AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 2000
REGISTRATION NO. 333-90881
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 9
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. [ ]
------------------
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 FEBRUARY 14, 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. Approximately $125 million of the net proceeds to
SAVVIS will be paid by SAVVIS to Bridge.
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.
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.
---------------
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 .......................................................................... 24
Dividend Policy .......................................................................... 24
Capitalization ........................................................................... 25
Dilution ................................................................................. 26
Unaudited Pro Forma Consolidated Financial Statements .................................... 27
Selected Historical Consolidated Financial Data .......................................... 32
Management's Discussion and Analysis of Financial Condition and Results of Operations .... 34
Business ................................................................................. 42
Relationship with Bridge ................................................................. 61
Management ............................................................................... 65
Transactions with Affiliates ............................................................. 75
Principal Stockholders and Selling Stockholder ........................................... 76
Description of Capital Stock ............................................................. 79
Shares Available for Future Sale ......................................................... 82
United States Tax Consequences to Non-U.S. Holders of Common Stock ....................... 83
Underwriting ............................................................................. 86
Validity of the Shares ................................................................... 91
Experts .................................................................................. 91
Change in Certifying Accountants ......................................................... 91
Where You May Find Additional Information ................................................ 91
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 a minimum of approximately $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.
9
<PAGE>
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 $134 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. In
February 2000, Bridge incurred an additional $25 million of indebtedness.
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. In addition,
pursuant to a stock purchase agreement dated February 7, 2000, Bridge has agreed
to sell to Welsh Carson for $150 million in cash shares of our common stock held
by Bridge. The purchase price per share is equal to the initial public offering
price per share. Assuming an initial offering price of $23.50, the midpoint of
the range shown on the cover of this prospectus, Welsh Carson would purchase
approximately 6,382,979 shares from Bridge. The exact number of shares Welsh
Carson will purchase from Bridge cannot be determined until the pricing of this
offering. The consummation of the sale to Welsh Carson is expected to occur
after the closing of this offering and is subject to limited conditions,
including termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976. We cannot assure you that this sale will be
consummated.
10
<PAGE>
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.
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. 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
11
<PAGE>
operating history, you have very limited operating and financial data about us
upon which to base an evaluation of our performance and prospects and an
investment in our common stock. Therefore, you should consider and evaluate our
prospects in light of the risks and difficulties frequently encountered by
rapidly growing companies, particularly companies in the rapidly evolving data
networking, Internet access and colocation markets.
OUR HISTORICAL FINANCIAL INFORMATION WILL NOT BE COMPARABLE TO OUR FUTURE
FINANCIAL PERFORMANCE.
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.
12
<PAGE>
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 in effect for our third party customers 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.
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.
13
<PAGE>
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, 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. Pursuant to a stock purchase agreement dated February 7, 2000, Bridge
has agreed to sell to Welsh Carson for $150 million in cash shares of our common
stock held by Bridge. The purchase price per share is equal to the initial
public offering price per share. The consummation of the sale is expected to
occur after the closing of this offering and is subject to limited conditions,
including termination of the waiting period under the Hart-Scott-Rodino Act.
Assuming an initial offering price of $23.50, the midpoint of the range shown on
the cover of this prospectus, upon consummation of such sale Bridge and Welsh
Carson would own approximately 49% and 16% of our outstanding common stock,
respectively. Assuming an initial offering price of $23.50, the midpoint of the
range shown on the cover of this prospectus, Welsh Carson would purchase
approximately 6,382,979 shares from Bridge. The exact number of shares Welsh
Carson will purchase from Bridge cannot be determined until the pricing of this
offering.
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.
14
<PAGE>
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.
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.
15
<PAGE>
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 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
16
<PAGE>
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
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;
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.
17
<PAGE>
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;
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.
18
<PAGE>
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 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;
19
<PAGE>
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 at a competitive disadvantage. For
example, Reuters Group plc, a news and financial information distributor, and
Equant N.V., an international telecommunications provider, recently announced
that they intend to form a joint venture for the purposes of offering Internet
access to the financial services industry. 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
20
<PAGE>
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.
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.
21
<PAGE>
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.
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.
22
<PAGE>
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.
23
<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.
24
<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 as
adjusted) .............................................. 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>
25
<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.
26
<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.
27
<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.
28
<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.
29
<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.
30
<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.
31
<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.
32
<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.
33
<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 and
associated personnel 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 negotiation between
Bridge and SAVVIS and will be mutually agreed upon by Bridge and SAVVIS or
determined by binding arbitration. Bridge has agreed to pay us a minimum of
approximately $105 million, $132 million and $145 million for network services
in 2000, 2001 and 2002, respectively.
34
<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.
35
<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.
36
<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
37
<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.
38
<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. If we continue to suffer losses, we may need to
raise additional capital in order to replace assets which have depreciated.
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 the amounts paid to us under the
network services agreement 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 provision of such services will not have an impact on our
cash flows from operations. However, due to amortization and depreciation
relating to the network, the provision of services under the network services
agreement will result in our incurring losses from operations until we can sell
additional services over the network to Bridge or to other customers. The
effects of such operating losses will include continued increases in our
accumulated deficit and reductions in stockholders' equity.
39
<PAGE>
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.
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.
40
<PAGE>
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.
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.
41
<PAGE>
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.
42
<PAGE>
In addition, upon completion of this offering, we will enter into a 10-year
network services agreement with Bridge that commits Bridge to purchase a minimum
of approximately $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
43
<PAGE>
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
44
<PAGE>
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.
45
<PAGE>
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
46
<PAGE>
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.
47
<PAGE>
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.
48
<PAGE>
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.
49
<PAGE>
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
50
<PAGE>
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.
51
<PAGE>
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 PROACTIVE(SM) 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,
52
<PAGE>
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.
53
<PAGE>
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.
54
<PAGE>
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:
55
<PAGE>
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. For example, Reuters Group plc and Equant N.V. recently announced
that they intend to form a joint venture for the purposes of offering Internet
access to the financial services industry. 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.
56
<PAGE>
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.
57
<PAGE>
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
58
<PAGE>
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.
59
<PAGE>
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.
60
<PAGE>
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.
61
<PAGE>
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, 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 for our
third party customers 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 orginal 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 approximately $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
62
<PAGE>
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 Services 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
63
<PAGE>
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.
64
<PAGE>
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, Chief Operating Officer and
Director
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, 1999 and as a director of our company since January 2000. From
June 1998 to December 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
65
<PAGE>
1998, Mr. Frear was Senior Vice President and Chief Financial Officer of Orion
Network Systems Inc., a Nasdaq listed international satellite communications
company that was acquired by Loral Space & Communications in March 1998. Mr.
Frear was Chief Financial Officer of Millicom Incorporated, a Nasdaq listed
international cellular paging and cable television company, from 1990 to 1993.
He previously was an investment banker at Bear, Stearns & Co., Inc. and Credit
Suisse. Mr. Frear received his C.P.A. in 1979 and received an M.B.A. degree from
the University of Michigan.
JAMES D. MORI has served as our Executive Vice President and 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
66
<PAGE>
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.
67
<PAGE>
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.
68
<PAGE>
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
SECURITIES FOR 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.
69
<PAGE>
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,
70
<PAGE>
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
71
<PAGE>
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,
72
<PAGE>
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
73
<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.
74
<PAGE>
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."
We have agreed to grant to Welsh Carson customary registration rights with
respect to the shares of our common stock to be purchased by Welsh Carson from
Bridge following this offering, including demand registration rights and
piggy-back registration rights.
75
<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 31, 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 31, 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 31, 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) ........ 53,858,702 69.3% 2,125,000 51,733,702 55.9%(6)
Welsh, Carson, Anderson & Stowe (2) ......... 8,844,642 11.4% -- 8,844,642 9.6%(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) ......................... 52,566 * -- 52,566 *
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 (9 persons) .......................... 11,818,044 15.2% 11,818,044 12.8%
</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.
76
<PAGE>
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 31, 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.
(6) Pursuant to a stock purchase agreement dated February 7, 2000, Bridge has
agreed to sell to Welsh Carson for $150 million in cash shares of our common
stock held by Bridge. The purchase price per share is equal to the initial
public offering price per share. Assuming an initial offering price of
$23.50, the midpoint of the range shown on the cover of this prospectus,
upon consummation of such sale Bridge and Welsh Carson would own
approximately 49% and 16% of our outstanding common stock, respectively.
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.
77
<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 (9 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 24,750,000 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.
78
<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
79
<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.
80
<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.
81
<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.
82
<PAGE>
UNITED STATES TAX CONSEQUENCES TO
NON-U.S. HOLDERS OF COMMON STOCK
GENERAL
The following is a general discussion of the principal U.S. federal income
and estate tax consequences of the ownership and disposition of our common
stock that may be relevant to you if you are a non-U.S. Holder. For purposes of
this discussion, you are a non-U.S. holder if you are a beneficial owner of
common stock that is any of the following for U.S. federal income tax purposes:
o a nonresident alien individual;
o a foreign corporation;
o a foreign estate or trust; or
o a foreign partnership.
This discussion does not address all aspects of U.S. federal income and
estate taxation that may be relevant to you in light of your particular
circumstances, and does not address any foreign, state or local tax
consequences. Furthermore, this discussion is based on provisions of the
Internal Revenue Code, Treasury regulations and administrative and judicial
interpretations as of the date of this prospectus. All of these are subject to
change, possibly with retroactive effect, or different interpretations. If you
are considering buying our common stock you should consult your own tax advisor
about current and possible future tax consequences of holding and disposing of
our common stock in your particular situation.
DISTRIBUTIONS
We have not paid any dividends on our common stock and do not intend to pay
dividends in the foreseeable future. See "Dividend Policy." However, if
dividends are paid on the shares of our common stock, these distributions
generally will constitute dividends for U.S. federal income tax purposes to the
extent paid from our current or accumulated earnings and profits, as determined
under U.S. federal income tax principles. To the extent these distributions
exceed those earnings and profits, the distributions will constitute a return of
capital that is applied against, and will reduce, your basis in the common
stock, but not below zero, and then will be treated as gain from the sale of
stock. Dividends paid to a non-U.S. holder that are not effectively connected
with a U.S. trade or business of the non-U.S. holder will be subject to United
States withholding tax at a 30% rate or, if a tax treaty applies, a lower rate
specified by the treaty. To receive a reduced treaty rate, a non-U.S. holder
must furnish to us or our paying agent a duly completed Form 1001 or Form W-8BEN
or substitute form certifying to its qualification for the reduced rate.
Currently, withholding is generally imposed on the gross amount of a
distribution, regardless of whether we have sufficient earnings and profits to
cause the distribution to be a dividend for U.S. federal income tax purposes.
However, withholding on distributions made after December 31, 2000 may be on
less than the gross amount of the distribution if the distribution exceeds a
reasonable estimate made by us of our accumulated and current earnings and
profits.
Dividends that are effectively connected with the conduct of a trade or
business within the U.S. and, if a tax treaty applies, are attributable to a
U.S. permanent establishment of the non-U.S. holder, are exempt from U.S.
federal withholding tax, provided that the non-U.S. holder furnishes to us or
our paying agent a duly completed Form 4224 or Form W-8BCI or substitute form
certifying the exemption. However, dividends exempt from U.S. withholding
because they are effectively connected or they are attributable to a U.S.
permanent establishment are subject to U.S. federal income tax on a net income
basis at the regular graduated U.S. federal income tax rates. Any such
effectively connected dividends received by a foreign corporation may be
subject to an additional "branch profits tax" at a 30% rate or a lower rate
specified by an applicable income tax treaty.
83
<PAGE>
Under current U.S. Treasury regulations, dividends paid before January 1,
2001 to an address outside the United States are presumed to be paid to a
resident of the country of address for purposes of the withholding discussed
above and for purposes of determining the applicability of a tax treaty rate.
However, U.S. Treasury regulations applicable to dividends paid after December
31, 2000 eliminate this presumption, subject to transition rules, and a non-U.S.
holder who wishes to claim the benefit of an applicable treaty rate, and avoid
back-up withholding, as discussed below, would be required to satisfy applicable
certification and other requirements.
For dividends paid after December 31, 2000, a non-U.S. holder generally
will be subject to U.S. backup withholding tax at a 31% rate under the backup
withholding rules described below, rather than at a 30% rate or a reduced rate
under an income tax treaty, as described above, unless the non-U.S. holder
complies with Internal Revenue Service certification procedures or, in the case
of payments made outside the U.S. with respect to an offshore account,
documentary evidence procedures. Further, to claim the benefit of a reduced rate
of withholding under a tax treaty for dividends paid after December 31, 2000, a
non-U.S. holder must comply with modified IRS certification requirements.
Special rules also apply to dividend payments made after December 31, 2000 to
foreign intermediaries, U.S. or foreign wholly owned entities that are
disregarded for U.S. federal income tax purposes and entities that are treated
as fiscally transparent in the U.S., the applicable income tax treaty
jurisdiction, or both. You should consult your own tax advisor concerning the
effect, if any, of the rules affecting post-December 31, 2000 dividends on your
possible investment in our common stock.
A non-U.S. holder eligible for a reduced rate of U.S. withholding tax under
an income tax treaty may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund along with the required information with
the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
with respect to gain recognized on a sale or other disposition of our common
stock unless one of the following applies:
o If the gain is effectively connected with a trade or business of the
non-U.S. holder in the United States and, if a tax treaty applies, the
gain is attributable to a U.S. permanent establishment maintained by the
non-U.S. holder, the non-U.S. holder will, unless an applicable treaty
provides otherwise, be taxed on its net gain derived from the sale under
regular graduated U.S. federal income tax rates. If the non-U.S. holder is
a foreign corporation, it may be subject to an additional branch profits
tax equal to 30% of its effectively connected earnings and profits within
the meaning of the Internal Revenue Code for the taxable year, as adjusted
for specified items, unless it qualifies for a lower rate under an
applicable income tax treaty and duly demonstrates that it qualifies.
o If a non-U.S. holder who is an individual and holds our common stock as a
capital asset is present in the United States for 183 or more days in the
taxable year of the sale or other disposition, and other conditions are
met, the non-U.S. holder will be subject to a flat 30% tax on the gain
derived from the sale, which may be offset by U.S. capital losses.
o If we are or have been a "U.S. real property holding corporation" for U.S.
federal income tax purposes at any time during the shorter of the
five-year period ending on the date of the disposition or the period
during which the non-U.S. holder held the common stock, the non-U.S.
holder may be taxable in the U.S. on gain from the sale of common stock
pursuant to the effectively connected rules above. We believe that we
never have been and are not currently a U.S. real property holding
corporation for U.S. federal income tax purposes. Although we consider it
unlikely based on our current business plans and operations, we may become
a U.S. real property holding corporation in the future. Even if we were to
become a U.S. real property holding corporation, any gain recognized by a
non-U.S. holder still would not be subject to U.S. tax if the shares of
our common stock are considered to be "regularly
84
<PAGE>
traded on an established securities market" and the non-U.S. holder did
not own, actually or constructively, at any time during the shorter of the
periods described above, more than five percent of our common stock.
FEDERAL ESTATE TAX
Common stock owned by an individual who is not a citizen or resident, as
defined for U.S. estate tax purposes, of the United States at the time of death
will be included in that individual's gross estate for U.S. federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under U.S. Treasury regulations, we must report annually to the IRS and to
each non-U.S. holder the amount of dividends paid to that holder and the tax
withheld with respect to those dividends. These information reporting
requirements apply even if withholding was not required because the dividends
were effectively connected dividends or withholding was reduced or eliminated by
an applicable income tax treaty. Pursuant to an applicable tax treaty, that
information may also be made available to the tax authorities in the country in
which the non-U.S. holder resides.
United States federal backup withholding generally is a withholding tax
imposed at the rate of 31% on specified payments to persons that fail to furnish
required information under the U.S. information reporting requirements. See the
discussion under "--Distributions" above for rules regarding backup withholding
on dividends paid to non-U.S. holders, after December 31, 2000.
As a general matter, information reporting and backup withholding will not
apply to a payment by or through a foreign office of a foreign broker of the
proceeds of a sale of our common stock effected outside the U.S. However,
information reporting requirements, but not backup withholding, will apply to a
payment by or through a foreign office of a broker of the proceeds of a sale of
our common stock effected outside the U.S. if that broker:
o is a U.S. person;
o is a foreign person that derives 50% or more of its gross income for
specified periods from the conduct of a trade or business in the U.S.;
o is a "controlled foreign corporation" as defined in the Internal Revenue
Code; or
o is a foreign partnership with specified U.S. connections, for payments
made after December 31, 2000.
Information reporting requirements will not apply in the above cases if the
broker has documentary evidence in its records that the beneficial owner is a
non-U.S. holder and specified conditions are met or the beneficial owner
otherwise establishes an exemption.
Payment by or through a U.S. office of a broker of the proceeds of a sale
of our common stock is subject to both backup withholding and information
reporting unless the holder certifies to the payor in the manner required as to
its non-U.S. status under penalties of perjury or otherwise establishes an
exemption.
Amounts withheld under the backup withholding rules do not constitute a
separate U.S. federal income tax. Rather, any amounts withheld under the backup
withholding rules will be refunded or allowed as a credit against the holder's
U.S. federal income tax liability, if any, provided the required information or
appropriate claim for refund is filed with the IRS.
THE FOREGOING DISCUSSION IS A SUMMARY OF THE PRINCIPAL TAX CONSEQUENCES OF
THE OWNERSHIP, SALE OR OTHER DISPOSITION OF OUR COMMON STOCK BY NON-U.S. HOLDERS
FOR U.S. FEDERAL INCOME AND ESTATE TAX PURPOSES. YOU ARE URGED TO CONSULT YOUR
OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF
OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK, INCLUDING THE EFFECT OF ANY
STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.
85
<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. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley &
Co. Incorporated are acting as Joint Book-Running Managers. 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.
86
<PAGE>
The following table shows the public offering price, underwriting discount,
proceeds before expenses to SAVVIS and the selling stockholder and other
compensation. 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 .................................. $ $ $
Other compensation(1) ......................... N/A N/A N/A
</TABLE>
- ------------------
(1) An affiliate of Morgan Stanley & Co. Incorporated has received 457,507
shares of our common stock which is deemed compensation in this offering
under the National Association of Securities Dealers' Rules of Fair
Practice. In addition, NASD Rule 2710 (c)(7) requires those shares be
locked up for a period of one year following the effective date of the
registration statement of which this prospectus is a part. For additional
information, see " -- Other Relationships."
The underwriting discount is currently expected to be approximately % of
the public offering price. The expenses of the offering, not including the
underwriting discount, are estimated at $2,250,000 and are payable pro rata by
us and the selling stockholder based upon the number of shares offered in this
offering. 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.
87
<PAGE>
NO SALES OF SIMILAR SECURITIES
We, the selling stockholder, our executive officers and directors and other
stockholders have agreed, with exceptions, not to sell or transfer any common
stock for 180 days after the date of this prospectus without first 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.
88
<PAGE>
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 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.
UK SELLING RESTRICTIONS
Each underwriter has agreed that
o it has not offered or sold and, prior to the expiration of the period six
months from the closing of the offering, will not offer or sell any shares
of common stock of SAVVIS to persons in the United Kingdom, except to
persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments, as principal or agent, for the
purposes of their businesses or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom within the meaning
of the Public Offers of Securities Regulations 1995;
o it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation
to the common stock in, from or otherwise involving the United Kingdom; and
o it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issuance
of common stock to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 as amended or is a person to whom such document may otherwise
lawfully be issued or passed on.
NO PUBLIC OFFERING OUTSIDE THE UNITED STATES
No action has been or will be taken in any jurisdiction except in the
United States that would permit a public offering of the shares of common stock,
or the possession, circulation or distribution of this prospectus or any other
material relating to our company or shares of our common stock in any
jurisdiction where action for that purpose is required. Accordingly, the shares
of our common stock may not be offered or sold, directly or indirectly, and
neither this prospectus nor any other offering material or advertisements in
connection with the shares of common stock may be distributed or published, in
or from any country or jurisdiction except in compliance with any applicable
rules and regulations of any such country or jurisdiction.
Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price on the cover page of this
prospectus.
89
<PAGE>
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, the bridge loan agreement was amended to add two additional
lenders and Bridge borrowed another $50 million under the amended 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.
90
<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 and
Steven M. Gallant, General Counsel of SAVVIS. 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 report
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.
The consolidated financial statements of Bridge Information Systems, Inc.
and Subsidiaries, as of December 31, 1997 and 1998, and for each of the three
years in the period ended December 31, 1998 included in this prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing in this prospectus, which report contains an explanatory
paragraph describing conditions that raise substantial doubt as to Bridge's
ability to continue as a going concern, and are included in reliance upon the
report of such firm given upon their authority 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
91
<PAGE>
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.
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.
92
<PAGE>
[This page intentionally left blank]
<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 36-60
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
approximately $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 $27.5 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. This transaction was valued
at approximately $31.7 million based on the fair value of the securities
exchanged, as determined by an independent valuation specialist, and the direct
cost of the acquisition. 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
F-32
<PAGE>
information system. Pursuant to contracts with the third party data suppliers,
Bridge remits a portion of such fees and royalties to the data suppliers.
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.
F-33
<PAGE>
Loss on early extinguishment of debt. Losses on early extinguishment of
debt represent the write-off of deferred financing costs upon prepayment of
debt.
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 million increase primarily
resulted from the acquisitions of Telerate and ADP. The net revenue increase
resulting from the acquisitions was $251.6 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 increase primarily resulted from the acquisitions of Telerate and
ADP.
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 $97.6 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.
F-34
<PAGE>
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.
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 $56.7 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.
F-35
<PAGE>
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
million 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.
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.
F-36
<PAGE>
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.
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 million
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.
F-37
<PAGE>
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.
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.
F-38
<PAGE>
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.
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 $203.5 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. In
February 2000, Bridge incurred an additional $25 million of indebtedness.
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. In addition, pursuant to a stock purchase
agreement dated February 7, 2000, Bridge has agreed to sell to Welsh Carson for
$150 million in cash shares of our common stock held by Bridge. The purchase
price per share is equal to the initial public offering price per share. The
consummation of the sale is expected to occur
F-39
<PAGE>
after the closing of this offering and is subject to limited conditions,
including termination of the waiting period under the Hart-Scott-Rodino Act. We
cannot assure you that this sale will be consummated. Bridge plans to pay the
remaining indebtedness due on or before June 30, 2000, through proceeds from the
sale of shares of our common stock held by Bridge to cover the underwriters'
over-allotment option as part of this offering or cash provided from operations.
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's capital expenditures in 1999 were approximately $164 million.
Bridge expects to have capital expenditures of $70 million in 2000 for the
expansion and upgrade of its data center and customer site equipment for new
customers and client conversions to new technology products.
Under the network services agreement, Bridge is required to purchase from
SAVVIS a minimum of approximately $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 SAVVIS 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.
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.
/s/ Deloitte & Touche LLP
St. Louis, Missouri
April 30, 1999, except for Note 21 as to which the date is February 9, 2000
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
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
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
(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
("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 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.
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 of 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 55,639
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>
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>
[This page intentionally left blank]
<PAGE>
[This page intentionally left blank]
<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
----------------
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 Purchase 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
5.2* Opinion of Steven M. Gallant, the Registrant's General Counsel, 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT DESCRIPTION
- ------------- --------------------
<S> <C>
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.
10.26* Registration Rights Agreement, dated February 27, 2000, among the Registrant, Welsh
Carson Anderson & Stowe VIII, L.P. and Bridge Information Systems, 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 Deloitte & Touche LLP
23.4 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.5* Consent of Steven M. Gallant (included in Exhibit 5.2)
24.1* Power of attorney (included in the signature page to this registration
statement)
27.1* Financial Data Schedule
</TABLE>
- ------------------
* 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. 9 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 February 14, 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. 9 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 February 14, 2000
- --------------------------- Chairman of the Board
Robert McCormick (principal executive officer)
* Executive Vice President, Chief February 14, 2000
- --------------------------- Financial Officer and Director
David J. Frear (principal financial officer and
principal accounting officer)
* Director February 14, 2000
- ---------------------------
Clyde A. Heintzelman
* Director February 14, 2000
- ---------------------------
Thomas McInerney
* Director February 14, 2000
- ---------------------------
Patrick Welsh
* Director February 14, 2000
- ---------------------------
Thomas M. Wendel
Director
- ---------------------------
Jack M. Finlayson
</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 Purchase 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
5.2* Opinion of Steven M. Gallant, the Registrant's General Counsel, 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------
<S> <C>
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.
10.26* Registration Rights Agreement, dated February 27, 2000, among the Registrant, Welsh
Carson Anderson & Stowe VIII, L.P. and Bridge Information Systems, 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 Deloitte & Touche LLP
23.4 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.5* Consent of Steven M. Gallant (included in Exhibit 5.2)
24.1* Power of attorney (included in the signature page to this registration
statement)
27.1* Financial Data Schedule
</TABLE>
- ------------------
* Previously filed.
+ Request for Confidential Treatment
EXHIBIT 3.3
BYLAWS
OF
SAVVIS HOLDINGS CORPORATION
(Amended and Restated as of April 7, 1999)
ARTICLE I
Stockholders
Section 1.1. Annual Meetings. An annual meeting of
stockholders shall be held for the election of directors at such date, time and
place either within or without the State of Missouri as may be designated by the
Board of Directors from time to time. Stockholders may, unless Missouri law or
the certificate of incorporation otherwise provides, act by written consent to
elect directors. Any other proper business may be transacted at the annual
meeting.
Section 1.2. Special Meetings. Special meetings of
stockholders may be called at any time by the Chairman of the Board, if any, the
Vice Chairman of the Board, if any, the President or the Board of Directors, to
be held at such date, time and place either within or without the State of
Missouri as may be stated in the notice of the meeting.
Section 1.3. Notice of Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, the written
notice of any meeting shall be given not less than ten nor more than sixty days
before the date of the meeting to each stockholder entitled to vote at such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the Corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual
or special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 1.5. Quorum. At each meeting of stockholders, except
where otherwise provided by law or the certificate of incorporation or these
bylaws, the holders of a majority of the outstanding shares of each class of
stock entitled to vote at the meeting, present in person or represented by
proxy, shall constitute a quorum. For purposes of the foregoing, two or more
classes or series of stock shall be considered a single class if the holders
thereof are entitled to vote together as a single class at the meeting. In the
absence of a quorum, the stockholders so
<PAGE>
present may, by majority vote, adjourn the meeting from time to time in the
manner provided by Section 1.4 of these bylaws until a quorum shall attend.
Shares of its own capital stock belonging on the record date for the meeting to
the Corporation or to another corporation, if a majority of the shares entitled
to vote in the election of directors of such other corporation is held, directly
or indirectly, by the Corporation, shall neither be entitled to vote nor be
counted for quorum purposes; provided, however, that the foregoing shall not
limit the right of the Corporation to vote stock, including but not limited to
its own stock, held by it in a fiduciary capacity.
Section 1.6. Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
his absence by a Vice President, or in the absence of the foregoing persons by a
chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 1.7. Voting; Proxies. Unless otherwise provided in the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
him which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders or to express consent or dissent
to corporate action in writing without a meeting may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is irrevocable
and if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the Corporation. Voting at meetings of
stockholders need not be by written ballot and need not be conducted by
inspectors unless the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or by proxy at such
meeting shall so determine. At all meetings of stockholders for the election of
directors, a plurality of the votes cast shall be sufficient to elect. All other
elections and questions shall, unless otherwise provided by law or by the
certificate of incorporation or these bylaws, be decided by the vote of the
holders of a majority of the outstanding shares of all classes of stock entitled
to vote thereon present in person or by proxy at the meeting, provided that
(except as otherwise required by law or by the certificate of incorporation) the
Board of Directors may require a larger vote upon any election or question.
Section 1.8. Fixing Date for Determination of Stockholders of
Record. In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty nor less than ten days before the
<PAGE>
date of such meeting, nor more than sixty days prior to any other action. If no
record date is fixed: (1) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; (2) the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board is necessary, shall be the day on which the
first written consent is expressed; and (3) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
Section 1.9. List of Stockholders Entitled to Vote. The
Secretary shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present.
Section 1.10. Consent of Stockholders in Lieu of Meeting.
Unless otherwise provided in the certificate of incorporation, any action
required by law to be taken at any annual or special meeting of stockholders of
the Corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II
Board of Directors
Section 2.1. Powers; Number; Qualifications. (a) The business
and affairs of the Corporation shall be managed by the Board of Directors,
except as may be otherwise provided by law or in the certificate of
incorporation. Without limiting any other powers of the Board of Directors under
law, the Directors are expressly authorized to: (i) take all such actions as may
be necessary to establish (and dissolve) representative, branch and subsidiary
offices in the name of and on behalf of the Company in the United States and any
other foreign country; (ii) sign
<PAGE>
contracts and other instruments in the name of and on behalf of the Company in
the United States and any other foreign country; (iii) issue powers of attorney
in the name of and on behalf of the Company with respect to the Company's
operations and business in the United States and any other foreign country; and,
(iv) appoint and remove legal representatives of the Company in the United
States and any other foreign country. The Board of Directors may also delegate
such powers to the officers of the Company.
(b) The Board shall consist of one or more members, the number
thereof to be determined from time to time by the Board. Directors need not be
stockholders.
Section 2.2. Election; Term of Office; Resignation; Removal;
Vacancies. Each director shall hold office until the annual meeting of
stockholders next succeeding his election and until his successor is elected and
qualified or until his earlier resignation or removal. Any director may resign
at any time upon written notice to the Board of Directors or to the President or
the Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, and unless otherwise specified therein no acceptance of such
resignation shall be necessary to make it effective. Unless otherwise provided
in the certificate of incorporation or these bylaws, vacancies and newly created
directorships resulting from any increase in the authorized number of directors
or from any other cause may be filled by a majority of the directors then in
office, although less than a quorum, or by the sole remaining director.
Section 2.3. Regular Meetings. Regular meetings of the Board
of Directors may be held at such places within or without the State of Missouri
and at such times as the Board may from time to time determine, and if so
determined, notice thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board
of Directors may be held at any time or place within or without the State of
Missouri whenever called by the Chairman of the Board, if any, by the Vice
Chairman of the Board, if any, by the President or by any two directors.
Reasonable notice thereof shall be given by the person or persons calling the
meeting.
Section 2.5. Telephonic Meetings Permitted. Unless otherwise
restricted by the certificate of incorporation or these bylaws, members of the
Board of Directors, or any committee designated by the Board, may participate in
a meeting of the Board or of such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this bylaw shall constitute presence in person at such
meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings
of the Board of Directors one-third of the entire Board shall constitute a
quorum for the transaction of business. The vote of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
unless the certificate of incorporation or these bylaws shall require a vote of
a greater number. In case at any meeting of the Board a quorum shall not be
present, the members of the Board present may adjourn the meeting from time to
time until a quorum shall attend.
<PAGE>
Section 2.7. Organization. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if any, or in his absence
by the Vice Chairman of the Board, if any, or in his absence by the President,
or in their absence by a chairman chosen at the meeting. The Secretary shall act
as secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.8. Informal Action by Directors. Unless otherwise
restricted by the certificate of incorporation or these bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or of such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
or committee.
ARTICLE III
Committees
Section 3.1. Committees. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. The bylaws may provide that in the
absence or disqualification of a member of a committee, the member or members
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, or in the bylaws of the corporation, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to the
following matters: (i) approving, adopting or recommending to the stockholders
any action or matter expressly required by these bylaws to be submitted to
stockholders for approval or (ii) adopting, amending or repealing any bylaw of
the Corporation.
Section 3.2. Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board may make, alter and
repeal rules for the conduct of its business. In the absence of a provision by
the Board or a provision in the rules of such committee to the contrary, a
majority of the entire authorized number of members of such committee shall
constitute a quorum for the transaction of business, the vote of a majority of
the members present at a meeting at the time of such vote if a quorum is then
present shall be the act of such committee, and in other respects each committee
shall conduct its business in the same manner as the Board conducts its business
pursuant to Article II of these bylaws.
<PAGE>
ARTICLE IV
Officers
Section 4.1. Officers; Election; Qualification; Term of
Office; Resignation; Removal; Vacancies. As soon as practicable after the annual
meeting of stockholders in each year, the Board of Directors shall elect a
President and a Secretary, and it may, if it so determines, elect from among its
members a Chairman of the Board and a Vice Chairman of the Board. The Board may
also elect one or more Vice Presidents, one or more Assistant Vice Presidents,
one or more Assistant Secretaries, a Treasurer and one or more Assistant
Treasurers and may give any of them such further designations or alternate
titles as it considers desirable. Each such officer shall hold office until the
first meeting of the Board after the annual meeting of stockholders next
succeeding his election, and until his successor is elected and qualified or
until his earlier resignation or removal. Any officer may resign at any time
upon written notice to the Board or to the President or the Secretary of the
Corporation. Such resignation shall take effect at the time specified therein,
and unless otherwise specified therein no acceptance of such resignation shall
be necessary to make it effective. The Board may remove any officer with or
without cause at any time. Any such removal shall be without prejudice to the
contractual rights of such officer, if any, with the Corporation, but the
election or appointment of an officer shall not of itself create contractual
rights. Any number of offices may be held by the same person. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise may be filled for the unexpired portion of the term by the Board at
any regular or special meeting.
Section 4.2. Powers and Duties of Executive Officers. The
officers of the Corporation shall have such powers and duties in the management
of the Corporation as may be prescribed by the Board of Directors and, to the
extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board. The Board may require any officer, agent or
employee to give security for the faithful performance of his duties.
ARTICLE V
Stock
Section 5.1. Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by or in the name of
the Corporation by the Chairman or Vice Chairman of the Board of Directors, if
any or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the Corporation,
certifying the number of shares owned by him in the Corporation. If such
certificate is manually signed by one officer or manually countersigned by a
transfer agent or by a registrar, any other signature on the certificate may be
a facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
<PAGE>
Section 5.2. Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificates. The Corporation may issue a new certificate of
stock in the place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, and the Corporation may require the owner of the
lost, stolen or destroyed certificate, or his legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VI
Miscellaneous
I. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
II. Seal. The Corporation may, but shall not be required to,
have a corporate seal which shall have the name of the Corporation inscribed
thereon and shall be in such form as may be approved from time to time by the
Board of Directors. The corporate seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other manner reproduced.
III. Waiver of Notice of Meetings of Stockholders, Directors
and Committees. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these bylaws.
IV. Indemnification of Directors, Officers and Employees and
Agents. The Corporation shall have power to indemnify to the full extent
authorized by law any person made or threatened to be made a party to any
action, suit or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he, his testator or intestate is or
was a director, officer, employee or agent of the Corporation or any predecessor
of the Corporation or serves or served any other enterprise as a director,
officer or employee at the request of the Corporation or any predecessor of the
Corporation.
V. Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the
<PAGE>
meeting of the Board of Directors or committee thereof which authorizes the
contract or transaction, or solely because his or their votes are counted for
such purpose, if: (1) the material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the Board or the
committee, and the Board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; (2)
the material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (3) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board, a committee thereof or the stockholders. Common or interested directors
may be counted in determining the presence of a quorum at a meeting of the Board
or of a committee which authorizes the contract or transaction.
VI. Form of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
VII. Amendment of Bylaws. These bylaws may be altered or
repealed, and new bylaws made, by the Board of Directors, but the stockholders
may make additional bylaws and may alter or repeal any bylaw whether or not
adopted by them.
EXHIBIT 5.1
HOGAN & HARTSON
L.L.P.
885 THIRD AVENUE
26TH FLOOR
NEW YORK, NY 10022
TEL: (212) 409-9800
FAX: (212) 409-9801
February 14, 2000
Board of Directors
SAVVIS Communications Corporation
12007 Sunrise Valley Drive
Reston, VA 20191
Gentlemen:
We are acting as special counsel to SAVVIS Communications Corporation,
a Delaware corporation (the "COMPANY"), in connection with its registration
statement on Form S-1, as amended (the "REGISTRATION STATEMENT"), filed with the
Securities and Exchange Commission relating to the proposed public offering of
up to 14,875,000 shares of the Company's common stock, par value $.01 per share
(the "SHARES") by the Company. This opinion letter is furnished to you at your
request to enable you to fulfill the requirements of Item 601(b)(5) of
Regulation S-K, 17 C.F.R. Section 229.601(b)(5), in connection with the
Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement.
2. The Amended and Restated Certificate of Incorporation of the
Company, as amended to date, as on file as of the date hereof
in the office of the Secretary of State of the State of
Delaware and as certified by the Secretary of the Company on
the date hereof as being complete, accurate, and in effect.
3. The Amended and Restated Bylaws of the Company, as certified
by the Secretary of the Company on the date hereof as being
complete, accurate, and in effect.
<PAGE>
Page 2 of 3
Board of Directors
SAVVIS Communications Corporation
4. The proposed form of Purchase Agreement among the Company and
the several Underwriters to be named therein, for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley &
Co. Incorporated, Banc of America Securities LLC, Bear Stearns
& Co. Inc. and CIBC World Markets Corp. will act as
representatives (the "UNDERWRITING AGREEMENT"), filed as
Exhibit 1.1. to the Registration Statement.
5. Resolutions of the Board of Directors of the Company adopted
by unanimous written consent on October 29, 1999, and
resolutions of the Board of Directors adopted at meetings held
on December 7, 1999 and January 26, 2000, respectively, as
certified by the Secretary of the Company on the date hereof
as being complete, accurate, and in effect, relating to the
issuance and sale of the Shares and arrangements in connection
therewith.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of all natural persons, the
accuracy and completeness of all documents submitted to us, the authenticity of
all original documents, and the conformity to authentic original documents of
all documents submitted to us as copies (including telecopies). This opinion
letter is given, and all statements herein are made, in the context of the
foregoing.
This opinion letter is based as to matters of law solely on the
Delaware General Corporation Law, as amended. We express no opinion herein as to
any other laws, statutes, ordinances, rules, or regulations. As used herein, the
term "Delaware General Corporation Law, as amended" includes the statutory
provisions contained therein, all applicable provisions of the Delaware
Constitution and reported judicial decisions interpreting these laws.
Based upon, subject to and limited by the foregoing, we are of the
opinion that following, (i) execution and delivery by the Company of the
Underwriting Agreement, (ii) effectiveness of the
<PAGE>
Page 3 of 3
Board of Directors
SAVVIS Communications Corporation
Registration Statement, (iii) issuance of the Shares pursuant to the terms of
the Underwriting Agreement, and (iv) receipt by the Company of the consideration
for the Shares specified in the Underwriting Agreement as executed, the Shares
will be validly issued, fully paid, and nonassessable.
This opinion letter has been prepared for your use in connection with
the Registration Statement and speaks as of the date hereof. We assume no
obligation to advise you of any changes in the foregoing subsequent to the
delivery of this opinion letter.
We hereby consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the reference to this firm under the
caption "Validity of the Shares" in the prospectus constituting a part of the
Registration Statement. In giving this consent, we do not thereby admit that we
are an "expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
/s/ HOGAN & HARTSON L.L.P.
---------------------------
HOGAN & HARTSON L.L.P.
[SAVVIS LOGO]
December 28, 1999
Mr. Jack M. Finlayson
28 Van Beuren Road
Morristown, New Jersey 07960
Dear Mr. Finlayson:
On behalf of SAVVIS Communications Corporations, I would like to make the
following offer to you to join SAVVIS Communications as the President and Chief
Operating Officer (COO). As the President and Chief Operating Officer you will
report to me as Chief Executive Officer.
Employment Start Date
December 31, 1999
Salary and Bonus
Your base salary will be $400,000 per year. You will also be eligible to receive
an annual incentive bonus of up to $600,000 based on attainment of mutually
agreed to objectives. You are guaranteed to receive no less than $400,000 in
annual incentive bonus for the year 2000. The annual incentive bonus will be
paid within 30 days of year-end.
Stock Options
You will receive incentive stock options to purchase 650,000 shares of the
Company's common stock at a strike price of $.50 per share. Your option grant
will be made in its entirety on December 31, 1999 and vest based on the
following schedule:
o 200,000 will vest and become exercisable at the start of employment with
the Company (i.e., December 31, 1999)
- Of these, 50,000 shares may be sold by you immediately at the start of
employment with the Company or at any time thereafter (subject to SEC
or other restrictions imposed by the underwriters), and the other
150,000 shall become saleable by you on a monthly straight line pro
rata basis over calendar year 2000 (subject to SEC or other
restrictions imposed by the underwriters), with your right to sell
being cumulative.
<PAGE>
o The remaining 450,000 shares will vest and become exercisable on
January 3, 2000.
