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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number 0-29375
SAVVIS COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-1809960
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1 SAVVIS PARKWAY
ST. LOUIS, MISSOURI 63017
(Address of principal executive offices) (Zip Code)
(314)-628-7000
(Registrant's telephone number, including area code)
12851 WORLDGATE DRIVE
HERNDON, VIRGINIA 20170
(Address of principal executive offices) (Zip Code)
(703)-234-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common stock,
par value $.01 per share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of June 30, 2002 was approximately $41,742,000.
The number of shares of the registrant's common stock outstanding as of
April 28, 2003 was 94,028,680.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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SAVVIS COMMUNICATIONS CORPORATION
TABLE OF CONTENTS
PART III
Item 10. Directors and Executive Officers of the Registrant 2
Item 11. Executive Compensation 5
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Matters 13
Item 13. Certain Relationships and Related Transactions 17
Signatures 22
1
EXPLANATORY NOTE
The primary purpose of this Amendment is to provide information required by
Items 10, 11, 12 and 13 of Part III of this report which the registrant intended
to incorporate by reference from the registrant's proxy statement for the 2003
Annual Meeting of Stockholders.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table contains information regarding our executive officers
and directors.
Name Age Position and Office
- ---- --- -------------------
Robert A. McCormick...... 37 Chief Executive Officer and Chairman of the Board
John M. Finlayson........ 48 President, Chief Operating Officer and Director
Jeffrey H. Von Deylen ... 38 Executive Vice President, Chief Financial Officer
and Director
Grier C. Raclin.......... 50 Executive Vice President, General Counsel and
Corporate Secretary
Sarah A. Beardsley....... 40 President, Enterprise Sales
James D. Mori............ 47 Executive Vice President and General Manager for
the Americas
Richard G. Bubenik....... 42 Executive Vice President and Chief Technology
Officer
Matthew A. Fanning....... 49 Executive Vice President, Strategic Development and
Business Planning
John D. Clark............ 37 Director
Clifford H. Friedman..... 43 Director
Clyde A. Heintzelman..... 64 Director
Thomas E. McInerney...... 61 Director
James E. Ousley.......... 56 Director
James P. Pellow.......... 41 Director
Patrick J. Welsh......... 59 Director
Set forth below is a brief description of the principal occupation and
business experience of each of our directors and executive officers.
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 Information Systems, Inc., now known as BIS Administration, Inc.
("Bridge"), a principal stockholder of our company, from January 1997 to
December 1999, and held various engineering, design and development positions at
Bridge from 1989 to January 1997. On February 15, 2001, Bridge's U.S. operating
subsidiaries filed a voluntary petition for relief under Chapter 11 of Title 11
of the United States Bankruptcy Code. Mr. McCormick attended the University of
Colorado at Boulder.
JOHN 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. Before joining Global Crossing, Mr. Finlayson was employed by Motorola,
Inc. starting in 1994, most recently as Corporate Vice President and General
Manager of the Asia Pacific Cellular Infrastructure Group from March 1998 to May
1998. Mr. Finlayson received a B.S. degree in Marketing from LaSalle University,
a M.B.A. degree in Marketing and a post-M.B.A. certification in Information
Management from St. Joseph University.
2
JEFFREY H. VON DEYLEN joined SAVVIS as our Executive Vice President for
Finance in January 2003 and became Chief Financial Officer and a director of our
company in March 2003. From August 2002 to January 2003, Mr. Von Deylen served
as Vice President for Corporate Development and Financial Analyst at American
Electric Power Company. From June 2001 to June 2002, Mr. Von Deylen served as
Chief Financial Officer for KPNQwest N.V. ("KPNQwest"). In 2002 KPNQwest filed a
petition for "surseance" (moratorium) in The Netherlands, which moratorium was
converted into a bankruptcy shortly thereafter. Before joining KPNQwest, he was
employed by Global TeleSystems Inc. ("GTS") as Senior Vice President of Finance
from October 1999 to May 2001. In 2001, GTS filed, in pre-arranged proceedings,
a petition for "surseance" (moratorium), offering a composition, in The
Netherlands and a voluntary petition for relief under Chapter 11 of Title 11 of
the United States Bankruptcy Code, both in connection with the sale of the
company to KPNQwest. From May 1994 to June 1998, Mr. Von Deylen served as Vice
President and Corporate Controller of LCI International, Inc., until it was
acquired by Qwest Communications International, where Mr. Von Deylen continued
as Vice President and Controller until September 1999. Mr. Von Deylen received a
B.S. degree in Accountancy from Miami University and holds a C.P.A.
certification.
GRIER C. RACLIN joined SAVVIS as Executive Vice President, General Counsel
and Corporate Secretary in January 2003. Prior to joining SAVVIS, from Mr.
Raclin served as Executive Vice President, Chief Administrative Officer, General
Counsel and Corporate Secretary 2000 to 2002 and as Senior Vice President of
Corporate Affairs, General Counsel, and Corporate Secretary from 1997 to 2000 of
Global TeleSystems Inc. ("GTS"). In 2001, GTS filed, in pre-arranged
proceedings, a petition for "surseance" (moratorium), offering a composition, in
The Netherlands and a voluntary petition for relief under Chapter 11 of Title 11
of the United States Bankruptcy Code, both in connection with the sale of the
company to KPNQwest. Mr. Raclin earned his law degree from Northwestern
University Law School in Chicago, Illinois; attended business school at the
University of Chicago Executive Program; and earned his B.S. degree in
philosophy cum laude from Northwestern University.
SARAH A. BEARDSLEY joined SAVVIS as President of Enterprise Sales in
September 2002. Prior to joining SAVVIS, Ms. Beardsley served as Senior Vice
President of WorldCom's Service Provider Division from March 2000 to September
2002. Prior to this position, Ms. Beardsley held a variety of leadership
positions at WorldCom and MCI from September 1986 to March 2000. Ms. Beardsley
received a B.S. in Marketing summa cum laude from the University of Illinois.
JAMES D. MORI has served as our Executive Vice President and General
Manager for the Americas since October 1999. Before joining us, Mr. Mori served
as Area Director for Sprint Corporation from February 1997 to October 1999 and
in various other sales leadership positions prior to that. Mr. Mori received a
B.S. in business administration from the University of Missouri.
RICHARD G. BUBENIK joined us in December 1996 and has served as our
Executive Vice President and Chief Technology Officer since July 1999. Dr.
Bubenik served as our Vice President--Engineering from October 1997 to April
1999 and Senior Vice President--Network Engineering from April 1999 to July
1999. Dr. Bubenik holds a Ph.D. in computer science from Rice University, a M.S.
and a B.S. in computer science from and a B.S. in electrical engineering from
Washington University.
MATTHEW A. FANNING joined SAVVIS as Executive Vice President of Strategic
Development and Business Planning in February 2000. Prior to joining SAVVIS,
from March 1997 to February 2000, Mr. Fanning served as Vice President-Marketing
and Sales for Comcast Corporation. Mr. Fanning earned his post-MBA certification
in Information System Management and his MBA in Marketing from St. Joseph's
University. He received a B.A. in English Literature from St. Joseph's College.
JOHN D. CLARK has served as a director of our company since April 2002. Mr.
Clark is a general partner of Welsh, Carson, Anderson & Stowe, a private equity
investment firm, and affiliated entities, which collectively are a principal
stockholder of our company. Prior to joining Welsh, Carson, Anderson & Stowe in
2000, Mr. Clark was a general partner at Saunders, Karp & Megrue, a private
equity firm, from 1993 until 2000. Mr. Clark received a B.S. from Princeton
University and a M.B.A. from Stanford University Graduate School of Business.
CLIFFORD H. FRIEDMAN has served as a director of our company since July
2002. Since August 1997, Mr. Friedman served as senior managing director of
Constellation Ventures, a Bear Stearns asset management
3
fund. Mr. Friedman earned a B.S. in Electrical Engineering and Computer Science
and a M.S. in Electrophysics from Polytechnic Institute of New York, and a
M.B.A. in Finance and Investments from Adelphi University.
