##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2006

OR

 ̈TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from
 to

Commission File Number: 0-29375



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LOGO

SAVVIS, Inc.

(Exact Name of Registrant as Specified in its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 43-1809960                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

1 SAVVIS Parkway

Town & Country, Missouri 63017

(Address of Principal Executive Offices) (Zip Code)

(314)
628-7000

(Registrants Telephone Number, Including Area Code)



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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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ̈Accelerated Filer  x    Non-Accelerated Filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:

Common stock, $0.01 par value  193,305,678 shares as of May 2, 2006

The Exhibit Index begins on
page 35.



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##### Table of Contents

SAVVIS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS



|                                  |  |          |  |                                                                                                                                    |  |     
|--------------------------------- |  | -------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                  |  |          |  |                                                                                                                                    |  | Page
|PART I.    
FINANCIAL INFORMATION |  | 3       
|                                  |  |          | 
|                                  |  | Item 1.  |  | Financial Statements.                                                                                                              |  | 3   
|                                  |  |          | 
|                                  |  |          |  | Condensed Consolidated Balance Sheets as of March 31, 2006 (unaudited) and December 31, 2005.                                      |  | 3   
|                                  |  |          | 
|                                  |  |          |  | Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2006 and 2005.                      |  | 4   
|                                  |  |          | 
|                                  |  |          |  | Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2005.                      |  | 5   
|                                  |  |          | 
|                                  |  |          |  | Unaudited Condensed Consolidated Statement of Changes in Stockholders Deficit for the period December 31, 2005 to March 31, 2006. |  | 6   
|                                  |  |          | 
|                                  |  |          |  | Notes to Unaudited Condensed Consolidated Financial Statements.                                                                    |  | 7   
|                                  |  |          | 
|                                  |  | Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations.                                             |  | 16  
|                                  |  |          | 
|                                  |  | Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk.                                                                        |  | 33  
|                                  |  |          | 
|                                  |  | Item 4.  |  | Controls and Procedures.                                                                                                           |  | 34  
|                                  | 
|PART II.    
OTHER INFORMATION    |  | 34      
|                                  |  |          | 
|                                  |  | Item 1.  |  | Legal Proceedings.                                                                                                                 |  | 34  
|                                  |  |          | 
|                                  |  | Item 1A. |  | Risk Factors.                                                                                                                      |  | 34  
|                                  |  |          | 
|                                  |  | Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds.                                                                       |  | 34  
|                                  |  |          | 
|                                  |  | Item 3.  |  | Defaults Upon Senior Securities.                                                                                                   |  | 34  
|                                  |  |          | 
|                                  |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders.                                                                               |  | 34  
|                                  |  |          | 
|                                  |  | Item 5.  |  | Other Information.                                                                                                                 |  | 34  
|                                  |  |          | 
|                                  |  | Item 6.  |  | Exhibits.                                                                                                                          |  | 35  
|                                  | 
|SIGNATURES                        |  | 36      



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

SAVVIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)



|                                                                                                                                                                                                                                                          |  |                |          |   |                  |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                                                                                                                                                          |  | March 31, 2006 |          |   | December 31,2005 |  
|                                                                                                                                                                                                                                                          |  | (unaudited)    |          |   |                  |  
|ASSETS                                                                                                                                                                                                                                                    |  |                |          |   |                  |   |          |  
|                                                                                                                                                                                                                                                          |  |               
|Current Assets:                                                                                                                                                                                                                                           |  |                |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                                                                                                                                                 |  | $              | 49,594   |   |                  | $ | 61,166   |  
|Trade accounts receivable, less allowance for credits and uncollectibles of $10,633 and $9,995 as of March 31, 2006 and December 31,
2005, respectively                                                                                                   |  |                | 49,285   |   |                  |   | 51,601   |  
|Prepaid expenses                                                                                                                                                                                                                                          |  |                | 7,661    |   |                  |   | 7,166    |  
|Other current assets                                                                                                                                                                                                                                      |  |                | 11,642   |   |                  |   | 8,960    |  
|                                                                                                                                                                                                                                                          |  |                |          |   |                  |   |          |  
|Total Current Assets                                                                                                                                                                                                                                      |  |                | 118,182  |   |                  |   | 128,893  |  
|Property and equipment, net                                                                                                                                                                                                                               |  |                | 262,934  |   |                  |   | 261,225  |  
|Intangible assets, net                                                                                                                                                                                                                                    |  |                | 7,286    |   |                  |   | 8,531    |  
|Other non-current assets                                                                                                                                                                                                                                  |  |                | 11,641   |   |                  |   | 10,997   |  
|                                                                                                                                                                                                                                                          |  |                |          |   |                  |   |          |  
|Total Assets                                                                                                                                                                                                                                              |  | $              | 400,043  |   |                  | $ | 409,646  |  
|                                                                                                                                                                                                                                                          |  |                |          |   |                  |   |          |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                                                                                                                     |  |                |          |   |                  |   |          |  
|                                                                                                                                                                                                                                                          |  |               
|Current Liabilities:                                                                                                                                                                                                                                      |  |                |          |   |                  |   |          |  
|Payables and other trade accruals                                                                                                                                                                                                                         |  | $              | 47,632   |   |                  | $ | 46,398   |  
|Current portion of capital lease obligations                                                                                                                                                                                                              |  |                | 2,851    |   |                  |   | 596      |  
|Other accrued liabilities                                                                                                                                                                                                                                 |  |                | 70,478   |   |                  |   | 78,697   |  
|                                                                                                                                                                                                                                                          |  |                |          |   |                  |   |          |  
|Total Current Liabilities                                                                                                                                                                                                                                 |  |                | 120,961  |   |                  |   | 125,691  |  
|Long-term debt                                                                                                                                                                                                                                            |  |                | 271,691  |   |                  |   | 275,259  |  
|Capital lease obligations, net of current portion                                                                                                                                                                                                         |  |                | 60,968   |   |                  |   | 59,890   |  
|Other accrued liabilities                                                                                                                                                                                                                                 |  |                | 86,316   |   |                  |   | 80,815   |  
|                                                                                                                                                                                                                                                          |  |                |          |   |                  |   |          |  
|Total Liabilities                                                                                                                                                                                                                                         |  |                | 539,936  |   |                  |   | 541,655  |  
|                                                                                                                                                                                                                                                          |  |                |          |   |                  |   |          |  
|Stockholders Deficit:                                                                                                                                                                                                                                    |  |                |          |   |                  |   |          |  
|Series A Convertible Preferred Stock at accreted value; $0.01 par value, 210,000 shares authorized; 203,070 shares issued as of March 31,
2006 and December 31, 2005; 202,490 shares outstanding as of March 31, 2006 and December 31, 2005, respectively |  |                | 314,033  |   |                  |   | 305,173  |  
|Common stock; $0.01 par value, 1,500,000,000 shares authorized; 187,828,834 and 181,347,790 shares issued and outstanding as of March 31,
2006 and December 31, 2005, respectively                                                                        |  |                | 1,878    |   |                  |   | 1,813    |  
|Additional paid-in capital                                                                                                                                                                                                                                |  |                | 349,657  |   |                  |   | 353,836  |  
|Accumulated deficit                                                                                                                                                                                                                                       |  |                | (802,982 | ) |                  |   | (790,534 | )
|Accumulated other comprehensive loss                                                                                                                                                                                                                      |  |                | (2,479   | ) |                  |   | (2,297   | )
|                                                                                                                                                                                                                                                          |  |                |          |   |                  |   |          |  
|Total Stockholders Deficit                                                                                                                                                                                                                               |  |                | (139,893 | ) |                  |   | (132,009 | )
|                                                                                                                                                                                                                                                          |  |                |          |   |                  |   |          |  
|Total Liabilities and Stockholders Deficit                                                                                                                                                                                                               |  | $              | 400,043  |   |                  | $ | 409,646  |  
|                                                                                                                                                                                                                                                          |  |                |          |   |                  |   |          |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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##### Table of Contents

SAVVIS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except share data)



|                                                                      |  |                              |             |   |      |   |             |  
|--------------------------------------------------------------------- |  | ---------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                      |  | Three Months Ended March 31, |            
|                                                                      |  | 2006                         |             |   | 2005 |  
|Revenue                                                               |  | $                            | 179,955     |   |      | $ | 162,172     |  
|Operating Expenses:                                                   |  |                              |             |   |      |   |             |  
|Cost of revenue(1)(2)                                                 |  |                              | 112,754     |   |      |   | 109,087     |  
|Sales, general, and administrative expenses(2)                        |  |                              | 43,571      |   |      |   | 37,525      |  
|Depreciation, amortization, and accretion                             |  |                              | 19,926      |   |      |   | 18,819      |  
|Integration costs                                                     |  |                              |            |   |      |   | 2,061       |  
|                                                                      |  |                              |             |   |      |   |             |  
|Total Operating Expenses                                              |  |                              | 176,251     |   |      |   | 167,492     |  
|                                                                      |  |                              |             |   |      |   |             |  
|Income (Loss) from Operations                                         |  |                              | 3,704       |   |      |   | (5,320      | )
|Net interest expense and other                                        |  |                              | 16,152      |   |      |   | 15,562      |  
|                                                                      |  |                              |             |   |      |   |             |  
|Net Loss                                                              |  |                              | (12,448     | ) |      |   | (20,882     | )
|Accreted and deemed dividends on Series A Convertible Preferred Stock |  |                              | 11,188      |   |      |   | 9,991       |  
|                                                                      |  |                              |             |   |      |   |             |  
|Net Loss Attributable to Common Stockholders                          |  | $                            | (23,636     | ) |      | $ | (30,873     | )
|                                                                      |  |                              |             |   |      |   |             |  
|Basic and Diluted Loss Per Common Share                               |  | $                            | (0.13       | ) |      | $ | (0.17       | )
|                                                                      |  |                              |             |   |      |   |             |  
|Basic and Diluted Weighted Average Common Shares Outstanding(3)       |  |                              | 182,287,990 |   |      |   | 180,447,121 |  
|                                                                      |  |                              |             |   |      |   |             |  

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|(1) | Excludes depreciation, amortization, and accretion, which is reported separately.
|--- | ---------------------------------------------------------------------------------

|(2) | Cost of revenue includes $0.2 million and less than $0.1 million of non-cash equity-based compensation for the three months ended March 31, 2006 and 2005, respectively. Sales,
general, and administrative expenses include $1.6 million and $0.1 million of non-cash equity-based compensation for the three months ended March 31, 2006 and 2005, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | As the effects of including the incremental shares associated with options, warrants, unvested restricted stock, and Series A Convertible Preferred Stock are anti-dilutive, they are
not included in diluted weighted average common shares outstanding. Diluted common shares on an as converted basis were 634,586,016 and 566,496,904 as of March 31, 2006 and 2005, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these condensed consolidated financial statements.



