- 2,975 --
-------- -------- ----------
Total cash paid ............................................ 273,461 32,767 441,210
Acquired cash .............................................. 8,798 -- 14,590
-------- -------- ----------
Total cash paid, net of acquired cash ...................... $264,663 $ 32,767 $ 426,620
======== ======== ==========
</TABLE>
The results of operations of all acquired companies are included in the
accompanying financial statements since their respective dates of acquisition.
The following summarized unaudited pro forma financial information presents
a summary of consolidated results of operations as if the above transactions had
occurred as of the beginning of the period in which the acquisitions were
completed and the beginning of the immediately preceeding period:
<TABLE>
<CAPTION>
1997 AND 1998
ACQUISITIONS
---------------------------
1997 1998
------------- -------------
<S> <C> <C>
Net revenue $1,371,652 $1,341,113
========== ==========
Net loss before extraordinary item $ (259,871) $ (224,817)
========== ==========
Net loss $ (257,847) $ (227,643)
========== ==========
</TABLE>
Pro forma results of operations for 1997 exclude a restructuring charge of
$296,739 that was recorded by one of the acquired entities prior to the
acquisition.
F-50
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. BUSINESS COMBINATIONS - (CONTINUED)
In Bridge's management's opinion, the pro forma combined results of
operations may not be indicative of the actual results that would have occurred
had the acquisitions been consummated as of that time or of future operations of
the combined companies under the ownership and operation of Bridge.
4. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
On September 1, 1998 Bridge entered into a joint venture (I-NET Bridge)
with 3 partners, of which Bridge owns 25%. I-NET Bridge is engaged in the
business of producing and delivering an electronic on-line business information
service within South Africa. Bridge contributed $200 in cash and a Bridge
licensing agreement in return for 200 shares of the joint venture and a note
receivable of $6,045 which is to be repaid over the next 5 years. The licensing
agreement is being recognized as revenue over a five-year period and the
remaining balance at December 31, 1998 is $6,583. The investment in the joint
venture is accounted for using the equity method and was valued at $1,900 as of
December 31, 1998.
During 1998, Bridge made a $1,500 capital contribution for a 10% ownership
interest in Strike Technologies, LLC, which operates an Electronic
Communications Network, as defined in the Securities and Exchange Commission's
Order Handling Rules.
5. OTHER CURRENT AND NONCURRENT ASSETS
Other current and noncurrent assets consisted of the following at December
31:
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Other Current Assets:
Prepaid expenses ...................................................... $ 4,428 $15,916
Prepaid commissions (see Note 2) ...................................... 2,391 4,574
Current portion of prepaid data acquisition costs ..................... 355 340
Securities owned (see Note 2) ......................................... 520 43
Current portion of deferred financing costs (see Notes 2 and 10) ...... 684 3,101
Property held for sale, net ........................................... -- 7,967
Receivable due from transitional service agreement .................... -- 14,544
Other receivables ..................................................... -- 7,948
Other current assets .................................................. 2,170 5,859
------- -------
$10,548 $60,292
======= =======
Other Noncurrent Assets:
Deferred financing costs (see Notes 2 and 10) ......................... $ 3,731 $13,884
Software development costs, net (see Note 2) .......................... 12,015 16,896
Long-term investments ................................................. -- 31,036
Prepaid data acquisition costs ........................................ 2,840 2,489
Other noncurrent assets ............................................... 2,451 19,517
------- -------
$21,037 $83,822
======= =======
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
Land, building, improvements and furniture and fixtures .......... $ 49,349 $ 111,885
Computer and communications equipment ............................ 157,417 312,845
---------- ----------
206,766 424,730
Less: accumulated depreciation ................................... (103,523) (186,040)
---------- ----------
Property and equipment, net ...................................... $ 103,243 $ 238,690
========== ==========
</TABLE>
F-51
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Components of intangible assets, which primarily relate to business
acquisitions, were as follows at December 31:
<TABLE>
<CAPTION>
1997 1998
----------- -------------
<S> <C> <C>
Goodwill ......................................... $ 259,909 $ 561,000
Software/technology .............................. 30,215 28,415
Noncompete agreements ............................ 20,000 126,000
Trademarks ....................................... 10,647 148,943
Customer base .................................... 4,000 177,786
Product distribution and service rights .......... 4,400 4,400
--------- ----------
329,171 1,046,544
Less: accumulated amortization ................... (54,619) (111,099)
--------- ----------
$ 274,552 $ 935,445
========= ==========
</TABLE>
8. LOSS CONTRACT ACCRUALS
Bridge, in connection with acquisitions, assumes various equipment,
software and data contracts. If Bridge determines that such contracts are above
market, or are redundant and will not be utilized in the ordinary course of
business, a loss is accrued. The loss accrual represents the above market
portion of the contract or the total payments remaining in those cases where the
contract is effectively abandoned. Such accruals are generally recorded on a
gross basis except for those with lengthy remaining terms which are discounted.
Loss contract accruals of acquired entities are accrued as part of the purchase
price allocation. Other loss contract accruals are charged to expenses at the
time they are identified.
The loss portion of the contractual payments consisted of the following at
December 31, 1998:
<TABLE>
<CAPTION>
CONTRACTUAL
PAYMENTS
------------
<S> <C>
1999 ............................ $ 21,918
2000 ............................ 17,808
2001 ............................ 15,701
2002 ............................ 15,444
2003 ............................ 15,344
Thereafter ...................... 40,670
--------
Future minimum payments ......... $126,885
========
</TABLE>
9. LOSS LEASE ACCRUALS
Bridge enters into or assumes, in connection with acquisitions, various
operating lease agreements for office space. Bridge may determine that it will
no longer utilize certain office space under a lease because it is redundant or
due to a change in Bridge's objectives. At the date of acquisition or other time
of such determination, Bridge fully reserves the gross amount of remaining lease
payments, net of expected future sublease rentals. The net reserve includes both
noncancellable future sublease income and Bridge management's best estimate of
future sublease rentals based on analyses of the facilities involved and the
local sublease markets. Loss lease accruals of acquired entities are accrued as
part of the purchase price allocation. Other loss lease accruals are charged to
expense.
Required lease payments (net of estimated future sublease rentals) and
noncancellable future sublease income consisted of the following at December 31,
1998:
F-52
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. LOSS LEASE ACCRUALS - (CONTINUED)
<TABLE>
<CAPTION>
REQUIRED EXPECTED
PAYMENTS, SUBLEASE NET
NET INCOME ACCRUAL
----------- ---------- -----------
<S> <C> <C> <C>
1999 ............................ $ 17,235 $ 3,228 $ 14,007
2000 ............................ 9,486 4,614 4,872
2001 ............................ 5,824 3,441 2,383
2002 ............................ 7,776 2,468 5,308
2003 ............................ 5,687 2,582 3,105
Thereafter ...................... 27,507 18,794 8,713
-------- -------- --------
Future minimum payments ......... $ 73,515 $ 35,127 $ 38,388
======== ======== ========
</TABLE>
10. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consisted of the following at
December 31:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
12% subordinated debt ....................................... $ 59,926 $ 61,090
11% subordinated debt ....................................... 2,975 2,975
Secured credit agreement with bank .......................... 215,000 735,000
7.75% note payable .......................................... -- 15,954
Mortgage note ............................................... 3,826 3,612
Capitalized equipment lease obligations, payments
extend through 2003, at various rates of interest
averaging 9.4% ............................................ 42,259 65,662
--------- ---------
Total long-term debt and capital lease obligations .......... 323,986 884,293
Less: current maturities .................................... (17,820) (51,022)
--------- ---------
$ 306,166 $ 833,271
========= =========
</TABLE>
At December 31, 1998, the 12% subordinated debt consisted of the original
issue of senior subordinated notes payable to Welsh, Carson, Anderson & Stowe.
This issue, as amended, ($65,500 less unamortized discount of $4,410 and $5,574
at December 31, 1997 and 1998, respectively -- effective rate of 16%) is due on
August 15, 2002, and bears interest at 12% per annum, payable quarterly in
arrears.
As part of the Telesphere acquisition (see Note 3), Bridge issued $2,975 of
subordinated notes payable to the former owners. The notes bear interest of 11%
payable monthly in arrears. The principal is due on August 15, 2002.
Bridge has a Secured Credit Agreement (the "Agreement") originally dated
May 29, 1998 and amended and restated on July 7, 1998 with a bank syndicate the
proceeds from which were used to finance the DJM acquisition (see Note 3) and to
repay the amounts outstanding under the then existing Credit Agreement dated
November 17, 1997. The Agreement contains four tranches with a total credit
facility of $800,000. The first tranche consists of a $125,000 revolving credit
line of which $60,000 was outstanding at December 31, 1998. The second tranche
consists of a multi-draw term loan of $75,000 all of which is outstanding at
December 31, 1998. The revolving credit line and the multi-draw term loan mature
May 29, 2003. Bridge pays letter of credit fees and a commitment fee on the
unused portion of the revolving credit line and multi-draw term loan which are
both tied to Bridge's Leverage Ratio. The third tranche consists of a $100,000
term loan payable in quarterly installments of $3,750 beginning September 30,
1999 and through June 30, 2001 and $8,750 through the maturity date of May 29,
2003. The fourth tranche consists of a $500,000 term loan payable in quarterly
installments of $1,250 beginning September 30, 1999 and through June 30, 2004,
quarterly installments of $118,750 through March 31, 2005 with a final payment
of $118,750 due at maturity on May 29, 2005. Interest accrues on all borrowings
at the Eurodollar rate (5.25% at December 31, 1998) plus a defined margin tied
to Bridge's Leverage Ratio. The Agreement is collateralized by a pledge of
F-53
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS - (CONTINUED)
capital stock of the Bridge's U.S. entities, excluding Trading. The Agreement
contains various restrictive covenants including the maintenance of a minimum
rolling four-quarter earnings before interest, taxes, depreciation and
amortization (EBITDA), a minimum interest coverage ratio, a maximum leverage
ratio, a maximum amount of capital leases incurred and a maximum amount of total
capital expenditures. Bridge incurred transaction costs of $17,375 which were
capitalized to deferred financing costs related to obtaining the credit
facility. Due to the repayment of the previous credit agreement, $3,026 of
deferred financing costs were recognized in 1998 as an extraordinary loss, net
of related income taxes of $0. (See Note 21 regarding subsequent amendment to
the Agreement.)
In connection with the Agreement, Bridge has also entered into three swap
transactions pursuant to which it has exchanged its floating rate interest
obligations for a fixed rate payment obligation. These swap agreements hedge the
third and fourth tranches of the credit agreement. The first swap has a notional
principal amount of $137,375 at December 31, 1998 and a fixed rate of 6.035% per
annum for the period ending December 31, 2002. The second swap has a notional
principal amount of $100,000 at December 31, 1998 and a fixed rate of 5.8125%
per annum ending June 29, 2001. The third swap has a notional principal amount
of $100,000 at December 31, 1998 and a fixed rate of 5.94% per annum ending June
29, 2002. The fixing of the interest rates for this period minimizes in part
Bridge's exposure to the uncertainty of floating interest rates.
The weighted average interest rate on Bridge's debt with a bank was 8.5%
and 8.6% for the years ended December 31, 1997 and 1998, respectively. Letters
of credit outstanding at December 31, 1997 and 1998 totaled $19,910 and $8,641,
respectively.
Bridge's mortgage note is collateralized by the technology center building,
bears interest at 8.5% and is payable in equal monthly installments of $44
through February 1, 2009.
As part of the acquisition of DJM, Bridge assumed a 7.75% note payable to a
third party. The note is payable over three years. Bridge also obtained a
guaranteed investment contract in the same amount and earning a similar rate
which was designated by DJM to fund this note. This investment is included in
other assets.
Required debt payments (net of discount), future minimum lease payments
(including interest under capital leases) and noncancellable operating leases,
consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
OPERATING LEASES
-----------------------
CAPITALIZED
EQUIPMENT OFFICE
DEBT LEASES EQUIPMENT FACILITIES
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
1999 ........................................... $ 14,366 $ 41,168 $ 514 $ 28,909
2000 ........................................... 24,363 28,815 205 24,250
2001 ........................................... 34,362 1,009 48 20,535
2002 ........................................... 107,994 486 10 17,859
2003 ........................................... 157,828 121 3 27,570
Thereafter ..................................... 479,718 -- 3 70,426
--------- -------- ----- ---------
Future minimum payments ........................ $ 818,631 71,599 $ 783 $ 189,549
========= ===== =========
Amount representing interest ................... (5,937)
--------
Present value of net minimum lease payments .... $ 65,662
========
</TABLE>
Total rent expense for all operating leases was $10,313, $14,448, and
$32,002 for the years ended December 31, 1996, 1997, and 1998, respectively.
Bridge is the lessee of certain computer, communications equipment and
software under capital leases. The assets and liabilities under capital leases
are recorded at the lower of the present value of the minimum lease payments or
the fair value of the assets. The assets are depreciated and amortized over the
lower of
F-54
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS - (CONTINUED)
their related lease terms or their estimated useful lives. Assets recorded under
capital leases are included in property and equipment at a cost of $32,703 and
$47,561, net of accumulated depreciation and amortization of $40,613 and $59,881
at December 31, 1997 and 1998, respectively.
11. INCOME TAXES
The income tax provision consists of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- -----------
<S> <C> <C> <C>
Current tax provision:
United States .......................... $ -- $ -- $ --
Foreign ................................ 177 634 7,480
State and local ........................ -- -- --
----- ----- --------
177 634 7,480
Deferred tax provision - foreign ......... -- -- 3,000
----- ----- --------
Total provision for income taxes ......... $ 177 $ 634 $ 10,480
===== ===== ========
</TABLE>
The total income tax provision differed from that which would be computed
by applying the statutory federal income tax rate to income before income taxes.
The reasons for this difference are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Federal income tax benefit computed at statutory
federal income tax rate ................................. $ (21,217) $ (23,791) $ (46,333)
Federal income tax portion of change in valuation
allowance ............................................... 19,972 22,686 52,912
Foreign income without federal income tax expense ......... 1,112 (162) (9,585)
Nondeductible expenses .................................... 635 1,267 3,006
Foreign taxes ............................................. 177 634 10,480
Other ..................................................... (502) -- --
--------- --------- ---------
$ 177 $ 634 $ 10,480
========= ========= =========
</TABLE>
The components of deferred income tax assets and liabilities are as follows
at December 31:
<TABLE>
<CAPTION>
1997 1998
----------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ......... $ 56,460 $ 79,370
Tax credit carryforwards ................. 1,059 1,059
Accounts receivable ...................... 4,051 7,103
Property and equipment ................... -- 77,042
Intangible assets ........................ 5,292 --
Accrual for loss lease ................... 8,395 11,278
Accrual for loss contracts ............... -- 51,872
Other accrued liabilities ................ -- 19,316
Other .................................... 886 667
--------- ----------
76,143 247,707
--------- ----------
Deferred tax liabilities:
Software capitalization .................. 4,792 6,682
Property and equipment ................... 1,215 --
Intangible assets ........................ -- 84,693
Prepaid commissions ...................... -- 1,784
Limited partnerships' losses ............. 420 420
--------- ----------
6,427 93,579
--------- ----------
Net deferred tax asset ..................... 69,716 154,128
Valuation allowance ........................ (69,716) (153,535)
--------- ----------
$ 0 $ 593
========= ==========
</TABLE>
At December 31, 1997 and 1998, Bridge recorded a valuation allowance of
$69,716 and $153,535, respectively, against the net deferred tax asset due to
the uncertainty of its ultimate realization. The valuation allowance increased
by $32,090 from December 31, 1996 to December 31, 1997 and by
F-55
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. INCOME TAXES - (CONTINUED)
$83,819 from December 31, 1997 to December 31, 1998. Amounts fully reserved
include $26,491 in deferred tax assets acquired by Bridge in a purchase business
combination. If it is determined in the future that such deferred tax assets are
recoverable, the valuation allowances will be reversed and credited against the
original purchase price allocated to goodwill.
Certain states do not allow for the filing of a consolidated state income
tax return; therefore, the taxable income of certain of Bridge's subsidiaries
cannot be offset with losses sustained by other of Bridge's subsidiaries in
those states. At December 31, 1998, Bridge has the following approximate income
tax carryforwards available:
<TABLE>
<CAPTION>
TAX EXPIRATION
PURPOSES DATES
------------ -----------
<S> <C> <C>
U.S. federal regular tax carryforwards other than from
purchase business combinations:
Net operating loss carryforwards ................... $ 199,512 2004-2018
Business tax credit carryforwards .................. $ 599 1999-2002
U.S. federal minimum tax credit carryforwards against
regular tax ........................................ $ 298 --
Foreign regular tax carryforwards other than from
purchase business combinations:
Net operating loss carryforwards ..................... $ 4,132 2002-2009
</TABLE>
12. REGULATORY REQUIREMENT
Trading is subject to the Uniform Net Capital Rule under the Securities
Exchange Act of 1934, which requires the maintenance of minimum net capital of
$1,000 and requires that the ratio of aggregate indebtedness to net capital,
both as currently defined, shall not exceed 15 to 1. At December 31, 1998,
Trading had net capital of $3,490, which was $2,490 in excess of the minimum
required, and the ratio of aggregate indebtedness to net capital was 1.69 to 1.
Substantially all customer transactions are cleared through third parties on a
fully disclosed basis and, therefore, Trading does not hold securities or funds
for the accounts of its customers. Accordingly, Trading is exempt from the
requirements of Rule 15c3-3 under the Securities Exchange Act of 1934.
BBH is subject to regulatory requirements of the Securities and Futures
Commission and BBU is subject to the regulatory requirements of The Securities
and Futures Authority Resource Requirement. At December 31, 1998, management is
not aware of any matters which would have a materially adverse effect on BBH or
BBU.
13. CAPITAL STOCK
During 1996, Bridge increased its number of authorized shares of capital
stock to 102 million shares, consisting of 85 million shares of Class A common
stock, 15 million shares of Class B common stock, and 2 million shares of
preferred stock ($1 par value). In addition, Bridge increased the total number
of shares of common stock for which options may be granted from 2,360,250 shares
to 4 million shares. In October 1997, Bridge increased the total number of
shares for which options may be granted from 4 million to 6 million shares.
Class A common shareholders are entitled to one vote per share while Class B
common shareholders have no voting rights. Both Class A and Class B common
shareholders have the same dividend and liquidation rights. In addition, both
classes of common stock contain provisions which allow certain shareholders of
both classes to convert their shares into shares of the other class on a
one-for-one basis.
In May 1996, Bridge completed an equity offering totaling $53,997, net of
transaction costs of $260 which were charged to additional paid-in capital
(common) as costs incurred to raise capital. The offering was accomplished in
three pieces. First, subordinated debt issues two through five totaling
F-56
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. CAPITAL STOCK - (CONTINUED)
$29,500, plus accrued interest of $1,801, were converted into 4,815,543 shares
of Class A common stock. Secondly, all shares of Series A and C redeemable
preferred stock totaling $8,700, plus accrued dividends of $356, were converted
into 1,393,305 shares of Class A common stock. The third piece consisted of the
sale of 2,138,415 shares of Class A common stock for $13,900 to existing
shareholders and a strategic investor. In addition, as part of the offering, all
shares of Series B redeemable preferred stock totaling $1,900, plus accrued
dividends of $73, were redeemed from the proceeds of the offering.
14. REDEEMABLE PREFERRED STOCK
In connection with the acquisition of KRF (see Note 3) in 1996, Bridge
designated 1,950,000 shares of Series D redeemable preferred stock. At the time
of the KRF acquisition, 1,550,000 shares were issued for $154,355, with a
redemption value of $155,000. The carrying value of the redeemable preferred
stock is accreted to the redemption value through its mandatory redemption
dates. In connection with the DJM acquisition (see Note 3) Bridge designated and
issued 1,500,000 shares of Series E redeemable preferred stock at a redemption
value of $150,000. Bridge also designated and issued 900,000 shares of Series F
redeemable preferred stock at a redemption value of $90,000 in connection with
the ADP acquisition (see Note 3). The following shares have been issued and are
outstanding as of December 31, 1998:
<TABLE>
<CAPTION>
PREFERRED STOCK
-----------------------
ADDITIONAL ACCRETION
SHARES $1 PAR PAID-IN TO TOTAL
ISSUED AND VALUE CAPITAL ACCRUED REDEMPTION CARRYING
SERIES DESIGNATED AMOUNT (PREFERRED) DIVIDENDS VALUE VALUE
- -------------- ------------ ---------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
D .......... 1,950,000 $ 1,950 $ 192,405 $ 18,116 $ 234 $ 212,705
E .......... 1,500,000 1,500 148,500 3,567 -- 153,567
F .......... 900,000 900 89,100 513 -- 90,513
------- --------- -------- ----- ---------
$ 4,350 $ 430,005 $ 22,196 $ 234 $ 456,785
======= ========= ======== ===== =========
</TABLE>
Series D and E preferred shareholders are entitled to one common vote for
each share of Class A common stock that would be issuable upon conversion of
preferred stock. Series F preferred shareholders do not have any voting rights.
At December 31, 1998, one share of Series D preferred stock was convertible into
12.5 shares of common stock and one share of Series E or F preferred stock was
convertible into 4.62 shares of common stock. All preferred shareholders rank
senior to common shareholders in the event of any voluntary or involuntary
liquidation, dissolution or winding up of Bridge. All preferred stocks pay
dividends at the rate of $4.00 per share per annum. All preferred dividends are
cumulative and non-participating.
On June 30 in each of 2002, 2003, 2004, Bridge is required to redeem the
lesser of 1) 33-1/3% of the aggregate number of shares of Series D preferred
stock thereto issued or 2) the number of shares of Series D preferred stock then
outstanding. Preferred stock has a redemption price of $100 per share plus all
accrued but unpaid dividends, which is equivalent to the carrying value. Bridge
may elect to redeem preferred shares, in whole or in part, at any time
subsequent to January 1, 2001, but prior to the mandatory redemption dates as
well.
On May 29, 2003 and November 10, 2003, Bridge is required to redeem all
shares of Series E and Series F preferred stock, respectively, then issued and
outstanding at the redemption price of $100 per share plus all accrued but
unpaid dividends, which is equivalent to the carrying value.
F-57
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
15. STOCK OPTIONS
Bridge has a Stock Option and Restricted Stock Purchase Plan, which
provides for stock option and other awards to selected employees and officers of
Bridge. Bridge's Board of Directors determines the option price (not to be less
than 100% of fair market value for incentive stock options) at the date of
grant. Options granted during 1997 and 1998 vest ratably over five years and
expire ten years from the date of grant.
Bridge applies APB Opinion No. 25 and related interpretations in accounting
for its plan. Accordingly, compensation cost has been recognized for its stock
option plan only to the extent the fair market value of Bridge's common stock
exceeded the exercise price of nonqualified stock option grants at the grant
date. Had compensation cost for Bridge's stock option plan been determined based
on the fair value at the grant dates for awards under the plan consistent with
the method of SFAS No. 123, Bridge's net loss would have been increased to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
------------- ------------- --------------
<S> <C> <C> <C>
Net loss
As reported ......... $ (60,796) $ (68,610) $ (142,861)
Pro Forma ........... $ (61,339) $ (69,755) $ (144,452)
</TABLE>
Changes in outstanding options are as follows:
<TABLE>
<CAPTION>
1996
--------------------------------------------
WEIGHTED-
AVERAGE
SHARES EXERCISE PRICE SHARES
------------- ---------------- -------------
<S> <C> <C> <C>
Outstanding, beginning of year .......... 2,363,250 $ 4.73 2,209,117
Granted ................................. 567,112 6.50 2,738,000
Exercised ............................... (5,000) 4.73 (153,136)
Forfeited ............................... (713,245) 6.05 (345,800)
Expired ................................. (3,000) 250.00 --
--------- ------- ---------
Outstanding, end of year ................ 2,209,117 $ 4.80 4,448,181
========= ======= =========
Options exercisable at year-end ......... 444,050 660,350
========= =========
Weighted-average fair value of options
granted during the year ................ $ 2.04 $ 2.04
=========== ===========
<CAPTION>
1997 1998
------------------------------ ----------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE PRICE SHARES EXERCISE PRICE
---------------- ------------- ---------------
<S> <C> <C> <C>
Outstanding, beginning of year .......... $ 4.80 4,448,181 $ 6.22
Granted ................................. 7.25 1,474,319 10.21
Exercised ............................... 4.67 (142,200) 2.83
Forfeited ............................... 6.05 (243,300) 6.77
Expired ................................. -- -- --
-------- --------- -------
Outstanding, end of year ................ $ 6.22 5,537,000 $ 7.36
======== ========= =======
Options exercisable at year-end ......... $ 4.57 1,396,886 $ 5.67
======== ========= =======
Weighted-average fair value of options
granted during the year ................ $ 2.73
===========
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value option-pricing model with the following weighted-average
assumptions used for grants in 1996, 1997, and 1998, respectively: dividend
yield of 0 percent for all three years; risk-free interest rates of 5.4, 6.7,
and 5.5 percent; and expected lives of 6 years for all three years.
The following table summarizes the characteristics of stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
EXERCISE PRICE SHARES LIFE PRICE SHARES PRICE
- ---------------- ------------ -------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
$ 1.00 80,000 6.71 years $ 1.00 48,000 $ 1.00
$ 4.73 1,176,569 7.36 4.73 705,941 4.73
$ 6.50 429,612 7.42 6.50 171,845 6.50
$ 7.25 2,355,500 8.50 7.25 471,100 7.25
$ 8.00 317,819 9.00 8.00 -- --
$ 10.80 1,177,500 9.42 10.80 -- --
--------- ---- -------- ------- --------
5,537,000 7.16 years $ 7.36 1,396,886 $ 5.67
========= ==== ======== ========= ========
</TABLE>
F-58
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
16. EMPLOYEE SAVINGS PROGRAMS
DOMESTIC SAVINGS PLANS -- In the United States, Bridge sponsors an employee
savings plan that qualifies as a defined salary arrangement under Section 401(k)
of the Internal Revenue Code. Participating U.S. employees may contribute a
percentage of their base salary, subject to certain limitations, and Bridge
matches a portion of the employees' contributions. Bridge contributed $723,
$1,388, and $2,463 to these plans during the years ended December 31, 1996,
1997, and 1998, respectively. Also under Bridge's plan, profit sharing
contributions may be made at the discretion of Bridge. No such contributions
were made during the years ended December 31, 1996, 1997, and 1998. No
post-retirement benefits are provided.
FOREIGN SAVINGS PLANS -- Bridge maintains certain retirement plans for
employees outside of the United States that provide retirement benefits based on
service and salary. The funding policy for these plans is to contribute the
amounts required by the plan provisions or applicable regulations, although
additional amounts may be made at the discretion of Bridge. Bridge contributed
$987, $1,923, and $5,430, to these plans during the years ended December 31,
1996, 1997, and 1998 respectively.
Bridge has a defined benefit plan covering certain employees of Bridge in
Japan. The benefits for this plan are based on years of service and current
salaries. Payments are made on a monthly basis and the net pension expense for
1996, 1997 and 1998 was immaterial.
17. RELATED PARTY TRANSACTIONS
Bridge provides services to certain shareholders at terms and prices
approximating market. Sales to existing shareholders totaled $34,549, $28,260,
and $56,205 for the years ended December 31, 1996, 1997, and 1998, respectively.
Accounts receivable from existing shareholders totaled $6,795 and $30,957 at
December 31, 1997 and 1998, respectively.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments". The estimated fair
value amounts have been determined by Bridge using available market information
and appropriate valuation methodologies. However, considerable judgment is
necessarily required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that Bridge could realize in a current market
exchange.
The use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
1997 1998
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Treasury bills ..................... $ 1,314 $ 1,331 $ -- $ --
Securities owned ................... 520 520 43 43
Guaranteed investment contract ..... -- -- 15,955 15,955
Financial liabilities:
Term loan with Bank ................ 200,000 200,000 600,000 600,000
Mulit-draw loan .................... -- -- 75,000 75,000
Revolving credit agreement ......... 15,000 15,000 60,000 60,000
Mortgage note ...................... 3,826 4,063 3,612 3,861
11% subordinated debt .............. 2,975 2,975 2,975 2,975
</TABLE>
F-59
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
18. FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- -------- ---------- ---------
<S> <C> <C> <C> <C>
12% subordinated debt ..................... 59,926 59,926 61,090 61,090
7.75% note payable ........................ -- -- 15,955 15,955
Loss lease accruals ....................... 23,785 14,633 38,388 27,256
Loss contract accruals .................... -- -- 126,885 125,401
Securities sold but not yet purchased ..... 186 186 9 9
Unrecognized financial instruments:
Swap Agreements ............................. -- 1,446 -- 8,790
Standby letters of credit ................... -- 164 -- 319
</TABLE>
SECURITIES OWNED AND SECURITIES SOLD BUT NOT YET PURCHASED -- For those
instruments held for trading purposes, fair values are based on quoted market
prices or dealer quotes.
LONG-TERM DEBT -- Term loan with Bank, multi-draw loan and revolving credit
agreement, are variable rate in nature and reprice quarterly. Bridge believes
the carrying value of this debt approximates fair value. The fair value of the
subordinated debt, notes payable and other fixed rate debt is estimated by
discounting cash flows based on the rates Bridge could obtain today for similar
borrowings.
LOSS LEASE ACCRUALS -- The fair value of Bridge's loss lease accruals is
estimated based on the remaining required lease payments (net of estimated
future sublease rentals) and noncancellable future sublease income discounted at
current rates offered to Bridge for debt of similar remaining maturities.
LOSS CONTRACT ACCRUALS -- The fair value of Bridge's loss contract accruals
is estimated based on the contractual payments discounted at current rates
offered to Bridge for debt of similar maturities.
SWAP AGREEMENT -- The fair value of Bridge's swap agreement represents the
estimated amount Bridge would receive to terminate the agreement, considering
current interest and currency rates.
STANDBY LETTERS OF CREDIT -- The fair value of letters of credit is based
on fees currently charged for similar agreements.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1997 and 1998,
respectively. Although Bridge's management is not aware of any factors that
would significantly affect the estimated fair value amounts, such amounts have
not been comprehensively revalued for purposes of these financial statements
since that date, and current estimates of fair value may differ significantly
from the amounts presented herein.
19. OTHER COMMITMENTS AND CONTINGENCIES
At the time of the DJM acquistion, DJM was party to certain agreements
between DJM and Cantor Fitzgerald Securities Corp. ("Cantor"), a primary
supplier of market data to DJM, and Market Data Corporation ("MDC"). As of the
date of the acquisition, certain provisions of these agreements were in dispute
between DJM and Cantor. In addition, Cantor has taken the position that as a
result of the acquistion, by virtue of certain provisions in the agreements with
Cantor and MDC, Bridge has incurred certain obligations separate from DJM's
obligations under those agreements to make payments to MDC and Cantor with
respect to terminals other than those to which DJM was providing information
prior to the acquisition.
F-60
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
19. OTHER COMMITMENTS AND CONTINGENCIES - (CONTINUED)
Bridge has been in discussions with Cantor regarding settlement of this
dispute. Any such settlement would also require approval of Dow Jones. It is
uncertain at this time whether Bridge will be able to settle this matter. If
settlement is not feasible, and litigation were to ensue, Bridge believes that
it has meritorious defense to Cantor claims.
Bridge, in the normal course of business, enters into service agreements
with telecommunication companies, whereby Bridge has guaranteed annual usage
levels of data communications. Remaining minimum commitments are $10,000 for the
year ending December 31, 1999.
Bridge also enters into agreements for the licensing of software and
information databases to be used in connection with Bridge's products. Certain
of these agreements provide for royalty payments based on Bridge's revenues or
the number of workstations installed, as defined. Bridge has no material
commitments with respect to these licenses.
Bridge is subject to various other legal proceedings and claims which arise
in the ordinary course of its business.
Loss accruals for matters that have not been indemnified by the sellers and
relate directly to acquisitions have been established as part of the purchase
price (goodwill). When and if it is determined that such accruals are
unnecessary, they will be reversed and credited back to the purchase price
(goodwill). The ultimate resolution of these matters cannot be predicted with
certainty. However, based on the information currently available, Bridge's
management does not believe they will have a material adverse effect on Bridge's
financial condition.
20. SUBSEQUENT EVENTS
ACQUISITION AND INVESTMENTS -- On February 8, 1999, Bridge entered into a
Formation Agreement with FutureSource Information Systems, Inc. (FSIS) and its
shareholders to form a new business enterprise named FutureSource/Bridge L.L.C.
(FS/B). The transaction closed on March 5, 1999. The purpose of FS/B is to
better develop and market financial information products in the commodities
field. Bridge contributed $4,500 of cash and customer contracts totaling
approximately $16,500 of annualized revenue to FS/B for a 45% ownership
interest. FSIS contributed all of its assets, subject to assumed liabilities, to
FS/B for a 55% ownership interest. Bridge also made a $2,000 subordinated loan
to FS/B.
On February 17, 1999, Bridge entered into a Merger Agreement with SAVVIS
Holdings Corporation (SAVVIS) to acquire all of the equity of SAVVIS in exchange
for 3,250,000 shares of Bridge's common stock. The transaction closed on April
7, 1999.
DEBT EXTENSION -- On March 5, 1999, Bridge increased the fourth tranche of
the term loan under its Secured Credit Agreement (see Note 10) by $50,000 to a
total of $550,000. The proceeds were used to reduce the outstanding balances
under the revolving credit facility, to provide funds for working capital and
for other corporate purposes. The covenants relating to the maximum leverage
ratio and the minimum interest coverage were adjusted accordingly.
PUBLIC OFFERING (UNAUDITED) -- The Board of Directors of Bridge has
authorized management of SAVVIS to file a registration statement with the
Securities and Exchange Commission for the initial public offering of SAVVIS'
common stock. SAVVIS intends to use a portion of the proceeds to finance a
portion of its purchase of Bridge's Internet protocol network assets and to pay
a preferential dividend to Bridge.
STOCK OPTIONS (UNAUDITED) -- During the period from October through
December 1999, SAVVIS granted 2,843,758 stock options to employees of SAVVIS and
Bridge with an exercise price of $.50 per share. Noncash compensation cost based
upon the difference between the exercise price and the
F-61
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
20. SUBSEQUENT EVENTS - (CONTINUED)
imputed fair value of SAVVIS' stock as if the respective option grant dates
totaling approximately $53 million will be recorded over the vesting periods of
such options, which periods range from immediate up to four years. Approximately
$2,000 of noncash compensation expense will be recorded in the fourth quarter of
1999.
21. GOING CONCERN
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should
Bridge be unable to continue as a going concern. Bridge has experienced
recurring losses from operations and operating cash flow deficiencies, which
have been funded by additional borrowings. At December 31, 1999, Bridge did not
comply with certain of the restrictive covenants contained in its Secured Credit
Agreement (the "Agreement") (see Note 11).
The Agreeement was amended on January 7, 2000 (the "Amendment") to 1)
permit the sale of Bridge's network assets to SAVVIS, 2) allow for the
subsequent public offering of SAVVIS shares, and 3) waive and modify certain
covenants in the Agreement related to EBITDA, interest coverage ratio, leverage
ratio and capital expenditure limitations. The Agreement was also modified to
require Bridge to repay approximately $250,000 of its indebtedness under the
Agreement on or before June 30, 2000. However, Bridge must repay a separate loan
in the amount of $100,000 before it can repay the full amounts required under
the amended Agreement.
In addition, the Amendment requires the public offering of SAVVIS shares to
be completed by February 29, 2000. Failure to comply with this provision could
result in acceleration of the maturity of the outstanding balance due under the
Agreement.
The Amendment also requires that all of the proceeds from the sale of
assets to SAVVIS and the preferential distribution be applied to the
indebtedness under the Agreement.
In 2000, Bridge expects to complete the integration of past acquisitions,
to the extent possible, and plans to reduce both employee and technology related
expenses. Further, with the sale of its network assets to SAVVIS, Bridge expects
its capital spending requirements to be reduced significantly. Therefore, Bridge
expects operating results and cash flow to improve in 2000 as compared to 1999.
Also as part of Bridge's ongoing strategy, management has for some time
been pursuing plans to expand the pool of capital available to fund business
growth. These plans include, but are not limited to, the sale or spin-off or
assets, including the sale of additional SAVVIS shares, and other public and
private debt financing alternatives. Management believes these plans will be
sufficient to satisfy its fiscal 2000 financing requirements. However, there can
be no assurance that sufficient proceeds through these activities will be
available to meet Bridge's debt obligations.
* * * * * *
F-62
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
--------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................................................... $ 34,577
Restricted cash equivalents ....................................................... 1,935
Accounts receivable, net of allowance for doubtful accounts of $55,573 ............ 235,409
Inventory ......................................................................... 22,058
Other current assets .............................................................. 55,999
----------
Total current assets .............................................................. 349,978
PROPERTY AND EQUIPMENT, net of depreciation of $237,534 ........................... 269,078
GOODWILL AND INTANGIBLE ASSETS, net of amortization of $202,873 ................... 863,864
OTHER LONG-TERM ASSETS ............................................................ 112,479
----------
TOTAL ........................................................................... $1,595,399
==========
LIABILITIES AND DEFICIENCY IN NET ASSETS
CURRENT LIABILITIES:
Accounts payable .................................................................. $ 75,242
Accrued employee compensation and benefits ........................................ 33,270
Accrued exchange fees ............................................................. 16,118
Other liabilities and accrued expenses ............................................ 107,167
Deferred revenue .................................................................. 23,742
Current portion of loss contract accruals ......................................... 20,731
Current maturities of loss lease accruals ......................................... 8,918
Current maturities of long-term debt and capital lease obligation ................. 60,999
----------
Total current liabilities ......................................................... 346,187
LOSS CONTRACT ACCRUALS, NET ....................................................... 90,915
LOSS LEASE ACCRUALS EXCLUDING CURRENT MATURITIES .................................. 28,340
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS EXCLUDING CURRENT MATURITIES.......... 1,030,130
OTHER LONG-TERM LIABILITIES ....................................................... 35,076
----------
Total liabilities ................................................................. 1,530,648
----------
MINORITY INTEREST .................................................................. 11,288
----------
REDEEMABLE PREFERRED STOCK ......................................................... 469,869
----------
COMMITMENT AND CONTINGENCIES .......................................................