CLYDE A. HEINTZELMAN has served as a director of our company since December
1998, and is chairman of the board's audit committee. Mr. Heintzelman served as
the chairman of the board of Optelecom, Inc., from February 2000 to April 2003
and as its interim president and chief executive officer from June 2001 to
January 2002. From November 1999 to May 2001, he was president of Net2000
Communications, Inc. On November 16, 2001, Net2000 Communications and its
subsidiaries filed voluntary petitions for relief under Chapter 11 of Title 11
of the United States Bankruptcy Code. 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. Mr. Heintzelman received a B.A. in marketing from the
University of Delaware and did graduate work at Wharton, the University of
Pittsburgh, and the University of Michigan.
THOMAS E. McINERNEY has served as a director of our company since October
1999 and is a member of the board's compensation committee. Since 1987, Mr.
McInerney has been a general partner of Welsh, Carson, Anderson & Stowe, a
private equity investment firm, and affiliated entities, which collectively are
a principal stockholder of our company. He is a director of the following
publicly-held companies: The BISYS Group and Centennial Communications
Corporation. Mr. McInerney also served as the chairman of the executive
committee of the board of Bridge, which assumed the responsibilities of the
chief executive officer of Bridge, from November 2000 until February 2001. Mr.
McInerney received a B.A. from St. John's University and attended New York
University Graduate School of Business Administration.
JAMES E. OUSLEY has served as a director of our company since April 2002
and is a member of the board's audit and compensation committees. Mr. Ousley has
served as the president and chief executive officer and director of Vytek
Corporation since 2001. From 1999 to 2002, he also served as chairman, CEO and
president of Syntegra Inc. (USA), a division of British Telecommunications. From
September 1991 to August 1999, Mr. Ousley served as president and CEO of Control
Data Systems. Mr. Ousley serves on the boards of ActivCard, Inc., Bell
Microproducts, Inc., Datalink, Inc., and Norstan, Inc. Mr. Ousley received a
B.S. from the University of Nebraska.
JAMES P. PELLOW has served as a director of our company since April 2002
and is a member of the board's audit committee. Mr. Pellow has served at St.
John's University as the executive vice president and treasurer since 1999 and
from 1998 until 1999 as senior vice president and treasurer. From 1991 to 1998,
Mr. Pellow served in various other senior positions at St. Johns University. Mr.
Pellow is a C.P.A. and received a B.B.A. and a M.B.A. from Niagara University.
PATRICK J. WELSH has served as a director of our company since October 1999
and is chairman of the board's compensation committee. Mr. Welsh was a
co-founder of the private equity investment firm Welsh, Carson, Anderson &
Stowe. He has served as a general partner of Welsh, Carson, Anderson & Stowe and
affiliated entities since 1979, which collectively are a principal stockholder
of our company. He also serves as a director of several private companies. Mr.
Welsh received a B.A. from Rutgers University and a M.B.A. from the University
of California at Los Angeles.
On March 6, 2002, we entered into an investor rights agreement with
entities and individuals affiliated with Welsh, Carson, Anderson & Stowe VIII,
L.P. ("WCAS VIII"), Reuters Holdings Switzerland SA ("Reuters"), and various
other entities. On June 28, 2002, we amended the investor rights agreement to
include a group of funds affiliated with Constellation Ventures (the
"Constellation Entities"). This agreement provides, among other things, that so
long as WCAS VIII and its affiliates own voting stock representing more than 50%
of the voting power represented by our outstanding voting stock, they have the
right to nominate for election to the board of directors at least half of the
members of the board. WCAS VIII and its affiliates owned, as of April 28, 2003,
approximately 54% of our outstanding voting power, and accordingly have
nominated Messrs. Welsh, McInerney, Clark, Finlayson, and Von Deylen for
election to the board. Pursuant to the terms of the investor rights agreement,
the Constellation Entities are entitled to nominate one person for election to
our board of directors, and accordingly have nominated Mr. Friedman. For a more
detailed description of the investor rights agreement, see "Item 13. Certain
Relationships and Related Transactions -- Transactions with Welsh, Carson" and
"-- Transactions with the Constellation Entities" beginning on page 17. 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
4
successors have been elected and qualified. Our officers are elected annually by
our board of directors and serve at the board's discretion.
Compliance with Section 16 of the Securities Exchange Act.
Section 16(a) of the Securities and Exchange Act of 1934 requires directors
and executive officers and persons who own more than 10% of a registered class
of equity securities to file with the SEC initial reports of ownership and
reports of changes in ownership of common stock and other equity securities of
our company. Such reporting persons are required by rules of the SEC to furnish
us with copies of all Section 16(a) reports they file. To our knowledge, based
solely upon a review of Section 16(a) reports furnished to us for fiscal 2002
and written representations that no reports on Form 5 were required, we believe
that our directors, executive officers and greater than ten percent stockholders
complied with all Section 16(a) filing requirements applicable to them with
respect to transactions during 2002, except that Messrs. Clark, Korey and Wiley
and the Constellation Entities each did not file their initial reports on Form 3
within the requisite period of time and, on one occasion, Mr. Heintzelman failed
to file a Form 4 on a timely basis with respect to the grant of stock options.
The required filings were made promptly after noting the failures to file.
ITEM 11. EXECUTIVE COMPENSATION.
The following table provides you with information about compensation earned
during each of the last three fiscal years by our chief executive officer and
the other four most highly compensated executive officers employed by us in
fiscal year 2002, who we refer to as our named executive officers. Mr. Frear was
succeeded by Mr. Von Deylen as Chief Financial Officer on March 1, 2003.
Summary Compensation Table (1)
Long-Term
Compensation
Awards (6)
Securities
Underlying All Other
Stock Compensation
Name and Principal Position Year Salary Bonus Options (2)
- ---------------------------------- ---- -------- ---------- ------------ ------------
Robert A. McCormick............... 2002 $400,000 $ 88,658(7) 4,734,965(3) $2,400
Chief Executive Officer and 2001 400,000 260,760(4) 450,050(5) 2,400
Chairman of the Board 2000 393,750 600,000 2,400
John M. Finlayson................. 2002 400,000 73,882(7) 4,084,553(3) 2,400
President and Chief 2001 400,000 217,300(4) 379,210(5) 2,400
Operating Officer 2000 384,871 500,000 2,400
David J. Frear.................... 2002 250,000 76,055(7) 1,040,637 2,400
Executive Vice President and 2001 250,000 76,055(4) 313,376(5) 2,400
Chief Financial Officer 2000 250,000 125,000 240,000 2,400
James D. Mori..................... 2002 218,000 29,553(7) 1,170,486(3) 2,400
Executive Vice President and 2001 218,000 86,920(4) 185,020(5) 2,400
General Manager for the 2000 209,000 200,000 2,400
Americas
Richard G. Bubenik................ 2002 200,000 29,553(7) 1,065,683(3) 2,400
Executive Vice President and 2001 200,000 86,920(4) 182,264(5) 2,400
5
Chief Technology Officer 2000 190,000 200,000 2,400
- ----------
(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 executive officers that are available generally to all
salaried employees and various perquisites and other personal benefits
received by the 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) Consists of matching contributions made under our 401(k) plan.
(3) Bonuses for fiscal year 2002 were paid partially in cash and the remainder
shall be paid in stock option grants. We have agreed to grant such stock
options following our 2003 annual meeting of stockholders. These options
will be fully vested when granted and will have an aggregate discount
amount (the difference between the fair market value per share of our
common stock and the exercise price on the grant date) of $132,988 for Mr.
McCormick, $110,823 for Mr. Finlayson., $44,329 for Mr. Mori and $44,329
for Mr. Bubenik.
(4) Cash bonuses for fiscal year 2001 were awarded in October 2002.
(5) These options were granted subject to the approval by our stockholders of
an amendment to our stock option plan increasing the number of shares
issuable under the plan. As we did not submit the amendment to our stock
option plan to a vote of our stockholders within the prescribed time
period, these options lapsed on January 23, 2002 pursuant to their terms.
(6) No shares of restricted stock were awarded in 2002.
(7) Cash bonuses for fiscal year 2002 were awarded in April 2003.
Option Grants in Last Fiscal Year
The following table shows grants of stock options to each of our named
executive officers during 2002. The percentages in the table below are based on
options to purchase a total of 34,643,571 shares of our common stock granted to
all our employees and directors in 2002. The numbers are calculated based on the
requirements of the SEC and do not reflect our estimate of future stock price
growth.