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##### Table of Contents

SAVVIS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)



|                                                                         |  |                             |         |   |      |   |         |  
|------------------------------------------------------------------------ |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                         |  | Three Months EndedMarch 31, |        
|                                                                         |  | 2006                        |         |   | 2005 |  
|Cash Flows from Operating Activities:                                    |  |                             |         |   |      |   |         |  
|Net loss                                                                 |  | $                           | (12,448 | ) |      | $ | (20,882 | )
|Reconciliation of net loss to net cash provided by operating activities: |  |                             |         |   |      |   |         |  
|Depreciation, amortization, and accretion                                |  |                             | 19,926  |   |      |   | 18,819  |  
|Non-cash equity-based compensation                                       |  |                             | 1,817   |   |      |   | 123     |  
|Accrued interest                                                         |  |                             | 12,787  |   |      |   | 11,765  |  
|Net changes in operating assets and liabilities:                         |  |                             |         |   |      |   |         |  
|Trade accounts receivable                                                |  |                             | 1,046   |   |      |   | 1,641   |  
|Prepaid expenses and other current and other non-current assets          |  |                             | (2,093  | ) |      |   | (2,180  | )
|Payables and other trade accruals                                        |  |                             | 2,213   |   |      |   | 3,185   |  
|Deferred revenue                                                         |  |                             | 5,234   |   |      |   | (939    | )
|Other accrued liabilities                                                |  |                             | (9,617  | ) |      |   | (1,552  | )
|                                                                         |  |                             |         |   |      |   |         |  
|Net cash provided by operating activities                                |  |                             | 18,865  |   |      |   | 9,980   |  
|                                                                         |  |                             |         |   |      |   |         |  
|Cash Flows from Investing Activities:                                    |  |                             |         |   |      |   |         |  
|Payments for capital expenditures                                        |  |                             | (16,465 | ) |      |   | (14,121 | )
|Other investing activities, net                                          |  |                             | 70      |   |      |   | (834    | )
|                                                                         |  |                             |         |   |      |   |         |  
|Net cash used in investing activities                                    |  |                             | (16,395 | ) |      |   | (14,955 | )
|                                                                         |  |                             |         |   |      |   |         |  
|Cash Flows from Financing Activities:                                    |  |                             |         |   |      |   |         |  
|Payments under capital lease obligations                                 |  |                             | (168    | ) |      |   | (36     | )
|Principal payments under revolving credit facility                       |  |                             | (16,000 | ) |      |   |        |  
|Other financing activities                                               |  |                             | 2,240   |   |      |   | (10     | )
|                                                                         |  |                             |         |   |      |   |         |  
|Net cash used in financing activities                                    |  |                             | (13,928 | ) |      |   | (46     | )
|                                                                         |  |                             |         |   |      |   |         |  
|Effect of exchange rate changes on cash and cash equivalents             |  |                             | (114    | ) |      |   | (82     | )
|                                                                         |  |                             |         |   |      |   |         |  
|Net Decrease in Cash and Cash Equivalents                                |  |                             | (11,572 | ) |      |   | (5,103  | )
|Cash and Cash Equivalents, Beginning of Period                           |  |                             | 61,166  |   |      |   | 55,369  |  
|                                                                         |  |                             |         |   |      |   |         |  
|Cash and Cash Equivalents, End of Period                                 |  | $                           | 49,594  |   |      | $ | 50,266  |  
|                                                                         |  |                             |         |   |      |   |         |  
|Supplemental Disclosures of Cash Flow Information:                       |  |                             |         |   |      |   |         |  
|Cash paid for interest                                                   |  | $                           | 3,812   |   |      | $ | 3,788   |  
|                                                                         |  |                             |         |   |      |   |         |  
|Non-cash Investing and Financing Activities:                             |  |                             |         |   |      |   |         |  
|Accreted and deemed dividends on Series A Convertible Preferred Stock    |  | $                           | 11,188  |   |      | $ | 9,991   |  
|                                                                         |  |                             |         |   |      |   |         |  
|Assets acquired through capital lease obligations                        |  | $                           | 3,463   |   |      | $ |        |  
|                                                                         |  |                             |         |   |      |   |         |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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##### Table of Contents

SAVVIS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
DEFICIT

(dollars in thousands)



|                                                                                          |  |                                   |  |                                   |  |   |             |   |                          |   |       |                    |   |         |                                   |  |   |                           |   |  |   |        |   |  |   |          |  
|----------------------------------------------------------------------------------------- |  | --------------------------------- |  | --------------------------------- |  | - | ----------- | - | ------------------------ | - | ----- | ------------------ | - | ------- | --------------------------------- |  | - | ------------------------- | - |  | - | ------ | - |  | - | -------- | -
|                                                                                          |  | Number of Shares Outstanding      |  | Series AConvertiblePreferredStock |  |   | CommonStock |   | AdditionalPaid-inCapital |   |       | AccumulatedDeficit |   |         | AccumulatedOtherComprehensiveLoss |  |   | TotalStockholdersDeficit |  
|                                                                                          |  | Series AConvertiblePreferredStock |  | CommonStock                       |  |   |             |   |                          |  
|Balance at December 31, 2005                                                              |  | 202,490                           |  | 181,347,790                       |  | $ | 305,173     |   |                          | $ | 1,813 |                    | $ | 353,836 |                                   |  | $ | (790,534                  | ) |  | $ | (2,297 | ) |  | $ | (132,009 | )
|Net loss                                                                                  |  |                                  |  |                                  |  |   |            |   |                          |   |      |                    |   |        |                                   |  |   | (12,448                   | ) |  |   |       |   |  |   | (12,448  | )
|Foreign currency translation adjustments                                                  |  |                                  |  |                                  |  |   |            |   |                          |   |      |                    |   |        |                                   |  |   |                          |   |  |   | (182   | ) |  |   | (182     | )
|                                                                                          |  |                                   |  |                                   |  |   |             |   |                          |   |       |                    |   |         |                                   |  |   |                           |   |  |   |        |   |  |   |          |  
|Comprehensive loss                                                                        |  |                                  |  |                                  |  |   |            |   |                          |   |      |                    |   |        |                                   |  |   |                          |   |  |   |       |   |  |   | (12,630  | )
|Deemed dividends on Series A Convertible Preferred Stock                                  |  |                                  |  |                                  |  |   | 11,188      |   |                          |   |      |                    |   | (11,188 | )                                 |  |   |                          |   |  |   |       |   |  |   |         |  
|Beneficial conversion feature of deemed dividends on Series A Convertible Preferred Stock |  |                                  |  |                                  |  |   | (2,328      | ) |                          |   |      |                    |   | 2,328   |                                   |  |   |                          |   |  |   |       |   |  |   |         |  
|Issuance of common stock upon exercise of stock options                                   |  |                                  |  | 3,877,816                         |  |   |            |   |                          |   | 39    |                    |   | 2,908   |                                   |  |   |                          |   |  |   |       |   |  |   | 2,947    |  
|Issuance of common stock upon exercise of warrants                                        |  |                                  |  | 2,603,228                         |  |   |            |   |                          |   | 26    |                    |   | (26     | )                                 |  |   |                          |   |  |   |       |   |  |   |         |  
|Recognition of deferred compensation costs                                                |  |                                  |  |                                  |  |   |            |   |                          |   |      |                    |   | 1,103   |                                   |  |   |                          |   |  |   |       |   |  |   | 1,103    |  
|Recognition of stock option modification costs                                            |  |                                  |  |                                  |  |   |            |   |                          |   |      |                    |   | 696     |                                   |  |   |                          |   |  |   |       |   |  |   | 696      |  
|                                                                                          |  |                                   |  |                                   |  |   |             |   |                          |   |       |                    |   |         |                                   |  |   |                           |   |  |   |        |   |  |   |          |  
|Balance at March 31, 2006                                                                 |  | 202,490                           |  | 187,828,834                       |  | $ | 314,033     |   |                          | $ | 1,878 |                    | $ | 349,657 |                                   |  | $ | (802,982                  | ) |  | $ | (2,479 | ) |  | $ | (139,893 | )
|                                                                                          |  |                                   |  |                                   |  |   |             |   |                          |   |       |                    |   |         |                                   |  |   |                           |   |  |   |        |   |  |   |          |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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##### Table of Contents

SAVVIS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data and where indicated)

NOTE 1DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

SAVVIS, Inc. (the Company) is a global information
technology (IT) services company delivering integrated hosting, network, digital content services, industry solutions, security, and professional services to businesses around the world and to various segments of the U.S. federal government.

These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, under the
rules and regulations of the U.S. Securities and Exchange Commission (the SEC), and on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the year ended December 31, 2005. Such
audited financial statements are included in the Companys Annual Report on Form 10-K (the Annual Report) filed with the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the Companys
audited consolidated financial statements and footnotes included in the Annual Report.

The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. In the opinion of management, such financial statements include all adjustments, which consist of only normal recurring adjustments, necessary for a fair presentation of the results for the
periods presented. All intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from such estimates and assumptions. Estimates used in the Companys consolidated financial statements include, among others, accruals for commercial disputes and billing errors by vendors, allowance for credits and
uncollectibles, valuation of the Subordinated Notes and warrants, valuation of the fair value of certain liabilities assumed in the acquisition of Cable & Wireless USA, Inc. and Cable & Wireless Internet Services, Inc., together
with the assets of certain of their affiliates (collectively, CWA), and the valuation of long-lived assets. In addition, certain amounts from prior years have been reclassified to conform to the current year presentation.

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue
Recognition and Allowance for Credits and Uncollectibles

The Company derives the majority of its revenue from recurring revenue streams, consisting
primarily of managed IP VPN, hosting, digital content services, and other network services, which is recognized as services are provided. Installation fees, although generally billed upon installation, are deferred and recognized ratably over the
estimated average life of a customer contract. Revenue is recognized only when the related service has been provided, there is persuasive evidence of an arrangement, the fee is fixed or determinable, and collection is reasonably assured.

The Company occasionally guarantees certain service levels in its individual customer contracts. To the extent that such service levels are not achieved, the Company
estimates the amount of credits to be issued, based on historical credits provided and known disputes, and records a reduction to revenue, with a corresponding increase in the allowance for credits and uncollectibles.

The Company assesses collectibility based on a number of factors, including customer payment history and creditworthiness. The Company generally does not request
collateral from its customers although in certain cases it may obtain a security deposit. When evaluating revenue recognition and the adequacy of allowances, the Company maintains an allowance for uncollectibles and specifically analyzes accounts
receivable, current economic conditions and trends, historical bad debt write-offs, customer concentrations, customer creditworthiness, and changes in customer payment terms. Delinquent account balances are written-off after management has
determined that the likelihood of collection is not probable.