DEFICIENCY IN NET ASSETS:
Class A common stock, $.01 par value, 85 million shares authorized,
36,984,524 shares issued ........................................................ 370
Class B common stock, $.01 par value, 15 million shares authorized, none issued
Additional paid-in capital (common) ............................................... 219,180
Accumulated deficit ............................................................... (628,371)
Cumulative translation adjustments ................................................ (7,335)
Treasury stock at cost, 20,000 shares ............................................. (250)
----------
Total deficiency in net assets .................................................... (414,406)
----------
TOTAL ............................................................................. $1,595,399
==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-63
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE-MONTH PERIOD
ENDED SEPTEMBER 30
-----------------------------
1998 1999
------------- -------------
<S> <C> <C>
REVENUES:
Information services .................................................... $ 398,773 $ 651,150
Transaction services .................................................... 40,015 55,683
Network services ........................................................ -- 12,193
Equipment sales ......................................................... 52,114 73,937
Customer data fees ...................................................... 74,456 149,551
Other revenues .......................................................... 12,533 15,965
--------- ----------
577,891 958,435
OPERATING COSTS AND EXPENSES:
Employee related ........................................................ 182,403 297,922
Depreciation and amortization ........................................... 133,447 211,893
Technology related ...................................................... 58,818 142,472
Equipment cost of sales ................................................. 48,093 67,997
Customer data fees ...................................................... 69,151 122,222
Transaction services related ............................................ 18,545 21,487
Data acquisition related ................................................ 27,431 62,281
Facilities related ...................................................... 20,817 45,194
General and administrative .............................................. 36,353 53,107
Acquisition related ..................................................... 28,709 --
--------- ----------
623,767 1,024,575
--------- ----------
OPERATING LOSS ........................................................... (45,876) (66,140)
OTHER INCOME (EXPENSE):
Interest income ......................................................... 1,289 2,246
Interest expense ........................................................ (41,279) (68,126)
Minority interest in net income of consolidated subsidiary .............. (482) (804)
Other, net .............................................................. 5,282 8,763
--------- ----------
(35,190) (57,921)
--------- ----------
LOSS BEFORE INCOME TAXES ................................................. (81,066) (124,061)
PROVISION FOR INCOME TAXES ............................................... (6,688) (10,316)
--------- ----------
LOSS BEFORE EXTRAORDINARY ITEM ........................................... (87,754) (134,377)
Extraordinary item -- loss on early extinguishment of debt, net ......... (3,026) --
--------- ----------
NET LOSS ................................................................. (90,780) (134,377)
OTHER COMPREHENSIVE LOSS:
Foreign currency translation adjustment ................................. (1,056) (3,162)
--------- ----------
COMPREHENSIVE LOSS ....................................................... $ (91,837) $ (137,539)
========= ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-64
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE-MONTH PERIOD
ENDED SEPTEMBER 30
----------------------------
1998 1999
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS ...................................................................... $ (90,780) $ (134,377)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ................................................ 133,447 211,892
Acquisition related costs .................................................... 22,000 --
Amortization of discount on subordinated debt and deferred financing costs ... 2,207 4,392
Gain on joint venture investment ............................................. -- (10,000)
Extraordinary loss on early extinguishment of debt ........................... 3,026 --
Deferred revenue ............................................................. (30,460) 7,682
Minority interest in loss of consolidated subsidiary ......................... 481 804
Changes in assets and liabilities net of effects of acquisitions:
Restricted cash .............................................................. (2,225) 1,452
Accounts receivable, net ..................................................... 6,031 (75,836)
Inventory .................................................................... (2,687) (13,653)
Other assets ................................................................. (17,225) (1,287)
Loss contracts accrual, net .................................................. (7,312) (17,936)
Loss lease accruals, net ..................................................... (5,130) (10,441)
Accounts payable and other accrued expenses .................................. (14,319) (20,292)
Other long-term liabilities .................................................. (3,324) (18,425)
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES ...................................... (6,270) (76,025)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired ........................................... (348,112) (106)
Equity investment in minority subsidiary ..................................... (1,673) (6,650)
Capital expenditures, net .................................................... (27,779) (99,150)
Software development costs ................................................... (9,239) (17,941)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES ...................................... (386,803) (123,847)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt ..................................... 680,000 377,051
Payments on long-term debt ................................................... (240,159) (149,576)
Principal payments on capital lease obligations .............................. (11,236) (28,129)
Fees incurred in financing activities ........................................ (16,863) (5,025)
Proceeds from partial sale of subsidiary ..................................... -- 8,990
Dividends paid by subsidiary ................................................. (187) --
Employee stock transactions .................................................. 178 231
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES .................................. 411,733 203,542
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS .................. (776) (2,411)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ..................................... 17,884 1,259
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................ 12,949 33,318
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................................... $ 30,833 $ 34,577
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period year for:
Interest ................................................................... $ 25,760 $ 61,154
Income taxes ............................................................... 6,688 6,794
Debt incurred under capital lease obligations .............................. 14,294 1,405
Accrued dividends on redeemable preferred stock ............................ 7,889 13,014
Accretion of redeemable preferred stock to redemption value ................ 70 70
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-65
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. DESCRIPTION OF BRIDGE
Bridge Information Systems, Inc., together with its wholly-owned
subsidiaries ("Bridge"), is an international financial information company that
provides a comprehensive resource of financial data and interpretive
applications for investment professionals around the world. Bridge offers
real-time and historical information and news on equities, fixed income, foreign
exchange, derivatives and commodities and provides a wide array of flexible
analytic applications to aid in the interpretation of such data. Bridge also
provides transaction services, through its wholly-owned subsidiaries, Bridge
Trading Company ("Trading"), Bridge International Broking Ltd. - Hong Kong and
Bridge International Broking (U.K.) Limited, comprehensive valuations on fixed
income securities, computer equipment sales and systems integration and
information delivery technology, including private network services, for the
financial community.
Bridge's clients include institutional investors, brokerage firms, research
analysts, exchanges and other enterprises throughout the world. No individual
customer composed a significant portion of Bridge's revenues. Bridge receives
data from more than 1,000 exchanges and contributing sources in 100 countries
with no single supplier composing a significant percentage.
2. UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles. In
the opinion of Bridge's management, all adjustments, consisting only of normal
recurring adjustments considered necessary for a fair presentation, have been
included. Operating results for any period are not necessarily indicative of the
results for any other period or for the full year. These statements should be
read in conjunction with Bridge's financial statements and notes thereto for the
year ended December 31, 1998.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements of
Bridge's include the accounts of Bridge Information Systems, Inc. and its
subsidiaries after elimination of intercompany accounts and transactions.
REVENUE RECOGNITION -- Information services and other revenues are billed
one to twelve months in advance in certain markets and are recognized in the
period the related services are provided. Prepayments are included in deferred
revenue. Equipment sales are recognized upon delivery of the equipment.
CASH AND CASH EQUIVALENTS -- Bridge considers highly liquid investment
instruments with remaining terms of three months or less at time of acquisition
to be cash equivalents.
RESTRICTED CASH EQUIVALENTS -- Regulations require the Japanese trading
branch and India subsidiary to maintain restricted cash.
NEW ACCOUNTING STANDARDS -- In June 1998, SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" was issued. This statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities. SFAS No. 133 was amended by SFAS 137, which delays the
effective date of SFAS 133 to fiscal years and quarters beginning after June 15,
2000. SFAS No. 133 will require Bridge to record all derivatives on the balance
sheet at fair value. Changes in derivative fair value will either be recognized
in earnings as offsets to the changes in fair value of related hedged assets,
liabilities, and firm commitments or, for forecasted transactions, deferred and
recorded as a component of other stockholders' equity until the hedged
transactions occur and are recognized in earnings. Bridge is
F-66
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
currently evaluating the impact of the standard on Bridge. The impact of SFAS
No. 133 will depend on a variety of factors, including future interpretive
guidance, the future level of hedging activity, the types of hedging instruments
used, and the effectiveness of such instruments.
SECURITIES TRANSACTIONS -- Securities transactions and the related
commission revenue and expense are recorded on a trade date basis. In the normal
course of business, the trading companies' activities involve the execution,
settlement and financing of various securities transactions through its clearing
brokers. The resulting receivables from the clearing brokers are available to
the trading companies on a settlement date basis. These activities may expose
the trading companies to off-balance-sheet risk in the event the customer or
other party is unable to fulfill their contractual obligations. The trading
companies, through their clearing brokers, continually monitor its customers'
activities. At September 30, 1999 receivables from clearing brokers totaled
$2,236 and are included in accounts receivable.
Securities owned and securities sold, but not yet purchased, are carried at
market value and unrealized gains and losses are reflected in transaction
services revenue. Securities owned totaled $108 at September 30, 1999, and are
included in other current assets. Securities sold, but not yet purchased ("short
positions"), totaled $191 at September 30, 1999 and are included in other
liabilities and accrued expenses. In the normal course of business, the trading
companies assume short positions in their inventory. The establishment of short
positions exposes the trading companies to off-balance sheet risk in the event
of price increases. The trading companies attempt to control such risk by
monitoring the market value on a daily basis.
INVENTORIES -- Inventories which consist of computer equipment are stated
at the lower of cost (generally on an average cost basis) or market.
PROPERTY AND EQUIPMENT -- Property and equipment is recorded at cost less
accumulated depreciation and amortization. Property additions and improvements
are capitalized while maintenance and repairs are expensed as incurred. Upon
retirement or disposition, the cost and related accumulated depreciation and
amortization are removed from the accounts and any gain or loss is included in
the results of operations. As of September 30, 1999, no impairment had been
identified.
Depreciation and amortization is computed using the straight-line method
based on estimated useful lives as follows:
<TABLE>
<S> <C>
Building, improvements and furniture and fixtures ......... 5-32 years
Computer, communications equipment and software ........... 3-5 years
</TABLE>
GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS -- Goodwill is being
amortized over 3 to 40 years and other intangible assets over 1 to 20 years, all
using the straight-line method. Bridge periodically assesses the recoverability
of the cost of its goodwill and identifiable intangible assets based on a review
of projected undiscounted cash flows. As of September 30, 1999 no impairment had
been identified.
DEFERRED FINANCING COSTS -- Deferred financing costs are amortized to
interest expense over the life of the related debt based on a method that
approximates the interest method.
SOFTWARE DEVELOPMENT COSTS -- In April 1998, the Accounting Standards
Executive Committee issued Statement of Position 98-1 (SOP), "Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use." The SOP is
effective for financial statements for fiscal years beginning after December 15,
1998. As permitted by the SOP, Bridge adopted the provisions of the SOP
effective January 1, 1997.
F-67
<PAGE>
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
All costs, primarily employee compensation and benefits related to
conceptual formulation, design and testing of possible software projects
(preliminary project stage), are expensed as incurred. Upon completion of
preliminary project stage, costs incurred in the development of software are
capitalized until the software is released to production. Software development
costs of $26,017 (net of accumulated amortization of $19,182) are included in
other assets at September 30, 1999. Unamortized capitalized costs determined to
be in excess of the net realizable value of the products are expensed to
depreciation and amortization expense at the date of such determination. As of
September 30, 1999, no impairment had been identified.
Amortization is provided over an estimated economic life of the software
(generally 1 to 3 years) using the straight-line method and commences when the
software is released into production. Amortization expense totaled $5,294 and
$8,820 for the nine-month periods ended September 30, 1998 and 1999,
respectively. The accumulated amortization and related software development
costs are removed from their respective accounts effective in the year following
full amortization.
PREPAID COMMISSION EXPENSE -- Commissions paid at the beginning of the
subscription to sales representatives and managers for successful customer
referrals and renewals are deferred and expensed over the length of the
subscription. This policy is consistent with others in the financial information
business and matches commissions more closely with the revenue earned from the
related subscriptions.
INCOME TAXES -- Bridge files consolidated federal and state income tax
returns and its foreign subsidiaries file various income tax returns in the
respective foreign jurisdictions. Deferred tax assets and liabilities are
determined based on the differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to be reversed. In addition, the amount of
any future tax benefits is reduced by a valuation allowance to the extent such
benefits are not expected to be realized.
Except for selective dividends, Bridge intends to reinvest the unremitted
earnings of its non-U.S. subsidiaries and postpone their remittance
indefinitely. Accordingly, no provision for U.S. income taxes was required on
such earnings during the nine-month periods ended September 30, 1998 and 1999.
FOREIGN CURRENCY TRANSLATION -- The financial position and results of
operations of Bridge's foreign subsidiaries are measured using local currency as
the functional currency. Revenues and expenses of such subsidiaries have been
translated into U.S. dollars at average exchange rates prevailing during the
period. Assets and liabilities have been translated at the rates of exchange at
the balance sheet date. Translation adjustments are recorded as a component of
other comprehensive income.
STOCK-BASED COMPENSATION ARRANGEMENTS -- Bridge 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". SFAS No. 123 prescribes the recognition of compensation expense
based on the fair value of options as determined on the grant date. However,
SFAS No. 123 allows companies to continue applying APB No. 25 if certain pro
forma disclosures are made assuming hypothetical fair value method application.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-68
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
4. BUSINESS COMBINATIONS:
On April 7, 1999, Bridge acquired SAVVIS Holdings Corporation ("SAVVIS") in
an all stock transaction that was accounted for as a "purchase transaction"
under Accounting Principles Board No. 16. Pursuant to the terms of the
transaction, Bridge issued 3,011,000 shares of common stock, together with
239,000 options and warrants to purchase common stock in exchange for all of the
outstanding equity interest of SAVVIS. The purchase price has been allocated to
the underlying assets purchased and liabilities assumed based on their estimated
fair market values at the acquisition date. The total cost of the acquisition
exceeded the fair value of SAVVIS' net assets by $23,767, which is being
amortized over three years. In addition, $20,300 of the purchase price was
allocated to property and equipment, trademarks, noncompete agreements and other
intangibles, which are being amortized over one to five years. Also, in
connection with the acquisition, Bridge assumed net liabilities of SAVVIS in the
amount of $12,321. Subsequent to the acquisition, on September 10, 1999, Bridge
sold in a private placement (Note 5) approximately 25% of its ownership to
Bridge shareholders for $9,000.
The following summarized pro forma (unaudited) information assumes the
SAVVIS acquisition had occurred at the beginning of each period:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------------
1998 1999
-------------- --------------
>
<S> <C> <C>
Net revenues ......... $ 586,805 $ 963,875
========== ==========
Net loss ............. $ (103,246) $ (142,428)
========== ==========
</TABLE>
In Bridge management's opinion, the pro forma combined results of
operations may not be indicative of the actual results that would have occurred
had the acquisitions been consummated as of that time or of future operations of
the combined companies under the ownership and operation of Bridge.
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following at
September 30:
<TABLE>
<CAPTION>
1999
------------
<S> <C>
12% subordinated debt ................................................... $ 61,977
11% subordinated debt ................................................... 2,975
Secured credit agreement with bank ...................................... 934,624
Junior subordinated variable rate notes ................................. 26,970
7.75% note payable ...................................................... 15,954
Mortgage notes .......................................................... 4,492
Capitalized equipment lease obligations, payments extend through 2003, at
various rates of interest averaging 9.4% ............................... 44,137
----------
Total long-term debt and capital lease obligations ...................... 1,091,129
Less: current maturities ................................................ 60,999
----------
$1,030,130
==========
</TABLE>
At September 30, 1999, the 12% subordinated debt consisted of the original
issue of senior subordinated notes payable to Welsh, Carson, Anderson & Stowe.
This issue, as amended, ($65,500 less unamortized discount of $3,523 at
September 30, 1999 -- effective rate of 16%) is due on August 15, 2002, and
bears interest at 12% per annum, payable quarterly in arrears.
F-69
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS - (CONTINUED)
As part of the Telesphere acquisition in 1997, Bridge issued $2,975 of
subordinated notes payable to the former owners. The notes bear interest of 11%
payable monthly in arrears. The principal is due on August 15, 2002.
Bridge has a Secured Credit Agreement (the "Agreement") originally dated
May 29, 1998 and amended and restated on July 7, 1998 with a bank syndicate from
which the proceeds were used to finance the Dow Jones Markets, Inc. ("DJM")
acquisition and to repay the amounts outstanding from the existing Credit
Agreement dated November 17, 1997. The Agreement contains four tranches with a
total credit facility of $944,625 as of September 30, 1999. The first tranche
consists of a $125,000 revolving credit line of which $115,000 was outstanding
at September 30, 1999. The second tranche consists of a multi-draw term loan of
$75,000 all of which is outstanding at September 30, 1999. The revolving credit
line and the multi-draw term loan mature May 29, 2003. Bridge pays letter of
credit fees and a commitment fee on the unused portion of the revolving credit
line and multi-draw term loan which are both tied to Bridge's Leverage Ratio.
The third tranche consists of a $96,250 term loan payable in quarterly
installments of $3,750 through June 30, 2001 and $8,750 through the maturity
date of May 29, 2003. The fourth tranche consists of a $648,375 term loan
payable in quarterly installments of $1,625 through June 30, 2004, quarterly
installments of $154,375 through March 31, 2005 with a final payment of $154,375
due at maturity on May 29, 2005. Interest accrues on all borrowings at the
Eurodollar rate (5.4375% at September 30, 1999) plus a defined margin tied to
Bridge's Leverage Ratio. The Agreement is collateralized by a pledge of capital
stock of the company's U.S. entities, excluding Trading. The Agreement contains
various restrictive covenants including the maintenance of a minimum rolling
four-quarter earnings before interest, taxes, depreciation and amortization
(EBITDA), a minimum interest coverage ratio, a maximum leverage ratio, a maximum
amount of capital leases incurred and a maximum amount of total capital
expenditures. Bridge incurred transaction costs of $19,952 which were
capitalized to deferred financing costs related to obtaining the credit
facility. (See Note 8 regarding subsequent amendment to the Agreement)
In connection with the Agreement, Bridge has also entered into three swap
transactions pursuant to which it has exchanged its floating rate interest
obligations for a fixed rate payment obligation. These swap agreements hedge the
third and fourth tranches of the credit agreement. The first swap has a notional
principal amount of $136,625 at September 30, 1999 and a fixed rate of 6.035%
per annum for the period ending December 31, 2002. The second swap has a
notional principal amount of $100,000 at September 30, 1999 and a fixed rate of
5.8125% per annum ending June 29, 2001. The third swap has a notional principal
amount of $100,000 at September 30, 1999 and a fixed rate of 5.94% per annum
ending June 29, 2002. The fixing of the interest rates for this period minimizes
in part Bridge's exposure to the uncertainty of floating interest rates during
this period.
In connection with the private placement of SAVVIS' stock (Note 4), Bridge
received proceeds and issued junior subordinated variable rate notes. The notes
bear interest of 2% plus the otherwise applicable variable rate on any overdue
principal amount. The principal is due December 31, 2005.
6. STOCK OPTIONS
BRIDGE INFORMATION SYSTEMS -- Bridge has a Stock Option and Restricted
Stock Purchase Plan, which provides for stock option and other awards to
selected employees and officers of Bridge. The Board of Directors determines the
option price (not to be less than 100% of fair market value for incentive stock
options) at the date of grant. During the nine-month period ended September 30,
1999, 2,236,500 options to purchase common stock were granted with ratable
vesting over five years and expiring ten years from the date of grant.
F-70
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. STOCK OPTIONS - (CONTINUED)
Bridge applies APB Opinion No. 25, Accounting for Stock Issue to Employees
("APB 25") and related interpretations in accounting for its plan. Accordingly,
compensation cost has been recognized for its stock option plan only to the
extent the fair market value of Bridge's common stock exceeded the exercise
price of nonqualified stock option grants at the grant date. Had compensation
cost for Bridge's stock option plan been determined based on the fair value at
the grant dates for awards under the plan consistent with the method of SFAS No.
123, Bridge's net loss would not have been significantly different than the net
loss reported.
SAVVIS COMMUNICATION CORPORATION -- Upon Bridge's acquisition of SAVVIS on
April 7, 1999, all outstanding SAVVIS stock options were exchanged for Bridge's
stock options and included as part of the purchase consideration based upon the
fair value of Bridge's options issued. Subsequently, on July 22, 1999, SAVVIS'
Board of Directors adopted a new stock option plan and authorized 8 million
stock options to be granted under the plan. Between July and September 1999,
SAVVIS granted options to purchase 3,639,000 shares of its common stock to
certain employees of Bridge. In that same period, SAVVIS granted options to
purchase up to 2,300,008 shares of its common stock to certain of its employees.
SAVVIS has elected to follow APB 25, and related interpretations in
accounting for its employee stock option plan. Had compensation cost for SAVVIS'
stock option plan been determined consistent with the provisions of SFAS No. 123
based on the fair value at the grant date, SAVVIS' pro forma net loss would not
have been significantly different than the net loss reported.
7. OTHER COMMITMENTS AND CONTINGENCIES
At the time of the DJM acquisition in 1998, DJM was party to certain
agreements between DJM and Cantor Fitzgerald Securities Corp. ("Cantor"), a
primary supplier of market data to DJM, and Market Data Corporation ("MDC"). As
of the date of the acquisition, certain provisions of these agreements were in
dispute between DJM and Cantor. In addition, Cantor has taken the position that
as a result of the acquisition, by virtue of certain provisions in the
agreements with Cantor and MDC, Bridge has incurred certain obligations separate
from DJM's obligations under those agreements to make payments to MDC and Cantor
with respect to terminals other than those to which DJM was providing
information prior to the acquisition.
Bridge has been in discussions with Cantor regarding settlement of this
dispute. Any such settlement would also require approval of Dow Jones. It is
uncertain at this time whether the Company will be able to settle this matter.
If settlement is not feasible, and litigation were to ensue, Bridge believes
that it has meritorious defense to Cantor claims.
Bridge also enters into agreements for the licensing of software and
information data bases to be used in connection with the Bridge's products.
Certain of these agreements provide for royalty payments based on the Company's
revenues or the number of workstations installed, as defined. Bridge has no
material commitments with respect to these licenses.
Bridge is subject to various other legal proceedings and claims which arise
in the ordinary course of its business.
Loss accruals for matters that have not been indemnified by the sellers and
relate directly to acquisitions have been established as part of the purchase
price (goodwill). When and if it is determined that such accruals are
unnecessary, they will be reversed and credited back to the purchase price
(goodwill). The ultimate resolution of these matters cannot be predicted with
certainty. However, based on the information currently available, management
does not believe they will have a material adverse effect on Bridge's financial
condition.
F-71
<PAGE>
BRIDGE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. SUBSEQUENT EVENTS:
PUBLIC OFFERING: The Board of Directors of the Company has authorized
management of SAVVIS to file a registration statement with the Securities and
Exchange Commission for the initial public offering of SAVVIS' common stock.
SAVVIS intends to use a portion of the proceeds to finance a portion of its
purchase of the Company's Internet protocol network assets and to pay a
preferential dividend to the Company.
STOCK OPTIONS: During the period from October through December 1999, SAVVIS
granted 2,543,258 stock options to employees of SAVVIS and the Company with an
exercise price of $.50 per share. Noncash compensation cost based upon the
difference between the exercise price and the imputed fair value of SAVVIS'
stock as if the respective option grant dates totaling approximately $53 million
will be recorded over the vesting periods of such options, which periods range
from immediate up to four years. Approximately $2,000 of noncash compensation
expense will be recorded in the fourth quarter of 1999.
DEBT RESTRUCTURING: At December 31, 1999, Bridge did not comply with
certain of the restrictive covenants contained in its Secured Credit Agreement
(the "Agreement"). The Agreement was amended on January 7, 2000 (the
"Amendment") to 1) permit the sale of Bridge's network assets to SAVVIS, 2)
allow for the subsequent public offering of SAVVIS shares, and 3) waive and
modify certain covenants in the Agreement related to EBITDA, interest coverage
ratio, leverage ratio and capital expenditure limitations. The Amendment was
also modified to require Bridge to repay approximately $250,000 of its
indebtedness under the Agreement on or before June 30, 2000. However, Bridge
must repay a separate loan in the amount of $100,000 before it can repay the
full amounts required under the amended Agreement. In addition, the Amendment
requires the public offering of SAVVIS shares to be completed by February 29,
2000. Failure to comply with this provision could result in acceleration of the
maturity of the outstanding balance due under the Agreement. The Amendment also
requires that all of the proceeds from the sale of assets to SAVVIS and the
preferential dividend, be applied to the indebtedness under the Agreement.
* * * * * *
F-72
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
17,000,000 SHARES
[GRAPHIC OMITTED]
SAVVIS COMMUNICATIONS CORPORATION
COMMON STOCK
----------------
P R O S P E C T U S
----------------
Joint Book-Running Managers
MERRILL LYNCH & CO. MORGAN STANLEY DEAN WITTER
----------------
BEAR, STEARNS & CO. INC.
----------------
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 ........................ $ 130,081
NASD filing fee ............................. 30,500
Nasdaq National Market listing fee .......... 95,000
Blue sky fees and expenses .................. 10,000
Accounting fees and expenses ................ 575,000
Legal fees and expenses ..................... 600,000
Printing and engraving expenses ............. 500,000
Transfer agent fees and expenses ............ 3,500
Miscellaneous expenses ...................... 305,919
----------
Total .................................... $2,250,000
==========
</TABLE>
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 that a claim, issue or matter
has been successfully defended.
The Registrant's Amended and Restated Certificate of Incorporation, as
amended (the "Certificate") contains provisions that no director of the
Registrant shall be liable for breach of fiduciary duty as a director, except
for (1) any breach of the director's 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 benefit. The indemnification
provided under the Certificate 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:
II-1
<PAGE>
(1) On March 4, 1998, in connection with its formation, the Registrant
issued 63,488,349 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"). These issuances were effected
in reliance on the exemptions from registration provided by Section
4(2) of the Securities Act.
(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 408,362,922 shares of its common stock, at an exercise price
below $.01 per share. These sales were effected in reliance on the
exemptions from registration provided by Section 4(2) of the
Securities Act.
(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 13,799,812 shares of its common stock at an exercise
price of $.10 per share in exchange for warrants to purchase an equal
amount of shares of SCC's common stock. These issuances were effected
in reliance on the exemption from registration provided by Section
4(2) of the Securities Act.
(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. These issuances were effected in
reliance on the exemption from registration provided by Section 4(2)
of the Securities Act.
(5) On March 4, 1998, the Registrant issued 28,789,781 shares of its
common stock in exchange for the outstanding securities of
Interconnected Associates, Inc. These issuances weres effected in
reliance on the exemption from registration provided by Section 4(2)
of the Securities Act.
(6) Between May 1998 and March 1999, the Registrant issued options to
purchase a total of 61,681,951 shares of its common stock to a total
of 177 employees, at exercise prices ranging from $.01 to $.03 per
share. These options were granted under the Registrant's 1998 Stock
Option Plan. These issuances were effected in reliance on the
exemption from registration provided by Rule 701 promulgated under
Section 3(b) of the Securities Act.
(7) Between July and December 1999, the Registrant granted options to
purchase 3,639,000 shares of the Registrant's common stock to 121
employees of Bridge Information Systems, Inc. ("Bridge") at an
exercise price of $.50 per share. In that same period, the Registrant
granted options to purchase up to 2,300,008 shares of its common
stock to 92 of its employees at an exercise price of $.50 per share.
All of these options were granted pursuant to the Registrant's 1999
Stock Option Plan. In October 1999, the Registrant granted to its
employees the right 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
II-2
<PAGE>
Registrant at an exercise price of $.50 per share. These issuances
were effected in reliance on the exemption from registration provided
by Rule 701 promulgated under Section 3(b) of the Securities Act.
(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. These issuances were effected
in reliance on the exemption from registration provided by Rule 701
promulgated under Section 3(b) of the Securities Act.
Each of the foregoing transactions was effected without the use of an
underwriter.
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 Certificate of Amendment to Amended and Restated Certificate of Incorporation of the
Registrant
3.3** 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 Incentive 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* * Amended and Restated
Agreement and Plan of Merger, dated February 19, 1999, among the
Registrant, SAVVIS Acquisition Corp. and Bridge Information
Systems, Inc.
10.6** Employment Agreement, dated December 4, 1998, between the
Registrant and Clyde A. Heintzelman
10.7** Letter Agreement, dated November 12, 1999, between the Registrant
and Clyde A. Heintzelman
10.8** Employment Agreement, dated December 20, 1999, between the
Registrant and Jack M. Finlayson
10.9** Letter Agreement, dated June 14, 1999, between the Registrant and
David J. Frear
10.10** Letter Agreement, dated September 30, 1999, between the Registrant
and James D. Mori
10.11 Form of Master Establishment and Transition Agreement between the
Registrant and Bridge Information Systems, Inc., including as
Exhibit B a Form of Administrative Services Agreement, as Exhibit
E a Form of Local Contract of Assignment and Assumption, as
Exhibit F a Form of Local Asset Transfer Agreement, as Exhibit H a
Form of Equipment Colocation Permit, as Exhibit I a Form of
Promissory Note, as Exhibit J a Form of Call Asset Transfer
Agreement and as Exhibit K the Sublease Agreement.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------
<S> <C>
10.12 +** Form of Network Services Agreement between SAVVIS Communications
Corporation and Bridge Information Systems, Inc.
10.13 +** Form of Technical Services Agreement between SAVVIS Communications
Corporation and Bridge Information Systems, Inc.
10.14** Managed Network Agreement, dated January 31, 1995, between Sprint
Communications Company L.P. and Bridge Data Company
10.15** Amendment One to the Managed Network Agreement, dated August 23,
1995, between Sprint Communications Company L.P. and Bridge Data
Company
10.16** Amendment Two to the Managed Network Agreement, dated August 16,
1995, between Sprint Communications Company L.P. and Bridge Data
Company
10.17 +** Amendment Three to the Managed Network Agreement, dated March 1,
1996, between Sprint Communications Company L.P. and Bridge Data
Company
10.18 +** Amendment Four to the Managed Network Agreement, dated July 29,
1996, between Sprint Communications Company L.P. and Bridge Data
Company
10.19 +** Amendment Five to the Managed Network Agreement, dated December 5,
1996, between Sprint Communications Company L.P. and Bridge Data
Company
10.20+** Amendment Six to the Managed Network Agreement, dated May 23,
1997, between Sprint Communications Company L.P. and Bridge Data
Company
10.21+** Amendment Seven to the Managed Network Agreement, dated August 28,
1998, between Sprint Communications Company L.P. and Bridge Data
Company
10.22+** Service Agreement, dated August 15, 1996, between the Registrant
and IXC Carrier, Inc.
10.23+** Amendment No. 1 to the Service Agreement, dated October 22, 1996,
between the Registrant and IXC Carrier, Inc.
10.24+** Master Internet Services Agreement, effective June 4, 1999,
between the Registrant and UUNET Technologies, Inc.
10.25+** InternetMCI Dedicated Access Agreement, dated April 16, 1998,
between the Registrant and networkMCI, Inc.
16.1 Letter Re Change in Certifying Accountant
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.
+ Request for Confidential Treatment
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. 6 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 January 31, 2000.
SAVVIS COMMUNICATIONS CORPORATION
By: /s/ Robert McCormick
------------------------------------
Robert McCormick
Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 6 to 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 Chief Executive Officer and January 31, 2000
- ---------------------------
Chairman of the Board
Robert McCormick
(principal executive officer)
* Executive Vice President, Chief January 31, 2000
- ---------------------------
Financial Officer and Director
David J. Frear
(principal financial officer and
principal accounting officer)
* Director January 31, 2000
- ---------------------------
Clyde A. Heintzelman
* Director January 31, 2000
- ---------------------------
Thomas McInerney
* Director January 31, 2000
- ---------------------------
Patrick Welsh
* Director January 31, 2000
- ---------------------------
Thomas M. Wendel
</TABLE>
*By: /s/ Robert McCormick
-----------------------
Robert McCormick
Attorney-in-Fact
and Agent
II-7
<PAGE>
EXHIBIT INDEX
<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 Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant
3.3** 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 Incentive 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** Amended and Restated Agreement and Plan of Merger, dated February
19, 1999, among the Registrant, SAVVIS Acquisition Corp. and
Bridge Information Systems, Inc.
10.6** Employment Agreement, dated December 4, 1998, between the
Registrant and Clyde A. Heintzelman
10.7** Letter Agreement, dated November 12, 1999, between the Registrant
and Clyde A. Heintzelman
10.8** Employment Agreement, dated December 20, 1999, between the
Registrant and Jack M.Finlayson
10.9* * Letter Agreement, dated June 14, 1999, between the Registrant and
David J. Frear
10.10** Letter Agreement, dated September 30, 1999, between the Registrant
and James D. Mori
10.11 Form of Master Establishment and Transition Agreement between the
Registrant and Bridge Information Systems, Inc., including as
Exhibit B a Form of Administrative Services Agreement, as Exhibit
E a Form of Local Contract of Assignment and Assumption, as
Exhibit F a Form of Local Asset Transfer Agreement, as Exhibit H a
Form of Equipment Colocation Permit, as Exhibit I a Form of
Promissory Note, as Exhibit J a Form of Call Asset Transfer
Agreement and as Exhibit K the Sublease Agreement.
10.12 +** Form of Network Services Agreement between SAVVIS Communications
Corporation and Bridge Information Systems, Inc.
10.13+** Form of Technical Services Agreement between SAVVIS Communications
Corporation and Bridge Information Systems, Inc.
10.14** Managed Network Agreement, dated January 31, 1995, between Sprint
Communications Company L.P. and Bridge Data Company
10.15** Amendment One to the Managed Network Agreement, dated August 23,
1995, between Sprint Communications Company L.P. and Bridge Data
Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
<S> <C>
10.16** Amendment Two to the Managed Network Agreement, dated August 16, 1995, between
Sprint Communications Company L.P. and Bridge Data Company
10.17 +** Amendment Three to the Managed Network Agreement, dated March 1, 1996, between
Sprint Communications Company L.P. and Bridge Data Company
10.18 +** Amendment Four to the Managed Network Agreement, dated July 29, 1996, between Sprint
Communications Company L.P. and Bridge Data Company
10.19 +** Amendment Five to the Managed Network Agreement, dated December 5, 1996, between
Sprint Communications Company L.P. and Bridge Data Company
10.20 +** Amendment Six to the Managed Network Agreement, dated May 23, 1997, between Sprint
Communications Company L.P. and Bridge Data Company
10.21 +** Amendment Seven to the Managed Network Agreement, dated August 28, 1998, between
Sprint Communications Company L.P. and Bridge Data Company
10.22 +** Service Agreement, dated August 15, 1996, between the Registrant and IXC Carrier, Inc.
10.23 +** Amendment No. 1 to the Service Agreement, dated October 22, 1996, between the Registrant
and IXC Carrier, Inc.
10.24 +** Master Internet Services Agreement, effective June 4,
1999, between the Registrant and UUNET Technologies, Inc.
10.25 +** InternetMCI Dedicated Access Agreement, dated April 16,
1998, between the Registrant and networkMCI, Inc.
16.1 Letter Re Change in Certifying Accountant
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.
+ Request for Confidential Treatment
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SAVVIS COMMUNICATIONS CORPORATION
* * * * *
SAVVIS Communications Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting duly
held on January 28 , 2000 adopted a resolution proposing and declaring
advisable the following amendment to the Amended and Restated Certificate of
Incorporation of SAVVIS Communications Corporation:
RESOLVED, that the Amended and Restated Certificate of Incorporation of
SAVVIS Communications Corporation be amended by deleting Article 4.1 in its
entirety and substituting therefor the following so that, as amended, said
Article shall be and read as follows:
"The total number of shares of all classes of stock that the Corporation
shall have the authority to issue is 300,000,000, of which 250,000,000 of such
shares shall be common stock, all of one class, having a par value of $.01 per
share ("Common Stock"), and 50,000,000 of such shares shall be preferred stock,
having a par value of $.01 per share ("Preferred Stock")."
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given written consent to said amendment in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware and written notice of the adoption of the amendment has been given as
provided in Section 228 of the General Corporation Law of the State of Delaware
to every stockholder entitled to such notice.
THIRD: That the aforesaid amendment was duly adopted in accordance with the
applicable provisions of Sections 242 and 228 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, SAVVIS COMMUNICATIONS CORPORATION has caused this
Certificate to be signed by Steven M. Gallant, its Vice President - General
Counsel, who hereby acknowledges under penalties of perjury that the facts
herein stated are true and that this Certificate is his act and deed, this 28th
day of January 2000.
SAVVIS COMMUNICATIONS CORPORATION
By:/s/ Steven M. Gallant
-------------------------
Steven M. Gallant
Vice President - General Counsel
1
EXHIBIT 4.1
[SAVVIS]
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK COMMON STOCK
NUMBER SHARES
- ---------------------------- ----------------------------
SEE REVERSE SIDE FOR CUSIP 805423 10 0
CERTAIN DEFINITIONS
THIS CERTIFIES that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER
SHARE OF
============= SAVVIS COMMUNICATIONS CORPORATION =============
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of this Certificate properly
endorsed.
In Witness Whereof, the said Corporation has caused this certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated
- ------------------------- ----------------------------------
SECRETARY CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
SAVVIS COMMUNICATIONS CORPORATION
CORPORATE SEAL
2000
DELAWARE
COUNTERSIGNED AND REGISTERED:
ChaseMellon Shareholder Services, L.L.C.