Options Granted In 2002
Individual Grants
-------------------------------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price per Expiration Grant Date
Name Granted 2002 Share(1) Date Value(2)
- ------------------- ---------- ----------------- --------- ---------- ----------
Robert A. McCormick 4,734,965 3.4% $ .75 3/1/2012 $1,192,335
John M. Finlayson 4,084,553 3.0% $ .75 3/1/2012 $1,028,551
David J. Frear 1,040,637 0.8% $ .75 3/1/2012 $ 242,048
James D. Mori 1,170,486 0.9% $ .75 3/1/2012 $ 294,746
Richard G. Bubenik 1,065,683 0.8% $ .75 3/1/2012 $ 268,355
- ----------
(1) Options were granted under two separate grants, containing different
vesting schedules, each at the fair market value determined as of the date
of grant, March 6, 2002. We granted Mr. McCormick 135,015 options with a
3-year vesting schedule and 4,599,950 options with a 4-year vesting
schedule. We granted Mr. Finlayson 113,763 options with a 3-year vesting
schedule and 3,970,790 options with a 4-year vesting schedule. We granted
Mr. Frear 94,013 options with a 3-year vesting schedule and 946,624 options
with a
6
4-year vesting schedule. We granted Mr. Mori 55,506 options with a 3-year
vesting schedule and 1,114,980 options with a 4-year vesting schedule. We
granted Mr. Bubenik 54,679 options with a 3-year vesting schedule and
1,011,004 options with a 4-year vesting schedule.
(2) Options valued under the Black-Scholes option pricing methodology, which
produces a per share option price of $0.25, using the following assumptions
and inputs: expected option life of four years, expected price volatility
of 94%, dividend yield of zero, and an interest rate of 5.1%, which was the
average zero coupon interest rate at the time of grant for three and five
year Treasury bonds. The actual value, if any, the employee may realize
from these options will depend solely on the gain in stock price over the
exercise price when the options are exercised.
Aggregate Option Exercises in 2002 and Fiscal Year-End Option Values
The following table sets forth as of December 31, 2002, for each of our named
executive officers:
. the total number of shares received upon exercise of options during
2002;
. the value realized upon that exercise;
. the total number of unexercised options to purchase our common stock;
and
. the value of such options which were in-the-money at December 31,
2002.
Number of
Securities Underlying Value of Unexercised
Shares Unexercised Options at In-the-Money Options at
Acquired December 31, 2002 December 31, 2002(1)
on Value --------------------------- ---------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------- -------- -------- ----------- ------------- ----------- -------------
Robert A. McCormick -- -- -- 4,734,965 $0.00 $0.00
John M. Finlayson -- -- -- 4,084,553 $0.00 $0.00
David J. Frear -- -- 170,000 1,510,637 $0.00 $0.00
James D. Mori -- -- -- 1,170,486 $0.00 $0.00
Richard G. Bubenik -- -- 183,333 1,189,082 $0.00 $0.00
- ----------
(1) These values have been calculated on the basis of the last reported sale
price of our common stock on the Nasdaq SmallCap Market as reported on
December 31, 2002 of $.40.
Director Compensation
Directors who are also employees of our company or are affiliated with one
of our principal stockholders do not receive additional compensation for serving
as a director. During 2002, each director who was not an employee of our company
and who was not affiliated with one of our principal stockholders received an
annual retainer of $10,000, except for Mssrs. Korey and Wiley, whom we paid
$5,000 each. In addition, we pay the non-employee/non-affiliated directors as
follows for their attendance at board and committee meetings: $1,500 per board
meeting attended in person; $750 per committee meeting attended in person; and
$250 per board and committee meeting attended by telephone. Accordingly, in 2002
in addition to the annual retainer, we paid the following directors the
following amounts for meetings attended: Mr. Pellow, $6,250; Mr. Ousley, $7,000;
and Mr. Heintzelman, $11,250. In addition, each director who is not an employee
of our company or affiliated with one of our principal stockholders received a
grant of options to purchase shares of our common stock under our stock option
plan at an exercise price equal to the fair market value on the date of grant.
On April 23, 2002, Messrs. Heintzelman, Ousley and Pellow were granted 60,000
options each at an exercise price of $.629 per share, the closing price of our
common stock on that date. On March 6, 2002, we also granted Mr. Heintzelman,
who is not an employee of our company or affiliated with one of our principal
stockholders, 15,000 options to purchase shares of our common stock under our
1999 stock option plan at an exercise price of $0.375 per share.
Arrangements with Executive Officers
7
Arrangement with Mr. McCormick. On April 2, 2001, we entered into an
agreement with Mr. McCormick, which agreement ratified the terms of Mr.
McCormick's employment arrangements. The agreement provided that Mr. McCormick
would serve as our Chairman and Chief Executive Officer effective as of January
3, 2000. Under this agreement, Mr. McCormick is entitled to a base salary of
$400,000 per year. In addition, he is eligible to receive an annual incentive
bonus of up to $750,000 based on the achievement of mutually agreed to
objectives. Mr. McCormick is entitled to benefits commensurate with those
available to other senior executives.
In connection with his employment, Mr. McCormick received options to
purchase 750,000 shares of our common stock at an exercise price of $.50 per
share, 500,000 of which were granted on July 22, 1999 and 250,000 of which were
granted on December 30, 1999. All of these options vested on the date of their
grant. If Mr. McCormick were to resign, we would have the right to repurchase
187,500 shares as of December 31, 2002, all at the lower of $.50 per share or
the fair market value thereof. This right will terminate with respect to (i)
125,000 shares on July 22, 2003, (ii) 62,500 shares on December 30, 2003 and
(iii) with respect to all 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. McCormick's employment for cause, we will have the right to buy
all shares not yet saleable at the price he paid for the shares. Mr. McCormick
will have the right to exercise all options for one year after the termination
of his employment, unless his employment was terminated for cause.
In the event we terminate Mr. McCormick'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 will
not be less than his highest annual salary paid by us. In the event of a change
in control of our company, Mr. McCormick has agreed to remain with our company
for a period of up to twelve months if the new management requests him to do so.
A change of control, as defined in the agreement, includes a merger or
consolidation of the company or a subsidiary with another company as a result of
which more than fifty percent of the outstanding shares of the company after the
transaction are owned by stockholders who were not stockholders of the company
before the transaction. We will reimburse Mr. McCormick for any parachute taxes
he would incur under the Internal Revenue Code of 1986, which we refer to as the
Internal Revenue Code or Code, as a result of such a change in control. We may
terminate Mr. McCormick's employment for cause at any time without notice, in
which case he will not be entitled to any severance benefits.
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 this
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 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. The remaining 450,000
options vested on January 3, 2000, and the shares underlying these options
became or will 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 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 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 will
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.
A change in control, as defined in the agreement, includes a merger or
consolidation of the company or a subsidiary with another company as a result of
which more than fifty percent of the outstanding shares of the company after the
transaction are owned by stockholders who were not stockholders of
8
the company before the transaction. 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 agreement
with Mr. Frear pursuant to which he agreed to serve as our chief financial
officer. Under this agreement, Mr. Frear was 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 was entitled to medical, disability,
401(k), life insurance and other benefits in accordance with our general
policies.
In connection with his employment, on July 22, 1999, Mr. Frear received
400,000 options to purchase shares of our common stock at an exercise price of
$.50 per share. All of these options have vested and been exercised. In
addition, on February 14, 2000, Mr. Frear received 240,000 additional options at
an exercise price of $24.00 per share. All of these options have vested.
Effective February 28, 2003, Mr. Frear's employment with the company
terminated. In connection with that termination, we entered into a Separation
Agreement and General Release and Waiver with Mr. Frear, whereby we agreed to
pay Mr. Frear, as per his 1999 agreement described above, salary and benefit
continuation for one year following the termination of his employment; a bonus
for 2002 equal to his bonus for 2001; and a pro rata payment of his 2003 bonus
through the date of termination. We also agreed that any options previously
awarded to Mr. Frear that would have vested on or prior to February 28, 2004
would continue to vest and be exercisable for three months thereafter by Mr.
Frear in accordance with the terms of the applicable option agreement and that
certain options granted to Mr. Frear that would have vested in the normal course
on March 1, 2004, would vest on February 28, 2004 and be exercisable for three
month thereafter.