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##### Table of Contents

Cost of Revenue

Invoices from communications service providers may exceed amounts the Company believes it owes. The Companys practice is to identify these variances and engage in discussions with the vendors to resolve disputes. Accruals are
maintained for the best estimate of the amount that will ultimately be paid. Variations in the Companys estimate and ultimate settlement of vendor billings may have a material impact on the Companys consolidated financial position,
results of operations, or cash flows. Other operational expenses include rental costs, utilities, costs for hosting space, as well as salaries and related benefits for engineering, service delivery and provisioning, customer service, and operations
personnel. Maintenance and operations costs for indefeasible rights of use (IRUs) are also reflected in cost of revenue.

Share-Based Payments

As of March 31, 2006, the Company had two share-based compensation plans  the SAVVIS, Inc. 2003 Compensation Plan (the 2003 Plan) and
the 1999 Stock Option Plan (the 1999 Plan), collectively referred to herein as the Plans. The 2003 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, unrestricted stock, stock units, dividend equivalent rights
and cash awards while the 1999 Plan provides only for the grant of stock options. Any of these awards may be granted as performance incentives to reward attainment of annual or long-term performance goals. The Plans have 86.0 million shares
authorized for grants of options or other share-based instruments. Stock options are generally granted with contractual terms of 10 years and graded vesting over four years. Restricted stock awards granted, which have been awarded only to
non-employee directors, vest over three years. Restricted stock units granted to certain employees have included performance features, with vesting expected over periods ranging from three to four years.

The Company recognizes compensation expense over the vesting period for share-based awards. Under the Plans, the Company recognized total non-cash stock-based
compensation costs of $1.8 million and $0.1 million for unvested, outstanding stock options, restricted stock and restricted stock units during the three months ended March 31, 2006 and 2005, respectively (see Note 7). The majority of these
amounts were reflected in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations, with the remainder included in cost of revenue. As of March 31, 2006, the Company had $17.7 million of
unrecognized compensation cost related to share-based compensation that is expected to be ultimately recognized, which includes 18.4 million restricted stock units, 0.1 million shares of restricted common stock, and 4.8 million stock options that
have a weighted average exercise price of $0.75 per share. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 3.0 years.

Prior to January 1, 2006, the Company accounted for share-based awards under those plans using the recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations, as permitted by SFAS 123, Accounting for Stock-Based Compensation. As such, the Company only recognized compensation cost for share-based awards to the extent such awards
were issued with an exercise price below the fair market value of the Companys common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123(R), Share-Based
Payment, using the modified-prospective-transition method. Under such method, compensation cost recognized in the accompanying condensed consolidated statement of operations for the three months ended March 31, 2006 includes a)
compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and b) compensation cost for all
share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not been restated for the adoption of SFAS 123(R).

As a result of adopting SFAS 123(R) on January 1, 2006, the Companys net loss for the three months ended March 31, 2006 was $0.1 million
lower than if it had continued to account for share-based awards under APB 25 and follow the disclosure provisions only of SFAS 123. Basic and diluted loss per common share would not have changed. Prior to and after the adoption of SFAS 123(R), the
Company has not realized the tax benefits of deductions resulting from the exercise of share-based awards due to the Companys history of net operating losses.

The following table presents the effect on net loss and net loss per common share for the three months ended March 31, 2005 as if the Company had applied the fair value recognition provisions of SFAS 123 to stock
options granted under the Companys share-based compensation plans. For purposes of this pro forma disclosure, the value of the options is estimated using the Black-Scholes option pricing model and amortized to expense on a straight-line basis
over the options vesting periods.



|                                                                          |  |                                 |         |  
|------------------------------------------------------------------------- |  | ------------------------------- | ------- | -
|                                                                          |  | Three MonthsEnded March 31,2005 |        
|Net loss attributable to common stockholders, as reported, adjusted for : |  | $                               | (30,873 | )
|Stock-based compensation expense                                          |  |                                 | 123     |  
|Pro forma stock-based compensation expense                                |  |                                 | (1,690  | )
|                                                                          |  |                                 |         |  
|Pro forma net loss attributable to common stockholders                    |  | $                               | (32,440 | )
|                                                                          |  |                                 |         |  
|Basic and diluted net loss per common share:                              |  |                                 |         |  
|As reported                                                               |  | $                               | (0.17   | )
|                                                                          |  |                                 |         |  
|Pro forma                                                                 |  | $                               | (0.18   | )
|                                                                          |  |                                 |         |  



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##### Table of Contents

The assumptions utilized in the determination of fair value for stock options during the three months ended
March 31, 2006 and 2005, based on current and historical experience, were as follows: expected volatility of 99.5% and 107.3%; risk-free interest rates of 4.8% and 3.8%; dividend yield of 0%; contractual option lives of 10 years; and expected
option lives of 3.3 years and 4.0 years, respectively.

In addition, in December 2005, prior to the adoption of SFAS 123(R), the compensation committee of
the board of directors approved the acceleration of vesting of certain unvested and out-of-the-money stock options with exercise prices equal to or greater than $0.75 per share previously awarded to employees, including certain executive
officers and non-employee directors, under the Companys equity compensation plans. The acceleration of vesting was effective for stock options outstanding as of December 13, 2005. Options to purchase approximately 21.1 million shares
of common stock, including approximately 5.5 million options held by executive officers and approximately 0.2 million options held by non-employee directors, were subject to the acceleration, which resulted in 92% of the Companys
outstanding options being vested. The purpose of the acceleration was to enable the Company to minimize the amount of compensation expense recognized in association with these options in its consolidated statements of operations upon adoption of
SFAS 123(R). Management believes that the aggregate future expense that was eliminated as a result of the acceleration of the vesting of these options was approximately $11.2 million. Management also believed that because the options that were
accelerated had exercise prices in excess of the market value of the Companys common stock on the date of acceleration, the options had limited economic value and were not fully achieving their original objective of incentive compensation and
employee retention.



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##### Table of Contents

Income Taxes

Income taxes are accounted for using the asset and liability method, which provides for the establishment of deferred tax assets and liabilities for the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and for income tax purposes, applying the enacted statutory tax rates in effect for the years in which differences are expected to reverse. Valuation allowances are established when it is more likely
than not the deferred tax assets will not be realized. The Company has provided a full valuation allowance on tax loss carryforwards and other potential tax benefits according to SFAS 109, Accounting for Income Taxes, because the
future realization of the tax benefit is uncertain. As a result, to the extent that those benefits are realized in future periods, they will favorably affect net income. At March 31, 2006, the Company had approximately
$526 million in net operating loss carryforwards scheduled to expire between 2009 and 2024, of which approximately $253 million is subject to the Section 382 limitation of the Internal Revenue Code, which limits the amount of net
operating losses that the Company may deduct for income tax purposes.

NOTE 3PROPERTY AND EQUIPMENT

Communications and data center equipment, office equipment, and other equipment are recorded at cost and depreciated using the straight-line method over estimated useful
lives, which range from three to fifteen years. Facilities and leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining lease terms, which range from two to fifteen years. The following table presents
property and equipment, by major category, as of March 31, 2006 and December 31, 2005:



|                                               |  |               |          |   |                  |   |          |  
|---------------------------------------------- |  | ------------- | -------- | - | ---------------- | - | -------- | -
|                                               |  | March 31,2006 |          |   | December 31,2005 |  
|Communications and data center equipment       |  | $             | 419,070  |   |                  | $ | 408,300  |  
|Facilities and leasehold improvements          |  |               | 160,367  |   |                  |   | 157,171  |  
|Office equipment and other                     |  |               | 51,213   |   |                  |   | 48,706   |  
|                                               |  |               |          |   |                  |   |          |  
|                                               |  |               | 630,650  |   |                  |   | 614,177  |  
|Less accumulated depreciation and amortization |  |               | (367,716 | ) |                  |   | (352,952 | )
|                                               |  |               |          |   |                  |   |          |  
|Property and equipment, net                    |  | $             | 262,934  |   |                  | $ | 261,225  |  
|                                               |  |               |          |   |                  |   |          |  

Depreciation expense was $16.1 million and $13.1 million for the three months ended March 31, 2006 and 2005,
respectively.

The cost of equipment and facilities held under capital lease was $127.5 million and $124.0 million as of March 31, 2006 and
December 31, 2005, respectively. Accumulated amortization of such assets held under capital lease was $78.8 million and $77.7 million as of March 31, 2006 and December 31, 2005, respectively. Amortization expense for equipment and
facilities held under capital lease was $0.9 million and $2.2 million for the three months ended March 31, 2006 and 2005, respectively.



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NOTE 4LONG-TERM DEBT

The following table presents long-term debt as of March 31, 2006 and December 31, 2005:



|                                                                                                 |  |                |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------------ |  | -------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                 |  | March 31, 2006 |         |   | December 31,2005 |  
|Proceeds from issuance of the Subordinated Notes                                                 |  | $              | 200,000 |   |                  | $ | 200,000 |  
|Adjustment for the valuation of warrants issued for Series B Preferred (original issue discount) |  |                | (65,872 | ) |                  |   | (65,872 | )
|                                                                                                 |  |                |         |   |                  |   |         |  
|Adjusted value of the Subordinated Notes                                                         |  |                | 134,128 |   |                  |   | 134,128 |  
|Accrued interest on the Subordinated Notes                                                       |  |                | 70,194  |   |                  |   | 60,867  |  
|Accretion of the original issue discount                                                         |  |                | 25,369  |   |                  |   | 22,264  |  
|                                                                                                 |  |                |         |   |                  |   |         |  
|Balance of the Subordinated Notes                                                                |  |                | 229,691 |   |                  |   | 217,259 |  
|Revolving Credit Facility                                                                        |  |                | 42,000  |   |                  |   | 58,000  |  
|                                                                                                 |  |                |         |   |                  |   |         |  
|Total long-term debt                                                                             |  | $              | 271,691 |   |                  | $ | 275,259 |  
|                                                                                                 |  |                |         |   |                  |   |         |  



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Revolving Credit Facility

On June 10, 2005, the Company and certain of its subsidiaries entered into a credit agreement with Wells Fargo Foothill, Inc., as arranger and administrative agent, and certain other lenders to provide the
Company with an $85.0 million revolving credit facility (the Revolving Facility), which includes a $15.0 million letter of credit facility. The Revolving Facility may be used for working capital and other general corporate purposes. The Revolving
Facility matures, and all outstanding borrowings and unpaid interest are due, on December 9, 2008. In addition, all outstanding borrowings are subject to mandatory prepayment upon certain events, including the availability of less than $7.0
million in borrowing capacity and qualified cash balances, as defined by the Revolving Facility agreement. As of March 31, 2006, the $85.0 million Revolving Facility included outstanding principal of $42.0 million, outstanding letters of credit
of $11.3 million (see Note 6), and unused availability of $31.7 million. The Company paid down $16.0 million in the first quarter of 2006. The Company may terminate the Revolving Facility prior to maturity, provided that the Company pays a premium
of 2.0% of the revolver amount if terminated during the first 12 months of the Revolving Facility term, a premium of 0.5% of the revolver amount if terminated during the 12 months thereafter, and no premium during the remainder of the term.