(New York, New York) TRANSFER AGENT
AND REGISTRAR,
Authorized Signature
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT-____________Custodian_____________
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act ____________________________
tenants in common (State)
UNIF TRF MIN ACT-____________Custodian(until age____)
(Cust)
__________ under Uniform Transfers
, (Minor)
to Minors Act ______________________
(State)
</TABLE>
For value received, the undersigned hereby sells, assigns and transfers
unto ____________________
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
________________________________________________________________________________
Shares represented by the within Certificate, and hereby irrevocably constitutes
and appoints ___________________ Attorney to transfer the said shares on the
books of the within-named Corporation with full power of substitution in the
premises.
Dated, ________________________ X ________________________________________
X ________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
- -----------------------------------------------
THE SIGNATURES(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE, IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<TABLE>
<CAPTION>
CFC NORTHERN BANK NOTE COMPANY, L.L.C.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Phone approval Proof Prepared On Above Date P.O. Box 608
necessitates Proof Approved: LaGrange, Illinois 60525
returning a signed 708/482-3900
copy of the final approved By__________________________ Fax 708/482-3332
proof for our records. Date________________________
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SAVVIS COMMUNICATIONS CORPORATION
1999 STOCK OPTION PLAN
SECTION 1. PURPOSE.
The purpose of the Plan is to attract, retain, motivate and reward
employees of, and other individuals providing services to, the Company and
Related Companies with stock-related compensation arrangements.
SECTION 2. MAXIMUM NUMBER OF SHARES.
(a) The maximum number of shares of Stock which may be issued pursuant to
Options under the Plan, and the maximum number of shares for which ISOs may be
granted under the Plan, shall be 12,000,000 shares, subject to adjustment as
provided in Section 8. For this purpose:
(i) The number of shares underlying an Option shall be counted
against the Plan maximum ("used") at the time of grant.
(ii) If the number of shares underlying an Option is not
determinable at the time of grant, the Committee shall determine at the
time of grant a number of shares which is deemed to underlie such Option;
that number may be adjusted after grant as the Committee deems
appropriate.
(iii) Shares which underlie Options that (in whole or part) expire,
terminate, are forfeited, or otherwise become non-payable, or which are
recaptured by the Company in connection with a forfeiture event, may be
re-used in new grants to the extent of such expiration, termination,
forfeiture, non-payability, or recapture.
(iv) Shares of Stock delivered under the Plan in settlement,
assumption or substitution of outstanding awards (or obligations to grant
future awards) under the plans or arrangements of another entity shall
not reduce the maximum number of shares of Stock available for delivery
under the Plan, to the extent that such settlement, assumption or
substitution occurs as a result of the Company acquiring another entity
(or an interest in another entity).
(b) In its discretion, the Company may issue treasury shares or
authorized but previously unissued shares.
SECTION 3. ELIGIBILITY.
Grants may be made under the Plan to: (i) any employee of the Company or
of any Related Company, including any such employee who is an officer or
director of the Company or a Related Company, as the Board shall determine and
designate from time to time (ii) any non-employee members of the Board or the
board of directors of any Related Company, and (iii) any other individual whose
participation in the Plan is determined to be in the best interests of the
Company by the Board.
<PAGE>
SECTION 4. GENERAL PROVISIONS RELATING TO OPTIONS.
(a) Subject to the limitations in the Plan, the Committee may cause the
Company to grant Options to such Eligible Participants, at such times, of such
types, in such amounts, for such periods, becoming exercisable at such times,
with such features, with such option prices, and subject to such other terms,
conditions, and restrictions as the Committee deems appropriate. Each Option
shall be evidenced by a written Option Agreement between the Company and the
Optionee. In granting an Option, the Committee may take into account any factor
it deems appropriate and consistent with the purpose of the Plan.
(b) All or any portion of any payment to an Optionee, whether in cash or
shares of Stock, may be deferred to a later date if and as provided in the
Option Agreement. Deferrals may be for such periods and upon such terms and
conditions (including the provision of interest, dividend equivalents, or other
return on such amounts) as the Committee may determine. The Committee may
structure Option Agreements so that the imposition of income and other taxes on
Optionees is deferred in whole or part.
(c) Option Agreements may contain any provision approved by the Committee
relating to the period for exercise or vesting after termination of employment.
Except to the extent otherwise expressly provided in the Option Agreement,
termination of employment includes separation from the Company or a Related
Company for any reason, including death, Disability, retirement, resignation,
dismissal, disposition of an operation (whether by stock or asset sale or
otherwise) or any other event.
(d) Option Agreements may, in the discretion of the Committee, contain a
provision permitting an Optionee to designate the person who may exercise or
receive an Option upon the Optionee's death, either by will or by appropriate
notice to the Company.
(e) An Optionee shall have none of the rights of a shareholder with
respect to shares of Stock covered by his or her Option until shares are issued
in his or her name.
(f) The Committee may provide in Option Agreements that Options, except
for ISO's are transferable. Transferability may be subject to such conditions
and limitations as the Committee deems appropriate. Except to the extent
otherwise expressly set forth in the Option Agreement, Options shall not be
transferable other than by will or the laws of descent and distribution, and (if
exercise is required) shall be exercisable during the Optionee's lifetime only
by the Optionee or his or her guardian or legal representative.
SECTION 5. OPTIONS.
(a) Except as provided in Section 8(b), the option price per share of
ISOs shall not be less than Fair Market Value per share of Stock on the ISO's
grant date, nor less than the par value of a share of Stock. The Option price
per share of NQSO's shall not be less than the par value of a share of stock.
(b) The grant of Options and their related Option Agreement must clearly
identify the Options as either ISOs or as NQSOs.
2
<PAGE>
SECTION 6. STOCK ISSUANCE, PAYMENT, AND WITHHOLDING.
(a) An Optionee may pay the purchase price in cash, Stock but only if the
Stock is publicly traded, or other property, to the extent permitted or required
by the Option Agreement or the Committee from time to time. The Stock will be
treated as publicly traded if the Stock is listed on an established national or
regional stock exchange or is admitted to quotation on the National Association
of Securities Dealers Automated Quotation System, or is publicly traded in an
established securities market. The Committee may permit deemed or constructive
transfers of shares in lieu of actual transfer and physical delivery of
certificates. Except to the extent prohibited by applicable law, the Committee
or its delegate may take any necessary or appropriate steps in order to
facilitate the payment of any such option price. Without limiting the foregoing,
the Committee may allow the Optionee to defer payment of such option price, or
may cause the Company to loan the option price to the Optionee or to guaranty
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. The Committee may provide, by
inclusion of appropriate language in an Option Agreement, that payment in full
of the option price need not accompany the written notice of exercise provided
that the notice of exercise directs that the certificate or certificates for the
shares of Stock for which the Option is exercised be delivered to a licensed
broker acceptable to the Company as the agent for the individual exercising the
Option and, at the time such certificate or certificates are delivered, the
broker tenders to the Company cash (or cash equivalents acceptable to the
Company) equal to the option price for the shares of Stock purchased pursuant to
the exercise of the Option plus the amount (if any) of Required Withholding
Taxes. The Committee may require satisfaction of any rules or conditions in
connection with paying the purchase price at any particular time, in any
particular form, or with the Company's assistance.
(b) If shares used to pay any such option price are subject to any prior
restrictions imposed in connection with any plan of the Company (including the
Plan), an equal number of the shares of Stock purchased shall be made subject to
such prior restrictions in addition to any further restrictions imposed on such
purchased shares by the terms of the Option Agreement or Plan.
(c) When the obligation arises to collect and pay Required Withholding
Taxes, the Optionee shall promptly reimburse the Company or a Related Company
for the amount of such Required Withholding Taxes in cash, unless the Option
Agreement or the Committee permits or requires payment in another form. In the
discretion of the Committee or its delegate and at the Optionee's request, the
Committee or its delegate may cause the Company or a Related Company to pay to
the appropriate taxing authority Withholding Taxes in excess of Required
Withholding Taxes on behalf of an Optionee, which shall be reimbursed by the
Optionee. In the Option Agreement or otherwise, the Committee may allow an
Optionee to reimburse the Company or a Related Company for payment of
Withholding Taxes with shares of Stock or other property. The Committee may
require the satisfaction of any rules or conditions in connection with any
non-cash payment of Withholding Taxes.
(d) If provided in the Option Agreement relating to an ISO, the Committee
may prohibit the transfer by an Optionee of shares of Stock issued to him or her
upon exercise of an ISO into the name of a nominee, and the Committee may
require the placement of a legend on certificates for such shares reflecting
such prohibition.
3
<PAGE>
SECTION 7. FORFEITURES.
(a) The Committee may include in any Option Agreement any provisions
relating to forfeitures of Options that it deems appropriate. Such forfeiture
provisions may include, among others, prohibitions on competing with the Company
or any Related Company and other detrimental conduct. Forfeiture provisions for
one Option may differ from those for another Option. As used in the Plan, a
"forfeiture" of an Option includes the recapture of economic benefits derived
from an Option, as well as the forfeiture of an Option itself; however, the
Committee may define the term more narrowly in specific Option Agreements or
contexts.
(b) Option Agreements may provide for any forfeiture provision to
terminate or be waived upon an acceleration date pursuant to Section 8 or 9. In
its discretion, the Committee may provide in any Option Agreement for the
termination of any forfeiture provision upon the happening of any specified
event, and may terminate or waive any forfeiture provision by action taken after
grant.
SECTION 8. ADJUSTMENTS AND ACQUISITIONS.
(a) In the event of (i) any change in the outstanding shares of Stock by
reason of any stock split (excluding the July 22, 1999 stock split), combination
of shares, stock dividend, reorganization, merger, consolidation, or other
corporate change having a similar effect, (ii) any separation of the Company
including a spin-off or other distribution of stock or property by the Company,
or (iii) any distribution to shareholders generally other than a normal
dividend, the Committee shall make such equitable adjustments to the Plan and to
outstanding Options as it shall deem appropriate in order to prevent the
dilution or enlargement of (A) the Options which may be granted, the shares of
Stock which may be issued, or the shares for which ISOs may be granted under the
Plan, or (B) the economic value of outstanding Options, provided, however, that
the Committee shall not make any adjustment which would constitute or result in
an increase in the aggregate number of Shares available under the Plan requiring
shareholder approval under Section 422 of the Code. Any such determination by
the Committee shall be conclusive and binding on all concerned.
(b) In the event the Company enters into a transaction described in
Section 424(a) of the Code with any other corporation, the Committee may grant
Options to employees or former employees of such corporation in substitution of
stock awards, stock appreciation rights or limited stock appreciation rights
(respectively) previously granted to them by such corporation upon such terms
and conditions as shall be necessary to qualify such grant as a substitution
described in Section 424(a) of the Code.
(c) Upon the dissolution or liquidation of the Company, or upon a
merger, consolidation or reorganization of the Company with one or more other
entities in which the Company is not the surviving entity, or upon a sale of
substantially all of the assets of the Company to another person or entity, or
upon any transaction (including, without limitation, a merger or reorganization
in which the 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 the
Company at the time the Plan is approved by the stockholders and other than an
affiliate) owning 80 percent or more of the combined voting power of all classes
of stock of the Company, the Plan and all Options outstanding hereunder shall
terminate, except to the extent provision is made in connection with such
4
<PAGE>
transaction for the continuation of the Plan and/or the assumption of the
Options theretofore granted, or for the substitution for such Options of new
options covering the stock of a successor entity, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kinds of shares and
exercise prices, in which event the Plan and Options theretofore granted shall
continue in the manner and under the terms so provided. In the event of any such
termination of the Plan, each Optionee shall have the right (subject to the
general limitations on exercise set forth herein and except as otherwise
specifically provided in the Option Agreement relating to such Option),
immediately prior to the occurrence of such termination and during such period
occurring prior to such termination as the Committee in its sole discretion
shall designate, to exercise such Option in whole or in part, whether or not
such Option was otherwise exercisable at the time such termination occurs, but
subject to any additional provisions that the Committee may, in its sole
discretion, include in any Option Agreement. The Committee shall send written
notice of an event that will result in such a termination to all Optionees not
later than the time at which the Company gives notice thereof to its
stockholders. Nothwithstanding the foregoing (but only if expressly provided in
any option agreement), in the event of a transaction described in this Section
8(c), the Board of Directors may, in its sole discretion, cancel any outstanding
Options (provided, however, that the limitations of Section 424 of the Code
shall apply with respect to adjustments made to ISO's) and pay or deliver, or
cause to be paid or delivered, to the holder thereof an amount in cash or
securities having a value (as determined by the Board of Directors acting in
good faith) equal to the product of (A) the number of shares of Common Stock
(the "Option Shares") that, as of the date of consummation of such transaction,
the holder of such Option had become entitled to purchase (and had not
purchased) multiplied by (B) the amount, if any, by which (1) the formula or
fixed price per share paid to holders of shares of Common Stock pursuant to such
transaction exceeds (2) the options price applicable to such Option Shares.
SECTION 9. ACCELERATION.
(a) The Committee may accelerate the date on which any Option or stock
issued pursuant to an Option shall vest and may remove any restrictions on such
Option at any time after grant and for any reason the Committee deems
appropriate.
(b) All Options, and all shares of Stock issued pursuant to an Option,
shall automatically vest upon a termination of employment caused by the death,
Disability, or retirement of the Optionee. The Committee may determine the
circumstances under which an Optionee is deemed to have retired.
SECTION 10. ADMINISTRATION.
(a) Prior to the time that the securities of the Company become publicly
traded, the Plan shall be administered by the Board (unless and until the Board
appoints the Committee and the members thereof to administer the Plan), in which
case the term "Committee" when used herein with respect to the administration of
the Plan shall be deemed to mean the Board. After the securities of the Company
become publicly traded, the Plan shall be administered by the Committee. The
Committee shall have the full power and authority to take all actions and to
make all determinations required or provided for under the Plan or any Option
granted or Option Agreement entered into hereunder and all such other actions
and determinations not inconsistent with the specific terms and provisions of
the Plan deemed by the Committee to be necessary or appropriate to the
5
<PAGE>
administration of the Plan or any Option granted or Option Agreement entered
into hereunder. The interpretation and construction by the Committee of any
provision of the Plan or of any Option granted or Option Agreement entered into
hereunder shall be final and conclusive.
(b) In the event that the Plan, any Option or any Option Agreement entered
into hereunder provides for any action to be taken by or determination to be
made by the Committee, such action may be taken or such determination may be
made by the Board. As permitted by law, the Committee may delegate its authority
under the Plan to a member of the Board of Directors or an executive officer of
the Company.
(c) No member of the Committee or of the Board shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option or Option Agreement.
SECTION 11. AMENDMENT, TERMINATION, SHAREHOLDER APPROVAL.
(a) The Board may amend or terminate the Plan at any time, except that
without the approval of the Company's shareholders, no amendment shall (i)
increase the maximum number of shares issuable, or the maximum number of shares
for which ISOs may be granted, under the Plan, (ii) change the class of persons
eligible to be Optionees, or (iii) change the provisions of this Section 11(a).
(b) No Options may be granted under the Plan after July 22, 2009.
(c) The approval of the Plan by shareholders shall be obtained in
accordance with the requirements of the Company's charter or by-laws, the Board,
the Company's principal stock exchange, and applicable law.
SECTION 12. ADDITIONAL PAYMENTS.
The Committee may grant an Optionee the right to receive additional
compensation in cash or other property (in addition to any cash or stock payable
under the terms of the Option itself) upon the exercise of Options, provided
that in the case of ISOs such compensation is includible in income under
Sections 61 and 83 of the Code at the time of such exercise or vesting.
SECTION 13. DEFINITIONS.
(a) "Act" means the Securities Exchange Act of 1934, as amended from time
to time.
(b) "Option Agreement" means the written agreement referred to in Section
4(a) between the Company and the Optionee evidencing an Option.
(c) "Board" means the Board of Directors of the Company.
(d) Options "cease to qualify as ISOs" when they fail or cease to
qualify for the exclusion from income provided in Section 421 (or any successor
provision) of the Code.
(e) "Code" means the U.S. Internal Revenue Code as in effect from time to
time.
(f) "Committee" means the Committee described in Section 10 hereof.
(g) "Company" means Savvis Communications Corporation and its successors.
6
<PAGE>
(h) "Disability" means the condition of being "disabled" within the
meaning of Section 422(c)(6) of the Code or any successor provision.
(i) "Eligible Participant" means a person who is eligible to receive an
Option under Section 3 of the Plan.
(j) "Fair Market Value" means the value of a share of Stock, determined
as follows: if on the grant date or otherdetermination date the Stock is listed
on an established national or regional stock exchange, is admitted to quotation
on the NASDAQ National Market, or is publicly traded on an established
securities market, the Fair Market Value of a share of Stock shall be the
closing price of the Stock on such exchange or in such market (the highest such
closing price if there is more than one such exchange or market) on the grant
date or such other determination date (or if there is no such reported closing
price, the Fair Market Value shall be the mean between the highest bid and
lowest asked prices or between the high and low sale prices on such trading day)
or, if no sale of Stock is reported for such trading day, on the next preceding
day on which any sale shall have been reported. If the Stock is not listed on
such an exchange, quoted on such system or traded on such a market, Fair Market
Value shall be the value of the Stock as determined by the Committee in good
faith.
(k) "Forfeiture" has the meaning given in Section 7(a).
(l) "ISO" or "Incentive Stock Option" means an option to purchase one
share of Stock for a specified option price which is designated by the Committee
as an "Incentive Stock Option" and which qualifies as an "incentive stock
option" under Section 422 (or any successor provision) of the Code.
(m) "NQSO" or "Non-Qualified Stock Option" means an option to purchase
one share of Stock for a specified option price which is designated by the
Committee as a "Non-Qualified Stock Option," or which is designated by the
Committee as an ISO but which ceases to qualify as an ISO.
(n) "Option" means an ISO or an NQSO.
(o) "Optionee" means a person to whom Options are granted pursuant to the
Plan.
(p) "Plan" means The SAVVIS Communications Corporation 1999 Stock Option
Plan, as amended from time to time.
(q) "Related Company" means any parent or subsidiary of the Company
within the meaning of Section 424 of the Code, any business venture in which the
Company has a significant interest, as determined in the discretion of the
Committee and any subsidiary of any parent of the Company.
(r) "Stock" means shares of the common stock of the Company, par value
$.01 per share, or such other class or kind of shares or other securities as may
be applicable under Section 6.
(s) "Vest" means that Options become exercisable in accordance with the
Plan and the terms of the governing Option Agreements.
(t) "Withholding Taxes" means, in connection with an Option, (i) the
total amount of Federal and state income taxes, social security taxes, and other
taxes which the Employer of the Optionee is required to withhold ("Required
Withholding Taxes") plus (ii) any other such taxes which the Employer, in its
sole discretion, withholds at the request of the Optionee.
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<PAGE>
SECTION 14. MISCELLANEOUS.
(a) Each provision of the Plan and Option Agreement relating to ISOs
shall be construed so that all ISOs shall be "incentive stock options" as
defined in Section 422 of the Code or any statutory provision that may replace
Section 422, and any provisions thereof which cannot be so construed shall be
disregarded. Except as provided in Section 7, no discretion granted or allowed
to the Committee under the Plan shall apply to ISOs after their grant except to
the extent the related Option Agreement shall so provide. Notwithstanding the
foregoing, nothing shall prohibit an amendment to or action regarding
outstanding ISOs which would cause them to cease to qualify as ISOs, so long as
the Company and the Optionee shall consent to such amendment or action.
(b) Nothing in the Plan or any Option Agreement shall confer on any
person or expectation to continue in the employ of the Company or a Related
Company, or shall interfere in any manner with the absolute right of the Company
or a Related Company to change or terminate such person's employment at any time
for any reason or for no reason.
8
EXHIBIT 10.11
MASTER ESTABLISHMENT AND TRANSITION AGREEMENT
BETWEEN
SAVVIS COMMUNICATIONS CORPORATION
AND
BRIDGE INFORMATION SYSTEMS, INC.
________________, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I.........................................................................................................1
1.1 "Acquired Network Facilities"..............................................................................2
1.2 "Adverse Consequences".....................................................................................2
1.3 "Assumed Liabilities"......................................................................................2
1.4 "Buyer Subsidiaries".......................................................................................2
1.5 "Code".....................................................................................................2
1.6 "Contracts"................................................................................................2
1.7 "Employee Benefit Plan"....................................................................................2
1.8 "ERISA"....................................................................................................3
1.9 "Impermissible Security Interest"..........................................................................3
1.10 "International Network Assets"............................................................................3
1.11 "IP Network"..............................................................................................3
1.12 "Lien"....................................................................................................3
1.13 "Local Transfer Agreements"...............................................................................3
1.14 "Retained Liabilities"....................................................................................3
1.15 "Seller Subsidiaries".....................................................................................4
1.16 "US Network Assets".......................................................................................4
1.17 "WARN Act"................................................................................................4
1.18 "Terms"...................................................................................................4
ARTICLE II........................................................................................................7
2.1 Purchase and Sale of Purchased Assets; Effective Time......................................................7
2.2 Assumption of Liabilities..................................................................................7
2.3 Purchase Price.............................................................................................7
2.4 The Closing................................................................................................8
2.5 Deliveries at the Closing..................................................................................8
2.6 Purchase Price Allocation and Adjustment...................................................................9
ARTICLE III.......................................................................................................9
3.1 Organization of Seller.....................................................................................9
3.2 Authorization of Transaction...............................................................................9
3.3 Noncontravention..........................................................................................10
3.4 Brokers'Fees..............................................................................................10
3.5 Purchased Assets; Assumed Liabilities.....................................................................10
3.6 Contracts.................................................................................................11
3.7 Employees.................................................................................................11
3.8 Disclaimer of Other Representations and Warranties........................................................11
ARTICLE IV.......................................................................................................12
4.1 Organization of the Buyer.................................................................................12
4.2 Authorization of Transaction..............................................................................12
4.3 Noncontravention..........................................................................................12
4.4 Brokers'Fees..............................................................................................13
ARTICLE V........................................................................................................13
5.1 Notices and Consents......................................................................................13
5.2 Call Right................................................................................................13
</TABLE>
i
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<TABLE>
<CAPTION>
<S> <C>
5.3 Exercise of Call Right....................................................................................14
5.4 Seller's Obligation with Respect to Call Assets...........................................................14
5.5 Buyer's Obligations with Respect to Call Assets...........................................................15
5.6 Termination of Call Right.................................................................................16
5.7 Employee Services.........................................................................................16
5.8 Offers of Employment......................................................................................16
5.9 Employee Benefits.........................................................................................16
5.10 Access to Employee Information...........................................................................17
5.11 WARN Act Indemnification.................................................................................17
5.12 Workers'Compensation Claims..............................................................................17
5.13 Employee Benefit Plans...................................................................................18
5.14 Further Assurances.......................................................................................18
ARTICLE VI.......................................................................................................18
6.1 Survival of Representations and Warranties................................................................18
6.2 Indemnification Provisions for Benefit of the Buyer.......................................................18
6.3 Indemnification Provisions for Benefit of Seller..........................................................19
6.4 Matters Involving Third Parties...........................................................................19
6.5 Call Right Remedies.......................................................................................20
6.6 Exclusive Remedy..........................................................................................20
ARTICLE VII......................................................................................................20
7.1 No Third-party Beneficiaries..............................................................................20
7.2 Entire Agreement..........................................................................................20
7.3 Succession and Assignment.................................................................................21
7.4 Counterparts..............................................................................................21
7.5 Headings..................................................................................................21
7.6 Notices...................................................................................................21
7.6 Governing Law.............................................................................................22
7.7 Arbitration...............................................................................................22
7.8 Amendments and Waivers....................................................................................23
7.9 Severability..............................................................................................23
7.10 Expenses.................................................................................................23
7.11 Construction.............................................................................................23
7.12 Incorporation of Exhibits and Schedules..................................................................23
7.13 Bulk Transfer Laws.......................................................................................23
EXHIBIT A........................................................................................................25
EXHIBIT B........................................................................................................26
EXHIBIT C........................................................................................................54
EXHIBIT D........................................................................................................55
EXHIBIT E........................................................................................................56
EXHIBIT F........................................................................................................59
EXHIBIT G........................................................................................................72
EXHIBIT H........................................................................................................73
EXHIBIT J........................................................................................................81
EXHIBIT K........................................................................................................84
EXHIBIT L.......................................................................................................115
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
SCHEDULE 1.3....................................................................................................186
SCHEDULE 1.10...................................................................................................187
SCHEDULE 1.16...................................................................................................188
SCHEDULE 2.3....................................................................................................189
SCHEDULE 3.3....................................................................................................190
SCHEDULE 3.5(A).................................................................................................191
SCHEDULE 3.6....................................................................................................192
SCHEDULE 3.7....................................................................................................193
SCHEDULE 5.1....................................................................................................194
SCHEDULE 5.2(A).................................................................................................195
SCHEDULE 5.2(B).................................................................................................196
SCHEDULE 5.5....................................................................................................197
</TABLE>
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<PAGE>
1. MASTER ESTABLISHMENT AND TRANSITION AGREEMENT
This Master Establishment and Transition Agreement
("Agreement"), made this ____ day of __________, 2000, by and between SAVVIS
Communications Corporation, a Delaware corporation ("Buyer"), and Bridge
Information Systems, Inc., a Missouri corporation ("Seller"). Buyer and Seller
are referred to collectively herein as the "parties."
RECITALS
WHEREAS, Seller is engaged in the business of collecting and
distributing various financial, news and other data;
WHEREAS, Buyer is engaged in the business of providing
Internet protocol backbone and other data transport services;
WHEREAS, Seller and its subsidiaries own certain assets
relating to the provision of Internet protocol backbone and other data transport
services, such assets consisting of (i) all of the equity interest (the
"Interest") in Seller's wholly-owned subsidiary, Global Network Assets, LLC, a
Delaware limited liability company (the "LLC"), and (ii) the International
Network Assets (defined below);
WHEREAS, Seller does not own outright but instead leases a
substantial portion of the US based assets comprising its Internet protocol
backbone ("Leased Assets"); and
WHEREAS, Seller and certain of its subsidiaries desire to
sell, and Buyer and certain of its subsidiaries desire to purchase, (i) the
Interest, (ii) the International Network Assets and (iii) the Call Assets
(collectively, such acquired assets are referred to herein as the "Purchased
Assets"; provided, however, that Call Assets first shall be added to the
Purchased Assets as they are acquired by Buyer and certain of its subsidiaries
under a Call Asset Transfer Agreement).
NOW, THEREFORE, in consideration of the premises and the
mutual promises herein made, and in consideration of the representations,
warranties, and covenants herein contained, the parties agree as follows.
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the words and phrases listed
below shall have the meanings given below, and all defined terms shall include
the plural as well as the singular. Unless otherwise stated, the words "herein",
"hereunder" and other similar words refer to this Agreement as a whole and not
to a particular Section or other subdivision. The words "included" and
"including" shall not be construed as terms of limitation. The following terms
shall have the meanings set forth below:
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1.1 "Acquired Network Facilities" means the US Network Assets,
the International Network Assets and the Call Assets; provided, however that the
Call Assets are included only to the extent acquired by Buyer and Buyer's
subsidiaries pursuant to this Agreement and the Call Asset Transfer Agreements.
1.2 "Adverse Consequences" means all actions, suits,
proceedings, hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues, penalties,
fines, costs, reasonable amounts paid in settlement, liabilities, obligations,
taxes, liens, losses, expenses, and fees, including court costs and reasonable
attorneys' fees and expenses.
1.3 "Assumed Liabilities" means all liabilities and
obligations of Seller and the Seller Subsidiaries (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due) fulfilling both of the following requirements:
(a) which are directly associated with (i) the Purchased
Assets, (ii) the use of the IP Network, (iii) the Contracts, or (iv) those
matters set forth on Schedule 1.3 attached hereto; and
(b) which are not Retained Liabilities.
1.4 "Buyer Subsidiaries" means the direct and indirect
subsidiaries of the Buyer which will be involved in the operation or ownership
of the Acquired Network Facilities, including those subsidiaries purchasing (i)
certain of the International Network Assets pursuant to the Local Transfer
Agreements and (ii) certain of the Call Assets pursuant to the Call Asset
Transfer Agreements.
1.5 "Code" means the Internal Revenue Code of 1986, as
amended.
1.6 "Contracts" means any and all contracts, agreements,
arrangements, leases, understandings, purchase orders, and offers, written or
oral, of the Seller and the Seller Subsidiaries relating to the provision of the
IP Network and related data transport services, together with certain agreements
being entered into by Buyer or Buyer Subsidiaries on or around the Closing Date
in substitution for certain contracts of Seller or Seller Subsidiaries,
including without limitation the agreements set forth on Schedule 3.6 attached
hereto; provided, however, such obligations and other agreements concerning Call
Jurisdictions or with respect to the Satellite Rights shall first become
"Contracts" upon exercise of the respective Call Right.
1.7 "Employee Benefit Plan" means all "employee benefit plans"
as such term is defined in Section 3(3) of ERISA and all stock option,
restricted stock, stock appreciation or other equity plans and all bonus,
severance, change in control, retention, deferred compensation or other
compensatory plans maintained or contributed to by the Seller in which any
Employee participates, in addition to all documents describing Seller's
employment policies and procedures.
2
<PAGE>
1.8 "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
1.9 "Impermissible Security Interest" means any Lien, other
than (a) mechanic's, materialmen's, and similar liens, (b) liens for taxes not
yet due and payable or for taxes that the taxpayer is contesting in good faith
through appropriate proceedings, (c) purchase money liens and liens securing
rental payments under capital lease arrangements, and (d) other liens arising in
the ordinary course of business and not incurred in connection with the
borrowing of money.
1.10 "International Network Assets" means the IP Network
assets, with the exception of the Call Assets, that are located outside the
United States as set forth on Schedule 1.10 attached hereto and all rights of
the Seller and the Seller Subsidiaries under Contracts relating thereto.
1.11 "IP Network" means the switches, routers, circuit
contracts, satellite facilities and other assets specifically described on
Schedule 1.11 to the extent used by the Seller and its subsidiaries primarily in
providing telecommunications utilizing the Internet protocol between Seller and
its subsidiaries, and their suppliers and customers.
1.12 "Lien" means any lien, security interest, mortgage,
option, lease, tenancy, occupancy, covenant, condition, easement, agreement,
pledge, hypothecation, charge, claim, restriction, or other encumbrance of every
kind and nature.
1.13 "Local Transfer Agreements" means the various transfer
agreements, including local contracts of assignment and assumption ("Local
Contracts of Assignment"), local asset transfer agreements ("Local Asset
Transfer Agreements") and the stock purchase agreement in Japan ("Japanese Stock
Purchase Agreement") executed by the direct and indirect subsidiaries of the
Seller and of the Buyer involved in this transaction to effectuate the transfer
of the International Network Assets. Each such agreement shall be substantially
in the form of Exhibit E, Exhibit F, Exhibit A to the foregoing Exhibit F, or
Exhibit L attached hereto and incorporated herein by reference.
1.14 "Retained Liabilities" means liabilities which result
from or arise out of the ownership or operation of the IP Network prior to the
Effective Time, including liabilities which exist with respect to (i)
obligations under the Contracts, other than an obligation to make payment, which
are required to be fulfilled by Seller wholly prior to Closing, or (ii)
obligations to make payment, to the extent such payment is for services rendered
under the Contracts prior to Closing. Provided, further, that the liabilities
resulting from or arising out of the ownership or operation of the IP Network in
the Call Jurisdictions shall be included in the definition of the Retained
Liabilities until the Call Right is exercised, and such liabilities shall remain
the responsibility of the Seller and/or the appropriate Seller Subsidiaries to
the extent they result from or arise out of the ownership or operation of the IP
Network in such countries prior to the effective date under each respective Call
Asset Transfer Agreement.
3
<PAGE>
1.15 "Seller Subsidiaries" means the LLC, until the Interest
is acquired hereunder by Buyer, and all other direct and indirect subsidiaries
of the Seller involved in the operation or ownership of the IP Network,
including those subsidiaries selling the International Network Assets pursuant
to the Local Transfer Agreements and those subsidiaries selling certain of the
Call Assets at the time of any subsequent Call Right exercise and related
transfers effected by the "Call Asset Transfer Agreements" in the form attached
as Exhibit J, as well as certain other subsidiaries entering into other Local
Operative Agreements, but does not include Buyer or any entity directly or
indirectly owned by Buyer.
1.16 "US Network Assets" means the assets owned by the LLC and
the Leased Assets, all as set forth on Schedule 1.16 attached hereto and all
rights of the Seller and the Seller Subsidiaries under Contracts relating
thereto.
1.17 "WARN Act" means the Workers Adjustment and Retraining
Notification Act of 1988, as amended.
1.18 "Terms". The following terms shall have the meanings set
forth in the below referenced sections of this Agreement:
"Arbitration Costs" Section 7.7(f)
"Arbitration Demand" Section 7.7(b)
"Arbitrators" Section 7.7(c)
"Bridge Plan" Section 5.9(a)
"Buyer" Preface
"Call Asset Transfer Agreements" Section 1.15
"Call Assets" Section 5.2
"Call Jurisdictions" Section 5.2(a)
"Call Right" Section 5.2
"Closing" Section 2.4
"Closing Date" Section 2.4
"Dispute Notice" Section 7.7(b)
"Employees" Section 3.7
"Employment Date" Section 5.8(a)
4
<PAGE>
"Expiration Date" Section 5.2
"Effective Time" Section 2.1
"Global Operative Agreements" Section 2.5(a)
"Indemnified Party" Section 6.4
"Indemnifying Party" Section 6.4
"Interest" Recitals
"Japanese Stock Purchase Agreement" Section 1.13
"Leased Assets" Recitals
"LLC" Recitals
"Local Asset Transfer Agreements" Section 1.13
"Local Network Services Agreement" Section 2.5(b)
"Local Contracts of Assignment" Section 1.13
"Local Operative Agreements" Section 2.5(b)
"Note" Section 2.3
"Original Asset Value" Section 2.6(a)
"Public Offering Proceeds" Section 2.3
"Purchase Price" Section 2.3
"Purchased Assets" Recitals
"Revised Asset Value" Section 2.6(b)
"Rules" Section 7.7(a)
"Satellite Rights" Section 5.2(b)
"Savvis Plan" Section 5.9(a)
"Seller" Preface
5
<PAGE>
"Short-Term Call Assets" Section 5.5
"Sublease" Section 2.5
"Third Party Claim" Section 6.4
6
<PAGE>
ARTICLE II
PURCHASE & SALE
2.1 Purchase and Sale of Purchased Assets; Effective Time. On
and subject to the terms and conditions of this Agreement, the Buyer hereby
purchases from Seller (or shall cause the Buyer Subsidiaries to purchase from
the appropriate Seller Subsidiaries), and Seller hereby sells, transfers,
conveys, and delivers to the Buyer (or shall cause the Seller Subsidiaries to
sell, transfer, convey and deliver to the appropriate Buyer Subsidiaries), all
of the Purchased Assets at the Closing for the consideration specified in
Section 2.3 hereof. The Closing shall be effective as of the close of business
on _____________________________, 2000 ("Effective Time"); provided, however,
that the "Effective Time" with respect to any Call Assets shall be as provided
in the respective Call Asset Transfer Agreement.
2.2 Assumption of Liabilities.
(a) On and subject to the terms and conditions of this
Agreement, the Buyer hereby assumes and becomes responsible for (or shall cause
the Buyer Subsidiaries to assume and become responsible for) all of the Assumed
Liabilities.
(b) To the extent that Seller or any of the Seller
Subsidiaries makes payment on any Assumed Liabilities which are comprised of
undisputed liabilities for payment of services received under the Contracts,
then Buyer or a Buyer Subsidiary shall reimburse Seller for such payment
promptly upon receipt of an appropriate invoice from Seller. Likewise, to the
extent that Buyer or any of the Buyer Subsidiaries makes payment on any Retained
Liabilities which are comprised of undisputed liabilities under the Contracts
for payment of services received under the Contracts, then Seller or a Seller
Subsidiary shall reimburse Buyer for such payment promptly upon receipt of an
appropriate invoice from Buyer.
2.3 Purchase Price. The Buyer agrees to pay to the Seller $
________, which shall be an amount equal to $150,000,000 less the net book value
of all the Call Assets and less the net present value of the sublease payments
to be made by Buyer related to the Leased Assets, both of which amounts will be
determined by the parties at Closing (the "Purchase Price"). The Purchase Price
allocable to the Interest shall be paid partially with cash and partially with a
promissory note (the "Note") substantially in the form attached hereto as
Exhibit I. The cash portion of the Purchase Price is intended to be paid from
the net proceeds of the initial public offering by Buyer of its shares, after
payment of all costs and expenses of such offering including fees and expenses
of legal counsel, investment bankers, accountants and other professionals
directly engaged in connection with such public offering, which public offering
is being made simultaneously with the Closing ("Public Offering Proceeds"). The
cash portion of the Purchase Price shall be equal to an amount determined
according to the following formula: One Hundred Million Dollars ($100,000,000)
of the first Three Hundred Million Dollars ($300,000,000) of Public Offering
Proceeds and 50% of the remaining Public Offering Proceeds in excess of Three
Hundred Million ($300,000,000), up to the full payment of the Purchase Price in
cash. The principal amount of the Note shall be the Purchase Price less this
cash payment. The Purchase Price allocable to the International Network Assets
shall be allocated first from this cash amount.
7
<PAGE>
The cash portion of the Purchase Price shall be paid by the legal entities set
forth on Schedule 2.3, or as otherwise agreed by the parties.
