UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 21, 2006
SAVVIS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 0-29375 | 43-1809960 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
1 SAVVIS Parkway, Town & Country, Missouri | 63017 | |
(Address of Principal Executive Office) | (Zip Code) |
Registrant’s telephone number, including area code: (314) 628-7000
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On December 23, 2006, SAVVIS, Inc., a Delaware corporation (“SAVVIS”), and certain of its subsidiaries entered into a Purchase Agreement to sell substantially all of the assets related to SAVVIS’ content delivery network services (the “CDN Assets”) to Level 3 Communications, Inc., a Delaware corporation (“Level 3”).
Under the terms of the Purchase Agreement, Level 3 will pay $135 million in cash and assume certain liabilities for the CDN Assets. Upon closing, the transaction is anticipated to result in net proceeds to SAVVIS of approximately $125-130 million after fees, expenses and taxes. The purchase price is subject to certain customary post closing working capital adjustments. The sale is subject to certain customary closing conditions, including, among others, the receipt of regulatory approvals and certain third party consents. The Purchase Agreement contains representations, warranties and covenants of SAVVIS and Level 3, including tax and intellectual property representations and warranties of SAVVIS. The parties have agreed to indemnify each other for breaches of their representations, warranties and covenants.
In addition, on December 21, 2006, SAVVIS Communications Corporation, a Missouri corporation and a wholly-owned subsidiary of SAVVIS (the “Company”), entered into a fifteen-year triple-net lease agreement with Digital Piscataway, LLC (“Landlord”) for data center space (the “Lease”). The Company has two five-year options to renew the Lease. Base annual rent for the fifteen-year term of the Lease is initially approximately $3.2 million and will increase by 3.0% per year, representing a capital lease obligation of approximately $30.0 million to be recorded in 2007. The Company will be required to pay all of the costs associated with the operation of the facilities, including costs such as insurance, taxes, utilities and maintenance. The Lease imposes certain obligations on the Company and grants certain rights to the Landlord in the event of a default by the Company on the Lease. The Lease contains other customary representations, warranties, obligations, conditions, indemnification provisions and termination provisions associated with leases of this nature.
The foregoing description of the Purchase Agreement and the Lease do not purport to be complete and are qualified in their entirety by reference to such documents, copies of which are filed as Exhibit 2.1 and Exhibit 10.1 to this Current Report on Form 8-K and are incorporated herein by reference.
ITEM 8.01. OTHER EVENTS.
SAVVIS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements present the pro forma financial position and results of operations of SAVVIS, Inc. and Subsidiaries (the “Company”) based upon historical financial information after giving effect to the sale of substantially all of the assets related to the Company’s Content Delivery Network services (“CDN”) to Level 3 Communications, Inc. (“Level 3”), pursuant to the Purchase Agreement dated December 23, 2006 between the Company and Level 3. Management believes it is highly probable the transaction will close in the first quarter of 2007 and therefore has included the unaudited pro forma condensed consolidated financial statements herein.
The unaudited pro forma condensed consolidated financial statements presented herein have been prepared in accordance with Article 11 of Regulation S-X and are based upon the Company’s audited consolidated financial statements for the year ended December 31, 2005 and the unaudited consolidated financial statements for the nine months ended September 30, 2006 and certain assumptions, as set forth in the notes to unaudited pro forma financial statements, that the Company believes are reasonable. The unaudited pro forma condensed consolidated balance sheet is presented as if the sale had been completed on September 30, 2006 and the unaudited pro forma condensed consolidated statements of operations are presented as if the sale had been completed on January 1, 2005. The pro forma adjustments presented herein are based on estimates and certain information that is currently available and may change as additional information becomes available. The unaudited pro forma condensed consolidated financial statements are not necessarily indicative of the results of operations or the financial position that would have resulted had the sale of CDN been completed at the beginning of or as of the periods presented, nor is it indicative of the results of operations in future periods or the future financial position of the Company.
SAVVIS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2006
(dollars in thousands)
SAVVIS Historical | Disposition and Pro Forma Adjustments | SAVVIS Pro Forma | |||||||||||||
ASSETS | |||||||||||||||
Current Assets: | |||||||||||||||
Cash and cash equivalents | $ | 78,149 | $ | 135,000 | (b | ) | $ | 213,149 | |||||||
Trade accounts receivable, net | 44,156 | (2,536 | ) | (a | ) | 41,620 | |||||||||
Prepaid expenses and other current assets | 24,258 | (107 | ) | (a | ) | 24,151 | |||||||||
Total Current Assets | 146,563 | 132,357 | 278,920 | ||||||||||||
Property and equipment, net | 277,296 | (2,727 | ) | (a | ) | 274,569 | |||||||||