The Revolving Facility contains affirmative covenants, negative covenants, and financial covenants. The negative covenants place restrictions on, among
other things, levels of investments, indebtedness, and dividend payments that the Company may make or incur. The financial covenants, which apply only if the Company maintains qualified cash and availability of less than $35.0 million, require the
maintenance of certain financial measures at defined levels. Under the Revolving Facility, borrowings bear interest determined by a base LIBOR rate of one to six months plus an additional 2.75% to 3.25%, determined by certain financial measures,
with a minimum interest rate at all times of 5.25%. As of March 31, 2006, the Revolving Facility bears weighted average interest at 7.63% based on the one-month and six-month LIBOR set in March 2006. As of March 31, 2006, the one-month
LIBOR was 4.83%, the six-month LIBOR was 5.14% and the additional interest spread above LIBOR was 2.75%, lowered from 3.00% during the three months ended March 31, 2006 due to the Companys achievement of certain financial measures.
Interest is payable at varying dates, as outlined in the Revolving Facility agreement, generally every one to three months. Unused commitments on the Revolving Facility are subject to a 0.5% annual commitment fee. The Revolving Facility is secured
by substantially all of the Companys domestic properties and assets. The carrying amount of the Companys obligations under the Revolving Facility approximate fair value because the interest rates are based on floating interest rates
identified by reference to market rates.

Subordinated Notes

In February 2004, the Company issued $200.0 million of Subordinated Notes. The proceeds were used to fund the CWA asset acquisition and related operational, working capital, and capital expenditure requirements. Debt
issuance costs associated with the Subordinated Notes were $2.0 million, consisting of fees to the purchasers of the Subordinated Notes, and were capitalized in other current and other non-current assets in the accompanying condensed consolidated
balance sheets and are being amortized to interest expense using the effective interest method until maturity. The Subordinated Notes accrued interest based on a 365-day year at a rate of 12.5% per annum until February 3, 2005 and
15% per annum thereafter, payable semi-annually on June 30 and December 31 through the issuance of additional Subordinated Notes equal to the accrued interest payable at the time of settlement. Prior to January 29, 2008, the
Company may redeem the Subordinated Notes, in whole but not in part, at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest, plus a make-whole premium. The make-whole premium is equal to all remaining interest
to be paid on the Subordinated Notes from the date of the redemption notice through January 30, 2008 discounted semi-annually at a rate equal to the treasury rate plus 0.5%, plus 1% of the principal amount of the Subordinated Notes. After
January 30, 2008, the Company may redeem the Subordinated Notes, in whole but not in part, at a redemption price equal to 101% of the principal amount plus all accrued and unpaid interest. Upon a change of control, the holders of the
Subordinated Notes have the right to require the Company to redeem any or all of the Subordinated Notes at a cash price equal to 100% of the principal amount of the Subordinated Notes, plus all accrued and unpaid interest as of the effective date of
such change in control. The Subordinated Notes mature in a single installment on January 30, 2009. The outstanding principal and interest-to-date of the Subordinated Notes, excluding the original issue discount, was $266.7 million and $257.1
million as of March 31, 2006 and December 31, 2005, respectively.

Warrants exercisable for Series B Preferred were issued with the Subordinated
Notes. The $200.0 million in proceeds from issuance were allocated between the Subordinated Notes and the warrants for Series B Preferred, based on their relative fair values, resulting in an original issue discount of $65.9 million. The allocated
value of the Subordinated Notes at date of issuance, plus accrued interest on the face value and accreted interest on the original issue discount, are reflected as long-term debt in the accompanying condensed consolidated balance sheets. The fair
value of the Series B Preferred was determined with the assistance of an independent third-party valuation firm, and the allocated fair value is reflected in additional paid-in capital in stockholders equity (deficit) in the accompanying
consolidated balance sheet. The purchasers of the Subordinated Notes exercised the warrants and the Series B Preferred were converted into common stock in December 2004. The Series B Preferred was retired by the Companys Board of Directors in
December 2005.



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##### Table of Contents

Debt Covenants

The provisions of the Companys Revolving Facility and Subordinated Notes contain a number of covenants including, but not limited to, restricting or limiting the Companys ability to incur more debt, pay dividends, and repurchase
stock (subject to financial measures and other conditions). The ability to comply with these provisions may be affected by events beyond the Companys control. The breach of any of these covenants could result in a default under the
Companys debt agreements and could trigger acceleration of repayment. As of and during the three months ended March 31, 2006 and the year ended December 31, 2005, the Company was in compliance with all covenants under the Revolving
Facility and Subordinated Notes, as applicable.

Future Principal Payments

As of March 31, 2006, aggregate future principal payments of long-term debt were zero in 2006 and 2007, $42.0 million in 2008, and $401.9 million in 2009, consisting of $200.0 million in principal and $201.9
million of accrued non-cash interest, with no payments due thereafter. The weighted average interest rate applicable to the Companys outstanding borrowings under the Revolving Facility and Subordinated Notes was 14.00% as of March 31,
2006 and 13.53% as of December 31, 2005.

NOTE 5OTHER ACCRUED LIABILITIES

The following table presents the components of other accrued liabilities as of March 31, 2006 and December 31, 2005:



|                                                                   |  |               |        |                  |   |       
|------------------------------------------------------------------ |  | ------------- | ------ | ---------------- | - | ------
|                                                                   |  | March 31,2006 |        | December 31,2005
|Current other accrued liabilities:                                 |  |               |        |                  |   |       
|Wages, employee benefits, and related taxes                        |  | $             | 15,807 |                  | $ | 23,190
|Deferred revenue                                                   |  |               | 17,093 |                  |   | 15,775
|Taxes payable                                                      |  |               | 6,748  |                  |   | 6,036 
|Acquired contractual obligations in excess of fair value and other |  |               | 7,707  |                  |   | 7,872 
|Accrued outside services                                           |  |               | 12,376 |                  |   | 14,372
|Other current liabilities                                          |  |               | 10,747 |                  |   | 11,452
|                                                                   |  |               |        |                  |   |       
|Total current other accrued liabilities                            |  | $             | 70,478 |                  | $ | 78,697
|                                                                   |  |               |        |                  |   |       
|Non-current other accrued liabilities:                             |  |               |        |                  |   |       
|Deferred revenue                                                   |  | $             | 16,239 |                  | $ | 12,309
|Acquired contractual obligations in excess of fair value and other |  |               | 27,055 |                  |   | 27,965
|Asset retirement obligation                                        |  |               | 22,799 |                  |   | 21,965
|Other non-current liabilities                                      |  |               | 20,223 |                  |   | 18,576
|                                                                   |  |               |        |                  |   |       
|Total non-current other accrued liabilities                        |  | $             | 86,316 |                  | $ | 80,815
|                                                                   |  |               |        |                  |   |       

NOTE 6COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

The Companys customer contracts generally span multiple periods, which result in the Company entering into arrangements with various suppliers of communications
services that require the Company to maintain minimum spending levels, some of which increase over time, to secure favorable pricing terms. The Companys remaining aggregate minimum spending levels, allocated ratably over the terms of such
contracts, are $67.0 million, $27.7 million, $7.5 million, and $89.5 million in years 2006, 2007, 2008, and thereafter, respectively. Should the Company not meet the minimum spending levels in any given term, decreasing termination liabilities
representing a percentage of the remaining contracted amount may become immediately due and payable. Furthermore, certain of these termination liabilities are subject to reduction should the Company experience the loss of a major customer or suffer
a loss of revenue from a general economic downturn. Before considering the effects of any potential reductions for the business downturn provisions, if the Company had terminated all of these agreements as of March 31, 2006, the maximum
liability would have been $82.5 million.

The Company is subject to various legal proceedings and other actions arising in the normal course of
business. While the results of such proceedings and actions cannot be predicted, management believes, based on facts known to it today, that the ultimate outcome of such proceedings and actions will not have a material adverse effect on the
Companys consolidated financial position, results of operations or cash flows.



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##### Table of Contents

The Company has employment agreements with key executive officers that contain provisions with regard to base salary,
bonus, stock-based compensation, and other employee benefits. These agreements also provide for severance benefits in the event of employment termination or a change in control of the Company.

In the normal course of business, the Company is a party to certain guarantees and financial instruments with off-balance sheet risk, such as letters of credit,
indemnifications and operating leases, which are not reflected in its consolidated balance sheets. The agreements associated with such guarantees and financial instruments mature at various dates through July 2017 and may be renewed as circumstances
warrant. As of March 31, 2006, the Company had $11.3 million in letters of credit pledged as collateral to support various property and equipment leases and utilities. In addition, certain of the operating leases assumed by the Company in the
CWA asset acquisition were collateralized by Cable & Wireless plc with letters of credit and guarantees. Such collateral remained in place following the acquisition, and the Company agreed to reimburse Cable & Wireless plc for any
payments made under the collateral. Such collateral totals $15.1 million and will be replaced by the Company on or before July 2007. The Companys financial instruments are valued based on the amount of exposure under the instruments and the
likelihood of performance being required. In managements past experience, no claims have been made against these financial instruments nor does it expect the exposure to material losses resulting there from to be anything other than remote. As
a result, the Company determined such financial instruments do not have significant value and has not recorded any related amounts in its condensed consolidated financial statements.