2.4 The Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Bryan Cave LLP, 245 Park Avenue, New York, New York, commencing at 10:00 a.m.
local time on such date as the Parties may agree ("Closing Date").
2.5 Deliveries at the Closing. The Parties shall make the
following deliveries at Closing:
(a) The Seller shall execute and deliver to Buyer and the
Buyer shall cause Savvis Communications Corporation, a Missouri corporation and
Buyer's wholly-owned subsidiary, to execute and deliver to Seller each of the
following agreements: (i) the Network Services Agreement substantially in the
form of Exhibit A attached hereto, (ii) the Administrative Services Agreement
substantially in the form of Exhibit B attached hereto, (iii) the Technical
Services Agreement substantially in the form of Exhibit C attached hereto and
(iv) the Bill of Sale substantially in the form of Exhibit D attached hereto
(collectively, the agreements listed in (a)(i) through (a)(iv) are sometimes
referred to herein as the "Global Operative Agreements").
(b) The Seller shall cause the appropriate Seller Subsidiaries
to execute and deliver, and Buyer shall cause the appropriate Buyer Subsidiaries
to execute and deliver each of the following agreements: (i) the Local Contracts
of Assignment substantially in the form of Exhibit E attached hereto, (ii) the
Local Asset Transfer Agreements substantially in the form of Exhibit F attached
hereto, (iii) the Local Network Services Agreements substantially in the form of
Exhibit G attached hereto ("Local Network Services Agreement"), (iv) the
Equipment Collocation Permits substantially in the form of Exhibit H attached
hereto, (v) the Local Administrative Services Agreements attached as Exhibit A
to the Administrative Services Agreement, which is Exhibit B to this Agreement,
(vi) the sublease for the Leased Assets (the "Sublease") substantially in the
form of Exhibit K attached hereto, (vii) the Japanese Stock Purchase Agreement
substantially in the form of Exhibit L attached hereto, and (viii) the Telerate
Network Services Agreement substantially in the form of Exhibit B to the Network
Services Agreement, which is Exhibit A to this Agreement (collectively, the
agreements listed in (b)(i) through (b)(viii) are sometimes referred to herein
as the "Local Operative Agreements").
(c) Seller and the Seller Subsidiaries shall have delivered to
the Buyer satisfactory evidence of consent of Goldman Sachs and the participants
in Seller's lenders group, consent to sublease of the Leased Assets, and such
other consents to assignment of the Contracts (as described in Section 5.1
hereof) and attainment of governmental approvals as Seller and the Seller
Subsidiaries shall have received as of the date hereof. To the extent Seller and
the Seller Subsidiaries shall not have received such consents or governmental
approvals, the rights and obligations of the parties with respect thereto shall
be governed by Section 5.1 hereof.
8
<PAGE>
(d) The Buyer will deliver to the Seller, or Buyer will cause
the Buyer Subsidiaries to deliver to the Seller Subsidiaries, the Purchase Price
as specified in Section 2.3 above.
2.6 Purchase Price Allocation and Adjustment.
(a) Subject to adjustment as provided in Section 2.6(b), the
Purchase Price shall be allocated among the Purchased Assets as follows: The
Purchase Price allocable to the International Network Assets shall be equal to
the sum of the agreed upon value of such assets, as set forth on Schedule 1.10
("Original Asset Value"). The Purchase Price allocable to the Interest shall be
equal to the difference between the Purchase Price and the Original Value. The
Parties believe that the allocations in this Section 2.6(a) reflect that most of
the fair value of the Purchased Assets is contained in the assets of the LLC
because of the positive cash flows generated by the US Network Assets.
(b) Within fifteen days after the Closing, Seller shall update
Schedule 1.10 and Schedule 1.17 attached hereto to include all US Network Assets
and all International Network Assets owned by Seller and the Seller Subsidiaries
as of the Effective Time. If the sum of the agreed upon value of the
International Network Assets shown on such revised Schedule 1.10 (the "Revised
Asset Value") exceeds the Original Asset Value, then the amount of the Purchase
Price allocable to the International Network Assets pursuant to Section 2.6(a)
above shall be increased, dollar for dollar, by such excess and the amount of
the Purchase Price allocable to the Interest shall be decreased by such excess.
Likewise, if the Revised Asset Value is less than the Original Asset Value, then
the amount of the Purchase Price allocable to the International Network Assets
pursuant to Section 2.6(a) above shall be decreased, dollar for dollar, by such
amount and the amount of the Purchase Price allocable to the Interest shall be
increased by such amount. In either event, Seller shall redistribute the cash
portion of the Purchase Price paid by the Buyer hereunder such that the Seller
Subsidiaries are compensated for the sale of International Network Assets
entirely in cash. In the event sufficient cash is not available in the Purchase
Price for this purpose, then the deficit shall be funded by means of an early
prepayment under the Note.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to the Buyer that the
statements contained in this Article III are correct and complete as of the date
of this Agreement.
3.1 Organization of Seller. Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Missouri. Each of the Seller Subsidiaries is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction in which such
entity was organized.
3.2 Authorization of Transaction. Seller has full corporate
power and authority to execute and deliver this Agreement and the Global
Operative Agreements and to perform its obligations hereunder and thereunder.
Each of this Agreement and the Global
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Operative Agreements constitutes the valid and legally binding obligation of the
Seller, enforceable in accordance with its terms and conditions. Each of the
Seller Subsidiaries has full corporate power and authority to execute and
deliver the respective Local Operative Agreements and to perform its obligations
thereunder. The respective Local Operative Agreements constitute the valid and
legally binding obligation of each of the Seller Subsidiaries, enforceable in
accordance with their terms and conditions.
3.3 Noncontravention. Neither the execution and the delivery
of this Agreement and the consummation of the transactions contemplated hereby
by the Seller, nor the execution and delivery of the Global and Local Operative
Agreements and the consummation of the transactions contemplated thereby by the
Seller and by each of the Seller Subsidiaries will:
(a) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller or the Seller
Subsidiaries, as the case may be, is subject or any provision of the charter or
bylaws of the Seller or the Seller Subsidiaries, as the case may be,
(b) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Seller or the Seller Subsidiaries, as the case may be, is a party or by
which they are bound or to which any of the Purchased Assets or US Network
Assets are subject; or
(c) require Seller to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any third party,
government or governmental agency.
Provided, however, that the foregoing representation and warranty in this
Section 3.3 shall not apply to the extent:
(y) as set forth on Schedule 3.3, or
(z) as would not result in the imposition of any Impermissible
Security Interest upon any of the International Network Assets or the US Network
Assets, and where any violation, conflict, breach, default, acceleration,
termination, modification, cancellation or failure to give notice would not have
a material adverse effect on the value or use of the International Network
Assets or the US Network Assets, or on the amount of the Assumed Liabilities, or
on the ability of the parties to consummate the transactions contemplated by
this Agreement or the Global Operative Agreements, or the ability of the
parties' affiliates to consummate the transactions contemplated by the Local
Operative Agreements to the extent these are executed and delivered at Closing.
3.4 Brokers' Fees. Seller has no liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
3.5 Purchased Assets; Assumed Liabilities.
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(a) Except as set forth on Schedule 3.5(a), the International
Network Assets, the US Network Assets and the Call Assets constitute all of the
material assets of the Seller and the Seller Subsidiaries used in the IP
Network.
(b) Each of the respective Seller and Seller Subsidiaries has
good title to, or a valid leasehold interest in, the Purchased Assets and the US
Network Assets, free and clear of all Impermissible Security Interests, and
there exists no restriction on the transfer of such property, other than
Impermissible Security Interests or restrictions which would not, in the
aggregate, have a material adverse affect on the ability of the parties to
consummate the transactions contemplated by this Agreement, the Global Operative
Agreements or the Local Operative Agreements or on the value or use of the
International Network Assets or the US Network Assets.
(c) Other than (i) the Assumed Liabilities incurred by Seller
and Seller Subsidiaries in the ordinary course of business after December 31,
1999, (ii) the Contracts, and (iii) the Assumed Liabilities listed on Schedule
1.3, there are no Assumed Liabilities which are material to the business
comprised of the Acquired Network Facilities, taken as a whole.
3.6 Contracts. Each of the Contracts material to the operation
and use of the US Network Assets and the International Network Assets, taken as
a whole, is set forth on Schedule 3.6 and is a valid and binding obligation of
the parties thereto, enforceable in accordance with their terms and is in full
force and effect. No party to any such contract is in material breach or
violation thereof or default thereunder. Except for matters which would not, in
the aggregate, have a material adverse effect on the value or use of the
International Network Assets or the US Network Assets, or on the amount of the
Assumed Liabilities, taken as a whole, no event has occurred which, through the
passage of time or the giving of notice, or both, would constitute, and neither
the execution of this Agreement nor the consummation of the transactions
contemplated hereby do or will constitute or result in, a breach or violation of
or default under any contract, or would cause the acceleration of any obligation
of any party thereto or the creation of any Impermissible Security Interest upon
any US Network Assets or International Network Assets.
3.7 Employees. Schedule 3.7 sets forth the names of all
employees of the Seller who have been released by Seller or Seller Subsidiaries
for transfer to the Buyer as of January 1, 2000 (the "Employees").
3.8 Disclaimer of Other Representations and Warranties EXCEPT
AS EXPRESSLY SET FORTH IN THIS ARTICLE III, NEITHER THE SELLER NOR ANY OF THE
SELLER SUBSIDIARIES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT
LAW OR IN EQUITY, IN RESPECT OF ANY OF ITS ASSETS (INCLUDING, WITHOUT
LIMITATION, THE PURCHASED ASSETS), LIABILITIES OR OPERATIONS, INCLUDING, WITHOUT
LIMITATION, WITH RESPECT TO MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE, AND ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES ARE HEREBY EXPRESSLY
DISCLAIMED. BUYER HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT TO THE EXTENT
SPECIFICALLY SET FORTH IN THIS ARTICLE III, THE BUYER AND EACH BUYER SUBSIDIARY
IS PURCHASING THE PURCHASED ASSETS
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ON AN "AS-IS, WHERE-IS" BASIS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
NEITHER THE SELLER NOR THE SELLER SUBSIDIARIES MAKES ANY REPRESENTATION OR
WARRANTY REGARDING ANY ASSETS OTHER THAN THE ACQUIRED NETWORK FACILITIES AND THE
INTEREST AND SELLER AND SELLER SUBSIDIARIES EXPRESSLY HEREBY DISCLAIM ANY
REPRESENTATIONS OR WARRANTIES REGARDING THE CALL ASSETS PRIOR TO SUCH ASSETS
BEING ACQUIRED BY BUYER OR BUYER SUBSIDIARIES HEREUNDER OR REGARDING ANY
LIABILITIES OTHER THAN THE ASSUMED LIABILITIES, AND NONE SHALL BE IMPLIED AT LAW
OR IN EQUITY.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller that the
statements contained in this Article IV are correct and complete as of the date
of this Agreement.
4.1 Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware. Each of the Buyer Subsidiaries is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction in which such
entity was organized.
4.2 Authorization of Transaction. The Buyer has full corporate
power and authority to execute and deliver this Agreement and the Global
Operative Agreements and to perform its obligations hereunder and thereunder.
Each of this Agreement and the Global Operative Agreements constitutes the valid
and legally binding obligation of the Buyer, enforceable in accordance with its
terms and conditions. Each of the Buyer Subsidiaries has full corporate power
and authority to execute and deliver the respective Local Operative Agreements
and to perform its obligations thereunder. The respective Local Operative
Agreements constitute the valid and legally binding obligation of each of the
Buyer Subsidiaries, enforceable in accordance with their terms and conditions.
4.3 Noncontravention. Except as would not have a material
adverse effect on ability of the parties to consummate the transactions
contemplated by this Agreement or the Global Operative Agreements or the ability
of the parties' affiliates to consummate the transactions contemplated by the
Local Operative Agreements, neither the execution and the delivery of this
Agreement and the consummation of the transactions contemplated hereby by the
Buyer, nor the execution and delivery of the Global and Local Operative
Agreements and the consummation of the transactions contemplated thereby by the
Buyer and by each of the Buyer Subsidiaries will:
(a) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer or the Buyer
Subsidiaries, as the case may be, is subject or any provision of the charter or
bylaws of the Buyer of the Buyer Subsidiaries, as the case may be;
(b) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require
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any notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Buyer or the Buyer Subsidiaries, as the case may be, is
a party or by which they are bound; or
(c) require Buyer to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency.
4.4 Brokers' Fees. The Buyer has no liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable or obligated.
ARTICLE V
ADDITIONAL AGREEMENTS AND COVENANTS OF THE PARTIES
5.1 Notices and Consents. Except as set forth on Schedule 5.1
attached hereto, the Seller has given and obtained (or caused the Seller
Subsidiaries to give or obtain) all third-party notices and consents and
governmental approvals necessary to effect the purchase of the Purchased Assets
and the assignment, to the extent a replacement contract has not been executed,
of the Contracts and the assumption of the Assumed Liabilities hereunder. With
respect to any third party notices or consents or governmental approvals that
have not been given or obtained as of the date hereof, Seller covenants and
agrees to use its reasonable best efforts to give or obtain (or cause the Seller
Subsidiaries to give or obtain) the same. The Buyer agrees to fully cooperate
with (and cause the Buyer Subsidiaries to fully cooperate with) the Seller and
the Seller Subsidiaries in such efforts. Until such time as Seller or the Seller
Subsidiaries shall have obtained all necessary third party consents to
assignment by Buyer or the Buyer Subsidiaries of the Contracts and the
assumption by the Buyer or the Buyer Subsidiaries of the Assumed Liabilities,
Seller shall continue (or shall cause the Seller Subsidiaries to continue) to
discharge and perform when due all obligations associated therewith, and Buyer
shall reimburse Seller for any expenses directly attributable thereto.
5.2 Call Right. Seller, for itself and the Seller
Subsidiaries, hereby grants to Buyer and the Buyer Subsidiaries the right to
purchase (the "Call Right") the following assets ("Call Assets"):
(a) in each of the jurisdictions set forth on Schedule 5.2(a)
hereof and such other jurisdictions as Buyer and Seller may, from time to time,
mutually agree (the "Call Jurisdictions"), all of the IP Network assets owned by
the Seller and/or the Seller Subsidiaries in each Call Jurisdiction, including
those assets set forth in Schedule 5.2(a), subject to additions and deletions
subsequent to the Closing permitted under the terms of this Agreement, and all
contract rights associated therewith; provided, for the purpose of
clarification, that telecommunications circuits to destinations in any Call
Jurisdiction, but originating outside of such Call Jurisdiction, shall not be
Call Assets and instead shall be included in the Acquired Network Facilities
transferred hereunder at the initial Closing; and
(b) all the rights and obligations with respect to the
satellite communications agreements and all rights and obligations in specific
countries with respect thereto, as described
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in Schedule 5.2(b), subject to additions and deletions subsequent to the Closing
permitted under the terms of this Agreement, (the "Satellite Rights").
Unless earlier terminated pursuant to Section 5.6 hereunder, the Call Right
granted hereunder shall expire on the tenth anniversary of the date hereof
("Expiration Date"); provided, however, that if the term of the Network Services
Agreement is extended beyond the Expiration Date, then the Expiration Date shall
be the date upon which the Network Services Agreement, attached as Exhibit A
hereto, is terminated. Upon the exercise of the Call Right in any Call
Jurisdiction or with respect to the Satellite Rights, Buyer shall assume all
liabilities and obligations of the Seller and/or the Seller Subsidiaries related
to the respective Call Assets to the extent that such liabilities arise on or
after the date of exercise.
5.3 Exercise of Call Right. Buyer shall use its reasonable
best efforts, from and after the Closing, to secure the consents, licenses, and
other authorizations, whether from governments or private parties, and to
establish such foreign legal presence and to fulfill such other conditions, as
are necessary in order to permit Buyer to acquire the Call Assets; provided,
however, that this obligation shall not require that Buyer permit third parties
to own a portion of any subsidiaries of Buyer unless Buyer otherwise agrees to
such ownership. Prior to the receipt of all such material consents, licenses,
and authorizations and the establishment of any necessary foreign presence,
Buyer shall not be obligated to exercise the Call Right with respect to any or
all of the Call Jurisdictions or with respect to the Satellite Rights, nor shall
Buyer be obligated to exercise all the Call Rights at one time; rather, Buyer
may exercise the Call Right in each Call Jurisdiction and with respect to the
Satellite Rights separately, from time to time, and at any time prior to the
Expiration Date subject to the immediately following provision. Upon the receipt
of all material consents, licenses and authorizations and the establishment of
any necessary foreign presence in any Call Jurisdiction or with respect to all
the Satellite Rights connected with a particular third-party satellite contract,
Buyer shall be obligated to proceed expeditiously with the exercise of the Call
Right with respect to such Call Jurisdiction or Satellite Rights. The exercise
price of the Call Right, other than with respect to Satellite Rights, in each
Call Jurisdiction shall be $1.00 plus the net book value of the Call Assets in
the applicable Call Jurisdiction(s) on the date of exercise of the Call Right
for such Call Jurisdiction. The exercise of the Call Right with respect to the
Satellite Rights shall only be permitted if made with respect to all Satellite
Rights under a particular global satellite contract as set forth on Schedule
5.2(b), and the exercise price shall be $1 plus the assumption of all
obligations of Seller with respect to such contract. The Call Assets shall be
transferred via a Call Asset Transfer Agreement in substantially the form
attached as Exhibit J hereto. Upon the exercise of a Call Right, a Local Network
Services Agreement for the respective Call Jurisdiction substantially in the
form of Exhibit G attached hereto will be executed by the appropriate Seller
Subsidiaries and Buyer Subsidiaries.
5.4 Seller's Obligation with Respect to Call Assets. Until the
earliest of (a) the Expiration Date, (b) the date upon which no Call Assets
remain subject to the Call Right, or (c) the Call Right is terminated pursuant
to Section 5.6, and subject at all times to the rights and obligations set forth
in the Network Services Agreement executed between the parties as of the same
date as the date of this Agreement:
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(a) Seller shall maintain and operate (or cause the Seller
Subsidiaries to maintain and operate) the Call Assets in the same manner and to
the same extent as Seller and the Seller Subsidiaries, as the case may be, have
maintained such assets to date. Seller shall take (and shall cause the Seller
Subsidiaries to take) any and all actions reasonably necessary to fulfill its
obligations hereunder;
(b) Seller shall not (nor shall it permit the Seller
Subsidiaries to) dispose of, encumber or otherwise transfer any interest in, or
amend, waive or modify any provision of or terminate any Contract relating to,
the Call Assets without the prior written consent of Buyer which consent shall
not be unreasonably withheld; provided, "unreasonable" shall be determined from
the perspective of Buyer and shall include all actions which may have a material
adverse effect if Buyer were to exercise the related Call Right;
(c) Seller shall provide (and shall cause the Seller
Subsidiaries to provide) Buyer with notice of any events that have, or may have,
a material adverse effect on the Call Assets or on Buyer's right or ability to
exercise the Call Right with respect to any of the Call Assets;
(d) If Buyer chooses to exercise any Call Right prior to the
receipt of all consents, licenses and other authorizations or establishment of
the appropriate foreign legal presence, it does so with the assumption of all
risk or other liability arising from such absence of necessary consents, license
or other authorizations or legal presence. Upon exercise of any Call Right,
Seller shall use its reasonable best efforts to obtain any required consent of
any other contracting parties to the assignment or novation of any agreement
pertaining to the applicable Call Assets, and Buyer shall use its reasonable
best efforts to assist Seller in all such endeavors. Unless and until such
consent shall be forthcoming and any relevant agreements shall have been
assigned or novated, Buyer shall at its own cost and expense assume Seller's
obligations under such agreements and Seller shall account to Buyer for all sums
received therefrom. Seller will at Buyer's request and expense give to Buyer all
assistance in the power of Seller to enable Buyer to enforce any of the
agreements so assigned against the other contracting party or parties and,
without prejudice to the generality of the foregoing, will provide all such
relevant books, documents and other information as Buyer may require in relation
thereto; and
(e) Buyer shall have no rights to use the Call Assets prior to
exercise of the Call Rights, except as otherwise consented to by Seller, such
consent not to be unreasonably withheld.
5.5 Buyer's Obligations with Respect to Call Assets. With
respect to those Call Assets in the Call Jurisdictions set forth on Schedule 5.5
("Short-Term Call Assets"), Buyer and Seller expect the exercise of the Call
Right to occur within the calendar year 2000. Regardless if such exercise
actually occurs in 2000, with respect to the Short-Term Call Assets, Buyer or
the Buyer Subsidiaries shall reimburse the Seller or the Seller Subsidiaries for
all costs requiring an expenditure of cash which are directly associated with
the use, maintenance and operation of the Short-Term Call Assets, including, but
not limited to, maintenance of leased lines. Seller shall invoice Buyer monthly
for such costs. Likewise, Seller shall compensate Buyer for the use of the
Short-Term Call Assets pursuant to such Network Services Agreement
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executed between the parties as of the same date as the date of this Agreement.
Such obligations of Buyer and Seller shall run concurrently and shall continue
until the Expiration Date, unless earlier terminated by mutual agreement of
Buyer and Seller. No similar obligations will exist for Buyer or Seller with
respect to the remaining Call Assets prior to the exercise of the Call Rights
with respect thereto.
5.6 Termination of Call Right. The Call Right shall terminate
automatically on the earlier of the Expiration Date or the date upon which Buyer
has exercised the Call Right in each of the Call Jurisdictions. Prior to the
Expiration Date, at any time and from time to time, the Call Right may be
terminated with respect to any or all of the Call Jurisdictions upon the mutual
agreement of the parties.
5.7 Employee Services. From and after the Closing until such
time as the Employees are transferred to the Buyer pursuant to Section 5.8,
Seller shall make all of the Employees available to Buyer on a full-time basis.
Buyer shall reimburse Seller, on a monthly basis, for all payroll costs directly
associated with such Employees.
5.8 Offers of Employment.
(a) As of December 31, 1999, Buyer has offered employment with
the Buyer to the Employees, and Seller has released from their employment those
Employees who accepted employment with the Buyer to enable them to commence
their employment with the Buyer. Such Employees commenced employment with the
Buyer on January 1, 2000 (the "Employment Date").
(b) Seller shall furnish Buyer with all employee data files
related to the Employees. The Seller makes no representations or warranties
concerning such files, or the contents or sufficiency thereof.
5.9 Employee Benefits.
(a) Employees shall continue to participate in each Employee
Benefit Plan maintained by Seller until such time as Buyer establishes and
maintains a substantially similar Employee Benefit Plan; provided that, as of
the Employment Date, an Employee shall cease to be eligible to participate in
the Bridge Information Systems, Inc. 401(k) Salary Savings Plan ("Bridge Plan")
and shall be eligible to participate in the Savvis Communications Co. 401(k)
Plan ("Savvis Plan"), in accordance with the terms of Section 5.9(b) and subject
to the terms of the Savvis Plan. During the period in which Employees are
participating in Seller's Employee Benefit Plans, Buyer shall reimburse Seller
for any employer-paid amounts under such Employee Benefit Plans.
(b) As soon as practicable after the Employment Date, Seller
shall cause to be transferred from the Bridge Plan to the Savvis Plan all Bridge
Plan assets representing account balances of Employees under the Bridge Plan.
Buyer and Seller shall take all such actions as are necessary to ensure that
such transfer complies with all relevant provisions of Section 411(d)(6) of the
Code and the regulations thereunder. Buyer shall amend the Savvis Plan, to the
extent
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necessary, to provide that each Employee is credited, for all purposes under the
Savvis Plan and subject to the other provisions of such plan, with all service
completed prior to the Employment Date with Seller.
(c) Buyer shall assume the obligations in connection with
accrued but unused vacation and shall be responsible for vacation pay at and
after the Employment Date with respect to service (whether prior to or after the
Employment Date) of all Employees. Buyer shall afford Employees credit for their
period of employment with Seller for purposes of determining the amount of
vacation to which the Employees are entitled each year and for purposes of
determining all other seniority based benefits.
(d) Buyer and Seller acknowledge and agree that the
transactions contemplated by this Agreement shall not constitute a termination
of employment of any Employee.
(e) No provision of this Agreement, including without
limitation this Section 5.9, shall create any third-party beneficiary rights in
any person or organization, including without limitation employees or former
employees (including any beneficiary or dependent thereof) of Seller, unions or
other representatives of such employees or former employees, or trustees,
administrators, participants, or beneficiaries of any Employee Benefit Plan, and
no provision of this Agreement, including this Section 5.9, shall create such
third-party beneficiary rights in any such person or organization in respect of
any benefits that may be provided, directly or indirectly, under any Employee
Benefit Plan.
(f) Seller and Buyer shall cooperate as may reasonably be
required with respect to each of the filings, calculations, and other actions
necessary to effect the transactions contemplated by this Section 5.9 and in
obtaining any government approvals as may be required hereunder.
5.10 Access to Employee Information. From and after the
Closing, the parties hereto will cooperate with each other in the administration
of any applicable Employee Benefit Plans and programs. To the extent permitted
by law, at the Employment Date or within a reasonable time thereafter, the
Seller will provide the Buyer the necessary employee data or copies thereof,
including personnel and benefit information, maintained with respect to the
Employees by the Seller or by its independent contractors, such as insurance
companies and actuaries.
5.11 WARN Act Indemnification. The Buyer agrees to indemnify
the Seller and its directors, officers, employees, consultants and agents for,
and to hold the Seller and its directors, officers, employees, consultants and
agents harmless from and against, any and all losses arising or resulting, or
alleged to arise or result from the notification or other requirements of the
WARN Act.
5.12 Workers' Compensation Claims. The Seller will be
responsible for any workers' compensation claims by any Employee for injuries
incurred prior to such Employee's Employment Date. The Buyer will be responsible
for any workers' compensation claims for injuries incurred by any Employee on or
after such Employee's Employment Date.
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5.13 Employee Benefit Plans. Except as expressly provided in
this Article V, the Buyer will not adopt, assume or otherwise become responsible
for, either primarily or as a successor employer, any assets or liabilities of
any Employee Benefit Plans, arrangements, commitments or policies currently
provided by the Seller or by any member of its controlled group of corporations.
In addition, the Buyer will not assume Seller's obligations under Code Section
4980B and ERISA Section 606 relating to individuals who are neither Employees
nor dependents of Employees. Buyer shall be responsible for satisfying
obligations under ERISA Section 606 and Code Section 4980 to provide
continuation coverage to or with respect to any Employees with respect to any
"qualifying event" which occurs on or following the Employment Date.
5.14 Further Assurances. From and after Closing, the parties
shall do such acts and execute such documents and instruments as may be
reasonably required to make effective the transactions contemplated hereby. In
the event that consents, approvals, other authorizations or other acts
contemplated by this Agreement have not been fully effected as of Closing, the
parties will continue after Closing, without further consideration, to use their
reasonable best efforts to carry out such transactions; provided, however, in
the event that certain approvals, consents or other necessary documentation
cannot be secured, then the party having legal responsibility, ownership or
control shall act on behalf of the other party, without further consideration,
to effect the essential intention of the parties with respect to the
transactions contemplated by this Agreement.
ARTICLE VI
REMEDIES FOR BREACHES OF THIS AGREEMENT
6.1 Survival of Representations and Warranties. The
representations and warranties of the Seller contained in Article III of this
Agreement and of the Buyer contained in Article IV of this Agreement shall
survive for a period of one year following the Closing.
6.2 Indemnification Provisions for Benefit of the Buyer.
(a) Subject to the limitations set forth in Section 6.2(c)
below, in the event the Seller or any Seller Subsidiary breaches any of its
representations, warranties, and covenants contained in this Agreement, provided
that the Buyer makes a written claim for indemnification against the Seller with
respect to its representations and warranties within the survival period set
forth in Section 6.1, then the Seller agrees to indemnify the Buyer and the
Buyer Subsidiaries from and against the entirety of any Adverse Consequences the
Buyer and the Buyer Subsidiaries shall suffer through and after the date of the
claim for indemnification (but excluding any Adverse Consequences the Buyer or
the Buyer Subsidiaries shall suffer after the end of any applicable survival
period) caused proximately by the breach.
(b) Subject to the limitations set forth in Section 6.2(c)
below, Seller agrees to indemnify the Buyer and the Buyer Subsidiaries from and
against the entirety of any Adverse Consequences the Buyer and the Buyer
Subsidiaries shall suffer caused proximately by any
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liability of the Seller or any Seller Subsidiary which is a Retained Liability
(including any liability of the Seller or any Seller Subsidiary that becomes a
liability of the Buyer or any Buyer Subsidiary under any bulk transfer law of
any jurisdiction, under any common law doctrine of de facto merger or successor
liability, or otherwise by operation of law).
(c) Notwithstanding anything to the contrary, (i) Seller shall
not have any liability under this Article VI in respect of any individual claim
(or group of related claims) unless such claim or group of related claims
exceeds $25,000, (ii) Seller shall not have any liability under this Article VI
except and only to the extent the aggregate of permitted claims exceeds a
deductible amount of $1,500,000, and (iii) Seller's aggregate liability under
this Article VI shall not exceed $150,000,000; provided, however, that the
foregoing limitations shall not apply to Seller's obligations under Section
2.2(b) and Section 6.2(d).
(d) Without limitation, Seller agrees to indemnify the Buyer
and the Buyer Subsidiaries from and against the entirety of any Adverse
Consequences the Buyer and the Buyer Subsidiaries shall suffer caused
proximately by any liability or obligation of the Seller or any Seller
Subsidiary which relates to data, information, or other content which has been,
or should have been, delivered by the Seller or any Seller Subsidiaries to Buyer
or any Buyer Subsidiaries for transmission over the IP Network.
6.3 Indemnification Provisions for Benefit of Seller.
(a) In the event the Buyer or any Buyer Subsidiary breaches
any of its representations, warranties, and covenants contained in this
Agreement, provided that the Seller makes a written claim for indemnification
against the Buyer within the survival period with respect to its representations
and warranties, then the Buyer agrees to indemnify the Seller and the Seller
Subsidiaries from and against the entirety of any Adverse Consequences the
Seller and the Seller Subsidiaries shall suffer through and after the date of
the claim for indemnification (but excluding any Adverse Consequences the Seller
and the Seller Subsidiaries shall suffer after the end of any applicable
survival period) caused proximately by the breach.
(b) Buyer agrees to indemnify the Seller and the Seller
Subsidiaries from and against the entirety of any Adverse Consequences the
Seller and the Seller Subsidiaries shall suffer caused proximately by any
liability of the Buyer or any Buyer Subsidiary which is an Assumed Liability.
6.4 Matters Involving Third Parties.
(a) If any third party shall notify any party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against the other party (the
"Indemnifying Party") under this Article VI, then the Indemnified Party shall
promptly (and in any event, if the matter concerns a legal proceeding, within 15
business days after receiving notice of the Third Party Claim, and with respect
to any other matter, within 30 business days) notify the Indemnifying Party
thereof in writing.
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(b) The Indemnifying Party will have the right at any time to
assume and thereafter conduct the defense of the Third Party Claim with counsel
of its choice reasonably satisfactory to the Indemnified Party; provided,
however, that
(i) if the Third Party Claim falls within the scope
of the indemnification set forth in Section 6.2(d), then the
Indemnified Party shall have the right to refuse to accept such
assumption of defense by Indemnifying Party unless and until such time
as the Indemnifying Party shall provide to the Indemnified Party such
assurances of payment and performance of such indemnification
obligation as shall be reasonably satisfactory to the Indemnified
Party; and
(ii) the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably) unless the judgment or proposed
settlement involves only the payment of money damages and does not
impose an injunction or other equitable relief upon the Indemnified
Party.
(c) Unless and until the Indemnifying Party assumes the
defense of the Third Party Claim as provided in Section 6.4(b) above, however,
the Indemnified Party may defend against the Third Party Claim in any manner it
reasonably may deem appropriate, including, without limitation, consent to the
entry of any judgment or enter into any settlement with respect to the Third
Party Claim.
6.5 Call Right Remedies. The parties agree that the Call
Assets and the Call Right are unique interests and that, in the event of
Seller's breach of its obligations with respect to the Call Assets, monetary
damages will not fully compensate Buyer. Therefore, the parties agree that Buyer
shall have the remedies which are available to it for Seller's breach or
violation of any of the provisions of this Agreement relating to the Call
Assets, including, but not limited to, the equitable remedies for specific
performance and injunctive relief.
6.6 Exclusive Remedy. The Buyer and the Seller acknowledge and
agree that, subject to the other remedies granted to the Buyer in Section 6.5
hereof, the foregoing indemnification provisions in this Article VI shall be the
exclusive remedy of the Buyer and the Seller with respect to the transactions
contemplated by this Agreement.
ARTICLE VII
MISCELLANEOUS
7.1 No Third-party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the parties and their
respective successors and permitted assigns.
7.2 Entire Agreement This Agreement (including the documents
referred to herein) constitutes the entire agreement between the parties and
supersedes any prior
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understandings, agreements, or representations by or between the parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
7.3 Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties named herein and their respective
successors and permitted assigns. No party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other party, which consent shall not be unreasonably withheld;
provided, however, Seller and Seller Subsidiaries shall have the right to grant
a security interest or mortgage with respect to, or make any assignment for
security purposes or pledge of, Seller's and Seller Subsidiaries' rights under
this Agreement and any of the Global Operative Agreements and the Local
Operative Agreements, to the extent required by the senior lending group of
Seller as a condition to granting the consent to the transaction contemplated
hereby.
7.4 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
7.5 Headings. The Section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.6 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Seller: Bridge Information Systems, Inc.
Three World Financial Center
New York, New York 10285
(212) 372-7195 (fax)
Attention: Zachary Snow,
Executive Vice President and General Counsel
If to the Buyer: SAVVIS Communications Corporation
717 Office Parkway
St. Louis, Missouri 63141
(314) 468-7550 (fax)
Attention: Steven M. Gallant,
Vice President and General Counsel
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have
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been duly given unless and until it actually is received by the intended
recipient. Any party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other party notice in the manner herein set forth.
7.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Missouri without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Missouri or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Missouri.
7.7 Arbitration.
(a) The parties hereby agree to submit all disputes to rules
of arbitration of the American Arbitration Association and the Missouri Uniform
Arbitration Act (the "Rules") under the following provisions, which shall be
final and binding upon the parties, their successors and assigns, and that the
following provisions constitute a binding arbitration clause under applicable
law. Either party may serve process or notice on the other in any arbitration or
litigation in accordance with the notice provisions hereof. The parties agree
not to disclose any information regarding any dispute or the conduct of any
arbitration hereunder, including the existence of such dispute or such
arbitration, to any person or entity other than such employees or
representatives of such party as have a need to know.
(b) Either party may commence proceedings hereunder by
delivery of written notice providing a reasonable description of the dispute to
the other, including a reference to this provision (the "Dispute Notice").
Either party may initiate arbitration of a dispute by delivery of a demand
therefor (the "Arbitration Demand") to the other party not sooner than 60
calendar days after the date of delivery of the Dispute Notice but at any time
thereafter. The arbitration shall be conducted in St. Louis, Missouri.
(c) The arbitration shall be conducted by three arbitrators
(the "Arbitrators"), one of whom shall be selected by Seller, one by Buyer, and
the third by agreement of the other two not later than 10 days after appointment
of the first two, or, failing such agreement, appointed pursuant to the Rules.
If an Arbitrator becomes unable to serve, a successor shall be selected or
appointed in the same manner in which the predecessor Arbitrator was appointed.
(d) The arbitration shall be conducted pursuant to such
procedures as the parties may agree or, in the absence of or failing such
agreement, pursuant to the Rules. Notwithstanding the foregoing, each party
shall have the right to inspect the books and records of the other party that
are reasonably related to the Dispute, and each party shall provide to the
other, reasonably in advance of any hearing, copies of all documents which such
party intends to present in such hearing and the names and addresses of all
witnesses whose testimony such party intends to present in such hearing.
(e) All hearings shall be conducted on an expedited schedule,
and all proceedings shall be confidential. Either party may at its expense make
a stenographic record thereof.
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(f) The Arbitrators shall complete all hearings not later than
90 calendar days after the Arbitrators' selection or appointment, and shall make
a final award not later than 30 calendar days thereafter. The Arbitrators shall
apportion all costs and expenses of the Arbitration, including the Arbitrators'
fees and expenses of experts ("Arbitration Costs") between the prevailing and
non-prevailing parties as the Arbitrators deem fair and reasonable. In
circumstances where a Dispute has been asserted or defended against on grounds
that the Arbitrators deem manifestly unreasonable, the Arbitrators may assess
all Arbitration Costs against the non-prevailing party and may include in the
award the prevailing party's attorneys' fees and expenses in connection with any
and all proceedings under this Section 7.7.
(g) Either party may assert appropriate statutes of limitation
as a defense in arbitration; provided, that upon delivery of a Dispute Notice
any such statute shall be tolled pending resolution hereunder.
7.8 Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Seller. No waiver by any party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
7.9 Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
7.10 Expenses. Each of the Seller and the Buyer will bear its
own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
7.11 Construction. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
7.12 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
7.13 Bulk Transfer Laws. The Buyer acknowledges that the
Seller does not believe that the provisions of any bulk transfer laws of any
jurisdiction are applicable to this transaction and will not comply with any
such laws in connection with the transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
SAVVIS COMMUNICATIONS CORPORATION
By: __________________________
Name: ________________________
Title: _________________________
BRIDGE INFORMATION SYSTEMS, INC.