- All of these shares shall become saleable by you on a monthly straight
line pro rata basis over calendar year 2001, 2002 and 2003 (subject to
SEC or other restrictions imposed by the underwriters), with your right
to sell being cumulative.
All of the shares may be sold by you upon change of control or the sale of
substantially all of the Company's assets, or at any time thereafter.
You may sell all of the shares at any time after a termination of employment by
the Company without "Cause" or by you for Good Reason.
If your employment is terminated for "Cause", the Company will have the right to
buy all shares not yet saleable by you at the price you paid for the shares on
written notice given to you within 15 days after such termination of employment.
Continuation of the right to exercise all vested options will continue for one
year after termination of employment unless termination is for cause.
Benefits
Standard health and insurance programs consistent with other senior executives.
Severance Benefits
In the event the Company terminates your employment without "Cause" or you
terminate your employment for Good Reason, you will be entitled to receive a
lump sum severance payment equal to your then current base annual salary (which
for this purpose shall not be less than your highest annual salary from the
Company). The severance payment will be due within 30 days of your last day of
employment.
Change of Control
For purposes of this agreement "Change of Control" shall include but not be
limited to a merger or consolidation of the Company or a subsidiary with another
company as a result of which more than 50% of the outstanding shares of the
Company after the transaction are owned by shareholders who were not
shareholders of the Company before the transaction.
<PAGE>
In the event of a "Change of Control" of the Company while you are employed by
the Company and upon the request of the new ownership given to you in writing no
later than 15 days after the date of such change of control, you shall remain
with the Company on the terms and conditions set forth in this letter for a
period of time up to twelve months from the date of "Change of Control" provided
that none of the conditions of "Termination by You for Good Reason" are
violated. For purposes of the paragraph you shall not be deemed to be terminate
for good reason solely on account of your being asked to remain with the Company
in a transitional role.
The Company will gross you up for any parachute taxes you incur under Internal
Revenue Code section 4999 as a result of such a change of control.
Termination for Cause
Your employment with SAVVIS Communications may be terminated with "Cause" at any
time without notice, for purposes of this agreement, "Cause is defined as (i)
any conduct by you as an employee of SAVVIS Communications that violate state or
federal laws, or company policies and standards of conduct (ii) dishonesty by
you in performance of your duties as an employee of SAVVIS, or (iii) willful
misconduct by you that you know (or should know) will materially injure the
reputation of SAVVIS. If you are terminated for Cause, you will not be entitled
to severance benefits.
Termination by Your for Good Reason
For purposes of this agreement, a termination of employment by you for Good
Reason will be deemed to include a termination of your employment by you after
(a) your title, authority, duties or responsiblitites are substantially reduced
without your written consent, or (b) the Company fails to fulfil its salary,
bonus or stock option obligations described above.
If the Company fails to fulfill its salary, bonus, stock options, severance or
gross up obligations described above, it will pay you reasonable costs and
expenses you incur to obtain payment.
Please confirm your acceptance of this offer by signing this letter and
returning it to me. This offer will remain open and irrevocable until January 3,
2000.
Very truly yours, Accepted:
/s/ Robert McCormick
- --------------------
Robert McCormick /s/ Jack M. Finlayson
Chief Executive Officer ----------------------
Jack M. Finlayson
Date: 12/31/99
EXHIBIT 10.9
June 14, 1999
By Facsimile (301) 656-2025
Mr. David J. Frear
6805 Meadow Lane
Chevy Chase, MD 20815
Dear David:
I am authorized by Thomas Wendel to confirm an offer of employment as Chief
Financial Officer of SAVVIS Communications Corporation, a wholly owned
subsidiary of Bridge Information Systems, Inc. (Bridge). The terms of this
offer, which are not subject to approval by the Board of Directors of Bridge,
are outlined in the attached Term Sheet dated June 14, 1999. There are three
changes from the previous term sheet identified in bold letters. I believe you
will understand the need for these changes, but please call me if you have any
questions. I will be in my office until 5:00 p.m. CDT. You can reach me after
that time on my cell phone.
Should these terms and conditions be acceptable to you, please sign below and
return.
Sincerely,
/s/Daryl Rhodes
- ---------------
Daryl Rhodes
EVP and Chief Financial Officer
/s/: David J. Frear 15/6/99
- ------------------------------ -------
Accepted: David J. Frear Date
<PAGE>
DAVID J. FREAR
TERM SHEET
JUNE 14, 1999
POSITION Chief Financial Officer
SALARY $250,000 subject to periodic review and
adjustment.
BONUS 50% of salary. May be more or less based on
individual and corporate performance.
BENEFITS Medical, disability, life insurance, 401K and
other benefits in accordance with company policy.
VACATION 4 weeks/year
OPTIONS Options on .5% of the fully diluted shares of
Savvis (post-acquisition of the Bridge network
assets) at an exercise price per share based on a
$40 million equity valuation (subject to
validation of this valuation by the Company's
appraisers and accounting experts). Upon the
closing of an initial public offering of Savvis
additional options representing .25% of the fully
diluted shares of Savvis will be issued with an
exercise price per share equal to the IPO price.
All options will have a 10 year term, will be
incentive stock options to the extent permitted by
law, and the underlying shares will be registered
promptly following any public offering of the
Company's common stock.
VESTING One quarter on the earlier of an initial public
offering or the first anniversary of employment,
and one quarter on each of the second, third, and
fourth anniversaries of employment.
ACCELERATION All unvested options shall vest immediately prior
to the occurrence of a Change in Control. Change
of Control shall include (i) the acquisition by a
person, or persons acting as a group, of 35% or
more of the Company's outstanding voting stock
(EXCLUDING DISTRIBUTIONS OF SAVVIS STOCK TO BRIDGE
SHAREHOLDERS), (ii) the disposal of all or
substantially all of the Company's assets or
business through a sale, lease or otherwise, (iii)
the merger of the Company with or into another
person where the Company is not the surviving
person, (iv) any reverse merger in which the
Company's stockholders prior to the merger do not
own at least 50% of the post merger entity, (v) a
change in the board of directors in any two year
period
<PAGE>
DAVID J. FREAR
TERM SHEET
JUNE 14, 1999
PAGE 2
wherein a majority of the directors have been
elected without the approval of at least 2/3 of
the directors in office at the beginning of such
period, or (vi) a Change in Control of Bridge, in
the event Bridge owns more than 35% of the
Company's outstanding voting stock (EXCLUDING
DISTRIBUTIONS OF BRIDGE SHARES OWNED BY
PARTNERSHIPS CONTROLLED BY WELSH, CARSON, ANDERSON
& STOWE TO THE LIMITED PARTNERS OF SUCH
PARTNERSHIPS).
EXPIRY All vested options shall terminate as follows:
i) at the end of their ten year term
ii) 2 years following termination of employment
due to death or disability
Vesting shall cease as of the date of termination
of employment, except as otherwise provided
herein.
SEVERANCE If at any time the Company shall terminate the
employee's employment, other than for Cause
(felony conviction, moral turpitude), or if the
employee terminates his employment for Good Reason
(substantial reduction in pay or responsibilities,
change in principal location from DC metropolitan
area, failure of Savvis to acquire the Bridge
network assets by 12/31/00), the employee will be
entitled to continuation of salary and all
benefits (including continued vesting of options)
for one year following such termination, and will
be entitled to a pro rata payment of bonus through
the date of termination.
LOCATION Employee's principal office will be located in
Reston, VA.
PUT RIGHT If the Company's common stock is not traded on a
national securities market with a public float of
at least $75 million AND THE COMPANY IS NOT
ACTIVELY IN THE PROCESS OF REGISTERING ITS COMMON
STOCK ON A NATIONAL SECURITIES MARKET WITH A
PUBLIC FLOAT OF AT LEAST $75 MILLION within 2
years ("Publicly Traded") of commencement of
employment, employee will have the right to put
the shares underlying all vested options to the
Company in exchange for a cash payment equal to
the fair market value of such shares less the
exercise price of such shares. Fair market value
will be determined by an internationally
recognized investment bank of a fully distributed
public basis without regard to illiquidity
discounts, minority interest discounts, control
premiums or the existence
<PAGE>
DAVID J. FREAR
TERM SHEET
JUNE 14, 1999
PAGE 3
of control blocks. This right will expire when the
Company's stock is Publicly Traded.
BOARD The Company will use its best efforts to cause
REPRESENTATION employee to be elected to its Board of Directors.
Employee will continue in such position at the
discretion of the Board and the Company's
shareholders.
EXHIBIT 10.10
September 30, 1999
Mr. James Mori
Dear Jim:
This will confirm our agreement to employ you as Chief Operating
Officer of Savvis Communications. You will report directly to me and will be
based in St. Louis. As COO of Savvis, you will have full responsibility for all
sales, marketing, product management and operations. You will assume your
position as soon as possible, and in any event prior to 10/25/99 (the
"Employment Date").
Your compensation will consist of a base salary of $200,000 per annum,
plus a discretionary bonus which will be subjectively determined based on your
performance and that of Savvis, which you can expect will be no less than 50%
and up to 100% of base salary.
In addition to your cash compensation, you will be awarded options to
purchase 225,000 shares of stock in Savvis at a strike price of 50 cents per
share. This option will vest pro rata on each of the first four anniversaries of
the Employment Date.
You will be entitled to benefits commensurate with those available to
Bridge executives of comparable rank (the current package being described in the
benefits summary you have received), except that in the event of your
termination without cause the severance payment will be calculated on the basis
of two months per year of service rather than two weeks per year. Also, in the
event of termination without cause prior to 24 months after the Employment Date
you will receive a severance payment equal to $450,000 and your options will all
vest immediately. In the event of termination without cause 24 months or later
from the Employment Date, if either Savvis is not a public company or Savvis is
a public company and its shares on the date of termination trade at a price less
than $15 per share, you will receive a severance payment equal to $450,000 and
your options will all vest immediately. For this purpose "cause" shall mean
willful misconduct, dereliction of duties, or conviction of a felony or a crime
the nature of which would cause your continued employment to adversely affect
the reputation of Savvis or Bridge.
You may resign your employment with Savvis or Bridge, and be treated as
though you had been terminated without cause, in the event that (1) an entity
other than Bridge becomes the holder of more than 30% of the voting shares of
Savvis; (2) you are instructed to relocate from the St. Louis metropolitan area;
or (3) you are
<PAGE>
September 30, 1999
Mr. James Mori
Page 2 of 2
reassigned to a position entailing materially reduced responsibilities or
opportunities for compensation.
In the event that your current employer asserts a claim that your
employment by Savvis violates the non-compete provision of its agreement with
you, then Bridge will (1) indemnify for you for legal expenses arising from your
defense and (2) in the event that your current employer succeeds in preventing
your employment by Savvis, employ you in an executive position unrelated to
Savvis for 18 months on the same economic terms described above. Such
re-employment by Bridge shall not constitute a termination triggering any right
to severance payments.
If you agree that this letter correctly sets forth our agreement,
please sign and return the enclosed copy of this letter. With the formalities
concluded, I would like to take this opportunity to say again that I am
delighted you will be joining us and look forward to working with you.
Sincerely, Accepted and agreed to
/s/ Robert McCormick
- ----------------------
Robert McCormick By: /s/ James Mori
Executive Vice President --------------
James Mori
EXHIBIT 10.14
MANAGED NETWORK AGREEMENT
This Managed Network Agreement is effective as of the last date signed
below- by and between Sprint Communications Company L.P., with offices at 13221
Woodland Park Road, Herndon, Virginia 22071, and Bridge Data Company, with
offices at 717 Office Parkway, St. Louis, Missouri 63141.
WHEREAS, Sprint wishes to provide Managed Network products and services
and related support to Bridge, and Bridge wishes to purchase such products and
services from Sprint; and
WHEREAS, the parties have agreed to enter into a Managed Network
Agreement by and between them dated as of the last date signed below (the
"Agreement").
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and of other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Scope.
Bridge agrees to order, and Sprint hereby agrees to provide certain
Products and Services at Installation Sites to be designated by Bridge. Sprint
shall install, manage and maintain the Products and Services at each
Installation Site in accordance with the terms of this Agreement, including the
Performance Specifications. The scope of work to be performed by Sprint under
this Agreement shall be as set forth in Attachment A. Subject to Section 9 below
(Minimum Commitment), the fact that a Product or Service is described herein
does not obligate Bridge to purchase such Product or Service from Sprint under
this Agreement.
2. Contract Documents and Definitions.
(a) The Agreement shall consist of this Managed Network Agreement by
and between Bridge and Sprint, including all attachments referenced in and
appended to this Agreement and made a part hereof (the "Attachments"). This
Agreement shall be interpreted wherever possible to avoid conflict between the
Sections hereof and the Attachments, provided that if such a conflict shall
arise, the Sections of this Agreement shall control. The Attachments are:
Attachment A Scope of Work
Attachment B Rates and Charges
Attachment C Site Preparation Requirements
Attachment D Installation, Management and Maintenance
Services
Attachment E Performance Specifications
Bridge/Sprint Confidential -1- January 30, 1995
<PAGE>
(b) 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 any particular Section or other subdivision. The words "include" and
"including" shall not be construed as terms of limitation.
"Affiliate" of a party means the party, any entity that is directly or
indirectly controlling, controlled by or under common control with the party,
and the directors, officers employees and agents of all of them, when acting in
their corporate capacity.
"Bridge" means Bridge Data Company and those of its Affiliates
purchasing Products and Services from Sprint hereunder.
"Chronic Service Interruption" means an "Interruption" as defined below
which occurs three (3) or more times, each incident lasting thirty (30) or more
minutes within three (3) consecutive calendar weeks.
"Confidential Information" means all information concerning the
business of Bridge, Sprint or any third party doing business with either of them
that may be obtained from any source by Sprint by virtue of its performance
under this Agreement or by Bridge by virtue of its use of the Products and
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. The network design and configuration
of the Products and Services purchased hereunder, shall be deemed Bridge
Confidential Information, and shall not be deemed Sprint Confidential
Information. Confidential Information shall not include information that: (a) is
already rightfully known by the receiving person at the time it is obtained by
such person, free from any obligation to keep such information confidential; (b)
is or becomes publicly known through no wrongful act of the receiving person;
(c) is rightfully received by the receiving person from third party without
restriction and without breach of this Agreement.
"Equipment" means all items of equipment leased or purchased by Bridge
from Sprint and used to enable Bridge to utilize the Products and Services
provided hereunder.
"Installation Site" means any location for which Bridge orders Products
or Services. The Installation Sites may be changed by Bridge from time to time
on reasonable notice pursuant to Section 7. If Bridge changes the location of an
Bridge/Sprint Confidential -2- January 30, 1995
<PAGE>
Installation Site prior to the actual installation, Bridge will not incur
additional charges if notice of the change is received by Sprint within ten (10)
days of the date of the order.
"Interruption" means an event resulting from the failure of the
Products and Services which prevents utilization of a Sprint-provided circuit
line, trunk or service. Scheduled maintenance downtime is not considered an
Interruption as long as Sprint provides sufficient notice. An Interruption
begins when Sprint is notified or becomes aware of the failure, whichever first
occurs. An Interruption continues until the Products and/or Services are
repaired or restored.
"Products and Services" means the equipment, facilities, programming,
software and related services provided by Sprint to Bridge hereunder, which
collectively constitute a fully managed network of Working Systems. The Products
and Services include Sprint Frame Relay Service but do not include special
access lines that may be used by Bridge in connection with the Products and
Services.
"Performance Specifications" means the standards contained in
Attachment E hereto which may be modified by the mutual agreement of the
parties.
"Sprint" means Sprint Communications Company L.P. and those of its
Affiliates providing Products and Services to Bridge hereunder.
"Working System" means a Bridge Installation Site at which the
installation of the Products and Services has been accepted by Bridge pursuant
to Section 10.
3. Term and Extensions.
(a) The initial term of this Agreement shall be three (3) years,
commencing on the last date shown on the signature page (Effective Date), and
shall continue in full force and effect unless terminated in accordance with its
provisions.
(b) Bridge shall have the right to extend the term of this Agreement
for up to two (2) successive one (1) year periods. Bridge must exercise its
renewal right by providing Sprint thirty (30) days' advance written notice of
Bridge's intent to extend.
4. Termination by Bridge.
Bridge shall have the right to terminate this Agreement:
(a) with no liability to Sprint other than for charges (less any
applicable credits) for Product and Services provided prior to such termination,
if:
Bridge/Sprint Confidential -3- January 30, 1995
<PAGE>
(i) Bridge provides ten (10) days written notice of its intent
to terminate in the event the performance of the managed network falls below
that specified and calculated in accordance with Attachment E "Performance
Specifications" and Sprint is unable to cure such failure within sixty (60)
days;
(ii) Bridge provides ten (10) days written notice of its
intent to terminate in the event Sprint fails to perform or comply with or
violates any material warranty, term, condition or obligation of this Agreement,
or any material representation, warranty, certification or statement made by
Sprint in this Agreement shall prove to have been incorrect or misleading in any
material respect when made;
(iii) Bridge replaces the Products and Services provided
hereunder with other Sprint services, provided that Bridge takes such
replacement services under agreements that provide for term and volume
commitments equivalent to those provided hereunder; or
(iv) Bridge provides ten (10) days written notice of its
intent to terminate in the event Sprint 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 fails within ten (10) days after receipt of
written notice to remedy any breach of this Agreement.
(v) During month twelve (12) of the contract, Bridge provides
sixty (60) days written notice of its intent to terminate because of a change in
Bridge ownership control. The phrase "Bridge ownership control" shall mean (i)
any merger or consolidation of Bridge Information Systems, Inc. with any other
person or entity, (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition, in one (1) or a series of transactions, of fifty percent
(50%) or more of Bridge Information Systems, Inc.'s assets (measured by the fair
market value of all the assets of Bridge Information Systems, Inc.), or (iii)
any acquisition of fifty percent (50%) or more of the combined voting power of
Bridge Information Systems, Inc.'s common stock by any person or entity. In the
event Bridge exercises this option, Sprint will continue to provide service in
accordance with the terms, conditions and rates herein for a period of up to
three (3) months after the effective date of termination. If Products and
Services have not completely transitioned from Sprint after three (3) months,
Sprint will provide Products and Services at Sprint's then current tariff or
list rates. Sprint will cooperate with Bridge or its successor until services
are completely migrated to another carrier.
(b) with liability to Sprint for Products and Services provided prior
to such termination, plus an amount equal to fifty percent (50%) of the monthly
price for the Products and Services terminated for the unexpired portion of the
term of this
Bridge/Sprint Confidential -4- January 30, 1995
<PAGE>
Agreement. Bridge must provide Sprint thirty (30) days written notice of its
intent to terminate.
5. Partial Termination.
(a) Independent of Bridge's other rights to terminate this Agreement,
Bridge may
(i) terminate any or all Products and Services at any
Installation Site at which there is a Chronic Service Interruption affecting
Products and Services that collectively account for twenty-five (25%) or more of
Bridge's total payments for all Products and Services at such Installation Site;
(ii) terminate at all Installation Sites any specific Product
or Service subject to a Chronic Service Interruption if such Product or Service
accounts for twenty-five percent (25%) or more of Bridge's total payments for
all Products and Services;
(iii) terminate any Product or Service when permitted by
Section 18(c) or 21(b).
(b) The Minimum Commitment shall be reduced to reflect the termination
of any Products or Services under this Section.
6. Termination by Sprint.
Sprint shall have the right to terminate this Agreement if:
(a) Bridge fails to pay any invoice that is not the subject of a bona
fide dispute within thirty (30) days of the date such payment is due and Sprint
provides Bridge with written notice thereof, provided that Bridge shall have ten
(10) days from the time it receives notice from Sprint of nonpayment to cure any
such default;
(b) Bridge fails to perform or comply with or violates any other
material covenant, condition or obligation under this Agreement or any material
representation of Bridge shall prove to have been incorrect or misleading in any
material respect when made; or
(c) Bridge 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 fails within ten (10) days after receipt of written notice to
remedy any breach of this Agreement.
Bridge/Sprint Confidential -5- January 30, 1995
<PAGE>
7. Rates and Charges.
For the term of this Agreement, Sprint shall charge Bridge the rates
and charges for the Products and Services set forth in Attachment B. The move or
relocation of an Installation Site shall be treated as a new installation for
all purposes under Attachment B. Any additional charges shall be mutually agreed
upon by the parties.
8. Invoices.
(a) Products and Services shall be billed monthly in advance, beginning
when the Products and Services to which the charges apply have been installed
and have been accepted by Bridge pursuant to Section 10. All items on an invoice
not the subject of a bona fide dispute shall be payable by Bridge in U.S.
currency within thirty (30) days from the date of receipt of the invoice. All
amounts not in dispute are subject to interest charges of 1 3/4 percent that
will accrue daily on all amounts not paid within thirty (30) days of the date of
receipt of the invoice.
(b) Bridge shall pay sales, use, federal excise, utility, gross
receipt, state and local surcharges, and similar taxes lawfully levied by a duly
constituted taxing authority against or upon the Products and Services. In the
alternative, Bridge shall provide Sprint with a certificate evidencing Bridge's
exemption from payment of or liability for such taxes. All other taxes,
including any ad valorem, income, franchise, privilege, value added or
occupational taxes of Sprint's shall be paid by Sprint.
(c) Bona fide disputes concerning invoices shall be referred to the
parties' respective Contract Managers for resolution. If they cannot resolve a
dispute within a reasonable time, the matter shall be escalated to the parties'
representatives for resolution. Any amount to which Bridge is entitled as a
result of the resolution of a billing dispute shall be credited promptly.
(d) In the event that Customer is seriously delinquent in payment of
non-disputed charges, then Sprint reserves the right to require a security
deposit from Bridge prior to continuing the provision of existing services or
allowing the provisioning of additional services.
9. Minimum Commitment.
Bridge agrees to install a minimum of two hundred (200) Installation
Sites in the first year of the Agreement term, and an additional 280
Installation Sites in the second year of the Agreement term. Thereafter, Bridge
agrees to maintain a minimum of 480 Installation Sites for the remainder of the
term of the Agreement. This minimum commitment shall consist of a 60 site
minimum for each pair of routers Sprint installs in a distribution site
location.
Bridge/Sprint Confidential -6- January 30, 1995
<PAGE>
If Bridge is not meeting the minimum number of Installation Sites per a
particular distribution area, Bridge shall realign the remaining distribution
area Installation sites to another distribution area. After month 24 of the
contract, if the total number of Installation Sites falls below 480, Bridge
shall not be eligible to receive the discounted pricing set forth in Attachment
B of this Agreement.
10. Acceptance.
(a) Upon the installation of Products and Services at any Installation
Site, Sprint shall conduct appropriate tests to establish that it performs in
accordance with mutually agreed upon Acceptance Criteria and shall promptly
inform Bridge of such test results. If test results show that Products and/or
Services are performing in accordance with the Performance Specification, Bridge
shall accept the Product or Service at an Installation Site within twenty-one
(21) days of receipt of Sprint's test results. If Bridge does not notify Sprint
of its acceptance within that period, the Product or Service shall be deemed to
be accepted by Bridge on the last day of that period. Sprint may invoice Bridge
for such Product or Service effective the day after its acceptance under this
Subsection.
(b) If Sprint's tests establish that a newly installed Product or
Service does not perform in accordance with the mutually agreed upon Acceptance
Criteria, or Bridge reports to Sprint within the acceptance period specified in
Subsection (a) that it does not perform in accordance with the mutually agreed
upon Acceptance Criteria, Sprint shall immediately and diligently exert best
efforts to bring it into compliance. Sprint shall not bill Bridge for such
Product or Service until its acceptance by Bridge.
(c) Upon repair or restoration of Products and Service at any
Installation Site, Sprint shall conduct appropriate tests to establish that it
performs in accordance with mutually agreed upon Acceptance Criteria and shall
promptly inform Bridge of such test results.
11. Network Optimization.
(a) Sprint shall assist Bridge in optimizing the efficiency and
cost-effectiveness of the Products and Services in general and at each
Installment Site. Sprint shall, at a cost to be mutually negotiated, implement
upgrades to maximize the efficiency of the Products and Services at such
Installation Sites. In the event an upgrade is required to enable Sprint to meet
its Performance Specifications, this upgrade shall be implemented at no
additional cost to Bridge.
(b) In cooperation with Bridge, Sprint shall review the design and
configuration of the Products and Services whenever Bridge's traffic materially
changes (e.g., upon the acquisition, divestiture or cessation of business
operations) or new or different products or services become Products and
Services hereunder. In any event, such reviews will be conducted at least every
ninety (90) days if so
Bridge/Sprint Confidential -7- January 30, 1995
<PAGE>
requested by Bridge. Sprint shall provide written recommendations to Bridge
based upon such reviews.
12. Equipment Lease/Purchase.
Bridge may lease or purchase from Sprint or from one or more other
vendors the equipment necessary to enable Bridge to utilize the Products and
Services provided hereunder, provided that Bridge must purchase or lease from
Sprint the equipment required for the minimum number of sites specified in
Section 9. If Bridge chooses to lease or purchase such equipment from Sprint,
the parties shall execute a separate agreement for that purpose.
13. Maintenance Support.
Sprint shall provide maintenance service at each Installation Site in
accordance with the terms of Attachment D commencing upon Bridge's acceptance of
the Products and Services at such Installation Site and continuing until the
earlier of (a) the termination of all Products and Services at such Installation
Site or (b) the termination or expiration of this Agreement.
14. Access Management.
(a) Sprint shall order and manage on Bridge's behalf access services
for use in connection with the Products and Services. Sprint shall utilize
Teleport Communications Group ("TCG") for access services where available. Rates
shall be Sprint Tariff 8 less fifteen percent (15%), with Access Channel Fees
("ACF") and Central Office Connection ("COC") charges waived. Sprint will review
access rates annually. Sprint will only pass through to Bridge any decreases in
Tariff 8 rates, but shall not pass through any increases. For rates that have
decreased, Sprint will reprice at the then current Tariff 8 rates less 15%. Once
the SIA Local Access Services contract is signed, Bridge may take advantage of
the SIA pricing if TCG provides the access. However, Bridge may use access
pricing from only one contract, i.e., either this contract or the SIA Local
Access Services contract. If SIA access pricing is selected, non-SIA sites will
be charged at current Sprint Tariff 8 rates and ACF and COC shall be waived.
(Bridge shall also have the option of choosing Sprint's Coordinated Vendor
Billed Access ("SCVBA") service at the price specified in Attachment B. If
Bridge selects this option, Sprint act's as Bridge's agent to order, test and
install access services, but the access provider bills Bridge directly.)
(b) Bridge shall supply Sprint with letters of agency to permit Sprint
to act on Bridge's behalf for purposes of ordering and managing access services.
The access provider will invoice Sprint, and Sprint will invoice Bridge for
access services.
Bridge/Sprint Confidential -8- January 30, 1995
<PAGE>
(c) Sprint shall use due care to (i) monitor, direct and supervise such
access provider's performance (including conducting fault isolation); (ii)
enforce any warranties and other assurances of performance obtained from it by
Sprint pursuant to tariff or otherwise; or (iii) report promptly to Bridge any
actual or threatened failure of performance by such access provider that does or
could reasonably be expected to affect adversely in any material respect
Sprint's ability to provide any Product or Service in conformity with the
requirements of this Agreement.
15. Rights and Obligations of Bridge.
(a) Contract Manager. Bridge shall assign a representative to serve as
Sprint's point-of-contact for all matters concerning its performance under this
Agreement.
(b) Site Preparation. Bridge shall, at its own expense, provide all
necessary preparations of each Installation Site in accordance with Attachment
C, including inside wiring, demarc extension and rack mount accessories. Bridge
shall ensure that Bridge-provided equipment is on site by the scheduled
installation date. If Sprint is required to reschedule the installation of
Bridge-provided equipment because it is not on site by the scheduled
installation date, Bridge shall pay Sprint to redispatch installation personnel.
(c) Proper Use of Equipment.
(i) Bridge shall use any equipment provided by Sprint in
connection with the Products and Services in accordance with its documentation,
which documentation shall be provided by Sprint at no additional charge. Unless
otherwise provided herein, Bridge shall surrender the equipment to Sprint upon
the termination of this Agreement.
(ii) Bridge shall be liable for damages to the Products and
Services caused by the negligence or willful acts or omissions of Bridge's
officers, employees, agents or contractors; for the loss through theft or
vandalism of the Products and Services at the Installation Sites; and for
damages to Products and Services caused by the use of equipment or supplies not
provided hereunder or otherwise authorized by Sprint.
(iii) Bridge shall neither permit nor assist others to use the
Products and Services for any purposes other than that for which they are
intended; fail to maintain a suitable environment as specified Sprint in the
applicable schedule; or alter, tamper with, adjust or repair the Products and
Services. Any such alteration, tampering, adjustment or repair by Bridge shall
relieve Sprint from any liability or obligation hereunder (including any
warranty or indemnity obligation) relating to the affected Products and
Services, and Bridge shall be liable to Sprint for any documented direct costs
incurred by Sprint as a result of such actions.
Bridge/Sprint Confidential -9- January 30, 1995
<PAGE>
(d) Abuse or Fraudulent Use of Products and Services. Bridge shall
neither permit nor assist others to abuse or fraudulently use the Products and
Services, including
(i) obtaining or attempting to obtain service by any
fraudulent means or device to avoid payment;
(ii) accessing, altering or destroying any information of
another Sprint customer by any fraudulent means or device, or attempting to do
so; or
(iii) using the Products and Services so as to interfere with
the use of the Sprint network by other Sprint customers or authorized users in
violation of the law or in support of any unlawful act.
16. Rights and Obligations of Sprint.
(a) Program Manager. Sprint shall assign a representative to serve as
Bridge's point-of-contact for all matters concerning its performance under this
Agreement.
(b) Provision of the Products and Services. Sprint shall install,
operate, maintain and manage the Products and Services at the Installation Site
designated by Bridge in accordance with the Performance Specifications and other
terms of this Agreement. Sprint shall install the cable that connects the
Products and Services to Bridge servers at such Installation Sites to achieve a
Working System. Bridge may at any time add, delete, relocate or, with Sprint's
consent, modify any Product or Service. The installation interval for any
addition or relocation shall be determined by agreement of the parties.
(c) Access and Security.
Sprint personnel shall have such access to Bridge's premises
as is reasonably necessary to provide the Products and Services in accordance
with this Agreement, provided that Sprint personnel shall comply at all times
with Bridge's reasonable security requirements. Bridge shall have the right
immediately to terminate the right of access of any Sprint personnel to any or
all Installation Sites should Bridge determine in its sole discretion that such
termination is in Bridge's best interest, provided that Bridge shall not
exercise this right on grounds unrelated to job performance or in a manner that
obliges Sprint to commit any unlawful act. Unless Sprint knew or should
reasonably have known that particular Sprint personnel would be barred from an
Installation Site, the time allowed for any installation, repair, maintenance,
or similar action that such personnel were to perform shall be extended for the
period reasonably required by Sprint to deploy substitute personnel, provided
that Sprint shall use its best efforts to deploy such substitute personnel as
quickly as possible. For purposes of this Subsection, any subcontractor or other
agent of Sprint shall be treated as Sprint personnel.
Bridge/Sprint Confidential -10- January 30, 1995
<PAGE>
(d) Insurance.
(i) At all times during the term of this Agreement, Sprint
shall maintain for itself, its officers, employees, agents, and representatives
the following: (i) all insurance coverage required by federal and state law,
including workers' compensation insurance; (ii) comprehensive general liability
insurance with a combined limit of not less than $5,000,000 of coverage for
bodily injury and property damage under a standard or excess policy, together
with additional insurance required to cover claims, losses and liabilities
hereunder; (iii) a fidelity bond covering Sprint, its officers and employees
with a limit of not less than $5,000,000, underwritten by an insurer licensed to
do business in the state of Missouri; and (iv) automobile liability insurance in
the amount of not less than $1,000,000. Sprint's general liability insurance
shall include coverage for claims brought against Sprint as a result of work
performed by its subcontractors. The policy limits set forth in this Section
shall in no way be construed as a limitation on Sprint's liability hereunder.
(ii) Sprint shall furnish to Bridge, upon written request,
certificates of insurance or other appropriate documentation (including evidence
of renewal of insurance) evidencing the general liability and automobile
liability insurance coverage referenced above, naming Bridge as an additional
insured. Such certificates or other documentation shall include a provision
whereby fifteen (15) days' prior written notice shall be provided to Bridge
prior to coverage cancellation or other material alteration by either Sprint or
the applicable insurer. Such cancellation or material alteration shall not
relieve Sprint of its continuing obligation to maintain insurance coverage in
accordance with this Subsection.
(iii) In lieu of all or part of the insurance coverage
specified in Subsection (i), Sprint may self-insure with respect to any
insurance coverage, except where expressly prohibited by law.
(e) Representations and Warranties.
(i) Sprint hereby warrants that the Products and Services,
with the exception of the ISC Cards, will operate in accordance with the
Performance Specifications upon the date installed and throughout the term of
this Agreement. Sprint assumes no responsibility for the performance of the ISC
Cards because Bridge is contracting directly with ISC for special development of
the Cards. Sprint acknowledges that, in the event of the Interruption of any
Product or Service, Bridge may suffer damages the amount of which cannot easily
be determined.
(A) In the event that Sprint does not provide overall
network availability as defined in Attachment E, Sprint shall grant Bridge a
credit (the "Credit Allowance") for the sites that cause Sprint's failure to
meet the overall network availability.
Bridge/Sprint Confidential -11- January 30, 1995
<PAGE>
A separate availability calculation will be derived for those sites that are
contributory to Sprint's failure to meet its network availability commitment.
Credits will be applied to those sites in accordance with the following table:
For Site Types A, B1, B2, C1, C2, if the service availability is:
Greater than
or equal to and less than the credit is
99.95% -- 0%
99.85% 99.95% 1%
99.75% 99.85% 2%
99.65% 99.75% 3%
99.55% 99.65% 4%
99.45% 99.55% 5%
99.35% 99.45% 6%
99.25% 99.35% 7%
99.15% 99.25% 8%
99.05% 99.15% 9%
98.95% 99.05% 10%
For Site Types D, E1, E2, if the service availability is:
Greater than
or equal to and less than the credit is
99.91% -- 0%
99.81% 99.91% 1%
99.71% 99.81% 2%
99.61% 99.71% 3%
99.51% 99.61% 4%
99.41% 99.51% 5%
99.31% 99.41% 6%
99.21% 99.31% 7%
99.11% 99.21% 8%
99.01% 99.11% 9%
98.91% 99.01% 10%
No credit shall exceed 10% for any site.
(B) For any Interruption that the parties agree is
likely to last beyond ten (10) days, Bridge shall have the right in its sole
discretion to subscribe to an alternative Sprint service to replace the affected
Product or Service for the period of time that the Products and Services are
interrupted. If Sprint cannot provide a suitable alternative service over its
own facilities, Sprint shall obtain from other vendors or carriers the services
or facilities necessary to provide substitute service to Bridge. If Bridge
elects to obtain these alternative services through Sprint, Bridge shall pay the
lesser of the rates and charges for the affected Product or Service or the
charges incurred for the alternative service (including usage charges, if any).
Sprint shall not charge Bridge to connect, commence or terminate any alternative
service obtained under this Subsection.
Bridge/Sprint Confidential -12- January 30, 1995
<PAGE>
(C) Sprint shall not be liable for Credit Allowances
for an Interruption in connection with a Product or Service for which Bridge
obtains alternative service under Subsection (B) after it begins using such
alternative service.
(ii) Sprint hereby represents and warrants that the terms
hereof do not conflict in any respect whatsoever with any Sprint tariff on file
with the Federal Communications Commission or other regulatory body. If, during
the term of this Agreement, Sprint shall file a contract specific tariff
governing the Products and Services or any portion thereof, such tariff filing
shall be consistent in all respects with the terms of this Agreement, and Sprint
shall give Bridge ten (10) days' advance notice of making such a tariff filing
and of filing any subsequent modifications thereto.
(iii) THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
17. Limitations on Liability.
(a) Each party's liability to the other during the service term for all
injuries other than those listed in Subsection (c) below shall not exceed one
hundred thousand dollars ($100,000).
(b) 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 regard to the Products and Services or other conduct under this Agreement.
(c) Nothing contained in this Section shall limit either party's
liability to the other for (i) willful or intentional misconduct; or (ii) injury
or death, or damage to tangible real or tangible personal property or the
environment, when proximately caused by Sprint's or Bridge's negligence or that
of their respective agents, subcontractors or employees. Nor shall anything
contained in this Section limit Sprint's intellectual property indemnification
obligations under Section 21.
18. Equipment and Software Not Provided by Sprint.
(a) Sprint shall not be responsible for the installation, operation or
maintenance of equipment or software not provided under this Agreement; nor
shall Sprint be responsible for the transmission or reception of information by
equipment or software not provided hereunder. In the event that Bridge uses
equipment or software not provided hereunder in a manner that impairs Bridge's
use of the Products and Services, Bridge shall not be excused from payment for
such use.
Bridge/Sprint Confidential -13- January 30, 1995
<PAGE>
Upon notice from Sprint that equipment or software not provided under this
Agreement is causing or is likely to cause hazard, interference or service
obstruction, Bridge shall eliminate the likelihood of such hazard, interference
or service obstruction.
(b) Notwithstanding the foregoing, Sprint shall, at no additional
charge, provide all interface specifications for the Products and Services
reasonably requested by Bridge. Sprint shall, upon the receipt of appropriate
specifications from Bridge, inform Bridge of the compatibility with the Products
and Services of any equipment or software that Bridge proposes to use in
connection therewith; the effects, if any, of the use of such equipment or
software on the quality, operating characteristics, and efficiency of the
Products and Services; and the effects if any, of the Products and Services on
the operating characteristics and efficiency of any such equipment or software.
(c) If any material modification or reprovisioning of Sprint's network
(including any modification of the software for which a license is provided
hereunder) undertaken other than at Bridge's request (i) adversely affects any
of the Products and Services, (ii) causes Bridge to incur significant costs for
any Products and Services (a write-down of equipment or equipment-related assets
being a cost for purposes of this Subsection), (iii) prevents proper operation
of any Bridge equipment, or (iv) prevents any Products and Services from meeting
any Performance Specification, Bridge shall have the right to terminate any
adversely affected Products and Services pursuant to Section 5. Sprint shall
provide advance notification to Bridge of any such modification or
reprovisioning.
19. Proprietary Rights; License.
(a) Sprint hereby grants to Bridge a non-exclusive and non-transferable
license to use all programming and software necessary for Bridge to use the
Products and Services. Such license is granted for the term of this Agreement
and for the sole purpose of enabling Bridge to use the Products and Services.
(b) All title and property rights (including intellectual property
rights) to Products and Services (including associated programming and software)
are and shall remain with Sprint. Bridge shall not attempt to examine, copy,
alter, "reverse engineer," tamper with or otherwise misuse such Products and
Services, programming and software. Bridge accepts title to the Equipment and
risk of loss of Equipment FOB destination.
20. Confidentiality.
(a) During the term of this Agreement and for a period of five (5)
years from the date of its expiration or termination or the expiration or
termination of all extensions thereto, each party agrees to maintain in strict
confidence all Confidential Information. Neither party shall, without prior
written consent,
Bridge/Sprint Confidential -14- January 30, 1995
<PAGE>
use the other party's Confidential Information for any purpose other than for
the performance of its duties and obligations under this Agreement. Each party
shall use, and 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.
(b) Notwithstanding Subsection (a), either party may disclose the
Confidential Information of other party to: (i) its employees and the employees,
directors and officers of its affiliates as necessary to implement this
Agreement; (ii) employees, agents or representatives of the other party; or
(iii) 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 (iii) shall be made only upon the prior written approval of the
other party and subject to appropriate assurances that the recipient of such
information shall hold it in strict confidence.
(c) 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) 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 same.
(d) 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, in its sole discretion,
it determines to grant the requested waiver, it will do so in writing over the
signature of an employee authorized to grant such request.
(e) Bridge and Sprint acknowledge that any disclosure or
misappropriation of Confidential Information in violation of this Agreement
could cause irreparable harm, the amount of which may be extremely 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.
(f) A party requested or ordered by a court order 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 best efforts to
resist and to assist the other party in resisting such disclosure. A party
providing another
Bridge/Sprint Confidential -15- January 30, 1995
<PAGE>
party's Confidential Information to a court or other governmental authority
shall use its 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.