NOTE 7STOCKHOLDERS EQUITY

The following table presents diluted common shares, on an as-converted basis,
as of March 31, 2006 and December 31, 2005:



|                                                   |  |               |  |                 
|-------------------------------------------------- |  | ------------- |  | ----------------
|                                                   |  | March 31,2006 |  | December 31,2005
|Total common shares outstanding                    |  | 187,828,834   |  | 181,347,790     
|Series A Preferred on an as-converted basis        |  | 422,732,630   |  | 410,918,717     
|Unvested restricted stock units                    |  | 18,390,000    |  | 14,265,000      
|Warrants and options outstanding (treasury method) |  | 5,634,552     |  | 4,633,814       
|                                                   |  |               |  |                 
|Diluted common shares, on an as-converted basis    |  | 634,586,016   |  | 611,165,321     
|                                                   |  |               |  |                 

Restricted Stock Units

In August 2005, the compensation committee awarded 19.9 million restricted stock units (RSUs) to executives and employees under the 2003 Plan, of which 6.7 million were subsequently forfeited upon employment
terminations in 2005 and the first quarter of 2006. In March 2006, the compensation committee awarded 5.2 million RSUs to executives. The Company received no cash consideration for such awards. Such awards resulted in deferred compensation of
$13.1 million and $5.5 million in 2005 and 2006, respectively, which represents the fair value of the RSUs on the date of grant. The vesting of the RSUs is subject to continued employment and the Companys achievement of financial performance
targets over a period of up to four years. RSUs represent common stock but do not give the recipient any actual ownership interest in the Companys common stock, other than the right to receive cash dividends, until vested and the shares of
common stock underlying the RSUs are delivered. Deferred compensation is being amortized on a straight-line basis and recognized as non-cash equity-based compensation over the requisite service period. Compensation expense associated with RSUs was
$1.0 million during the three months ended March 31, 2006. If the Company believes it is probable that it will achieve its performance targets, non-cash equity-based compensation will be accelerated to ensure that the amount of non-cash
equity-based compensation recorded is reflective of the accelerated vesting of RSUs.

Stock Options

Compensation expense associated with stock options was $0.8 million during the three months ended March 31, 2006, including $0.7 million associated with the
modification of a term of an executives stock option agreement.



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##### Table of Contents

Warrants

In
connection with its recapitalization in 2002, the Company issued warrants to Nortel Networks, Inc. (Nortel) to purchase approximately 6.4 million shares of the Companys common stock for $0.75 per share. In March 2006, Nortel exercised its
warrants pursuant to a cashless exercise and received approximately 2.6 million shares of the Companys common stock.

The following table
presents information associated with the Companys stock-based compensation awards for the three months ended March 31, 2006 (in thousands):



|                                   |  |                                   |   |  |                  |  |         |   |  |          |  
|---------------------------------- |  | --------------------------------- | - |  | ---------------- |  | ------- | - |  | -------- | -
|                                   |  | Three Months Ended March 31, 2006 |  
|                                   |  | Restricted Stock Units            |   |  | Restricted Stock |  | Options |   |  | Warrants |  
|Outstanding at beginning of period |  | 14,265                            |   |  | 150              |  | 52,063  |   |  | 13,098   |  
|Granted                            |  | 5,200                             |   |  |                 |  | 1,300   |   |  |         |  
|Delivered/Exercised                |  |                                  |   |  |                 |  | (3,878  | ) |  | (6,432   | )
|Forfeited                          |  | (1,075                            | ) |  |                 |  | (892    | ) |  |         |  
|                                   |  |                                   |   |  |                  |  |         |   |  |          |  
|Outstanding at end of period       |  | 18,390                            |   |  | 150              |  | 48,593  |   |  | 6,666    |  
|                                   |  |                                   |   |  |                  |  |         |   |  |          |  

NOTE 8INDUSTRY SEGMENT AND GEOGRAPHIC REPORTING

SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, prescribes standards for reporting information about operating segments
in annual financial statements and in interim financial reports. Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the chief operating decision maker
or decision making group, to determine how resources should be allocated and to assess operating performance.

The Companys operations are managed on
the basis of three geographic regions: Americas, Europe and Asia. Management evaluates the performance of such regions and allocates resources to them based primarily on revenue. The Company has evaluated the criteria for aggregation of its
geographic regions under SFAS 131 and believes it meets each of the respective criteria set forth therein. Each geographic region provides all of the Companys services to businesses in various industries. In addition, the geographic regions
utilize similar means for delivering the Companys services; have similarity in the types of customer receiving the products and services; distribute the Companys services over a unified network; and operate within a consistent regulatory
environment. In light of these factors, management has determined that the Company has one reportable segment.

The table below presents selected financial
information for the Companys geographic regions as of and for the three months ended March 31, 2006 and 2005. For such periods, revenue earned in the U.S. represented approximately 83% of total revenue.



|                                             |  |                             |         |                  |   |        
|-------------------------------------------- |  | --------------------------- | ------- | ---------------- | - | -------
|                                             |  | Three Months EndedMarch 31,
|                                             |  | 2006                        |         | 2005            
|Revenue:                                     |  |                             |         |                  |   |        
|Americas                                     |  | $                           | 148,806 |                  | $ | 134,820
|Europe                                       |  |                             | 20,610  |                  |   | 17,399 
|Asia                                         |  |                             | 10,539  |                  |   | 9,953  
|                                             |  |                             |         |                  |   |        
|Total revenue                                |  | $                           | 179,955 |                  | $ | 162,172
|                                             |  |                             |         |                  |   |        
|                                             |  |                            
|                                             |  | March 31,2006               |         | December 31,2005
|Property and equipment, net (end of period): |  |                             |         |                  |   |        
|Americas                                     |  | $                           | 251,657 |                  | $ | 249,922
|Europe                                       |  |                             | 9,428   |                  |   | 9,649  
|Asia                                         |  |                             | 1,849   |                  |   | 1,654  
|                                             |  |                             |         |                  |   |        
|Total property and equipment, net            |  | $                           | 262,934 |                  | $ | 261,225
|                                             |  |                             |         |                  |   |        

Substantially all of the Companys intangible assets and other non-current assets reside in the Americas
geographic region.



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##### Table of Contents

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the
following discussion in conjunction with our accompanying unaudited condensed consolidated financial statements and notes thereto, and our audited consolidated financial statements, notes thereto and Managements Discussion and Analysis of
Financial Condition and Results of Operations as of and for the year ended December 31, 2005, included in our Annual Report on Form 10-K for such period as filed with the U.S. Securities and Exchange Commission. The results shown herein are not
necessarily indicative of the results to be expected in any future periods. This discussion contains forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) based on current expectations which
involve risks and uncertainties. Actual results and the timing of events could differ materially from the forward-looking statements as a result of a number of factors. For a discussion of the material factors that could cause actual results to
differ materially from the forward-looking statements, you should read Risk Factors included in this Form 10-Q.

EXECUTIVE SUMMARY

SAVVIS, Inc. is a global information technology (IT) services company delivering integrated hosting, network, digital content services, industry
solutions, security, and professional services to businesses around the world and various segments of the U.S. federal government. Our unique solutions model combines advanced virtualization technology, a utility services approach, and automated
software management and provisioning systems to deliver access to a suite of IT services that offer high availability, business agility and disruptive economics. Our solutions enable customers to focus on their core business while we ensure the
performance of their IT infrastructure. We have approximately 5,200 customers across all industries with a particular emphasis in the financial services, media and entertainment, retail, and the U.S. federal government sectors.

Services

Although we operate in one operating segment
separated by geographic location, the following briefly describes our services by revenue category:

Managed IP VPN

Managed IP VPN includes revenue primarily from our IP VPN. This service is a fully managed, end-to-end service that includes all hardware, management systems, and
operations to transport video and data applications. This service has built-in security, fully-meshed connectivity, and the ability to assign individual service levels to different applications so each application receives the performance levels it
requires and reduces unused capacity.

Hosting

Hosting
revenue includes revenue from our managed hosting solutions. Hosting includes the facilities, networks, servers, storage, and operations to run business applications. Customers can take advantage of our flexible service model which allows them to
decide the right combination of our service for their applications from basic colocation to managed hosting to utility computing.

Digital Content
Services

Revenue from digital content services, or media services, includes our WAM!NET services, digital media services and Content Delivery Network
(CDN) services. These services provide a managed infrastructure tied to workflow applications that enhance the creation, production and distribution of digital content and streaming media. These services help customers manage, share, store and
distribute their digital content inside their organization and throughout supply chains outside of their organization.

Other Network Services

Other network services include Internet access and private line services to enterprises and wholesale carrier customers. These services can be
purchased individually or in combination. The network portfolio emphasizes high performance and availability, end-to-end management and monitoring, security, fully-meshed connectivity between customer sites for improved reliability and efficiency,
and cost effectiveness.



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Our customers varied and individual needs often require that our portfolio of services be combined and integrated
in order to best suit their needs. To address these needs, we also offer the following services:

Industry Solutions

Industry solutions integrate powerful applications with our global infrastructure to deliver services that enhance industry-specific workflows and improve enterprise
productivity. These services support the financial services, media and entertainment and retail markets and the U.S. federal government. Cross-industry solutions for email and collaboration are also available.

Professional Services

Professional services are provided through a
group of industry experts and skilled practitioners that allow our customers to get the maximum value out of our companys services. We offer assistance and consultation in security, web-based applications, business recovery, program
management, infrastructure, and migration.

Business Trends

Our financial results continue to be affected by competition in our industry. We expect competitive factors in our industry to continue to affect the prices for our services and our results of operations. Price
pressures vary by product and service. Prices for telecommunications services, including the services we offer, have decreased over the past several years, and we expect to continue to see decreases for the foreseeable future. To some extent, the
impact of lower prices that we charge our customers has been offset by lower costs incurred by us to provide the service. In addition, unmanaged bandwidth services have experienced significant price pressure. In contrast, colocation services have
enjoyed more stable pricing, and we believe these services will continue to maintain stability and grow in certain markets as we provide more value-added services to our customers.

We have also addressed industry-wide price competition and price decreases by broadening the range of services that we offer, including the addition of CDN services, colocation services, carrier wholesale services,
consulting services, and an expanded portfolio of managed security services as a result of our acquisition of the assets of Cable & Wireless USA, Inc. and Cable & Wireless Internet Services, Inc., together with the acquisition of
assets of certain of their affiliates (CWA) in March 2004.