By: __________________________
Name: ________________________
Title: _________________________
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EXHIBIT A
NETWORK SERVICES AGREEMENT
[This Exhibit A has been filed as a separate document]
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EXHIBIT B
ADMINISTRATIVE SERVICES AGREEMENT
ADMINISTRATIVE SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT (the "AGREEMENT") is effective
as of ______________, 2000 (the "EFFECTIVE DATE"), between SAVVIS Communications
Corporation, a Missouri corporation ("SAVVIS"), and Bridge Information Systems,
Inc., a Missouri corporation ("BRIDGE").
RECITALS
A. Bridge is engaged in the business of collecting and distributing
various financial, news and other data.
B. SAVVIS is engaged in the business of providing Internet backbone and
other data transport services.
C. SAVVIS and certain of its subsidiaries have acquired from Bridge and
certain of its subsidiaries certain assets relating to the provision of Internet
backbone and other data transport services, and may in the future acquire
additional such assets from Bridge and certain of its subsidiaries, all pursuant
to a Master Establishment and Transition Agreement between SAVVIS' corporate
parent, SAVVIS Communications Corporation, a Delaware Corporation, and Bridge,
of even date herewith (the "MASTER ESTABLISHMENT AND TRANSITION AGREEMENT").
D. It is an obligation of the parties under the Master Establishment
and Transition Agreement to cause this Administrative Services Agreement to be
entered into between SAVVIS and Bridge, pursuant to which Bridge shall provide
administrative services to SAVVIS relating to the assets acquired by SAVVIS
pursuant to the Master Establishment and Transition Agreement.
E. Together with this Agreement, the parties hereto are entering into a
Network Services Agreement of even date herewith (the "NETWORK SERVICES
AGREEMENT") providing for the provision of certain services to Bridge by SAVVIS
and a Technical Services Agreement of even date herewith (the "TECHNICAL
SERVICES AGREEMENT"), providing for the provision of certain services to SAVVIS
by Bridge. Certain SAVVIS Subsidiaries and certain Bridge Subsidiaries are
entering into, and may in the future enter into, Local Transfer Agreements (the
"LOCAL TRANSFER AGREEMENTS"), Local Network Services Agreements (the "LOCAL
NETWORK SERVICES AGREEMENTS"), Equipment Collocation Permits (the "EQUIPMENT
COLLOCATION PERMITS"), and Local Administrative Services Agreements (the "LOCAL
ADMINISTRATIVE SERVICES AGREEMENTS").
NOW, THEREFORE, in consideration of the premises, and the mutual
covenants contained herein and of other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:
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1. CONTRACT DOCUMENTS AND DEFINITIONS
1.1. This Agreement shall consist of this Administrative Services
Agreement by and between SAVVIS and Bridge, including all
addenda to this Agreement entered into in the manner set forth
herein (each an "ADDENDUM" and collectively the "ADDENDA").
This Agreement shall be interpreted wherever possible to avoid
conflicts between the Sections hereof and the Attachments,
provided that if such a conflict shall arise, the Attachments
shall control.
1.2. Whenever it is provided in this Agreement for a matter to be
mutually agreed upon by the parties and set forth in an
Addendum to this Agreement, either party may initiate the
process of determining such matter by submitting a proposed
outline or contents of such Addendum to the other party. Each
party shall appoint a primary contact and a secondary contact
for the completion of such Addendum, who shall be the contact
points for every issue concerning such Addendum and who shall
be informed of the progress of the project. The names of the
contacts will be exchanged in writing by the parties. Using the
contacts, the parties shall work together in good faith with
such diligence as shall be commercially reasonable under the
circumstances to complete such Addendum, provided, however,
that neither party shall be obligated to enter into such an
Addendum. Upon the completion of such Addendum, it shall be set
forth in a written document and executed by the parties and
shall become a part of this Agreement and shall be deemed to be
incorporated herein by reference.
1.3. Whenever used in this Agreement, the words and phrases listed
below shall have the meanings given below, and all defined
terms shall include the plural as well as the singular. Unless
otherwise stated, the words "herein", "hereunder" and other
similar words refer to this Agreement as a whole and not to a
particular Section or other subdivision. The words "included"
and "including" shall not be construed as terms of limitation.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of
1934, as amended.
"AGREEMENT YEAR" shall mean a period of 12 months beginning on
the Effective Date and each subsequent anniversary thereof.
"BRIDGE" means Bridge Information Systems, Inc., a Delaware
corporation.
"BRIDGE SUBSIDIARIES" has the meaning assigned to the term
"Seller Subsidiaries" in the Master Establishment and Transfer
Agreement.
"CONFIDENTIAL INFORMATION" means all information concerning the
business of Bridge, SAVVIS or any third party doing business
with either of them that may be obtained from any source (i) by
Bridge by virtue of its performance under this Agreement or
(ii) by SAVVIS by virtue of its use of the Services. Such
information shall also include the terms of this Agreement (and
negotiations and
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proposals from one party to the other related directly
thereto), network designs and design recommendations, tools
and programs, pricing, methods, processes, financial data,
software, research, development, strategic plans or related
information. All such information disclosed prior to the
execution of this Agreement shall also be considered
Confidential Information for purposes of this Agreement.
Confidential Information shall not include information that:
(a) is already rightfully known to the receiving
party at the time it is obtained by such
party, free from any obligation to keep such
information confidential; or
(b) is or becomes publicly known through no
wrongful act of the receiving party; or
(c) is rightfully received by the receiving
party from a third party without restriction
and without breach of this Agreement.
"EFFECTIVE DATE" means the date set forth in the Preamble of
this Agreement.
"INITIAL TERM" shall mean a period of three consecutive
Agreement Years beginning on the Effective Date.
"SAVVIS" means SAVVIS Communications Corporation, a Missouri
corporation.
"SAVVIS SUBSIDIARIES" has the meaning assigned to the term
"Buyer Subsidiaries" in the Master Establishment and Transfer
Agreement.
"SERVICES" means the services provided by Bridge to SAVVIS
hereunder.
2. THE SERVICES
2.1. Bridge agrees to provide to SAVVIS some or all of the
administrative services listed on Schedule 2.1 hereto which
shall be referred to in this Agreement collectively as the
"SERVICES" and individually as a "SERVICE."
2.2. From time to time during the term of this Agreement, SAVVIS may
terminate one or more Services being provided by Bridge
hereunder by giving Bridge written notice at least 30 days
prior to the effective date of such termination, with no
liability to Bridge other than for charges (less any applicable
credits) for such Service provided prior to the effective date
of such termination. Any other changes to the Services shall be
provided for in an Addendum mutually agreed upon by the parties
in the manner set forth in Section 1.2 hereof.
2.3. SAVVIS grants to Bridge a general power of attorney to act on
behalf of SAVVIS in all matters relating to performance of the
Services.
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2.4. In addition to the Services provided under this Agreement, it
is expected that additional administrative services will be
provided under the separate Local Administrative Services
Agreements between certain SAVVIS Subsidiaries and certain
Bridge Subsidiaries, substantially in the form of Exhibit A
attached hereto. Services provided under each such Local
Administrative Services Agreement shall be billed locally, in
local currency.
3. RATES AND CHARGES
SAVVIS shall pay Bridge for the Services at rates to be mutually agreed
by the parties; provided, however, that such rates shall be based on
the cost to Bridge of providing the Services to SAVVIS, except to the
extent contrary to local law.
4. INVOICES
4.1. The amounts due to Bridge from SAVVIS for the Services shall be
billed monthly in arrears. All items on invoices not the
subject of a bona fide dispute shall be payable by SAVVIS in
United States currency within 30 days from the date of receipt
of the invoice. All amounts not in dispute are subject to
interest charges of 1-1/2 percent that will accrue daily on all
amounts not paid within 30 days of the date of receipt of the
invoice.
4.2. SAVVIS shall pay any sales, use, value added, federal excise,
utility, gross receipts, state and local surcharges, and
similar taxes, charges or levies lawfully levied by a duly
constituted taxing authority against or upon the Services. In
the alternative, SAVVIS shall provide Bridge with a certificate
evidencing SAVVIS' exemption from payment of or liability for
such taxes. As part of the Services, Bridge will administer the
payment of SAVVIS' payroll taxes. SAVVIS will reimburse Bridge
for such payroll taxes as invoiced under this Agreement. All
other taxes, charges or levies related to the Services,
including any income, franchise, privilege, or occupation taxes
of Bridge shall be paid by Bridge. Except as otherwise
specifically addressed in this Agreement or Addenda hereto,
each party shall pay its own taxes.
4.3. Bona fide disputes concerning invoices shall be referred to the
parties' respective Contract Managers for resolution. Any
amount to which SAVVIS is entitled as a result of the
resolution of a billing dispute shall be credited promptly to
SAVVIS' account. Any amount to which Bridge is entitled as a
result of the resolution of a billing dispute shall be paid
promptly to Bridge.
5. TERM AND EXTENSIONS
5.1. The initial term of this Agreement shall be three years,
commencing on the Effective Date, and shall continue in full
force and effect unless terminated in accord with the
provisions hereof.
5.2. The term of this Agreement shall automatically extend for
consecutive one-year periods unless either party gives the
other party advance written notice of such party's intent not
to extend not less than 60 days before the scheduled expiration
of the then current term.
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6. TERMINATION BY BRIDGE
Bridge shall have the right to terminate this Agreement if:
(a) SAVVIS has failed to pay any invoice that is not the
subject of a bona fide dispute within 30 days of the
date on which such payment is due and Bridge has
provided SAVVIS with written notice thereof, provided
that SAVVIS shall have 10 days from the time it
receives such notice from Bridge of nonpayment to
cure any such default;
(b) Bridge provides 10 days written notice of its intent
to terminate in the event that SAVVIS has failed to
perform or comply with or has violated any material
representation, warranty, term, condition or
obligation of SAVVIS under this Agreement, and SAVVIS
has failed to cure such failure or violation within
60 days after receiving notice thereof from Bridge;
or
(c) SAVVIS becomes the subject of a voluntary or
involuntary bankruptcy, insolvency, reorganization or
liquidation proceeding, makes an assignment for the
benefit of creditors, admits in writing its inability
to pay debts when due.
7. CONTRACT MANAGERS
7.1. CONTRACT MANAGER. SAVVIS shall assign a representative to serve
as Bridge's point-of-contact for all matters concerning its
performance under this Agreement.
7.2. CONTRACT MANAGER. Bridge shall assign a representative to serve
as SAVVIS' point-of-contact for all matters concerning its
performance under this Agreement.
8. RIGHTS AND OBLIGATIONS OF BRIDGE
8.1. PROVISION OF THE SERVICES. Bridge shall provide the Services at
Bridge facilities.
8.2. INSURANCE.
8.2.1. At all times during the term of this Agreement, Bridge
shall maintain for itself, its officers, employees,
agents and representatives insurance as shall be
mutually agreed upon by the parties and set forth in an
Addendum to this Agreement in the manner set forth
herein.
8.2.2. Bridge shall furnish to SAVVIS, upon written request,
certificates of insurance or other appropriate
documentation (including evidence of renewal of
insurance) evidencing the insurance coverage referenced
above, naming SAVVIS as an additional insured. Such
certificates or other documentation shall include a
proviso whereby 15 days prior written notice shall be
provided to SAVVIS prior to coverage cancellation or
other material alteration by either Bridge or the
applicable insurer. Such cancellation or material
alteration shall not relieve Bridge of its continuing
obligation to maintain insurance coverage in accordance
with this Section.
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8.2.3. In lieu of all or part of the insurance coverage
specified in this Section, Bridge may self-insure with
respect to any insurance coverage, except where
expressly prohibited by law.
8.3. REPRESENTATIONS AND WARRANTIES.
8.3.1. Bridge hereby warrants that the Services will be
provided in accordance with good business management
practices and that it will use the same care in
rendering the Services to SAVVIS as Bridge uses in
rendering such services to itself.
8.3.2. THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITH RESPECT
TO ANY GOODS PROVIDED INCIDENT TO THE SERVICES, THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
9. LIMITATIONS OF LIABILITY
9.1. Neither party shall be liable to the other for indirect,
incidental, consequential, exemplary, reliance or special
damages, including damages for lost profits, regardless of the
form of action whether in contract, indemnity, warranty, strict
liability or tort, including negligence of any kind with respect
to the Services or other conduct under this Agreement.
9.2. Nothing contained in this Section shall limit either party's
liability to the other for (a) willful or intentional misconduct,
or (b) injury or death, or damage to tangible real or tangible
personal property or the environment, when proximately caused by
SAVVIS' or Bridge's negligence or that of their respective
agents, subcontractors or employees.
10. PROPRIETARY RIGHTS; LICENSE
10.1. Bridge hereby grants to SAVVIS a non-exclusive and
non-transferable license to use all programming and software
necessary for SAVVIS to use the Services. Such license is granted
for the term of this Agreement for the sole purpose of enabling
SAVVIS to use the Services.
10.2. All title and property rights (including intellectual property
rights) to Services (including associated programming and
software) are and shall remain with Bridge. SAVVIS shall not
attempt to examine, copy, alter, reverse engineer, decompile,
disassemble, tamper with or otherwise misuse such Services,
programming and software.
11. CONFIDENTIALITY
11.1. During the term of this Agreement and for a period of five years
from the date of its expiration or termination (including all
extensions thereof), each party agrees to maintain in strict
confidence all Confidential
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Information. Neither party shall, without prior written consent
of the other party, use the other party's Confidential
Information for any purpose other than for the performance of
its duties and obligations, and the exercise of its rights,
under this Agreement. Each party shall use, and shall cause all
authorized recipients of the other party's Confidential
Information to use, the same degree of care to protect the other
party's Confidential Information as it uses to protect its own
Confidential Information, but in any event not less than a
reasonable degree of care.
11.2. Notwithstanding Section 12.1, either party may disclose the
Confidential Information of the other party to: (a) its
employees and the employees, directors and officers of its
Affiliates as necessary to implement this Agreement; (b)
employees, agents or representatives of the other party; or (c)
other persons (including counsel, consultants, lessors or
managers of facilities or equipment used by such party) in need
of access to such information for purposes specifically related
to either party's responsibilities under this Agreement,
provided that any disclosure of Confidential Information under
clause (c) shall be made only upon prior written approval of the
other party and subject to the appropriate assurances that the
recipient of such information shall hold it in strict
confidence.
11.3. Upon the request of the party having proprietary rights to
Confidential Information, the party in possession of such
information shall promptly return it (including any copies,
extracts and summaries thereof, in whatever form and medium
recorded) to the requesting party or, with the other party's
written consent, shall promptly destroy it and provide the other
party with written certification of such destruction.
11.4. Either party may request in writing that the other party waive
all or any portion of the requesting party's responsibilities
relative to the other party's Confidential Information. Such
waiver request shall identify the affected information and the
nature of the proposed waiver. The recipient of the request
shall respond within a reasonable time and, if it determines, in
its sole discretion, to grant the requested waiver, it will do
so in writing over the signature of an employee authorized to
grant such request.
11.5. Bridge and SAVVIS acknowledge that any disclosure or
misappropriation of Confidential Information in violation of
this Agreement could cause irreparable harm, the amount of which
may be difficult to determine, thus potentially making any
remedy at law or in damages inadequate. Each party, therefore,
agrees that the other party shall have the right to apply to any
court of competent jurisdiction for an order restraining any
breach or threatened breach of this Section and for any other
appropriate relief. This right shall be in addition to any other
remedy available in law or equity.
11.6. A party requested or ordered by a court or other governmental
authority of competent jurisdiction to disclose another party's
Confidential Information shall notify the other party in advance
of any such disclosure and, absent the other party's consent to
such disclosure, use its reasonable best efforts to resist, and
to assist the other party in resisting, such disclosure. A party
providing another
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party's Confidential Information to a court or other
governmental authority shall use its reasonable best efforts to
obtain a protective order or comparable assurance that the
Confidential Information so provided will be held in confidence
and not further disclosed to any other person, absent the
owner's prior consent.
11.7. The provisions of Section 12.1 above shall not apply to
reasonably necessary disclosures in or in connection with
filings under any securities laws, regulatory filings or
proceedings, financial disclosures which in the good faith
judgment of the disclosing party are required by law,
disclosures required by court or tribunal or competent
jurisdiction, or disclosures that may be reasonably necessary in
connection with the performance or enforcement of this Agreement
or any of the obligations hereof; provided, however, that if the
receiving party would otherwise be required to refer to or
describe any aspect of this Agreement in any of the preceding
circumstances, the receiving party shall use its reasonable
efforts to take such steps as are available under such
circumstances (such as by providing a summary or synopsis) to
avoid disclosure of the financial terms and conditions of this
Agreement. Notwithstanding any provisions of this Agreement to
the contrary, either party may disclose the terms and conditions
of this Agreement in the course of a due diligence review
performed in connection with prospective debt financing or
equity investment by, or a sale to, a third party, so long as
the persons conducting such due diligence review have agreed to
maintain the confidentiality of such disclosure and not to use
such disclosure for any purpose other such due diligence review.
12. INDEMNIFICATIONS
12.1. SAVVIS shall indemnify, defend, and hold Bridge (including any
of its directors, officers, employees, agents or assigns)
harmless from any claims, actions or suits to the extent that
such claim or action arises from Bridge's provision to SAVVIS of
the Services and to the extent that such claim, action or suit
does not arise from the gross negligence or intentional
misconduct of Bridge. SAVVIS may settle, or otherwise manage at
its own cost and expense any such claims, actions or suits.
Bridge shall notify SAVVIS promptly in writing of any such
claim, action or suit and shall cooperate with SAVVIS in a
reasonable way to facilitate the settlement or defense thereof.
12.2. Bridge shall indemnify, defend, and hold SAVVIS (including any
of its directors, officers, employees, agents or assigns)
harmless from any claims, actions or suits to the extent that
such claim or action arises from Bridge's gross negligence or
intentional misconduct in the provision to SAVVIS of the
Services, unless such claim, action or suit also arises from the
gross negligence or intentional misconduct of SAVVIS. Bridge may
settle, or otherwise manage at its own cost and expense any such
claims, actions or suits. SAVVIS shall notify Bridge promptly in
writing of any such claim, action or suit and shall cooperate
with Bridge in a reasonable way to facilitate the settlement or
defense thereof.
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13. DISPUTES
13.1. Resolution of any and all disputes arising from or in connection
with this Agreement, whether based on contract, tort, statute or
otherwise, including disputes over arbitrability and disputes in
connection with claims by third persons ("DISPUTES") shall be
exclusively governed by and settled in accordance with the
provisions of this Section 14. The foregoing shall not preclude
recourse to judicial proceedings to obtain injunctive, emergency
or other equitable relief to enforce the provisions of this
Agreement, including specific performance, and to decide such
issues as are required to be resolved in determining whether to
grant such relief. Resolution of Disputes with respect to claims
by third persons shall be deferred until any judicial
proceedings with respect thereto are concluded.
13.2. The parties hereby agree to submit all Disputes to rules of
arbitration of the American Arbitration Association and the
Missouri Uniform Arbitration Act (the "RULES") under the
following provisions, which shall be final and binding upon the
parties, their successors and assigns, and that the following
provisions constitute a binding arbitration clause under
applicable law. Either party may serve process or notice on the
other in any arbitration or litigation in accordance with the
notice provisions hereof. The parties agree not to disclose any
information regarding any Dispute or the conduct of any
arbitration hereunder, including the existence of such Dispute
or such arbitration, to any person or entity other than such
employees or representatives of such party as have a need to
know.
13.3. Either party may commence proceedings hereunder by delivery of
written notice providing a reasonable description of the Dispute
to the other, including a reference to this provision (the
"DISPUTE NOTICE"). Either party may initiate arbitration of a
Dispute by delivery of a demand therefor (the "ARBITRATION
DEMAND") to the other party not sooner than 60 calendar days
after the date of delivery of the Dispute Notice but at any time
thereafter. The arbitration shall be conducted in St. Louis,
Missouri.
13.4. The arbitration shall be conducted by three arbitrators (the
"ARBITRATORS"), one of whom shall be selected by Bridge, one by
SAVVIS, and the third by agreement of the other two not later
than 10 days after appointment of the first two, or, failing
such agreement, appointed pursuant to the Rules. If an
Arbitrator becomes unable to serve, a successor shall be
selected or appointed in the same manner in which the
predecessor Arbitrator was appointed.
13.5. The arbitration shall be conducted pursuant to such procedures
as the parties may agree or, in the absence of or failing such
agreement, pursuant to the Rules. Notwithstanding the foregoing,
each party shall have the right to inspect the books and records
of the other party that are reasonably related to the Dispute,
and each party shall provide to the other, reasonably in advance
of any hearing, copies of all documents which such party intends
to present in such hearing and the names and addresses of all
witnesses whose testimony such party intends to present in such
hearing.
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13.6. All hearings shall be conducted on an expedited schedule, and
all proceedings shall be confidential. Either party may at its
expense make a stenographic record thereof.
13.7. The Arbitrators shall complete all hearings not later than 90
calendar days after the Arbitrators' selection or appointment,
and shall make a final award not later than 30 calendar days
thereafter. The Arbitrators shall apportion all costs and
expenses of the Arbitration, including the Arbitrators' fees and
expenses of experts ("ARBITRATION COSTS") between the prevailing
and non-prevailing parties as the Arbitrators deem fair and
reasonable. In circumstances where a Dispute has been asserted
or defended against on grounds that the Arbitrators deem
manifestly unreasonable, the Arbitrators may assess all
Arbitration Costs against the non-prevailing party and may
include in the award the prevailing party's attorneys' fees and
expenses in connection with any and all proceedings under this
Section 14.
13.8. Either party may assert appropriate statutes of limitation as a
defense in arbitration; provided, that upon delivery of a
Dispute Notice any such statute shall be tolled pending
resolution hereunder.
13.9. Pending the resolution of any dispute or controversy arising
under this Agreement, the parties shall continue to perform
their respective obligations hereunder, and Bridge shall not
discontinue, disconnect or in any other fashion cease to provide
all or any substantial portion of the Services to SAVVIS unless
otherwise directed by SAVVIS. This Section shall not apply where
SAVVIS is in default under this Agreement.
14. FORCE MAJEURE
14.1. In no event shall either party be liable to the other for any
failure to perform hereunder that is due to war, riots,
embargoes, strikes or other concerted acts of workers (whether
of a party hereto or of others), casualties, accidents or other
causes to the extent that such failure and the consequences
thereof are reasonably beyond the control and without the fault
or negligence of the party claiming excuse. Each party shall,
with the cooperation of the other party, use reasonable efforts
to mitigate the extent of any failure to perform and the adverse
consequences thereof.
14.2. If Bridge cannot promptly provide a suitable temporary Bridge
alternative to a Service subject to an interruption in
connection with the existence or a force majeure condition,
SAVVIS may, at its option and at its own cost, contract with one
or more third parties for any or all affected Services for the
shortest commercially available period likely to cover the
reasonably expected duration of the Interruption, and may
suspend Bridge's provision of such Services for such period.
Bridge shall not charge SAVVIS for any Services thus suspended
during the period of suspension. Bridge shall resume provision
of the suspended Services upon the later of the termination or
expiration of SAVVIS' legally binding commitments under
contracts with third parties for alternative services or the
cessation or remedy of the force majeure condition.
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14.3. In the event that a force majeure condition shall continue for
more than 60 days, SAVVIS may cancel the affected Services
with no further liability to Bridge other than for Services
received by SAVVIS prior to the occurrence of the force
majeure condition.
15. GENERAL PROVISIONS
15.1. NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any person or entity other than the
parties and their respective successors and permitted assigns.
15.2. ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the
parties and supersedes any prior understandings, agreements, or
representations by or between the parties, written or oral, to
the extent they related in any way to the subject matter hereof.
15.3. SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties named herein and their
respective successors and permitted assigns. No party may assign
either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of the
other party, which consent shall not be unreasonably withheld.
15.4. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all
of which together will constitute one and the same instrument.
15.5. HEADINGS. The Section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
15.6. NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice,
request, demand, claim, or other communication hereunder shall
be deemed duly given if (and then two business days after) it is
sent by registered or certified mail, return receipt requested,
postage prepaid, and addressed to the intended recipient as set
forth below:
If to Bridge: Bridge Information Systems, Inc.
Three World Financial Center
New York, New York 10285
(212) 372-7195 (fax)
Attention: Zachary Snow,
Executive Vice President and
General Counsel
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If to SAVVIS: SAVVIS Communications Corporation
717 Office Parkway
St. Louis, Missouri 63141
(314) 468-7550 (fax)
Attention: Steven M. Gallant,
Vice President and General Counsel
Any party may send any notice, request, demand, claim, or
other communication hereunder to the intended recipient at the
address set forth above using any other means (including
personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication
shall be deemed to have been duly given unless and until it
actually is received by the intended recipient. Any party may
change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered
by giving the other party notice in the manner herein set
forth.
15.7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of
Missouri without giving effect to any choice or conflict of law
provision or rule (whether of the State of Missouri or any
other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Missouri.
15.8. AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing
and signed by SAVVIS and Bridge. No waiver by any party of any
default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation,
or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent
such occurrence.
15.9. SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction
shall not affect the validity or enforceability of the
remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
15.10. EXPENSES. Each party will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby.
15.11. CONSTRUCTION. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all
rules and regulations promulgated thereunder, unless the
context requires otherwise. The word "including" shall mean
including without limitation.
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15.12. ADDENDA AND SCHEDULES. The Addenda and Schedules identified in
this Agreement are incorporated herein by reference and made a
part hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Administrative
Services Agreement to be executed as of the date first above written.
SAVVIS COMMUNICATIONS CORPORATION
By
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
BRIDGE INFORMATION SYSTEMS, INC.
By
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
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SCHEDULE 2.1 TO ADMINISTRATIVE SERVICE AGREEMENT
ADMINISTRATIVE SERVICES TO BE
PROVIDED BY BRIDGE TO SAVVIS
Service to be provided
Facility rental & operation
Equipment maintenance
Risk management services
Tax planning administration
Tax compliance
Treasury management
Financial planning
Human resource services
Payroll administration
Accounting, bookkeeping,
financial statement preparation
Procurement
PC support
LAN and WAN support
IT planning, installation and
support
Travel expenses (directly on
behalf of SAVVIS)
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EXHIBIT A TO ADMINISTRATIVE SERVICES AGREEMENT
FORM OF LOCAL ADMINISTRATIVE SERVICES AGREEMENT
This LOCAL ADMINISTRATIVE SERVICES AGREEMENT (the "AGREEMENT") is
effective as of ______________, 2000 (the "EFFECTIVE DATE"), between [local
SAVVIS entity], a company organized under the laws of [country] ("SAVVIS"), and
[local Bridge/Telerate entity], a company organized under the laws of [country]
("PROVIDER").
RECITALS
A. Provider is engaged in the business of collecting and distributing
various financial, news and other data in [country] (the "JURISDICTION").
B. SAVVIS is engaged in the business of providing Internet backbone and
other data transport services in the Jurisdiction.
C. SAVVIS Parent and Bridge Parent have entered into an Administrative
Services Agreement, of even date herewith (the "ADMINISTRATIVE SERVICES
AGREEMENT") for the provision and receipt of similar services on a world-wide
basis at the parent level as are being provided and received by the parties to
this Agreement within the Jurisdiction.
D. Together with this Agreement, the SAVVIS is entering into certain
other agreements with Provider, or Affiliates of Provider, related to their
operations in the Jurisdiction, including Local Transfer Agreements, Equipment
Collocation Permits, and Local Network Services Agreements.
NOW, THEREFORE, in consideration of the premises, and the mutual
covenants contained herein and of other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:
1. CONTRACT DOCUMENTS AND DEFINITIONS
1.1. This Agreement shall consist of this Local Administrative
Services Agreement by and between SAVVIS and Provider,
including all addenda to this Agreement entered into in the
manner set forth herein (each an "ADDENDUM" and collectively
the "ADDENDA"). This Agreement shall be interpreted wherever
possible to avoid conflicts between the Sections hereof and the
Attachments, provided that if such a conflict shall arise, the
Attachments shall control.
1.2. Whenever it is provided in this Agreement for a matter to be
mutually agreed upon by the parties and set forth in an
Addendum to this Agreement, either party may initiate the
process of determining such matter by submitting a proposed
outline or contents of such Addendum to the other party. Each
party shall appoint a primary contact and a secondary contact
for the completion of such Addendum, who shall be the contact
points for every issue concerning such Addendum and
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who shall be informed of the progress of the project. The
names of the contacts will be exchanged in writing by the
parties. Using the contacts, the parties shall work together
in good faith with such diligence as shall be commercially
reasonable under the circumstances to complete such Addendum,
provided, however, that neither party shall be obligated to
enter into such an Addendum. Upon the completion of such
Addendum, it shall be set forth in a written document and
executed by the parties and shall become a part of this
Agreement and shall be deemed to be incorporated herein by
reference.
1.3. Whenever used in this Agreement, the words and phrases listed
below shall have the meanings given below, and all defined
terms shall include the plural as well as the singular. Unless
otherwise stated, the words "herein", "hereunder" and other
similar words refer to this Agreement as a whole and not to a
particular Section or other subdivision. The words "included"
and "including" shall not be construed as terms of limitation.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of
1934, as amended.
"AGREEMENT YEAR" shall mean a period of 12 months beginning on
the Effective Date and each subsequent anniversary thereof.
"BRIDGE PARENT" means Bridge Information Systems, Inc., a
Delaware corporation.
"CONFIDENTIAL INFORMATION" means all information concerning
the business of Provider, SAVVIS or any third party doing
business with either of them that may be obtained from any
source (i) by Provider by virtue of its performance under this
Agreement or (ii) by SAVVIS by virtue of its use of the
Services. Such information shall also include the terms of
this Agreement (and negotiations and proposals from one party
to the other related directly thereto), network designs and
design recommendations, tools and programs, pricing, methods,
processes, financial data, software, research, development,
strategic plans or related information. All such information
disclosed prior to the execution of this Agreement shall also
be considered Confidential Information for purposes of this
Agreement. Confidential Information shall not include
information that:
(a) is already rightfully known to the receiving
party at the time it is obtained by such
party, free from any obligation to keep such
information confidential; or
(b) is or becomes publicly known through no
wrongful act of the receiving party; or
(c) is rightfully received by the receiving
party from a third party without restriction
and without breach of this Agreement.
"EFFECTIVE DATE" means the date set forth in the Preamble of
this Agreement.
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"INITIAL TERM" has the meaning set forth in Section 5.1 below.
"PROVIDER" means [local Bridge/Telerate entity], a company
organized under the laws of [country].
"SAVVIS" means [local SAVVIS entity], a company organized
under the laws of [country].
"SAVVIS PARENT" means SAVVIS Communications Corporation, a
Missouri corporation.
"SERVICES" has the meaning set forth in Section 2.1 below.
2. THE SERVICES
2.1. Provider agrees to provide to SAVVIS some or all of the
administrative services listed on Schedule 2.1 hereto which
shall be referred to in this Agreement collectively as the
"SERVICES" and individually as a "SERVICE."
2.2. From time to time during the term of this Agreement, SAVVIS
may terminate one or more Services being provided by Provider
hereunder by giving Provider written notice at least 30 days
prior to the effective date of such termination, with no
liability to Provider other than for charges (less any
applicable credits) for such Service provided prior to the
effective date of such termination. Any other changes to the
Services shall be provided for in an Addendum mutually agreed
upon by the parties in the manner set forth in Section 1.2
hereof.
2.3. SAVVIS grants to Provider a general power of attorney to act
on behalf of SAVVIS in all matters relating to performance of
the Services.
3. RATES AND CHARGES
SAVVIS shall pay Provider for the Services at rates to be mutually
agreed by the parties; provided, however, that such rates shall be
based on the cost to Provider of providing the Services to SAVVIS,
except to the extent contrary to local law.
4. INVOICES
4.1. The amounts due to Provider from SAVVIS for the Services shall
be billed monthly in arrears. All items on invoices not the
subject of a bona fide dispute shall be payable by SAVVIS in
[country] currency within 30 days from the date of receipt of
the invoice. All amounts not in dispute are subject to
interest charges of 1-1/2 percent that will accrue daily on
all amounts not paid within 30 days of the date of receipt of
the invoice.
4.2. SAVVIS shall pay any sales, use, value added, federal excise,
utility, gross receipts, state and local surcharges, and
similar taxes, charges or levies lawfully levied by a duly
constituted taxing authority against or upon the Services. In
the alternative, SAVVIS shall provide Provider with a
certificate evidencing SAVVIS' exemption from payment of or
liability for such taxes. As part of the Services, Provider
will administer the payment of SAVVIS' payroll taxes.
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SAVVIS will reimburse Provider for such payroll taxes as
invoiced under this Agreement. All other taxes, charges or
levies related to the Services, including any income,
franchise, privilege, or occupation taxes of Provider shall be
paid by Provider. Except as otherwise specifically addressed
in this Agreement or Addenda hereto, each party shall pay its
own taxes.
4.3. Bona fide disputes concerning invoices shall be referred to
the parties' respective Contract Managers for resolution. Any
amount to which SAVVIS is entitled as a result of the
resolution of a billing dispute shall be credited promptly to
SAVVIS' account. Any amount to which Provider is entitled as a
result of the resolution of a billing dispute shall be paid
promptly to Provider.
5. TERM AND EXTENSIONS
5.1. The Initial Term of this Agreement shall be three years,
commencing on the Effective Date, and shall continue in full
force and effect unless terminated in accord with the
provisions hereof.
5.2. The term of this Agreement shall automatically extend for
consecutive one-year periods unless either party gives the
other party advance written notice of such party's intent not
to extend not less than 60 days before the scheduled
expiration of the then current term.
5.3. The above provisions of this Section 5 notwithstanding, the
term of this Agreement, including the Initial Term and any
extension provided under Section 5.2 shall not extend beyond
the term of the Administrative Services Agreement.
6. TERMINATION BY PROVIDER
6.1. Provider shall have the right to terminate this Agreement if:
(a) SAVVIS has failed to pay any invoice that is not the
subject of a bona fide dispute within 30 days of the
date on which such payment is due and Provider has
provided SAVVIS with written notice thereof, provided
that SAVVIS shall have 10 days from the time it
receives such notice from Provider of nonpayment to
cure any such default;
(b) Provider provides 10 days written notice of its
intent to terminate in the event that SAVVIS has
failed to perform or comply with or has violated any
material representation, warranty, term, condition or
obligation of SAVVIS under this Agreement, and SAVVIS
has failed to cure such failure or violation within
60 days after receiving notice thereof from Provider;
(c) SAVVIS becomes the subject of a voluntary or
involuntary bankruptcy, insolvency, reorganization or
liquidation proceeding, makes an assignment for the
benefit of creditors, admits in writing its inability
to pay debts when due; or
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(d) SAVVIS Parent defaults under the terms of the
Administrative Service Agreement.
7. CONTRACT MANAGERS
7.1. SAVVIS CONTRACT MANAGER. SAVVIS shall assign a representative
to serve as Provider's point-of-contact for all matters
concerning its performance under this Agreement.
7.2. BRIDGE CONTRACT MANAGER. Provider shall assign a
representative to serve as SAVVIS' point-of-contact for all
matters concerning its performance under this Agreement.
8. RIGHTS AND OBLIGATIONS OF PROVIDER
8.1. PROVISION OF THE SERVICES. Provider shall provide the Services
at its facilities.
8.2. INSURANCE.
8.2.1. At all times during the term of this Agreement,
Provider shall maintain for itself, its officers,
employees, agents and representatives insurance as
shall be mutually agreed upon by the parties and set
forth in an Addendum to this Agreement in the manner
set forth herein.
8.2.2. Provider shall furnish to SAVVIS, upon written request,
certificates of insurance or other appropriate
documentation (including evidence of renewal of
insurance) evidencing the insurance coverage referenced
above, naming SAVVIS as an additional insured. Such
certificates or other documentation shall include a
proviso whereby 15 days prior written notice shall be
provided to SAVVIS prior to coverage cancellation or
other material alteration by either Provider or the
applicable insurer. Such cancellation or material
alteration shall not relieve Provider of its continuing
obligation to maintain insurance coverage in accordance
with this Section.
8.2.3. In lieu of all or part of the insurance coverage
specified in this Section, Provider may self-insure
with respect to any insurance coverage, except where
expressly prohibited by law.
8.3. REPRESENTATIONS AND WARRANTIES.
8.3.1. Provider hereby warrants that the Services will be
provided in accordance with good business management
practices and that it will use the same care in
rendering the Services to SAVVIS as Provider uses in
rendering such services to itself.
8.3.2. THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITH RESPECT
TO ANY GOODS PROVIDED INCIDENT TO THE
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SERVICES, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
9. LIMITATIONS OF LIABILITY
9.1. Neither party shall be liable to the other for indirect,
incidental, consequential, exemplary, reliance or special
damages, including damages for lost profits, regardless of the
form of action whether in contract, indemnity, warranty,
strict liability or tort, including negligence of any kind
with respect to the Services or other conduct under this
Agreement.
9.2. Nothing contained in this Section shall limit either party's
liability to the other for (a) willful or intentional
misconduct, or (b) injury or death, or damage to tangible real
or tangible personal property or the environment, when
proximately caused by SAVVIS' or Provider's negligence or that
of their respective agents, subcontractors or employees.
10. PROPRIETARY RIGHTS; LICENSE
10.1. Provider hereby grants to SAVVIS a non-exclusive and
non-transferable license to use all programming and software
necessary for SAVVIS to use the Services. Such license is
granted for the term of this Agreement for the sole purpose of
enabling SAVVIS to use the Services.
10.2. All title and property rights (including intellectual property
rights) to Services (including associated programming and
software) are and shall remain with Provider. SAVVIS shall not
attempt (except as permitted by applicable law) to examine,
copy, alter, reverse engineer, decompile, disassemble, tamper
with or otherwise misuse such Services, programming and
software.