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 for the Americas effective October 1, 1999. Under this
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. On October 29, 1999 and December 30, 1999, we
granted Mr. Mori options to purchase 225,000 shares and 75,000 shares of our
common stock, respectively, each at an exercise price of $.50 per share. All of
these 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 the rate of 6,250 shares per month
and will terminate in full on the fourth anniversary of the date of the grant;
as of December 31, 2002, the repurchase right had terminated with respect to
237,500 options. Under this agreement, Mr. Mori is entitled to benefits
commensurate with those available to executives of comparable rank.
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 will be entitled to 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.
Arrangement with Mr. Bubenik. On February 8, 2002, we entered an agreement
with Mr. Bubenik pursuant to which he agreed to continue to serve as our
Executive Vice President and Chief Technology Officer. Under this agreement, Mr.
Bubenik is entitled to an annual base salary of at $200,000, subject to annual
review, and an annual incentive bonus of approximately 50% of his base salary,
based on his personal and overall corporate performance. In addition, Mr.
Bubenik is entitled to benefits commensurate with those of executives of
comparable rank.
If we were to terminate Mr. Bubenik's employment without cause, or if Mr.
Bubenik were to resign with good reason, Mr. Bubenik would be entitled to (1)
continue to receive his then current base salary for a period of twelve months,
(2) a lump sum payment equal to the bonus declared for the preceding year, such
amount being pro-rated for the period of January 1 of the year of termination
through the date of termination (but in no event will such amount be less than
one-half of the bonus declared for the preceding year), (3) that portion of the
preceding year's
9
declared bonus which was not yet paid to him, and (4) continue to receive all of
the benefits that he was receiving on the date of his termination for a period
of one year from the date of termination. Under the agreement, Mr. Bubenik has
good reason to resign if we were to reassign him to a position with materially
reduced responsibilities or compensation opportunities or if we were to relocate
him from the metropolitan area in which he is located without his prior consent.
Compensation Committee Interlocks and Insider Participation
Messrs. McInerney, Clark and Welsh are general partners of Welsh, Carson
and affiliated entities, which collectively owned, as of April 28, 2003, 54% of
our outstanding voting stock and were also a principal stockholder of Bridge.
See "Item 13. Certain Relationships and Related Transactions --Transactions with
Welsh Carson" and " --Transactions with Bridge" beginning on page 17.
In 2002, 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.
Compensation Committee Report on Executive Compensation for 2002
Our compensation committee reviews, analyzes and recommends compensation
programs to our board of directors and administers and grants awards under our
1999 stock option plan. During 2002, the compensation committee consisted of
Messrs. Thomas E. McInerney and Patrick J. Welsh, and, as of July 24, 2002, Mr.
James E. Ousley. None of these directors are current or former employees of our
company.
Compensation Policies Toward Executive Officers
The compensation committee has structured its compensation policies to
achieve the following goals:
. attract, motivate and retain experienced and qualified executives;
. increase the overall performance of the company;
. increase stockholder value; and
. increase the performance of individual executives.
To achieve these objectives, the compensation program for our executive
officers consists principally of three elements: base salary, cash bonuses and
/or stock and long-term incentive compensation in the form of participation in
our 1999 stock option plan and our 2003 Incentive Compensation Plan, the latter
of which is being presented to our stockholders for approval at our 2003 annual
meeting.
The compensation committee seeks to provide competitive salaries based upon
individual performance together with cash and/or bonuses awarded based on our
overall performance relative to corporate objectives, taking into account
individual contributions, teamwork and personal and corporate performance
levels. In addition, it is our policy to grant stock options to executives upon
their commencement of employment and periodically thereafter in order to
strengthen the alliance of interest between such executives and stockholders and
to give executives the opportunity to reach the top compensation levels of the
competitive market depending on our performance. The following describes in more
specific terms the elements of compensation that implement the compensation
committee's compensation policies, with specific reference to compensation
reported for 2002:
Base Salaries. Base salaries of executives are initially determined by
evaluating the responsibilities of the position, the experience and knowledge of
the individual, and the competitive marketplace for executive talent, including
a comparison to base salaries for comparable positions at peer public companies
in the same geographic region. To ensure retention of qualified management, we
have entered into employment agreements with each of our named executive
officers. The terms of such agreements were the results of arms-length
negotiations between us and each executive officer. You can find further
information regarding the employment agreements of the named executive officers
under the heading " --Arrangements with Executive Officers," above. The
agreements establish the
10
base salary for each officer during the term of the agreement. We will review
the salaries for the executives annually and, if appropriate, adjust based on
individual performance, increases in general levels of compensation for
executives at comparable firms and our overall financial results.
Bonuses. The compensation committee also considers the payment of cash
bonuses as part of its compensation program. Annual cash bonuses reflect a
policy of requiring a certain level of company financial and operational
performance for the prior fiscal year before any cash bonuses are earned by
executive officers. In general, the compensation committee has tied potential
bonus compensation to performance factors, including the executive officer's
efforts and contributions towards obtaining company objectives and the company's
overall growth. The employment agreements of each of the executive officers
provide that each of these employees will be entitled to a bonus consisting of
cash in an amount determined before the conclusion of each fiscal year.
Stock Awards. A third component of executive officers' compensation is our
1999 stock option plan and 2003 Incentive Compensation Plan, pursuant to which
we grant executive officers and other employees options to purchase shares of
our common stock, restricted or unrestricted stock, stock units, or other
stock-based awards. The compensation committee grants stock awards to executives
in order to align their interests with the interests of our stockholders. Stock
awards are considered by the compensation committee to be an effective long-term
incentive because the executives' gains are linked to increases in the stock
value that in turn provides stockholder gains.
The compensation committee generally grants stock awards options to new
executive officers and other key employees upon their commencement of employment
with us and periodically thereafter. The stock awards generally are granted at
an exercise price equal to the market price of our common stock at the date of
the grant. The full benefit of the awards is realized upon appreciation of the
stock price in future periods, thus providing an incentive to create value for
our stockholders through appreciation of stock price. We believe that stock
awards have been helpful in attracting and retaining skilled executive
personnel. In 2002, we granted a total of 13,472,152 stock options to our
executive officers. The per share option exercise price of such options was
equal to the fair market value of our common stock at the date of grant. In
2003, bonuses for fiscal year 2002 were paid partially in cash and the remainder
shall be paid in stock option grants. We have agreed to grant such stock options
following our 2003 annual meeting of stockholders. These options will be fully
vested when granted and will have an aggregate discount amount (the difference
between the fair market value per share of our common stock and the exercise
price on the grant date) of $132,988 for Mr. McCormick, $110,823 for Mr.
Finlayson, $44,329 for Mr. Mori and $44,329 for Mr. Bubenik.
Other. We have a contributory retirement plan for our employees (including
executive officers) age 21 and over. Employees are eligible to begin
participation on a quarterly basis. This 401(k) plan provides that each
participant may contribute up to 15% of his or her salary (not to exceed the
annual statutory limit). We generally make matching contributions to each
participant's account equal to 50% of the participant's contribution up to 6% of
the participant's annual compensation, but in a total amount not to exceed
$2,400 per year.
Chief Executive Officer Compensation
The executive compensation policy described above has been applied in
setting Mr. McCormick's 2002 compensation. Mr. McCormick generally participates
in the same executive compensation plans and arrangements available to the other
executives. Accordingly, his compensation consists of annual base salary, annual
bonus, and long-term equity-linked compensation. The compensation committee's
general approach in establishing Mr. McCormick's compensation is to be
competitive with peer companies. In addition, the specific 2002 compensation
elements for Mr. McCormick's compensation were determined in light of his level
of responsibility, performance, current salary and other compensation awards and
performance of the company. Mr. McCormick's compensation during the year ended
December 31, 2002 included $400,000 in base salary, $88,658 in cash bonus and a
stock option grant to be made following the 2003 annual meeting with an
aggregate discount amount (the difference between the fair market value per
share of our common stock and the exercise price on the grant date) of $132,988.
Mr. McCormick's salary for 2002 was consistent with the compensation committee's
policy of being competitive with the compensation of chief executive officers of
peer companies. In addition, we granted Mr. McCormick options to purchase
4,734,965 shares of common stock in 2002.
11
Compensation Deductibility Policy
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction
to public corporations for compensation over $1,000,000 paid for any fiscal year
to the corporation's chief executive officer and four other most highly
compensated executive officers as of the end of any fiscal year. However, the
statute exempts qualifying performance-based compensation from the deduction
limit if specified requirements are met. The board of directors and the
compensation committee reserve the authority to award non-deductible
compensation in circumstances they deem appropriate. In 2002, stock options
granted by the compensation committee under our 1999 stock option plan did not
satisfy the requirements for exemption under Section 162(m).