21. Indemnification.
(a) Sprint shall defend, settle, or otherwise manage its own cost and
expense any claim or action against Bridge or any of its directors, officers,
employees or permissible assigns for actual or alleged infringement of any
patent, copyright, trademark, trade secret, or similar proprietary right to the
extent that such claim or action arises from Bridge's use of the Products and
Services. Bridge shall notify Sprint promptly in writing of any such claim or
suit and shall cooperate with Sprint in a reasonable way to facilitate the
settlement or defense thereof. Sprint further agrees to indemnify and hold
Bridge harmless from and against and all liabilities and damages (whether
incurred as the result of a judicial decree or a settlement), and the costs and
expenses associated with any claim or action of the type identified in this
Subsection.
(b) If, as a consequence of a claim or action of the kind described in
Subsection (a), Sprint's or Bridge's use of any Product or Service or related
documentation is enjoined, Sprint shall, at its own option and expense, either:
(i) procure for Bridge the right to continue using the affected Product or
Service or documentation; (ii) modify such Product or Service or documentation
so that it is non-infringing (provided that such modification does not affect
the intended use of the Product or Service or documentation as contemplated
hereunder); or (iii) upon written notice to Bridge, substitute for such Product
or Service or documentation a comparable, non-infringing service or
documentation. If Sprint cannot do (i)-(iii) above, Bridge may terminate any
affected Product or Service pursuant to Section 5, and Sprint shall refund to
Bridge any prepaid charges therefor.
(c) Sprint and Bridge will be indemnified and saved harmless by the
other from and against all loss, liability, damage and expense, including
reasonable counsel fees, caused by:
(i) Claims for libel, slander, invasion of privacy or
infringement of copyright, and invasion and/or alteration of private records or
data arising from any information, data, or messages transmitted over the
network by Bridge; and
(ii) Claims for infringement of patents arising from the use
of equipment and software, apparatus and systems not provided hereunder in
connection with Products and Services.
Bridge/Sprint Confidential -16- January 30, 1995
<PAGE>
22. Assignment.
Neither party may assign this Agreement or any rights or obligations
hereunder, without the prior written consent of the other party, which the other
party may grant or withhold in its sole discretion. Notwithstanding the
foregoing, either party may assign this Agreement or any or all of its rights
and obligations hereunder, to its parent, any of its affiliates or subsidiaries
upon notice to, but without the consent of, the other party. No assignment of
this Agreement shall relieve either party of any obligations thereunder. Any
attempted assignment in violation of this Section shall be void.
23. Force Majeure.
(a) 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 Sprint's or others'), casualties,
accidents or other causes beyond the control of the party claiming excuse. No
failure to perform shall be excused under this Subsection unless such failure
and the consequences thereof are beyond the control and without the fault or
negligence of the party claiming excuse. Each party shall, with the cooperation
of the other, use reasonable efforts to mitigate the extent of any failure to
perform and the adverse consequences thereof.
(b) If Sprint cannot promptly provide a suitable temporary Sprint
alternative to a Product or Service subject to an Interruption in connection
with the existence of a force majeure condition, Bridge may, at its option and
at its own cost, contract with one or more third parties for any or all affected
Products and Services for the shortest commercially available period likely to
cover the reasonably expected duration of the Interruption, and may suspend
Sprint's provision of such Products and Services for such period. Sprint shall
not charge Bridge for any Products and Services thus suspended during the period
of suspension. Sprint shall resume provision of the suspended Products and
Services upon the later of the termination or expiration of Bridge's legally
binding commitments under contracts with third parties for alternative services
or the cessation or remedy of the force majeure condition.
(c) In the event that a force majeure condition shall continue for more
than sixty (60) days, Bridge may cancel the affected Products and Services with
no further liability to Sprint other than for Products and Services received by
it prior to the occurrence of the force majeure condition.
24. Modifications.
No modification, amendment, or supplement to the Agreement or any of
its provisions shall be binding upon the parties unless made in writing and
signed by an authorized representative of the party against whom enforcement
thereof is sought. A failure or delay of either party to enforce any of the
provisions of this
Bridge/Sprint Confidential -17- January 30, 1995
<PAGE>
Agreement, to exercise within the time specified (if any) any option provided
herein, or to require performance of any provision hereof shall in no way be
construed to be a waiver of such option or provision.
25. Notices.
All notices or other communications required or permitted to be given
or delivered under this Agreement shall be in writing and shall be sufficiently
given if delivered, in the case of disputes arising under this Agreement, by
registered mail or overnight express mail service or, in all other cases, by
first class mail as follows:
Notice to Sprint shall be to: Sprint Communications Company
13221 Woodland Park Road
Herndon, Virginia 22170
Attn: Data Contracts Administration
Notice to Bridge shall be to: Bridge Data Company
717 Office Parkway
St. Louis, MO 63141
Attn: Bernice Pennington
Either party may from time to time designate another address or other addresses
by notice to the other party in compliance with this Section. Any notice or
other communication shall be deemed to be given when received.
26. Advertisement and Publicity.
Neither Sprint nor Bridge shall use the name of the other in any
publicity release, solicitation or promotional material, or advertisement
without the prior written consent of the other. This prohibition includes use of
the other's name, trademarks or logos or any other reference to the other party
directly or indirectly in any advertising, sales presentation, news release,
release to any professional or trade publication or for any other purpose. Each
party may withhold consent under this Section in its sole discretion.
27. Headings.
The headings in this Agreement are for purposes of reference only and
shall not in any way limit or otherwise affect the meaning or interpretation of
any of the terms hereof.
28. Severability.
If any provision of this Agreement is held to be invalid, illegal, or
unenforceable, the unaffected provisions of this Agreement shall be unimpaired
and remain in full force and effect. Sprint and Bridge shall negotiate in good
faith to
Bridge/Sprint Confidential -18- January 30, 1995
<PAGE>
substitute for such invalid, illegal, or unenforceable provision a mutually
acceptable provision consistent with the original intention of the parties.
29. Governing Law.
This Agreement shall be construed and enforced in accordance with, and
validity and performance hereof shall be governed by, the laws of the State of
New York.
30. Performance Pending Outcome of Disputes.
(a) Pending the resolution of any dispute or controversy arising under
this Agreement, Sprint shall continue to perform its obligations hereunder and
shall not discontinue, disconnect, or in any other fashion cease to provide all
or any substantial portion of the Products and Services to Bridge unless
otherwise directed by Bridge.
(b) This Section shall not apply where (i) Bridge is in default under
this Agreement or (ii) the dispute or controversy between parties relates to
harm to the Sprint network allegedly caused by Bridge and Bridge does not
immediately cease and desist from the activity giving rise to the dispute or
controversy.
31. Entirety of Agreement.
This Agreement, together with all Attachments, constitutes the entire
Agreement and supersedes all previous agreements, promises, representations,
understandings, and negotiations between the parties, whether written or oral,
with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto, each by a duly authorized
officer, have caused this Agreement to be executed as of the date first above
written.
SPRINT COMMUNICATIONS CO. L.P. BRIDGE DATA COMPANY
/s/ Charles A. Dill
- ---------------------------- --------------------------------
Signature Signature
Bridge/Sprint Confidential -19- January 30, 1995
<PAGE>
Charles A. Dill
- ---------------------------- --------------------------------
Printed Name Printed Name
President & CEO
- ---------------------------- --------------------------------
Title Title
1/31/95
- ---------------------------- --------------------------------
Date Date
Bridge/Sprint Confidential -20- January 30, 1995
<PAGE>
ATTACHMENT C
SITE PREPARATION REQUIREMENTS
I WELLFLEET AN ROUTER
A. PHYSICAL CHARACTERISTICS (TABLE TOP/RACK MOUNT)
<TABLE>
<CAPTION>
Height Width Depth
------ ----- -----
<S> <C> <C>
3.33 inches (8.45 cm) 17.5 inches (44.45 cm) 9.15 inches (23.24 cm)
</TABLE>
B. AIR PLENUM REQUIREMENTS
<TABLE>
<CAPTION>
Access Feeder Note Required Air Plenum Suggested Air Plenum
------------------ ------------------- --------------------
<S> <C> <C>
Right side 2 inches (5.1 cm) 3 inches (7.6 cm)
Left side 2 inches (5.1 cm) 3 inches (7.6 cm)
Rear side 6 inches (15.3 cm) 6 inches (15.3 cm)
</TABLE>
C. POWER REQUIREMENTS
<TABLE>
<CAPTION>
Voltage Current Frequency Watts Max Connector Protection
------- ------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
100-240 1.0A @ 47.63 Hz 97 Nema 5-15P Fuse in power
VAC 110 VAC (USA) Supply
Country
Specific
</TABLE>
D. ENVIRONMENTAL REQUIREMENTS
<TABLE>
<CAPTION>
Altitude Operating Humidity Temperature
-------- ------------------ -----------
<S> <C> <C>
0-8,000 feet (0-2400m) 20%-80% non-condensing 32 to 104 F
(0-40 C) stable
</TABLE>
II. TELEBIT NETBLAZER PN
A. PHYSICAL SIZE 2.4"H x 8.5"L x 13"D
(6cm x 22 cm x 33 cm)
B. WEIGHT 4lbs. (2 kg)
C. POWER REQUIREMENTS 100-250VAC,
(50/60 Hz)
D. POWER CONSUMPTION 25 Watts
- --------------------------------------------------------------------------------
Bridge C-1 1/30/95
<PAGE>
ATTACHMENT D
DOMESTIC INSTALLATION, MAINTENANCE, AND
MANAGEMENT SERVICES
This document describes the installation, maintenance, and management services
provided by Sprint for Bridge's managed router network.
I. INSTALLATION
Sprint will provide installation services for all routers, Telebit PN2DE
Netblazers, and Telebit modems ordered from Sprint. Sprint reserves the rights
to employ third party vendors for the actual on-site installation. Installation
for fully managed routers consists of:
1. A physical or telephone site survey may be required prior to
installation.
2. Collection of necessary configuration information using a
Sprint provided router installation form (joint process
between Sprint and the customer). Configuration information
must be completed prior to the install and each site must be
certified by Bridge as ready for installation. Physical and
electrical requirements must be met for each site in
accordance with standard requirements provided by Wellfleet
and Telebit.
3. Sprint will provide installation services for the Bridge owned
Codex 3520 DSUs. Bridge will be responsible for de-installing
these DSUs and shipping them to Bridge where a V.35 cable will
be installed. Bridge will then send the DSU and cable to the
Sprint Repair Depots (RDs). Bridge agrees to have one month's
supply (approximately 80) DSUs in the RDs during the
implementation period.
II. MAINTENANCE PLANS
A. WELLFLEET ROUTERS
Maintenance Plans for Wellfleet routers include both software and
hardware maintenance. The main differentiating factor between
maintenance plans is the level of on-site hardware maintenance. The
following list indicates the key differences in the various maintenance
options. A detailed description of each option follows.
- --------------------------------------------------------------------------------
Bridge D-1 1/30/95
<PAGE>
Support Program: 8 X 5 next business day on-site
remedial services
Extended Plus Support Program: 24 X 7 with four hour response,
same day on-site remedial
services
Both of the router maintenance plans provide the following services:
1) Software Subscription Service:
The customer automatically receives new major software
releases, documentation updates and maintenance bulletins.
2) 24 X 7 Hot Line Support:
Sprint's Internet Network Service Center (INSC) is manned 24
hours per day, 365 days per year. Round the clock telephone
support during network outages is provided. Sprint's INSC has
access to Wellfleet's 24 X 7 emergency hotline service as
needed.
3) 24 X 7 Dial-in Diagnostics:
A Sprint technician from the INSC will dial into the
customer's equipment to help diagnose and correct problems.
This is available 24 hours per day, 365 days per year.
4) Help Desk and Configuration Support:
Sprint's Enterprise Internet Engineering (EIE) group provides
configuration management services for fully managed routers.
Configuration management consultation is available during
normal business hours. The EIE has access to Wellfleet's help
desk as needed.
Services Specific to each support program are as follows:
5) Support Program
Upon verification of a hardware related problem, Sprint's INSC
will dispatch a certified technician to the customer site by
the end of the next business day after the replacement
equipment is delivered to the customer site. The technician
will correct hardware malfunctions by replacing faulty
components. All parts and labor are provided at no
- --------------------------------------------------------------------------------
Bridge D-2 1/30/95
<PAGE>
additional charge when required to correct any equipment
malfunction that is a result of normal use.
6) Extended Plus Support Program:
24 X 7 with four hour response Same Day On-site Remedial
Hardware Service: Upon Sprint's verification of a hardware
related problem, Sprint's INSC will dispatch a certified
technician to the distribution site the same day. The
technician will diagnose and correct hardware malfunctions and
replace faulty components if necessary. All parts and labor
are provided at no additional charge when required to correct
any equipment malfunction that is a result of normal use.
Available 24 hours a day, 7 days a week, excluding Sprint
defined holidays. Four hours response is the objective for
sites within 50 miles of a Sprint designated service depot.
On-site response time objectives begin when Sprint verifies
the existence of a hardware related problem.
B. TELEBIT NETBLAZERS AND MODEMS
Next Day On-site Remedial. Upon verification of a hardware related
problems, Sprint's INSC will order the appropriate hardware and have it
shipped to the Bridge site. A certified technician will be dispatched
to the customer site by the end of the next business day after the
replacement equipment is delivered to the customer site. The technician
will correct the hardware malfunction by replacing the faulty unit.
C. CODEX 3520 DSU
Next Day On-site Remedial. Sprint will maintain the Bridge owned Codex
3520 DSUs. Upon verification of a DSU problem, the INSC will order a
DSU and associated V.35 cable from Sprint's inventory and have it
shipped to the Bridge size. By the end of the next business day after
the replacement equipment is delivered to the customer site, a Sprint
technician will correct the hardware problem by replacing the faulty
unit. Sprint will ship the faulty unit to the Bridge designated repair
company. Bridge will be responsible for the costs associated with
shipping the faulty unit to the repair company, the repair, and the
shipment to Sprint's Regional Depot.
III. NETWORK MANAGEMENT SERVICES
Sprint's Network Systems Internet Services (NSIS) organization provides
customers with responsive, integrated management of services for the detection,
reporting,
- --------------------------------------------------------------------------------
Bridge D-3 1/30/95
<PAGE>
analysis, and correction of troubles. This group is accountable to customers for
the end-to-end management of network services. The Internet Network Service
Center (INSC) is the group that actually monitors customer router networks. The
Enterprise Internet Engineering (EIE) group is responsible for the configuration
and design of a customers network. Sprint will provide Customer with router
network management services including Single Point of Contact, Trouble Ticket
Handling, Maintenance Coordination, 24 X 7 Proactive Network Monitoring and
Fault Management, Out of Band Dial-in Network Management Access, Configuration
Management, and Router Network Engineering.
A. SINGLE POINT OF CONTACT:
24 hours per day, 7 days per week, 365 days a year, Sprint's Internet
Network Service Center (INSC) provides a single point of contact for
troubles (Routers and Transport) associated with the managed router
service. Trouble reports are received from the customer's help desk via
a domestic toll-free number.
B. TROUBLE TICKET HANDLING:
A trouble ticket number will be provided to the customer Help Desk
reporting trouble. For each trouble report, Sprint will maintain
information about the trouble, the steps taken to resolve the trouble,
and the final disposition of the trouble report. Customer
representatives will be kept apprised of the status of service
restoration actions. A trouble ticket will not be closed by Sprint
until Bridge is satisfied that the problem has been corrected.
C. MAINTENANCE COORDINATION:
The services of any third party vendors required to service portions of
the managed router service will be coordinated by Sprint. The INSC will
dispatch vendor technicians to perform on-site router maintenance as
necessary. Any higher-level assistance will also be coordinated by the
INSC.
D. OUT-OF-BAND DIAL-IN NETWORK MANAGEMENT ACCESS:
Bridge is required to provide a standard business line for remote
out-of-band dial-in to each customer site. V.32 compatible modems will
be attached to the business line and an auxiliary port on the router.
Sprint's INSC will then be able to dial in to customer routers. If a
problem occurs where the INSC can no longer access the router in-band
from the network management system, a technician will dial in to the
affected router's modem port. The technician will then be able to check
the router and its ports for trouble.
- --------------------------------------------------------------------------------
Bridge D-4 1/30/95
<PAGE>
E. NETWORK MONITORING AND FAULT MANAGEMENT:
Sprint's INSC will provide network monitoring and fault management
services 24 hours per day, 7 days per week, and 365 days per year. This
includes the detection, isolation, diagnosis, and correction of network
troubles. The INSC operates a Simple Network Management Protocol (SNMP)
based management system which provides real-time, graphics-oriented
network management of routers and associated communications links. This
management system will be used for initial screening of all customer
trouble reports. It is Sprint's objective to respond within 15 minutes
of all detectable network events.
F. CONFIGURATION MANAGEMENT AND ROUTER NETWORK ENGINEERING:
As part of the provisioning process, Sprint may conduct site surveys of
user locations to develop data required for circuits and router
installation. Pre-coordination with customer technical staff will
ascertain information needed to properly configure the routers such as
routing protocols, applications, traffic, connectivity requirements,
and interfaces to be supported. Sprint will develop and maintain a
company wide router structure, in terms of routing protocols, routing
parameters and Interconnection schemes. Configurations for individual
routers will also be developed and maintained as part of the life cycle
maintenance/administration process.
Sprint's Network Management Services apply from Sprint's network out to
the LAN port on the routers.
G. PERFORMANCE STATISTICS
Sprint will poll all routers in the network and obtain performance
statistics and reports. These reports will be available to Bridge in an
electronic form. Sprint will monitor these statistics on a daily basis
for trends and potential problems.
- --------------------------------------------------------------------------------
Bridge D-5 1/30/95
EXHIBIT 10.15
AMENDMENT ONE
TO THE
MANAGED NETWORK AGREEMENT
BETWEEN
SPRINT COMMUNICATIONS COMPANY, L.P.
AND
BRIDGE DATA COMPANY
The Managed Network Agreement ("Agreement") between Sprint Communications
Company, L.P. ("Sprint") and Bridge Data Company ("Customer"), having an
effective date of March 1, 1995, is hereby amended as set forth below.
WHEREAS, Sprint and Customer have previously entered into an Agreement for the
provision of managed network services; and
WHEREAS, Customer wishes to procure managed network services internationally.
NOW THEREFORE, the parties mutually agree to the following:
1. The following Sections of the Agreement shall not apply to any orders
for Canadian services:
Section 16(e)(i)
Attachment D - Domestic Installation, Maintenance, and Management
Services
2. Attachment B - Global Pricing is hereby revised to incorporate the
enclosed Addendum for Canadian pricing.
3. Attachment E - Performance Specifications is hereby revised to
incorporate the enclosed Addendum for Global Frame Relay Service
performance objectives.
4. All other terms and conditions of the Agreement shall remain in full
force and effect, except as expressly stated herein.
IN WITNESS WHEREOF, the parties have executed this Amendment One as of the date
of the last signature below.
SPRINT COMMUNICATIONS CO., L.P. BRIDGE DATA COMPANY
/s/ James Mori /s/ Robert McCormick
- --------------------------------- -------------------------------
Signature Signature
Bridge/Sprint Confidential -1-
<PAGE>
James Mori Robert McCormick
- --------------------------------- -------------------------------
Printed Name Printed Name
Regional Director Senior Vice President
- --------------------------------- -------------------------------
Title Title
8/23/95 8/22/95
- --------------------------------- -------------------------------
Date Date
Bridge/Sprint Confidential -2-
EXHIBIT 10.16
AMENDMENT TWO
TO THE
MANAGED NETWORK AGREEMENT
BETWEEN
SPRINT COMMUNICATIONS COMPANY, L.P.
AND
BRIDGE DATA COMPANY
The Managed Network Agreement ("Agreement") between Sprint Communications
Company, L.P. ("Sprint") and Bridge Data Company ("Customer"), having an
effective date of March 1, 1995, as amended, is hereby further amended as set
forth below.
WHEREAS, Sprint and Customer have previously entered into an Agreement for the
provision of managed network services; and
WHEREAS, Customer wished to procure additional equipment for use with the
managed network services.
NOW THEREFORE, the parties mutually agree to the following:
1. Revise Attachment A Scope of Work as follows:
Site Types A, B1, C1, D, and E will utilize a Telebit 2 Port Netblazer LS in
place of the Netblazer PN. Microcomm modems at all customer sites are replaced
by Teleblazer Standalone Modems.
2. Revise Attachment B, Section I - Equipment - Purchase Price to include the
following items. The LS 2S/A Telebit 2 Port Netblazer LS is replacing the PN2DE
Telebit Netblazer Router at Site Types A, B1, C1, D and E. The AP-8810 SA
Teleblazer Standalone Modem replaces the Microcomm Deskport 28.8ES modem at all
customer sites.
A. Equipment Part of Domestic Design
Model Description Qty List Price Net Price
- ----- ----------- --- ---------- ---------
LS 2S/A Telebit 2 Port Netblazer LS 1 $1,259/ea $1,070.15/ea
AP-8810 SA Teleblazer Standalone Modem 1 $ 349/ea $ 296.65/ea
Bridge/Sprint Confidential -1-
<PAGE>
B. Other Equipment
Model Description Qty List Price Net Price
- ----- ----------- --- ---------- ---------
7220 V.35 DSU to Router Cable 1 $195.00/ea $126.75/ea
SP1530 Adtran DSU (5) 1 $735.00/ea $551.00/ea
2. Revise Attachment B, Section I - Equipment - Purchase Price as follows: The
list price for the PN2DE Telebit Netblazer Router is hereby reduced from $2,299
each to $1,849.00. The net price is therefore reduced from $1,954.15 to
$1,571.65.
3. All other terms and conditions of the Agreement shall remain in full force
and effect, except as expressly stated herein.
IN WITNESS WHEREOF, the parties have executed this Amendment Two as of the date
of the last signature below.
SPRINT COMMUNICATIONS CO. L.P. BRIDGE DATA COMPANY
/s/ James Mori /s/ Robert McCormick
- ----------------------------- ----------------------------
Signature Signature
James Mori Robert McCormick
- ----------------------------- ----------------------------
Name Name
Regional Director Senior VP
- ----------------------------- ----------------------------
Title Title
8/16/95 8/11/95
- ----------------------------- ----------------------------
Date Date
Bridge/Sprint Confidential -2-
EXHIBIT 10.17
CONFIDENTIAL MATERIALS HAVE BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS
AMENDMENT THREE
TO THE
MANAGED NETWORK AGREEMENT
BETWEEN
SPRINT COMMUNICATIONS COMPANY, L.P.
AND
BRIDGE DATA COMPANY
The Managed Network Agreement ("Agreement") between Sprint Communications
Company, L.P. ("Sprint") and Bridge Data Company ("Bridge"), having an effective
date of March 1, 1995, as amended, is hereby further amended as set forth below.
WHEREAS, Sprint and Bridge have previously entered into an Agreement for the
provision of managed network services; and
WHEREAS, Sprint and Bridge desire to amend the Agreement.
NOW THEREFORE, the parties mutually agree to the following:
1. Section 2. Contract Documents and Definitions. The following changes
are hereby made to the Attachments:
Attachment A is superseded in its entirety by the revised
Attachment A (Scope of Work) which is hereby incorporated into the
Agreement.
Attachment B is superseded in its entirety by the revised
Attachment B (Rates and Charges) which is hereby incorporated into
the Agreement.
Attachment E is superseded in its entirety by the revised
Attachment E (Performance Specifications) which is hereby
incorporated into the Agreement.
Attachment F (Facilities Services Agreement) is hereby
incorporated into the Agreement.
2. Section 3. Term and Extensions. Delete Paragraph (a) in its entirety
and replace with the following language:
(a) The initial term of this Agreement shall commence on the last
date shown on the signature page (Effective Date), and shall
continue in full force and effect through January 31, 1999
unless terminated in accordance with its provisions.
Bridge/Sprint Confidential -1- 1/26/96
<PAGE>
3. Section 4. Termination by Bridge. Delete Paragraph (b) in its entirety
and replace with the following language:
(b) with liability to Sprint for the Products and Services
provided prior to such termination, plus an amount equal to
one hundred percent of the difference between the Minimum
Commitment and the actual charges invoiced for each remaining
contract year or any portion thereof.
4. Section 9. Minimum Commitment. Delete this Section in its entirety and
replace with the following language:
BRIDGE agrees to achieve the following minimum annual
commitments ("MAC") as follows:
For Bridge's domestic and international frame relay and
managed router services, the following MACs apply.
Contributing to this MAC are recurring charges for domestic
and international access channels (ports), PVCs' IPVCs' and
access line charges (including recurring Central Office
Connection charges and Access Coordination Fees), and monthly
equipment maintenance and management charges. The MAC is
calculated after the application of any discounts.
MAC for 1996: $4,100,000
MAC for 1997: $5,400,000
MAC for 1998: $5,400,000
For Bridge's domestic and international SprintNet X.25 service, the
following MACs apply. Contributing to this MAC are recurring charges
for domestic and international dedicated access facilities ("DAFs").
MAC for 1996: $1,550,000
MAC for 1997: $2,160,000
MAC for 1998: $2,160,000
Sprint commits to having Bridge's X.25 Collections Network fully
installed by June 1, 1996 under the following conditions:
a) Sprint has received all orders by February 1, 1996; and
b) Sprint's failure to meet this commitment is not due to
force majeure events as specified in Section 23 or
Bridge's failure to perform its responsibilities.
Bridge/Sprint Confidential -2- 1/26/96
<PAGE>
If Sprint's failure to meet this commitment causes Bridge not to meet
its MAC for SprintNet X.25 service, then Sprint shall reduce Bridge's
1996 MAC for SprintNet X.25 service by the amount Sprint's failure to
meet the committed installation date causes Bridge not to meet the MAC.
If Bridge fails to achieve the MAC in any of the above contract years,
the amount by which Bridge fails to meet the MAC (the "shortfall")
shall carry over to the following contract year, thereby increasing the
following year's MAC by such shortfall amount. If Bridge fails to
achieve the MAC in 1998 (as it may be adjusted), then Sprint shall
extend the Term of the Agreement until total invoiced cumulative
recurring charges, net of credits, exceeds $19,750,000.
5. Section 22. Assignment. Revise this paragraph in its entirety and
replace with the following language:
Neither party may assign this Agreement or any rights or obligations
hereunder, without the prior written consent of the other party, which
the other party may grant or withhold in its sole discretion.
Notwithstanding the foregoing, either party may assign this Agreement
or any of all of its rights and obligations hereunder, to its parent,
any of its affiliates or subsidiaries upon notice to, but without the
consent of, the other party. Specifically, Bridge shall have the right
to assign the X.25 SprintNet Network in its entirety to any of its
affiliates or subsidiaries upon notice to Sprint. No assignment of this
Agreement shall relieve either party of any obligations thereunder. Any
attempted assignment in violation of this Section shall be void.
6. The following new Sections are hereby incorporated in the Agreement.
A. Section 32. Exclusive Provider.
Bridge agrees that Sprint shall be its exclusive provider of
frame relay services during the Term of this Agreement as long
as Sprint complies with the terms of this Agreement. As such,
Bridge shall award to Sprint one hundred percent (100%) of its
frame relay business. In the event that Bridge acquires a
company that has a term plan for the Products and Services
with another carrier, this provision will only apply to such
acquired company after the expiration of any existing term
plan.
B. Section 33. New Technology.
Sprint understands that Bridge has a substantial interest in
state of the art technologies that may offer efficient and
cost-
Bridge/Sprint Confidential -3- 1/26/96
<PAGE>
effective solutions to Bridge's telecommunications
requirements. Bridge may request that Sprint provide a new
technology to Bridge that would serve as a replacement for
some of the Products and Services being provided by Sprint to
Bridge under this Agreement ("Replacement Service"). If Sprint
is unable to provide such Replacement Service under terms and
rates as favorable to Bridge as those offered through any bona
fide written offer to Bridge from a comparable service
provider, and such Replacement Service will materially improve
the performance and efficiency of Bridge's network, then
Sprint agrees that it will reduce Bridge's Minimum Annual
Commitment ("MAC") under this Agreement to the extent that
substituting a Replacement Service for the Products and
Services hereunder affects Bridge's ability to meet the MAC.
If Bridge or an affiliate of Bridge can provide a Replacement
Service under terms and rates more favorable than Sprint's,
then Sprint reserves the option to provide the transport and
equipment purchases, but agrees to reduce the MAC to the
extent that the decrease in management and maintenance caused
Bridge not to achieve the MAC.
Sprint shall have the right to have an independent third party
auditor examine any bona fide offer from a comparable service
provider to ensure that such bona fide offer is in fact
consistent with the terms as described by Bridge.
7. Implementation Schedule for Frame Relay service.
Sprint hereby agrees to escalate the implementation schedule under this
Agreement from forty-five (45) sites per month to one hundred (100)
sites per month for six (6) consecutive months. Bridge must provide
Sprint with the appropriate quantity of complete orders sixty (60) days
in advance of installation, and an implementation schedule to insure
that one hundred (100) sites are ready for installation in each of the
six (6) months.
8. Signing Credits.
In consideration for Bridge extending the Agreement for one additional
year, Sprint agrees that Bridge will receive the below credits to be
paid as follows:
$50,000 per month will be issued as a credit against the
invoices for July through December, 1996, as long as the
monthly
Bridge/Sprint Confidential -4- 1/26/96
<PAGE>
recurring charges for all services is $500,000 per month or
greater, net of all discounts.
$50,000 per month will be issued as a credit against the
invoices for January through December, 1997, as long as the
monthly recurring charges for all services is $600,000 per
month or greater, net of all discounts.
$50,000 per month will be issued as a credit against the
invoices for January and February, 1998, as long as the
monthly recurring charges for all services is $625,000 per
month or greater, net of all discounts.
No credits shall be applied in any month in which Bridge does not
achieve the level of recurring charges required to receive the credits,
unless the failure to achieve the level of recurring charges is
directly attributable to Sprint's failure to meet the committed
implementation schedule, and Sprint's failure is not due to (i) force
majeure events as specified in Section 23 or (ii) Bridge's failure to
perform its responsibilities.
If Bridge terminates this Agreement for any reason prior to January 31,
1999, Bridge shall reimburse Sprint one hundred percent (100%) of the
amount paid to Bridge through the effective date of termination.
In no event will a credit issued in any given month exceed the monthly
billing for that month.
Credits to be applied under this section shall not exceed $1,800,000.
9. All other terms and conditions of the Agreement shall remain in full
force and effect, except as expressly stated herein.
IN WITNESS WHEREOF, the parties have executed this Amendment Three as of the
date of the last signature below.
Bridge/Sprint Confidential -5- 1/26/96
<PAGE>
SPRINT COMMUNICATIONS CO., L.P. BRIDGE DATA COMPANY
/s/ Patti Manuel /s/ Tom Wendel
- ------------------------------------- ---------------------------------
Signature Signature
Patti Manuel Tom Wendel
- ------------------------------------- ---------------------------------
Printed Name Printed Name
President, Business Sales & Marketing COO & President
- ------------------------------------- ---------------------------------
Title Title
3/1/96 2/22/96
- ------------------------------------- ---------------------------------
Date Date
Bridge/Sprint Confidential -5- 1/26/96
<PAGE>
ATTACHMENT E
PERFORMANCE SPECIFICATIONS
SECTION 1 - DOMESTIC FRAME RELAY SERVICE LEVEL AGREEMENTS
1.1 Network Availability:*
Site Types A, B1, C1: 99.95%
Availability shall be measured end to end. Network availability
percentage is for sites located in the continental USA. Availability
figure assumes four hours scheduled maintenance for each month. For
sites with next day remedial hardware maintenance, the site
availability will be excluded form the network availability calculation
for 24 hours. If service is restored in 24 hours, the site will be
considered to have met its performance requirements for that period of
time. Availability is calculated based on manufacturer's statistics on
Mean-Time-Between-Failure ("MTBF").
*Site types are defined in Attachment A, Scope of Work
Components Included:
o All Sprint Frame Relay network components
o DSU at Customer Site
o Distribution Routers
o Customers Site Routers
o LEC
o Dial Backup Modems
Components Excluded:
o Scheduled maintenance downtime
o Downtime due to any of the reasons stated in Section 23 Force Majeure
o Downtime due to Customer inaccessibility
o Network anomalies caused by Cascade outages or impaired performance
Calculation:
Network = (24 Hours X Days in Month X # of Sites) - (Total Outage Time)
Availability -------------------------------------------------------------
(24 Hours x Days in Month X # of Sites)
Total Outage Time Measurement: An outage condition exists when Customer is out
of service and unable to transmit data. Sprint will analyze the out of service
trouble rickets in the Sprint Trouble Reporting System (TRS). Outage time will
be measured from the time the trouble ticket was opened to the time service is
restored.
- --------------------------------------------------------------------------------
Bridge E-1 January 26, 1996
Amendment 3
<PAGE>
All sites types A, B1, and C1 will be included in the number of sites. A minimum
of 100 sites are required for this calculation.
1.2 Delay 192ms round Trip Delay
This delay assumes the following configuration and application
characteristics:
o Originating Access Speed: 56 Kbps
o Terminating Access Speed: T-1
o Average Frame Size: 64 bytes
o CIR Level of PVCs: 0 Kbps
o Average Distance of PVCs 500 miles
Components Included:
o All Sprint Frame Relay network components
o CSU/DSU (if Sprint provided)
Components Excluded:
o Network delay does not include delay induced by the router.
Any PING test performed by Customer must subtract router
delay.
Calculation:
Average = Total Network Delay for all PVCs
Network Delay --------------------------------
Total Number of PVCs
Network Delay will be measured based on Customer initiated PING test.
The PING test will be done over multiple days (minimum of 30 days) to
adequately determine a consistent performance level.
Delay Administration Process:
o Sprint Account Manager will notify the SE, NASM (if
applicable), SE Director, NCC Director, NCC Manager, and
Product
- --------------------------------------------------------------------------------
Bridge E-2 January 26, 1996
Amendment 3
<PAGE>
Marketing of customers who have signed an SLA. A short SMAIL
script has been developed (Compose FR.SLA) to notify the
appropriate groups.
o Customer notifies Sprint's Service Management Center that the
average Network Delay performance is non-compliant with the
Service Level Agreement. The SMC opens a trouble ticket.
o The NCC works the trouble ticket to diagnose the problem. If
they are unable to diagnose or fix the problem, they will
notify the SE.
o Sprint's System Engineer will conduct Network Delay tests
using datascopes and report the results to the customer and
NCC.
o If the results of the SE tests concur with the customer
report, then the SE will provide the information to the NCC
Technical Assistance Center (TAC) Manager.
o TAC will work with the Customer and SE to determine root cause
for the problem and resolve as quickly as possible (maximum of
60 days).
1.3 Data Delivery Rate. 98% with 0-CIR
Calculation:
<TABLE>
<CAPTION>
<S> <C>
Total Egress Kiloframes
--------------------------------------------------------
Data Delivery Rate = Total Ingress Kiloframes - (Bc + Be Exceeded Kiloframes)
</TABLE>
Calculation is based on total monthly statistics per PVC.
Excluded Components:
o Discarded Frames due to excess Bc + Be.
o Discarded Frames caused by Mis-matched access channel speeds.
o Data loss due to local exchange circuit failures.
o Data loss during scheduled maintenance window.
o Data Delivery Rate percentage assumes Customer Configuration
on Egress port is engineered with enough capacity to handle
traffic loads from the remote sites.
SECTION 2 - GLOBAL FRAME RELAY SERVICE LEVEL AGREEMENTS
- --------------------------------------------------------------------------------
Bridge E-3 January 26, 1996
Amendment 3
<PAGE>
The following performance specifications represent Sprint's network
performance objectives for its Global Frame Relay Services.
2.1 Global Network Availability Objective
<TABLE>
<CAPTION>
<S> <C>
POP-to-POP 99.22% monthly (excluding scheduled maintenance downtime)
</TABLE>
Availability is measured POP-to-POP. Network maintenance is generally
performed Sunday mornings between 00:01 and 05:00 GMT.
2.2 Network Transmission Quality Objective
Transmission Bit Error Rates (BER) vary by operating region.
Transatlantic BERs 10(-8)
Transpacific BERs 10(-7) to 10(-8)
European and Pacific BERs 10(-7)
2.3 Burst Capability Objectives
Burst Capacity Up to Access Channel Speed
Minimum Burst Interval AT LEAST One Second
2.4 Data Delivery Rate Objective
Data Delivery Rate (DDR) is the ratio of total egress frames to total
input frames. Its time interval is monthly and it is a measure of
frames lost in the network primarily due to transmission errors and
network overloads.
DDR, Bc (commited bits) >99.90%, network average
DDR, Be (non-commited bits) 99.00%, network average
Total input frames do not include frames that exceed Bc+Be as would
occur with mismatches in access channel speeds.
2.5 Network Delay Objects
For delay in the global operating environment, network sites are
categorized as:
NA-E: North America-East Eastern US and Canada
- --------------------------------------------------------------------------------
Bridge E-4 January 26, 1996
Amendment 3
<PAGE>
NA-C: North America-Central Central US and Canada
NA-W: North America-West Western US and Canada
EUR-N: Europe-North Belgium, UK, Finland, France,
Ireland, Luxembourg, Netherlands,
Norway
EUR-C: Europe-Central Germany, Austria, Switzerland
EUR-S: Europe-South Italy and Spain
PAC-N: Pacific-North Japan and Hong Kong
PAC-WS Pacific-West/South Australia, New Zealand, Singapore
Figures presented are average values of one-way network delay for 64
and 1024 byte frames. (Ninety-fifth percentile figures are
approximately 2.5 time the average values). Estimated round-trip delays
must consider both sides of the customer network access, CPE and other
application delays.
Average One Way Network Delays (msec) for a 64 Byte Packet
<TABLE>
<CAPTION>
- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
NA-E NA-C NA-W EUR-N EUR-C EUR-S PAC-N PAC-SW
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NA-E 27 32 65 83 86 95 157 189
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
NA-C 32 25 49 86 91 101 146 174
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
NA-W 65 49 43 113 116 129 131 148
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
EUR-N 83 86 113 32 29 35 214 252
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
EUR-C 86 91 116 29 25 32 229 260
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
EUR-S 95 101 129 35 32 28 235 266
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
PAC-N 157 146 131 214 229 235 40 260
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
PAC-SW 189 174 148 252 260 266 260 275
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
Access (Approximate one way delay for a 64 byte frame for access at
various speeds (add two sides for round trip estimations)
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Access (Kbps) Delay (Msec) Access (Kbps) Delay (msec)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
56 20 768 3
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
64 18 1024 3
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
128 10 1544 3
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
256 6 2048 3
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
512 4
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
Average One way Network Delays (msec) for a 1024 Byte Packet
<TABLE>
<CAPTION>
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
NA-E NA-C NA-W EUR-N EUR-C EUR-S PAC-N PAC-SW
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
- --------------------------------------------------------------------------------
Bridge E-5 January 26, 1996
Amendment 3
<PAGE>
<TABLE>
<CAPTION>
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NA-E 63 68 131 149 132 183 231 256
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
NA-C 68 62 116 152 137 189 211 240
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
NA-W 131 116 109 180 162 218 196 213
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
EUR-N 149 152 180 122 97 124 291 322
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
EUR-C 132 137 162 97 73 120 306 327
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
EUR-S 183 189 218 124 120 120 327 317
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
PAC-N 231 211 196 291 306 327 96 337
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
PAC-SW 256 240 213 322 327 317 337 344
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
Access: Approximate one way delay for a 1024 byte frame for access at
various speeds (add two sides for round trip estimations)
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Access (Kbps) Delay (Msec) Access (Kbps) Delay (msec)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
56 167 768 14
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
64 146 1024 11
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
128 74 1544 8
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
256 38 2048 7
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
Sprint is committed to provide high quality telecommunications services
to all of its customers. The following details Sprint's Service level
Commitments to Customer for International dedicated X.25 service.
SECTION 3 - GLOBAL X.25 SERVICE LEVEL AGREEMENTS
3.1 X.25 Ticket Priority and Trouble Resolution Objectives
The following tables define the ticket prioritization scheme and the
service restoral objectives for international X.25 dedicated services.
DESCRIPTION
<TABLE>
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Priority 1 Critical condition (entire router, PAD
Or location is out of service)
- ------------------------------------------------------------ ---------------------------------------------------------
Priority 2 Out-of-service condition (X.25 access
facility or inoperable port on router/
PAD/switch). Alternate backup pathway
connection functional
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Bridge E-6 January 26, 1996
Amendment 3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Priority 3 Service impairment condition (slow
Response, Virtual Circuit (VC)
instability).
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
SERVICE RESTORAL OBJECTIVES
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Priority 1 4 hours
- ------------------------------------------------------------ ---------------------------------------------------------
Priority 2 12 hours
- ------------------------------------------------------------ ---------------------------------------------------------
Priority 3 5 days
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
Problems reported after 1700 hours or any time on Saturdays, Sundays,
or local holidays are expected to be resolved within the presubscribed
period beginning at 0800 hours local time on the next business day.