Intangible assets, net | 5,030 | (1,845 | ) | (a | ) | 3,185 | |||||||||
Other non-current assets | 13,540 | — | 13,540 | ||||||||||||
Total Assets | $ | 442,429 | $ | 127,785 | $ | 570,214 | |||||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||||||||||
Current Liabilities: | |||||||||||||||
Payables and other trade accruals | $ | 45,430 | $ | (992 | ) | (a | ) | $ | 44,438 | ||||||
Current portion of capital and financing method lease obligations | 2,597 | — | 2,597 | ||||||||||||
Other accrued liabilities | 82,382 | (692 | ) | (a | ) | 90,083 | |||||||||
8,393 | (c | ) | |||||||||||||
Total Current Liabilities | 130,409 | 6,709 | 137,118 | ||||||||||||
Long-term debt | 255,846 | — | 255,846 | ||||||||||||
Capital and financing method lease obligations, net of current portion | 113,152 | — | 113,152 | ||||||||||||
Other accrued liabilities | 84,697 | (276 | ) | (a | ) | 84,421 | |||||||||
Total Liabilities | 584,104 | 6,433 | 590,537 | ||||||||||||
Stockholders’ Deficit: | |||||||||||||||
Common stock | 512 | — | 512 | ||||||||||||
Additional paid-in capital | 687,895 | — | 687,895 | ||||||||||||
Accumulated deficit | (827,651 | ) | 121,352 | (d | ) | (706,299 | ) | ||||||||
Accumulated other comprehensive loss | (2,431 | ) | — | (2,431 | ) | ||||||||||
Total Stockholders’ Deficit | (141,675 | ) | 121,352 | (20,323 | ) | ||||||||||
Total Liabilities and Stockholders’ Deficit | $ | 442,429 | $ | 127,785 | $ | 570,214 | |||||||||
SAVVIS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006
(dollars in thousands, except share amounts)
SAVVIS Historical | Disposition and Pro Forma Adjustments | SAVVIS Pro Forma | |||||||||||||
Revenue | $ | 563,300 | $ | (14,383 | ) | (e | ) | $ | 548,917 | ||||||
Operating Expenses: | |||||||||||||||
Cost of revenue | 346,555 | (9,155 | ) | (e | ) | 337,400 | |||||||||
Sales, general, and administrative expenses | 142,551 | (2,329 | ) | (e | ) | 140,222 | |||||||||
Depreciation, amortization, and accretion | 60,370 | (915 | ) | (e | ) | 59,455 | |||||||||
Total Operating Expenses | 549,476 | (12,399 | ) | 537,077 | |||||||||||
Income from Operations | 13,824 | (1,984 | ) | 11,840 | |||||||||||
Net interest expense and other | 50,941 | — | 50,941 | ||||||||||||
Net Loss | (37,117 | ) | (1,984 | ) | (39,101 | ) | |||||||||
Accreted and deemed dividends on Series A Convertible Preferred stock | 262,810 | — | 262,810 | ||||||||||||
Net Loss Attributable to Common Stockholders | $ | (299,927 | ) | $ | (1,984 | ) | $ | (301,911 | ) | ||||||
Basic and Diluted Loss per Common Share | $ | (11.68 | ) | $ | (11.76 | ) | |||||||||
Basic and Diluted Weighted Average Common Shares Outstanding | 25,681,868 | 25,681,868 | |||||||||||||
SAVVIS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
(dollars in thousands, except share amounts)
SAVVIS Historical | Disposition and Pro Forma Adjustments | SAVVIS Pro Forma | |||||||||||||
Revenue | $ | 667,012 | $ | (18,149 | ) | (e | ) | $ | 648,863 | ||||||
Operating Expenses: | |||||||||||||||
Cost of revenue | 435,548 | (12,734 | ) | (e | ) | 422,814 | |||||||||
Sales, general, and administrative expenses | 154,167 | (3,055 | ) | (e | ) | 151,112 | |||||||||
Depreciation, amortization, and accretion | 74,888 | (654 | ) | (e | ) | 74,234 | |||||||||
Restructuring charges, net | 3,340 | — | 3,340 | ||||||||||||
Integration costs | 2,745 | — | 2,745 | ||||||||||||
Total Operating Expenses | 670,688 | (16,443 | ) | 654,245 | |||||||||||
Loss from Operations | (3,676 | ) | (1,706 | ) | (5,382 | ) | |||||||||
Net interest expense and other | 65,393 | — | 65,393 | ||||||||||||
Net Loss | (69,069 | ) | (1,706 | ) | (70,775 | ) | |||||||||
Accreted and deemed dividends on Series A Convertible Preferred stock | 41,715 | — | 41,715 | ||||||||||||
Net Loss Attributable to Common Stockholders | $ | (110,784 | ) | $ | (1,706 | ) | $ | (112,490 | ) | ||||||
Basic and Diluted Loss per Common Share | $ | (9.19 | ) | $ | (9.33 | ) | |||||||||
Basic and Diluted Weighted Average Common Shares Outstanding | 12,060,647 | 12,060,647 | |||||||||||||
SAVVIS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. | Pro Forma Adjustments |
(a) | To eliminate substantially all historical assets and liabilities of CDN. |
(b) | To reflect the cash proceeds from the sale of CDN of $135.0 million. |
(c) | To account for estimated accrued liabilities related to the sale; including transaction costs, taxes and any working capital adjustments. |
(d) | To reflect the gain, net of tax, on the sale of CDN. |
(e) | To eliminate the historical revenues and expenses of CDN. |
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits.
Exhibit No. | Description | |
2.1 | Purchase Agreement dated as of December 23, 2006, by and among SAVVIS, Inc., SAVVIS Communications Corporation, the foreign entities that are signatories thereto, Level 3 Communications, LLC, and Level 3 Communications, Inc. | |
10.1 | Data Center Lease dated December 21, 2006, by and between SAVVIS Communications Corporation and Digital Piscataway, LLC. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
SAVVIS, INC. | ||||
Date: December 28, 2006 | By: | /s/ Jeffrey H. VonDeylen | ||
Name: | Jeffrey H. Von Deylen | |||
Title: | Chief Financial Officer |
EXHIBIT INDEX
Exhibit No. | Description | |
2.1 | Purchase Agreement dated as of December 23, 2006, by and among SAVVIS, Inc., SAVVIS Communications Corporation, the foreign entities that are signatories thereto, Level 3 Communications, LLC, and Level 3 Communications, Inc. | |
10.1 | Data Center Lease dated December 21, 2006, by and between SAVVIS Communications Corporation and Digital Piscataway, LLC. |