Submitted by the Compensation Committee for fiscal 2002,
Thomas E. McInerney, Patrick J. Welsh and James E. Ousley
Stockholder Return Performance Graph
The following graph compares the total stockholder return on our common
stock since our initial public offering on February 14, 2000 with the total
return of the Nasdaq Composite Index and our peer group for the same period. Our
peer group consists of the following publicly traded companies that have common
stock listed on the Nasdaq National Market: InterNap Network Services
Corporation; Digex, Incorporated; Infonet Services Corp.; Interland, Inc.; and
Equant N.V.
This graph assumes that $100 was invested in our common stock, in the
Nasdaq Composite Index and in our peer group on February 15, 2000, and that all
dividends were reinvested.
[CHART]
The points on the graph represent the following numbers:
February 15, 2000 December 31, 2000 December 31, 2001 December 31, 2002
----------------- ----------------- ----------------- -----------------
SAVVIS $100.00 $ 3.65 $ 2.38 $ 1.67
Nasdaq National Market $100.00 $55.88 $44.12 $30.21
Peer Group $100.00 $17.55 $ 6.45 $ 2.85
12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED MATTERS.
Ownership of Our Voting Stock
The following table provides you with information about the beneficial
ownership of shares of our voting stock as of April 28, 2003, by:
. each person or group that, to our knowledge, beneficially owns more
than 5% of the outstanding shares of a class of voting stock;
. each of our directors and executive officers; and
. all of our directors and executive officers as a group.
The persons named in the table have sole voting and investment power with
respect to all shares of voting stock shown as beneficially owned by them,
subject to community property laws where applicable and unless otherwise noted
in the notes that follow. Shares of common stock subject to options, warrants
and convertible preferred stock currently exercisable or convertible, or
exercisable or convertible within 60 days of April 28, 2003, are deemed
outstanding for purposes of computing the percentage beneficially owned by the
person or entity holding such securities but are not deemed outstanding for
purposes of computing the percentage beneficially owned by any other person or
entity. Percentage of beneficial ownership is based on 94,028,659 shares of
common stock and 203,070 shares of Series A preferred stock outstanding as of
the close of business on April 28, 2003.
The "Total Voting Power" column reflects each listed individual's or
entity's percent of actual ownership of all voting securities of our company. As
a result, this column excludes any shares of common stock subject to options and
warrants, as holders of those securities will not be entitled to vote with
respect to such securities unless such securities are exercised.
Unless otherwise indicated below, the address for each listed director and
executive officer is SAVVIS Communications Corporation, 12851 Worldgate Drive,
Herndon, Virginia 20170.
Series A Total
Common Stock Preferred Stock(1) Voting Power
-------------------- ------------------- ------------
% of % of
Name of Beneficial Owner # of shares class # of shares class (%)
- ------------------------ ----------- ----- ----------- ----- ------------
5% Stockholder
Welsh, Carson, Anderson & Stowe............ 215,103,614(2) 73% 133,345(3) 66% 54%
Reuters Holdings Switzerland SA............ 61,856,871(4) 40% 40,870 20% 16%
BIS Administration, Inc. (5)............... 45,483,702 48% -- -- 12%
Constellation Entities..................... 29,321,184(6) 24% 20,000(7) 10% 7%
General Electric Capital Corporation....... 9,647,258(8) 9% -- -- --
Nortel Networks, Inc....................... 6,431,505(9) 6% -- -- --
Executive Officers and Directors
Robert A. McCormick........................ 1,657,496(10) 2% -- -- *
John M. Finlayson.......................... 1,455,445(11) 2% -- -- *
David J. Frear............................. 787,994(12) * - -- *
Richard Bubenik............................ 554,160(13) * -- -- *
James D. Mori.............................. 597,247(14) * -- -- *
Clyde A. Heintzelman....................... 30,000(15) * -- -- *
Patrick J. Welsh........................... 216,951,625(16) 73% 134,568(17) 66% 55%
Thomas E. McInerney........................ 216,792,215(18) 73% 134,435(19) 66% 55%
John D. Clark.............................. 180,459,837(20) 67% 116,115(21) 57% 46%
James E. Ousley............................ 20,000(22) * * * *
13
James P. Pellow............................ 20,000(23) * * * *
Clifford Friedman.......................... 0 -- -- -- --
Jeffrey H. Von Deylen...................... 0 -- -- -- --
All executive officers and directors as a
group (13 persons)......................... 224,445,296 75% 135,668 67% 57%
- ----------
* Less than one percent.
(1) As of April 28 2003, holders of Series A preferred stock were entitled to
an aggregate of approximately 304,388,937 votes.
(2) Includes 19,352,241 shares of common stock held by Welsh, Carson, Anderson
& Stowe VI, L.P., which we refer to as WCAS VI, 14,508,301 shares
beneficially held by Welsh, Carson, Anderson & Stowe VII, L.P., which we
refer to as WCAS VII, 65,357 shares beneficially held by WCAS Information
Partners, L.P., which we refer to as WCAS IP, 667,761 shares held by WCAS
Capital Partners II, L.P., which we refer to as WCAS CP II, 180,444,870
shares beneficially held by WCAS VIII, and 65,084 shares beneficially held
by WCAS Management Corporation, which we refer to as WCAS Management.
14,716,283 of the shares beneficially owned by WCAS VI, 11,032,735 of the
shares beneficially owned by WCAS VII, 174,194,870 of the shares
beneficially owned by WCAS VIII and all of the shares beneficially owned by
WCAS Management are issuable upon the conversion of the shares of Series A
preferred stock, including accrued and unpaid dividends through April 28,
2003, issued by us to these entities under securities purchase agreements
dated as of March 6, 2002 and September 18, 2002. The respective sole
general partners of WCAS VI, WCAS VII, WCAS IP, WCAS CP II and WCAS VIII
are WCAS VI Partners, L.P., WCAS VII Partners, L.P., WCAS INFO Partners,
WCAS CP II Partners and WCAS VIII Associates, LLC.
The individual general partners of each of these partnerships include some
or all of Bruce K. Anderson, Russell L. Carson, John D. Clark, Anthony J.
de Nicola, D. Scott Mackesy, Thomas E. McInerney, Robert A. Minicucci,
James R. Matthews, Paul B. Queally, Jonathan M. Rather, Sanjay Swani and
Patrick J. Welsh. The individual general partners who are also directors of
the company are Thomas E. McInerney, Patrick J. Welsh and John D. Clark.
Each of the foregoing 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. The address of Welsh, Carson, Anderson &
Stowe is 320 Park Avenue, New York, NY 10022.
(3) Includes 9,828 shares of Series A preferred stock held by WCAS VI, 7,368
shares of Series A preferred stock held by WCAS VII, 116,105 shares of
Series A preferred stock held by WCAS VIII, and 44 shares of Series A
preferred stock held by WCAS Management.
(4) Consists of 61,856,871 shares of common stock issuable upon the conversion
of the shares of our Series A preferred stock, including accrued and unpaid
dividends through April 28, 2003, acquired by Reuters on March 18, 2002
upon conversion of its 12% convertible senior secured notes due 2005,
including accrued and unpaid interest. Such shares of Series A convertible
preferred stock are convertible at any time at the holder's option.
According to Schedule 13D filed by Reuters on March 20, 2002, Reuters has
both shared voting power and shared disposition power with Reuters Group
PLC over the common stock issuable upon the conversion of its shares of our
Series A preferred stock. The principal executive offices of Reuters are
located at 153 route de Thonon, 1245 Collange-Bellerive, Switzerland.
Reuters is an indirect subsidiary of Reuters Group PLC, a public limited
liability company registered in England and Wales with its principal
executive offices located at 85 Fleet Street, London EC4P 4AJ, England.
(5) The address of BIS Administration, Inc. is c/o Scott Peltz, American
Express Tax & Business Services, 1 South Wacker Drive, Suite 800, Chicago,
IL 60606-3392. Bridge will distribute all of the shares of our common stock
it owns to its secured creditors.