Sprint requires that a Customer representative be available at the
affected site throughout the identification, repair and confirmation
process.
3.2 SprintNet X.25 International Service Credits
Sprint shall award a SprintNet X.25 Service Credit as follows:
For a Priority 1 outage with an actual SprintNet outage greater than
eight (8) hours Sprint shall award a Service Credit equal to 1/30 of
the monthly non-usage based recurring X.25 Charge for the affected
site. For each additional eight hours of actual outage, Sprint shall
award an additional Service Credit equal to 1/30 of the monthly X.25
Network Charge for that site. Service Credits shall only be awarded for
eight hour outage increments.
For example, for a Priority 1 problem which exists for sixteen (16)
hours, Sprint shall issue a Service Credit equal to 1/15 of that
month's non-usage based X.25 Charges for the affected site. For a
Priority 1 problem which exists for thirteen (13) hours, Sprint shall
issue a Service Credit equal to 1/30 of that month's X.25 Network
charge for the affected site.
Outage time will be measured from the time a trouble ticket is opened
to the time service is restored, utilizing the service trouble tickets
in the Sprint Trouble Reporting System (TRS). No time between 1700
hours and 0800 hours local time of the next business day, or any time
between tickets opened on Saturdays, Sundays, or local holidays and
0800 hours of the next business day will be included in outage time
calculations.
Sprint shall only award Service Credits for Priority 1 problems.
- --------------------------------------------------------------------------------
Bridge E-7 January 26, 1996
Amendment 3
<PAGE>
Any troubles resulting from a problem with Customer provided equipment,
software, applications, or personnel will not be included.
- --------------------------------------------------------------------------------
Bridge E-8 January 26, 1996
Amendment 3
<PAGE>
ATTACHMENT F
FACILITIES AND SERVICES AGREEMENT
This Facilities and Services Agreement ("Agreement") sets forth the terms and
conditions which shall govern Customer's lease of certain space at Sprint's
Point-of-Presence ("POP") for the purpose of locating certain Customer-provided
equipment at such space.
1. TERM. The term of this Agreement ("Term") shall coincide with the
period set forth in Section 3 of the Managed Network Agreement between Sprint
and Customer as amended, unless terminated by either Party pursuant to the
provisions of Paragraph 16 herein. The Term of this Agreement shall be
automatically renewed for successive one year periods, unless either Party
provides written notice of termination ninety (90) days prior to the end of the
then current Term.
2. EQUIPMENT RACK SPACE. Sprint agrees to lease to Customer, and
Customer agrees to lease from Sprint, during the Term, floor space and such
other space as is reasonably necessary for the installation of Customer provided
equipment ("Equipment Rack Space") at the Sprint POP site(s) specified on
Exhibit "A" attached hereto. Access to the Equipment Rack Space shall be
provided to Customer at all times upon reasonable advance notice to Sprint, by
Sprint escort only, at such rates as are set forth in Paragraph 7 hereof.
Customer accepts the Equipment Rack Space "as is" and hereby covenants and
agrees to use the Equipment Rack Space for the purposes herein set forth and for
no other purpose and in strict accordance with the terms and conditions of any
applicable Sprint leases, and further agrees to not do, or omit to do, anything
which will breach any of the terms or conditions of such applicable Sprint
leases or cause damage and/or injury to the property and/or personnel of Sprint
and/or other Sprint customers.
For lease of the Equipment Rack Space during the Term, Customer shall
pay Sprint (i) non-recurring site preparation charge of * per each instance of
rack and/or ancillary services installation activity which includes up to two
(2) consecutive working days for installation supervision and escort
(thereafter, the escort rates as outlined in Paragraph 7 herein will apply); and
(ii) a monthly recurring fee of *per each Equipment Rack Space per Sprint POP
site used, which shall include the cost of electrical power furnished to
Customer by Sprint hereunder. The non-recurring site preparation charge and
monthly recurring fee shall not begin until the equipment specified in Exhibit A
is installed.
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge F-1 January 26, 1996
Amendment 3
<PAGE>
3. SITE CLEAN UP. Customer will be responsible for removal of all
installation material and clean up of effected POP site(s) after completion of
Customer equipment installation in the Equipment Rack Space.
4. DEMARCATION POINT. The point at which the Customer's network
interconnects with the Sprint network shall be the Sprint provided DSX cross
connect (interface) at each Sprint POP site. This point will be referred to as
the Demarcation Point. The Demarcation Point will designate where the division
of responsibility of providing service and connectivity takes place. Customer
shall provide the necessary interface cabling to the Demarcation Point. Sprint
will be responsible for the service from the Demarcation Point through the
completion of the circuit through the Sprint network. The Customer will be
responsible for the service from the Demarcation Point at each Sprint POP site
to the Customer's premises.
5. INSTALLATION AND TESTING. Customer shall engineer, furnish, install
and test, at its sole cost and expense, all Customer supplied equipment in the
Equipment Rack Space. Prior to installation, this Agreement shall be fully
executed by both Parties or otherwise incorporated into any existing agreement
between the Parties, and Customer shall submit to Sprint for its approval all
engineering plans and specifications pertaining to Customer supplied equipment
to be installed in the Equipment Rack Space. Installation and testing by
Customer of equipment located in the Equipment Rack Space shall at all times be
under the direct supervision of a Sprint escort. Title to equipment furnished by
Customer hereunder shall, at all times, remain in Customer. All equipment
supplied by Customer shall be labeled by the Customer as such.
6. EQUIPMENT MAINTENANCE. During the Term, Customer shall provide
maintenance on all Customer supplied equipment installed in Equipment Rack
Space.
All requests for escort service are to be made to the appropriate POP
site or Sprint designated location for each Equipment Rack Floor Space location.
Contact telephone numbers for each POP site are specified on EXHIBIT A, and can
be called 24 hours per day, 7 days a week.
7. ESCORT RATES. Sprint will provide escort service for the Customer to maintain
equipment as aforesaid, on a per call basis at the rate of * per hour. Escort
services are provided for emergency repair and routine maintenance under
guidelines as specified in Paragraph 22.
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge F-2 January 26, 1996
Amendment 3
<PAGE>
The foregoing rate shall apply to all Customer escort requests and are
subject to a one (1) hour minimum charge per call as well as the specifications
as noted in EXHIBIT A.
8. PERMITS AND FEES. Customer will be responsible for any permits
and/or fees, as required, between the Demarcation Point at each Sprint POP site
to the Customer's premises.
9. ORDER ADMINISTRATION. Customer shall place orders from time to time
during the Term for Sprint services to be provided hereunder by submitting to
Sprint such information as Sprint shall reasonably request.
10. POWER. During the Term, Sprint shall furnish to Customer electrical
power necessary to meet the reasonable requirements of Customer at the POP
site(s) specified on Exhibit A. If the power provided by Sprint causes
interference with the proper operation of Customer's equipment, the Customer
will be responsible for providing at Customer's sole expense any filtering or
regulation devices within the Equipment Rack Space, to correct the interference.
11. TRANSFER, SALE AND ASSIGNMENT. Customer shall not sell, assign,
transfer or otherwise encumber any interest it has hereunder or may have in the
Equipment Rack Space, the POP(s), POP site(s), or Sprint-supplied equipment
therein, or any portion thereof, by virtue of this Agreement, without the prior
written consent of Sprint, which shall not be unreasonably withheld.
12. NOTICES. Any notices or communications required or desired to be
given in connection with this Agreement shall be in writing and shall be
delivered to the applicable Party by hand or by U.S. Certified Mail, return
receipt requested, addressed as follows:
Sprint: Sprint Communications Company L.P.
9350 Metcalf Avenue
Overland Park, KS 66212
Attn: Network Real Estate Acquisition & Administration
With a copy to: Sprint Communications Company L.P.
8140 Ward Parkway
Kansas City, MO 64114
Attn: General Counsel
Customer:
- --------------------------------------------------------------------------------
Bridge F-3 January 26, 1996
Amendment 3
<PAGE>
Any notice given under this Agreement shall be effective upon receipt
of notice by the other Party. Either Party may change the above address by
written notice to the other Party as provided above.
13. WARRANTIES. THE PARTIES DO NOT MAKE ANY WARRANTIES, EXPRESS OR
IMPLIED, WITH RESPECT TO THE POP SITE(S) AS LISTED ON EXHIBIT A, ANY EQUIPMENT
PLACED THEREIN AND OTHER SERVICES, MATERIALS AND EQUIPMENT PROVIDED HEREUNDER,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
14. LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY HEREUNDER
BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, CONSEQUENTIAL OR INCIDENTAL
DAMAGES, INCLUDING, WITHOUT LIMITATION, LOSS OF REVENUE, LOSS OF CUSTOMERS OR
CLIENTS, LOSS OF GOODWILL OR LOSS OF PROFITS, ARISING IN ANY MANNER FROM THIS
AGREEMENT AND THE PERFORMANCE OR NONPERFORMANCE OF OBLIGATIONS HEREUNDER.
FURTHERMORE, IN NO EVENT WILL SPRINT BE LIABLE TO CUSTOMER FOR ANY DAMAGES,
DIRECT OR INDIRECT, TO CUSTOMER SUPPLIED EQUIPMENT ARISING OUT OF CUSTOMER'S USE
OF THE POP SITE(S) LISTED ON EXHIBIT A OR THE SERVICES PROVIDED HEREUNDER,
UNLESS SUCH DAMAGES ARE THE RESULT OF SPRINT'S NEGLIGENCE OR WILLFUL MISCONDUCT.
SPRINT SHALL TAKE REASONABLE PRECAUTIONS TO PROVIDE A SECURE ENVIRONMENT FOR
CUSTOMER SUPPLIED EQUIPMENT.
15. INDEMNIFICATION.
15.1 Customer shall indemnify, defend and hold harmless
Sprint, its directors, officers, employees, trade contractors,
suppliers, successors and assigns from any loss, damage, cost of
defense (including reasonable attorneys' fees and court costs), and
injuries, including death to any person, arising out of this Agreement
(including any breach hereof by Customer) to the extent caused by the
negligence or willful misconduct of Customer, its agents or employees.
- --------------------------------------------------------------------------------
Bridge F-4 January 26, 1996
Amendment 3
<PAGE>
15.2 Sprint shall indemnify, defend and hold harmless
Customer, its directors, officers, employees, trade contractors,
suppliers, successors and assigns from any loss, damage, cost of
defense (including reasonable attorneys' fees and court costs), and
injuries, including death to any person, arising out of this Agreement
(including any breach hereof by Sprint) to the extent caused by the
negligence or willful misconduct of Sprint, its agents, or employees.
16. TERMINATION OF SERVICES/FACILITIES: COMPLIANCE.
16.1 Sprint may limit the use of the Equipment Rack Space or
any portion thereof by Customer hereunder when necessary because of
conditions beyond its control as set forth in Paragraph 23. In
addition, Sprint reserves the right at all times during the Term to
suspend any and all services and/or facilities to be provided
hereunder, including, without limitation to furnishing of electrical
power, and remove, change or otherwise terminate the operation of
Customer-supplied equipment installed in the Equipment Rack Space
without notice, if Sprint deems, in its sole discretion, that such
action is necessary to protect the public or Sprint personnel, agents,
and Sprint facilities or services from damages or injury of any kind.
Sprint may also effect such action after notice to Customer in
accordance with Paragraph 20 hereof. Where possible, Sprint will notify
Customer promptly of such action and work in cooperation with Customer
to effect such remedies so as to permit the Customer-supplied equipment
to be returned to operation in an acceptable manner. All
Customer-supplied equipment installed in the Equipment Rack Space shall
comply with all applicable laws, regulations and standards, including,
without limitation, those standards established by Sprint, and shall be
maintained by Customer in a manner so as to ensure continued compliance
therewith and so as to avoid hazard or damage to Sprint facilities or
injury to Sprint employees, agents and suppliers or to the public. In
the case where additional protection facilities are required, the same
shall be provided by Customer, at Customer's sole expense. Sprint shall
maintain the environmental parameters of the Equipment Rack Space
within customary limits for commercial operation so long as Customer
maintains Customer-supplied equipment installed therein in accordance
with the applicable specifications.
16.2 Either Party may terminate this Agreement at any time by
giving written notice as outlined in Paragraph 12. The maximum
liability to the Customer, due to termination, will be six (6) months
of rental charges for each Equipment Rack Space as stated in Paragraph
2, Equipment Rack
- --------------------------------------------------------------------------------
Bridge F-5 January 26, 1996
Amendment 3
<PAGE>
Space, from the date of termination and any charges associated with
Sprint escort during equipment removal.
17. INSURANCE.
17.1 CUSTOMER'S INSURANCE. Customer shall, at its own expense,
procure and maintain throughout the Term, the following insurance from
an insurance company or companies of recognized financial
responsibility: (i) Comprehensive General Liability insurance,
including Contractual Liability, insuring against liability for
Personal Injury or death, Property Damage or other loss in amount of
not less than $5,000,000 Combined Single Limit with respect to any
occurrence, and (ii) Comprehensive Automobile Liability insurance
insuring the ownership, maintenance or use of owned, non-owned or hired
automobiles in an amount not less than $1,000,000 Combined Single Limit
for Bodily Injury or Property Damage for any one accident, (iii)
Worker's Compensation insurance, including Employer's Liability with
limits of not less than $100,000 per accident, in compliance with any
Worker's Compensation or similar statute in the State where any work is
performed. The insurance specified in subparagraphs i and ii shall name
Sprint as Additional Insured. Customer shall deliver to Sprint, prior
to and as a condition of its use of the Equipment Rack Space, a
Certificate of Insurance evidencing all of the above insurance
requirements and shall indicate that Sprint shall be notified not less
than thirty (30) days prior to any cancellation or material change in
any coverage. In no event shall the limits of said policies be
considered as limiting the liability of Customer under this Agreement.
Customer may not enter Sprint's POP locations if the provisions of this
paragraph have not been met.
18. GOVERNING LAW. This Agreement shall be constructed under and
enforced in accordance with, and the validity and performance hereof shall be
governed by, the laws of the State of Kansas.
19. ENTIRE AGREEMENT. This Agreement supersedes and replaces any prior
agreements, understanding or arrangements, whether oral or written, heretofore
made between the Parties and relating to the subject matter hereof. This
Agreement shall not be modified, changed, altered or amended except by an
express written agreement signed by duly authorized representatives of both of
the Parties hereto.
20. DEFAULT. In addition to any right of termination provided for
elsewhere herein, the non-defaulting Party hereto may terminate this Agreement
upon the occurrence of any of the following events which shall constitute a
default hereunder:
- --------------------------------------------------------------------------------
Bridge F-6 January 26, 1996
Amendment 3
<PAGE>
(a) Material breach of this Agreement after notice of such
breach and failure of the breaching Party to cure such breach within
thirty (30) days of receipt of such notice;
(b) A final determination by any governmental entity having
jurisdiction over the facilities and/or services provided under this
Agreement that the relationship of Sprint and Customer and/or the
facilities and/or services provided hereunder are contrary to then
existing laws; or
(c) The filing of bankruptcy by either Party under any
federal, state or municipal bankruptcy or insolvency act, or the
appointment of a receiver or any act or action constituting a general
assignment by either Party of its properties and interest for the
benefit of its creditors.
Upon the occurrence of a default by either Party, the other Party may
exercise one or more of the following remedies: (i) terminate this Agreement as
aforesaid; and/or (ii) exercise any other rights or remedies which may be
available at law or in equity. Upon the occurrence of a default, the prevailing
Party shall have all reasonable expenses (including court costs and reasonable
attorneys' fees) paid by the other Party.
21. PAYMENTS. All charges incurred by Customer hereunder will be
invoiced monthly by Sprint. Total Customer recurring and non-recurring Equipment
Rack Space lease charges for the Term of this Agreement are shown on Exhibit A
and are based upon the rates set forth in Paragraph 2, Equipment Rack Space, and
the POP site(s) and quantities of Equipment Rack Space(s) as shown on Exhibit A
hereof. Escort charges will be charged and invoiced monthly in accordance with
the terms set forth in Paragraph 7 herein. All amounts stated on each invoice
shall be due and payable within thirty (30) days of receipt of said invoice. The
charges for service provided hereunder are exclusive of any applicable sales,
use, excise and like taxes which will be separately stated and included on each
applicable invoice. All charges for services provided hereunder that remain
unpaid for a period of 10 days or more after written notice thereof, shall be
subject to interest thereon at a rate of the lesser of 18% per annum or the
maximum rate allowable by applicable law.
22. RESPONSE TIME. In the performance of its obligations hereunder,
Sprint shall endeavor to respond to a Customer request for escort service
hereunder within (i) one (1) hour when notified by Customer from 8:00 a.m. -
5:00 p.m. on business days and when such request pertains to a manned POP site,
(ii) within three (3) hours when notified by Customer at any other time for a
manned POP site, and (iii) within four (4) hours for an unmanned POP site at any
time. THE ABOVE RESPONSE TIMES APPLY TO CUSTOMER EMERGENCY REPAIR SITUATIONS
ONLY. THESE RESPONSE TIMES ASSUME THAT NO EMERGENCY REPAIRS ARE IN PROGRESS ON
THE SPRINT NETWORK IN THIS AREA. Emergency Repairs on the Sprint network will
take precedence over escort services which may cause lengthening of the response
times. For routine maintenance, 72 hours notice is required. Route maintenance
will only
- --------------------------------------------------------------------------------
Bridge F-7 January 26, 1996
Amendment 3
<PAGE>
be allowed between the hours of 8:00 a.m. and 5:00 p.m. Monday through Friday,
with holidays excluded. Service affecting routine maintenance may be
accomplished outside of the normal routine maintenance window, but requires 120
hour advance notification. When escort service is provided by Sprint, both the
Sprint representative and Customer representative will sign a CPE Repair/Vendor
Escort Record form confirming the location, time, and date the escort service
took place.
23. INABILITY TO PERFORM. Neither Party shall be responsible for delays
in the performance of its obligations hereunder caused by events beyond its
reasonable control.
- --------------------------------------------------------------------------------
Bridge F-8 January 26, 1996
Amendment 3
EXHIBIT 10.18
AMENDMENT FOUR
TO THE
MANAGED NETWORK AGREEMENT
BETWEEN
SPRINT COMMUNICATIONS COMPANY, L.P.
AND
BRIDGE DATA COMPANY
CONFIDENTIAL MATERIALS HAVE BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
The Managed Network Agreement ("Agreement") between Sprint Communications
Company, L.P. ("Sprint") and Bridge Data Company ("Bridge"), having an effective
date of March 1, 1995, as amended, is hereby further amended as set forth below.
WHEREAS, Sprint and Bridge have previously entered into an Agreement for the
provision of managed network services; and
WHEREAS, Bridge now desires to perform the management services currently
performed by Sprint under the Agreement, and Sprint agrees to allow Bridge to do
so; and
WHEREAS, Bridge desires to purchase Asynchronous Transfer Mode ("ATM") services
from Sprint, and Sprint desires to provide ATM services to Bridge.
NOW THEREFORE, the parties mutually agree to amend the Agreement as follows:
1. Section 2. Contract Documents and Definitions. Delete the definition of
"Products and Services" and replace with the following definition:
"Products and Services" means the equipment, facilities, programming, software
and related services provided by Sprint to Bridge hereunder. The Products and
Services include Sprint Frame Relay service and/or Sprint ATM service, but do
not include special access lines that may be used by Bridge in connection with
the Products and Services.
2. Section 9. Minimum Commitment. Delete the words "and management" from
the second sentence of the second paragraph.
3. Section 10. Acceptance. Delete the second sentence of paragraph (a) and
replace with the following sentence:
"If test results show that Products and/or Services are
performing in accordance with the Performance Specifications,
Bridge shall accept the Product or Service at an Installation
Site immediately unless the Installation Site
Bridge/Sprint Confidential -1- 6/26/96
<PAGE>
is an order type "Conversion," in which case Bridge shall have
twenty-one (21) days from receipt of Sprint's test results to
accept the Products and Services."
3. Section 16(b) Provision of Products and Services. Delete the words "and
manage" from the first sentence.
4. Attachment A (Scope of Work). Attachment A is superseded in its
entirety by the revised Attachment A (Scope of Work) which is hereby
incorporated into the Agreement.
5. Attachment B (Pricing). Attachment B is superseded in its entirety by
the revised Attachment B (Pricing) which is hereby incorporated into
the Agreement.
6. Bridge has agreed to buy out the maintenance contract from Telebit that
Sprint has prepaid as follows:
<TABLE>
<CAPTION>
Distribution Annual Price Months Remaining Total
Equipment Site Qty
<S> <C> <C> <C> <C> <C>
NB40 Chicago 1 $ 539.33 8 $ 359.55
NB40 New York 2 $ 1078.66 8 $ 719.11
NB40 Kansas 1 $ 539.33 8 $ 359.55
NB40 Boston 1 $ 539.33 8 $ 359.55
NB40 Rialto 1 $ 539.33 8 $ 359.55
NB40 Oroville 1 $ 539.33 8 $ 359.55
</TABLE>
Total Amount owed to Sprint for maintenance buyout: $2,516.86
7. All other terms and conditions of the Agreement shall remain in full
force and effect, except as expressly stated herein.
IN WITNESS WHEREOF, the parties have executed this Amendment Four as of the date
of the last signature below.
Bridge/Sprint Confidential -2- 6/26/96
<PAGE>
SPRINT COMMUNICATIONS CO., L.P. BRIDGE DATA COMPANY
/s/ George Putney /s/ Robert McCormick
- ------------------------------ ---------------------------
Signature Signature
George Putney Robert McCormick
- ------------------------------ ---------------------------
Printed Name Printed Name
Branch Manager Executive Vice President
- ------------------------------ ---------------------------
Title Title
7/29/94 7/22/96
- ------------------------------ ---------------------------
Date Date
Bridge/Sprint Confidential -3- 6/26/96
<PAGE>
ATTACHMENT A
SCOPE OF WORK
SECTION 1. INTRODUCTION
1.1 SCOPE
This Attachment describes the technical functionality and topology of
the domestic telecommunications requirements of Bridge. The
Sprint-supplied Products and Services will provide network transport
for the Bridge network.
1.2 OVERVIEW
Sprint will provide Bridge with frame relay wide area network (WAN)
transport for it's router-based network as well as installation and
next day swap-out maintenance. All other functions previously provided
by Sprint will be delegated to and provided by Bridge. These functions
include router configuration, router monitoring, and router management
including troubleshooting and resolution of all software related
anomalies.
Further, Bridge shall undertake all transport management, including,
but not limited to WAN access facility sizing at customer sites,
distribution sites and St. Louis data centers, density of PVCs per
hardware port on routers and switches, and the number of WAN ports and
associated access facilities required at customer sites, distribution
sites and St. Louis data centers. Bridge shall also order and manage
dial backup functionality including equipment and analog telco lines at
distribution sites. Sprint will mange the ordering of analog telco
lines at the client sites at time of initial installation. Sprint will
provide maintenance on associated hardware at client sites only. All
dedicated circuits will be ordered through Sprint.
1.3 SPRINT'S SOLUTION
Sprint will provide all WAN transport consisting of dedicated access
from Bridge customer sites, distribution sites and St. Louis data
centers. Additionally, Sprint will provide installation and hardware
swap-out maintenance of routers, modems and DSUs at customer sites.
Sprint will also install Bridge servers at client sites. Maintenance of
the servers will be provided by Bridge.
- --------------------------------------------------------------------------------
Amendment 4 A-1 6/26/96
<PAGE>
SECTION 2. NETWORK OVERVIEW
2.1 NETWORK DESIGN OVERVIEW
The network design for the Bridge network is summarized in Figure 2-1.
[GRAPHIC OMITTED]
2.2 NETWORK NOTES
The following list of assumptions and design considerations have been
utilized on the Bridge Information network design and includes
associated Sprint and Bridge responsibilities.
o Bridge will provide WAN bandwidth management for all network
facilities. This includes remote customer sites, distribution
sites, and the St. Louis data centers. Bandwidth management
includes but is not limited to determination of appropriate
channel sizes at all customer, distribution
- --------------------------------------------------------------------------------
Amendment 4 A-2 6/26/96
<PAGE>
and data center sites, numbers of channels, PVCs per channel,
PVCs per port on routers and switches, number of ports per
switch or router, and number of switches or routers required.
o Bridge will use Sprint-standard circuit utilization
guidelines. Once a circuit utilization exceed 50%, procedures
will be initiated for the installation of additional circuits
or higher bandwidth circuits on the affected path. The
objective is to have additional bandwidth installed so that no
circuit utilization exceeds 70% at any time to maintain
optimal network performance.
o Sprint will provide support for 100 installations per month.
These can be any combination of new installations or Bridge
reschedules installations. The minimum number of installs per
day is 6. Installations will be scheduled during normal
business hours, 8-5 CST.
o For new installations, Sprint will install the Bay Networks
router and Netblazer, the dial backup and diagnostic modem,
and the DSU. Sprint will also cable the newly installed
equipment to the Bridge provided LAN.
o Sprint will configure the Telebit NetBlazer and load the
router with the final router configuration provided/created by
Bridge. This configuration file will be located on a platform
provided by Bridge. Bridge must provide readily available
remote access to this system. The configuration files must be
available two (2) business days prior to site installation.
The IP address and the required directory structure must be
provided to Sprint five (5) business days prior to the
scheduled install date.
o Sprint will not troubleshoot any protocol problems, including
protocol problems which occur during client site hardware
installation.
o Bridge will perform a site acceptance when they receive a call
from Sprint saying the site installation is complete. Site
acceptance will be based on the following tests:
- Telnet/Ping to router
- Telnet/Ping to Net Blazer
- Telnet/Ping to the Bridge servers
- Check operation of dial back up by unplugging 56k
line and determining whether the dial backup
connection to a distribution site is established
- Check whether dial backup disconnects after the 56k
is restored
Should Bridge be unable to perform these tests upon
notification from Sprint that the site installation is
complete, the site installation will be accepted by default.
o Bridge will be responsible for all network software upgrades.
- --------------------------------------------------------------------------------
Amendment 4 A-3 6/26/96
<PAGE>
o Bridge will provide all maintenance of Bridge equipment at
collocation sites.
o Sprint will provide only next day swap-out maintenance Monday
- Friday 8 am - 5 pm for failed or suspected failed CPE at
Bridge customer sites. The CPE technician will ensure that the
failed CPE is cabled properly and that the device powers up
successfully. Bridge will have software configuration
responsibility.
o Sprint will not provide any router network monitoring or
management.
o Bridge will report all appropriate problems to Sprint's
Service Management Center (SMC). The Network Service Manager
(NSM) will support resolution of those tickets that require
hardware maintenance.
o There will be charge for dispatch to sites that are not ready
for installation or swap-out maintenance (refer to contract
page B-3, item 6).
o Bridge will purchase all equipment through Sprint.
o Bridge will be responsible for working directly with hardware
vendors with regard to hardware engineering and software
malfunction.
2.3 TOPOLOGY
Sprint will provide Bridge with WAN transport for the frame relay,
router-based network. This will include the installation and
maintenance of Bay Networks routers, Telebit routers, Sprint certified
DSUs and CSUs and dial backup modems at client sites.
Each remote site will be provided with dedicated access to Sprint's
wide area network (WAN). The bandwidth of the access channel will be
determined by Bridge. The remote site will build one or two PVCs into
Sprint's WAN which will terminate at one of six regional distribution
sites. The distribution sites are collocated at Sprint POPs and house
Telebit routers, Bay Networks routers, Cascade switches, modem banks
and CSUs. The Cascade switches are used both as a point of connectivity
for GFIC customers as well as an ATM platform as Bridge migrates the
backbone (distribution site to St. Louis data centers) to ATM
transport.
Each distribution site Bay networks router will act as a point of
consolidation for Bridge customer traffic. The distribution site
routers will terminate traffic from all customer sites within that
region. The routers will in turn route the traffic from those customer
sites to discrete PVCs built from the distribution sites to each of
Bridge's two St. Louis data centers.
- --------------------------------------------------------------------------------
Amendment 4 A-4 6/26/96
<PAGE>
2.4 TROUBLE RESOLUTION RESPONSIBILITY
Bridge will provide all proactive monitoring of network facilities.
Sprint will provide only reactive maintenance. Upon report of an
anomaly, Bridge will undertake the following diagnostic procedures.
Client Sites
AN Router -
Software - Bridge will access the router and inspect the
configuration files. Bridge workstations have pull-down
screens that display the proper configuration of the routers.
If a configuration is determined to be corrupted, they will
rebuild the software configuration.
Hardware - If an AN router remains in the "boot" or "diag"
mode after being power cycled, it must be replaced. Bridge
will arrange to have power cycling done by their client or by
their dispatch technicians. Other problems will be isolated by
using the router logs, Site Manager, and the network
management console. When troubleshooting indicated a failed
router, Sprint will be contacted to open a ticket for router
replacement.
CSU - If diagnostics reveal a good router and Sprint/telco find no
problems with the telco access, Bridge will open a ticket with Sprint
for CSU replacement.
Netblazer - If Netblazer alarm appears on Bridge's network management
console, Bridge will work with their client or their dispatch
technician to power cycle the Netblazer. If the Netblazer fails to come
up, Bridge will open a ticket with Sprint for Netblazer replacement.
Modem - Bridge will determine whether a problem appears to be with the
local dial line or the modem. If the dial line is tested and proven
functional, Bridge will access the Netblazer for another view into the
modem. If these tests indicate a defective modem, Bridge will open a
ticket with Sprint for modem replacement. If the dial line tests bad,
Bridge will report the problem directly to the LEC.
Cabling - Telco will be responsible for wiring to the demarc or
extended demarc (when telco installed) where appropriate. After
accepted installation, Bridge will be responsible for troubleshooting
all other customer premise wiring.
- --------------------------------------------------------------------------------
Amendment 4 A-5 6/26/96
<PAGE>
Transport - Sprint will be the point of contact for all transport
related problems, including amamolies associated with the LEC access on
dedicated circuits. Bridge will open a ticket with the SMC to report
any transport problems.
Distribution Sites
Bridge will be responsible for the troubleshooting and maintenance of
all distribution equipment located in Sprint POPs. This will include:
o Bay BLN Routers
o Cascade Switches
o Telebit Netblazer 40 Router
o Microcom Modems and QX chassis
o Adtran CSUs and chassis. (Will be replaced by Visual Networks
CSUs)
o Ethernet transceivers
o UPS (May be Sprint provided. Procedures to be addressed)
o Dial lines (Both dial back-up and equipment management lines)
o Cabling associated with the above equipment.**
** Sprint is responsible for installing and replacing all
intra-cabinet/bay and inter-cabinet/bay wiring. Sprint will also
connect such cabling to the equipment under Bridge direction at time of
installation or replacement.
Bridge will perform troubleshooting of distribution site problems from
their St. Louis Network Management Center using network management
tools such as HP OpenView, Bay Site Manager, etc.
If assistance is required from local Sprint operations (such as for
power cycling equipment), Bridge will open a trouble ticket with the
SMC. The NSM or SE will then call the Sprint POP stating that Bridge
has an open ticket and needs assistance. This will result in a charge
to Bridge.
If Bridge determines that equipment needs to be replaced, they will
arrange for shipment and schedule the dispatch of a Bridge field
service technician. A trouble ticket will be opened with the SMC so
that the Sprint personnel are aware and can provide access.
If there is a failure of the dial lines associated with the
distribution site, Bridge will open a trouble ticket with the
appropriate local exchange carrier. If the local exchange carrier or
Bridge field service requires access to the Sprint POP, a trouble
ticket will be opened with the SMC.
For routine or preventative maintenance, Bridge will open a trouble
ticket with the SMC in order to gain access to the Sprint POP.
- --------------------------------------------------------------------------------
Amendment 4 A-6 6/26/96
<PAGE>
Sprint will be the point of contact for all transport related problems,
including amamolies associated with the LEC access on dedicated
circuits. Bridge will open a ticket with the SMC to report any
transport problems.
2.5 DISPATCH PROCEDURE
Upon notification of a network anomaly, Bridge will attempt to isolate
the problem. If the problem appears to be with either the client site
hardware or WAN transport, Bridge will open a ticket with Sprint's
Service Management Center (SMC) using either the network or private
line address.
The SMC will forward the ticket to the appropriate transport fix agency
(Private Line Service Center or Frame Relay Network Control Center). If
the WAN tests clean, and the anomaly appears to be associated with
client site hardware, either the Network Services Manager (NSM) or
Systems Engineer (SE) will submit script to the Dallas warehouse for
overnight shipment of the failed hardware to the client site. Bridge
and/or the NSM will coordinate CPE dispatch with the SMC on the open
ticket.
After replacement, Sprint will ship the failed router to Bay Networks
for repair. After repair, Bay Networks will ship the router back to the
Dallas depot for placement in the Bridge spares inventory.
2.6 CANADA SITES
Sprint management practices and procedures will remain unchanged for an
interim period for sites in Canada until these practices and procedures
can be fully addressed.
- --------------------------------------------------------------------------------
Amendment 4 A-7 6/26/96
<PAGE>
ATTACHMENT B
DOMESTIC PRICING
I. EQUIPMENT - PURCHASE PRICE
<TABLE>
<CAPTION>
Model Description List Price Net Price
- ----- ----------- ---------- ---------
<S> <C> <C> <C>
20002 BayNetworks AN Ethernet * *
(4M DRAM) Incl 7919 & 7526 (2)
42001006 BayNetworks AN IP System Suite * *
AE 1001006 BayNetworks 1 Ethernet X2 Sync * *
(4 M DRAM) incl DTE/DTE cable (2)(II)
AE008017 BayNetworks IP Access Suite Software (I) * *
7919 BayNetworks Power Cord (2) * *
AE10011007 BayNetworks AN Ethernet X2 Sync * *
(8M DRAM) incl DTE/DCE cable (2)
PN2DE Telebit Netblazer & Modem Cable (3) * *
LS2-PT Telebit Netblazer LS & Modem Cable (3)(10) * *
AP-8810SA Teleblazer Standalone Modem (3)(10) * *
LEOA BNC Transeiver Package (4) * *
28.8ES Desporte Fast 28.8 ES Standalone (5) * *
SP1530 Adtran DSU III AR Standalone (6) * *
930703-008 HD44 (m) to V.35(M) Wan * *
Interface cable
910418-008 DB9(M)/DB25 Cable * *
950846-006 DB25(F)/V.35(M) Cable * *
3520 Codex DSU (7) * *
PFLX4700-002 DTS DSU/CSU Card Set(8) * *
PFLX4704-002 DTS CD Powered 4 slot Equip Shelf(8) * *
PFLX4700-004 DTS SNMP Card Set (8) * *
KMTG4704-001 DTC 4704 Rack Mounting KIT(8) * *
PCBL4700-010 DTS Daisy Chain CSU Interconnect(8) * *
Cascade (9)
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-1 6/26/96
<PAGE>
<TABLE>
<CAPTION>
MODEL DESCRIPTION LIST PRICE NET PRICE
- ----- ----------- ---------- ---------
<S> <C> <C> <C>
ASE-BDE Visual Networks DSU * *
V.35 Router Cable (12) * *
Cable Package includes: * *
(1) Network Interface Cable
(1) Ethernet Patch Cable
(1) Administration Port Cable
ASE-EDE Visual Networks DSU * *
</TABLE>
NOTES:
1.) The equipment listed is equipment currently being installed. See
product discounts for other equipment not listed.
2.) BayNetworks equipment will be discounted * off of List Price, provided
Bridge purchases all BayNetworks equipment through Sprint.
3.) Sprint will offer a * discount on Telebit Networking Hardware List
Price.
4.) Net price includes one Transceiver, (2) Terminators, and installation.
5.) Sprint will offer a * discount on Microcom Modem Equipment List Price.
6.) If Bridge does not purchase a DSU from Sprint, and Sprint utilizes
Bridge DSUs, it is Bridge's responsibility to provide two DSU cables as
well as the DSU. One cable will connect to the router and one to
connect to the Telco demarc.
7.) Sprint will utilize existing Bridge Codex 3520 DSUs. It will be
Bridge's responsibility to de-install the DSU, upgrade the cables and
ship the DSU to Sprint's inventory site(s).
8.) Sprint will offer a * discount on Digital Transmission System, Inc.
(DTS) equipment.
9.) Cascade equipment will be discounted * off of current list price.
10.) Sprint will offer these modem models or those with equivalent
functionality.
11.) Number of ethernet cables required will vary upon site type and site
configuration.
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-2 6/26/96
<PAGE>
II. CPE INSTALLATION
<TABLE>
<CAPTION>
First Device(6) Second Device (5)
Equipment Install Price Install Price
--------- ------------- -------------
<S> <C> <C>
Bay Networks Router/DSU (2) * /Router * /Router
Microcom Modem and NetBlazer Server (1) * /pair * /pair
Server (1) (3) * /Server * /Server
Transceiver/Terminator/T-Connector (1,4) No Charge No Charge
Microcom 28.8ES Modem * /modem * /modem
OR
Teleblazer Modem (1)
Cascade Switch * /ea * /ea
DTS (2) (2)
Visual Networks DSU ASE-BDE * /ea * /ea
Visual Networks DSU ASE-EDE List List
</TABLE>
NOTES:
1.) Installation must be done at the same time the Bay Networks router is
installed.
2.) Installation of a DSU at any other time than with a router will be
* /occurrence.
3.) Installation of a server at any other time than with a router will be
* /occurrence.
4.) Installation of a transceiver and two terminators at any time other
than with a router is * /occurrence.
5.) Installation of the second device must be at the same site and at the
same time as the first device.
6.) A dispatch charge of * will be assessed for any site when a Sprint
technician is dispatched and the site is not prepared for the install.
7.) A dispatch charge of * will be assessed any time a Sprint technician is
dispatched to a site but (i) the technician is unable to gain access to
the Bridge facility or (ii) the technician finds no trouble.
8.) If a router upgrade requires the installation of a new router,
installation charges will apply.
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-3 6/26/96
<PAGE>
III. MAINTENANCE
<TABLE>
<CAPTION>
Equipment Response Price
--------- -------- -----
<S> <C> <C>
Bay Networks Routers (1)(4) Next day, On-site Remedial * of List/mo
Bay Networks Routers (1)(3)(4) 7x24 w/4 hr response, * of List/mo
On-site Remedial
PN2DE NetBlazer or Netblazer LS Next Business day, * /pair/mo (6)
(2) Microcom 28.8ES Modem or On-site Remedial
Teleblazer Standalone Modem
Microcom 28.8ES Modem Next Business day, On-site * /month
Remedial
DSU (2) (4) Next Business day, On-site * /site visit
Remedial
Cascade (5) 7x24 with 4 hour response, * /switch/year
B-STDX 9000 on-site remedial
Visual Networks DSU ASE-BDE Next Business day, On-site * /ea/month
Swap-out
Visual Networks DSU ASE-EDE Next Business day, On-site List
Swap-out
</TABLE>
NOTES:
1.) Prices are only valid when all routers purchased are maintained by
Sprint.
2.) Bridge is responsible for all repairs and return charges of this
equipment.
3.) Subject to site verification. (Site must be within 50 miles of the
service depot.)
4.) Bridge is responsible for providing required spares, which will be
stocked at the Sprint repair depot. If Bridge requires on-site remedial
maintenance outside normal business hours, the following rates shall
apply: * per site visit for two (2) hour minimum charge. Each
additional 1/4 hour shall be *.
5.) Bridge may purchase maintenance directly from Cascade.
6.) Pair equals Netblazer and modem.
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-4 6/26/96
<PAGE>
IV. MANAGEMENT (1)
<TABLE>
<CAPTION>
Equipment Unit Price
--------- ----------
<S> <C>
Router (1) (5) * /mo
Transport Back-up Management (2) (3) * /mo
LAN Server Management (4) * /mo
</TABLE>
NOTES:
1.) Bridge is not required to purchase management under this Agreement.
This pricing is available as an option in the event Bridge chooses to
have Sprint manage their network.
2.) Includes Telebit NetBlazer and Microcom modems or Teleblazer modems.
3.) Valid only when the Telebit NetBlazer and Microcom modem or Teleblazer
modems are co-located with the router.
4.) Pricing is valid only if Sprint provides router and Transport Back-up
Management.
5.) One annual software upgrade is included in the price; additional
software downloads after the first is * each per router.
SOFTWARE RELEASE POLICY
The latest Sprint certified software release is used for a new router
network installation.
Sprint reserves the right to upgrade Bridge software revision level if
the installed revision level is no longer supported by Sprint. This
up-grade will be at no charge to Bridge.
Sprint reserves the right to up-grade a router's software to fix
software bugs in the existing version. This up-grade will be at no
charge to Bridge.