11. CONFIDENTIALITY
11.1. During the term of this Agreement and for a period of five
years from the date of its expiration or termination
(including all extensions thereof), each party agrees to
maintain in strict confidence all Confidential Information.
Neither party shall, without prior written consent of the
other party, use the other party's Confidential Information
for any purpose other than for the performance of its duties
and obligations, and the exercise of its rights, under this
Agreement. Each party shall use, and shall cause all
authorized recipients of the other party's Confidential
Information to use, the same degree of care to protect the
other party's Confidential Information as it uses to protect
its own Confidential Information, but in any event not less
than a reasonable degree of care.
11.2. Notwithstanding Section 11.1, either party may disclose the
Confidential Information of the other party to: (a) its
employees and the employees, directors and officers of its
Affiliates as necessary to implement this Agreement; (b)
employees, agents or representatives of the other party; or
(c) other persons (including counsel, consultants, lessors or
managers of facilities or equipment used by such party) in
need of access to such information for purposes specifically
related to either party's responsibilities under this
Agreement, provided that any
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disclosure of Confidential Information under clause (c) shall
be made only upon prior written approval of the other party
and subject to the appropriate assurances that the recipient
of such information shall hold it in strict confidence.
11.3. Upon the request of the party having proprietary rights to
Confidential Information, the party in possession of such
information shall promptly return it (including any copies,
extracts and summaries thereof, in whatever form and medium
recorded) to the requesting party or, with the other party's
written consent, shall promptly destroy it and provide the
other party with written certification of such destruction.
11.4. Either party may request in writing that the other party waive
all or any portion of the requesting party's responsibilities
relative to the other party's Confidential Information. Such
waiver request shall identify the affected information and the
nature of the proposed waiver. The recipient of the request
shall respond within a reasonable time and, if it determines,
in its sole discretion, to grant the requested waiver, it will
do so in writing over the signature of an employee authorized
to grant such request.
11.5. Provider and SAVVIS acknowledge that any disclosure or
misappropriation of Confidential Information in violation of
this Agreement could cause irreparable harm, the amount of
which may be difficult to determine, thus potentially making
any remedy at law or in damages inadequate. Each party,
therefore, agrees that the other party shall have the right to
apply to any court of competent jurisdiction for an order
restraining any breach or threatened breach of this Section
and for any other appropriate relief. This right shall be in
addition to any other remedy available in law or equity.
11.6. A party requested or ordered by a court or other governmental
authority of competent jurisdiction to disclose another
party's Confidential Information shall notify the other party
in advance of any such disclosure and, absent the other
party's consent to such disclosure, use its reasonable best
efforts to resist, and to assist the other party in resisting,
such disclosure. A party providing another party's
Confidential Information to a court or other governmental
authority shall use its reasonable best efforts to obtain a
protective order or comparable assurance that the Confidential
Information so provided will be held in confidence and not
further disclosed to any other person, absent the owner's
prior consent.
11.7. The provisions of Section 11.1 above shall not apply to
reasonably necessary disclosures in or in connection with
filings under any securities laws, regulatory filings or
proceedings, financial disclosures which in the good faith
judgment of the disclosing party are required by law,
disclosures required by court or tribunal or competent
jurisdiction, or disclosures that may be reasonably necessary
in connection with the performance or enforcement of this
Agreement or any of the obligations hereof; provided, however,
that if the receiving party would otherwise be required to
refer to or describe any aspect of this Agreement in any of
the preceding circumstances, the receiving party shall use its
reasonable efforts to take
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such steps as are available under such circumstances (such as
by providing a summary or synopsis) to avoid disclosure of the
financial terms and conditions of this Agreement.
Notwithstanding any provisions of this Agreement to the
contrary, either party may disclose the terms and conditions
of this Agreement in the course of a due diligence review
performed in connection with prospective debt financing or
equity investment by, or a sale to, a third party, so long as
the persons conducting such due diligence review have agreed
to maintain the confidentiality of such disclosure and not to
use such disclosure for any purpose other such due diligence
review.
12. INDEMNIFICATIONS
12.1. SAVVIS shall indemnify, defend, and hold Provider (including
any of its directors, officers, employees, agents or assigns)
harmless from any claims, actions or suits to the extent that
such claim or action arises from Provider's provision to
SAVVIS of the Services and to the extent that such claim,
action or suit does not arise from the gross negligence or
intentional misconduct of Provider. SAVVIS may settle, or
otherwise manage at its own cost and expense any such claims,
actions or suits. Provider shall notify SAVVIS promptly in
writing of any such claim, action or suit and shall cooperate
with SAVVIS in a reasonable way to facilitate the settlement
or defense thereof.
12.2. Provider shall indemnify, defend, and hold SAVVIS (including
any of its directors, officers, employees, agents or assigns)
harmless from any claims, actions or suits to the extent that
such claim or action arises from Provider's gross negligence
or intentional misconduct in the provision to SAVVIS of the
Services, unless such claim, action or suit also arises from
the gross negligence or intentional misconduct of SAVVIS.
Provider may settle, or otherwise manage at its own cost and
expense any such claims, actions or suits. SAVVIS shall notify
Provider promptly in writing of any such claim, action or suit
and shall cooperate with Provider in a reasonable way to
facilitate the settlement or defense thereof.
13. DISPUTES
13.1. Resolution of any and all disputes arising from or in
connection with this Agreement, whether based on contract,
tort, statute or otherwise, including disputes over
arbitrability and disputes in connection with claims by third
persons ("DISPUTES") shall be exclusively governed by and
settled in accordance with the provisions of this Section 13.
The foregoing shall not preclude recourse to judicial
proceedings to obtain injunctive, emergency or other equitable
relief to enforce the provisions of this Agreement, including
specific performance, and to decide such issues as are
required to be resolved in determining whether to grant such
relief. Resolution of Disputes with respect to claims by third
persons shall be deferred until any judicial proceedings with
respect thereto are concluded.
13.2. The parties hereby agree to submit all Disputes to rules of
arbitration of the American Arbitration Association and the
Missouri Uniform Arbitration Act (the "RULES") under the
following provisions, which shall be final and binding upon
the parties, their successors and assigns, and that the
following provisions constitute a
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binding arbitration clause under applicable law. Either party
may serve process or notice on the other in any arbitration or
litigation in accordance with the notice provisions hereof.
The parties agree not to disclose any information regarding
any Dispute or the conduct of any arbitration hereunder,
including the existence of such Dispute or such arbitration,
to any person or entity other than such employees or
representatives of such party as have a need to know.
13.3. Either party may commence proceedings hereunder by delivery of
written notice providing a reasonable description of the
Dispute to the other, including a reference to this provision
(the "DISPUTE NOTICE"). Either party may initiate arbitration
of a Dispute by delivery of a demand therefor (the
"ARBITRATION DEMAND") to the other party not sooner than 60
calendar days after the date of delivery of the Dispute Notice
but at any time thereafter. The arbitration shall be conducted
in St. Louis, Missouri.
13.4. The arbitration shall be conducted by three arbitrators (the
"ARBITRATORS"), one of whom shall be selected by Provider, one
by SAVVIS, and the third by agreement of the other two not
later than 10 days after appointment of the first two, or,
failing such agreement, appointed pursuant to the Rules. If an
Arbitrator becomes unable to serve, a successor shall be
selected or appointed in the same manner in which the
predecessor Arbitrator was appointed.
13.5. The arbitration shall be conducted pursuant to such procedures
as the parties may agree or, in the absence of or failing such
agreement, pursuant to the Rules. Notwithstanding the
foregoing, each party shall have the right to inspect the
books and records of the other party that are reasonably
related to the Dispute, and each party shall provide to the
other, reasonably in advance of any hearing, copies of all
documents which such party intends to present in such hearing
and the names and addresses of all witnesses whose testimony
such party intends to present in such hearing.
13.6. All hearings shall be conducted on an expedited schedule, and
all proceedings shall be confidential. Either party may at its
expense make a stenographic record thereof.
13.7. The Arbitrators shall complete all hearings not later than 90
calendar days after the Arbitrators' selection or appointment,
and shall make a final award not later than 30 calendar days
thereafter. The Arbitrators shall apportion all costs and
expenses of the Arbitration, including the Arbitrators' fees
and expenses of experts ("ARBITRATION COSTS") between the
prevailing and non-prevailing parties as the Arbitrators deem
fair and reasonable. In circumstances where a Dispute has been
asserted or defended against on grounds that the Arbitrators
deem manifestly unreasonable, the Arbitrators may assess all
Arbitration Costs against the non-prevailing party and may
include in the award the prevailing party's attorneys' fees
and expenses in connection with any and all proceedings under
this Section 13.
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13.8. Either party may assert appropriate statutes of limitation as
a defense in arbitration; provided, that upon delivery of a
Dispute Notice any such statute shall be tolled pending
resolution hereunder.
13.9. Pending the resolution of any dispute or controversy arising
under this Agreement, the parties shall continue to perform
their respective obligations hereunder, and Provider shall not
discontinue, disconnect or in any other fashion cease to
provide all or any substantial portion of the Services to
SAVVIS unless otherwise directed by SAVVIS. This Section shall
not apply where SAVVIS is in default under this Agreement.
14. FORCE MAJEURE
14.1. In no event shall either party be liable to the other for any
failure to perform hereunder that is due to war, riots,
embargoes, strikes or other concerted acts of workers (whether
of a party hereto or of others), casualties, accidents or
other causes to the extent that such failure and the
consequences thereof are reasonably beyond the control and
without the fault or negligence of the party claiming excuse.
Each party shall, with the cooperation of the other party, use
reasonable efforts to mitigate the extent of any failure to
perform and the adverse consequences thereof.
14.2. If Provider cannot promptly provide a suitable temporary
Provider alternative to a Service subject to an interruption
in connection with the existence or a force majeure condition,
SAVVIS may, at its option and at its own cost, contract with
one or more third parties for any or all affected Services for
the shortest commercially available period likely to cover the
reasonably expected duration of the Interruption, and may
suspend Provider's provision of such Services for such period.
Provider shall not charge SAVVIS for any Services thus
suspended during the period of suspension. Provider shall
resume provision of the suspended Services upon the later of
the termination or expiration of SAVVIS' legally binding
commitments under contracts with third parties for alternative
services or the cessation or remedy of the force majeure
condition.
14.3. In the event that a force majeure condition shall continue for
more than 60 days, SAVVIS may cancel the affected Services
with no further liability to Provider other than for Services
received by SAVVIS prior to the occurrence of the force
majeure condition.
15. GENERAL PROVISIONS
15.1. NO THIRD-PARTY BENEFICIARIES. [This Agreement shall not confer
any rights or remedies upon any person or entity other than
the parties and their respective successors and permitted
assigns.] [Except as expressly provided in this Agreement,
nothing in this Agreement will create or confer any rights or
other benefits on or in favor of any person who is not a party
to this Agreement whether pursuant to the Contracts (Rights of
Third Parties) Act, 1999 or otherwise.]
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15.2. ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement between
the parties and supersedes any prior understandings,
agreements, or representations by or between the parties,
written or oral, to the extent they related in any way to the
subject matter hereof.
15.3. SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the parties named herein and
their respective successors and permitted assigns. No party
may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written
approval of the other party, which consent shall not be
unreasonably withheld.
15.4. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but
all of which together will constitute one and the same
instrument.
15.5. HEADINGS. The Section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
15.6. NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice,
request, demand, claim, or other communication hereunder shall
be deemed duly given if (and then two business days after) it
is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to Provider: Bridge Information Systems, Inc.
Three World Financial Center
New York, New York 10285
(212) 372-7195 (fax)
Attention: Zachary Snow,
Executive Vice President and
General Counsel
If to SAVVIS: SAVVIS Communications Corporation
717 Office Parkway
St. Louis, Missouri 63141
(314) 468-7550 (fax)
Attention: Steven M. Gallant,
Vice President and General Counsel
Any party may send any notice, request, demand, claim, or
other communication hereunder to the intended recipient at the
address set forth above using any other means (including
personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication
shall be deemed to have been duly given unless and until it
actually is received by the intended recipient. Any party may
change the address to which notices, requests, demands,
claims, and other
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communications hereunder are to be delivered by giving the
other party notice in the manner herein set forth.
15.7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of [England]
[the State of Missouri] without giving effect to any choice or
conflict of law provision or rule (whether of [England] [the
State of Missouri] or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than
[England] [the State of Missouri].
15.8. AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing
and signed by SAVVIS and Provider. No waiver by any party of
any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder
or affect in any way any rights arising by virtue of any prior
or subsequent such occurrence.
15.9. SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction
shall not affect the validity or enforceability of the
remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
15.10. EXPENSES. Each party will bear its own costs and expenses
(including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby.
15.11. CONSTRUCTION. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all
rules and regulations promulgated thereunder, unless the
context requires otherwise. The word "including" shall mean
including without limitation.
15.12. ADDENDA AND SCHEDULES. The Addenda and Schedules identified in
this Agreement are incorporated herein by reference and made a
part hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Administrative
Services Agreement to be executed as of the date first above written.
SAVVIS [local entity]
By
-----------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
[local Bridge/Telerate entity]
By
-----------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
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SCHEDULE 2.1 TO EXHIBIT A OF ADMINISTRATIVE SERVICE AGREEMENT
ADMINISTRATIVE SERVICES TO BE
PROVIDED BY PROVIDER TO SAVVIS
Service to be provided
Facility rental & operation
Equipment maintenance
Risk management services
Tax planning administration
Tax compliance
Treasury management
Financial planning
Human resource services
Payroll administration
Accounting, bookkeeping,
financial statement preparation
Procurement
PC support
LAN and WAN support
IT planning, installation and
support
Travel expenses (directly on
behalf of SAVVIS)
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EXHIBIT C
TECHNICAL SERVICES AGREEMENT
[This Exhibit C has been filed as a separate document]
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<PAGE>
EXHIBIT D
FORM OF BILL OF SALE
[To be provided at Closing]
55
<PAGE>
EXHIBIT E
FORM OF LOCAL CONTRACT OF ASSIGNMENT AND ASSUMPTION
CONTRACT OF ASSIGNMENT AND ASSUMPTION
This Contract is entered into as of this ____ day of
_________, 2000 by and between SAVVIS [______________], a [private limited
liability] company organized under the laws of [______________] ("SAVVIS"),
[having a non-registered __________ branch], and [______________], a
[______________] company organized under the laws of [______________]
("Assignor").
WHEREAS, SAVVIS is acquiring certain assets and liabilities
from various companies affiliated with Assignor, such assets and liabilities
comprising and relating to the IP Network that Assignor and its affiliated
companies currently own and operate; and
WHEREAS, Assignor desires to assign to SAVVIS and SAVVIS
desires to assume from Assignor certain contracts and liabilities as more
particularly set forth at Schedule 1 to this Contract (the "Contracts and
Liabilities").
NOW, THEREFORE, for good and valuable consideration, including
the provisions and covenants herein, the receipt and sufficiency of which is
hereby acknowledged, SAVVIS and Assignor agree as follows:
1. Assignor hereby assigns, transfers and delivers to SAVVIS the
Contracts and Liabilities and all of its right, title and interest therein and
delegates all of Assignor's duties and obligations attached to the Contract and
Liabilities.
2. SAVVIS hereby accepts the foregoing assignment and assumes and
agrees to keep, observe, perform, pay and discharge when due the terms,
covenants, conditions and obligations of Assignor related to the Contracts and
Liabilities, and hereby releases Assignor from its obligations thereunder.
3. Notwithstanding the foregoing, if the assignment and transfer of any
of the Contracts and Liabilities would cause a breach thereof and if no required
consent to such assignment and transfer has been obtained from the third parties
involved, then such Contracts and Liabilities shall not be assigned and
transferred, but, instead, Assignor shall continue to hold its interests in such
Contracts and Liabilities in trust for the benefit of SAVVIS, shall receive in
trust and remit as promptly as possible to SAVVIS any money paid thereunder to
Assignor and shall cooperate in any reasonable arrangement or action requested
by SAVVIS to secure for SAVVIS all benefits under such Contracts and
Liabilities.
4. From and after the date of this Contract, Assignor and SAVVIS shall
do such acts and execute such documents and instruments as may be reasonably
required to make effective the transactions contemplated thereby. In the event
acts contemplated by this Agreement have not been fully effected as of the date
of this Contract, SAVVIS and Assignor will continue after the
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<PAGE>
date of this Contract, without further consideration, to use their best efforts
to carry out such transactions.
5. Assignor and SAVVIS hereby agree that to the extent any of the
Contracts and Liabilities are actually assigned to SAVVIS prior to the date of
this Contract, Assignor shall indemnify SAVVIS for any losses due to obligations
that arose under such Contracts and Liabilities prior to the date of this
Contract and to the extent any of the Contracts and Liabilities are not assigned
to SAVVIS until after the date of this Contract, SAVVIS shall indemnify Assignor
for any losses due to obligations that arise under such Contracts and
Liabilities following the date of this Contract.
6. Assignor hereby agrees, from time to time, at the reasonable request
of SAVVIS, to execute and deliver such other instruments of conveyance and
transfer and take such other actions as SAVVIS may reasonably request in order
to more effectively consummate the transactions contemplated by this Contract.
7. This agreement shall be governed by, and construed in accordance
with the laws of [England] [the State of Missouri] without regard to its
conflict of laws principles.
[8. Except as expressly provided in this Agreement, nothing in this
Agreement will create or confer any rights or other benefits on or in favor of
any person who is not a party to this Agreement whether pursuant to the
Contracts (Rights of Third Parties) Act, 1999 or otherwise.]
IN WITNESS WHEREOF, the parties hereto have executed this
Contract as of the date first above written.
SAVVIS [______________]
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
[--------------]
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
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<PAGE>
SCHEDULE 1 TO LOCAL CONTRACT OF ASSIGNMENT AND ASSUMPTION
CONTRACTS AND LIABILITIES TO BE
ASSIGNED AND ASSUMED
[To be used only where the contracts to be assigned are circuit leases:
The attached contracts and circuits as well as any contracts or
circuits not listed on the attached by for which Assignor has entered
into prior to the date of this Contract which relate to the IP Network
of Bridge Information Systems, the IP Network being those assets that
are used by the Bridge Information Systems group which consists of
providing telecommunications facilities utilizing internet protocols
between the Bridge Information Systems group and the customers of such
group.]
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EXHIBIT F
FORM OF LOCAL ASSET TRANSFER AGREEMENT
TRANSFER AGREEMENT
This Transfer Agreement ("Agreement") made this __ day of
_______, 2000, by and between Bridge _________________________________, a
corporation organized under the laws of __________________, having its principal
place of business at _________________ ("Seller"), and SAVVIS
____________________ [a ______________ company organized under the laws
of_________________][_____________ branch, the ____________ branch of a
______________ company organized under the laws of _______________] having its
[registered][principal] office at ______________________________ ("SAVVIS")
(Seller and SAVVIS each a "Party" and collectively the "Parties").
WITNESSETH
WHEREAS, pursuant to an agreement of even date herewith
between Bridge Information Systems, Inc. and SAVVIS Communications Corporation
(the "Master Establishment and Transition Agreement") the direct or indirect
parent entity of Seller, Bridge Information Systems Inc. ("BISI"), has agreed to
cause the transfer of certain assets, liabilities, rights and obligations
world-wide to its subsidiary SAVVIS Communications Corporation ("SCC"), which is
the direct or indirect parent of SAVVIS;
WHEREAS, pursuant to the Master Establishment and Transition
Agreement, transfers of assets, liabilities, rights and obligations will be
effected by subsidiaries of BISI and SCC pursuant to individual transfer
services agreements between such entities; and
WHEREAS, SAVVIS and Seller desire to effect a transfer of
certain assets, liabilities, rights and obligations on the terms and conditions
set forth herein;
NOW THEREFORE, in consideration of the premises and the mutual
covenants and obligations herein set forth and of other good and valuable
consideration, receipt of which is hereby acknowledged, the Parties agree as
follows:
1. DEFINITIONS
1.1 In this Agreement and the Schedules the following expressions
shall have the following meanings namely:
"Agreement" means the agreement between the Parties the terms of
which are set out herein;
"Assets" means the assets of the IP Network set forth in Clause 2.1
as amended pursuant to Clause 2.2;
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"Closing" has the meaning set forth in Clause 4.1;
"Effective Date" means ______________, 2000;
["Employees" means those employees of Seller listed on the attached
Schedule 4;]
"IP Network" means those assets that are used by Seller which
consists of providing telecommunications facilities utilizing
internet protocols between Seller, suppliers and group companies of
Seller and Seller's customers;
"Liabilities" means all liabilities and obligations of Seller
(whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to become due)
fulfilling both of the following requirements:
(a) which are directly associated with (i) the Assets,
(ii) the Contracts, (iii) the use of the IP Network
or (iv) those matters set forth on Schedule [5]
attached hereto; and
(b) which result from or arise out of the ownership or
operation of the IP Network prior to the Effective
Date, including liabilities which exist with respect
to (i) obligations under the Contracts, other than an
obligation to make payment, which are required to be
fulfilled by Seller wholly prior to Closing, or (ii)
obligations to make payment, to the extent such
payment is for services rendered under the Contracts
prior to Closing.
"Software" means any and all software and software applications,
including operating software and embedded software, owned or used by
Seller in relation to the maintenance, ownership or operations of the
Assets listed in Clause 2.1.1.
1.2 In this Agreement words importing the singular include the plural
and vice versa and words importing gender include any other gender.
1.3 The headings of Clauses are for ease of reference and shall not
affect the construction of this Agreement.
1.4 References in this Agreement to Clauses or Schedules are
references to clauses of or schedules to this Agreement.
1.5 Any undertaking hereunder not to do any act or thing shall be
deemed to include an undertaking not to permit or suffer the doing of
that act or thing.
1.6 The expression "person" used in this Agreement shall include
(without limitation) any individual, partnership, local authority,
company or unincorporated association.
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2. SALE & PURCHASE
2.1 Seller shall sell and SAVVIS shall purchase with effect from the
Effective Date the Assets subject in all cases to the Liabilities,
which are the following:
2.1.1 the computer equipment listed in Schedule 1, including
but not limited to the Ascend Cascade Switch 9000s and the
Baynet Routers;
2.1.2 the full benefit of all agreements between Seller and
any other person, firm or corporation (other than SAVVIS) to
which Seller is entitled in connection with the operations
of the IP Network which are in force at the Effective Date
including, without limitation, the contracts listed in
Schedule 2 as well as any maintenance, support, supply or
licensing agreements, if any, relating to the Software;
2.1.3 the right of SAVVIS to represent itself as operating
the IP Network in succession to Seller;
2.1.4 all technical and contractual information relating to
the IP Network;
2.1.5 the Software.
2.2 SAVVIS and Seller shall take all reasonable efforts to jointly
prepare, within fifteen days after the Effective Date, or as soon as
practical thereafter, a revised list of the Assets as set forth in
Schedules 1 and 2. This revised list shall supersede the attached
Schedules 1 and 2 and shall include any assets purchased or acquired
by Seller after October 31, 1999 but before the Effective Date which
comprise part of the IP Network. The parties shall negotiate in good
faith to finalize such revised Schedules and shall provide to each
other any information or records reasonably necessary to finalize
such revised Schedules.
3. CONSIDERATION
3.1 The purchase price for the Assets exclusive of any VAT, stamp
duty, and transfer taxes (the "Consideration") shall be the sum
specified in Schedule 3. To the extent the Assets are revised
pursuant to Clause 2.2, the Consideration set forth in Schedule 3
shall be adjusted based on the net book value on the date of transfer
(in the books of Seller) of the Assets which are added to or removed
from the revised list. The Parties shall take all reasonable efforts
to jointly prepare any such revisions to Schedule 3 within fifteen
days after the Effective Date, or as soon as practical thereafter.
The parties shall negotiate in good faith to finalize such revised
Schedule and shall provide to each other any information or records
reasonably necessary to finalize such Schedule.
3.2 The Consideration shall be due and payable as set forth in
Schedule 3.
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3.3 The amount set forth in Schedule 3 is exclusive of VAT, and any
and all transfer or other taxes or duties applicable to the
transaction provided for in this Agreement, which SAVVIS hereby
agrees to pay.
4. CLOSING
4.1 Closing of the sale shall take place on the Effective Date when
Seller shall deliver to SAVVIS all physical Assets hereby agreed to
be sold, other than the Assets referred to in Clause 2.2 above. All
physical Assets referred to in Clause 2.2 above shall be delivered to
SAVVIS as soon as practicable following the finalization of any
adjustment to the Assets as set forth in Clause 2.2.
4.2 Property in and title to the Assets referred to in Clause 2.1
shall pass to SAVVIS on the Effective Date. Property in and title to
the Assets referred to in Clause 2.2 shall pass to SAVVIS on the date
that the revised schedules are finalized in accordance with on Clause
2.2 but such transfer shall be effective as of the Effective Date.
4.3 Subject to Clause 6 below, Seller shall on or as soon as
practicable after the Effective Date deliver to SAVVIS all transfers,
assignments and novations relating to the Assets (including the
property) together with the documents of title thereto, necessary to
give effect to this Agreement; provided, however, that any such
transfers shall as between the Parties be deemed to be effective as
of the Effective Date.
5. THE LIABILITIES
5.1 Subject to the consent where necessary of other contracting
parties (which the Parties hereto shall use their reasonable best
efforts to obtain) SAVVIS shall as from the Effective Date assume,
perform and discharge all Liabilities. If it proves impossible to
obtain any such consent in relation to any of the Liabilities, SAVVIS
will assume, perform and discharge such Liability as agent for and on
behalf of Seller and will indemnify Seller accordingly. Seller will
indemnify SAVVIS for contractual liabilities for goods or services
delivered prior to the Effective Date.
5.2 For purposes of effecting the transfer by Seller to SAVVIS of
certain contractual obligations and the assumption of such
obligations by SAVVIS, the parties have executed as of even date
herewith an Assignment and Assumption Agreement substantially in the
form of EXHIBIT A to this Agreement.
6. THIRD PARTY CONSENTS
6.1 Seller and SAVVIS shall use all reasonable endeavours to obtain
any required consent of any other contracting parties to the
assignment or novation of any agreement referred to in Clause 2.1.2.
Unless and until such consent shall be forthcoming and the relevant
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agreement shall have been assigned or novated SAVVIS shall at its own
cost and expense assume Seller's obligations under such agreements
and Seller shall account to SAVVIS for all sums paid or received
therefrom.
6.2 Seller will at SAVVIS' request and expense give to SAVVIS all
assistance in the power of Seller to enable SAVVIS to enforce the
agreements referred to in Clause 2.1.2 against the other contracting
party or parties and, without prejudice to the generality of the
foregoing, will provide all such relevant books, documents and other
information as SAVVIS may require in relation thereto.
[7. PERSONNEL
SAVVIS and Seller hereby agree and acknowledge that the Transfer of
Undertakings (Protection of Employment) Regulations applies to this
transaction and, therefore, that the contracts of employment of all
of the Employees of Seller, as set forth at Schedule 4 to this
Agreement, shall not be terminated at Closing but shall continue to
have effect as if originally made between such Employee and SAVVIS in
accordance such Regulations.]
[8. INDEMNIFICATION
Seller will indemnify, defend and hold SAVVIS and its shareholders,
directors, officers, successors, assigns, and agents of each of them,
harmless from and against any and all claims, losses, damages,
liabilities, expenses or costs, plus reasonable attorneys' fees and
expenses, incurred by SAVVIS to the extent resulting from or arising
out of any claim or suit by any Employee of Seller, or by any other
employee of Seller that is not being transferred to SAVVIS, asserting
rights under the Transfer of Undertakings (Protection of Employment)
Regulations 1981 or any other similar law or regulation.]
9. FURTHER ASSURANCE
From and after Closing, the Parties shall do such acts and execute
such documents and instruments as may be reasonably required to make
effective the transactions contemplated hereby. In the event that
consents, approvals, other authorizations or other acts contemplated
by this Agreement have not been fully effected as of Closing, the
parties will continue after Closing, without further consideration,
to use their reasonable best efforts to carry out such transactions;
provided, however, in the event that certain approvals, consents or
other necessary documentation cannot be secured, then the Party
having legal responsibility, ownership or control shall act on behalf
of the other Party, without further consideration, to effect the
essential intention of the Parties with respect to the transactions
contemplated by this Agreement.
10. SURVIVAL OF CERTAIN PROVISIONS
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To the extent that any provision of this Agreement shall not have
been performed at Closing it shall survive and remain in full force
and effect notwithstanding Closing.
11. GOVERNING LAW AND CHOICE OF FORUM
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of [England][the state of Missouri, United
States of America] and the parties to this Agreement hereby agree
that all matters arising out of or in connection with this Agreement
shall be subject to the exclusive jurisdiction of the courts of
[England][the state of Missouri].
[12. THIRD PARTY BENEFICIARIES
Except as expressly provided in this Agreement, nothing in this
Agreement will create or confer any rights or other benefits on or in
favor of any person who is not a party to this Agreement whether
pursuant to the Contracts (Rights of Third Parties) Act, 1999 or
otherwise.]
AS WITNESS the hands of duly authorized representatives of the parties the day
and year first above written
SIGNED by )
for and on behalf of )
- ------------------------ )
- ------------------------ )
SIGNED by )
for and on behalf of )
SAVVIS _____________ )
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EXHIBIT A TO LOCAL ASSET TRANSFER AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement is entered into as of
this ____ day of _________, 1999 by and between SAVVIS , a corporation
("SAVVIS") and _______________ , a corporation ("Assignor").
WHEREAS, SAVVIS and Assignor are parties to that certain Local
Asset Transfer Agreement even date herewith (the "Transfer Agreement"), pursuant
to which SAVVIS has agreed to purchase from Assignor the Assets and Liabilities;
and
WHEREAS, pursuant to Sections 2 and 5 of the Transfer
Agreement, Assignor agreed to assign to SAVVIS, on or prior to the Closing Date,
the Assets and Liabilities;
NOW, THEREFORE, pursuant to the terms and conditions of the
Transfer Agreement, and for good and valuable consideration, including the
provisions and covenants herein, the receipt and sufficiency of which is hereby
acknowledged, SAVVIS and Assignor agree as follows:
1. Assignor hereby assigns, transfers and delivers to SAVVIS the Assets
and the Liabilities and of its right, title and interest therein and delegates
all of Assignor's duties and obligations attached to the Assets and the
Liabilities;
2. SAVVIS hereby accepts the foregoing assignment and assumes and
agrees to keep, observe, perform, pay and discharge when due the terms,
covenants, conditions and obligations of Assignor related to the Liabilities,
and hereby releases Assignor from its obligations thereunder;
3. Notwithstanding the foregoing, if the assignment and transfer of any
of the Assets or Liabilities would cause a breach thereof and if no required
consent to such assignment and transfer has been obtained from the third parties
involved, then such Assets or Liabilities shall not be assigned and transferred,
but, instead, Assignor shall continue to hold its interests in such Assets or
Liabilities in trust for the benefit of SAVVIS, shall receive in trust and remit
as promptly as possible to SAVVIS any money paid thereunder to Assignor and
shall cooperate in any reasonable arrangement or action requested by SAVVIS to
secure for SAVVIS all benefits under such Assets or Liabilities.
4. Assignor hereby agrees, from time to time, at the reasonable request
of SAVVIS, to execute and deliver such other instruments of conveyance and
transfer and take such other actions as SAVVIS may reasonably request in order
to more effectively consummate the transactions contemplated by this Assignment
and Assumption Agreement.
5. Capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Transfer Agreement.
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6. This agreement shall be governed by, and construed in accordance
with, the laws of the state of without regard to its conflict of laws
principles.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment and Assumption Agreement as of the date first above written.
SAVVIS
By:____________________________________
Name:__________________________________
Title:_________________________________
By:____________________________________
Name:__________________________________
Title:_________________________________
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SCHEDULE 1 TO LOCAL ASSET TRANSFER AGREEMENT
THE COMPUTER EQUIPMENT
[To be provided at Closing]
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SCHEDULE 2 TO LOCAL ASSET TRANSFER AGREEMENT
THE CONTRACTS
[To be provided at Closing]
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SCHEDULE 3 TO LOCAL ASSET TRANSFER AGREEMENT
THE CONSIDERATION
ALLOCATION OF CONSIDERATION
Consideration to be allocated as set forth in Schedule 1.
PAYMENT OF CONSIDERATION
The consideration shall paid at Closig to the account of Seller as
follows:
[Details of account]
To the extent any adjustment is to be paid under Section 3 of this
Agreement, such amount shall be due and payable to the above
indicated account, no later than five days after receipt by SAVVIS of
a valid invoice, which may be submitted on or after the Effective
Date.
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[SCHEDULE 4 TO LOCAL ASSET TRANSFER AGREEMENT
THE EMPLOYEES]
[To be provided at Closing]
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SCHEDULE 5 TO LOCAL ASSET TRANSFER AGREEMENT
THE LIABILITIES
[To be provided at Closing]
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EXHIBIT G
FORM OF LOCAL NETWORK SERVICES AGREEMENT
[This Exhibit G is filed as an Exhibit to the
Network Services Agreement which has been filed as a separate document]
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EXHIBIT H
FORM OF EQUIPMENT COLLOCATION PERMIT
EQUIPMENT COLLOCATION PERMIT
This EQUIPMENT COLLOCATION PERMIT (the "Agreement") is made as
of the ____ day of _________, 2000, by and between [Bridge Subsidiary] (the
"Company") and [Savvis Subsidiary] (the "Customer").
WHEREAS, the Company occupies the premises identified on
Exhibit A attached hereto and incorporated herein by reference (the "Premises"),
which are leased by the Company under the lease described on Exhibit B attached
hereto, including the lease term and renewal options specified therein, and
incorporated herein by reference (the "Lease"); and
WHEREAS, the Customer and the Company desire to enter into an
arrangement permitting the Customer to locate certain of its equipment in
certain portions of the Premises, on and subject to the terms and conditions set
forth herein related to the Customer's collocation of the equipment;
NOW, THEREFORE, for and in consideration of the premises and
the mutual agreements herein, the parties hereby agree as follows:
1. SPACE.
(a) To the extent permitted by this Agreement, the Customer may place certain
telecommunications equipment (the "Equipment") within the Premises during the
Term (hereinafter defined) of this Agreement and may use the Equipment in
accordance with the terms and conditions of this Agreement and in accordance
with applicable laws and code. The precise locations (the "Space") within the
Premises where the Equipment may be placed and used by the Customer shall be as
designated by the Company in written notice(s) to the Customer. The Company
shall maintain exclusive control over the manner and method of the placement and
use of the Equipment within the Space. In connection with the permission
established under this Agreement, the Customer shall have no possessory or
occupancy rights with respect to the Space or control over the Space, but shall
have only permission to place and use the Equipment within the Space, together
with unrestricted access to the Equipment twenty-four hours a day, seven days a
week.
(b) The Customer shall use its reasonable best efforts to abide by applicable
terms and conditions of the Lease and any other agreements or indentures binding
on the Company with respect to the Premises, upon notice from the Company of
such terms and conditions from time to time throughout the Term; and this
Agreement and the rights of the Customer hereunder shall be subject and
subordinate to the terms and conditions of the Lease and other agreements and
indentures in all respects. The Company shall promptly give written notice to
the Customer of any notice of default they may receive pursuant to the Lease. If
the Customer shall not abide by any such terms or conditions, upon 15 days'
written notice to the Customer, the Company may
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revoke the permission established under this Agreement with respect to the
applicable Space and Premises and the Company may terminate the rights of the
Customer under this Agreement with respect to such Space and Premises.
(c) The Equipment and its method of installation within the Space shall, in each
instance, be approved in writing by the Company in advance. The Customer shall
not place any additional equipment in the Space and shall not move or alter the
location of the Equipment within the Space without having received prior
approval in writing from the Company.
(d) Upon 30 days' prior written notice or, in the event of an emergency, within
such shorter time as may be reasonably determined appropriate by the Company,
the Company may require the Customer to relocate the Equipment within the
Premises and may redesignate the Space for the relocated Equipment; provided,
however, the site of relocation shall be prepared for installation prior to any
required relocation and shall afford substantially comparable environmental
conditions for the Equipment and substantially comparable accessibility to the
Equipment. All costs of relocating the Equipment shall be borne by the Customer,
excluding, however, the cost, if any, of improving the redesignated Space.
(e) Upon written request of the Customer and at the Customer's expense, the
Customer may require that fencing, caging, cabinets or other similar protective
covering for the Equipment be installed if (i) there is sufficient room in the
applicable Space and Premises for such installations, (ii) such installations
will not unreasonably interfere with the Company's use, occupancy or planning,
and will not unreasonably interfere with the Company's equipment or the
equipment of other collocators, and (iii) with respect to any Premises subject
to the Lease or other agreements or indentures, such installations are permitted
under the terms and conditions of the Lease or other agreements or indentures.
(f) If the placement or use of the Equipment in the Space results in any
violation or claim of violation of any of the Lease or other agreements or
indentures, then in the event the Company shall be unable, at a cost acceptable
to the Company, to cure such violation or secure a waiver of such claim of
violation, the Company may undertake to find other suitable space for the
Equipment within the applicable Space and Premises and relocate such Equipment
to other suitable location for the balance of the Term of this Agreement.
2. TERM.
(a) The initial term (the "Initial Term") of the permission established under
this Agreement pertaining to the placement and use of the Equipment within the
Space shall commence on the date hereof and shall continue thereafter until such
time as the applicable Lease expires. If the term of the applicable Lease is
extended, then the Customer shall have the option, upon prior written notice to
the Company, to renew this Agreement for an additional term (the "Renewal
Term"), which Renewal Term shall be conterminous with the term of the applicable
extended term under the Lease, on the terms and conditions otherwise set forth
in this Agreement. The Initial Term and the Renewal Term are sometimes
collectively referred to as the "Term." Notwithstanding anything herein or
elsewhere to the contrary, however, the Term shall be subject to earlier
termination as may be provided herein.