(6) Includes 15,505,043 shares of common stock beneficially held by
Constellation Venture Capital II, L.P., which we refer to as CVC II,
7,330,296 shares beneficially held by Constellation Venture Capital
Offshore
14
II, L.P., which we refer to as CVC Offshore, 6,142,788 shares beneficially
held by The BSC Employee Fund IV, L.P., which we refer to as BSC Fund, and
343,057 shares held by CVC II Partners, L.L.C., which we refer to as CVC II
Partners. All of the shares beneficially owned by these entities are
issuable upon the conversion of the shares of Series A preferred stock,
including accrued and unpaid dividends through April 28, 2003, issued by us
to these entities under a securities purchase agreement dated as of June
28, 2002. According to Schedule 13D filed by the Constellation Entities on
July 9, 2002, the Constellation Entities have both shared voting power and
shared dispositive power with Constellation Ventures Management II, LLC
(with respect to 28,978,127 shares of common stock) and Bear Stearns Asset
Management Inc. over the common stock issuable upon conversion of their
shares of our Series A preferred stock. The address of the Constellation
Entities is 383 Madison Avenue, New York, New York 10179.
(7) Includes 10,576 shares of Series A preferred stock held by CVC II, 5,000
shares of Series A preferred stock held by CVC Offshore, 4,190 shares of
Series A preferred stock held by BSC Fund, and 234 shares of Series A
preferred stock held by CVC II Partners.
(8) Consists of 9,647,258 shares of common stock subject to warrants that are
currently exercisable.
(9) Consists of 6,431,505 shares of common stock subject to warrants that are
currently exercisable.
(10) Includes 907,496 shares of common stock subject to options that are
exercisable within 60 days of April 28, 2003.
(11) Includes 782,445 shares of common stock subject to options that are
exercisable within 60 days of April 28, 2003 and 37,500 shares of common
stock held in trust for the benefit of Mr. Finlayson's children.
(12) Includes 467,994 shares of common stock subject to options that are
exercisable within 60 days of April 28, 2003.
(13) Includes 481,394 shares of common stock subject to options that are
exercisable within 60 days of April 28, 2003 and 1,200 shares of common
stock held by his wife.
(14) Includes 297,247 shares of common stock subject to options that are
exercisable within 60 days of April 28, 2003.
(15) Includes 30,000 shares of common stock subject to options that are
exercisable within 60 days of April 28, 2003.
(16) Includes 215,038,257 shares held by Welsh, Carson, Anderson & Stowe, as
described in note 2 above. Also includes 1,834,240 shares issuable upon the
conversion of the shares of Series A preferred stock individually held by
Mr. Welsh, including accrued and unpaid dividends through April 28, 2003,
and 15,000 shares of common stock subject to options that are exercisable
within 60 days of April 28, 2003.
(17) Includes 133,345 shares of Series A preferred stock held by Welsh, Carson,
Anderson & Stowe, as described in note 3 above.
(18) Includes 215,103,614 shares held by Welsh, Carson, Anderson & Stowe, as
described in note 2 above. Also includes 1,635,125 shares issuable upon the
conversion of the shares of Series A preferred stock held by Mr. McInerney,
including accrued and unpaid dividends through April 28, 2003, and 15,000
shares of common stock subject to options that are exercisable within 60
days of April 28, 2003.
(19) Includes 133,345 shares of Series A preferred stock held by Welsh, Carson,
Anderson & Stowe, as described in note 3 above.
(20) Includes 180,444,870 shares of Series A preferred stock held by WCAS VIII,
as described in note 2 above. Includes 14,967 shares issuable upon the
conversion of the shares of Series A preferred stock held by Mr. Clark,
including accrued and unpaid dividends through April 28, 2003.
15
(21) Includes 116,105 shares held by WCAS VIII, as described in note 3 above.
(22) Includes 15,000 shares of common stock subject to options that are
exercisable within 60 days of April 28, 2003.
(23) Includes 15,000 shares of common stock subject to options that are
exercisable within 60 days of April 28, 2003.
Equity Compensation Plan Information
The following table provides information as of December 31, 2002 with
respect to shares of our common stock that may be issued under our existing
equity compensation plans, including our 1999 stock option plan, our employee
stock purchase plan and other arrangements with investors and distributors. The
table does not include information about our 2003 Incentive Compensation Plan,
which is being submitted for stockholder approval at the 2003 annual meeting.
- ----------------------------------------------------------------------------------------------------
A B C
- ----------------------------------------------------------------------------------------------------
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
Plan Category warrants and rights warrants and rights column (A))
- ----------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security
holders 34,979,396(1) 6.03 10,939,273(2)
- ----------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security
holders 10,000,000(3) $0.75 7,500,000(4)
- ----------------------------------------------------------------------------------------------------
(1) Consists entirely of shares of common stock underlying outstanding options
granted under our 1999 stock option plan.
(2) Includes 4,939,273 shares of common stock available for issuance under our
1999 stock option plan and 6,000,000 shares of common stock available for
issuance under our employee stock purchase plan which was approved by our
stockholders in 2002 but we have not yet implemented. Does not give effect
to the proposed new 2003 Incentive Stock Plan which is being submitted for
stockholder approval at our 2003 annual meeting.
(3) Consists entirely of shares of common stock subject to warrants that we
issued to the Constellation Entities. The warrants become exercisable upon
the Constellation Entities meeting certain performance criteria relating to
assisting the company in securing new customers.
(4) Consist entirely of shares of common stock underlying warrants which are
issuable to Moneyline Networks, LLC upon Moneyline Networks, LLC meeting
certain performance criteria relating to its distribution of our services
under a distribution agreement.
On June 28, 2002, we issued performance warrants to the Constellation
Entities to purchase 10,000,000 shares in the aggregate of our common stock at
$0.75 per share. The Constellation Entities will earn the right to exercise the
warrants if they meet certain criteria related to aiding our company in
acquiring new business. The warrants may be exercised in whole or in part at any
time prior to January 28, 2007.
On October 1, 2002, we agreed to issue performance warrants to Moneyline
Networks, LLC to purchase 7,500,000 shares in the aggregate of our common stock
at $0.75 per share. Moneyline Networks, LLC will earn the
16
right to receive the warrants if it meets certain criteria related to its
distribution of our services under a distribution agreement. The warrants may be
exercised in whole or in part at any time prior to five years from the date of
issuance of the warrants.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Transactions with Welsh, Carson. Three of our directors, Messrs. McInerney,
Welsh and Clark are general partners of investment entities that are affiliated
with Welsh, Carson, which collectively own approximately 54% of our outstanding
voting stock as of April 28, 2003. Welsh Carson and affiliated entities were
also principal stockholders of Bridge.
On March 18, 2002, several investment entities and several individuals
affiliated with Welsh, Carson purchased 117,200 shares of our Series A
convertible preferred stock at a purchase price of $1,000 per share in exchange
for all of our 10% convertible senior secured notes held by them, together with
accrued and unpaid interest, indebtedness of our company acquired from one of
our equipment vendors and cash, all pursuant to the terms of a securities
purchase agreement, dated as of March 6, 2002.
Each share of Series A convertible preferred stock is convertible at the
holder's option, into a whole number of shares of common stock which is equal to
the accreted value of the share plus all accrued and unpaid dividends on the
share through the conversion date divided by the conversion price, which
initially is $0.75 per share. The holders of Series A convertible preferred
stock are entitled to vote together as one class with the holders of the common
stock on all matters submitted to the vote of stockholders. In addition, we may
not take specified actions without the prior vote or consent of at least 66 2/3
% of the outstanding shares of Series A convertible preferred stock, voting as a
separate class.