When adding new routers to an existing network, Sprint reserves the
right to install the same version of the software running on the
existing network on the new routers.
Sprint support for software revision levels is consistent with the
vendor's support for software revision levels.
The one free annual software up-grade is for a major release not a
maintenance release.
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-5 6/26/96
<PAGE>
If the software up-grade requires additional hardware or a hardware
up-grade, equipment and installation charges will apply.
If Sprint performs a software up-grade in order to meet the contract
performance criteria, Bridge will not be required to pay for the
software upgrade.
Sprint will provide adequate notice of any upcoming software upgrades.
V. CO-LOCATION FEES
A. Cascade * /rack/mo
Install * /rack
B. Distribution router & Netblazer * /rack/mo
Install * /rack
VI. FRAME RELAY
A. ACCESS
OPTION 1 (1)
<TABLE>
<CAPTION>
Install Monthly Recurring
------- -----------------
<S> <C> <C>
56 Kbps, T-1 Waived for TCG Type 1 & 2 * discount off Sprint Tariff
facilities 8 rates
See Note 2
</TABLE>
1.) If TCG is the access provider for the SIA contract,
Bridge may take advantage of the SIA pricing.
However, Bridge may use pricing from only one
contract, i.e. either this contract or the SIA Local
Access Services contract. If SIA pricing is selected,
non-SIA sites will be charged at current Sprint
Tariff 8 rates. Tariff 8 installation charges apply
to non-SIA sites.
2.) All monthly recurring charges for ACF and COC are
waived.
OPTION 2
Sprint Coordinated Vendor Billed Access (SCVBA) (1)
<TABLE>
<CAPTION>
Non - Reucrring Monthly Recurring
56 Kbps 56 KBPS
------- -------
<S> <C> <C>
ACF (2) * *
EFC (3) * *
COC (4) * *
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-6 6/26/96
<PAGE>
1.) Bridge may select this option for Access in which
Sprint acts as Bridge's agent and orders and tests
the service, but the access provider bills Bridge
directly.
2.) Access Coordination Fee
3.) Entrance Facility Charge (Pass through from the
Access provider)
4.) Central Office Connection
HOST ACCESS (St. Louis)
DS3 * /ea/month
B. ACCESS CHANNELS
INGRESS T-1 DISTRIBUTION PORT (1)(2)(3)(4)(5)(6) * /EA/MO
NOTES:
1.) Connects the router to the TP Frame Relay Switch
2.) 56K ports are defined as having 32 Kbps distribution router capacity.
3.) 128 Kbps ports are defined as having 128 Kbps of capacity or 4
equivalent 32 Kbps users.
4.) Each T-1 distribution ingress port supports a maximum of 48 equivalent
32 Kbps users.
5.) Once 48 equivalent 32 Kbps users are assigned to a distribution ingress
T-1 port, customer must order an additional T-1 port.
6.) Distribution site T-1 Ports: (The following is the minimum
configuration during the contract Term)
<TABLE>
<S> <C> <C>
New York distribution ingress T-1 ports Four (4)
Los Angeles distribution ingress T-1 ports Two (2)
Chicago distribution ingress T-1 ports Two (2)
San Francisco distribution ingress T-1 ports Two (2)
Boston distribution ingress T-1 ports Two (2)
Kansas City distribution ingress T-1 ports Two (2)
</TABLE>
INGRESS T-1 NETWORK PORT (1)(2) */EA/MO
NOTES:
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-7 6/26/96
<PAGE>
1.) For each distribution site one T1 - distribution port and one T-1
network port are required.
HOST PORTS (1)(2)(3) * /EA/MO
NOTES:
1.) Egress TP port at Bridge hosts
2.) Each host port must have a back-up T-1 port i.e. Data 1 and Data 2.
3.) Back-up T-1 port price is */ea/mo.
PORTS AND PVCS (1)
56KBPS Port and two (2) ZERO CIR PVC into the
distribution router (1)(2)(3) * /EA/MO
NOTES:
1.) Price is only valid in the user is connected to a distribution site.
2.) Excludes access.
3.) Remote domestic US ports which connect to distribution routers
(excludes access)
<TABLE>
<CAPTION>
Ports Monthly Price Equivalent 32 Kbps Users
----- ------------- ------------------------
<S> <C> <C>
56 Kbps * /ea/mo 1
128 Kbps * /ea/mo 4
192 Kbps * /ea/mo 6
256 Kbps * /ea/mo 8
320 Kbps * /ea/mo 10
384 Kbps * /ea/mo 12
448 Kbps * /ea/mo 14
512 Kbps * /ea/mo 16
576 Kbps * /ea/mo 18
640 Kbps * /ea/mo 20
704 Kbps * /ea/mo 22
768 Kbps * /ea/mo 24
896 Kbps * /ea/mo 28
1024 Kbps * /ea/mo 32
1280 Kbps * /ea/mo 40
1536 Kbps * /ea/mo 48
</TABLE>
C. PVC
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-8 6/26/96
<PAGE>
Backbone Zero CIR PVC * /ea/mo
D. INSTALL
PVC * /each
Access Channel * /each
VII. DIAL BACK-UP
A. DISTRIBUTION SITE DIAL BACK-UP SERVICE (1)
Each of the distribution sites will offer Dial Back-Up Service
via Sprint's Switched Clarity 800 service. Customers needing
dial back-up outside a local calling area will dial the 800
number.
Charge: * service fee per month plus Tariff rate per minute
cost.
<TABLE>
<CAPTION>
TARIFF RATE PER MINUTE
-------------------------------------------- -----------------------------------------
Regional National
-------------------------------------------- -----------------------------------------
Peak Off Peak Peak Off Peak
----------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
* * * *
----------------------- -------------------- -------------------- --------------------
</TABLE>
1.) Bridge is responsible for providing the business line
for each distribution site and all charges associated
with the business line.
VIII. SPRINTNET SERVICES (DOMESTIC X.25)
A. Product Discount
* off of list price
B. Install Wavier (1)
* for a three year order term
C. See Hub Pricing - Page B-30
NOTES:
1.) Customer is liable for a pro-ratA amount of any waived install if the
site is disconnected prior to being installed for 36 consecutive
months.
IX. DISTRIBUTION SITE EQUIPMENT PURCHASE
Distribution site equipment (1)(2) *
NOTES:
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-9 6/26/96
<PAGE>
1.) See List of Equipment and quantities in each existing distribution
site, page B-31.
2.) Equipment is located at distribution sites in New York, NY; Chicago,
IL; Boston, MA; San Francisco, CA; Kansas City, MO; and Los Angeles,
CA.
X. ATM SERVICES
A. Local Access Facilities - Customer shall be responsible for
arranging and providing all Local Access Facilities required
to utilize the ATM Products and Services. For T-3 Local Access
Facilities, the COC and ACF charges are as follows:
<TABLE>
<CAPTION>
Non-Recurring Charge Monthly Recurring Charge
-------------------- ------------------------
<S> <C> <C>
COC * each * each
ACF * each * each
</TABLE>
B. Port Connection Charges
<TABLE>
<CAPTION>
Port Installation Charge Monthly Recurring Charge
---- ------------------- ------------------------
<S> <C> <C>
T-1 Port: * each * each per Month
T-3 Port: * each * each per Month
</TABLE>
Sprint shall apply the following discounts to the Port
Connection charges specified above.
<TABLE>
<CAPTION>
Contract Year Discount
------------- --------
<S> <C>
Year 1 20%
Year 2 10%
Year 3 10%
</TABLE>
C. PVC Charges
1. The monthly recurring charges for use of one-way PVCs
are as follows:
(a) CBR PVCs
<TABLE>
<CAPTION>
Information Rate Flat Rate Price Usage-Based Price
---------------- --------------- -----------------
<S> <C> <C>
64 Kbps * per 64 Kbps * per 64 Kbps plus usage
1 Mbps * per 1 Mbps * per 1 Mbps plus usage
</TABLE>
For the Usage-Based Price, the usage component of the CBR PVC
price is * per 1 Megacell of delivered CBR Traffic per month
based on the egress counts.
(b) VBR PVCs
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-10 6/26/96
<PAGE>
<TABLE>
<CAPTION>
Information Rate Flat Rate Price Usage-Based Price
---------------- --------------- -----------------
<S> <C> <C>
64 Kbps * per 64 Kbps * per 64 Kbps plus usage
1 Mbps * per 1 Mbps * per 1 Mbps plus usage
</TABLE>
For the Usage-Based Price, the usage component of the VBR PVC
price is * per 1 Megacell of delivered VBR Traffic per
month based on the egress counts, not to exceed * per 1
Mbps PVC per month.
2. Flat Rate Price Discounts - Sprint shall apply the
following discounts to the Flat Rate price for use of
a VBR and CBR PVC based on the following
corresponding gross monthly PVC charges per Port:
<TABLE>
<CAPTION>
Gross Monthly VBR PVC CBR PVC
PVC Charges per Port Discount Discount
-------------------- -------- --------
<S> <C> <C>
$2,000 - $3,999 * *
$4,000 - $6,399 * *
$6,400 - $8,999 * *
$9,000 - $14,400 * *
Over $14,400 * *
</TABLE>
3. VBR PVC Cap - The total VBR PVC charge per port per
month shall not exceed the following amounts based on
the Port Speed:
<TABLE>
<CAPTION>
Port Speed Total Monthly Charge
---------- --------------------
<S> <C>
T-1 * per Port
T-3 * per port
</TABLE>
4. The PVC Establishment Charge is $35 per site.
SPECIAL ATM TERMS
A. Wavier of Installation Charges - Sprint shall waive *
of the ATM installation charges (Port Connection and PVC
Establishment only) for each site which is installed for a
minimum period of thirty-six (36) consecutive months.
If the ATM Service is disconnected prior to thirty-six (36)
consecutive months of Service, then Customer shall pay
Sprint a pro-rata amount of the waived installation charges.
B. Change or Upgrade of Service - Customer may upgrade the ATM
Service at a site or change an ATM site without liability
except for the pro-rata payment of any waived installation
charges if such ATM Service was disconnected prior to
twenty-four continuous months of Service.
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-11 6/26/96
<PAGE>
GLOBAL PRICING
I. FRAME RELAY
A. FRAME RELAY (ONE TO ONE)
CREVE COEUR TO LONDON
<TABLE>
<CAPTION>
Access MRC Port/IPVC ALC
Speed Port IPVC ALC T-1 Channel(4) Total Install(1)(3) Install(2)
- ----- ---- ---- --- --- ---------- ----- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
128K * * * * * * * *
258K * * * * * * * *
512K * * * * * * * *
768K * * * * * * * *
T-1 * * * * * * * *
</TABLE>
B. FRAME RELAY (ONE-TO-ONE)
MANCHESTER TO WATFORD
<TABLE>
<CAPTION>
Access MRC Port/IPVC ALC
Speed Port IPVC ALC T-1 Channel(4) Total Install(1)(3) Install(2)
- ----- ---- ---- --- --- ---------- ----- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
128K * * * * * * * *
258K * * * * * * * *
512K * * * * * * * *
768K * * * * * * * *
T-1 * * * * * * * *
</TABLE>
Notes:
1.) * waiver of the * Global Port Install charge if the order term is two
years or longer (Each site must be installed for 24 continuous months).
2.) Bridge must pay ALC charges for install.
3.) Bridge is liable for a pro-rata amount of any waived install if the
site is disconnected.
4.) A Global Frame Relay Connectivity Fee is applied to Frame Relay
customers if the host port is in the US and there are multiple
international locations. See below for an explanation of the
Connectivity fee.
C. FRAME RELAY CONNECTIVITY FEES
The Global Frame Relay Connectivity Fee is based on either the port
speed of the US Port or the Global Port as follows:
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-12 6/26/96
<PAGE>
a.) The US Port Speed determined the "Base" port speed of
the Global Connectivity Fee if it is lower than or
equal to the port speed of the Global Port to which
it is connected.
b.) The Global Port speed determines the "base" port for
the calculation if it is greater than the US port to
which it is connected. If multiple Global Ports are
connected to the same US port, then the highest
Global Port speed determines the "base" port for
calculation purposes.
FRAME RELAY CONNECTIVITY FEES (1)
<TABLE>
<CAPTION>
US Port Global Port Connectivity
(Kbps) (Kbps) Fee
------ ------ ---
<S> <C> <C>
56/64 56/64 *
56/64 128 *
56/64 256 *
128 56/64 *
128 128 *
128 256 *
256 56/64 *
256 128 *
256 256 *
</TABLE>
1.) For calculation purposes, the Global Frame Relay
Connectivity Fee is the List Price of the Global
"base" port less the List Price of the domestic
"base" port.
II. CUSTOM LINK (X.25 SERVICE)
A. See Site Pricing, pp. B33 - B37
B. Install Wavier (1)
* for a three year order term
NOTE: (1)
1.) Customer is liable for a pro-rata amount of any waived install if the
site is disconnected prior to being installed for 36 continuous months.
III. PRICING FOR CANADA
A. EQUIPMENT INSTALLATION
* PER SITE (1)(2)(3)(4)(5)(6)
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-13 6/26/96
<PAGE>
1) Sprint International will install the following equipment:
a. Wellfleet AN running 8.0.1 software
b. Telebit Netblazer Dial Back Up Router Model PN-2
c. Microcom Modem Model Deskport 28.8ES
d. Cabinet to hold equipment
e. Dell OS/2 Server
f. UPS Unit
g. Monitor and Keyboard
h. AB Switch Box
i. Associated cabling
2) The equipment will be staged and configured in the US and shipped to
the Bridge customer locations by either Sprint or Bridge. If shipped by
Sprint, shipping charges are as specified in Section V herein.
3) The install is limited to install, power up, and connect cables.
4) Sprint reserves the right to use a third party for installation.
5) An engineering diagram must be provided to the installing agent for
proper cabling of the CPE.
6) Sprint will provide installation of Bridge equipment in the following
cities:
a) Edmonton, Alberta
b) Toronto, Ontario
c) Vancouver, British Columbia
d) Victoria, British Columbia
e) Montreal
f) Quebec
B. EQUIPMENT MAINTENANCE/MANAGEMENT (5)(6)
<TABLE>
<S> <C>
Access Node and Modem (1) * PER LOCATION/PER MONTH
Netblazer (2) * PER LOCATION/PER MONTH
Optional Maintenance (3)(4) * PER HOUR
24 X 7, with minimum 3 hours
</TABLE>
1) Maintenance service is based on 8X5 with 8 hour response.
2) This charge is in addition to the standard * per month charge per
location.
3) This per hour charge is in addition to the standard * per month per
location charge.
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-14 6/26/96
<PAGE>
4) 24 X 7 coverage is subject to availability.
5) Spares will be stocked in Etobicoke, ON (Toronto), and Vancouver, BC.
6) Sprint reserves the right to use a third party for maintenance.
C. MONTHLY RECURRING GLOBAL FRAME RELAY CHARGES
1. Canada Ports (Excludes local access charges)
<TABLE>
<CAPTION>
Speed Unit Price
----- ----------
<S> <C>
56/64 * each per month
128 * each per month
256 * each per month
</TABLE>
2. IPVC Charges between the US and Canada
<TABLE>
<CAPTION>
CIR Unit Price
--- ----------
<S> <C>
Zero * each per month
9.6 * each per month
14.4 * each per month
19.2 * each per month
38.4 * each per month
48.0 * each per month
56/64 * each per month
128 * each per month
192 * each per month
256 * each per month
</TABLE>
D. FRAME RELAY INSTALLATION
Port and IPVC installation charge: * each
Installation Waiver:
<TABLE>
<CAPTION>
Order Term Discount
---------- --------
<S> <C>
2 years * (1)(2)(3)(5)
3 years * (2)(3)(4)(5)
</TABLE>
1) Site must be installed for 24 continuous months.
2) Install waiver does not include ALCs.
3) Install waiver is for GFRS ports in Canada.
4) Site must be installed for 36 continuous months.
5) Bridge is liable for a pro-rata amount of the waived install
if the site is
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-15 6/26/96
<PAGE>
terminated prior to the end of the order term, per the conditions of
this contract.
E. SHIPPING CHARGES
Shipping Fee: *
(Wellfleet AN Router, Telebit Netblazer, Microcom Modem)
F. DIAL BACK UP (OPTIONAL)
Customer is responsible for the business line charges to the customer
and distribution sites.
VII. TERM COMMITMENT
The minimum order term for a Canadian site in one year.
G. TERMINATION LIABILITY FOR CANADIAN ORDERS
Access: If a site is terminated prior to being installed for 12
continuous months, Customer shall be liable for fifty percent (50%) of
the monthly price for access for each month remaining in the unexpired
portion of the one year order term.
Sprint Charges: There is a * charge per site for each order terminated
prior to expiration of the order term. This charge shall be waived for
Bridge.
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-16 6/26/96
<PAGE>
MISCELLANEOUS CHARGES
I. CANCEL BEFORE START CHARGES
1.) General
Cancel Before Start charges apply to all orders for new circuits or hardware.
Table changes, IDs and orders for software modifications are excluded.
2.) Charges
a. * per voice grade/analog circuit (speeds of 19.2 and below)
(e.g., if 3 circuits are ordered and all 3 are canceled, the
charge is *)
b. * per DDS/DSO circuit (56/64 Kbps)
c. * per DS1 or Fractional DS1 circuit
d. If equipment is shipped to the customer site prior to
cancellation, Sprint's then current handling charge are
applicable. A separate handling charge will apply to both the
shipment to the customer site and from the customer site.
(Refer to Sprint's Handling Charge Policy.)
3.) Cancel without Charges
An order for new services may be canceled without incurring the *, * or * charge
specified above within 10 business days of the date shown on the Order for Data
Communications Service. Customers who wish to terminate their order must send a
written cancellation request to Contracts Administration to be received within
the prescribed time limit (10 business days) or the charge will be automatically
applied.
4.) Other
In the event of technical problems or other mitigating circumstances, the cancel
before start charge may be waived. However, Contracts Administration and the
Sprint Sales Representative must be notified in writing for these charges to be
waived.
II. HANDLING CHARGES
1.) General
Sprint will provide shipment from its designated shipping point(s) via
the Sprint carrier of choice, subject to the following charges listed
below. These charges do not include insurance coverage for purchased
equipment;
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-17 6/26/96
<PAGE>
customers are responsible for insurance from Sprint shipping point(s).
The charges apply to both rental (sprint-owned) and purchased
(customer-owned at shipping point) equipment. These charges do not
apply to equipment provided by Sprint as part of a Sprint service
offering (e.g., modems supplied in conjunction with dedicated access
facilities).
2.) Charges
<TABLE>
<CAPTION>
Price Per Unit Shipped
----------------------
<S> <C>
Modems, standalone (a) *
Modems, rach mount (a) *
</TABLE>
a) Does not apply to Dedicated Access Facility Service,
including Multidrop Plus.
3.) Exceptions
If an expedited or overnight shipment is requested, the above charges
do not apply. The charges for an expedited/overnight shipment is 100%
of the cost incurred by Sprint for providing this service.
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-18 6/26/96
<PAGE>
DOMESTIC LIST PRICES
I. FRAME RELAY
A. ACCESS
<TABLE>
<CAPTION>
Speed Install Monthly Recurring
----- ------- -----------------
<S> <C> <C>
56 Kbps, T-1, DS3 Current Sprint Current Sprint
Tariff 8 Tariff 8
Plus ACF & COC Plus ACF & COC
</TABLE>
B. ACCESS CHANNEL
<TABLE>
<CAPTION>
Unit Rate
Access Channel Speed Per Month
-------------------- ---------
<S> <C>
56/64 *
112/128 *
168/192 *
224/256 *
280/320 *
336/384 *
392/448 *
448/512 *
504/576 *
560/640 *
616/704 *
672/768 *
784/896 *
896/1024 *
1120/1280 *
T1 *
</TABLE>
C. PVC RATES
<TABLE>
<CAPTION>
PVC Unit Rate
Minimum Data Rate Per Month
----------------- ---------
<S> <C>
Burst Express *
19.2 *
38.4 *
56/64 *
128 *
192 *
256 *
320 *
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-19 6/26/96
<PAGE>
<TABLE>
<S> <C>
384 *
448 *
512 *
576 *
640 *
704 *
768 *
832 *
896 *
960 *
1024 *
</TABLE>
II. SPRINTNET SERVICES
The pricing components for Customer Link Series include the following:
o Recurring charges
- Access line charge per dedicated access facility
(DAF).
- Network port charge per DAF.
- Flat monthly usage charge.
o Non-recurring charges
Installation charge per DAF.
ONE-to-ONE Configurations
Unlike static leased lines, each ONE-to-ONE site can take advantage of the
global reach of SprintNet, with bidirectional access to or from all SprintNet
locations as well as networks in more than 100 countries. For access to
locations other than the specified point-to-point location, standard rates
apply.
Customers may contract for more than a single ONE-to-ONE connection at any
location. ONE-to-ONE is primarily available to customers who require
connectivity either between two non U.S. locations, or a U.S. location and a non
U.S. location. Customers who require ONE-to-ONE connectivity between two
locations within the U.S. only, must submit a special pricing request.
The flat monthly rate depends upon:
o Service level (national, regional or global).
o Connection speed (9.6 kbps - 256 kbps; varies by country).
o Location.
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-20 6/26/96
<PAGE>
ALL-to-ALL Configurations
Global ports can do the following without incurring additional traffic charges,
assuming a customer-specific network configuration:
o Initiate calls with any other defined global, regional or
national ALL-to-ALL port.
o Initiate calls to an All-to-ONE hub port belonging to the same
customer.
ALL-to-ALL permits customers to combine service levels. A large user can create
regional and global networks. Whether a traffic charge is incurred depends upon
the call initiator's port classification and the geographic boundaries the call
crosses.
<TABLE>
<CAPTION>
GDC
SPEED INSTALL MONTHLY PROMOTIONAL
<S> <C> <C> <C>
4.8 * * *
9.6 * * *
19.2 * * *
56 kb * + telco + CPE * + telco + CPE
112/128 kbps * + telco + CPE * + telco + CPE
224/256 kbps * + telco + CPE * + telco + CPE
<CAPTION>
GDC - PITAP
SPEED INSTALL MONTHLY
<C> <C> <C>
9.6 analog * *
9.6 digital * * cs
19.2 analog * *
56 kb * *
112/128 kb * *
224/256 kb * *
<CAPTION>
CUSTOMLINK (DOMESTIC X.25)
SPEED INSTALL MONTHLY
<C> <C> <C>
9.6 * *
19.2 * *
56 kb * * + telco + CPE
112/128 kb * * + telco + CPE
224/256 kb * * + telco + CPE
</TABLE>
All prices shown above are for 90-day rates.
* CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
Bridge B-21 6/26/96
<PAGE>
<TABLE>
<CAPTION>
GLOBAL LIST PRICES
- ---------------------------------------------------------------------------------------------------------------------
Global Frame Relay and Global SprintNet
Zone Pricing Matrix
- ---------------------------------------------------------------------------------------------------------------------
All Countries have Global SprintNet AND Global Frame Relay
services unless otherwise noted
- ------------------- -------------------- -------------------- ----------------- -------------------- ----------------
REGION ZONE 1 ZONE 2 ZONE 3 ZONE 4 ZONE 5
- ------------------- -------------------- -------------------- ----------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C>
North America Contiguous US Alaska Puerto Rico Canada
(CONUS) Hawaii Mexico*
- ------------------- -------------------- -------------------- ----------------- -------------------- ----------------
Europe UK (England and Austria Bulgaria* Russia (CIS)* Denmark*
Scotland) Belgium Hungary* Latvia (CIS)* Norway
France Greece* Ukrain (CIS)* Sweden*
Germany Uzbekistan Finland
Ireland (CIS)* Lithuania*
Italy Kazakhstan
Luxembourg (CIS)*
Netherlands Extonia (CIS)*
Portugal* Romania*
Spain Armenia*
Switzerland
- ------------------- -------------------- -------------------- ----------------- -------------------- ----------------
Asia Pacific Japan Australia Taiwan* Guam*
New Zealand Singapore*
Hong Kong Indonesia*
Korea
Phillipines*
Malaysia
- ------------------- -------------------- -------------------- ----------------- -------------------- ----------------
Mid-East Africa, Israel* Nigeria* Kuwait*
Ctr. Asia
- ------------------- -------------------- -------------------- ----------------- -------------------- ----------------
Latin America & Venezuela*
Carrib. Peru*
Columbia*
- ------------------- -------------------- -------------------- ----------------- -------------------- ----------------
</TABLE>
All Countries have Global SprintNet AND Global Frame Relay services unless
otherwise noted
- --------------------------------------------------------------------------------
Bridge B-22 6/26/96
<PAGE>
<TABLE>
<CAPTION>
Custom Link Series - All-to-One Spoke Pricing
Line Speed 9.6 Kbps
PLEASE SEE COUNTRY PRICING MATRIX FOR CURRENT COUNTRY ZONES.
- -------------------------------------------------------------------------------------------------------------------
Monthly Charge = ALC + Flat Rate Usage (Port Charges are included)
- -------------------------------------------------------------------------------------------------------------------
9.6 Kbps Spoke Pricing for Spokes in all locations**
- -------------------- ----------------------------------------------- ----------------------------------------------
Region/ North America Europe
Zone 1 2 3 4 5 1 2 3 4 5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 700 950 550 1000 1200 1400 2000 1200
North 2 700 700 1100 650 1300 1400 1600 2100 1400
Amer. 3 950 1100 700 1400 1500 1700 2300 1500
4 550 650 550 1000 1200 1400 2000 1200
5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 1000 1300 1400 1000 850 1050 1400 850
2 1200 1400 1500 1200 850 850 1050 1400 850
Europe 3 1400 1600 1700 1400 1050 1050 1050 1400 1050
4 2000 2100 2300 2000 1400 1400 1400 1400 1400
5 1200 1400 1500 1200 850 850 1050 1400 850
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 1300 1500 1700 1300 1400 1400 1700 2300 1400
Asia 2 1500 1700 1900 1500 1600 1600 1900 2300 1600
Pacific 3
4 1800 2000 2200 1800 1900 1900 2200 2300 1900
5 1300 1500 1600 1300 1900 1900 2200 2300 1900
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 1700 1900 2100 1700 2000 2000 2200 2400 2000
MidEast 2 3000 3200 3400 3000 2100 2200 2500 3000 2200
Africa 3 2400 2500 2600 2400 2500 2600 2700 3300 2600
Asia 4
5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1
L Amer 2 1300 1400 1500 1300 1400 1500 1800 2400 1500
& 3
Caribb 4
5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
Bridge B-23 6/26/96
<PAGE>
<TABLE>
<CAPTION>
- -------------------- ----------------------------------------------- ----------------------------------------------
Region/ Asia/Pacific Mid East/Africa/Asia
Zone 1 2 3 4 5 1 2 3 4 5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1300 1500 1800 1300 1700 3000 2400
North 2 1500 1700 2000 1500 1900 3200 2500
Amer. 3 1700 1900 2200 1600 2100 3400 2600
4 1300 1500 1800 1300 1700 3000 2400
5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 1400 1600 1900 1900 2000 2100 2500
2 1400 1600 1900 1900 2000 2200 2600
Europe 3 1700 1900 2200 2200 2200 2500 2700
4 2300 2300 2300 2300 2400 3000 3300
5 1400 1600 1900 1900 2000 2200 2600
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 1700 1900 1900 1900 3500 2500
Asia 2 1700 900 2000 2000 2000 3700 2600
Pacific 3
4 1900 2000 2200 2200 2400 3700 2600
5 1900 2000 2200 2400 3600 2600
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 1900 2000 2400 2400 1500 1900
MidEast 2 3500 3700 3700 3600 1500 1500
Africa 3 2500 2600 2600 2600 1900 1500 700
Asia 4
5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1
L Amer 2 1500 1500 1700 1700 2200 3200 2700
& 3
Caribb 4
5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
Bridge B-24 6/26/96
<PAGE>
<TABLE>
<CAPTION>
- -------------------- -----------------------------------------------
Region/ L Amer & Caribb
Zone 1 2 3 4 5
- -------------------- -------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
1 1300
North 2 1400
Amer. 3 1500
4 1300
5
- -------------------- -------- -------- --------- -------- ----------
1 1400
2 1500
Europe 3 1800
4 2400
5 1500
- -------------------- -------- -------- --------- -------- ----------
1 1500
Asia 2 1500
Pacific 3
4 1700
5 1700
- -------------------- -------- -------- --------- -------- ----------
1 2200
MidEast 2 3200
Africa 3 2700
Asia 4
5
- -------------------- -------- -------- --------- -------- ----------
1
L Amer 2 700
& 3
Caribb 4
5
- -------------------- -------- -------- --------- -------- ----------
</TABLE>
** Installation, Access Line ChargeS (ALC) also apply. Prices include Port and
Traffic.
Matrix represents traffic between countries.
- --------------------------------------------------------------------------------
Bridge B-25 6/26/96
<PAGE>
<TABLE>
<CAPTION>
Custom Link Series - All-to-One Spoke Pricing
Line Speed 14.4 Kbps
PLEASE SEE COUNTRY PRICING MATRIX FOR CURRENT COUNTRY ZONES.
- -------------------------------------------------------------------------------------------------------------------
Monthly Charge = ALC + Flat Rate Usage
- -------------------------------------------------------------------------------------------------------------------
14.4 Kbps Spoke Pricing for Spokes in all locations**
- -------------------- ----------------------------------------------- ----------------------------------------------
Region/ North America Europe
Zone 1 2 3 4 5 1 2 3 4 5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 900 1150 1200 1400 1600 2300 1400
North 2 900 900 1300 1500 1600 1800 2400 1600
Amer. 3 1150 1300 900 1600 1700 1900 2700 1700
4
5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 1200 1500 1600 900 1050 1250 1700 1050
2 1400 1600 1700 1050 1050 1250 1700 1050
Europe 3 1600 1800 1900 1250 1250 1250 1700 1250
4 2300 2400 2700 1700 1700 1700 1700 1700
5 1400 1600 1700 1050 1050 1250 1700 1050
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 1500 1700 1900 1600 1600 1900 2800 1600
Asia 2 1700 1900 2100 1800 1800 2100 2800 1800
Pacific 3
4 2000 2200 2400 2100 2100 2400 2800 2100
5 1500 1700 1800 2100 2100 2400 2500 2100
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 1900 2100 2300 2200 2200 2400 2600 2200
MidEast 2
Africa 3 2600 2700 2800 2700 2800 2900 3700 2800
Asia 4
5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1
L Amer 2 1500 1600 1700 1600 1700 2000 2600 1700
& 3
Caribb 4
5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
Bridge B-26 6/26/96
<PAGE>
<TABLE>
<CAPTION>
- -------------------- ----------------------------------------------- ----------------------------------------------
Region/ Asia/Pacific Mid East/Africa/Asia
Zone 1 2 3 4 5 1 2 3 4 5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1550 1700 2000 1500 1900 2600
North 2 1700 1900 2200 1700 2100 2700
Amer. 3 1900 2100 2400 1800 2300 2800
4
5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 1600 1800 2100 2100 2200 2700
2 1600 1800 2100 2100 2200 2800
Europe 3 1900 2100 2400 2400 2400 2900
4 2800 2800 2800 2500 2600 3700
5 1600 1800 2100 2100 2200 2800
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 900 1900 2100 2100 2100 2700
Asia 2 1900 1100 2200 2200 2200 2800
Pacific 3
4 2100 2200 2400 2400 2600 2800
5 2100 2200 2400 2600 2800
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 2100 2200 2600 2600 900 2100
MidEast 2
Africa 3 2700 2800 2800 2800 2100 900
Asia 4
5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1
L Amer 2 1700 1700 1900 1900 2400 2900
& 3
Caribb 4
5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
Bridge B-27 6/26/96
<PAGE>
<TABLE>
<CAPTION>
- -------------------- -----------------------------------------------
Region/ L Amer & Caribb
Zone 1 2 3 4 5
- -------------------- -------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
1 1500
North 2 1600
Amer. 3 1700
4
5
- -------------------- -------- -------- --------- -------- ----------
1 1600
2 1700
Europe 3 2000
4 2600
5 1700
- -------------------- -------- -------- --------- -------- ----------
1 1700
Asia 2 1700
Pacific 3
4 1900
5 1900
- -------------------- -------- -------- --------- -------- ----------
1 2400
MidEast 2
Africa 3 2900
Asia 4
5
- -------------------- -------- -------- --------- -------- ----------
1
L Amer 2 900
& 3
Caribb 4
5
- -------------------- -------- -------- --------- -------- ----------
</TABLE>
!!!! INTRA COUNTRY SPOKE RATES ARE * !!!!
** Installation, ALC charges also apply. Prices include port and traffic.
- --------------------------------------------------------------------------------
Bridge B-28 6/26/96
<PAGE>
<TABLE>
<CAPTION>
Custom Link All-to-One Spoke Pricing
Line Speed 19.2 Kbps
PLEASE SEE COUNTRY PRICING MATRIX FOR CURRENT COUNTRY ZONES.
- --------------------------------------------------------------------------------------------------------
Monthly Charge = ALC + Flat Rate Usage Charge
- --------------------------------------------------------------------------------------------------------
19.2 Kbps Spoke Pricing for Spokes in all destinations**
- -------------------- ------------------------------------ ----------------------------------------------
Region/ North America Europe
Zone 1 2 3 4 1 2 3 4 5
- -------------------- -------- -------- --------- -------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1100 1350 700 1400 1600 1800 2500 1600
North 2 1100 1100 1500 800 1700 1800 2000 2600 1800
Amer. 3 1350 1500 1100 1800 1900 2100 2900 1900
4 700 800 700 1400 1600 1800 2500 1600
- -------------------- -------- -------- --------- -------- -------- -------- --------- -------- ---------
1 1400 1700 1800 1400 1100 1250 1450 1900 1250
2 1600 1800 1900 1600 1250 1250 1450 1900 1250
Europe 3 1800 2000 2100 1800 1450 1450 1450 1900 1450
4 2500 2600 2900 2500 1900 1900 1900 1900 1900
5 1600 1800 1900 1600 1250 1250 1450 1900 1250
- -------------------- -------- -------- --------- -------- -------- -------- --------- -------- ---------
1 1700 1900 2100 1700 1800 1800 2100 3000 1800
Asia 2 1900 2100 2300 1900 2000 2000 2300 3000 2000
Pacific 3
4 2200 2400 2600 2200 2300 2300 2600 3000 2300
5 1700 1900 2000 1700 2300 2300 2600 2700 2300
- -------------------- -------- -------- --------- -------- -------- -------- --------- -------- ---------
1 2100 2300 2500 2100 2400 2400 2600 2800 2400
MidEast 2
Africa 3 2800 2900 3000 2800 2900 3000 3100 3900 3000
Central 4
Asia 5
- -------------------- -------- -------- --------- -------- -------- -------- --------- -------- ---------
1
L Amer 2
& 3
Caribb 4
5
- -------------------- -------- -------- --------- -------- -------- -------- --------- -------- ---------
</TABLE>
- --------------------------------------------------------------------------------
Bridge B-29 6/26/96
<PAGE>
<TABLE>
<CAPTION>
- -------------------- ----------------------------------------------- ----------------------------------------------
Region/ Asia/Pacific Mid East/Africa/Cent Asia
Zone 1 2 3 4 5 1 2 3 4 5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1700 1900 2200 1700 2100 2800
North 2 1900 2100 2400 1900 2300 2900
Amer. 3 2100 2300 2600 2000 2500 3000
4 1700 1900 2200 1700 2100 2800
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 1800 2000 2300 2300 2400 2900
2 1800 2000 2300 2300 2400 3000
Europe 3 2100 2300 2600 2600 2600 3100
4 3000 3000 3000 2700 2800 3900
5 1800 2000 2300 2300 2400 3000
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 1100 2100 2300 2300 2300 2900
Asia 2 2100 1300 2400 2400 2400 3000
Pacific 3
4 2300 2400 2600 2600 2800 3000
5 2300 2400 2600 2800 3000
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 2300 2400 2800 2800 1100 2300
MidEast 2
Africa 3 2900 3000 3000 3000 2300 1100
Asia 4
5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1
L Amer 2
& 3
Caribb 4
5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
</TABLE>
!!!! INTRA COUNTRY SPOKE RATES ARE * except Canada is *!!!!
** Installation, ALC charges also apply. Prices include port and traffic.
See Domestic Rate Schedule for all Intra-Country prices.
- --------------------------------------------------------------------------------
Bridge B-30 6/26/96
<PAGE>
<TABLE>
<CAPTION>
Custom Link All-to-One Spoke Pricing
Line Speed 64 Kbps
PLEASE SEE COUNTRY PRICING MATRIX FOR CURRENT COUNTRY ZONES.
- --------------------------------------------------------------------------------------------------------
Monthly Charge = ALC + Flat Rate Usage Charge
- --------------------------------------------------------------------------------------------------------
64 Kbps Spoke Pricing for Spokes between all destinations**
- -------------------- ------------------------------------ ----------------------------------------------
Region/ North America Europe
Zone 1 2 3 4 1 2 3 4 5
- -------------------- -------- -------- --------- -------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1500 1750 900 1800 2000 2200 2900 2000
North 2 1500 1500 1900 1000 2100 2200 2400 3000 2200
Amer. 3 1750 1900 1500 2200 2300 2500 3300 2300
4 900 1000 900 1800 2000 2200 2900 2000
- -------------------- -------- -------- --------- -------- -------- -------- --------- -------- ---------
1 1800 2100 2200 1800 1500 1500 1850 2300 1500
2 2000 2200 2300 2000 1500 1500 1850 2300 1500
Europe 3 2200 2400 2500 2200 1850 1850 1850 2300 1850
4 2900 3000 3300 2900 2300 2300 2300 2300 2300
5 2000 2200 2300 2000 1500 1500 1850 2300 1500
- -------------------- -------- -------- --------- -------- -------- -------- --------- -------- ---------
1 2100 2300 2500 2100 2200 2200 2500 3400 2200
Asia 2 2300 2500 2700 2300 2400 2400 2700 3400 2200
Pacific 3
4 2600 2800 3000 2600 2700 2700 3000 3400 2700
5 2100 2300 2400 2100 2700 2700 3000 3100 2700
- -------------------- -------- -------- --------- -------- -------- -------- --------- -------- ---------
1 2500 2700 2900 2500 2800 2800 3000 3200 2800
MidEast 2
Africa 3
Central 4
Asia 5
- -------------------- -------- -------- --------- -------- -------- -------- --------- -------- ---------
1
L Amer 2
& 3
Caribb 4
5
- -------------------- -------- -------- --------- -------- -------- -------- --------- -------- ---------
</TABLE>
- --------------------------------------------------------------------------------
Bridge B-31 6/26/96
<PAGE>
<TABLE>
<CAPTION>
- -------------------- ----------------------------------------------- ----------------------------------------------
Region/ Asia/Pacific Mid East/Africa/Cent Asia
Zone 1 2 3 4 5 1 2 3 4 5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2100 2300 2600 2100 2500
North 2 2300 2500 2800 2300 2700
Amer. 3 2500 2700 3000 2400 2900
4 2100 2300 2600 2100 2500
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 2200 2400 2700 2700 2800
2 2200 2400 2700 2700 2800
Europe 3 2500 2700 3000 3000 3000
4 3400 3400 3400 3100 3200
5 2200 2400 2700 2700 2800
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 1500 2500 2700 2700 2700
Asia 2 2500 1700 2800 2800 2800
Pacific 3
4 2700 2800 3000 3000 3200
5 2700 2800 3000 3200
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1 2700 2800 3200 3200
MidEast 2
Africa 3
Central 4
Asia 5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
1
L Amer 2
& 3
Caribb 4
5
- -------------------- -------- -------- --------- -------- ---------- ------- --------- -------- --------- ---------
</TABLE>
!!!! INTRA COUNTRY SPOKE RATES ARE * except Canada is * !!!!
** Installation, ALC charges also apply. Prices include port and traffic.
See Domestic Rate Schedule for all Intra-Country prices.