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(b) The option to renew this Agreement with respect to the Premises shall be
contingent on the Company's continued occupation and ownership or leasing of the
Premises and shall be contingent upon the Customer's compliance with the terms
and conditions of this Agreement. In the event the Company shall cease to occupy
any of the Premises or shall default under this Agreement, the option to renew
this Agreement shall expire with respect to the applicable Premises or the
entirety of the Premises, as the case may be.
(c) Following the expiration of the Term, this Agreement shall continue in
effect on a month-to-month basis upon the same terms and conditions otherwise
set forth herein, unless and until terminated by either the Customer or the
Company upon at least 30 days' prior written notice to the other.
(d) Notwithstanding anything herein or elsewhere to the contrary, the Company
reserves the right, in its discretion, to revoke the permission established
under this Agreement with respect to the applicable Space within any Premises
and to terminate the rights of Customer under this Agreement with respect to
such Space and Premises immediately upon written notice in the event that, for
whatever reason, the Company loses its right to occupy the applicable Premises
or its right to permit the collocation of Equipment within such Premises. In the
event the Company elects to exercise its right to terminate the Lease, the
Company shall give the Customer 6 months written notice of its termination of
the Lease and the intended resulting termination of this Agreement.
3. CONSIDERATION. The Customer agrees to pay the Company such amounts as may be
set forth on the Collocate Schedule for the permission established under this
Agreement with respect to the scheduled Space and Premises. Such amounts shall
be payable in equal monthly installments in advance on the first day of each
calendar month during the Term.
4. CONDITION OF THE PREMISES. The Customer approves the Premises in "as is"
condition as of the date of this Agreement, and acknowledges that the Company
has no obligation to make alterations, improvements or additions, decorations or
changes within the Premises or the Space. The Company acknowledges that the
Equipment is personal property of the Customer and not a fixture, and that the
Company shall not have any lienable interest in the Equipment.
5. ASSIGNMENT. The Agreement is personal to the parties, and may not be assigned
by either party without the prior written consent of the other.
6. TERMINATION OR EXPIRATION. At the expiration of the Term (or earlier
termination of this Agreement), the Customer shall remove the Equipment from the
Premises at the Customer's expense, and the Space shall be restored by the
Company, at the Customer's expense (such expense to be defrayed by reimbursing
the Company for the same upon demand) to substantially the same as the condition
as of the date of this Agreement.
7. DEFAULT. If the Customer breaches any term or condition of this Agreement,
the Company, after providing the Customer with notice of such breach, may elect
by written notice
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to the Customer to terminate this Agreement; provided, however that the Customer
shall have 30 days from the time it receives such notice from the Company of a
breach to cure any such default. In addition to such right of termination, the
Company shall have any and all other rights and remedies afforded to the Company
at law or in equity.
8. INDEMNIFICATION.
(a) The Customer covenants and agrees to indemnify and hold the Company harmless
from and against any and all suits, actions, claims, damages, charges and
expenses, including reasonable attorney fees, for damages or injuries to the
Space or the Premises occurring or claimed to have occurred in, upon, or about
the Space or the Premises as a result of the Customer's conduct or omission in
placing, operating or removing the Equipment or using the Equipment within the
Space, unless arising from the negligence or willful misconduct of the Company.
(b) The Company covenants and agrees to indemnify and hold the Customer harmless
from and against any and all suits, actions, claims, damages, charges and
expenses, including reasonable attorney fees, for damages or injuries to the
Equipment occurring or claimed to have occurred in, upon, or about the Space or
the Premises as a result of the negligence or willful misconduct of the Company
in handling the Equipment or using the Space or the Premises, unless arising
from the negligence or willful misconduct of the Customer.
9. LIMITATION OF LIABILITY.
(a) Liability for Damages to Property. The Company shall not be liable for any
damages whatsoever to the Customer's property resulting from the installation,
maintenance, repair or removal of Equipment and associated wiring unless the
damage is caused by the Company's negligence or willful misconduct.
(b) Liability for Equipment not Provided by the Company. The Company shall not
be liable for any damages whatsoever associated with facilities or Equipment not
furnished by the Company or for any act or omission of the Customer or any other
entity furnishing facilities or Equipment.
(c) Liability for Force Majeure Events. The Company shall not be liable for any
failure of performance due to causes beyond its control, including but not
limited to acts of God, fire, flood or other catastrophes; any law, order
regulation, direction, action or request of the United States Government, or of
any other government, including state and local governments having or claiming
jurisdiction or of any department, agency, commission, bureau, corporation, or
other instrumentality of any federal, state, or local government, or of any
civil or military authority; national emergencies; unavailability of materials
or rights-of-way; insurrections; riots; wars; or strikes, lock-outs, work
stoppages, labor difficulties, or utilities/power outages.
(d) No Special Damages. In no event shall the Company or the Customer be liable
for special, consequential, lost profit, exemplary, or punitive damages as a
result of its performance or nonperformance of this Agreement or as a result of
any default under or breach of this Agreement.
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(e) No Claims against the Company's Landlords. The Customer acknowledges the
owners of any Premises subject to the Lease have no responsibilities or duties,
direct or indirect, to the Customer, and the Customer disclaims any rights
against or recourse to (i) the owners of any Premises subject to the Lease or
(ii) such Premises. In furtherance of this acknowledgment and disclaimer, the
Customer releases and waives any claim against such owners (such release and
waiver being for the benefit of, and enforceable by such owners as intended
third party beneficiaries).
10. CASUALTY OR EMINENT DOMAIN. In the event of any taking by eminent domain or
damage by fire or other casualty to the Premises and/or Space, the Customer
shall acquiesce and be bound by any action taken by or agreement entered into by
the Company with respect thereto, and in any event the Customer shall not have
(and hereby waives and releases) any claim with respect to any award, damages or
proceeds associated with any such taking or damage.
11. ENTIRE AGREEMENT. All prior agreements and understandings of the parties are
merged within this Agreement, which alone fully and completely sets forth the
understanding of the parties with respect to the subject matter of this
Agreement. This Agreement shall not be modified without the prior written
agreement of all the parties. Any handwritten modifications to this Agreement
shall be void ab initio.
12. NOTICES. Any and all notices or communications which either party may desire
or be required to give to the other shall be in writing and shall be sent to the
other party by certified or registered mail at the address designated below:
If to Company: Bridge Information Systems, Inc.
Three World Financial Center
New York, New York 10285
(212) 372-7195 (fax)
Attention: Zachary Snow,
Executive Vice President and General Counsel
If to Customer: SAVVIS Communications Corporation
717 Office Parkway
St. Louis, Missouri 63141
(314) 468-7550 (fax)
Attention: Steven M. Gallant,
Vice President and General Counsel
13. GOVERNING LAW. This Agreement shall be governed by the laws of [England]
[the State of Missouri].
14. INSURANCE. The Customer agrees to provide the Company evidence (in the form
of certificates of insurance), on or before the date of the commencement of the
Term, and to keep in force and effect during the Term, with respect to the
Equipment, a policy of comprehensive liability insurance, naming the Company as
an additional insured, and a policy of property insurance containing waivers of
subrogation against the Company and against the owners and
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other parties in interest of any Premises subject to the Lease. Such insurance
shall otherwise be in a form conforming to the requirements of the applicable
provisions of the Lease.
15. INTERPRETATION. In the event of any conflict between the terms of this
Agreement and the terms contained in any Exhibit hereto, the terms of the
Exhibit shall govern.
[16. THIRD PARTY BENEFICIARIES. Except as expressly provided in this Agreement,
nothing in this Agreement will create or confer any rights or other benefits on
or in favor of any person who is not a party to this Agreement whether pursuant
to the Contracts (Rights of Third Parties) Act, 1999 or otherwise.]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
BRIDGE SAVVIS
======================================= ========================================
By: By:
======================================= ========================================
Title: Title:
======================================= ========================================
======================================= ========================================
Date: Date:
======================================= ========================================
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EXHIBIT A TO EQUIPMENT COLLOCATION PERMIT
COLLOCATE SCHEDULE
[TO BE PROVIDED AT CLOSING]
1. Premises: _____________________________________________________________
2. Price:_________________________________________________________________
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EXHIBIT B TO EQUIPMENT COLLOCATION PERMIT
LEASE
[TO BE COMPLETED AT CLOSING]
The term "Lease" shall include the leases listed below, as the
same may be amended from time to time by the Company.
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EXHIBIT I
FORM OF PROMISSORY NOTE
PROMISSORY NOTE
[amount] St. Louis, Missouri
_____________, 2000
The undersigned, SAVVIS Communications Corporation, a Missouri
corporation, (hereinafter referred to as "Maker"), for value received, promises
to pay to the order of Bridge Information Systems, Inc. (the "Payee"), at its
office located at 717 Office Parkway, St. Louis, Missouri 63141, or at such
other place as may be designated in writing by the holder hereof, in lawful
money of the United States of America in immediately available funds, the
principal sum of _______________________________ United States Dollars
(US$_________________), together with interest thereon from the date hereof, at
the rate or rates hereinafter specified, as follows:
1. Interest. This Note shall bear interest on the aggregate
unpaid principal amount thereof from the date hereof at the fixed rate of
interest equal to ten percent (10%) per annum.
2. Interest and Principal Payments; Maturity. This Note shall
be payable as follows:
(a) Interest shall be payable semi-annually in cash
on each _____ and commencing on _______________, 2000.;
(b) On ________________, 2003, the Maker shall pay to
the Payee a final installment of principal and interest in an amount equal to
the sum of the principal balance of this Note together with the remaining
accrued and unpaid interest thereon.
3. Calculation of Interest. The interest rate payable
hereunder shall be calculated on the basis of twelve (12) thirty (30) day months
over a year of 360 days.
4. Application of Payments. All installments paid hereunder
shall be in currently available funds.
5. Payments Due on Saturdays, Sundays or Legal Holidays. If
any payment of principal or interest due on this Note is payable on a day which
is a Saturday, Sunday or legal holiday in the state of Missouri, then such
payment shall be due on the next business day, the amount of such payment, in
such case, to include all interest accrued to the date of actual payment.
<PAGE>
6. Voluntary Prepayment. The indebtedness evidenced by this
Note may be prepaid, in whole or in part, at any time without premium. All
prepayments shall be applied first to accrued interest and the balance to the
reduction of the principal. No prepayment shall obligate Payee to re-advance any
sums prepaid.
7. Mandatory Prepayment. If the Maker receives an "Infusion
of Capital" of three hundred million United States dollars (U.S.$300,000,000.00)
or more in the aggregate, then it shall reduce the principal balance of this
Note by an amount equal to no less than fifty percent (50%) of the excess of
such infusions above $300 million; provided, however, if the Maker's board of
directors reasonably determine that Maker has insufficient funding to meet
estimated cash requirements for the ensuing 18 months, then no prepayment shall
be required. "Infusion of Capital" means any issuance of equity in exchange for
cash, and thus excluding acquisitions and stock options.
8. Default Rate of Interest. After maturity, by acceleration
or otherwise, this Note shall bear interest at a rate equal to fifteen percent
(15%) per annum ("Default Rate"). Should Maker fail to make any payment hereon
on the date on which it shall fall due, or should any default be made in the
performance by Maker or any affiliated entity of Maker of any of the agreements,
conditions, covenants, provisions or stipulations contained in this Note or any
material agreements, conditions, covenants, provisions or stipulations contained
in any other documents securing or executed in connection with this Note, then
the holder of this Note, at its option and without notice or demand, may declare
immediately due and payable the entire unpaid balance of principal under this
Note, together with all accrued interest thereon and after the date of such
default this Note shall bear interest at the Default Rate. In such case the
holder of this Note may also recover all costs of suit and other expenses in
connection with efforts to collect any of the aforesaid amounts, together with
attorneys' fees (including attorneys' fees for representation in proceedings
under the Bankruptcy Code), regardless of whether litigation is commenced,
together with interest on any judgment obtained by the holder of this Note at
the Default Rate, including interest at the Default Rate from and after the date
of any foreclosure sale until actual payment is made to the holder of this Note
of the full amount due such holder.
9. Oral Agreements. Oral agreements or commitments to loan
money, extend credit or to forbear from enforcing repayment of a debt including
promises to extend or renew such debt are not enforceable. To protect you
(Maker) and us (Payee) from misunderstanding or disappointment, any agreements
we reach covering such matters are contained in this writing, which is the
complete and exclusive statement of the agreement between us, except as we may
later agree in writing to modify it.
10. Governing Law. This Agreement shall be construed
according to and governed by the laws of the State of Missouri.
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IN WITNESS WHEREOF, Maker has executed and delivered this
Note the day and year first above written.
SAVVIS Communications Corporation
By:______________________________
Name:____________________________
Title:___________________________
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EXHIBIT J
FORM OF CALL ASSET TRANSFER AGREEMENT
This Transfer Agreement ("Agreement") made as of 12:01 A.M. on
this ___ day of _____________, 20____ (the "Effective Date"), by and between
Bridge _________________________________, a corporation organized under the laws
of __________________, having its principal place of business at
_________________ ("Seller"), and SAVVIS ____________________ [a ______________
company organized under the laws of_________________][_____________ branch, the
____________ branch of a ______________ company organized under the laws of
_______________] having its [registered][principal] office at
______________________________ ("SAVVIS") (Seller and SAVVIS each a "Party" and
collectively the "Parties").
WITNESSETH
WHEREAS, pursuant to that certain Master Establishment and
Transition Agreement dated ________ ___, 2000 by and between Bridge Information
Systems, Inc. and SAVVIS Communications Corporation (the "Master Establishment
and Transition Agreement") the direct or indirect parent entity of Seller,
Bridge Information Systems Inc. ("BISI"), has granted to SAVVIS Communications
Corporation ("SCC"), which is the direct or indirect parent of SAVVIS and the
subsidiaries or other operations of SCC worldwide, the right to purchase the
Call Assets and to assume the Assumed Liabilities in the Call Jurisdictions.
Capitalized terms used but not defined herein shall have the meaning ascribed to
them in the Master Establishment and Transition Agreement;
WHEREAS, pursuant to the Master Establishment and Transition
Agreement, transfers of Call Assets and the Assumed Liabilities, rights and
obligations associated therewith will be effected by subsidiaries of BISI and
SCC pursuant to individual transfer services agreements between such entities;
and
WHEREAS, SAVVIS and Seller desire to effect a transfer of the
certain Call Assets and the liabilities, rights and obligations associated
therewith on the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises and the mutual
covenants and obligations herein set forth and of other good and valuable
consideration, receipt of which is hereby acknowledged, the Parties agree as
follows:
1. DEFINITIONS
1.1 In this Agreement and the Schedules the following expressions
shall have the following meanings namely:
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"Agreement" means the agreement between the Parties the terms of
which are set out herein;
"Assets" means the assets of the IP Network set forth in Clause 2.1
as amended pursuant to Clause 2.2;
"Closing" has the meaning set forth in Clause 5.1;
"Effective Date" has the meaning set forth in the first paragraph;
["Employees" means those employees of Seller listed on the attached
Schedule 4;]
"IP Network" means those assets that are used by Seller which
consists of providing telecommunications facilities utilizing
Internet protocols between Seller, suppliers and group companies of
Seller and Seller's customers;
"Liabilities" means all liabilities and obligations of Seller
(whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to become due)
fulfilling both of the following requirements:
(a) which are directly associated with (i) the Assets,
(ii) the Contracts, (iii) the use of the IP Network
or (iv) those matters set forth on Schedule [5]
attached hereto; and
(b) which result from or arise out of the ownership or
operation of the IP Network prior to the Effective
Date, including liabilities which exist with respect
to (i) obligations under the Contracts, other than an
obligation to make payment, which are required to be
fulfilled by Seller wholly prior to Closing, or (ii)
obligations to make payment, to the extent such
payment is for services rendered under the Contracts
prior to Closing.
"Software" means any and all software and software applications,
including operating software and embedded software, owned or used by
Seller in relation to the maintenance, ownership or operations of the
Assets listed in Clause 2.1.1.
1.2 In this Agreement words importing the singular include the plural
and vice versa and words importing gender include any other gender.
1.3 The headings of Clauses are for ease of reference and shall not
affect the construction of this Agreement.
1.4 References in this Agreement to Clauses or Schedules are
references to clauses of or schedules to this Agreement.
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1.5 Any undertaking hereunder not to do any act or thing shall be
deemed to include an undertaking not to permit or suffer the doing of
that act or thing.
1.6 The expression "person" used in this Agreement shall include
(without limitation) any individual, partnership, local authority,
company or unincorporated association.
2. SALE & PURCHASE
2.1 Seller shall sell and SAVVIS shall purchase with effect from the
Effective Date the Assets subject in all cases to the Liabilities,
which are the following:
2.1.1 the computer equipment listed in Schedule 1, including
but not limited to the Ascend Cascade Switch 9000s and the
Baynet Routers;
2.1.2 the full benefit of all agreements between Seller and
any other person, firm or corporation (other than SAVVIS) to
which Seller is entitled in connection with the operations
of the IP Network which are in force at the Effective Date
including, without limitation, the contracts listed in
Schedule 2 as well as any maintenance, support, supply or
licensing agreements, if any, relating to the Software;
2.1.3 the right of SAVVIS to represent itself as operating
the IP Network in succession to Seller;
2.1.4 all technical and contractual information relating to
the IP Network;
2.1.5 the Software.
2.2 SAVVIS and Seller shall take all reasonable efforts to jointly
prepare, within fifteen days after the Effective Date, or as soon as
practical thereafter, a revised list of the Assets as set forth in
Schedules 1 and 2. This revised list shall supersede the attached
Schedules 1 and 2 and shall include any assets purchased or acquired
by Seller after the as of date for the inventory taken to prepare
Schedules 1 and 2 but before the Effective Date which comprise part
of the IP Network. The parties shall negotiate in good faith to
finalize such revised Schedules and shall provide to each other any
information or records reasonably necessary to finalize such revised
Schedules.
3. CONSIDERATION
3.1 The purchase price for the Assets exclusive of any VAT, stamp
duty, and transfer taxes (the "Consideration") shall be the sum
specified in Schedule 3. To the extent the Assets are revised
pursuant to Clause 2.2, the Consideration set forth in Schedule 3
shall be adjusted based on the net book value on the Effective Date
(in the books of Seller) of the Assets which are added to or removed
from the revised list. The Parties shall take all
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reasonable efforts to jointly prepare any such revisions to Schedule
3 within fifteen days after the Effective Date, or as soon as
practical thereafter. The parties shall negotiate in good faith to
finalize such revised Schedule and shall provide to each other any
information or records reasonably necessary to finalize such
Schedule.
3.2 The Consideration shall be due and payable as set forth in
Schedule 3.
3.3 The amount set forth in Schedule 3 is exclusive of VAT, and any
and all transfer or other taxes or duties applicable to the
transaction provided for in this Agreement, which SAVVIS hereby
agrees to pay.
4. REPRESENTATIONS AND WARRANTIES.
Seller represents and warrants to the Buyer that the statements
contained in this Clause 4 are correct and complete as of the date of
this Agreement.
4.1 Seller is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction in which Seller is
organized.
4.2 Seller has full corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Seller, enforceable in accordance with its terms and conditions.
4.3 Except as would not result in the imposition of any Impermissible
Security Interest upon any of the Assets and except where the
violation, conflict, breach, default, acceleration, termination,
modification, cancellation, failure to give notice, or a lien would
not impair the value of use of the Assets or have a material adverse
effect on ability of the parties to consummate the transactions
contemplated by this Agreement, neither the execution and the
delivery of this Agreement nor the consummation of the transactions
contemplated hereby by the Seller will:
(a) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which
the Seller is subject or any provision of the charter or bylaws of
the Seller,
(b) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other
arrangement to which the Seller is a party or by which they are bound
or to which any of the Assets are subject; or
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(c) require Seller to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any third
party, government or governmental agency.
4.4 Seller has no liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
4.5 The Seller has good title to, or a valid leasehold interest in
the Assets, free and clear of all Impermissible Security Interest,
and there exists no material restriction on the transfer of such
property.
4.6 Each of the Contracts with respect to the Assets is a valid and
binding obligation of the parties thereto, enforceable in accordance
with terms, in full force and effect. No party to any such contract
is in material breach or violation thereof or default thereunder.
Except for matters which would not, in the aggregate, have a material
adverse effect on the Assets, no event has occurred which, through
the passage of time or the giving of notice, or both, would
constitute, and neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby do or will
constitute or result in, a breach or violation of or default under
any contract, or would cause the acceleration of any obligation of
any party thereto or the creation of any Impermissible Security
Interest upon the Assets.
4.7 EXCEPT AS EXPRESSLY SET FORTH IN THIS CLAUSE 4, THE SELLER MAKES
NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN
EQUITY, IN RESPECT OF ANY OF ITS ASSETS, LIABILITIES OR OPERATIONS,
INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE, AND ANY SUCH OTHER
REPRESENTATIONS OR WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED. BUYER
HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT TO THE EXTENT
SPECIFICALLY SET FORTH IN THIS CLAUSE 4, THE BUYER IS PURCHASING THE
ASSETS ON AN "AS-IS, WHERE-IS" BASIS. WITHOUT LIMITING THE GENERALITY
OF THE FOREGOING, THE SELLER MAKES NO REPRESENTATION OR WARRANTY
REGARDING ANY ASSETS OTHER THAN THE ASSETS BEING PURCHASED HEREUNDER
OR ANY LIABILITIES OTHER THAN THE LIABILITIES ASSUMED HEREUNDER, AND
NONE SHALL BE IMPLIED AT LAW OR IN EQUITY.
5. CLOSING
5.1 Closing of the sale shall take place on the Effective Date when
Seller shall deliver to SAVVIS all physical Assets hereby agreed to
be sold, other than the Assets referred to in Clause 2.2 above. All
physical Assets referred to in Clause 2.2 above shall be delivered to
SAVVIS as soon as practicable following the finalization of any
adjustment to the Assets as set forth in Clause 2.2.
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5.2 Property in and title to the Assets referred to in Clause 2.1
shall pass to SAVVIS on the Effective Date. Property in and title to
the Assets referred to in Clause 2.2 shall pass to SAVVIS on the date
that the revised schedules are finalized in accordance with on Clause
2.2 but such transfer shall be effective as of the Effective Date.
5.3 Subject to Clause 7 below, Seller shall on or as soon as
practicable after the Effective Date deliver to SAVVIS all transfers,
assignments and novations relating to the Assets (including the
property) together with the documents of title thereto, necessary to
give effect to this Agreement; provided, however, that any such
transfers shall as between the Parties be deemed to be effective as
of the Effective Date.
6. THE LIABILITIES
Subject to the consent where necessary of other contracting parties
(which the Parties hereto shall use their reasonable best efforts to
obtain) SAVVIS shall as from the Effective Date assume, perform and
discharge all Liabilities. If it proves impossible to obtain any such
consent in relation to any of the Liabilities, SAVVIS will assume,
perform and discharge such Liability as agent for and on behalf of
Seller and will indemnify Seller accordingly. Seller will indemnify
SAVVIS for contractual liabilities for goods or services delivered
prior to the Effective Date.
7. THIRD PARTY CONSENTS
7.1 Seller and SAVVIS shall use their reasonable best efforts to
obtain any required consent of any other contracting parties to the
assignment or novation of any agreement referred to in Clause 2.1.2.
Unless and until such consent shall be forthcoming and the relevant
agreement shall have been assigned or novated, SAVVIS shall at its
own cost and expense assume Seller's obligations under such
agreements and Seller shall account to SAVVIS for all sums paid or
received therefrom.
7.2 Seller will at SAVVIS' request and expense give to SAVVIS all
assistance in the power of Seller to enable SAVVIS to enforce the
agreements referred to in Clause 2.1.2 against the other contracting
party or parties and, without prejudice to the generality of the
foregoing, will provide all such relevant books, documents and other
information as SAVVIS may require in relation thereto.
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[8. PERSONNEL
SAVVIS and Seller hereby agree and acknowledge that the Transfer of
Undertakings (Protection of Employment) Regulations applies to this
transaction and, therefore, that the contracts of employment of all
of the Employees of Seller, as set forth at Schedule 4 to this
Agreement, shall not be terminated at Closing but shall continue to
have effect as if originally made between such Employee and SAVVIS in
accordance such Regulations.]
[9. INDEMNIFICATION
Seller will indemnify, defend and hold SAVVIS and its shareholders,
directors, officers, successors, assigns, and agents of each of them,
harmless from and against any and all claims, losses, damages,
liabilities, expenses or costs, plus reasonable attorneys' fees and
expenses, incurred by SAVVIS to the extent resulting from or arising
out of any claim or suit by any Employee of Seller, or by any other
employee of Seller that is not being transferred to SAVVIS, asserting
rights under the Transfer of Undertakings (Protection of Employment)
Regulations 1981 or any other similar law or regulation.]
10. FURTHER ASSURANCE
From and after Closing, the Parties shall do such acts and execute
such documents and instruments as may be reasonably required to make
effective the transactions contemplated hereby. In the event that
consents, approvals, other authorizations or other acts contemplated
by this Agreement have not been fully effected as of Closing, the
parties will continue after Closing, without further consideration,
to use their reasonable best efforts to carry out such transactions;
provided, however, in the event that certain approvals, consents or
other necessary documentation cannot be secured, then the Party
having legal responsibility, ownership or control shall act on behalf
of the other Party, without further consideration, to effect the
essential intention of the Parties with respect to the transactions
contemplated by this Agreement.
11. SURVIVAL OF CERTAIN PROVISIONS
To the extent that any provision of this Agreement shall not have
been performed at Closing it shall survive and remain in full force
and effect notwithstanding Closing.
12. GOVERNING LAW AND CHOICE OF FORUM
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of [England][the state of Missouri, United
States of America] and the parties to this Agreement hereby agree
that all matters arising out of or in connection with this
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Agreement shall be subject to the exclusive jurisdiction of the
courts of [England][the state of Missouri].
[13. THIRD PARTY BENEFICIARIES
Except as expressly provided in this Agreement, nothing in this
Agreement will create or confer any rights or other benefits on or in
favor of any person who is not a party to this Agreement whether
pursuant to the Contracts (Rights of Third Parties) Act, 1999 or
otherwise.]
AS WITNESS the hands of duly authorized representatives of the parties the day
and year first above written
SIGNED by )
for and on behalf of )
- ------------------------ )
- ------------------------ )
SIGNED by )
for and on behalf of )
SAVVIS _____________ )
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SCHEDULE 1 TO CALL ASSET TRANSFER AGREEMENT
THE COMPUTER EQUIPMENT
[To be Completed at Call Right Exercise Closing]
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SCHEDULE 2 TO CALL ASSET TRANSFER AGREEMENT
THE CONTRACTS
[To be Completed at Call Right Exercise Closing]
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SCHEDULE 3 TO CALL ASSET TRANSFER AGREEMENT
THE CONSIDERATION
[To be Completed at Call Right Exercise Closing]
ALLOCATION OF CONSIDERATION
Consideration to be allocated as set forth in Schedule 1.
PAYMENT OF CONSIDERATION
The consideration shall paid at Closig to the account of Seller as
follows:
[Details of account]
To the extent any adjustment is to be paid under Section 3 of this
Agreement, such amount shall be due and payable to the above
indicated account, no later than five days after receipt by SAVVIS of
a valid invoice, which may be submitted on or after the Effective
Date.
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[SCHEDULE 4 TO CALL ASSET TRANSFER AGREEMENT
THE EMPLOYEES]
[To be Completed at Call Right Exercise Closing]
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SCHEDULE 5 TO CALL ASSET TRANSFER AGREEMENT
THE LIABILITIES
[To be Completed at Call Right Exercise Closing]
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EXHIBIT K
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("Sublease") is made as of the ____ day of
January, 2000 (the "Effective Date"), by and between BRIDGE INFORMATION SYSTEMS
AMERICA, INC., a Delaware corporation ("Sublessor") and SAVVIS COMMUNICATIONS
CORPORATION, a Missouri corporation ("Sublessee").
WHEREAS, Sublessor entered into a Master Lease Agreement, a copy of
which is attached hereto as EXHIBIT A (the "Master Lease"), with General
Electric Capital Corporation for itself and as Agent for certain Participants
(collectively, the "Lessor"); unless otherwise defined herein, capitalized terms
used as defined terms shall have the meaning assigned to such terms in the
Master Lease;
WHEREAS, in conjunction with the planned spin-off of Sublessee by
Sublessor, Sublessor has obtained the consent of Lessor, a copy of which is
attached hereto as EXHIBIT B, to enter into a sublease with Sublessor; and
WHEREAS, Sublessor and Sublessee desire to set forth in writing the
terms and conditions of the sublease;
NOW, THEREFORE, in consideration of the recitals and the mutual
covenants, representations, warranties, conditions and agreements hereunder
expressed, Sublessor and Sublessee agree as follows:
I. SUBLEASING ARRANGEMENT:
Sublessor agrees to lease to Sublessee, and Sublessee agrees to lease
from Sublessor, the equipment (the "Equipment") described in the equipment
schedules attached hereto as EXHIBIT C (the "Equipment Schedules"), subject to
the terms set forth herein and in the Equipment Schedules.
II. TERM, RENT AND PAYMENT:
(a) The term of this Sublease (the "Term") with respect to any item of
the Equipment shall be the remaining term for such Equipment as set forth in the
Master Lease and the Equipment Schedules; provided, however, that the Term shall
begin effective from and after the Effective Date hereof.
(b) Rent shall be paid directly to Sublessor by wire transfer of
immediately available funds to: Bankers Trust New York, New York, New York
10006, Account No. 50-202-962, ABA No. 021-001-033, or to such other account as
Sublessor may direct in writing; and shall be effective upon receipt. Payments
of Rent shall be in the amount set forth in, and due in accordance with, the
provisions of the applicable Equipment Schedules and the other related
provisions contained in the schedules to the Master Lease (together with the
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Equipment Schedules, individually and collectively, the "Schedules"). If Rent is
not paid within ten (10) days of its due date, Sublessee agrees to pay to
Sublessor a late charge of Five Cents ($0.05) per dollar on, and in addition to,
the amount of such Rent but not exceeding the lawful maximum, if any.
(c) Except as provided for in (d) below, Sublessee shall pay Rent, as
provided for herein without deduction or set-off. In the event of a non-payment
of Rent by Sublessee, Sublessor may continue to make payments to Lessor with
respect to the Equipment, with the right to set-off any such payments against
amounts due by the Sublessor or any of its affiliates to Sublessee or any of its
affiliates under any agreement.
(d) In the event of a default on the Master Lease by Sublessor with
respect to the Equipment, Sublessee shall have the right to act to cure any such
default, with the right to set-off the costs associated with curing such breach
against amounts due to Sublessor under this Sublease or against any other
amounts due by Sublessee or any of its affiliates to Sublessor or any of its
affiliates under any agreement.
III. TAXES:
Sublessee shall have no liability for taxes imposed by the United
States of America or any State or political subdivision thereof which are on or
measured by the net income of Lessor or Sublessor. Sublessee shall report (to
the extent that it is legally permissible) and pay promptly all other taxes,
fees and assessments due, imposed, assessed or levied against any Equipment (or
the purchase, ownership, delivery, leasing, possession, use or operation
thereof), this Agreement (or any rentals or receipts hereunder), any Schedule,
Lessor, Sublessor or Sublessee by any foreign, federal, state or local
government or taxing authority during or related to the term of this Agreement,
including, without limitation, all license and registration fees, and all sales,
use, personal property, excise, gross receipts, franchise, stamp or other taxes,
imposts, duties and charges, together with any penalties, fines or interest
thereon (all hereinafter called "Taxes"). Sublessee shall (i) reimburse Lessor
and/or Sublessor, as appropriate (on an after-tax basis), upon receipt of
written request for reimbursement for any Taxes charged to or assessed against
Lessor or Sublessor; (ii) on request of Lessor and/or Sublessor, submit to
Lessor and/or Sublessor, as appropriate, written evidence of Sublessee's payment
of Taxes, (iii) on all reports or returns show the ownership of the Equipment by
Lessor, and (iv) send a copy thereof to Lessor and Sublessor.
IV. REPORTS:
(a) Sublessee will notify Sublessor in writing, within ten (10) days
after any tax or other lien shall attach to any Equipment, of the full
particulars thereof and of the location of such Equipment on the date of such
notification.
(b) Sublessee will permit Lessor and Sublessor to inspect the Equipment
and all maintenance records with respect thereto during normal business hours
upon reasonable notice.
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(c) Subject to the following sentence, Sublessee will ensure that the
Equipment is located at the Equipment Location (specified in the applicable
Schedule) within the Continental United States. Sublessee may move the Equipment
from the Equipment Location to a new location within the Continental United
States provided that, within five (5) days after the end of each calendar
quarter: (i) Sublessee shall provide to Sublessor written notice identifying the
Equipment which has been relocated during the immediately preceding calendar
quarter, the old Equipment Location and the new Equipment Location; and (ii)
Sublessee shall deliver to Sublessor such documents and instruments as
reasonably may be required by Lessor or Sublessor in connection with such
relocation, including (without limitation) Uniform Commercial Code Financing
Statements and (if required by Lessor or Sublessor) Estoppel/Waiver Agreements,
to be filed at Sublessee's expense. Upon Lessor's or Sublessor's request,
Sublessee promptly will notify Lessor and/or Sublessor in writing of the
location of any Equipment as of the date of such notification.
(d) Sublessee will promptly and fully report to Sublessor in writing if
any Equipment is lost or damaged (where the estimated repair costs would exceed
ten percent (10%) of its then fair market value), or is otherwise involved in an
accident causing personal injury or property damage.
(e) Within thirty (30) days after any request by Lessor and Sublessor,
Sublessee will furnish to Sublessor a certificate of an authorized officer of
Sublessee stating that he has reviewed the activities of Sublessee and that, to
the best of his knowledge, there exists no Default (as hereinafter defined) or
event which, with the giving of notice or the lapse of time (or both), would
become a Default.
V. USE AND MAINTENANCE:
(a) Sublessee agrees that the Equipment will be used by Sublessee
solely in the conduct of its business and in a manner complying with all
applicable Federal, state and local laws and regulations and any applicable
insurance policies, and Sublessee shall not discontinue use of the Equipment.
(b) Sublessee will keep the Equipment free and clear of all liens and
encumbrances other than those which result from acts of Lessor or Sublessor.
VI. SERVICE:
(a) Sublessee will, at its sole expense, maintain each unit of
Equipment in good operating order, repair, condition and appearance in
accordance with manufacturer's recommendations, normal wear and tear excepted
and Sublessee's standard practices (but in no event less than industry
practices). Sublessee's maintenance programs shall be subject to review and
approval by Lessor and Sublessor. Sublessee shall, if at any time reasonably
requested by Lessor or Sublessor, affix in a prominent position on each unit of
Equipment plates, tags or other identifying labels showing the interest therein
of Lessor and Sublessor.
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(b) Sublessee will not, without the prior consent of Sublessor, affix
or install any accessory, equipment or device on any Equipment if such addition
will impair the value, originally intended function or use of such Equipment.
All additions, repairs, parts, supplies, accessories, equipment, and devices
furnished, attached or affixed to any Equipment which are not readily removable
shall be made only in compliance with applicable law, including Internal Revenue
Service guidelines, shall be free and clear of all liens, encumbrances or rights
of others, and shall become the property of Lessor. Sublessee will not, without
the prior written consent of Sublessor and subject to such conditions as Lessor
or Sublessor may impose for its protection, affix or install any Equipment to or
in any other personal or real property.
(c) Any alterations or modifications to the Equipment that may, at any
time during the term of this Agreement, be required to comply with any
applicable law, rule or regulation shall be made at the expense of Sublessee.
VII. STIPULATED LOSS VALUE:
Sublessee shall promptly and fully notify Sublessor in writing if any
unit of Equipment shall be or become worn out, lost, stolen, destroyed,
irreparably damaged in the reasonable determination of Sublessee, or permanently
rendered unfit for use from any cause whatsoever (such occurrence being
hereinafter called "Casualty Occurrences"). On the rental payment date next
succeeding a Casualty Occurrence (the "Payment Date"), Sublessee shall pay
Sublessor the sum of (x) the Stipulated Loss Value of such unit calculated in
accordance with Annex D to the Master Lease, which is incorporated herein by
reference as of the rental payment date next preceding such Casualty Occurrence
("Calculation Date"); and (y) all rental and other amounts which are due
hereunder as of the Payment Date. In addition to the amounts required to be paid
by Sublessee on any Rent Payment Date pursuant to the preceding clauses (x) and
(y), Sublessee shall also pay to Sublessor the amount of any swap breakage loss
incurred by Lessor and/or any Participant (as such term is hereinafter defined)
as a result of or in connection with such payment on such Rent Payment Date. As
used herein, "Swap Breakage Loss" shall include LIBOR and other funding breakage
costs, if any, and may be determined by Lessor and any Participant by reference
to the Standard International Swap Dealers Association calculation for "Loss."
Upon payment of all sums due hereunder, the term of this Sublease as to such
unit shall terminate and (except in the case of the loss, theft or complete
destruction of such unit) Lessor shall be entitled to recover possession of such
unit.
VIII. LOSS OR DAMAGE:
Sublessee hereby assumes and shall bear the entire risk of any loss,
theft, damage to, or destruction of, any unit of Equipment from any cause
whatsoever from the time the Equipment is shipped to Sublessee.
IX INSURANCE.