In connection with the issuance of the Series A convertible preferred
stock, on March 6, 2002, we entered into an investor rights agreement with
Welsh, Carson and affiliated entities and individuals, Reuters, and various
other investors. As a result, the registration rights agreement with Bridge and
WCAS VIII, dated as of February 7, 2000, the registration rights agreement with
various Welsh, Carson entities and individuals, dated as of February 20, 2001,
and the registration rights agreement with Reuters, dated as of May 16, 2001 (as
described below), were terminated. Under the investor rights agreement, we
granted the Welsh, Carson entities and individuals, Reuters and the other
investors customary registration rights with respect to the shares of common
stock issuable upon conversion of the Series A convertible preferred stock and
warrants issued to two of the other investors, including demand registration
rights and piggy back registration rights. In addition, under the investor
rights agreement, we granted some investors the right to purchase all or any
part of its pro rata share of any securities that we may from time to time
propose to sell and issue, with specified exceptions. Finally, under the
investor rights agreement, so long as WCAS VIII or its permitted transferees, or
any other investors that may in the future become a party to the investor rights
agreement, owns Series A convertible preferred stock representing at least 10%
of our outstanding voting power, or WCAS VIII and its affiliates, or any other
investor that may in the future become a party to the investor rights agreement,
own capital stock representing at least 5% of our outstanding voting power, they
have the right to nominate for election to the board a number of directors equal
to the total number of members of the board of directors multiplied by the
percentage of the outstanding voting stock represented by the voting stock owned
by such investor, rounded down to the nearest whole number. Accordingly, in the
event that WCAS VIII and its affiliates own voting stock representing more than
50% of the voting power represented by the outstanding voting stock, they may
appoint at least half of the members of the board. In addition, WCAS VIII and
its affiliates will be entitled to nominate at least one director for election
to the board as long as they own in the aggregate voting stock representing at
least 5% of the total voting power of all our outstanding voting stock. If an
investor ceases to own a sufficient number of shares of our voting stock to
entitle it to nominate the number of directors it then has on the board of
directors, it must use its best efforts to promptly cause the resignation of one
or more of its designated directors. The right to nominate directors will cease
upon the earlier to occur of the date on which no shares of Series A convertible
preferred stock are outstanding and the date on which Welsh, Carson and its
permitted transferees own Series A convertible preferred stock representing less
than 10% of our then outstanding voting power or capital stock representing less
than 5% of our outstanding voting power.
17
We also entered into a letter agreement, dated as of March 6, 2002, with
WCA Management Corporation, pursuant to which we paid a fee of $1.1 million on
October 9, 2002 to WCA Management Corporation as consideration for the strategic
financial and advisory services rendered by it in connection with the securities
purchase agreement and the restructuring of some of our debt arrangements. We
also agreed to reimburse WCA Management Corporation for all reasonable
out-of-pocket expenses incurred by it or its affiliates in connection with the
securities purchase agreement and the debt restructurings. Messrs Welsh and
McInerney, two of our directors, own approximately 88% and 3.9%, respectively,
of WCA Management Corporation.
In September 2002, pursuant to the terms of the securities purchase
agreement, entities and individuals affiliates with Welsh Carson purchased an
additional $20 million of our Series A convertible preferred stock for a
purchase price of $20 million in cash.
Transactions with Reuters. During the period of May through September of
2001, pending the acquisition by Reuters of certain of Bridge's assets, Reuters
purchased $37,500,000 aggregate principal amount of our 12% convertible senior
secured notes due 2005. In connection with this transaction, we granted Reuters
customary registration rights with respect to the shares of our common stock
issuable upon conversion of the notes, including demand registration rights and
piggy-back registration rights under a registration rights agreement dated as of
May 16, 2001. On May 16, 2001, we also executed a side letter granting Reuters
and its successors, assigns and affiliates the right, for so long as they hold
any of our notes or preferred stock or common stock comprising or convertible
into at least 5% of our outstanding voting stock, among other things, to (1)
designate an observer to attend all meetings of our board of directors and any
board committees, and (2) to nominate and elect such number of directors, but
not fewer than one, equal to the product of the percentage of the voting power
held by Reuters on a fully-diluted, as-converted basis, multiplied by the number
of seats on the registrant's board of directors (rounded down to the nearest
whole number). In accordance with the terms of this letter, Reuters has
appointed an observer to attend all meetings of our board of directors and audit
committee.
On March 18, 2002, in connection with the purchase by entities and
individuals affiliated with Welsh, Carson of 117,200 of our shares of Series A
convertible preferred stock, all of our 12% convertible senior secured notes due
2005 held by Reuters, together with accrued and unpaid interest, in an aggregate
amount of approximately $40.9 million, were converted into 40,870 shares of
Series A convertible preferred stock in accordance with the terms of such notes.
In addition, the existing registration rights agreement with Reuters was
terminated and replaced with the investor rights agreement. See above under "--
Transactions with Welsh, Carson."
On September 28, 2001 affiliates of Reuters acquired a portion of the
assets of Bridge out of bankruptcy. In connection with the asset acquisition, on
September 28, 2001 Reuters Limited entered into a network services agreement
with us, pursuant to which we agreed to provide internet protocol network
services, internet access, and colocation services for a period of five years
with respect to the customers of Bridge that were acquired by affiliates of
Reuters. As a result of the network services agreement, Reuters Limited has
become our largest customer. During 2002, Reuters made payments to us under the
network services agreement of approximately $94.1 million. In connection with
the network services agreement, we also entered into a transitional services
agreement with Reuters Limited, pursuant to which Reuters Limited has agreed to
provide us with technical, administrative and other services, including help
desk support, installation, maintenance and repair of equipment, customer
related services such as processing service orders, accounting functions and the
provision of warehousing and other facilities, pending us establishing our own
capabilities. During 2002, we made payments to Reuters under the transitional
services agreement of approximately $4.2 million. On September 28, 2001, we also
entered into a co-location agreement with Reuters America, pursuant to which we
granted Reuters America the right to use portions of our data center in
Missouri. The co-location agreement has an initial term of five years and may be
renewed by Reuters America, at its option, for additional one-year periods.
However, the agreement will terminate concurrently with the network services
agreement. During 2002, Reuters America made payments to us under the
co-location agreement of approximately $2.1 million.
In connection with the acquisition of the Bridge assets, affiliates of
Reuters assumed a ground lease, dated as of February 18, 2000, between us and
Bridge Data Company relating to the parcel of land located in St. Louis County,
Missouri upon which we constructed a data center and acquired the land
underlying a lease. The ground lease has a term of 99 years and rent is due
monthly at the rate of approximately $27,443 per month commencing as of December
1, 2001, subject to annual 2% increases. Under the ground lease, we have the
right to purchase the land
18
at a price equal to the greater of $2,999,997 or the fair market value of the
land to be determined as if the land were not improved and were not encumbered
by the ground lease. Upon the occurrence of specified events, affiliates of
Reuters have the right to require us to purchase the land. During 2002, we paid
affiliates of Reuters approximately $0.2 million under the ground lease.
Transactions with Bridge. In February 2000, we entered into several
agreements with Bridge, including:
. a master establishment and transition agreement, under which we
acquired Bridge's global internet protocol network for $77 million;
. a network services agreement, under which we provided Bridge with
network services for the collection and distribution of the financial
information provided by Bridge to its customers and for Bridge's
internal managed data network needs;
. a technical services agreement and an administrative services
agreement, under which Bridge provided us with various technical and
administrative services, including help desk support, installation,
maintenance and repair of equipment, customer related services,
management of the colocation of third-party equipment in our
facilities, payroll and accounting functions, benefit management and
the provision of office space;
. local network services agreements in most jurisdictions outside the
United States, under which the charges that we paid for the local
circuit between our distribution frame and the Bridge customer
premises were charged back to Bridge at rates intended to recover our
costs;
. equipment colocation permits, providing us with the ability to keep
the equipment that was purchased from Bridge in the facilities in
which they were located;
. sublease with General Electric Capital Corporation ("GECC"), under
which we subleased from Bridge some of the network assets that Bridge
leased from GECC. The terms of the GECC sublease mirrored the GECC
master lease. On January 25, 2002, we entered into a direct lease
agreement with GECC with respect to the network assets covered by the
sublease on similar economic terms as the sublease between Bridge and
our company; and
. a promissory note in favor of Bridge in the principal amount of
$21,565,751, which matured on February 18, 2001 and bore interest at a
rate of 8% per year. At December 31, 2001, the amount due under the
note was approximately $23 million.
In connection with Bridge's bankruptcy filing, in September and October of
2001, affiliates of Reuters and Moneyline Networks, Inc. respectively, acquired
substantially all of Bridge's assets out of bankruptcy. In addition, we entered
into a network services agreement with Reuters Limited and a binding letter of
intent to enter into a network services agreement with Moneyline Networks (which
we subsequently entered into in October 2002) and we ceased performing under the
network services agreement with Bridge. Reuters Limited and Moneyline Networks
also agreed to provide technical, administrative and colocation services to us
for a transitional period, effectively replacing the related Bridge agreements.