- --------------------------------------------------------------------------------
Bridge B-32 6/26/96
<PAGE>
<TABLE>
<CAPTION>
Monthly Charges
One Time Total Charges
Charges
SprintNet
Service Installation
- -------------------- ------------------ ------------- --------------------- --------------------- -----------------------
X.25 SERVICE
-----------------------
Origination Destination Access TP Port Access
City Country Dist co City Country Speed Protocol Line Traffic
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sidney Australia AAPR St. United 300 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Sidney Australia AAPR St. United 300 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Sidney Australia AFR St. United 1200 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Sidney Australia AFR St. United 1200 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Sidney Australia SFE St. United 2400 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Sidney Australia SFE St. United 2400 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Austria VSE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Austria VSE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Brussels Belgium BSE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Brussels Belgium BSE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom BARC St. United 300 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom BARC St. United 300 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom CAPE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom CAPE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom EXTEL St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom EXTEL St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom FINSTA St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom GWM St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom GWM St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom IPE St. United 2.4. Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
<CAPTION>
One Time Total Charges
Service
- -------------------- ------------------ --------------------- ------------ -------------- --------------
X.75 SERVICE
-------- ------------
Origination Per Per Access Monthly Non
City Country Hour Kilosg- Line Recurring Recurring
ment
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sidney Australia - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Sidney Australia - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Sidney Australia - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Sidney Australia - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Sidney Australia - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Sidney Australia - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Austria - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Austria - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Brussels Belgium - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Brussels Belgium - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
</TABLE>
B-33
<PAGE>
<TABLE>
<CAPTION>
Monthly Charges
One Time Total Charges
Charges
SprintNet
Service Installation
- -------------------- ------------------ ------------- --------------------- --------------------- -----------------------
X.25 SERVICE
-----------------------
Origination Destination Access TP Port Access
City Country Dist co City Country Speed Protocol Line Traffic
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
London United Kingdom LIFFE1 St. United 19.2 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom LIFFE2 St. United 19.2 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom LME St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom LME St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom NWB1 St. United 300 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom NWB1 St. United 300 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom OM St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom SMNCLN St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom SMNCLN St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom VWB St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Paris France MATIF St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Paris France MATIF St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
England SBID St. United 64 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Hong Kong Hong Kong HKFE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Hong Kong Hong Kong HKFE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Hong Kong Hong Kong HKSB St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Hong Kong Hong Kong HKSE St. United 19.2 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Hong Kong Hong Kong HKSE St. United 19.2 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Indonesia JSEX St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Italy MILAN St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Italy MILAN St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Tokyo Japan JASDAQ St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Tokyo Japan JASDAQ St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
<TABLE>
<CAPTION>
One Time Total Charges
Service
- -------------------- ------------------ --------------------- ------------ -------------- --------------
X.75 SERVICE
-------- ------------
Origination Per Per Access Monthly Non
City Country Hour Kilosg- Line Recurring Recurring
ment
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Paris France - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Paris France - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
England - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Hong Kong Hong Kong - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Hong Kong Hong Kong - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Hong Kong Hong Kong - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Hong Kong Hong Kong - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Hong Kong Hong Kong - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Indonesia - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Italy - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Italy - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Tokyo Japan - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Tokyo Japan - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
B-34
<PAGE>
<TABLE>
<CAPTION>
Monthly Charges
One Time Total Charges
Charges
SprintNet
Service Installation
- -------------------- ------------------ ------------- --------------------- --------------------- -----------------------
X.25 SERVICE
-----------------------
Origination Destination Access TP Port Access
City Country Dist co City Country Speed Protocol Line Traffic
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tokyo Japan JBT St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Tokyo Japan JBT St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Tokyo Japan JBW St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Tokyo Japan NEN St. United 2.4 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Tokyo Japan TCE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Tokyo Japan TCE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Tokyo Japan TIFFE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Tokyo Japan TIFFE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Lisbon Portugal LISBON St. United 10.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Malaysia BRNMA St. United 1.2 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Malaysia BRNMA St. United 1.2 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Malaysia KLSE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Malaysia KLSE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Mexico BANAMEX St. United 2.4 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Mexico BLFIN St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Amsterdam Netherlands AMSE St. United 19.2 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Amsterdam Netherlands AMSE St. United 19.2 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Amsterdam Netherlands EOE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Amsterdam Netherlands EOE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
New Zealand NZSE St. United 2.4 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Singapore Singapore SESX St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Singapore Singapore SESX St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Singapore Singapore SIMEX St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
<CAPTION>
One Time Total Charges
Service
- -------------------- ------------------ --------------------- ------------ -------------- --------------
X.75 SERVICE
-------- ------------
Origination Per Per Access Monthly Non
City Country Hour Kilosg- Line Recurring Recurring
ment
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Tokyo Japan - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Tokyo Japan - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Tokyo Japan - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Tokyo Japan - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Tokyo Japan - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Tokyo Japan - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Tokyo Japan - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Tokyo Japan - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Lisbon Portugal - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Malaysia - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Malaysia - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Malaysia - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Malaysia - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Mexico - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Mexico - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Amsterdam Netherlands - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Amsterdam Netherlands - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Amsterdam Netherlands - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Amsterdam Netherlands - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
New Zealand - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Singapore Singapore - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Singapore Singapore - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Singapore Singapore - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
B-35
<PAGE>
<TABLE>
<CAPTION>
Monthly Charges
One Time Total Charges
Charges
SprintNet
Service Installation
- -------------------- ------------------ ------------- --------------------- --------------------- -----------------------
X.25 SERVICE
-----------------------
Origination Destination Access TP Port Access
City Country Dist co City Country Speed Protocol Line Traffic
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Singapore Singapore SIMEX St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Singapore Singapore SPHLSG St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Johannesburg South Africa _SE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Madrid Spain MSE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Madrid Spain MSE St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Stockholm Sweden NORDQT St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Stockholm Sweden NORDQT St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Stockholm Sweden NORDQT St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Bangkok Thailand St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Canada ZZBRHQ St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Canada ZZBRHQ St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Canada ZZMOSL St. United 19.2 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Canada ZZBRHQ St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Canada ZZBRHQ St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Canada ZZMOSL St. United 19.2 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Canada ZZBRHQ St. United 1.2 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Canada ZZNYNY St. United 1.2 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Ireland St. United 9.6 Async * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
United Kingdom TELEK St. United 9.6 Bisync * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
United Kingdom TELEK St. United 9.6 Bisync * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Japan TKSEX St. United 64 Bisync/EB * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Tokyo Japan TKSEX St. United 64 Bisync/EB * *
Louis States CDIC
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
<CAPTION>
One Time Total Charges
Service
- -------------------- ------------------ --------------------- ------------ -------------- --------------
X.75 SERVICE
-------- ------------
Origination Per Per Access Monthly Non
City Country Hour Kilosg- Line Recurring Recurring
ment
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Singapore Singapore - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Singapore Singapore - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Johannesburg South Africa * * * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Madrid Spain - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Madrid Spain - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Stockholm Sweden - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Stockholm Sweden - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Stockholm Sweden - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Bangkok Thailand * * * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Canada - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Canada - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Canada - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Canada - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Canada - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Canada - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Canada - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Canada - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Ireland - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Japan - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Tokyo Japan - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
B-36
<PAGE>
<TABLE>
<CAPTION>
Monthly Charges
One Time Total Charges
Charges
SprintNet
Service Installation
- -------------------- ------------------ ------------- --------------------- --------------------- -----------------------
X.25 SERVICE
-----------------------
Origination Destination Access TP Port Access
City Country Dist co City Country Speed Protocol Line Traffic
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Taipei Taiwan TWSE St. United 2.4 Async- * *
Louis States Dial
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Sydney Australia ASX St. United 9.6 X.25 * *
Louis Stated
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Sydney Australia ASX St. United 9.6 X.25 * *
Louis Stated
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom AO St. United 64 X.25 * *
Louis Stated
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom BO St. United 64 X.25 * *
Louis Stated
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom A1 St. United 64 X.25 * *
Louis Stated
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
London United Kingdom B1 St. United 64 X.25 * *
Louis Stated
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Frankfurt Germany DTBF St. United 64 X.25 * *
Louis Stated
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Frankfurt Germany DTBF St. United 64 X.25 * *
Louis Stated
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Frankfurt Germany TPF St. United 19.2 X.25 * *
Louis Stated
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Frankfurt Germany TPF St. United 19.2 X.25 * *
Louis Stated
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Mexico BOLSA St. United 9.6 X.25 * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Switzerland ATB St. United 64 X.25 * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Switzerland ATB St. United 64 X.25 * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
Paulo Brazil St. United 9.6 X.75 * *
Louis States
- -------------------- ------------------ ------------- --------- ----------- --------- ----------- ----------- -----------
- -------------------- ------------------ ------------- --------- --------------------------------- ----------- -----------
TOTALS * *
- -------------------- ------------------ ------------- --------- --------------------------------- ----------- -----------
* CONFIDENTIAL TREATMENT REQUESTED
<CAPTION>
One Time Total Charges
Service
- -------------------- ------------------ --------------------- ------------ -------------- --------------
X.75 SERVICE
-------- ------------
Origination Per Per Access Monthly Non
City Country Hour Kilosg- Line Recurring Recurring
ment
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Taipei Taiwan - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Sydney Australia - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Sydney Australia - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
London United Kingdom - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Frankfurt Germany - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Frankfurt Germany - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Frankfurt Germany - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Frankfurt Germany - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Mexico - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Switzerland - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Switzerland - - * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
Paulo Brazil * * * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
* * * * *
- -------------------- ------------------ -------- ------------ ------------ -------------- --------------
</TABLE>
RATES: Async = 83
X.25 = 14
Bisync = 4
Pricing provided is in US dollars
Access Line Installation charges include access line installation and port
installation
Access line charges are budgetary
Value added tax (VAT) is not included in pricing
Service is subject to availability at time of order
* Service charges noted but not included in totals
* CONFIDENTIAL TREATMENT REQUESTED
B-37
EXHIBIT 10.19
AMENDMENT FIVE
TO THE
MANAGED NETWORK AGREEMENT
BETWEEN
SPRINT COMMUNICATIONS COMPANY, L.P.
AND
BRIDGE DATA COMPANY
CONFIDENTIAL MATERIALS HAVE BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
The Managed Network Agreement ("Agreement") between Sprint Communications
Company, L.P. ("Sprint") and Bridge Data Company ("Bridge"), having an effective
date of March 1, 1995, as amended, is hereby further amended as set forth below.
WHEREAS, Sprint and Bridge have previously entered into an Agreement for the
provision of managed network services; and
WHEREAS, Sprint and Bridge desire to amend the Agreement.
NOW THEREFORE, the parties mutually agree to the following:
1. Attachment B. The following changes are hereby made to Attachment B:
a) DOMESTIC PRICING Section I. Equipment - Purchase Price. Add the
following equipment to the list of equipment.
<TABLE>
<CAPTION>
Model Description List Price Net Price
----- ----------- ---------- ---------
<S> <C> <C> <C>
AE1001010 BayNetworks ANH $2245 $1459.25
8 Port Router
88039901 DB25M-DB25F Cable $29 $29
</TABLE>
b) DOMESTIC PRICING Section I. Equipment - Purchase Price. Model
AE008017 should now read Model AE008023.
c) DOMESTIC PRICING Section I. Equipment - Purchase Price. The list
price and net price for the Model 7919 BayNetworks Power Cord (2)
should now be N/C.
d) DOMESTIC PRICING Section I. Equipment - Purchase Price Note 4.)
Add (1) T-Connector.
e) GLOBAL PRICING Section III. Pricing for Canada. A - Equipment
Installation. Price should now be * per site. Delete the words
"and configured" from 2).
* CONFIDENTIAL TREATMENT REQUESTED
Bridge/Sprint Confidential -1- 11/21/96
<PAGE>
f) GLOBAL PRICING Section III. Pricing for Canada . B - Equipment
Maintenance/Management. Delete this entire section and insert the
following language: "Equipment Maintenance and Management in
Canada are the responsibility of Bridge."
2. All other terms and conditions of the Agreement shall remain in full
force and effect, except as expressly stated herein.
IN WITNESS WHEREOF, the parties have executed this Amendment Six as of the date
of the last signature below.
SPRINT COMMUNICATIONS CO., L.P. BRIDGE DATA COMPANY
/s/ George Putney /s/ Robert McCormick
- ------------------------------- ---------------------------------
Signature Signature
George Putney Robert McCormick
- ------------------------------- ---------------------------------
Printed Name Printed Name
Branch Manager Executive Vice President
- ------------------------------- ---------------------------------
Title Title
12/05/96 12/06/96
- ------------------------------- ---------------------------------
Date Date
Bridge/Sprint Confidential -2- 11/21/96
EXHIBIT 10.20
AMENDMENT SIX
TO THE
MANAGED NETWORK AGREEMENT
BETWEEN
SPRINT COMMUNICATIONS COMPANY, L.P.
AND
BRIDGE DATA COMPANY
CONFIDENTIAL MATERIALS HAVE BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
The Managed Network Agreement ("Agreement") between Sprint Communications
Company, L.P. ("Sprint") and Bridge Data Company ("Bridge"), having an effective
date of March 1, 1995, as amended, is hereby further amended as set forth below.
WHEREAS, Sprint and Bridge have previously entered into an Agreement for the
provision of managed network services; and
WHEREAS, Sprint and Bridge desire to amend the Agreement.
NOW THEREFORE, the parties mutually agree to the following:
1. Attachment B. The following item is hereby incorporated into Attachment
B - MISCELLANEOUS CHARGES:
III. CD-ROM CHARGES
Provides electronic format for Frame Relay Billing
Customer's monthly recurring charge for receipt of it's
invoice on CD-ROM is *
2. All other terms and conditions of the Agreement shall remain in full
force and effect, except as expressly stated herein.
IN WITNESS WHEREOF, the parties have executed this Amendment Five as of the date
of the last signature below.
SPRINT COMMUNICATIONS CO., L.P. BRIDGE DATA COMPANY
/s/ George Putney /s/ Kevin J. Schott
- ---------------------------------- ----------------------------------
Signature Signature
George Putney Kevin J. Schott
- ---------------------------------- ----------------------------------
Printed Name Printed Name
Branch Manager Vice President/Controller
- ---------------------------------- ----------------------------------
Title Title
5/23/97 5/23/97
- ---------------------------------- ----------------------------------
Date Date
* CONFIDENTIAL TREATMENT REQUESTED
Bridge/Sprint Confidential -1-
EXHIBIT 10.21
CONFIDENTIAL MATERIALS HAVE BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
AMENDMENT SEVEN
TO THE
MANAGED NETWORK AGREEMENT
BETWEEN
SPRINT COMMUNICATIONS COMPANY L.P.
AND
BRIDGE DATA COMPANY
The Managed Network Agreement ("Agreement") between Sprint Communications
Company L.P. ("Sprint") and Bridge Data Company ("Bridge"), having an effective
date of March 1, 1995, as amended, is hereby further amended as set forth below.
WHEREAS, Sprint and Bridge have previously entered into an Agreement for the
provision of Sprint Frame Relay Service and Sprint Managed Network Services; and
WHEREAS, Sprint and Bridge desire to extend the Agreement for an additional
three (3) year period.
NOW THEREFORE, the parties mutually agree to the following:
1. Section 3. Term and Extensions. Paragraphs (a) and (b) are hereby
deleted in their entirety and replaced with the following:
(a) The initial term of this Agreement shall commence on the last
date shown on the signature page (Seventh Amendment Effective
Date), and shall continue in full force and effect through
January 31, 2002 unless terminated in accordance with its
provisions.
(b) Bridge shall have the right to extend the term of this Agreement
for up to two (2) successive one (1) year periods after the
expiration of the term (as the same may be extended pursuant to
section 9). Bridge must exercise its renewal right by providing
Sprint thirty days advance written notice of Bridge's intent to
extend.
2. Section 7. Rates and Charges. Section 7 is amended to add the following
new paragraph:
"Sprint may adjust its rates and charges or impose additional rates and
charges on Customer in order to recover amounts that Sprint is
Bridge/Sprint Confidential -1- 8/28/98
<PAGE>
required by governmental or quasi-governmental authorities to collect
on behalf of or pay to others in support of statutory or regulatory
programs. Examples of such programs include, but are not limited to,
the Universal Service Fund, the Presubscribed Interexchange Carrier
Charge, and compensation to payphone service providers for use of their
payphones to access sprint's service."
3. Section 9. Minimum Commitment. Delete Section 9 in its entirety and
replace with the following language:
"BRIDGE agrees to achieve a minimum annual commitment ("MAC")
of * of Contributory Services during each Contract Year
(defined as the 12 billing month period commencing on the
Effective Date) of the Term. "Contributory Services" shall
include Service usage charges for the following services,
calculated after the application of all available discounts:
Domestic Sprint Frame Relay Service, Global Sprint Frame Relay
Service, Domestic access lines (including monthly ACF and COC
charges), Global access lines, Domestic Sprint Managed Network
Services, Global Sprint Managed Network Services, Domestic
Sprint Dedicated Access Facilities ("DAFs"), Global Sprint
DAFs, Domestic Sprint Dedicated IP Service, Sprint ATM
Service, and the total monthly circuit charges for the
domestic portion of International private line circuits. In
the event the Term or Renewal Term, as the case may be,
includes a partial Contract Year, the Customer's MAC will be
prorated based upon the number of months in the partial
Contract Year.
If Bridge is unable to satisfy the MAC for a Contract Year,
Bridge may "carry forward" up to * of the MAC for such
Contract Year and add such amount to the MAC for the following
Contract Year. If Customer is unable to satisfy the MAC, as
adjusted, in the last Contract Year of this Agreement, then
the last Contract Year will be extended for 3 additional
months. If, at the conclusion of such extension, Customer is
unable to satisfy the MAC, as adjusted, then Customer must pay
Sprint, in addition to all other charges, the difference
between the MAC, as adjusted, and Customer's Contributory
Services Usage Charges in the last Contract year.
If Customer terminates this Agreement or ceases to use Network
Services to any material extent, Customer will pay to Sprint
the MAC divided by 12 multiplied by the number of billing
months remaining in the Term. Sprint will bill Customer for
such amount on its next regular invoice and such amount
Bridge/Sprint Confidential -2- 8/28/98
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
will be due and payable according to the payment terms
contained in this Agreement.
4. Attachment B (Rates and Charges) - Domestic Pricing - SECTION I -
EQUIPMENT PURCHASE PRICE. This SECTION is superseded in its entirety
and is replaced by the following paragraphs:
SECTION I - EQUIPMENT PURCHASE PRICE
The following prices and discount percentages will apply to Equipment Bridge
purchases from Sprint during the Term which is to be located in the continental
USA.
a) Customer will receive a * discount off Sprint's list price (at
time of purchase) on all Bay Networks Equipment purchased from
Sprint (except as set forth in paragraph (o) below) that is
located in the continental USA, as long as Bridge purchases
all Bay Networks Equipment through Sprint.
b) Customer will receive a * discount off Sprint's list price (at
time of purchase) on Telebit Networking Hardware purchased
from Sprint.
c) Customer will be charged a * fixed non-recurring charge for
each BNC Transceiver Package purchased from Sprint during the
Term. The charge for each BNC Transceiver Package consists of
one transceiver, two terminators, one T-Connector, and
installation.
d) Customer will receive a * discount off Sprint's list price (at
time of purchase) on Microcom Modem Equipment purchased from
Sprint.
e) Customer will be charged a * fixed non-recurring charge for
each SP1530 Aduan purchased from Sprint. If Bridge provides
the DSUs, Bridge is responsible for providing two DSU cables
as well as the DSU. One cable will connect to the router and
one will connect to the Telco demare.
f) Customer will be charged a fixed * for each WAN Interface
Cable (Model No. 930703-008) purchased from Sprint.
g) Customer will be charged a * fixed non-recurring charge for
each 910418-008 DB(M)/DB25 Cable purchased from Sprint.
Bridge/Sprint Confidential -3- 8/28/98
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
h) Customer will be charged a * fixed non-recurring charge for
each 950846-006 DB25(F)/V.35(M) Cable purchased from Sprint.
i) Customer will be charged a * fixed non-recurring charge for
each 3520 Codex DSU purchased from Sprint. If Bridge provides
the Codex DSUs, Bridge is responsible for de-installing the
DSU, upgrading the cables, and shipping the DSU to Sprint's
inventory site(s).
j) Bridge will receive a * discount off Sprint's list price (at
time of purchase) on Digital Transmission System, Inc. (DTS)
Equipment purchased from Sprint.
k) Bridge will receive the following discounts off Sprint's list
price (at time of purchase) on Ascend (formerly Cascade)
Equipment purchased from Sprint.
(1) a * discount on Ascend (formerly Cascade) Equipment purchased
from Sprint, except as set forth in subparagraph (2), below;
(2) a * discount on Ascend Pipeline 75 and Pipeline 85 Equipment
purchased from Sprint; and
l) Bridge will be charged an * fixed non-recurring charge for
each Visual Networks ASE-BDE DSU purchased from Sprint. This
charge includes a V.35 Router Cable, and a cable package
consisting of one Network Interface Cable, one Ethernet Patch
Cable, and one Administration Port Cable.
m) Bridge will be charged a * fixed non-recurring charge for each
Visual Networks ASE-EDE purchased from Sprint.
n) Bridge will be charged a * fixed non-recurring charge for each
Visual Networks ASE-CDE DI purchased from Sprint.
o) Bridge will be charged a * fixed non-recurring charge for each
Bay Networks ARN Router purchased from Sprint, provided that
Bridge places an initial order for at least 500 ARN Routers
with the following configuration: Bay Stack 101 10Base-T Hub,
ARN Ethernet Base Unit 16 DRAM, ARN Serial Adapter Module, IP
Access Suite 8M PCMCIA, 7919 Power Cord US.
Bridge/Sprint Confidential -4- 8/28/98
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
5. Attachment B (Rates and Charges) - Domestic Pricing - SECTION II. - CPE
INSTALLATION. Add and/or revise the language in this Section as
follows:
<TABLE>
<CAPTION>
First Device(6) Second Device (5)
Equipment Install Price Install Price (same location)
--------- ------------- -----------------------------
<S> <C> <C>
Ascend Pipeline 75 * *
Ascend Pipeline 85 * *
Bay Networks ARN Router * *
Visual Networks ASE-EDE DSU * *
Visual Networks ASE-CDE DI * *
</TABLE>
"Customer will be charged a * fixed non-recurring installation charge for each
of the following occurrences during the Term:
TP to Cascade Conversions
TP to TP Conversions
Hot Cut Moves
Cascade to Cascade Conversions"
6. Attachment B (Rates and Charges) - Domestic Pricing - SECTION III -
MAINTENANCE. Add and/or revise the language in this Section as follows:
Bridge/Sprint Confidential -5- 8/28/98
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Equipment Response Price
Ascend Pipeline 75** Next Day * each/month
Repair/Return
Ascend Pipeline 85** Next Day * each/month
Repair/Return
** The maintenance price for the Ascend Pipeline 75 and Ascend Pipeline
85 includes maintenance for two modems.
7. Attachment B (Rates and Charges). Domestic Pricing - SECTION VI. -
FRAME RELAY - Paragraph A. Access. Option I. This paragraph is
superseded in its entirety by the following paragraphs:
"Option I
(a) If Customer utilizes the access pricing from the SIA contract,
Customer will be charged the applicable rate for local access
from the SIA contract for each SIA Domestic Sprint Frame Relay
site. For non-SIA Domestic Sprint Frame Relay sites, Customer
will receive a * discount off Sprint's monthly recurring
Tariff 8 rates for each Sprint-provided 56Kbps and T-1 local
access line installed or in service during the Term.
(b) Sprint will waive * of the COC and ACF monthly recurring
charges for each Sprint-provided 56Kbps or T-1 local access
line installed or in service during the Term.
(c) Customer will be charged the applicable Sprint Tariff 8 non-
recurring installation charge for each Sprint-provided 56Kbps
or T-1 local access line installed during the Term, except as
set forth in subparagraph (d) below.
(d) Sprint will waive * of the non-recurring installation charge
for each Sprint-provided TCG type I or type 2 56Kbps or T-1
local access line installed during the Term.
(e) Customer will be charged a * fixed monthly recurring charge
and a * fixed non-recurring installation charge for each
additional DSX assignment installed or in service during the
Term.
(f) Customer will be charged a * fixed non-recurring mishome
charge for each 56/64 Kbps access circuit mishomed between
Sprint POPs in New York City.
Bridge/Sprint Confidential -6- 8/28/98
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
(g) Customer will be charged a * fixed non-recurring mishome
charge for each T-1 access circuit mishomed between Sprint POPs
in New York City.
8. Attachment B (Rates and Charges) - Domestic Pricing - SECTION VI -
FRAME RELAY - Paragraph C. PVC. This paragraph is superseded in its
entirety by the following paragraphs:
(a) Burst Express (Zero CIR) PVCs
Customer will be charged a * fixed monthly recurring charge for each
Domestic Sprint Frame Relay Burst Express (Zero CIR) PVC installed or
in service during the Term.
(b) Burst Express Plus (Reserved CIR) PVCs
Customer will be charged the applicable fixed monthly recurring charge
from the table below for Domestic Sprint Frame Relay Burst Express Plus
(Reserved CIR) PVCs installed or in service during the Term. The
Monthly Recurring Charge includes two (2) Burst Express Plus PVCs.
Monthly Recurring Charge
PVC Speed For 2 Burst Express Plus PVCs
--------- -----------------------------
16 Kbps *
32 Kbs *
38.4 Kbs *
64 Kbps *
128 Kbps *
192 Kbps *
256 Kbps *
320 Kbps *
384 Kbps *
448 Kbps *
512 Kbps *
576 Kbps *
640 Kbps *
704 Kbps *
768 Kbps *
832 Kbps *
896 Kbps *
960 Kbps *
1,024 Kbs *
Bridge/Sprint Confidential -7- 8/28/98
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
9. Attachment B (Rates and Charges) - Domestic Pricing- SECTION VI. - ATM
SERVICES. Insert the following item to this Section:
B. Port Connection Charges
Port Installation Charge Monthly Recurring Charge
---- ------------------- ------------------------
OC-3 * each * each per month**
**No other discounts apply to OC-3 Ports. Each Port must be ordered for
a minimum term of 3 years. Additional charges apply for
diversity/alternate routing.
10. Attachment F (Facilities Services Agreement) - Section 2. Equipment
Rack Space. Replace the second paragraph with the following language:
"For lease of the Equipment Rack Space during the Term, Customer will
be charged the fixed charges set forth below. The charges shall not
begin until the equipment is installed.
1) a fixed non-recurring site preparation charge of * for each
instance of rack and/or ancillary services installation activity
which includes up to two (2) consecutive working days for
installation supervision and escort (thereafter, the escort rates
as outlined in Paragraph 7 herein will apply);
2) the applicable fixed monthly recurring fee set forth below, which
shall include the cost of up to 20 AMPS of AC or DC electrical
power furnished to Customer by Sprint hereunder. Customer will be
charged a * fixed charge for each additional AMP of electrical
power used by Customer in a month.
a) for each Equipment Rack Space installed prior to January
1, 1997, a monthly recurring fee of * for each Equipment
Rack Space per Sprint POP site used; or
b) for each Equipment Rack Space installed after January 1,
1997, a monthly recurring fee of * for each Equipment Rack
Space per Sprint POP site used.
11. A new section 34 is hereby added to the Agreement, as follows:
34. Applicability of Tariff. All Standard Custom Network Service
Arrangement terms and conditions in Sprint F.C.C. Tariff No. 12
apply to this Agreement. Rates, charges and discounts for all
types, service
Bridge/Sprint Confidential -8- 8/28/98
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
elements, features and other products and services not in this
Agreement will be those provided under the applicable Sprint base
service tariff or public price list. Additional terms and conditions
relating to services provided to Customer are contained in the
applicable tariffs. The terms and conditions of any Tariff and/or other
discount or incentive programs apply to the services and discounts or
incentives available under such Tariff or program. In order to receive
Term Plan or other incentive discounts Customer must execute the
applicable agreements. Any terms and conditions applicable to such
discounts and/or programs which Customer elects to participate in are
in addition to the terms and conditions applicable to the Discounts.
12. A new section 35 is hereby added to the Agreement, as follows:
35. Use of Sprint Products and Services. Customer uses the Sprint
Products and Services as an element of the products and services
it provides to its customers. Customer acknowledges that it is
solely obligated to provide billing and customer service to its
customers, and that it is solely responsible for collecting all
amounts owed from its customers. Customer assumes all risk of bad
debt or non-payment by its customers. Customer represents and
warrants that invoices and other materials it provides to its
customers do not identify Sprint. If it is determined that
Customer's activities constitute a resale of telecommunications
services or similar activity or if Customer becomes subject to
regulatory filing, licensing or reporting requirements, Customer
will be solely responsible for complying with any applicable
laws, regulations, decisions, or orders, inclding the FCCs rules,
regulations and decisions.
13. All other terms and conditions of the Agreement shall remain in full
force and effect, except as expressly stated herein.
IN WITNESS WHEREOF, the parties have executed this Amendment Seven as of the
date of the last signature below.
SPRINT COMMUNICATIONS BRIDGE DATA COMPANY
COMPANY L.P.
/s/ Robert McCormick
- ------------------------------ -----------------------------
Signature Signature
Bridge/Sprint Confidential -9- 8/28/98
<PAGE>
Robert McCormick
- ------------------------------ ----------------------------
Printed Name Printed Name
Executive Vice President
- ------------------------------ ----------------------------
Title Title
8/28/98
- ------------------------------ ----------------------------
Date Date
Bridge/Sprint Confidential -10- 8/28/98
EXHIBIT 10.22
CONFIDENTIAL MATERIALS HAVE BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
SERVICE AGREEMENT
This Agreement is made as of August 15, 1996, between IXC Carrier.
Inc., a Nevada corporation ("Lessor"), 5000 Plaza on the Lake, Suite 200,
Austin, Texas 78746, and Diamond-Net, I.S.P., Inc., a Missouri Corporation
("Lessee") 7777 North Bonhomme, Suite 1000, Clayton, Missouri 63105.
1. Scope and Rates. Lessor and/or its affiliates own and operate a
fiber optic and digital microwave telecommunications system (the "System").
Lessor desires to lease DS-1, DS-3 or other telecommunications capacity on the
System to Lessee. Lessor shall use its best efforts (considering the needs of
its other customers) to provide Service for which a Marketing Service Order in
the form attached hereto as Exhibit A (as such form may be amended from time to
time by Lessor) has been accepted. The rates for Service are set forth in
Exhibit D, unless otherwise specified in the applicable Purchase Order. The
Marketing Service Order shall contain the applicable lease terms for Lessee's
utilization of the System. Lessee may also order the services listed in Exhibit
B, subject to availability. Lessor may lease telecommunications capacity from
another carrier in order to provide the Services hereunder.
2. Payments. Lessee shall pay Lessor each month within 30 days of the
date of invoice: (i) the monthly lease rate (prorated for any partial month) for
each Available Circuit; and (ii) the charges for other services received. The
first invoice shall be for the first two months; each invoice thereafter shall
be for the following month. If any invoice is not paid when due: (i) a late
charge shall accrue equal to 1-1/2% (or the maximum legal rate, if less) of the
unpaid balance per month; and (ii) Lessor may suspend or terminate the Service.
3. Term. The term hereof shall continue through the end of the Circuit
Lease Term which is last to expire. If Service continues thereafter, the
applicable rates may be renegotiated; provided, however, that such rates shall
not exceed the present rates increased by a percentage equal to the rise in the
Department of Labor, Bureau of Labor Statistics, Consumer Price Index for all
Urban Consumers, U.S. City Average, Subgroup "All Items" (1982-1983=100) (the
"Consumer Price Index") during the period beginning with the first full month
following the date hereof and ending with the last full mouth immediately
preceding the date on which the rates hereunder are to be adjusted and Service
may be terminates by either parry upon 30 days' written notice. If the Consumer
Price Index ceases to be published or is converted into a different standard
reference base or otherwise revised, such other index as the parties shall agree
upon in writing shall be substituted for the Consumer Price Index; if the
parties are unable to agree as to such substituted index, such matter shall be
submitted to arbitration. Lessee may terminate any Circuit upon 90 days' notice;
provided that if termination occurs: (i) prior to the Activation Date, Lessee
shall reimburse Lessor for all costs of the implementation of such Circuit; and
(ii) on or after such date, Lessee shall pay: (A)
<PAGE>
all charges for Service previously rendered; and (B) the amount due through the
end of the applicable Circuit Lease Term (Lessor shall try to re-lease such
Circuit for such term, refunding to Lessee the amount so collected, if any). If
Lessor: (i) fails to provide Service within six months of the Requested Service
Date; or (ii) fails to cure a material breach hereof within 45 days of notice
from Lessee, Lessee may, as its only remedy, terminate the affected Circuit.
4. Limits of Liability. Lessor shall not be liable for any direct,
indirect, reliance or consequential damages, whether foreseeable or not, or for
any damage to property, loss of profits, cost of replacement services, or claims
of customers for service problem caused by any defect, delay in availability, or
failure in the Service or by any other cause. In no event shall Lessor be liable
in excess of the aggregate amount it has collected from Lessee hereunder. Lessor
shall give Lessee a credit in accordance with its then-current outage policy for
periods in which any Circuit loses continuity and fails to comply with
applicable specifications. Such credit shall be Lessee's sole remedy with
respect to such an event; provided, however, that no such credits shall be
allowed and Lessor shall not be liable for any Service defect from causes
outside its control, including accidents, cable cuts, fires, floods,
emergencies, government regulation, wars, or acts of God. Lessor shall have no
obligation to provide Lessee with any backup Circuits for Service ordered
hereunder. LESSOR DISCLAIMS ALL EXPRESS AND IMPLIED WARRANTIES RELATING TO
SERVICE, INCLUDING BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE. LESSEE HAS NOT RELIED ON ANY REPRESENTATION NOT SET
FORTH HEREIN.
5. General Terms. This Agreement shall be construed under the laws of
Texas. All notices shall be in writing and shall be deemed given as of the date
of delivery to the addresses set forth below. The waiver of a breach hereof
shall not be construed to be a waiver of any subsequent breach. Lessor may
terminate this Agreement without liability if Lessee becomes bankrupt or
insolvent. Each party may refer any dispute relating hereto to arbitration in
Austin, Texas under the rules of the American Arbitration Association, and in
such event neither party may commence any action based on such dispute, and any
action which has been commenced shall be stayed, pending the outcome of such
arbitration. Each party shall pay its own costs, expenses and attorneys' fees in
connection with any arbitration proceeding, unless the arbitration award in
connection therewith specifies otherwise. If any term hereof is held to be
invalid or unenforceable, this Agreement shall be construed without such invalid
or unenforceable term. This Agreement is the entire agreement between the
parties pertaining to the Circuits. This Agreement may only be modified by an
instrument in writing executed by each party. Neither party may assign this
Agreement without the written consent of the other party; provided, however,
that a security interest in this Agreement may be granted by Lessor to its
lenders so long as such lenders agree in writing to fulfill Lessor's obligations
hereunder. Subject to the limitations of liability set forth in
<PAGE>
Section 4 above, Lessee shall not disclose to any third party any information
regarding the rates hereunder. Each party (each, an "Indemnitor") shall
indemnify the other party (each, an "Indemnitee") for any damage or liability
incurred by the Indemnitee arising from the Indemnitor's intentional misconduct
or negligence. The rates hereunder do not include any sales, use or utility
taxes. Lessee shall pay to Lessor any such taxes that Lessor may be required to
collect or pay.
6. Definitions. For purposes hereof: "Available" means all necessary
equipment for a Circuit has been installed. "Activation Date" means the date a
Circuit is first made Available to Lessee. "Circuit" means a DS-0, DS-1 or DS-3.
"Circuit Lease Term" means the term of a Circuit specified in the applicable
Purchase Order. "Circuit Mileage" means the length of a Circuit specified in the
applicable Purchase Order. "DS-0" means a circuit complying with TR-TSY-000333
"Switched and Special Access Services - Transmission Parameter Limits and
Interface Combinations" Issue 1, July 1990. "DS-1" means a circuit complying
with AT&T Tech. Ref. Pub. 62411, December 1990, with Addendum 1, March 1991, and
Bellcore TR-MWT-000499, Issue 5, December 1993. "DS-3" shall mean a circuit
meeting the specifications set forth in AT&T Technical Reference Pub. 54014
Addendum 1, November 1992 and Bellcore TB-NWT-608499, Issue 5, December 1993.
"Purchase Order" means any Lessee purchase order accepted by Lessor. "Requested
Service Date" means the date Service on a Circuit is requested to commence
specified in the applicable Purchase Order. "Service" means transmission service
provided between North American DSX standard cross-connect panels located in
Lessor's terminal locations.
To confirm their agreement to be bound hereby, the parties have
executed this agreement below:
IXC Carrier, Inc. Diamond Net, I.S.P., Inc.
5000 Plaza on the Lake, Suite 200 7777 North Bonhomme, Suite 1000
Austin, Texas 78746-1050 Clayton, MO 63105
Attention: Contract Administration Attention: Kevin Yarbrough
Telephone No.: (512) 328-1112 Telephone No.: (314) 727-5596
Facsimile No.: (512) 328-7902 Facsimile No.: (314) 727-0180
By: /s/ John R. Flemming By: /s/ Andrew Gladney
-------------------------------- -----------------------------
John R. Flemming, Andrew Gladney,
Executive Vice President President & CEO
- ------------------------------------ --------------------------------
(Please Print - Name and Title) (Please Print - Name and Title)
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Purchase Order
Exhibit B Maintenance and other Additional Services
Exhibit C List of On-net Cities
Exhibit D List of Rates for Service
<PAGE>
EXHIBIT B
CUSTOMER MAINTENANCE SUPPORT
IXC Carrier, Inc.'s (hereinafter referred to as IXC) standard fees for
customer maintenance support services are as follows (unless set by precedence
in a service contract):
Maintenance services shall be defined as all work performed by IXC on
equipment provided by or on behalf of the Customer, or supervision of the
Customer's work within IXC's terminate facilities. Maintenance Service charges
are not billed for troubles found within that portion of a circuit provided by
IXC. The following billing rates apply for these services:
A. * per hour (4 hour minimum - if dispatch is required)
Monday through Friday during the business hours of 8:00 a.m. - 5:00 p.m. local
time, exclusive of the following holidays:
New Years Day
President's Day
Memorial Day
Independence Day
Labor Day
Thanksgiving Day and the day after Thanksgiving
Christmas Day
B. * per hour (4 hour minimum) for overtime work done after
business hours (defined above) and/or on holidays (defined above) and/or all day
on Saturdays and Sundays.
C. As requests for maintenance services are typically made via
telephone, IXC must be advised, in writing as to the person(s) who are
authorized to request service. It is the Customer's responsibility to keep IXC
apprised of any changes to its list of representative(s).
D. To request technical assistance and help under the
maintenance services, a call must be made to out Network Control Center at
1-800-526-2488. This number should be used for IXC technical assistance,
troubleshooting or testing of circuits, not for service impairment or outages.
The person calling in must be on the authorized list in order to commit for
charges for this technical assistance. If that person is not on the list, the
request cannot be accommodated.
1. The Network Control Center personnel will take the
call, record the caller's name and phone number along with facts
concerning the assistance and support needed. The caller will then be
given the number of the "Assistance Ticket."
Page 1 of 4
<PAGE>
2. Upon completion of work, this "Assistance Ticket"
will be given to IXC's Accounting Department, and the customer will
subsequently be billed based upon the information on that ticket. A
copy will be attached to the invoice.
E. Except for emergencies, IXC technicians cannot be
dispatched unless requests are made in accordance with the above call-out
procedure.
Page 2 of 4
<PAGE>
ANCILLARY PRICING SCHEDULE FOR ON-NET SERVICE
<TABLE>
<CAPTION>
NON-RECURRING CHARGES DS-1 DS-3
- --------------------- ---- ----
<S> <C> <C>
New Order Installation (On-Net) * *
New Order Installation (Off-Net) * *
DS-1 Ramp-Up per DS-O * *
Order Change (less than 5 business days) * *
Order Cancellation (less than 5 business days) * *
ASR (new or disconnect) (Special Access Only) * *
ASR Supplement * *
Order Expedite * *
Reconfiguration Same as install Same as install
MONTHLY RECURRING CHARGES DS-1 DS-3
- ------------------------- ---- ----
Monthly circuit charge (IXC portion) * *
Cross-connect charge * *
Other Interexchange Carrier to Lessor local access
or bypass facility (Lessor long haul not involved)
Local bypass charge * *
Lessor POP to Lessor POP in same city, with no
Lessor long haul attached at either Lessor POP
MISCELLANEOUS RECURRING NON-RECURRING
- ------------- --------- -------------
M13 1 yr Term * *
2+yr Term * *
3+yr Term * *
ECHO CANCELLER (per circuit end) * *
SECOND END LOOP (Ex: for ADPCM) * *
DEMAND MAINTENANCE */hr 8a.m.-5p.m. M-F, 4 hour minimum
if dispatch is required; */hr after hours
with 4 hour minimum
RACK SPACE * - subject to availability
SHELF SPACE */ea/mo ICB install
DC POWER */amp/mo (5 amp minimum; 5 amp
increments)
CIF AC/DC POWER *
ALL OTHER SERVICES See Note (2)
</TABLE>
(1) All of the above charges are subject to change with a 30-day notice.