In evaluating our financial results and the performance of our business, our management reviews
our revenues, gross profit, defined as revenue less cost of revenue, excluding depreciation, amortization, and accretion, gross margin and operating income. In addition, management evaluates these indicators on a quarterly and annual basis in order
to have a complete understanding of business trends. The following table presents a quarterly overview of these indicators for the periods indicated (in thousands):



|                              |  |                    |         |   |                  |   |         |                   |  |   |              |   |  |               |         |   |  |   |         |  
|----------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | ----------------- |  | - | ------------ | - |  | ------------- | ------- | - |  | - | ------- | -
|                              |  | Three Months Ended |        
|                              |  | March 31,2006      |         |   | December 31,2005 |   |         | September 30,2005 |  |   | June 30,2005 |   |  | March 31,2005 |        
|Revenue                       |  | $                  | 179,955 |   |                  | $ | 171,513 |                   |  | $ | 166,127      |   |  | $             | 167,200 |   |  | $ | 162,172 |  
|Gross profit(1)(2)            |  |                    | 67,201  |   |                  |   | 60,736  |                   |  |   | 59,110       |   |  |               | 58,532  |   |  |   | 53,085  |  
|Gross margin(3)               |  |                    | 37      | % |                  |   | 35      | %                 |  |   | 36           | % |  |               | 35      | % |  |   | 33      | %
|Income (loss) from operations |  |                    | 3,704   |   |                  |   | 2,836   |                   |  |   | 2,310        |   |  |               | (3,502  | ) |  |   | (5,320  | )

---

|(1) | Gross profit represents total revenue less cost of revenue, which excludes depreciation, amortization, and accretion.
|--- | ---------------------------------------------------------------------------------------------------------------------

|(2) | Gross profit in 2005 has been adjusted to reflect a portion of non-cash stock-based compensation that was previously reported separately from cost of revenue.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Represents gross profit, as defined above, as a percentage of revenue.
|--- | ----------------------------------------------------------------------



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##### Table of Contents

Revenue

Prior to our
acquisition of the CWA assets in March 2004, we were heavily dependent on our largest customer, Reuters Limited (Reuters), which comprised 54% of total revenue for the year ended December 31, 2003. Most of our remaining revenue was generated
from our managed IP VPN services. However, after we acquired the CWA assets, our revenue profile changed significantly. Reuters revenue comprised only 13% of total revenue for the three months ended March 31, 2006 and 15% of total revenue for
the year ended December 31, 2005. Moreover, the acquisition increased our revenue from hosting services, which represented 48% of total revenue for the three months ended March 31, 2006 and 44% of total revenue for the year ended
December 31, 2005.

Our revenue grew by 11% during the three months ended March 31, 2006 compared to the three months ended March 31, 2005.
For the first quarter of 2006, our revenue increased 5% sequentially compared to the fourth quarter of 2005. This was due primarily to increases in revenue from managed IP VPN of $2.1 million, hosting of $6.1 million, and other network services of
$1.4 million, partially offset by a decline in revenue from Reuters of $1.2 million.

In May 2005, we signed a new three-year contract with Reuters to
continue providing network delivery of Reuters market data services worldwide and to create the opportunity for us to provide to Reuters a broad array of additional services. As a result of the new agreement, we reduced pricing for certain
Reuters services and eliminated existing contractual minimum amounts. In addition, in the first quarter of 2005, Reuters also announced it signed a long-term agreement for the provision of network services with a competing telecommunications
provider. Accordingly, we expect revenue from Reuters to continue to decline in 2006 compared to 2005.

We plan to offset this decrease and increase our
revenue through a number of initiatives, including improving the productivity of our direct sales force by increasing sales force automation and providing more sales support in terms of engineering and product expertise, given our product breadth
and extensive customer base, exploring opportunities to sell additional services to existing customers, and capitalizing on the current imbalance in the supply and demand ratio for colocation services by continuing to achieve improved customer
pricing.

Gross Profit and Gross Margin

We use gross
profit and gross margin to evaluate the profitability of our business. Gross profit, defined as revenue less cost of revenue, but excluding depreciation, amortization, and accretion, was $67.2 million for the three months ended March 31, 2006,
an increase of $14.1 million, or 27%, from $53.1 million for the three months ended March 31, 2005. The improvement of gross profit throughout the years ended December 31, 2004 and 2005 reflects our continued efforts to rationalize network
operations, reduce our fixed network costs, and reduce the service costs of our hosting data centers as a result of the synergies from our acquisition of the CWA assets. As a result, gross margin, defined as gross profit as a percentage of revenue,
was 37% for the three months ended March 31, 2006 compared to 33% for the three months ended March 31, 2005. We expect gross profit and gross margin to continue improving due to the scalability of our business model and ongoing
cost-optimization efforts.

Income (Loss) from Operations

Income from operations for the three months ended March 31, 2006, was $3.7 million, an improvement of $9.0 million compared to a loss from operations of $5.3 million for the three months ended March 31, 2005. The improvement was
primarily due to the increase in revenue of $17.8 million and the absence of $2.1 million of integration costs, partially offset by increases in cost of revenue of $3.7 million; sales, general, and administrative expenses of $6.0 million; and
depreciation, amortization, and accretion of $1.1 million.



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SIGNIFICANT TRANSACTIONS

Restricted Stock Units

In August 2005, the compensation committee awarded 19.9 million restricted stock units (RSUs) to
executives and employees under the 2003 Incentive Compensation Plan (the 2003 Plan), of which 6.7 million were subsequently forfeited upon employment terminations in 2005 and the first quarter of 2006. In March 2006, the compensation committee
awarded 5.2 million RSUs to executives. We received no cash consideration for such awards. Such awards resulted in deferred compensation of $13.1 million in 2005 and $5.5 million in 2006, which represents the fair value of the RSUs on the date
of grant. The vesting of the RSUs is subject to continued employment and our achievement of financial performance targets over a period of up to four years. RSUs represent common stock but do not give the recipient any actual ownership interest in
our common stock, other than the right to receive cash dividends, until vested and the shares of common stock underlying the RSUs are delivered. Deferred compensation is being amortized on a straight-line basis and recognized as non-cash
equity-based compensation over the requisite service period. Compensation expense associated with RSUs was $1.0 million during the three months ended March 31, 2006. If we believe it is probable that we will achieve our performance targets,
non-cash equity-based compensation will be accelerated to ensure that the amount of non-cash equity-based compensation recorded is reflective of the accelerated vesting of RSUs.



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##### Table of Contents

RESULTS OF OPERATIONS

The historical financial information included in this Form 10-Q does not reflect our future results of operations, financial position and cash flows.

Three Months Ended March 31, 2006 Compared to the Three Months Ended March 31, 2005

Executive Summary of Results of
Operations

Revenue increased $17.8 million, or 11%, for the three months ended March 31, 2006 compared to the three months ended March 31,
2005, as a result of a 23% increase in managed IP VPN, a 24% improvement in hosting and an 11% increase in digital content services, partially offset by smaller declines in other network services and Reuters revenue. Income from operations improved
$9.0 million, or 170%, for the three months ended March 31, 2006 compared to the three months ended March 31, 2005, as a result of the increase in revenue and the absence of $2.1 million in integration costs in 2006. These factors were
partially offset by increases in cost of revenue of $3.7 million, or 3%; sales, general, and administrative expenses of $6.0 million, or 16%; and depreciation, amortization, and accretion of $1.1 million, or 6%. Cost of revenue and sales, general,
and administrative expenses include non-cash equity-based compensation expense, in accordance with U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 107, which was previously reported as a separate line in 2005. Net loss
improved $8.5 million, or 40%, for the three months ended March 31, 2006 compared to the three months ended March 31, 2005, as a result of the factors previously described.

Revenue.The following table presents diversified revenue by major category and revenue from our largest customer (dollars in thousands):



|                          |  |                              |         |      |   |              |  |   |               |   |  |     |   
|------------------------- |  | ---------------------------- | ------- | ---- | - | ------------ |  | - | ------------- | - |  | --- | --
|                          |  | Three months ended March 31, |        
|                          |  | 2006                         |         | 2005 |   | DollarChange |  |   | PercentChange |  
|Diversified Revenue:      |  |                              |         |      |   |              |  |   |               |   |  |     |   
|Managed IP VPN            |  | $                            | 32,351  |      | $ | 26,363       |  | $ | 5,988         |   |  | 23  | % 
|Hosting                   |  |                              | 85,567  |      |   | 68,784       |  |   | 16,783        |   |  | 24  | % 
|Digital Content Services  |  |                              | 10,616  |      |   | 9,560        |  |   | 1,056         |   |  | 11  | % 
|Other Network Services    |  |                              | 28,611  |      |   | 31,736       |  |   | (3,125        | ) |  | (10 | )%
|                          |  |                              |         |      |   |              |  |   |               |   |  |     |   
|Total Diversified Revenue |  |                              | 157,145 |      |   | 136,443      |  |   | 20,702        |   |  | 15  | % 
|                          |  |                              |         |      |   |              |  |   |               |   |  |     |   
|Reuters                   |  |                              | 22,810  |      |   | 25,729       |  |   | (2,919        | ) |  | (11 | )%
|                          |  |                              |         |      |   |              |  |   |               |   |  |     |   
|Total Revenue             |  | $                            | 179,955 |      | $ | 162,172      |  | $ | 17,783        |   |  | 11  | % 
|                          |  |                              |         |      |   |              |  |   |               |   |  |     |   

Revenue was $180.0 million for the three months ended March 31, 2006, an increase of $17.8 million, or 11%,
from $162.2 million for the three months ended March 31, 2005. Diversified managed IP VPN revenue was $32.4 million for the three months ended March 31, 2006, an increase of $6.0 million, or 23%, from $26.4 million for the three
months ended March 31, 2005. This increase was mainly attributed to new sales activity and growth in existing services. Diversified hosting revenue was $85.6 million for the three months ended March 31, 2006, an increase of $16.8
million, or 24%, from $68.8 million for the three months ended March 31, 2005. The increase was due primarily to growth in existing services, particularly in our infrastructure and managed utility service offerings, stabilized pricing, and
lower customer churn. Digital content services revenue, which includes CDN and WAM!NET revenue, was $10.6 million for the three months ended March 31, 2006, an increase of $1.0 million, or 11%, from $9.6 million for the three months ended
March 31, 2005. The increase was due primarily to CDN usage increases, partially offset by reduced pricing for CDN services during the three months ended March 31, 2006 compared to the three months ended March 31, 2005. Other network
services includes internet access revenue and private line services and was $28.6 million for the three months ended March 31, 2006, a decrease of $3.1 million, or 10%, from $31.7 million for the three months ended March 31, 2005. The
decrease was due primarily to pricing pressures in unmanaged bandwidth for such services from a year ago.

Reuters revenue was $22.8 million for the three
months ended March 31, 2006, a decrease of $2.9 million, or 11%, from $25.7 million for the three months ended March 31, 2005. The decline was due primarily to pricing reductions and the elimination of minimum revenue commitments from
Reuters. We expect Reuters revenue in 2006 to be lower than 2005 as a result of revised competitive pricing and the elimination of minimum revenue commitments based on the terms of the 2005 agreement with Reuters previously described elsewhere
herein. We expect Reuters to contribute approximately 12-13% of total annual revenue in 2006.

Cost of Revenue.Cost of revenue, which excludes
depreciation, amortization, and accretion, which is reported separately, was $112.8 million for the three months ended March 31, 2006, an increase of $3.7 million, or 3%, from $109.1 million for the three months ended March 31, 2005. The
increase was due primarily to an increase in personnel and related costs and higher utilities costs, partially offset



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by continued realization of various cost-savings initiatives executed during the past 18 months. Gross profit, defined as
total revenue less cost of revenue, was $67.2 million for the three months ended March 31, 2006, an increase of $14.1 million, or 27%, from $53.1 million for the three months ended March 31, 2005. Gross profit as a percentage of revenue,
or gross margin, increased to 37% for the three months ended March 31, 2006 compared to 33% reported for the three months ended March 31, 2005, primarily resulting from strong revenue growth with a disproportionate increase in costs to
generate such revenue, primarily due to cost savings initiatives.