Sublessee agrees, at its own expense, to keep all Equipment insured for
such amounts as specified in the Equipment Schedules and against such hazards as
Lessor or Sublessor may
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require, including, but not limited to, insurance for damage to or loss of such
Equipment and liability coverage for personal injuries, death or property
damage, with Lessor named as additional insured and with a loss payable clause
in favor of Lessor, as its interest may appear, irrespective of any breach of
warranty or other act or omission of Sublessee. All such policies shall be with
companies, and on terms, satisfactory to Lessor and Sublessor. Sublessee agrees
to deliver to Sublessor evidence of insurance satisfactory to Lessor and
Sublessor. No insurance shall be subject to any co-insurance clause. Sublessee
hereby appoints Lessor as Sublessee's attorney-in-fact to make proof of loss and
claim for insurance, and to make adjustments with insurers and to receive
payment of and execute or endorse all documents, checks or drafts in connection
with payments made as a result of such insurance policies. Any expense of Lessor
and Sublessor in adjusting or collecting insurance shall be borne by Sublessee.
Sublessee will not make adjustments with insurers except (i) with respect to
claims for damage to any unit of Equipment where the repair costs do not exceed
ten percent (10%) of such unit's fair market value, or (ii) with Lessor's or
Sublessor's written consent. Said policies shall provide that the insurance may
not be altered or canceled by the insurer until after thirty (30) days' written
notice to Lessor and Sublessor. Sublessee may, at its option, apply proceeds of
insurance, in whole or in part, to (i) repair or replace Equipment or any
portion thereof, or (ii) satisfy any obligation of Sublessee to Lessor or
Sublessor hereunder.
X. RETURN OF EQUIPMENT:
(a) Upon any expiration or termination of this Agreement or any
Schedule, Sublessee shall promptly, at its own cost and expense: (i) perform any
testing and repairs required to place the affected units of Equipment in the
same condition and appearance as when received by Sublessee (reasonable wear and
tear excepted) and in good working order for their originally intended purpose;
(ii) if deinstallation, disassembly or crating is required, cause such units to
be deinstalled, disassembled and crated by an authorized manufacturer's
representative or such other service person as is satisfactory to Lessor; and
(iii) return such units, free and clear of all liens and encumbrances, to a
location within the continental United States as Lessor shall direct.
(b) Until Sublessee fully has complied with the requirements of
Paragraph (a) above, Sublessee's Rent payment obligation and all other
obligations under this Agreement shall continue from month to month
notwithstanding any expiration or termination of the Term. Sublessor may
terminate such continued leasehold interest upon ten (10) days' notice to
Sublessee. In addition to these rents, Sublessor shall have all of its other
rights and remedies available as a result of this nonperformance.
XI. DEFAULT:
(a) Lessor or Sublessor may in writing declare this Agreement in
default ("Default") if: (1) Sublessee breaches its obligation to pay Rent or any
other sum when due and fails to cure the breach within ten (10) days; (2)
Sublessee breaches any of its insurance obligations under SECTION IX hereof, or
Sublessee fails to comply with the provisions of SECTION XXIII of the Master
Lease; (3) Sublessee breaches any of its other obligations hereunder and fails
to cure that breach within thirty (30) days after written notice thereof; (4)
any representation or warranty
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made by Sublessee in connection with this Agreement shall be false or misleading
in any material respect; (5) Sublessee becomes insolvent or ceases to do
business as a going concern; (6) any Equipment is illegally used; (7) a petition
is filed by or against Sublessee under any bankruptcy or insolvency laws and, if
such petition is filed against Sublessee, such petition is not dismissed within
ninety (90) days; (8) Sublessee shall have terminated its corporate existence,
consolidated with, merged into, or conveyed or leased substantially all of its
assets as an entirety to any person (such actions being referred to as an
"Event"), unless not less than sixty (60) days prior to such Event: (x) such
person is organized and existing under the laws of the United States or any
state, and executes and delivers to Lessor and Sublessor an agreement containing
an effective assumption by such person of the due and punctual performance of
this Sublease; and (y) Lessor and Sublessor are reasonably satisfied as to the
creditworthiness of such person; (9) effective control of Sublessor's voting
capital stock, issued and outstanding from time to time, is not retained by the
present stockholders (unless Sublessee shall have provided sixty (60) days'
prior written notice to Sublessor of the proposed disposition of stock and
Lessor and Sublessor shall have consented thereto in writing). Any provision of
this Agreement to the contrary notwithstanding, Lessor and Sublessor may
exercise all rights and remedies hereunder independently with respect to each
Schedule.
(b) After Default, at the request of Lessor, Sublessee shall comply
with the provisions of SECTION X(A) hereof. Sublessee hereby authorizes Lessor
to enter, with or without legal process, any premises where any Equipment is
located and take possession thereof. Sublessee shall, without further demand,
forthwith pay to Lessor (i) as liquidated damages for loss of a bargain and not
as a penalty, the Stipulated Loss Value of the Equipment (calculated in
accordance with Annex D to the Master Lease as of the Rent Payment date next
preceding the declaration of default), and (ii) all Rent and other sums then due
hereunder. Lessor may, but shall not be required to, sell the Equipment at
private or public sale, in bulk or in parcels, with or without notice, and
without having the Equipment present at the place of sale; or Lessor may, but
shall not be required to, lease, otherwise dispose of or keep idle all or part
of the Equipment; and Lessor may use Sublessee's premises for any or all of the
foregoing without liability for rent, costs, damages or otherwise. The proceeds
of sale, lease or other disposition, if any, shall be applied in the following
order of priorities: (1) to pay all of Lessor's costs, charges and expenses
incurred in taking, removing, holding, repairing and selling, leasing or
otherwise disposing of Equipment; then, (2) to the extent not previously paid by
Sublessee, to pay Lessor all sums due from Sublessee hereunder; then (3) to
reimburse to Sublessee any sums previously paid by Sublessee as liquidated
damages; and (4) any surplus shall be remitted to Sublessee. Sublessee shall pay
any deficiency in clauses (1) and (2) forthwith.
(c) In addition to the foregoing rights, after Default, Lessor or
Sublessor may terminate the lease as to any or all of the Equipment.
(d) The foregoing remedies are cumulative, and any or all thereof may
be exercised in lieu of or in addition to each other or any remedies at law, in
equity, or under statute. Sublessee waives notice of sale or other disposition
(and the time and place thereof), and the manner and place of any advertising.
If permitted by law, Sublessee shall pay reasonable attorney's fees actually
incurred by Lessor and Sublessor in enforcing the provisions of this Sublease
and any
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ancillary documents. Waiver of any Default shall not be a waiver of any other or
subsequent default.
(e) Any default under the terms of any other material agreement between
Sublessor and Sublessee or any of their affiliates giving rise to the
termination of such other agreement may be declared by Sublessor a default under
this agreement.
XII. ASSIGNMENT:
(a) SUBLESSEE SHALL NOT ASSIGN, MORTGAGE, SUBLET OR HYPOTHECATE ANY
EQUIPMENT OR THE INTEREST OF SUBLESSEE HEREUNDER WITHOUT THE PRIOR WRITTEN
CONSENT OF SUBLESSOR.
(b) Sublessor may not, without the consent of Sublessee, assign this
Agreement or any Schedule, or the right to enter into any Schedule, such consent
not to be unreasonably withheld. In the event of a permitted assignment,
Sublessee agrees that it will pay all Rent and other amounts payable under each
Schedule to the Sublessor named therein; provided, however, if Sublessee
receives written notice of an assignment from Sublessor, Sublessee will pay all
Rent and other amounts payable under any assigned Schedule to such assignee or
as instructed by Sublessor. Each Schedule, incorporating by reference the terms
and conditions of this Agreement, constitutes a separate instrument of lease,
and the Sublessor named therein or its assignee shall have all rights as
"Sublessor" thereunder separately exercisable by such named Sublessor or
assignee as the case may be, exclusively and independently of Sublessor or any
assignee with respect to other Schedules executed pursuant hereto. Sublessee
further agrees to confirm in writing receipt of a notice of assignment as
reasonably may be requested by assignee.
(c) Sublessee acknowledges that it has been advised that General
Electric Capital Corporation is acting under the Master Lease for itself and as
agent for certain third parties (each being herein referred to as a
"Participant" and, collectively, as the "Participants"); that the interest of
the Lessor in the Master Lease, the Equipment Schedules, related instruments and
documents and/or the Equipment may be conveyed to, in whole or in part, and may
be used as security for financing obtained from, one or more third parties
without the consent of Sublessee (the "Syndication"). Sublessee agrees
reasonably to cooperate with Lessor and Sublessor in connection with the
Syndication, including the execution and delivery of such other documents,
instruments, notices, opinions, certificates and acknowledgments as reasonably
may be required by Lessor, Sublessor or such Participant; provided, however in
no event shall Sublessee be required to consent to any change that would
adversely affect any of the economic terms of the transactions contemplated
herein.
(d) Subject always to the foregoing, this Agreement inures to the
benefit of, and is binding upon, the successors and assigns of the parties
hereto.
XIII. INDEMNIFICATION:
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(a) Sublessee hereby agrees to indemnify, save and keep harmless,
Lessor and Sublessor, their agents, employees, successors and assigns, from and
against any and all losses, damages, penalties, injuries, claims, actions and
suits, including legal expenses, of whatsoever kind and nature, in contract or
tort, whether caused by the active or passive negligence of Lessor or otherwise,
and including, but not limited to, Lessor's strict liability in tort, arising
out of (i) the selection, manufacture, purchase, acceptance or rejection of
Equipment, the ownership of Equipment during the Term, and the delivery, lease,
possession, maintenance, uses, condition, return or operation of the Equipment
(including, without limitation, latent and other defects, whether or not
discoverable by Sublessor or Sublessee and any claim for patent, trademark or
copyright infringement or environmental damage), or (ii) the condition of
Equipment sold or disposed of after use by Sublessee, any sublessee or employees
of Sublessee. Sublessee shall, upon request, defend any actions based on, or
arising out of, any of the foregoing.
(b) All of Lessor's and Sublessor's rights, privileges and indemnities
contained in this Section shall survive the expiration or other termination of
this Sublease and the Master Lease and the rights, privileges and indemnities
contained herein are expressly made for the benefit of, and shall be enforceable
by Lessor, Sublessor and their successors and assigns.
XIV. DISCLAIMER:
SUBLESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT ANY
ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. Except as may be provided in
the Master Establishment and Transition Agreement, between Sublessor and
Sublessee dated _____________, 2000 ("MEAT Agreement"), SUBLESSOR DOES NOT MAKE,
HAS NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE
EQUIPMENT LEASED HEREUNDER OR ANY COMPONENT THEREOF, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY
OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR
OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE. All
such risks, as between Sublessor and Sublessee, or between Lessor and Sublessee,
are to be borne by Sublessee. Without limiting the foregoing, and except as may
be provided in the MEAT Agreement, Sublessor shall have no responsibility or
liability to Sublessee or any other person with respect to any of the following:
(i) any liability, loss or damage caused or alleged to be caused directly or
indirectly by any Equipment, any inadequacy thereof, any deficiency or defect
(latent or otherwise) therein, or any other circumstance in connection
therewith; (ii) the use, operation or performance of any Equipment or any risks
relating thereto; (iii) any interruption of service, loss of business or
anticipated profits or consequential damages; or (iv) the delivery, operation,
servicing, maintenance, repair, improvement or replacement of any Equipment. If,
and so long as, no default exists under this Sublease, Sublessee shall be, and
hereby is, authorized during the term of this Lease to assert and enforce, at
Sublessee's sole cost and expense, from time to time, in the name of and for the
account of Lessor, Sublessor and/or
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Sublessee, as their interests may appear, whatever claims and rights Sublessor
or Lessor may have against any Supplier of the Equipment.
XV. REPRESENTATIONS AND WARRANTIES OF SUBLESSEE:
Sublessee represents and warrants to Sublessor that on the date hereof:
(a) Sublessee has adequate power and capacity to enter into, and
perform under, this Agreement and all related documents (together, the
"Documents") and is duly qualified to do business wherever necessary to carry on
its present business and operations, including the jurisdiction(s) where the
Equipment is or is to be located.
(b) The Documents have been duly authorized, executed and delivered by
Sublessee and constitute valid, legal and binding agreements, enforceable in
accordance with their terms, except to the extent that the enforcement of
remedies therein provided may be limited under applicable bankruptcy and
insolvency laws.
(c) No approval, consent or withholding of objections is required from
any governmental authority or instrumentality with respect to the entry into or
performance by Sublessee of the Documents except such as have already been
obtained.
(d) The entry into and performance by Sublessee of the Documents will
not: (i) violate any judgment, order, law or regulation applicable to Sublessee
or any provision of Sublessee's articles of incorporation, charter or by-laws;
or (ii) result in any breach of, constitute a default under or result in the
creation of any lien, charge, security interest or other encumbrance upon any
Equipment pursuant to any indenture, mortgage, deed of trust, bank loan or
credit agreement or other instrument (other than this Agreement) to which
Sublessee is a party.
(e) There are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or affecting
Sublessee, which will have a material adverse effect on the ability of Sublessee
to fulfill its obligations under this Agreement.
(f) Sublessee is and will be at all times validly existing and in good
standing under the laws of the state of its incorporation (specified in the
first sentence of this Agreement) and is in good standing and qualified as a
foreign corporation in (i) each jurisdiction in which the Equipment is or will
be located and (ii) in such jurisdictions where Sublessee's ownership or lease
of property or the conduct of its business requires it to be so qualified.
XVI. COVENANTS OF SUBLESSEE:
Sublessee covenants and agrees as follows:
(a) Promptly upon any officer or director of Sublessee obtaining
knowledge of any condition or event which constitutes a default or a potential
default hereunder, Sublessee shall
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provide prompt written notice to Sublessor specifying such condition and what
action Sublessee is taking or proposes to take with respect thereto.
(b) Sublessee will promptly execute and deliver to Sublessor such
further documents, instruments and assurances and take such further action as
Lessor or Sublessor from time to time may reasonably request in order to carry
out the intent and purpose of this Sublease and to establish and protect the
rights and remedies created or intended to be created in favor of Sublessor or
Lessor hereunder.
(c) Sublessee will comply with all affirmative and negative covenants
set forth in Exhibits M and N to the Master Lease, to the same extent as if set
forth herein.
(d) Sublessee will not attach or incorporate any item of Equipment to
or in any other item of equipment or personal property or to or in any real
property in a manner that gives rise to the assertion of any lien, claim or
encumbrance on such item of Equipment by reason of such attachment or the
assertion of a claim that such item of Equipment has become a fixture. Sublessee
hereby agrees that it will purchase any such item of Equipment which Lessor or
Sublessor notifies Sublessee in writing is subject to the assertion of any such
lien, claim or encumbrance within [ten (10)] days of such notice.
(e) The Equipment will at all times be used for commercial or business
purposes.
(f) Sublessee shall not take any action that would cause a default
under this Sublease or the Master Lease or omit to take any action necessary to
prevent a breach of this Sublease or the Master Lease.
XVII. REPRESENTATIONS AND WARRANTIES OF SUBLESSOR:
(a) Sublessor has adequate power and capacity to enter into, and
perform under, this Agreement and all related documents (together, the
"Documents") and is duly qualified to do business wherever necessary to carry on
its present business and operations, including the jurisdiction(s) where the
Equipment is or is to be located.
(b) The Documents have been duly authorized, executed and delivered by
Sublessor and constitute valid, legal and binding agreements, enforceable in
accordance with their terms, except to the extent that the enforcement of
remedies therein provided may be limited under applicable bankruptcy and
insolvency laws.
(c) No approval, consent or withholding of objections is required from
any governmental authority or instrumentality with respect to the entry into or
performance by Sublessor of the Documents except such as have already been
obtained.
(d) There are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or affecting
Sublessor, which will have a material adverse effect on the ability of Sublessor
to fulfill its obligations under this Agreement.
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(e) Sublessor has not received a Notice of Default on the Master Lease
from Lessor and, to Sublessor's knowledge after the exercise of Sublessor's
commercially reasonable best efforts to investigate the same, no material
default has occurred on the Master Lease with respect to the Equipment which
could not be cured by the giving of notice or undertaking of other actions not
material to the market value of the Equipment taken as a whole.
XVIII. COVENANTS OF SUBLESSOR:
Sublessor covenants and agrees as follows:
(a) Sublessor shall at all time perform its obligations under the
Master Lease with respect to the Equipment, except such covenant shall not apply
to the extent such default is due to actions or failure to act by Sublessee.
(b) Sublessor shall notify Sublessee in writing of any notice of
default which it receives from the Lessor with respect to the Equipment: (1) if
with respect to a failure to pay rent or any other sum when due, such notice to
be delivered to Sublessee no later than 2 days after receipt of the notice of
default received by Sublessor, and (2) if with respect to any other notice of
default, such notice to be delivered to Sublessee no later than 10 days after
receipt of the notice of default received by Sublessor
XIX. OWNERSHIP FOR TAX PURPOSES, GRANT OF SECURITY INTEREST; USURY SAVINGS:
(a) For income tax purposes, Lessor and Sublessor will treat Sublessee
as the owner of the Equipment. Accordingly, Lessor and Sublessor will not claim
any tax benefits available to an owner of the Equipment.
(b) Sublessee hereby acknowledges that Lessor has a first security
interest in the Equipment, together with all additions, attachments, accessions,
accessories and accessions thereto whether or not furnished by the Supplier of
the Equipment and any and all substitutions, replacements or exchanges therefor,
and any and all insurance and/or other proceeds of the property in and against
which a security interest is granted hereunder.
(c) It is the intention of the parties hereto to comply with any
applicable usury laws to the extent that any Equipment Schedule is determined to
be subject to such laws; accordingly, it is agreed that, notwithstanding any
provision to the contrary in any Equipment Schedule or this Sublease, in no
event shall any Equipment Schedule require the payment or permit the collection
of interest in excess of the maximum amount permitted by applicable law. If any
such excess interest is contracted for, charged or received under any Equipment
Schedule or this Sublease, or in the event that all of the principal balance
shall be prepaid, so that under any of such circumstances the amount of interest
contracted for, charged or received under any Equipment Schedule or the Sublease
shall exceed the maximum amount of interest permitted by applicable
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law, then in such event: (i) the provisions of this paragraph shall govern and
control, (ii) neither Sublessee nor any other person or entity now or hereafter
liable for the payment hereof shall be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum amount of interest
permitted by applicable law, (iii) any such excess which may have been collected
shall be either applied as a credit against the then unpaid principal balance or
refunded to Sublessee, at the option of the Sublessor, and (iv) the effective
rate of interest shall be automatically reduced to the maximum lawful contract
rate allowed under applicable law as now or hereafter construed by the courts
having jurisdiction thereof. It is further agreed that without limitation of the
foregoing, all calculations of the rate of interest contracted for, charged or
received under any Equipment Schedule or the Sublease which are made for the
purpose of determining whether such rate exceeds the maximum lawful contract
rate, shall be made, to the extent permitted by applicable law, by amortizing,
prorating, allocating and spreading in equal parts during the period of the full
stated term of the indebtedness evidenced hereby, all interest at any time
contracted for, charged or received from Sublessee or otherwise by Sublessor in
connection with such indebtedness; provided, however, that if any applicable
state law is amended or the law of the United States of America preempts any
applicable state law, so that it becomes lawful for Sublessor to receive a
greater interest per annum rate than is presently allowed, the Sublessee agrees
that, on the effective date of such amendment or preemption, as the case may be,
the lawful maximum hereunder shall be increased to the maximum interest per
annum rate allowed by the amended state law or the law of the United States of
America.
XX. END OF SUBLEASE PURCHASE OPTION:
So long as (i) no default exists under the Sublease or the Master Lease
and (ii) the Term of the Sublease and the Master Lease has not been earlier
terminated, Sublessee may at the expiration of the Term of the Sublease, upon
one hundred eighty (180) days' prior written notice to Sublessor, purchase all
(but not less than all) of the Equipment described in any Schedule on an AS IS,
WHERE IS BASIS without recourse to or warranty from Sublessor or lessor, express
or implied, for a purchase price of $1.00 payable to Lessor (plus all applicable
sales taxes). The payment shall be due and payable on the expiration of the Term
of the Sublease and the Master Lease.
XXI. MISCELLANEOUS:
(a) SUBLESSEE HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS SUBLEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN
SUBLESSEE AND SUBLESSOR OR THE LESSOR RELATING TO THE SUBJECT MATTER OF THIS
TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING
ESTABLISHED BETWEEN SUBLESSEE AND SUBLESSOR. The scope of this waiver is
intended to be all encompassing of any and all disputes that may be filed in any
court (including, without limitation, contract claims, tort claims, breach of
duty claims, and all other common law and statutory claims). THIS WAIVER IS
IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND
THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
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MODIFICATIONS TO THIS SUBLEASE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS
OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. In the
event of litigation, this Agreement may be filed as a written consent to a trial
by the court.
(b) Any cancellation or termination by Sublessor, pursuant to the
provision of this Sublease, any Schedule, supplement or amendment hereto, or the
sublease of any Equipment hereunder, shall not release Sublessee from any then
outstanding obligations to Sublessor hereunder.
(c) All Equipment shall at all times remain personal property of Lessor
regardless of the degree of its annexation to any real property and shall not by
reason of any installation in, or affixation to, real or personal property
become a part thereof. Sublessee shall obtain and deliver to Sublessor (to be
recorded at Lessee's expense) from any person having an interest in the property
where the Equipment is to be located, waivers of any lien, encumbrance or
interest which such person might have or hereafter obtain or claim with respect
to the Equipment.
(d) Time is of the essence of this Agreement. Sublessor's failure at
any time to require strict performance by Sublessee of any of the provisions
hereof shall not waive or diminish Sublessor's right thereafter to demand strict
compliance therewith.
(e) Sublessee agrees, upon Sublessor's request, to execute any
instrument necessary or expedient for filing, recording or perfecting the
interest of Sublessor or Lessor.
(f) All notices required to be given hereunder shall be in writing,
personally delivered, delivered by overnight courier service, sent by facsimile
transmission (with confirmation of receipt), or sent by certified mail, return
receipt requested, addressed to the other party at its respective address stated
above or, with respect to the Lessor, in the Master Lease or at such other
address as such party shall from time to time designate in writing to the other
party, and shall be effective from the date of receipt.
(g) This Sublease and the Schedule, including the Equipment Schedules
and the schedules to the Master Lease, which are incorporated herein by
reference, constitute the entire agreement between the parties with respect to
the subject matter hereof and shall not be amended or altered in any manner
except by a document in writing executed by both parties. NO VARIATION OR
MODIFICATION OF THIS AGREEMENT OR ANY WAIVER OF ANY OF ITS PROVISIONS OR
CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED
REPRESENTATIVE OF THE PARTIES HERETO. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
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(h) The representations, warranties and covenants of Sublessee herein
shall be deemed to survive the closing hereunder. The obligations of Sublessee
which accrue during the term of this Agreement and obligations which by their
express terms survive the termination of this Agreement, shall survive the
termination of this Agreement.
(i) In case of a failure of Sublessee to comply with any provision of
this Agreement, Sublessor shall have the right, but shall not be obligated, to
effect such compliance, in whole or in part; and all moneys spent and expenses
and obligations incurred or assumed by Sublessor in effecting such compliance
(together with interest thereon at the rate specified in Paragraph (j) of this
Section) shall constitute additional Rent due to Sublessor within five (5) days
after the date Sublessor sends notice to Sublessee requesting payment.
Sublessor's effecting such compliance shall not be a waiver of Sublessee's
default.
(j) Any Rent or other amount not paid to lessor when due hereunder
shall bear interest, both before and after any judgment or termination hereof,
at the lesser of eighteen percent (18%) per annum or the maximum rate allowed by
law.
(k) Any provisions in this Agreement and any Schedule which are in
conflict with any statute, law or applicable rule shall be deemed omitted,
modified or altered to conform thereto.
(l) So long as no Default shall have occurred and be continuing
hereunder, and conditioned upon Sublessee performing all of the covenants and
conditions hereof, as to claims of Sublessor or persons claiming under
Sublessor, Sublessee shall peaceably and quietly hold, possess and use the
Equipment during the Term of this Agreement subject to the terms and conditions
hereof.
(m) Whether or not any Equipment is leased hereunder, Sublessee shall
pay upon demand as additional Rent hereunder all reasonable and necessary
documented transaction expenses including, but not limited to, expenses of
counsel, due diligence, appraisals, lien searches, Uniform Commercial Code
and/or Estoppel/Waiver Agreement filing fees, and field audits.
XXII. CHOICE OF LAW; JURISDICTION:
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS
PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, REGARDLESS OF THE LOCATION OF THE EQUIPMENT. The parties agree that
any action or proceeding arising out of or relating to this Agreement may be
commenced in the United States District Court for the Southern District of New
York.
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XXIII. CHATTEL PAPER:
To the extent that any Schedule would constitute chattel paper, as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction, no security interest therein may be created through the transfer
or possession of this Agreement in and of itself without the transfer or
possession of the original of a Schedule executed pursuant to this Agreement and
incorporating this Agreement by reference; and no security interest in this
Agreement and a Schedule may be created by the transfer or possession of any
counterpart of the Schedule other than the original thereof, which shall be
identified as the document marked "Original" and all other counterparts shall be
marked "Duplicate."
IN WITNESS WHEREOF, Sublessor and Sublessee have caused this Sublease
Agreement to be executed by their duly authorized representatives as of the date
first written above.
SUBLESSOR SUBLESSEE
BRIDGE INFORMATION SYSTEMS SAVVIS COMMUNICATIONS
AMERICA, INC. CORPORATION
By:__________________________ By:_________________________________________
Its:_________________________ Its:________________________________________
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EXHIBIT A TO THE SUBLEASE AGREEMENT
MASTER LEASE AGREEMENT
112
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EXHIBIT B TO THE SUBLEASE AGREEMENT
CONSENT OF LESSOR
113
<PAGE>
EXHIBIT C TO THE SUBLEASE AGREEMENT
EQUIPMENT SCHEDULES
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EXHIBIT L
JAPANESE STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made this _____
day of January, 2000, by and between Bridge International Holdings, Inc., a
Delaware corporation having its principal place of business at 717 Office
Parkway, St. Louis, Missouri 63141 ("Seller"), and SAVVIS Communications
Corporation, a Delaware corporation having its principal place of business at
717 Office Parkway, St. Louis, Missouri 63141 ("SAVVIS") (Seller and SAVVIS each
a "Party" and collectively the "Parties").
WITNESSETH
WHEREAS, Bridge Information Systems Inc. ("BISI"), the
ultimate parent company of the Seller, desires to effectuate a restructuring of
its network operations by transferring certain assets, liabilities, rights, and
obligations relating to its IP network, as well as stock, of certain
subsidiaries world-wide to its subsidiary, SAVVIS, and its subsidiaries pursuant
to an agreement to be executed between BISI and SAVVIS (the "Master
Establishment and Transition Agreement"); and
WHEREAS, pursuant to the Master Establishment and Transition
Agreement, the transfer of the IP network in foreign jurisdictions will be
effected pursuant to other agreements to be executed between BISI and SAVVIS or
their respective subsidiaries;
WHEREAS, the Seller owns all the outstanding stock of Bridge
Information Systems (Japan) KK, a company organized under the laws of Japan (the
"Company");
WHEREAS, the Company currently owns all the assets and
interests relating to the IP network in Japan;
WHEREAS, Seller desires to sell to SAVVIS, and SAVVIS desires
to purchase from Seller all the shares of common stock (the "Shares") of the
Company on the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises and the mutual
covenants and obligations herein set forth and of other good and valuable
consideration, receipt of which is hereby acknowledged, the Parties agree as
follows:
1. DEFINITIONS
1.1 In this Agreement, the following expressions shall have the
following meanings namely:
"Agreement" means the agreement between the Parties the terms of
which are set out herein;
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"Closing" has the meaning set forth in Clause 4.1;
"Effective Date" means [December 31, 1999];
1.2 In this Agreement words importing the singular include the plural
and vice versa and words importing gender include any other gender.
1.3 The headings of Clauses are for ease of reference and shall not
affect the construction of this Agreement.
1.4 References in this Agreement to Clauses are references to clauses
of this Agreement.
1.5 Any undertaking hereunder not to do any act or thing shall be
deemed to include an undertaking not to permit or suffer the doing of
that act or thing.
1.6 The expression "person" used in this Agreement shall include
(without limitation) any individual, partnership, local authority,
company or unincorporated association.
2. SALE & PURCHASE
Upon the terms and subject to the conditions set forth in this
Agreement, Seller shall sell and SAVVIS shall purchase the Shares
free and clear of all security interests, claims, and restrictions,
with effect from the Effective Date.
3. CONSIDERATION
3.1 The purchase price for the Shares (the "Consideration") shall be
[US$_________________.]
3.2 The Consideration shall be due and payable within thirty (30)
days after the Closing.
4. CLOSING
4.1 Closing of the sale shall take place on January __, 2000, when
Seller shall deliver to SAVVIS the share certificate representing the
Shares.
4.2 Title to the Shares shall pass to SAVVIS on the Effective Date.
5. REPRESENTATIONS AND WARRANTIES
5.1 Seller represents and warrants that it is now and will be at
Closing the sole holder of record and beneficial owner of all the
Shares, that it owns the Shares free and clear of all security
interests, claims, and restrictions, and that the Shares constitute
all of the outstanding capital stock of the Company. Seller will
cause the transfer to SAVVIS of
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good and marketable title to the Shares at Closing, free and clear of
all security interests, claims, and restrictions. Seller represents
that it has the legal capacity and authority to execute and deliver
this Agreement, to perform its obligations hereunder, and to
consummate the transactions contemplated hereby.
(a) 5.2 The tangible and intangible property owned and leased by the
Company and listed or described on Schedule 5.2 hereto constitutes
all of the property and property rights owned and ------------ leased
by the Company and all of the property and property rights that in
any way relate to, are used in, or are necessary for the operation of
the IP network of the Company in the manner and to the extent
presently conducted or planned. Further, the Company does not own or
lease any tangible or intangible property that is unrelated to the IP
network and not mentioned in Schedule 5.2. Should the Company own or
lease property not related to the IP network, the -------------
Parties shall endeavor to cause such property to be returned to the
Seller, and any charges incurred or revenues generated in connection
with such property shall be allocated to the appropriate Party as if
such property were owned or leased by the Seller.
6. FURTHER ASSURANCE
From and after Closing, the Parties shall do such acts and execute
such documents and instruments as may be reasonably required to make
effective the transactions contemplated hereby. In the event that
consents, approvals, other authorizations or other acts contemplated
by this Agreement have not been fully effected as of Closing, the
parties will continue after Closing, without further consideration,
to use their best efforts to carry out such transactions. However, in
the event that certain approvals, consents or other necessary
documentation cannot be secured, then the Party having legal
responsibility, ownership, or control shall act on behalf of the
other Party, without further consideration, to effect the essential
intention of the Parties with respect to the transactions
contemplated by this Agreement.
7. SURVIVAL OF CERTAIN PROVISIONS
To the extent that any provision of this Agreement shall not have
been performed at Closing it shall survive and remain in full force
and effect notwithstanding Closing.
8. GOVERNING LAW AND CHOICE OF FORUM
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of Missouri, and the parties to
this Agreement hereby agree that all matters arising out of or in
connection with this Agreement shall be subject to the exclusive
jurisdiction of the state and federal courts located in St. Louis,
Missouri.
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AS WITNESS the hands of duly authorised representatives of the parties the day
and year first above written
SIGNED by )
for and on behalf of )
BRIDGE INTERNATIONAL HOLDINGS, INC. )
SIGNED by )
for and on behalf of )
SAVVIS COMMUNICATIONS CORPORATION )
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SCHEDULE 5.2 TO THE JAPANESE STOCK PURCHASE AGREEMENT
PROPERTY
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SCHEDULE 1.3
OTHER ASSUMED LIABILITIES
None.
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SCHEDULE 1.10
INTERNATIONAL NETWORK ASSETS
See attached.
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SCHEDULE 1.17
US NETWORK ASSETS
See attached.
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SCHEDULE 2.3
PAYMENT OF PURCHASE PRICE
Payment of Purchase Price for International Network Assets: Buyer shall pay to
the Seller, for the International Network Assets an amount cash equal to
$________________, which is the sum of the Net Book Value of such assets, as set
forth in each Local Transfer Agreement. This amount shall be paid by the
following entities in the following described manner:
See attached.
Payment of Purchase Price for LLC Interest:
<TABLE>
<CAPTION>
- --------------------------------------- ------------------------------ --------------------------------
<S> <C> <C>
TOTAL PURCHASE PRICE FOR CASH PRINCIPAL BALANCE OF PROMISSORY
INTEREST PAYMENT NOTE
- --------------------------------------- ------------------------------ --------------------------------
$ $ $
- --------------------------------------- ------------------------------ --------------------------------
</TABLE>
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SCHEDULE 3.3
CONSENTS
See attached.
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SCHEDULE 3.5(A)
IP NETWORK EXCEPTIONS
None.
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SCHEDULE 3.6
CONTRACTS
See attached.
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SCHEDULE 3.7
EMPLOYEES
The Americas
Acocks, Terry Griffith, Ken Mutrux, Alex
Alexander, Larry Gwaltney, Chris Nottingham, Aaron
Allen, Courtney Heinrich, Matt Patel, Reshma
Amador, Alan Hensel, Mary Paule, Felisa
Ansley, Mike Hewitt, Ray Pearson, Dorothy
Arft, Chris Hezell, Larry Pezold, Jim
Ballard, Tony Houston, Denise Regot, Frenchie
Benoist, Chris Hughes, Lynda Robinson, Don
Berry, Paul Hunt, Tab Robies, Rick
Bishop, Mike Jackson, John Rocha, Louis
Brissette, Dave Johnson, Cinty Schwamie, Chris
Burnham, Robert Judge, Curtis Scroggins, Jerry
Cattel, Mike Kanne, Fred Siedhoff, Jim
Champagne, Robert Klasinski, Gabe Stevens, Wayne
Coffman, Jeff Krify, Robert Taylor, Mike
Cornwell, Michael Kurtz, Dennis Walkenhorst, Jamie
Dailey, Sue Laslie, Matt Watkins, Terrence
Disano, Wanda Leatherman, Phillip Weber, John
Doerr, Mike Lee, Hing West, Mark
Engel, Scott Lokke, Chris Whinery, Eric
Ennis, Erik Louis, Jean Wilson, Michelle
Freeman, James Luciani, Jim Wolf, Michelle
Gilfillan, Jeff Mallory, Kevin Woltering, Ben
Grant, Michael Maragliano, Dave Zuccarello, Theresa
Grenier, Craig Mueller, Don
Europe
Appleton, Allan Evans, Rick Scane, Jeff
Baker, Simon Hill, Ian Spellman, Gary
Burks, Andrew Korn, Yoav Symonds, Geoff
Cann, Terry Lambert, Dave Taylor, Mark
Choudhury, Jimpy Morley, Julia Wilkinson, Charles
Clift, Esme Norwood, Jane
D'Cruz, Lincoln Saunders, Andy
Asia
Hicks, Rob Zu, Boon Tec
127
<PAGE>
SCHEDULE 5.1
NOTICES AND CONSENTS
See attached.
128
<PAGE>
SCHEDULE 5.2(A)
CALL RIGHT JURISDICTIONS AND CALL ASSETS
Jurisdiction: Assets:
Greece See attached
Hungary See attached
Ireland See attached
Poland See attached
South Africa
China See attached
Macau
Malaysia See attached
Taiwan See attached
Thailand See attached
[Mexico See attached]
Venezuela See attached
Bahrain See attached
Kuwait See attached
Oman
Qatar
Saudi Arabia See attached
United Arab Emirates See attached
129
<PAGE>
SCHEDULE 5.2(B)
SATELLITE RIGHTS
Contracts:
Agreement for the Provision of DirecPC Professional Services Data Network and
Integrated Satellite Business Network Equipment Services in Europe and the
Middle East between HOT Telecommunications Limited and Bridge Information
Systems, Inc. commencing July 1, 1999.
Countries:
Bulgaria
Croatia
Cyprus
Czech Republic
Egypt
Estonia
Jersey
Latvia
Lithuania
Macedonia
Portugal
Romania
Russia
Slovakia
130
<PAGE>
SCHEDULE 5.5
SHORT-TERM CALL ASSETS JURISDICTIONS
Greece
Hungary
Ireland
Poland
Taiwan
[Mexico]
Venezuela
131
<PAGE>
EXHIBIT 16.1
December 27, 1999
Securities and Exchange Commission
Mail Stop 9-5
450 5th Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the disclosure under the caption "Change in Certifying
Accountants" included in the SAVVIS Communications Corporation Registration
Statement on Form S-1 (No. 333-90881) and are in agreement with the statements
contained in the paragraphs therein.
/s/ Ernst & Young LLP
St. Louis, Missouri
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Amendment No. 6 to Registration Statement No.
333-90881 of SAVVIS Communications Corporation, formerly SAVVIS Holdings
Corporation, of our report dated August 12, 1999, except for Note 13 as to
which the date is January 14, 2000 and Note 14 as to which the date is January
25, 2000 (which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the Company's ability to continue as a going
concern and an explanatory paragraph relating to the restatement described in
note 14) appearing in the Prospectus, which is part of this Registration
Statement, and to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
St. Louis, Missouri
January 27, 2000
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Historical Consolidated Financial Data" and to the use of our
report dated April 23, 1998, except for Note 14 as to which the date is
January 25, 2000 with respect to the financial statements of SAVVIS
Communications Corporation included in the Registration Statement (Amendment
No. 6 to Form S-1 No. 333-90881) and related Prospectus of SAVVIS
Communications Corporation for the registration of 19,550,000 shares of its
common stock.
/s/ Ernst & Young LLP
St. Louis, Missouri
January 28, 2000
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