(2) Services not described above will be considered special handling and
charges will be assessed on an individual basis.
Page 3 of 4
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
DSO ANCILLARY PRICING
New Order Installation *
Order Cancellation Prior to Turn up *
Order Expedite *
Reconfiguration (City Pairs the Same) *
DACS Charge (Switching Only) *
DS0 DACS Port Charge (Bell access at DACS) *
DS1 DACS Port *
Minimum Charge per DS-0 *
Notes:
1. All of the above charges are subject to change with a 30 day notice.
2. Services not described above will be considered special handling and
charges will be assessed on an individual basis.
* CONFIDENTIAL TREATMENT REQUESTED
Page 4 of 4
<PAGE>
EXHIBIT C
ON-NET DS-1 AND DS-3 CITIES
<TABLE>
<CAPTION>
<S> <C> <C>
ARIZONA DISTRICT OF COLUMBIA Flint
Phoenix LATA 666 Washington, D.C. LATA 236 2001 S. Grand Traverse
Phelps-Dodge Twr, Ste 1702 1828 L Street, N.W., Ste 260 (313)767
2600 N. Central (602)279 (202)833
Grand Rapids
Tucson LATA 668 ILLINOIS 209 Graham, S.W.
Arizona Bank Bldg. Chicago LATA 358 (616)235
33 N. Stone, Suite 1610 Prudential Building
(520)792 130 E. Randolph, Suite 4001 Jackson
(312)861 170 W. North Street
CALIFORNIA (517)783
Bakersfield LATA 734 INDIANA
1430 Truxton Ave., Ste 730 Indianapolis LATA 336 Kalamazoo
(805)327 Merchants Bank Bldg. 303 Mills St.
11 S. Meridian (616)385
Fresno LATA 728 Suite 1798/1799
4605 E. Vine (317)637 Lansing
(209)486 230 South St.
Southbend LATA 332 (517)482
Fresno Ter 211 West Washington St.
Guarantee Savings 19th Floor Midland
B1171 Fulton Mall, Ste. 1201 (219)233 1000 Jefferson
(209)268 (517)631
MARYLAND
Los Angeles LATA 730 Baltimore LATA 238 Pontiac
One Wilshire 1220 S. Howard 324 S. Saginaw
624 S. Grand, Suite 1615 (301)752 (313)338
(213)689
MICHIGAN Royal Oak
San Diego LATA 732 Ann Arbor 3100 W. 14 Mile Rd.
8933 Complex Dr. 1615 Plymouth Rd. (313)435
(619)569 (313)994
Saginaw
San Francisco LATA 722 Battle Creek 315 Meredith
Metropolitan Life Bldg. 175 Main Street (517)771
425 Market St, Ste 3800C (616)962
(415)543 MISSOURI
Bay City Kansas City LATA 524
Sunnyvale LATA 722 100 E. Hart Bank of Kansas City
111 Uranium (517)667 1125 Grand Ave., Suite 1704
(408)739 (816) 283
Detroit LATA 340
COLORADO Book Bldg. Suite 2609 St. Louis LATA 520
Colorado Springs LATA 658 1249 Washington Blvd. 900 Walnut, Suite 220
102 S. Tejon, Suite 780 (313)961 (314)231
(719)471
Detroit NEVADA
**Denver LATA 656 1860 Gratiot Ave. **Las Vegas LATA 821
Bell Building (313)259 Centel Bldg, Ste 400
931 14th Street, Ste. 622 125 S Las Vegas Blvd.
(303)572 (702)388
</TABLE>
Page 1 of 3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
NEW JERSEY Tulsa LATA 538 Harlingen LATA 568
Newark LATA 224 Lookout Mountain 513 E. Jackson
744 Broad Street, 3rd Floor 3500 S. 26th West Avenue Matz Building
(201)824 (918)584 (210)425
(918)446
NEW MEXICO Houston LATA 560
Albuquerque LATA 664 PENNSYLVANIA 293 N. Main Street
200 Lomas Blvd, N.W. Philadelphia LATA 228 (713)224
13th Floor 2401 Locust St., 2nd Floor
(505)247 (215)564 Lubbock LATA 544
1220 Broadway, #1901
NEW YORK Pittsburgh LATA 234 (806)762
New York LATA 132 Oliver Building
60 Hudson St., Ste 206 535 Smithfield St., Ste 2650 McAllen LATA 568
(212)285 (412)281 200 S. 10th Street, Suite 704
(210)687
OHIO TEXAS
Akron LATA 325 Abilene LATA 550 Midland LATA 542
1 Cascade Plaza, Ste 1950 1049 N. Third, Suite 500 KMID-TV Studio
Main & Bowery (915)675 La Force Blvd &
(216)535 Air Terminal
Amarillo LATA 546 (915)561
Cincinnati LATA 922 Amarillo Petroleum Bldg.
2300 Carew Tower 203 W. 8th, Suite 607/608 San Angelo LATA 961
Suite 4701 (806)373 36 E. Twohig, 15th Floor
441 Vine St. (513)651 (915)653
Austin LATA 558
Cleveland LATA 320 621 Pleasant Valley Road San Antonio LATA 566
R.F. Keith Bldg., Suite 2117 (512)389 660 S. Santa Rosa
1621 Euclid Ave. (210)225
(216)771 Corpus Christi LATA 564
606 N. Carancahua, Ste 816 Waco LATA 556
Columbus LATA 324 Wilson Plaza 100 S. 26th Street
Borden Bldg., Level 2B (512)882 (817)750
180 E. Broad St.
614(469) Dallas LATA 552 **Priced on an Individual
Tower of the Americas Case Basis (ICB)
Dayton LATA 328 2323 Bryan, Suite 380
1 National Bank Bldg.
Suite 2220 2223 Houston St.
130 W. Second (513)461 (214)954 (214)969
Toledo LATA 326 El Paso LATA 540
319 Madison Ave., Ste 2901 El Paso National
(419)242 Bank Bldg.
OKLAHOMA 201 E. Main, Suite 1702
Oklahoma City LATA 536 (915)533
Liberty Tower
100 N. Broadway, Ste 3020 Fort Worth LATA 552
(405)232 WT Waggoner Blvd.
810 Houston Suite 1705
(817)870
</TABLE>
Page 2 of 3
<PAGE>
<TABLE>
<CAPTION>
INSTALLED DS-0 CITIES AUGUST, 1996
<S> <C> <C>
ARIZONA NPA/NNX TEXAS NPA/NNX
Phoenix 602-279
Austin 512-389
CALIFORNIA Corpus Christi 512-883
Dallas 214-741
Los Angeles 213-622 El Paso 915-533
San Diego 619-419 Fort Worth 817-777
Stockton 209-463 Harlingen 210-425
Houston 713-224
DISTRICT OF COLUMBIA San Antonio 210-222
Washington, DC 202-245 McAllen 210-632
ILLINOIS
Chicago 312-861 VIRGINIA
Norfolk 804-622
MARYLAND
Baltimore 410-752 TOTAL DS-O CITIES 26
MICHIGAN All cities are equipped for DSO services.
Birmingham 313-435
Additional cities will be added if cost
MISSOURI is justified.
Kansas City 816-221
St. Louis 314-231
NEW MEXICO
Albuquerque 505-247
NEW YORK
New York City 212-285
OHIO
Dayton 513-252
OKLAHOMA
Oklahoma City 405-232
Tulsa 918-582
PENNSYLVANIA
Philadelphia 215-988 NPA/NNX
Austin 512-389
Corpus Christi 512-883
Dallas 214-741
El Paso 915-533
Fort Worth 817-777
Harlingen 210-425
Houston 713-224
San Antonio 210-222
McAllen 210-632
</TABLE>
Page 3 of 3
<PAGE>
EXHIBIT D
List of Rates for Service
-------------------------
On-Net Service
--------------
DS-0 Service I.C.B.
DS-1 Service .1410
DS-3 Service I.C.B.
Service is for a one (1) year term for On-Net.
Off-Net Service
---------------
DS-0 Service I.C.B.
DS-1 Service I.C.B.
DS-3 Service I.C.B.
Service is for a one (1) year term or the term of the Underlying Carrier,
whichever is greater.
Page 1 of 1
<PAGE>
<TABLE>
<CAPTION>
------------------
<S> <C> <C>
Req'st Svc. Date: EXHIBIT A OFFICE USE ONLY
----------------- IXC CARRIER, INC.
Accepted Earlier Activation: MARKET SERVICE ORDER (MS0)
Y N MSO#
------ ---------- ------------
Ckt ID:
---------------------- ------------------
PURCHASE ORDER FORM FOR CUSTOMER ORDER NO:
--------------------
Pursuant to the DIGITAL SERVICE AGREEMENT by and between IXC CARRIER, INC.
As LESSOR and as LESSEE,
--------------------------------------------------------------------------
dated , 19 , LESSEE orders and LESSOR shall provide the following Digital Transmission Service:
---------- ---
New Renew Qty Rate Term Miles
--------------- --------------
Cancel Disconnect DS-3
--------------- -------------- ---------- --------- ---------- ----------------
Change Expedite Y N DS-1
--------------- ----- ------ ---------- --------- ---------- ----------------
On Net Off Net DS0
--------------- -------------- ---------- --------- ---------- ----------------
Protocol Reconfigure CIF
--------------- -------------- ---------- --------- ---------- ----------------
Other Other
------------------------------------------ ---------- --------- ---------- ----------------
Customer Contact: Phone #: Fax #
-------------------------------- -------------------- -------------------------
Technical Contact: Phone #: Fax #
-------------------------------- -------------------- -------------------------
CITY LOCATION A: CITY LOCATION B:
-------------------------------- --------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Special Switched Special Switched
---------- ------------ ---------- ----------------
Bypass Y N Owner Bypass Y N Owner
--- ---- ------------ ---- ----- ----------------
LESSOR TO PROVIDE: CFA: Y N LESSOR TO PROVIDE: CFA: Y N
--- ---- ---- ------
LOA: Y N ASR: Y N LOA: Y N ASR: Y N
--- --- --- ---- --- ---- ---- ------
CUSTOMER (LESSEE) TO PROVIDE: CUSTOMER (LESSEE) TO PROVIDE:
LOA: Y N Coordinated Convert Y N LOA: Y N Coordinated Convert Y N
--- --- --- --- --- ----- ------
CIF Arrangement Y N CIF Attach Y N CIF Arrangement Y N CIF Attach Y N
--- --- --- --- --- ---- ------
Special Instructions Special Instructions
------------------------------ -----------------------------------------
- ----------------------------------------------------- ------------------------------------------------------------
- ----------------------------------------------------- ------------------------------------------------------------
MONTHLY LEASE RATE: NON RECURRING CHARGES:
Monthly IXC Charge: $ Installation$ ASR: $
---------------- ---------------- -----------------
Eqpt. Lease Charge: $ Installation$ Reconfig $
---------------- ---------------- -----------------
Echo Canceller: $ Installation$ Expedite $
---------------- ---------------- -----------------
CIF Racks: $ Installation$
---------------- ----------------
CIF Power: $ Installation$
---------------- ----------------
Other: $ Installation$
---------------- ----------------
TOTAL: $ TOTAL OF NON RECURRING CHARGES: $
---------------- ----------------
Notwithstanding anything in the Digital Service Agreement to the contrary,
(1) a security interest in this Agreement may be granted by Lessor to any
Lender and (2) Lessor may from time to time assign all its rights and
obligations hereunder with respect to any Circuits to any Affiliate. Upon
such assignment herein this Agreement shall be deemed to be multiple
agreements, each upon the terms and conditions set forth herein by and
between Lessee and such affiliate with respect to such circuit between
Lessor and Lessee with respect to the circuit not so assigned.
IN WITNESS WHEREOF, the parties have executed this PURCHASE ORDER on the day of 19
------- --------- ---
- ------------------------------------------------------ -------------------------------------------------------
LESSOR APPROVAL/TITLE LESSEE AUTHORIZED REPRESENTATIVE/TITLE
(Service Provider) (Customer)
</TABLE>
<TABLE>
<S> <C>
PLEASE FAX THIS DOCUMENT TO CUSTOMER SERVICE FAX # (512) 328-7810
- ----------------------------------------------------------------------------------------------------------------------
For Office Use Only Version 2.0 4/11/95
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AMENDMENT NO. 1 TO SERVICE AGREEMENT
CONFIDENTIAL MATERIALS HAVE BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
This Amendment No. 1 to Service Agreement (this "Amendment")
is made as of October 22, 1996 (the "Amendment Effective Date") by and between
IXC Carrier, Inc., a Nevada corporation ("Lessor"), and Diamond.Net, I.S.P.,
Inc., a Missouri corporation ("Lessee").
BACKGROUND
This Amendment is made with reference to the following facts:
A. Lessee and Lessor are parties to that certain Service
Agreement (the "Agreement") dated as of August 15, 1996.
B. The parties desire to amend the Agreement pursuant to the
terms set forth below. Each capitalized term used and not elsewhere defined
herein shall have the meaning set forth for it in the Agreement.
TERMS OF AMENDMENT
Accordingly, in consideration of the mutual promises set forth
below, the parties hereto hereby agree as follows:
1. The following paragraphs are hereby added to the end of
Section 1. Scope and Rates of the Agreement to read in their entirety as
follows:
Lessee may, at its option, reconfigure On-net DS-0,
DS-1 or On-net DS-3 Circuits by disconnecting such Circuits
and simultaneously ordering new On-net Circuits from Lessor's
unused capacity, but only if all the following conditions are
met: (i) such Circuits to be disconnected have been in service
at the time of such reconfiguration for at least three months
(for DS-0 and DS-1 Circuits) or six months (for DS-3
Circuits), (ii) Service capacity on each such new Circuit is
available from Lessor (Lessor shall not be obligated to
construct new Circuit capacity to fill any Marketing Service
Order); (iii) Lessee shall pay for such reconfiguration the
charge therefore set forth in Exhibit B; and (iv) the
aggregate monthly invoicing hereunder for the new Circuits
involved in such reconfiguration must be equal to, or greater
than, the aggregate monthly invoicing for the disconnected
Circuits. Lessee shall have the right to reconfigure on-net
service and such on-net reconfiguration, so long as it results
in an upgrade in service and revenue to Lessor, shall be
reconfigured at * of the normal reconfiguration charges on
the ancillary pricing exhibit.
Lessor may in the future offer high-capacity services
of on-net OC-3C service or larger capacity services. In the
event Lessor offers
1
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
such on-net services, Lessee may reconfigure existing circuits
into such high-capacity services on mutually agreeable terms.
Notwithstanding the foregoing paragraph, Lessee's
existing DS-1 Circuit (the "Existing DS-1 Circuit") between
St. Louis and Kansas City (No. DNN017903) shall be made a part
of a DS-3 Circuit ordered by lessee (the "Ordered DS-3
Circuit") between St. Louis and Kansas City, Lessee shall be
charged only for the Ordered DS-3 Circuit and not for the
Existing DS-1 Circuit as of the date the Ordered DS-3 Circuit
is activated or the Amendment Effective Date, whichever is
later (the "Start Date"), and Lessee shall remain responsible
for any charges incurred in connection with the Existing DS-1
Circuit prior to the Start Date.
Lessee shall order each of the Circuits set forth in
Phase I of Exhibit E (the "Phase 1 Circuits") on or before
November 29, 1996 and each of the Circuits set forth in Phase
2 of Exhibit E (the "Phase 2 Circuits") on or before May 1,
1997. Prior to ordering the Phase 2 Circuits, Lessee may elect
to replace any of the Phase 2 Circuits with Circuits
originating and/or terminating in different cities (the
"Replacement Phase 2 Circuits") subject to availability by
Lessor; provided, however, that Lessee shall pay for the
Replacement Phase 2 Circuits at the rates set forth in Exhibit
D and the aggregate monthly lease rate for the Replacement
Phase 2 Circuits must be equal to, or greater than, the
aggregate monthly lease rate for the replaced Circuits. The
monthly lease rate for each of the Phase I Circuits shall be
$0 for the five month period immediately following the
activation date of each Circuit in Phase I (the "Five Month
Free Period") and Lessee's first invoice for the Phase I
Circuits shall be for two months Service for each Phase I
Circuit and be due within the 30 day period immediately
following the Five Month Free Period. The monthly lease rate
for the Phase 2 Circuits shall be $0 for the one month period
immediately following the activation date of each Circuit in
Phase 2 (the "One Month Free Period") and Lessee's first
invoice for each of the Phase 2 Circuits shall be for two
months Service for the Phase 2 Circuits and be due within the
30 day period immediately following the One Month Free Period.
In the event Lessor fails to provide the Service within 60
days of the Requested Service Commencement Date for any
Circuit, then (a) Lessee, at its option, may terminate that
Service on the affected Circuit without any liability
whatsoever and (b) Lessee's * Take-or-Pay Commitment (set
forth below) shall be reduced by the total aggregate monthly
lease rates of the Circuits which could not be supplied by
Lessor within such period (the "Unsupplied Circuits") if
Lessee procures the Unsupplied Circuits from another carrier
and provides Lessor with a copy of an invoice from such 2
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
carrier within 90 days from the Requested Service Commencement
Date. Lessor shall provide Lessee with Circuit routing
information for all on-net Circuits ordered hereunder for
Lessee's network planning purposes as soon as such information
is available.
Lessee shall have a Take-or-Pay Commitment of * per
month beginning July 1, 1997 and continuing 60 months
thereafter (the "Take-or-Pay Commitment Period")."
2. The following sentence is hereby added to the end of
Section 2. Payments of the Agreement to read in its entirety as follows:
"Notwithstanding anything herein to the contrary, no
termination of this Agreement or any Circuit shall affect or
reduce Lessee's obligation to make the "Take-or-Pay
Commitment" payments required by Section 1; other than as set
forth in Section 1. Scope and Rates above."
3. The first sentence of Section 3. Term of the Agreement is
hereby amended to read in its entirety as follows:
"The term of this Agreement shall commence upon the date
hereof and shall continue until the later of: (i) the end of
the Take-or-Pay Commitment Period; and (ii) the end of the
Circuit Lease Term of the Circuit ordered hereunder which is
last to expire."
4. The definition of "Take-or-Pay Commitment" is hereby added
to the end of Section 6. Definitions of the Agreement to read in its entirety as
follows:
"Take-or-Pay Commitment" shall mean, with respect to a
certain period and amount, that Lessee has the obligation to
pay for Service hereunder in such amount for each month during
such period, whether or not such Service is used. Charges for
Services other than DS-0, DS-1, DS-3, OC type services and
monthly recurring ancillary services (such as installation,
local loops and any other services) shall not be counted
toward the Take-or-Pay Commitment."
5. The Non-Recurring Charge for New Order Installation of each
On-Net DS-3 as set forth in Exhibit B of the Agreement is hereby increased from
* to * and the following paragraph is hereby added to the end of Exhibit B to
read in its entirety as follows:
"For purposes of this Exhibit B, "Configuration" means the
relative arrangement, Phases, or connection pattern of a
circuit and its subcomponent parts/objects; "Reconfiguration"
means any change from
3
<PAGE>
the original configuration of a circuit specified in an
original Marketing Service Order;
"Cross Connect" means a point in a network where a circuit
is connected from one facility to another by cabling between
the equipment.
6. Exhibit D of the Agreement is hereby amended to read in its
entirety as set forth in Exhibit D hereto.
7. Exhibit E hereto is hereby added to the Agreement as
Exhibit E thereto.
8. This Amendment is effective as of the Amendment Effective
Date.
9. To the extent amended hereby, this Amendment supersedes the
Agreement and any prior written or oral agreement between the parties with
respect to the subject matter contained in this Amendment. All other terms and
conditions of the Agreement not specifically amended herein shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment.
<TABLE>
<CAPTION>
<S> <C>
IXC CARRIER, INC. DIAMOND.NET, I.S.P., INC.
By: /s/ John R. Flemming By: /s/ Andrew Gladney
------------------------------------------------- -------------------------------------------------
Name: John R. Flemming Name: Andrew Gladney
------------------------------------------------ ------------------------------------------------
Title: Executive Vice President Title: President & CEO
----------------------------------------------- -----------------------------------------------
- ----------------------------------------------------- -----------------------------------------------------
</TABLE>
Approved as to form Legal dept.
4
<PAGE>
<TABLE>
<S> <C> <C>
--------------------------------
Req'st Svc. Date: EXHIBIT A OFFICE USE ONLY
---------------- IXC CARRIER, INC.
Accepted Earlier Activation: MARKET SERVICE ORDER (MSO) MSO#
Y N -------------------
------ ---------- --------------------------------
Ckt ID:
----------------------
PURCHASE ORDER FORM FOR CUSTOMER ORDER NO:
----------------------
Pursuant to the DIGITAL SERVICE AGREEMENT by and between IXC CARRIER, INC.
As LESSOR and as LESSEE,
------------------------------------------------------------------------------------------
dated , 19 , LESSEE orders and LESSOR shall provide the following Digital Transmission Service:
------------ --
New Renew Qty Rate Term Miles
--------------- --------------
Cancel Disconnect DS-3
--------------- -------------- ---------- --------- ---------- ----------------
Change Expedite Y N DS-1
--------------- ----- ------ ---------- --------- ---------- ----------------
On Net Off Net DS0
--------------- -------------- ---------- --------- ---------- ----------------
Protocol Reconfigure CIF
--------------- -------------- ---------- --------- ---------- ----------------
Other Other
------------------------------------------ ---------- --------- ---------- ----------------
Customer Contact: Phone #: Fax #
--------------------------------- ---------------------- ----------------------
Technical Contact: Phone #: Fax #
--------------------------------- ---------------------- ----------------------
CITY LOCATION A: CITY LOCATION B:
--------------------------------- --------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Special Switched Special Switched
---------- ------------ ---------- ----------------
Bypass Y N Owner Bypass Y N Owner
--- ---- ----------------- ---- ----- --------------------
LESSOR TO PROVIDE: CFA: Y N LESSOR TO PROVIDE: CFA: Y N
---- ----- ----- ------
LOA: Y N ASR: Y N LOA: Y N ASR: Y N
---- ---- ---- ----- ---- ---- ---- ------
CUSTOMER (LESSEE) TO PROVIDE: CUSTOMER (LESSEE) TO PROVIDE:
LOA: Y N Coordinated Convert Y N LOA: Y N Coordinated Convert Y N
---- ---- --- --- --- --- ---- ------
CIF Arrangement Y N CIF Attach Y N CIF Arrangement Y N CIF Attach Y N
--- --- --- --- --- --- ---- ------
Special Instructions ` Special Instructions
------------------------------ ------------------------------
MONTHLY LEASE RATE: NON RECURRING CHARGES:
Monthly IXC Charge: $ Installation $ ASR: $
---------------- ---------------- -----------------
Eqpt. Lease Charge: $ Installation $ Reconfig $
---------------- ---------------- -----------------
Echo Canceller: $ Installation $ Expedite $
---------------- ---------------- -----------------
CIF Racks: $ Installation $
---------------- ----------------
CIF Power: $ Installation $
---------------- ----------------
Other: $ Installation $
---------------- ----------------
TOTAL: $ TOTAL OF NON RECURRING CHARGES: $
---------------- -----------------
Notwithstanding anything in the Digital Service Agreement to the contrary, (1) a security interest in
this Agreement may be granted by Lessor to any Lender and (2) Lessor may from time to time assign all its
rights and obligations hereunder with respect to any Circuits to any Affiliate. Upon such assignment herein
this Agreement shall be deemed to be multiple agreements, each upon the terms and conditions set
forth herein by and between Lessee and such affiliate with respect to such circuit between Lessor and Lessee
with respect to the circuit not so assigned.
IN WITNESS WHEREOF, the parties have executed this PURCHASE ORDER on the day of 19
----- --------- --
- ------------------------------------------------ ------------------------------------------------------------------
LESSOR APPROVAL/TITLE LESSEE AUTHORIZED REPRESENTATIVE/TITLE
(Service Provider) (Customer)
PLEASE FAX THIS DOCUMENT TO CUSTOMER SERVICE FAX # (512) 328-7810
- ----------------------------------------------------------------------------------------------------------------------
For Office Use Only Version 2.0 4/11/95
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CUSTOMER MAINTENANCE SUPPORT
IXC Communications, Inc.'s (hereinafter referred to as IXC) standard
fees for customer maintenance support services are as follows (unless set by
precedence in a service contract):
Maintenance services shall be defined as all work performed by IXC on
equipment provided by or on behalf of the Customer, or supervision of the
Customer's work within IXC's terminate facilities. Maintenance Service charges
are not billed for troubles found within that portion of a circuit provided by
IXC. The following billing rates apply for these services:
A. * per hour (4 hour minimum - if dispatch is required)
Monday through Friday during the business hours of 8:00 a.m. - 5:00 p.m. local
time, exclusive of the following holidays:
New Years Day
President's Day
Memorial Day
Independence Day
Labor Day
Thanksgiving Day and the day after Thanksgiving
Christmas Day
B. * per hour (4 hour minimum) for overtime work done after
business hours (defined above) and/or on holidays (defined above) and/or all day
on Saturdays and Sundays.
C. As requests for maintenance services are typically made via
telephone, IXC must be advised, in writing as to the person(s) who are
authorized to request service. It is the Customer's responsibility to keep IXC
apprised of any changes to its list of representative(s).
D. To request technical assistance and help under the
maintenance services, a call must be made to our Network Control Center at
1-800-526-2488. This number should be used for IXC technical assistance,
troubleshooting or testing of circuits, not for service impairment or outages.
The person calling in must be on the authorized list in order to commit for
charges for this technical assistance. If that person is not on the list, the
request cannot be accommodated.
1. The Network Control Center personnel will take the
call, record the caller's name and phone number along with facts
concerning the assistance and support needed. The caller will then be
given the number of the "Assistance Ticket."
Page 1 of 3
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
2. Upon completion of work, this "Assistance Ticket"
will be given to IXC's Accounting Department, and the customer will
subsequently be billed based upon the information on that ticket. A
copy will be attached to the invoice.
E. Except for emergencies, IXC technicians cannot be
dispatched unless requests are made in accordance with the above call-out
procedure.
Page 2 of 3
<PAGE>
EXHIBIT E
DIAMONDNET DS3 CIRCUITS
<TABLE>
<CAPTION>
Rate Section
---------------------------------------------------------------------------------------------
V&H Banded
City A City B Availability Miles $250k Rate Monthly Installation
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
P St. Louis Kansas City Normal 208 * * $2,000
H Chicago Detroit Normal 207 * * $2,000
A Detroit Pittsburgh Normal 206 * * $2,000
S Pittsburgh New York Normal 318 * * $2,000
E New York Philadelphia Normal 34 * * $2,000
Philadelphia Washington, DC Normal 124 * * $2,000
1 Washington, DC Atlanta Normal 541 * * $2,000
Atlanta Houston Normal 702 * * $2,000
Houston Austin Normal 144 * * $2,000
Dallas Phoenix 12/31/96 Note** 888 * * $2,000
Phoenix Los Angeles 2/28/97 Note** 359 * * $2,000
Total *
<CAPTION>
Rate Section Billing Summary
-----------------------------------------------------------------------------------------------------
Month Month 7
City A City B Month 1 Month 2 Month 3 Month 4 Month 5 6 thru 65
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
P St. Louis Kansas City
H Chicago Detroit
A Detroit Pittsburgh
S Pittsburgh New York
E New York Philadelphia
Philadelphia Washington, DC
1 Washington, DC Atlanta
Atlanta Houston
Houston Austin
Dallas Phoenix
Phoenix Los Angeles
Total * * * * * * *
Note: Above rates under Phase 1 offer are provided with the following terms and conditions.
o Total contract term of 65 months for each circuit provided. -------------------------------------------
o Billing during the first five months is *. Five Months of Billing *
o Billing from 5th month forward is Monthly recurring plus monthly 60 Months Amortize *
amortized amount of first five months. -------------------------------------------
o All circuits of Phase 1 must be ordered as a package.
o Normal Availability is approximately 30 days after receipt of firm
order.
** If the availability of the Dallas-Phoenix or the Phoenix-Los Angeles
circuit is unsatisfactory, they can be deleted from this Phase without
penalty.
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
P Los Angeles Santa Clara Normal 313 * * $2,000
H Santa Clara San Francisco Normal 38 * * $2,000
A San Francisco Salt Lake Normal 598 * * $2,000
S Salt Lake Denver Normal 370 * * $2,000
E Denver Kansas City Normal 558 * * $2,000
Atlanta Miami Normal 600 * * $2,000
2 Chicago New York Normal 712 * * $2,000
Total *
<CAPTION>
- ---------------------------------------
P Los Angeles Santa Clara
H Santa Clara San Francisco
A San Francisco Salt Lake
S Salt Lake Denver
E Denver Kansas City
Atlanta Miami
2 Chicago New York
Total * * * * * * *
Note: Above rates under Phase 2 offer are provided with the following terms and conditions:
o Total contract term of 81 months for each circuit provided. ----------------------
o All circuits of Phase 2 must be ordered as a package. One Month of Billing *
o All circuits of Phase 1 must be ordered to quantity for Phase 2 circuits. 60 Months Amortize *
o Billing during first month is *. ----------------------
o Billing from 2nd month forward is Monthly recurring plus amortized amount of first month.
o Normal Availability is approximately 30 days after receipt of firm order.
- -----------------------------------------------------------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUESTED
</TABLE>
Page 3 of 3
<PAGE>
EXHIBIT D
List of Rates for Service
-------------------------
DS-0 Service *
DS-1 Service *
DS-3 Service
Term Miles Rate per DS-0 Mile
---- ----- ------------------
ON-NET 0 - 250 *
PHASE 1 65 months
251 - 500 *
OFF-NET 501 - 1,000 *
PHASE 2 61 months
1,000+ *
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
<TABLE>
<CAPTION>
INSTALLED DS-0 CITIES OCTOBER, 1996
<S> <C> <C> <C>
ARIZONA NPA/NNX TEXAS NPA/NNX
Phoenix 602-279 Austin 512-389
Corpus Christi 512-883
CALIFORNIA Dallas 214-741
Los Angeles 213-622 El Paso 915-533
San Diego 619-419 Fort Worth 817-777
Stockton 209-463 Harlingen 210-425
Houston 713-224
DISTRICT OF COLUMBIA San Antonio 210-222
Washington, DC 202-245 McAllen 210-632
ILLINOIS VIRGINIA
Chicago 312-861 Norfolk 804-622
MARYLAND TOTAL DS-0 CITIES 26
Baltimore 410-752
All cities are equipped for DSO services.
MICHIGAN
Birmingham 313-435 Additional cities will be added if cost is justified.
MISSOURI
Kansas City 816-221
St. Louis 314-231
NEW MEXICO
Albuquerque 505-247
NEW YORK
New York City 212-285
OHIO
Dayton 513-252
OKLAHOMA
Oklahoma City 405-232
Tulsa 918-582
PENNSYLVANIA
Philadelphia 215-988
</TABLE>
<PAGE>
EXHIBIT C
ON-NET DS-1 AND DS-3 CITIES
<TABLE>
<CAPTION>
<S> <C> <C>
ARIZONA DISTRICT OF COLUMBIA Flint
Phoenix LATA 666 Washington, D.C. LATA 236 2001 S. Grand Traverse
Phelps-Dodge Twr, Ste 1702 1828 L Street, N.W., Ste 260 (313)767
2600 N. Central (602)279 (202)833
Grand Rapids
Tucson LATA 668 ILLINOIS 209 Graham, S.W.
Arizona Bank Bldg. Chicago LATA 358 (616)235
33 N. Stone, Suite 1610 Prudential Building
(520)792 130 E. Randolph, Suite 4001 Jackson
(312)861 170 W. North Street
CALIFORNIA (517)783
Bakersfield LATA 734 INDIANA
1430 Truxton Ave., Ste 730 Indianapolis LATA 336 Kalamazoo
(805)327 Merchants Bank Bldg. 303 Mills St.
11 S. Meridian (616)385
Fresno LATA 728 Suite 1798/1799
4605 E. Vine (317)637 Lansing
(209)486 230 South St.
Southbend LATA 332 (517)482
Fresno Ter 211 West Washington St.
Guarantee Savings 19th Floor Midland
B1171 Fulton Mall, Ste. 1201 (219)233 1000 Jefferson
(209)268 (517)631
MARYLAND
Los Angeles LATA 730 Baltimore LATA 238 Pontiac
One Wilshire 1220 S. Howard 324 S. Saginaw
624 S. Grand, Suite 1615 (301)752 (313)338
(213)689
MICHIGAN Royal Oak
San Diego LATA 732 Ann Arbor 3100 W. 14 Mile Rd.
8933 Complex Dr. 1615 Plymouth Rd. (313)435
(619)569 (313)994
Saginaw
San Francisco LATA 722 Battle Creek 315 Meredith
Metropolitan Life Bldg. 175 Main Street (517)771
425 Market St, Ste 3800C (616)962
(415)543 MISSOURI
Bay City Kansas City LATA 524
Sunnyvale LATA 722 100 E. Hart Bank of Kansas City
111 Uranium (517)667 1125 Grand Ave., Suite 1704
(408)739 (816) 283
Detroit LATA 340
COLORADO Book Bldg. Suite 2609 St. Louis LATA 520
Colorado Springs LATA 658 1249 Washington Blvd. 900 Walnut, Suite 220
102 S. Tejon, Suite 780 (313)961 (314)231
(719)471
Detroit NEVADA
**Denver LATA 656 1860 Gratiot Ave. **Las Vegas LATA 821
Bell Building (313)259 Centel Bldg, Ste 400
931 14th Street, Ste. 622 125 S Las Vegas Blvd.
(303)572 (702)388
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
NEW JERSEY Tulsa LATA 538 Harlingen LATA 568
Newark LATA 224 Lookout Mountain 513 E. Jackson
744 Broad Street, 3rd Floor 3500 S. 26th West Avenue Matz Building
(201)824 (918)584 (210)425
(918)446
NEW MEXICO Houston LATA 560
Albuquerque LATA 664 PENNSYLVANIA 293 N. Main Street
200 Lomas Blvd, N.W. Philadelphia LATA 228 (713)224
13th Floor 2401 Locust St., 2nd Floor
(505)247 (215)564 Lubbock LATA 544
1220 Broadway, #1901
NEW YORK Pittsburgh LATA 234 (806)762
New York LATA 132 Oliver Building
60 Hudson St., Ste 206 535 Smithfield St., Ste 2650 McAllen LATA 568
(212)285 (412)281 200 S. 10th Street, Suite 704
(210)687
OHIO TEXAS
Akron LATA 325 Abilene LATA 550 Midland LATA 542
1 Cascade Plaza, Ste 1950 1049 N. Third, Suite 500 KMID-TV Studio
Main & Bowery (915)675 La Force Blvd &
(216)535 Air Terminal
Amarillo LATA 546 (915)561
Cincinnati LATA 922 Amarillo Petroleum Bldg.
2300 Carew Tower 203 W. 8th, Suite 607/608 San Angelo LATA 961
Suite 4701 (806)373 36 E. Twohig, 15th Floor
441 Vine St. (513)651 (915)653
Austin LATA 558
Cleveland LATA 320 621 Pleasant Valley Road San Antonio LATA 566
R.F. Keith Bldg., Suite 2117 (512)389 660 S. Santa Rosa
1621 Euclid Ave. (210)225
(216)771 Corpus Christi LATA 564
606 N. Carancahua, Ste 816 Waco LATA 556
Columbus LATA 324 Wilson Plaza 100 S. 26th Street
Borden Bldg., Level 2B (512)882 (817)750
180 E. Broad St.
614(469) Dallas LATA 552 **Priced on an Individual Case Basis (ICB)
Tower of the Americas
Dayton LATA 328 2323 Bryan, Suite 380
1 National Bank Bldg.
Suite 2220 2223 Houston St.
130 W. Second (513)461 (214)954 (214)969
Toledo LATA 326 El Paso LATA 540
319 Madison Ave., Ste 2901 El Paso National
(419)242 Bank Bldg.
201 E. Main, Suite 1702
OKLAHOMA (915)533
Oklahoma City LATA 536
Liberty Tower Fort Worth LATA 552
100 N. Broadway, Ste 3020 WT Waggoner Blvd.
(405)232 810 Houston, Suite 1705
(817)870
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANCILLARY PRICING SCHEDULE FOR ON-NET SERVICE
NON-RECURRING CHARGES DS-1 DS-3
- --------------------- ---- ----
<S> <C> <C>
New Order Installation (On-Net) * *
New Order Installation (Off-Net) * *
DS-1 Ramp-Up per DS-O * *
Order Change (less than 5 business days) * *
Order Cancellation (less than 5 business days) * *
ASR (new or disconnect) (Special Access Only) * *
ASR Supplement * *
Order Expedite * *
Reconfiguration Same as install Same as install
<CAPTION>
MONTHLY RECURRING CHARGES DS-1 DS-3
- ------------------------- ---- ----
<S> <C> <C>
Monthly circuit charge (IXC portion) * *
Cross-connect charge * *
Other Interexchange Carrier to Lessor local access
or bypass facility (Lessor long haul not involved)
Local bypass charge * *
Lessor POP to Lessor POP in same city, with no
Lessor long haul attached at either Lessor POP.
<CAPTION>
MISCELLANEOUS RECURRING NON-RECURRING
- ------------- --------- -------------
<S> <C> <C>
M13 1 yr Term * *
2+yr Term * *
3+yr Term * *
ECHO CANCELLER (per circuit end) * *
SECOND END LOOP (Ex: for ADPCM) * *
DEMAND MAINTENANCE * /hr 8a.m.-5p.m. M-F, 4 hour minimum
if dispatch is required; * /hr after hours
with 4 hour minimum
RACK SPACE * - subject to availability
SHELF SPACE * /ea/mo ICB install
DC POWER * /amp/mo (5 amp minimum; 5 amp
increments)
CIF AC/DC POWER *
ALL OTHER SERVICES See Note (2)
</TABLE>
(1) All of the above charges are subject to change with a 30-day notice.
(2) Services not described above will be considered special handling and
charges will be assessed on an individual basis.
* CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.24
UUNET
An MCI WorldCom Company
CONFIDENTIAL MATERIALS HAVE BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
UUNET
AN MCI WorldCom Company
MASTER INTERNET SERVICES AGREEMENT
This Master Internet Services Agreement ("Agreement") is made
by and between UUNET Technologies, Inc., with its principal offices at 3060
Williams Drive, Fairfax, VA 22031 ("UUNET") and Savvis Communications
("Customer") with its principal offices at 7777 N. Boonhomme, #1000, St. Louis,
Missouri 63105 for the purpose of setting forth the terms and conditions
relating to the purchase of UUNET's Internet products and services by the
Eligible Participants, as defined in Section 1 below.
1. DEFINITIONS. "Affiliate" means with respect to a party, an
entity controlled by, controlling, or under common control with, such party.
"Effective Date" means the effective date of this Agreement, which shall be the
last date of the signature of a duly authorized representative of a party
affixed below.
2. SERVICES. The services currently available hereunder from
UUNET and its Affiliates ("Services") are set forth in the attached Schedule 1.
UUNET may amend Schedule 1 from time to time to remove Services if they should
be discontinued or to add new services (which shall be included within the term
Services upon such addition) by providing a revised copy of Schedule 1 to
Customer. Such amendments shall be prospective only, shall be effected only upon
at least six months' prior written notice and shall not affect any existing
Service being provided by UUNET or its Affiliates to Customer at the time of
amendment.
3. PRICING. The prices for Services applicable to this
Agreement (exclusive of any telco and equipment changes, which are Customer's
responsibility), are detailed in Schedule 1, and shall be applicable to new
services only in the United States and to the Services in effect on the date
hereof as of the date of this Agreement referenced as UUNET account numbers
U03914, U04418, U04419, U05810, U05811, U05814, U05817 and U05049. UUNETs
obligation to provision any service under this Agreement and to make Services
available at the prices set forth on Schedule 1 shall be conditioned upon
receipt from Customer on or before the date of this Agreement of a certified or
cashier's check in the amount of at least $475,000.00, in which case, the prices
set forth on Schedule 1 shall be applicable as of April 2, 1999 Any Service
shall only be available if the Customer agrees to the standard terms and
conditions applicable to such Service (as modified by the terms of this
Agreement) and commits to purchase that Service for at least a one-year term
from the date of Service installation.
4. FORECASTS. Two weeks prior to the end of each calendar
quarter Customer shall, based on the best available information, provide UUNET a
forecast of orders likely to be generated pursuant to this Agreement during the
subsequent quarter on a per Service basis. Within two weeks of receipt of each
forecast,
1
<PAGE>
UUNET shall provide to Customer non-binding estimated installation times for
such forecasted orders.