Sales, General, and Administrative Expenses.Sales, general, and administrative
expenses include all costs associated with the selling of our services and administrative functions such as finance, legal and human resources. Such expenses were $43.6 million for the three months ended March 31, 2006, an increase of $6.1
million, or 16%, from $37.5 million for the three months ended March 31, 2005. Sales, general, and administrative expenses as a percentage of revenue were 24% for the three months ended March 31, 2006 compared to 23% of revenue for the
three months ended March 31, 2005. This was due primarily to an increase in personnel and related costs, higher commissions and the inclusion of $1.6 million in non-cash stock-based compensation expense that was previously reported separately,
partially offset by the realization of various cost-savings initiatives executed during the past 18 months.

Depreciation, Amortization, and
Accretion. Depreciation, amortization, and accretion includes depreciation of property and equipment, amortization of intangible assets, and accretion of the discounted present value of certain liabilities and long-term fixed price contracts
assumed in the CWA acquisition. Depreciation, amortization, and accretion was $19.9 million for the three months ended March 31, 2006, an increase of $1.1 million, or 6%, from $18.8 million for the three months ended March 31, 2005.

Integration Costs.Integration costs represented incremental costs to the combined organization after the CWA asset acquisition, including
consulting services, payroll costs and stay bonuses, and PoP consolidation and network restructuring. We did not incur any integration costs associated with the CWA acquisition in 2006 as integration activities have been completed. Integration costs
were $2.1 million for the three months ended March 31, 2005.

Net Interest Expense and Other. Net interest expense and other primarily
represents interest on the Subordinated Notes, capital leases, and revolving credit facility (the Revolving Facility), as well as amortization of the original issue discount on the Subordinated Notes and amortization of debt issuance costs. Net
interest expense and other was $16.2 million for the three months ended March 31, 2006, an increase of $0.6 million, or 4%, from $15.6 million for the three months ended March 31, 2005. The increase was primarily due to the compounding of
payable in kind interest, partially offset by a lower interest rate in 2006 on the Revolving Facility compared with the GECC capital lease, which was repaid in June 2005. Management expects payments for cash interest expense to be approximately $11
million for the remainder of 2006 under our current financing arrangements.

Net Loss. Net loss for the three months ended March 31, 2006 was
$12.4 million, an improvement of $8.5 million, or 40%, from $20.9 million for the three months ended March 31, 2005, primarily driven by the factors previously described.

LIQUIDITY AND CAPITAL RESOURCES

Executive Summary

As of March 31, 2006, our cash and cash equivalents balance was $49.6 million. We had $18.9 million in net cash provided by operating activities during the three
months ended March 31, 2006, an increase of $8.9 million from net cash provided by operating activities of $10.0 million for the three months ended March 31, 2005. This change was primarily due to improvements in our results of operations,
partially offset by a decline in working capital driven by cash payments in March 2006 for 2005 bonuses. Net cash used in investing activities for the three months ended March 31, 2006 was $16.4 million, an increase of $1.4 million from net
cash used for investing activities of $15.0 million for the three months ended March 31, 2005. This change was primarily related to an increase in capital expenditures. Net cash used in financing activities for the three months ended
March 31, 2006 was $13.9 million, an increase of $13.9 million from net cash used in financing activities of less than $0.1 million for the three months ended March 31, 2005. This increase primarily relates to the $16.0 million pay down on
the Revolving Facility, partially offset by cash received for the exercise of stock options.

Historically, we have not been cash flow positive. For
example, cash flows from operations were negative for much of the year ended December 31, 2004 due to the significant acquisition and integration costs paid during that year. However, management does not consider the cash flows from 2004 to be
representative of expected future cash flows as we ended that year with positive cash flows from operations for the fourth quarter and continued that trend in 2005. In 2006, we expect to fund our business needs primarily through cash flows from
operations. The achievement of this goal is reflected in the quarterly trend analysis below, which presents cash flows from operations for the five consecutive quarters through March 31, 2006. Due to the dynamic nature of our industry and
unforeseen circumstances, if we are unable to fully fund cash requirements through operations, we may need to obtain additional financing through a combination of equity and debt financings, renegotiation of terms on our existing debt, and sales of
assets and services. If any such activities are required, there can be no assurance that we would be successful in completing any of these activities on terms that would be favorable to us. As of March 31, 2006, our unused availability under
the Revolving Facility was $31.7 million, which is reflective of $11.3 million of letters of credit outstanding and $42.0 million of outstanding principal.



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The following table presents a quarterly overview of key components of our cash flows
(in thousands):



|                                                                          |  |                    |         |   |                  |   |         |                   |  |   |               |   |  |               |         |   |  |   |         |  
|------------------------------------------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | ----------------- |  | - | ------------- | - |  | ------------- | ------- | - |  | - | ------- | -
|                                                                          |  | Three Months Ended |        
|                                                                          |  | March 31,2006      |         |   | December 31,2005 |   |         | September 30,2005 |  |   | June 30, 2005 |   |  | March 31,2005 |        
|Net cash provided by operating activities                                 |  | $                  | 18,865  |   |                  | $ | 31,268  |                   |  | $ | 21,445        |   |  | $             | 164     |   |  | $ | 9,980   |  
|Net cash used to pay acquisition, integration, and restructuring costs(1) |  |                    |        |   |                  |   | (242    | )                 |  |   | (594          | ) |  |               | (10,773 | ) |  |   | (3,303  | )
|Net cash used in investing activities                                     |  |                    | (16,395 | ) |                  |   | (20,104 | )                 |  |   | (7,826        | ) |  |               | (13,614 | ) |  |   | (14,955 | )
|Net cash provided by (used in) financing activities(2)                    |  |                    | (13,928 | ) |                  |   | (408    | )                 |  |   | 315           |   |  |               | 711     |   |  |   | (46     | )
|Net increase (decrease) in cash and cash equivalents                      |  |                    | (11,572 | ) |                  |   | 10,376  |                   |  |   | 13,776        |   |  |               | (13,252 | ) |  |   | (5,103  | )

---

|(1) | Such costs are components of net cash provided by operating activities
|--- | ----------------------------------------------------------------------

|(2) | Reflects a $16.0 million pay down on the Revolving Credit Facility during the three months ended March 31, 2006
|--- | ---------------------------------------------------------------------------------------------------------------

Discussion of Changes in Liquidity and Capital Resources

Net
cash provided by operating activities was $18.9 million for the three months ended March 31, 2006, an increase of $8.9 million from net cash provided of $10.0 million for the three months ended March 31, 2005. This increase for the three
months ended March 31, 2006 is primarily driven by improvements in our cash results from operations, partially offset by a decline in working capital driven by cash payments in March 2006 for 2005 bonuses. Such increase also reflects the
negotiation of telecommunications provider service credits of $3.1 million for the three months ended March 31, 2006. We did not incur any integration expenses in the first quarter of 2006, as integration activities have been completed but we
do expect to pay up to $2.5 million of previously expensed integration-related costs throughout 2006.

Net cash used in investing activities for the three
months ended March 31, 2006 was $16.4 million, an increase of $1.4 million compared to $15.0 million in net cash used in investing activities for the three months ended March 31, 2005. This increase primarily relates to an increase in
capital expenditures of $2.3 million for the three months ended March 31, 2006. The increase in capital expenditures supports the growth in new and existing revenue streams.

Net cash used in financing activities for the three months ended March 31, 2006 was $13.9 million, an increase of $13.9 million from net cash used in financing activities of less than $0.1 million for the three
months ended March 31, 2005. This increase primarily relates to the $16.0 million pay down on the Revolving Facility and was partially offset by $2.2 million in cash received for the exercise of stock options for the three months ended
March 31, 2006.

Revolving Credit Facility

On
June 10, 2005, we and certain of our subsidiaries entered into a credit agreement with Wells Fargo Foothill, Inc., as arranger and administrative agent, and certain other lenders to provide us with an $85.0 million Revolving Facility, which
includes a $15.0 million letter of credit facility. The Revolving Facility may be used for working capital and other general corporate purposes. The Revolving Facility matures, and all outstanding borrowings and unpaid interest are due, on
December 9, 2008. In addition, all outstanding borrowings are subject to mandatory prepayment upon certain events, including the availability of less than $7.0 million in borrowing capacity and qualified cash balances, as defined by the
Revolving Facility agreement. As of March 31, 2006, the $85.0 million Revolving Facility included outstanding principal of $42.0 million, outstanding letters of credit of $11.3 million, and unused availability of $31.7 million. We paid down
$16.0 million in the first quarter of 2006. We may terminate the Revolving Facility prior to maturity, provided we pay a premium of 2.0% of the revolver amount if terminated during the first 12 months of the Revolving Facility term, a premium of
0.5% of the revolver amount if terminated during the 12 months thereafter, and no premium during the remainder of the term.

The Revolving Facility
contains affirmative covenants, negative covenants, and financial covenants. The negative covenants place restrictions on, among other things, levels of investments, indebtedness, and dividend payments that we may make or incur. The financial
covenants, which apply only if we maintain qualified cash and availability of less than $35.0 million, require the maintenance of certain financial measures at defined levels. Under the Revolving Facility, borrowings bear interest determined by a
base LIBOR rate



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of one to six months plus an additional 2.75% to 3.25%, determined by certain financial measures, with a minimum interest
rate at all times of 5.25%. As of March 31, 2006, the Revolving Facility bears weighted average interest at 7.63% based on the one-month and six-month LIBOR set in March 2006. As of March 31, 2006, the one-month LIBOR was 4.83%, the
six-month LIBOR was 5.14%, and the additional interest spread above LIBOR was 2.75%, lowered from 3.00% during the three months ended March 31, 2006 due to our achievement of certain financial measures. Interest is payable at varying dates, as
outlined in the Revolving Facility agreement, generally every one to three months. Unused commitments on the Revolving Facility are subject to a 0.5% annual commitment fee. The Revolving Facility is secured by substantially all of our domestic
properties and assets. The carrying amount of our obligations under the Revolving Facility approximate fair value because the interest rates are based on floating interest rates identified by reference to market rates.