On May 3, 2001, we entered into a court approved settlement agreement with
Bridge, as amended on December 31, 2001 and January 8, 2002, which set forth the
terms of our interim financing between the time of the court's initial approval
of the sale of Bridge's assets to Reuters and the closing of the sale of such
assets. On February 8, 2002, we entered into an agreement resolving all
outstanding issues between us and BIS Administration, Inc., the successor to
Bridge, which was approved by the bankruptcy court on February 13, 2002. Under
this agreement, in consideration of a cash payment of $11.85 million to be made
by us to Bridge, Bridge agreed to offset our indebtedness under the promissory
note and additional amounts owed by us to Bridge, less various amounts owed by
Bridge to us, in a total amount of $27.5 million. We made such cash payment to
Bridge upon completion of the sale of the Series A convertible preferred stock
to Welsh, Carson on March 18, 2002. Under the Bridge settlement agreement, we
also agreed to assign to Bridge any remaining claims held by us against any of
Bridge's affiliates outside the United States, other than Canada. With respect
to Canada, Bridge's Canadian affiliate, which has filed for bankruptcy in
Canada, will distribute to us a share of its remaining assets. Under the
agreement, we also agreed to reimburse Bridge in an amount of $.9 million for
payments made by Bridge to one of our creditors. Under the agreement, Bridge and
we agreed to pay various mechanics' liens that were asserted against real
property and data centers owned by Bridge and leased or occupied by us. Under
the agreement, Bridge and we have also agreed to waive all claims against each
other and release each other from liability arising from transactions between us
up to and including the date of the agreement. Finally, under the agreement,
Bridge has the right to designate one board
19
representative for a term expiring upon the earlier to occur of the expiration
of three years from the date of the agreement, the date on which Bridge's
ownership of our outstanding voting stock falls below 20%, or the date on which
Bridge distributes the shares of our common stock it holds to its creditors.
Bridge has not appointed a board member, but instead has appointed an observer
to attend all meetings of our board of directors. However, under the agreement,
Bridge retains the right to appoint a board member in the future.
On February 13, 2002, the Bankruptcy Court for the Eastern District of
Missouri approved a plan of liquidation in the Bridge case, which provided,
among other things, for the approval of the settlement agreement dated February
8, 2002 with BIS Administration, Inc. and the rejection by Bridge of all of its
executory agreements, including the master establishment and transition
agreement, the network services agreement, the administrative services agreement
and the technical services agreement. As a result, all of these agreements were
terminated.
Transactions with Nortel Networks. We entered into a credit agreement,
dated as of June 30, 2000, with Nortel Networks, Inc., which we refer to as
Nortel Networks, for the financing of approximately $38 million of network
equipment and services. On September 5, 2000, this agreement was amended and
restated, resulting in an increase to a $235 million advancing term loan
facility for the purpose of financing a portion of our costs to purchase network
equipment and installation services from Nortel Networks and to pay various
third party expenses. Bridge's bankruptcy filing constituted an event of default
under our term loan facility with Nortel Networks, resulting in approximately
$82 million of outstanding amounts owed to Nortel Networks becoming immediately
due and payable, as well as the automatic termination of the remaining $153
million commitment. From March 2001 to March 2002 we did not pay interest and
other fees due under the credit agreement. During this period, Nortel Networks
provided waivers on all defaults under the credit agreement.
On March 15, 2002, the company, Nortel Networks and WCAS VIII and several
affiliated entities entered into an assignment, acceptance and amendment,
providing for the assignment by Nortel Networks of the outstanding loans and
accrued interest under the credit facility to WCAS VIII and affiliated entities
in exchange for a cash payment. On March 18, 2002, WCAS VIII and affiliated
entities exchanged this debt for shares of our Series A convertible preferred
stock. In consideration of Nortel Networks entering into the assignment,
acceptance and amendment, on March 15, 2002, we entered into a warrant agreement
with Nortel Networks pursuant to which we issued to Nortel Networks, on March
18, 2002, a warrant to purchase 6,431,505 shares of our common stock. The
warrant is exercisable by Nortel Networks at any time for a period of five years
from the date of issuance, and has an exercise price of $0.75 per share, subject
to anti-dilution adjustments. In connection with these agreements, Nortel
Networks agreed to amend the global purchase agreement between Nortel Networks
and our company, dated June 30, 2000, under which we had agreed to purchase
equipment and services from Nortel Networks. In addition, we entered into an
agreement and mutual release with Nortel Networks, under which, among other
things, Nortel Networks agreed to release us from all claims relating to the
credit agreement and related documents and the purchase agreement, and we agreed
to release Nortel Networks from claims relating to these agreements. In
connection with the issuance of the warrants, Nortel Networks also became a
party to the investor rights agreement pursuant to which we granted to Nortel
Networks piggyback registration rights with respect to the shares of our common
stock underlying the warrants.
Transactions with GECC. In February 2000, we entered into a sublease with
Bridge, under which our company, as lessee, leased network assets under capital
leases with Bridge, as sublessor. Bridge leased the underlying assets from GECC.
On January 25, 2002, we entered into a direct lease with GECC with respect to
the network assets covered by the sublease on similar economic terms as our
sublease with Bridge. All our obligations under this sublease were paid in full
as of August 2, 2002. On March 28, 2000, we entered into a master lease
agreement with GECC relating to other network assets.
From April 2001 until March 2002 we did not pay our monthly amounts due to
GECC under our master lease agreement, causing a default under our agreement
with GECC. During this period, GECC provided us with waivers on all defaults
under the master lease agreement. On March 8, 2002, we entered into an amended
and restated master lease agreement with GECC for an aggregate principal amount
of $56.5 million. The amended and restated master lease agreement provides for a
12% interest rate, and interest is not payable in cash until after December 31,
2004. The outstanding principal amount of the amended and restated master lease
agreement was $62,413,065 as of December 31, 2002. The principal amount under
the amended and restated master lease agreement is due on March 8, 2007. In
connection with the amendment of the master lease
20
agreement, we granted GECC a security interest in substantially all assets of
our company, other than our data center in St. Louis, Missouri. In consideration
of GECC entering into the amended and restated master lease agreement, we issued
to GECC a warrant to purchase 9,647,258 shares of our common stock. The warrant
is exercisable by GECC at any time for a period of five years from the date of
issuance, and has an exercise price of $0.75 per share, subject to anti-dilution
adjustments. In connection with the issuance of the warrants, GECC also became a
party to the investor rights agreement pursuant to which we granted to GECC
piggyback registration rights with respect to the shares of our common stock
underlying the warrants.
Transactions with the Constellation Entities. On June 30, 2002 we issued
20,000 shares of our Series A convertible preferred stock to the Constellation
Entities for a purchase price of $1,000 per share in cash. We also issued
warrants to purchase up to 10,000,000 shares of our common stock to the
Constellation Entities. The warrants become exercisable as the Constellation
Entities meet certain performance criteria related to assisting us in securing
new customers. The warrants have an exercise price of $0.75 per shares and
expire in 2007. In connection with the issuance of the warrants, the
Constellation Entities became a party to the investor rights agreement pursuant
to which we granted to the Constellation Entities certain demand and piggyback
registration rights, and the right to nominate a director to our board of
directors so long as the Constellation Entities held at least 5% of our
outstanding voting power. On July 24, 2002, Mr. Friedman was appointed to our
board of directors as the Constellation Entities' nominee.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 30, 2003.
SAVVIS COMMUNICATIONS CORPORATION
By: /s/ Jeffrey H. Von Deylen
--------------------------------
Jeffrey H. Von Deylen
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
22
CERTIFICATIONS
I, Robert A. McCormick, certify that:
1. I have reviewed this annual report on Form 10-K/A of SAVVIS
Communications Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. [not applicable];
4. [not applicable];
5. [not applicable];
6. [not applicable].
Date: April 30, 2003
/s/ Robert A. McCormick
------------------------------------
Robert A. McCormick
Chairman and Chief Executive Officer
23
I, Jeffrey H. Von Deylen, certify that:
1. I have reviewed this annual report on Form 10-K/A of SAVVIS
Communications Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. [not applicable];
4. [not applicable];
5. [not applicable];
6. [not applicable].
Date: April 30, 2003
/s/ Jeffrey H. Von Deylen
------------------------------------
Jeffrey H. Von Deylen
Executive Vice President and Chief
Financial Officer
1