5. SERVICE ORDERS AND COORDINATION. Customer will coordinate
all orders for Services through UUNET's designated Account Manager. Customer
will enter into an Agreement for Service using UUNET's then-current service
agreement. Each service agreement shall set forth the terms and conditions of
the Service, provided, that (a) Monthly Fees for the Service shall be set forth
in this Agreement, and (b) any service level agreements and related credit terms
set forth in such service agreement shall not apply to any Services under this
Service Agreement.
6. TERM. The initial term of this Agreement shall be three
years from the Effective Date. Thereafter, this Agreement shall be automatically
renewed for additional one (1) year terms, provided that neither party has
delivered to the other a written notice of intent not to renew for the
forthcoming term not less than 60 days in advance of the end of the then-current
term. Customer may terminate any Service if the Service fails to meet for any
three-month consecutive period the Latency Guarantee set forth in UUNET's
Service Level Agreement, as in effect from time to time and available at
www.uunet/customers/sla/terms.html after Customer provides UUNET at least sixty
60 days' written notice of such intention to terminate and the Latency Guarantee
is not met for at least thirty 30 days during such 60-day period.
7. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING ELSE TO
THE CONTRARY STATED OR IMPLIED HEREIN OR IN ANY SERVICE AGREEMENT, NEITHER PARTY
SHALL HAVE ANY LIABILITY TO THE OTHER PARTY WHATSOEVER FOR ANY INDIRECT,
INCIDENTAL, CONSEQUENTIAL, PUNITIVE, OR SPECIAL DAMAGES, INCLUDING WITHOUT
LIMITATION, LOSS OF PROFIT, LOSS OF REVENUE, OR LOSS OF BUSINESS SUFFERED BY THE
OTHER OR BY ANY ELIGIBLE PARTICIPANT, ASSIGNEE, OR OTHER TRANSFEREE OF THE
OTHER. EVEN IF INFORMED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES.
8. ACCEPTABLE USE. UUNET's Services may only be used for
lawful purposes. Use of any Service must comply with the then-current version of
the UUNET Acceptable Use Policy ("Policy") for the country in which the service
is provided, available at the following URL: www.uunet/usepolicy, and in the
event no Policy is available for that country the U.S. policy shall apply. UUNET
reserves the right to change the Policy from time to time, effective upon
posting of the revised Policy at the URL. UUNET reserves the right to suspend
the Service or terminate this Agreement effective upon notice for a violation of
the Policy.
9. INVOICING AND PAYMENT. UUNET will invoice Customer for the
Service ordered by Customer in accordance with the terms of the applicable
service
2
<PAGE>
agreement, provided, that in addition to the early cancellation fees set forth
therein, Customer shall pay an additional cancellation fee equal to telco fees
for a sixty (60) day period if UUNET has ordered the applicable telco circuit.
Customer will make payment for such Service in accordance with the terms of the
applicable service agreement.
10. PUBLICITY. Neither party shall publicize the existence of
this Agreement without the written consent of the other. Neither party may use
the name, logo, trademarks, service marks, or other proprietary identifying
symbols of the other party in any advertising, signage, marketing materials,
brochures, or any other materials in any medium without the other party's
express advance written consent. Any such permitted use shall be only within
guidelines provided by such party. UUNET has approved the use of Customer's map
sent on May 25, 1999, by Customer to UUNET depicting UUNET's Services. Customer
may revise such maps and may use such maps in its marketing materials, each in a
manner consistent with UUNET's approval without seeking UUNET approval of each
revision. Any change in the manner or description of such depiction shall
require prior written approval by UUNET. Changes in port speeds and circuit
locations shall not require UUNET approval. Neither party shall issue any press
release, announcement, or public statement with respect to this Agreement or the
other party without the other party's express advance written consent. Any
breach of this Section shall be a material breach of this Agreement constituting
cause for termination.
11. CONFIDENTIALITY. The terms of this Agreement shall be held
confidential by each party, as shall each party's confidential or proprietary
information ("Confidential Information"). The prices set forth in Schedule 1,
and any non-public data provided by UUNET to Customer regarding performance of
the UUNET network shall be deemed UUNET Confidential Information. Neither party
shall disclose the other party's Confidential Information to third parties
without the other party's written consent, except as permitted pursuant to this
Section. Each party shall disseminate the other party's Confidential Information
among its employees, Affiliates, or agents only on a need-to-know basis and
shall use such Confidential Information only for the purposes of performing its
obligations hereunder. To the extent a party is required by applicable law,
regulation, government agency or court order, subpoena, or investigative demand
to disclose the existence or terms of this Agreement, or the other party's
Confidential Information, such party shall use its reasonable efforts to
minimize such disclosure and to obtain an assurance that the recipient shall
accord confidential treatment to such Confidential Information, and shall notify
the other party contemporaneously of such disclosure. Either party, in its
discretion, may terminate this Agreement for cause upon ten days' notice and
without penalty in the event of any breach of this Section. The obligations in
this Section 11 shall survive termination or expiration of this Agreement for an
additional period of two years.
12. GENERAL. This Agreement may not be assigned by either
party without the prior written consent of the other, which consent shall not be
unreasonably withheld, conditioned, or delayed; provided, that either party may
assign or transfer this Agreement to any Affiliate of such party upon advance
written notice to the other party. No failure on the part of either party to
exercise, and no delay in exercising, any right or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right or remedy hereunder preclude any other or further exercise thereof or the
exercise of any other right or remedy granted hereby or by law. This Agreement
supersedes all prior or contemporaneous representations, agreements, or
understandings concerning the subject matter hereof. If any term of this
Agreement, or application of such term to any person or circumstance, shall be
held invalid, the remainder of this Agreement, or the application of such term
to persons or circumstances other than those to which it is held invalid, shall
not be affected thereby.
3
<PAGE>
/s/ Robert McCormick /s/ Clint Heiden
- --------------------------------- ------------------------------
Customer Authorized Signature UUNET Authorized Signature
Robert McCormick Clint Heiden
- --------------------------------- ------------------------------
Printed Name Printed Name
EVP/CTO VP SALES
- --------------------------------- ------------------------------
Title Title
5/27/99 6/4/99
- --------------------------------- ------------------------------
Date Date
4
<PAGE>
SCHEDULE 1: PRICING OF SERVICES
The Monthly Fees set forth below do not apply to any equipment charges
(including without limitation, routers, CSUs/DSUs, and firewall hardware), telco
installation and line charges, or any other charges not included in the UUNET
Monthly Fee for a Service specified herein.
Dedicated Access Services
Service Start-up Charge Monthly Fee(1)
T-3 N/A *
OC-3 N/A *
Equipment(1)
UUNET will provide Customer with a * discount off Cisco list price on any
Cisco equipment offered by UUNET for resale and ordered from UUNET by Customer.
UUNET will provide Customer with a * discount off published list price on
any other equipment offered by UUNET for resale and ordered from UUNET by
Customer.
- --------
(1) For Burstable OC-3 services: if actual usage is under 90 Mbps the Monthly
Fee shall be * , and if equal to or over 90 Mbps the Monthly Fee shall be
* . The Monthly Fees and discounts on equipment sales set forth above are
conditioned upon (a) Customer's order, effective upon execution of this
Agreement by Customer, of OC-3 or, at Customer's option, full 45 Mbps T-3 leased
lines and (b) Customer's commitment, effective upon 30 days after Customer's
execution of this Agreement, to have on order or in service an aggregate of
sixteen (16) 45 Mbps equivalents with at least one-year terms under this
Agreement. If Customer fails to order and maintain such Services, the Monthly
Fee for T-3 leased line Service currently in effect shall be as set forth in the
service agreements in effect as of the date hereof and any additional Services
shall be at UUNET's list prices in effect as of the Service order date. There is
no maximum number of circuits that Customer may order under this Agreement.
1
* CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.25
CONFIDENTIAL MATERIALS HAVE BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
INTERNETMCI DEDICATED ACCESS AGREEMENT
FOR FULL RATE DS3 (ICB)
MCI Telecommunications Corporation ("MCI") will provide and Customer will take
internetMCI Dedicated Access Service on the terms contained in Attachments 1, 2,
3, 4, and 5 of this cover sheet (this cover sheet and such Attachments referred
to collectively as the "Agreement"). Note: all correspondence should include the
entire account team and point of contact.
** The address for Contract Administration for Cindy Andreotti's regions is:
MCI
Contract Administration
Attention: Justin Schlifkin
6 Concourse Parkway
Suite 1000
Atlanta, GA 30328
** The address for Contract Administration for Vince Corica's regions,
Government Markets and International Orders is:
MCI
Contract Administration
Attention: Stacy Poppell
6 Concourse Parkway
Suite 1000
Atlanta, GA 30328
SAVVIS COMMUNICATIONS
- ------------------------------- networkMCI, INC.
CUSTOMER NAME
7777 BONHOMME, SUITE 1000 MCI Telecommunications Corporation
- ------------------------------- Business Markets Headquarters
STREET ADDRESS Three Ravinia Drive
ST. LOUIS, MO 63635 Atlanta, Georgia 30346
- -------------------------------
CITY/STATE/ZIP
/s/ Gary Zimmerman /s/ Justin Schlifken
- ------------------------------- ----------------------------------
CUSTOMER SIGNATURE AUTHORIZED MCI SIGNATURE
Gary Zimmerman, VP Network Ops Justin Schlifkin
- ------------------------------- ----------------------------------
PRINT NAME AND TITLE PRINT NAME AND TITLE
3/24/98 4/16/98
- ------------------------------- ----------------------------------
CUSTOMER SIGNATURE DATE MCI ACCEPTANCE DATE
Notice: This Agreement will not go into effect until executed by both Customer
and MCI. This offer is subject to MCI's credit approval of Customer.
<PAGE>
ATTACHMENT 1
internetMCI DEDICATED ACCESS SERVICE DESCRIPTION
1. OVERVIEW.
MCI's internetMCI Dedicated Access Service is a suite of Internet
access services that can be integrated with its existing business long
distance services. At the originating customer premises, the customer's
equipment places data into Internet Protocol (IP) packets and gives
each packet a terminating address. MCI routes registered IP packets
over the MCI IP backbone to the terminating Internet location.
internetMCI Dedicated Access is available at speeds up to 45 Mbps
(where access is available).
2. TECHNICAL DESCRIPTION.
MCI's Internet Protocol (IP) backbone is a packet-switched interLATA
data transport service comprised of dedicated 622 Mbps digital circuits
connected in a mesh topology and based on the TCP/IP suite of
protocols: the Internet standard. IP provides a connectionless data
transfer service operating as layer three of the OSI reference model.
3. ACCESS.
Customers currently obtain dedicated access to internetMCI via
dedicated digital facilities or via logical permanent virtual circuits
(PVC) available as part of MCI's HyperStream Frame Relay service.
4. AVAILABILITY.
internetMCI Dedicated Access Service is available nationwide from
cities listed in MCI Tariff FCC No. 1, Section C.12, Table IV, Part A,
as amended from time to time, or any successor tariff, unless otherwise
specified.
[END OF ATTACHMENT 1]
- 2 -
<PAGE>
ATTACHMENT 2
TERMS AND CONDITIONS
1. CHARGES: You agree to pay all applicable charges for the Internet access
service ordered on the attached Cover Sheet (the "Service"). Charges shall be
invoiced monthly and are due 30 days net. Amounts not paid within 30 days after
the date of the invoice will be considered past due. Prices do not include
applicable taxes, for which you are responsible. Rates and charges may be
changed by MCI per the terms of Attachment 3, and you agree to pay any
additional charges which may result. If the Service becomes tariffed, the tariff
will supersede any conflicting provisions of this Agreement.
MCI may require, in MCI's sole discretion, alternate or additional security from
Customer. Customer's failure or refusal to comply with such requirement upon
MCI's request therefore may result in the cancellation of this Agreement and
Customer's service for cause. At MCI's request, you shall provide a letter of
credit or provide a security deposit to assure payment. Letters of credit must
be irrevocable to be acceptable as security deposits. MCI may reject such
letters of credit if they contain any conditions which MCI finds objectionable
in MCI's sole discretion. MCI shall release any letter of credit or return any
security deposit within thirty (30) days after the later of: (a) the customer
terminating service with MCI, and, (b) the customer satisfying all outstanding
invoices and indebtedness shown on MCI's books and records of account.
2. TERM AND TERMINATION: The service term begins when MCI's circuit has been
fully installed and tested and the Service is available for your use, regardless
of the status of your equipment. The term of the Service ("Term") is as set
forth in Attachment 3 and automatically shall renew for successive thirty (30)
day Terms at MCI's then-current month-to-month rates, regardless of the original
Term, unless either party provides the other thirty (30) days prior written
notice that it does not wish to renew. You may terminate Service on 30 days
prior written notice and will be liable for any applicable early termination
charges. MCI may suspend or terminate Service if you materially breach this
Agreement, including failure to pay for any past due amounts for invoiced
services as set forth in Section 1 above, and do not cure such breach within 3
days (72 hours) of notice; provided, that MCI may terminate immediately without
notice in order to prevent damage to or degradation of its Internet network
integrity which may be caused by the Customer or anyone using Customer's access,
or to comply with any law, regulation, court order, or other governmental
request order which requires immediate action, or for a violation of MCI's
Policy Against Spamming or for other behavior that in MCI's sole discretion may
be deemed to be illegal, or otherwise to protect MCI from legal liability. MCI
- 3 -
<PAGE>
will endeavor to give Customer notice regarding the reason(s) for termination as
soon as reasonably practicable after such termination.
3. RIGHTS AND OBLIGATIONS OF CUSTOMER: You shall at your own expense be
responsible for all site preparation activities necessary for installation of
the Service. You shall give MCI and its suppliers reasonable access to your
premises at all reasonable times. You shall not use the Service or permit any
use of the Service which is illegal, unlawful, or harassing, which infringes
upon another's intellectual property rights, or which otherwise constitutes
network abuse, and you shall be responsible for any such misuse of the Service.
You shall indemnify MCI and its affiliates against any liabilities incurred by
them as a result of such misuse. You also will pay to MCI the reasonable
attorneys fees and costs, including allocable costs of in house counsel,
incurred by MCI in enforcing this Agreement. You shall be responsible for
communicating with your own users of the Service, and for handling all
complaints and trouble reports made by such users. You must comply with
reasonable security procedures and standards with respect to your own routers
that interface with the Service. MCI may communicate security issues to you from
time to time when abuse or misuse is observed or reported by others.
4. EQUIPMENT AND SOFTWARE: MCI is not responsible for the installation,
maintenance, compatibility or performance of any equipment or software not
provided by MCI, and you shall indemnify MCI and its affiliates against any
infringement claims arising out of such third party equipment or software with
the Service. If such third party equipment or software impairs the Service, you
remain liable for payment, and if such third party equipment is likely to cause
hazard or service obstruction, you shall eliminate such likelihood at MCI's
request. MCI will troubleshoot difficulties caused by such third party equipment
or software at your request, at MCI's standard rates and terms. In the event you
provide any router to interface with the Service, you must cooperate with MCI in
configuring and managing such router(s) in order to implement and operate the
Service.
5. SERVICE OBJECTIVES: In providing the Service, MCI will use its diligent
efforts to meet the service objectives as specified in Attachment 5 hereto
(Service Level Agreement).
6. MCI OBLIGATIONS; DISCLAIMER OF WARRANTIES: MCI shall operate and maintain the
Service, contingent upon MCI's ability to maintain necessary licenses or
permissions and MCI's network capacity and connection availability. You
understand that, except for certain services specifically identified as MCI
services, MCI does not operate or control the Internet. YOU ASSUME TOTAL
RESPONSIBILITY FOR YOUR AND YOUR USERS' USE OF THE INTERNET. MCI MAKES NO
EXPRESS OR IMPLIED WARRANTIES, REPRESENTATIONS OR ENDORSEMENTS REGARDING ANY
MERCHANDISE, INFORMATION, PRODUCTS OR SERVICES PROVIDED THROUGH THE INTERNET.
THE
- 4 -
<PAGE>
SERVICE IS PROVIDED ON AN "AS IS" AND "AS AVAILABLE" BASIS WITHOUT WARRANTIES OF
ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF TITLE,
NONINFRINGEMENT OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. NO ADVICE OR INFORMATION GIVEN BY MCI'S EMPLOYEES, AGENTS OR
CONTRACTORS SHALL CREATE A WARRANTY. MCI has no obligation to monitor the
Service; however, MCI may monitor the Service and disclose information gained
from such monitoring in order to satisfy any law, regulation or other
governmental request, to operate the Service and administer MCI's network, or to
protect itself or its subscribers. MCI reserves the right to refuse to post or
to remove any information or materials, in whole or in part, that in its sole
discretion are unacceptable, undesirable, or in violation of this Agreement. In
no event shall MCI be deemed liable for any failure or delay due to any cause
beyond MCI's control.
7. LIMITATION OF LIABILITY: UNDER NO CIRCUMSTANCES SHALL MCI BE LIABLE FOR ANY
INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES THAT RESULT
FROM YOUR OR YOUR USERS' USE OF OR INABILITY TO ACCESS ANY PART OF THE INTERNET
OR YOUR OR YOUR USERS' RELIANCE ON OR USE OF INFORMATION, SERVICES OR
MERCHANDISE PROVIDED ON OR THROUTH THE SERVICE, OR THAT RESULT FROM MISTAKES,
OMISSIONS, INTERRUPTIONS, LOSS, THEFT, OR DELETION OR FILES, ERRORS, DEFECTS,
DELAYS IN OPERATION, OR TRANSMISSION, OR ANY FAILURE OF PERFORMANCE. If you are
dissatisfied with the Service or these Terms and Conditions, your sole remedy is
to terminate this Agreement.
8. DOMAIN NAME REGISTRATION; EQUIPMENT: At your request and expense, MCI shall
assist in the registration of your domain name(s), provided that you represent
and warrant to MCI that any name you submit to MCI and/or the domain name
authority for registration and all intellectual property rights therein are
owned exclusively by you, or that you have all necessary rights to register such
name, and you agree to indemnify MCI against all losses incurred by MCI as a
result of a breach of this warranty. MCI shall not be responsible for its
inability to register any domain name(s). At your request and expense, MCI,
where permitted, shall also assist you in procuring equipment in connection with
your use of the Service. The parties shall enter into a separate agreement to
govern the terms of any such procurement activity.
9. NONDISCLOSURE: As used in this Agreement, the term "Confidential Information"
shall mean any information of a party disclosed by one party to another pursuant
to this Agreement which is in written or other tangible form (including on
magnetic media) or by oral, visual or other means, which is or reasonably should
have been understood by the recipient (the "Receiving Party"),
- 5 -
<PAGE>
because of legends or other markings, the circumstances of disclosure or the
nature of the information itself, to be proprietary and confidential, including
without limitation this Agreement itself. Each party recognizes the importance
of the Confidential Information. Accordingly, each party agrees as follows: (a)
The Receiving Party agrees (i) to protect such Confidential Information from
disclosure to others, using the same degree of care used to protect its own
confidential or proprietary information of like importance, but in any case
using no less than a reasonable degree of care, (ii) not to disclose except as
specifically permitted hereunder any of the Confidential Information or any
information derived therefrom to any third person except to its Affiliates and
contractors under a confidentiality obligation to the Receiving Party which is
no less restrictive than that contained herein, and (iii) not to make any use
whatsoever at any time of such Confidential Information except as expressly
authorized in this Agreement. Any Affiliate, employee, agent or contractor given
access to any such Confidential Information must have a legitimate "need to
know" and shall be similarly bound in writing. Without granting any right or
license, the parties agree that the foregoing shall not apply with respect to
information the Receiving Party can document (i) is in or (through no improper
action or inaction by the Receiving Party or any affiliate, agent or employee
thereof) enters the public domain, or (ii) was in its possession or known by it
prior to receipt from the disclosing party, or (iii) was rightfully disclosed to
it by another person without restriction, or (iv) was developed independently by
it without use of the Confidential Information. (b) Immediately upon termination
of this Agreement, the Receiving Party will return or, at the disclosing party's
direction, destroy and certify the destruction of all Confidential Information
and all documents and media containing any such Confidential Information and all
copies and extracts thereof. (c) Either party may disclose the other's
Confidential Information as required by law. (d) Each Receiving Party
acknowledges and agrees that due tothe unique nature of the Confidential
Information, there can be no adequate remedy at law for any breach of the
obligations hereunder, that any such breach will allow the Receiving Party or
third parties to unfairly compete with the disclosing party, and will result in
irreparable harm to the disclosing party and therefore that upon any such breach
or any threat thereof, the disclosing party shall be entitled to appropriate
equitable relief in addition to whatever remedies it might have at law and under
this Agreement.
10. MISCELLANEOUS: All notices required or permitted hereunder must be in
writing, delivered personally or by U.S. mail, facsimile or electronic mail
(followed by hard copy, in the case of fax or email) to the respective signatory
and notice addresses set forth on the Cover Sheet, or such other person and/or
address as a party may notify the other from time to time, and shall be deemed
effective upon receipt. Any dispute relating to this Agreement which cannot be
resolved by negotiation shall be settled by binding arbitration in accordance
with the J.A.M.S./ENDISPUTE Arbitration Rules and Procedures ("Endispute
Rules"), as amended by this Agreement. The costs of arbitration shall be shared
equally by the
- 6 -
<PAGE>
parties unless the arbitration award provides otherwise. Each party shall bear
the cost of preparing and presenting its case. The parties agree that the
arbitrator's authority to grant relief shall be subject to the United States
Arbitration Act, 9 U.S.C. 1-16 et seq. ("USAA"), the provisions of this
Agreement, and the ABA-AAA Code of Ethics for Arbitrators in Commercial
Disputes. The arbitrator shall have no power to make any award that provides for
punitive or exemplary damages. The arbitrator's decision shall follow the plain
meaning of the relevant documents, and shall be final and binding. The award may
be confirmed and enforced in any court of competent jurisdiction. All post-award
proceedings shall be governed by the USAA. If the Customer resells access
provided pursuant to this Agreement, Customer shall insure that its customers
abide by the terms of this Agreement (including but not limited to MCI's Policy
against Spamming), and Customer shall not make any representations, warranties,
or indemnities inconsistent with the terms of this Agreement. This Agreement
shall be binding upon and inure to the benefit of the successors and permitted
assigns of the parties hereto. Neither this Agreement, nor any of your rights or
obligations herein shall be transferable or assignable by you without MCI's
prior written consent and any attempted transfer or assignment hereof not in
accordance herewith shall be null and void. In the event that any portion of
this Agreement is held to be unenforceable, the unenforceable portion shall be
construed in accordance with applicable law as nearly as possible to reflect the
original intentions of the parties and the remainder of the provisions shall
remain in full force and effect. Either party's failure to insist upon or
enforce strict performance of any provision of this Agreement shall not be
construed as a waiver of any provision or right. Neither the course of conduct
between parties nor trade practice shall act to modify any provision of this
Agreement. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to its conflicts of law
provisions. Any cause of action you may have with respect to the Service must be
commenced within one (1) year after the claim or cause of action arises or such
claim or cause of action is barred. This Agreement constitutes the entire
agreement between you and MCI with respect to the Service and can be modified
only in writing by the parties hereto.
11. USE OF MCI'S NAME/MARKS: Neither party may use the other's name, trademark,
tradenames or other proprietary identifying symbols without the prior written
approval of the other party. In Customer's use of the Service provided hereunder
and in the provision of services by Customer to its own customers, Customer
shall not: (i) use any service mark or trade mark either of MCI or any of its
affiliated companies or of which MCI or any of its affiliated companies is a
licensee, or (ii) refer to MCI or any of its affiliated companies in connection
with any product, equipment, offering, promotion, service or publication of the
Customer or of a third party on behalf of or with the authorization of the
Customer, without the written approval of MCI and its pertinent affiliated
company. Customer agrees that: (i) any use of MCI mark(s) by it is for the
benefit of MCI; (ii) all good will
- 7 -
<PAGE>
resulting therefrom vests solely in MCI; and (iii) Customer will neither have
nor make any claim in or to such mark(s).
A violation of this Section shall constitute a material breach of this
Agreement. Any cure of such breach must be to MCI's independent satisfaction.
Notwithstanding anything herein to the contrary, MCI shall be entitled to seek
injunctive relief in enforcement of this Section.
[END OF ATTACHMENT 2]
- 8 -
<PAGE>
ATTACHMENT 3
internetMCI DEDICATED ACCESS RATES, CHARGES AND DISCOUNTS
I. CONNECTION ORDERED PER THIS ATTACHMENT
1. Customer Name: SAVVIS Communications Corporation
2. Billing ID: 02049338
3. Circuit ID or PVC#: itx96393-0001
4. Served Location (City, State): Santa Clara, CA
5. Served Location NPA-NXX: 408-496
6. Transmission Rate of Connection : 45Mbs
7. Access Method (Dedicated Access, Frame Relay): Dedicated
Access
II. RATES AND CHARGES
A. LOCAL LEASED ACCESS LINE CHARGES.
Local Leased Access Lines: This Agreement incorporates by
reference the terms and conditions of MCI's filed and
effective tariffs, as amended from time to time in accordance
with law, including all installations, reconfiguration, and
monthly recurring rates for any applicable local channel,
central office connection, and access coordination charges.
These charges are in addition to the Network Connections
Pricing set forth in Section II(B) below. Access Pricing Plan
(APP) discounts having the same term as the Term of this
Agreement are available, subject to the terms and conditions
of the applicable APP. The Access Pricing Plan must be
separately applied for, and is not subject to, or a part of,
the terms and conditions of this Agreement.
B. NETWORK CONNECTIONS PRICING.
MCI provides Dedicated Private Line Channel
connections for the internetMCI Full Rate DS3
service. Additionally, the charges below apply for
the connectivity of the Full Rate DS3 service to the
internetMCI network.
1. Installation Charges: * for all connection speeds
2. Reconfiguration Charges: * per occurrence
- 9 -
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
3. Monthly Recurring Charges. Check box to indicate
understanding of the rates.
[ ] Full Rate DS3 (ICB Only)
For Full Rate DS3, the Customer will receive the monthly
recurring rate that corresponds to the average monthly usage
tier (as measured in Megabits per second) at which the
Customer's actual monthly usage qualifies. For the
provisioning of the Full Rate DS3 Service it is required that
the customer have a Digital Link 3100 DSU/CSU:
<TABLE>
<CAPTION>
Average Monthly Usage Monthly Recurring Charge
--------------------- ------------------------
<S> <C>
0 - 1.5 Mbps *
1.51 - 3.0 Mbps *
3.01 - 4.5 Mbps *
4.51 - 6.0 Mbps *
6.01 - 10.0 Mbps *
10.01 - 15.0 Mbps *
15.01 - 45.0 Mbps *
</TABLE>
The Full Rate DS3 connection charge is based upon the
Customer's average monthly utilization of the connection.
Average Monthly Utilization is defined as the greater of the
average traffic into or out of the port connection as
expressed as a percentage of the total capacity of the
connection. Traffic is measured in five minute intervals,
which are averaged monthly to arrive at the appropriate
monthly usage tier. The Customer will be provided with a
monthly utilization report upon request.
New MCI connections will be billed for the first two months of
service at the pricing associated with the lowest usage tier
set forth in the table. Existing MCI Customers will be billed
for the one month at the pricing associated with their Average
Monthly Utilization during the monthly period immediately
preceding the commencement of the Term of this Agreement. The
Customer's inbound and outbound traffic will be measured
during the first two months, and the Customer will be
reassigned in the third month to the usage tier commensurate
with their Average Monthly Utilization for the prior usage of
two months past. At the end of any monthly measurement period
in which the Customer's Average Monthly Usage falls below or
exceeds the usage associated with its assigned tier, the
Customer will be reassigned to a new tier commensurate with
their Average Monthly Utilization.
- 10 -
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
For DS3 connectivity, Customer will be provisioned through
MCI's ____ IP node. If necessary, Customer will be charged for
back hauling its DS3 connection facility from the Customer's
MCI Point of Presence location to the nearest natural backhaul
BIPP node termination point in MCI's Internet network at the
per-mile TDS 45 rates set forth in MCI's Tariff FCC No. 1.
Such back-hauling charges are eligible for the discount as set
forth in Section II(C)(1) below.
4. Price Changes. MCI reserves the right to change its
Network Connection pricing on 30-days advance notice.
If any such price change, after all applicable
discounts are applied, results in a net decrease to
Customer's monthly charges, Customer will receive the
benefit of such decrease. If such price change, after
all applicable discounts are applied, results in a
net increase to Customer's monthly charges of more
than five percent (5%), Customer may terminate this
Agreement without further liability, other than
payment of charges incurred prior to the termination
date. To exercise the right to terminate the
Agreement provided under this Section, Customer must
provide MCI with at least thirty (30) days prior
written notice, which notice must be delivered to MCI
within thirty (30) days of Customer's receipt of
notice of the applicable price increase. Within
thirty (30) days of any termination of this Agreement
pursuant to this Section, Customer shall repay to MCI
any credits that MCI may have granted to Customer
hereunder.
5. Partial Billing. Customers will be billed a prorated
share of the above charges for connections installed,
terminated, or reconfigured during the course of a
monthly billing cycle.
C. FIXED TERM DISCOUNTS
1. Options. Customer will receive discounts off MCI's
month-to-month rates by committing individual
connections to 1, 2, 3, 4, or 5 year service terms.
Fixed term discounts are applied on the effective
charges after applying all utilization and connection
cost-based discounts and surcharges. Fixed term
discounts shall not apply to Local Leased Access Line
Charges. If no term is selected below, the Customer
will be placed on a month-to-month term and will
receive no discounts.
Select One Term (in Years) Discount
[ ] 0 0%
- 11 -
<PAGE>
[ ] 1 15%
[ ] 2 17%
[ ] 3 20%
[ ] 4 22%
[ ] 5 25%
2. Early Termination. If the Customer's connection is
disconnected prior to the end of the committed Term,
Customer will pay an early termination charge equal
to fifty percent (50%) of their subscribed monthly
connection charges, including applicable backhaul
charges, multiplied by the number of months remaining
in the Term. In addition, within thirty (30) days of
any termination of this Agreement for which early
termination charges are applicable, Customer shall
repay to MCI any credits that MCI may have granted to
Customer hereunder. Early termination charges shall
apply in all cases except the following:
- If the Customer terminates its connection under this
Attachment due to a breach of the contract by MCI;
- If MCI must disconnect service to the Customer due to
any reason not resulting from a breach of the
Agreement by Customer;
- If Customer terminates pursuant to Section II.B.4 of
this Attachment 3, following a rate increase
3. Upgrades/Downgrades. Customer may change to a fixed
rate of DS3 connectivity utilizing the internetMCI
Fixed Rate DS3 service at any time during the term of
this Agreement. If Customer disconnects service
within six (6) months of changing the DS3 interface
of Customer's connection, any applicable termination
charge will be based on the DS3 interface used
immediately prior to such downgrade. To exercise its
right under this provision, the Customer must provide
written notice to MCI at least thirty (30) days in
advance, in the manner specified in Attachment 2.
[END OF ATTACHMENT 3]
- 12 -
<PAGE>
ATTACHMENT 4
MCI TELECOMMUNICATIONS CORPORATION AND AFFILIATES
POLICY AGAINST SPAMMING (1)
MCI and its affiliates provide to business and consumer users several
information technology related services, including such service as Internet
access, various electronic mail (email) packages and services, World Wide Web
website hosting arrangements, and other online and Internet-related services.
It is contrary to MCI policy for any user of any of these services to effect or
participate in any of the following activities through an MCI-provided service:
1. To post ten (10) or more messages similar in content to Usenet or other
newsgroups, forums, email mailing lists or other similar groups or lists:
2. To post to any Usenet or other newsgroup, forum, email mailing list or other
similar group or list articles which are off-topic according to the charter or
other owner-published FAQ or description of the group or list;
3. To send unsolicited emailings to more than twenty-five (25) email users, if
such unsolicited emailings could reasonably be expected to provoke complaints.
4. To falsify user information provided to MCI or to other users of the service
in connection with use of an MCI service.
5. To engage in any of the foregoing activities by using the service of another
provider, but channeling such activities through an MCI account, remailer, or
otherwise through an MCI service or using an MCI account as a maildrop for
responses or otherwise using the services of another provider for the purpose of
facilitating the foregoing activities if such use of anothers party's service
could reasonably be expected to adversely affect an MCI service;
MCI considers the above practices to constitute abuse of our service and of the
recipients of such unsolicited mailings and/or postings, who often bear the
expense. Therefore, these practices are prohibited by MCI's terms and conditions
of service.
- --------
(1) This policy is included in this Agreement for the Customer's information
purposes and constitutes the policy as its exists at the time of execution of
this Agreement. This policy is subject to change upon public posting by MCI and
without the agreement of the Customer.
- 13 -
<PAGE>
Engaging in one or more of these practices will result in termination of the
offender's account and/or access to MCI services.
In addition, MCI reserves the right, where feasible, to implement technical
mechanisms which block multiple postings as described above before they are
forwarded or otherwise sent to their intended recipients.
This policy addresses only the kinds of network abuse specifically enumerated
above. In addition to these activities, MCI's terms and conditions of service
also prohibit other forms of abuse such as harassment and the posting of illegal
or unlawful materials, and MCI will respond as appropriate to these other
activities as well.
Nothing contained in this policy shall be construed to limit MCI's actions or
remedies in any way with respect to any of the foregoing activities, and MCI
reserves the right to take any and all additional actions it may deem
appropriate with respect to such activities, including without limitation taking
action to recover the costs and expenses of identifying offenders and removing
them from the MCI service, and levying cancellation charges to cover MCI's costs
in the event of disconnection of dedicated access for the causes outlined above.
In addition, MCI reserves at all times all rights and remedies available to it
with respect to such activities at law or in equity.
If you have any questions regarding this Policy on Spamming, please contact
[email protected].
[END OF ATTACHMENT 4]
- 14 -
<PAGE>
ATTACHMENT 5
internetMCI DEDICATED ACCESS SERVICE OBJECTIVES
1. SCOPE OF COVERAGE.
The internetMCI service objectives apply only to service outages related to
Customer's access port, the router to which the access port is connected, and to
any network transport on MCI's Internet backbone (the "internetMCI BIPP"). The
scope of coverage excludes, without limitation, all other public Internet
backbones and networks, any server on the Internet, customer premise equipment
("CPE") and local access and backhaul facilities from the customer to their
assigned router, which is the point of demarcation for purposes of these service
objectives, and packet delivery to or from the Internet, including Frame Relay
access.
2. PERFORMANCE OBJECTIVE
MCI will use diligent efforts to ensure that eligible trouble tickets isolated
to exist on the internetMCI BIPP will be resolved in ninety (90) minutes or
less. Failure to meet this objective may make Customer eligible for a Service
credit to be applied to Customer's next regularly-scheduled invoice for MCI
Dedicated Internet Access Service. Processing of any Customer credit will be
done by the appropriate MCI account sales team, who will apply the applicable
credit parameters contained herein.
3. MEASUREMENT OF THE OBJECTIVE
Mean-Time-To-Restore ("MTTR") is the measurement that will be used to measure
the performance objective. MTTR will be calculated on a per occurrence basis,
starting with the opening by Customer of a trouble ticket and ending when MCI
makes its first attempt to notify Customer of restoration of the Service.
One of three levels of trouble ticket severity will be assigned to each ticket,
depending on the impact of the service issue to Customer's business:
o Severity 1 - System down - Cannot PING to any host - complete access
router, access port failure or BIPP logical routing error;
o Severity 2 - System partially down - Can PING to some hosts - partial
access router or port failure,
o Severity 4 - Informational - CPE work or other.
Only trouble tickets that are classified by MCI as Severity 1 conditions may
make Customer eligible for Service credits under this Agreement.
- 15 -
<PAGE>
4. CUSTOMER REPORTING PROCEDURES
At the time Customer believes that they are experiencing an out-of-service
condition, a trouble ticket should be opened be calling the designated internet
Network Operations Center ("iNOC") trouble line. Once the ticket has been
opened, the appropriate MCI organizations will initiate diagnostic testing and
trouble isolation activities to determine if the difficulty is related more
closely to access, the local loop, backhaul to an internetMCI BIPP gateway or by
CPE. If the trouble is diagnosed as one which may be within the internetMCI
BIPP, responsibility and management of that ticket will be assumed by the iNOC.
If a determination is made that the cause of the customer's service outage is a
problem related to the internetMCI BIPP (e.g., logical routing) and the outage
duration exceeds the MTTR objective, Customer may be eligible for a Service
credit.
Responsibility for trouble ticket initiation rests solely with Customer, with
follow up to be the joint responsibility of Customer and the MCI account sales
team. No service credits can be extended for any customer outage unless a
trouble ticket has been opened with the MCI iNOC. In addition, Customer must
request a credit from the MCI account sales team.
5. OTHER EXCLUSIONS
As provided in Section 1, the service level objectives contained herein cover
only those Customer outages which occur on the internetMCI BIPP, using MCI's
border router as the point of demarcation. The service level objectives apply
only to out-of-service conditions and do not apply to service interruptions,
degradation of service, packet loss, or sub-optimal performance on the
internetMCI BIPP Measurement of outages will be as provided in Section 3. In no
case will PING Tests performed by customers be recognized by MCI as a valid,
measurable criterion for outage determination for the purposes of establishing a
Service credit hereunder.
The service level objectives contained herein apply only to internetMCI
Dedicated Access customers. They do not apply to Internet Service Providers
("ISPs") who have a "peering" relationship with MCI nor do they apply to Concert
InternetPlus Service. For the purpose of this Agreement, "peering" is defined as
the exchange of customer packets at the network level between an ISP and MCI,
either at a public interconnection point (NAP), or through a direct connection
with MCI.
Under no circumstances will credits be given for outages involving:
(a) trouble tickets associated with new installations (i.e., before
service acceptance by Customer);
(b) trouble tickets erroneously opened by the Customer;
- 16 -
<PAGE>
(c) outages arising from required Customer circuit release for testing;
and
(d) trouble tickets opened by Customer for circuit monitoring purposes
only.
6. CUSTOMER'S REMEDY FOR MCI'S FAILURE TO MEET SERVICE OBJECTIVE
Customer may be entitled to receive certain credits for covered outages of the
Service which are the fault of MCI. To be eligible for a credit hereunder,
Customer must follow the trouble reporting procedures established above, the
covered outage must exceed the MTTR objectives, and Customer must request a
credit from the MCI account sales team. No credit will be given unless the
actual MTTR for an eligible Severity 1 trouble ticket exceeds ninety-one (91)
minutes. Customer's Service credit will be a prorated amount dependent upon the
length of the service outage and Customer's Monthly Recurring Charge ("MRC") for
the Service, as follows:
Length of Service Outage Amount of Credit
0 to 90 minutes none
91 minutes to 5 hours 1 day's prorated portion of MRC
more than 5 hours 3 days' prorated portion of MRC
Customer may receive no more than one such credit for the twenty-four (24) hour
period beginning with the opening of the trouble ticket, even if more than one
outage occurs during that period. Customer's total credit in any month shall not
exceed Customer's total MRC for the Service for the month in which the credit is
to be applied. Residual credits may not be carried over to subsequent months.
THIS CREDIT SHALL BE CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR ANY SERVICE OUTAGE
OR ANY MCI FAILURE TO MEET THE SERVICE OBJECTIVES.
[END OF ATTACHMENT 5]
SCHEDULE PURSUANT TO RULE 601(a) UNDER REGULATION S-K
As permitted by Rule 601(a) under Regulation S-K under the Securities Act, we
have omitted the following agreements from this filing:
1) internetMCI Dedicated Access Agreement, effective April 16, 1998, between
SAVVIS Communications Corporation and networkMCI, Inc. (served location:
Atlanta, Georgia)
2) internetMCI Dedicated Access Agreement, effective April 16, 1998, between
SAVVIS Communications Corporation and networkMCI, Inc. (served location:
New York, New York)
3) internetMCI Dedicated Access Agreement, effective April 16, 1998, between
SAVVIS Communications Corporation and networkMCI, Inc. (served location:
Dallas, Texas)
4) internetMCI Dedicated Access Agreement, effective April 16, 1998, between
SAVVIS Communications Corporation and networkMCI, Inc. (served location:
St. Louis, Missouri)
5) internetMCI Dedicated Access Agreement, effective April 16, 1998, between
SAVVIS Communications Corporation and networkMCI, Inc. (served location:
Los Angelos, California)
6) internetMCI Dedicated Access Agreement, effective September 22, 1998,
between SAVVIS Communications Corporation and networkMCI, Inc. (served
location: Chicago, Illinois)
- 17 -