Subordinated Notes

In February 2004, we issued $200.0 million of
Series A Subordinated Notes (Subordinated Notes). The proceeds were used to fund the CWA asset acquisition and related operational, working capital, and capital expenditure requirements. Debt issuance costs associated with the Subordinated Notes
were $2.0 million, consisting of fees to the purchasers of the Subordinated Notes, and were capitalized in other current and other non-current assets in our condensed consolidated balance sheets and are being amortized to interest expense using the
effective interest method until maturity. The Subordinated Notes accrued interest based on a 365-day year at a rate of 12.5% per annum until February 3, 2005 and 15% per annum thereafter, payable semi-annually on June 30 and
December 31 through the issuance of additional Subordinated Notes equal to the accrued interest payable at the time of settlement. Prior to January 29, 2008, we may redeem the Subordinated Notes, in whole but not in part, at a redemption
price equal to 100% of the principal amount, plus accrued and unpaid interest, plus a make-whole premium. The make-whole premium is equal to all remaining interest to be paid on the Subordinated Notes from the date of the redemption notice through
January 30, 2008 discounted semi-annually at a rate equal to the treasury rate plus 0.5%, plus 1% of the principal amount of the Subordinated Notes. After January 30, 2008, we may redeem the Subordinated Notes, in whole but not in part, at
a redemption price equal to 101% of the principal amount plus all accrued and unpaid interest. Upon a change of control, the holders of the Subordinated Notes have the right to require us to redeem any or all of the Subordinated Notes at a cash
price equal to 100% of the principal amount of the Subordinated Notes, plus all accrued and unpaid interest as of the effective date of such change in control. The Subordinated Notes mature in a single installment on January 30, 2009. The
outstanding principal and interest-to-date of the Subordinated Notes, excluding the original issue discount, was $266.7 million as of March 31, 2006 and $257.1 million as of December 31, 2005.

Warrants exercisable for Series B Convertible Preferred Stock (Series B Preferred) were issued with the Subordinated Notes. The $200.0 million in proceeds from issuance
were allocated between the Subordinated Notes and the warrants for Series B Preferred, based on their relative fair values, resulting in an original issue discount of $65.9 million. The allocated value of the Subordinated Notes at date of issuance,
plus accrued interest on the face value and accreted interest on the original issue discount, are reflected as long-term debt in our condensed consolidated balance sheets. The fair value of the Series B Preferred was determined with the assistance
of an independent third-party valuation firm, and the allocated fair value is reflected in additional paid-in capital in stockholders equity (deficit) in our consolidated balance sheet. The purchasers of the Subordinated Notes exercised the
warrants and the Series B Preferred were converted into common stock in December 2004. The Series B Preferred was retired by our Board of Directors in December 2005.

Debt Covenants

The provisions of our Revolving Facility and Subordinated Notes contain a number of covenants
including, but not limited to, restricting or limiting our ability to incur more debt, pay dividends and repurchase stock (subject to financial measures and other conditions). The ability to comply with these provisions may be affected by events
beyond our control. The breach of any of these covenants could result in a default under our debt agreements and could trigger acceleration of repayment. As of and during the three months ended March 31, 2006 and the year ended
December 31, 2005, we were in compliance with all covenants under the Revolving Facility and Subordinated Notes, as applicable.

Future Principal
Payments

As of March 31, 2006, aggregate future principal payments of long-term debt were zero in 2006 and 2007, $42.0 million in 2008, and $401.9
million in 2009, consisting of $200.0 million in principal and $201.9 million of accrued non-cash interest, with no payments due thereafter. The weighted average interest rate applicable to our outstanding borrowings under the Revolving Facility and
Subordinated Notes was 14.00% as of March 31, 2006 and 13.53% as of December 31, 2005.

Commitments and Contingencies

Our customer contracts generally span multiple periods, which result in us entering into arrangements with various suppliers of communications services that require us
to maintain minimum spending levels, some of which increase over time, to secure favorable pricing terms. Our remaining aggregate minimum spending levels, allocated ratably over the terms of such contracts, are $67.0 million



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in year 2006; $27.7 million in year 2007; $7.5 million in year 2008; and $89.5 million thereafter. Should we not meet the
minimum spending levels in any given term, decreasing termination liabilities representing a percentage of the remaining contracted amount may become immediately due and payable. Furthermore, certain of these termination liabilities are subject to
reduction should we experience the loss of a major customer or suffer a loss of revenue from a general economic downturn. Before considering the effects of any potential reductions for the business downturn provisions, if we had terminated all of
these agreements as of March 31, 2006, the maximum liability would have been $82.5 million.

We are subject to various legal proceedings and
other actions arising in the normal course of business. While the results of such proceedings and actions cannot be predicted, we believe, based on facts known to us today, that the ultimate outcome of such proceedings and actions will not have a
material adverse effect on our consolidated financial position, results of operations or cash flows.

We have employment agreements with key executive
officers that contain provisions with regard to base salary, bonus, stock-based compensation, and other employee benefits. These agreements also provide for severance benefits in the event of employment termination or a change in control.

Off-Balance Sheet Arrangements

In the normal
course of business, we are a party to certain guarantees and financial instruments with off-balance sheet risk, such as letters of credit, indemnifications and operating leases, which are not reflected in our consolidated balance sheets. The
agreements associated with such guarantees and financial instruments mature at various dates through July 2017 and may be renewed as circumstances warrant. As of March 31, 2006, we had $11.3 million in letters of credit pledged as collateral to
support various property and equipment leases and utilities. In addition, certain of the operating leases assumed by us in the CWA asset acquisition were collateralized by Cable & Wireless plc with letters of credit and guarantees. Such
collateral remained in place following the acquisition and we agreed to reimburse Cable & Wireless plc for any payments made under the collateral. Such collateral totals $15.1 million and will be replaced by us on or before July 2007. Our
financial instruments are valued based on the amount of exposure under the instruments and the likelihood of performance being required. In our past experience, no claims have been made against these financial instruments nor do we expect the
exposure to material losses resulting there from to be anything other than remote. As a result, we determined such financial instruments did not have significant value and have not recorded any related amounts in our condensed consolidated financial
statements.

CRITICAL ACCOUNTING POLICIES

Share-Based Payments

As of March 31, 2006, we had two share-based compensation plans  the 2003 Plan and the 1999 Stock
Option Plan (the 1999 Plan), collectively referred to herein as the Plans. The 2003 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, unrestricted stock, stock units, dividend equivalent rights and cash
awards while the 1999 Plan provides only for the grant of stock options. Any of these awards may be granted as performance incentives to reward attainment of annual or long-term performance goals. The Plans have 86.0 million shares authorized
for grants of options or other share-based instruments. Stock options are generally granted with contractual terms of 10 years and graded vesting over four years. Restricted stock awards granted, which have been awarded only to non-employee
directors, vest over three years. Restricted stock units granted to certain employees have included performance features, with vesting expected over periods ranging from three to four years.

We recognize compensation expense over the vesting period for share-based awards. Under the Plans, we recognized total non-cash stock-based compensation costs of $1.8
million and $0.1 million for unvested, outstanding stock options, restricted stock and restricted stock units during the three months ended March 31, 2006 and 2005, respectively. The majority of these amounts were reflected in selling, general
and administrative expenses in our condensed consolidated statements of operations, with the remainder included in cost of revenue. As of March 31, 2006, we had $17.7 million of unrecognized compensation cost related to share-based
compensation that is expected to be ultimately recognized, which includes 18.4 million restricted stock units, 0.1 million shares of restricted common stock and 4.8 million stock options that have a weighted average exercise price of
$0.75 per share. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 3.0 years.

Prior to
January 1, 2006, we accounted for share-based awards under those plans using the recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations, as permitted by SFAS 123, Accounting for Stock-Based Compensation. As such, we only recognized compensation cost for share-based awards to the extent such awards were issued with an exercise price below the fair market
value of our common stock on the date of grant. Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123(R), Share-Based Payment, using the modified-prospective-transition method. Under such method,
compensation cost recognized in the accompanying condensed consolidated statement of operations for the three months ended March 31, 2006



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includes a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1,
2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated
in accordance with the provisions of SFAS 123(R). Results for prior periods have not been restated for the adoption of SFAS 123(R).

As a result of
adopting SFAS 123(R) on January 1, 2006, our net loss for the three months ended March 31, 2006 was $0.1 million lower than if we had continued to account for share-based awards under APB 25 and follow the disclosure provisions only of
SFAS 123. Basic and diluted loss per common share would not have changed. Prior to and after the adoption of SFAS 123(R), we have not realized the tax benefits of deductions resulting from the exercise of share-based awards due to our history of net
operating losses.

In addition, in December 2005, prior to the adoption of SFAS 123(R), the compensation committee of our board of directors approved the
acceleration of vesting of certain unvested and out-of-the-money stock options with exercise prices equal to or greater than $0.75 per share previously awarded to employees, including certain executive officers and non-employee
directors, under our equity compensation plans. The acceleration of vesting was effective for stock options outstanding as of December 13, 2005. Options to purchase approximately 21.1 million shares of common stock, including approximately
5.5 million options held by executive officers and approximately 0.2 million options held by non-employee directors, were subject to the acceleration, which resulted in 92% of our outstanding options being vested. The purpose of the
acceleration was to enable us to minimize the amount of compensation expense recognized in association with these options in our consolidated statements of operations upon adoption of SFAS 123(R). We believe that the aggregate future expense that
was eliminated as a result of the acceleration of the vesting of these options was approximately $11.2 million. We also believed that because the options that were accelerated had exercise prices in excess of the market value of our common stock on
the date of acceleration, the options had limited economic value and were not fully achieving their original objective of incentive compensation and employee retention.

Other Critical Accounting Policies

While all of the significant accounting policies described in the notes to
the consolidated financial statements contained elsewhere herein are important, some of these policies may be viewed as being critical. Such policies are those that are most important to the portrayal of our financial condition and require our most
difficult, subjective or complex estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. We base our estimates and assumptions on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ from these
estimates and assumptions. For further information regarding the application of these and other accounting policies, see Note 2 of Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report and Part II,
Item 7 of the 2005 Form 10-K.



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FACTORS THAT MAY AFFECT FUTURE RESULTS AND THE TRADING PRICE OF OUR COMMON STOCK

Risks Related to Our Business

A material reduction in
revenue from our largest customer, who represented 15% of our revenues in 2005 and 13% of our revenues in the first quarter of 2006, could harm our financial results to the extent not offset by cost reductions or new customers.

Together, Reuters and Telerate, which was acquired by Reuters in 2005, accounted for $100.5 million, or 15%, of our revenue in 2005 compared to $122.0 million, or 20%, of
our revenue in 2004, and $22.8 million, or 13%, of our revenue for the first quarter of 2006 compared to $25.7 million, or 16%, of our revenue in the first quarter of 2005. This reduction was primarily due to reduced pricing for certain of our
services and the elimination of minimum revenue commitments based on the terms of a new three-year Master Services Agreement with Reuters that we entered into in May 2005. Under the new agreement, Reuters no longer has any obligation to purchase a
minimum amount of our services. In addition, Reuters, which now owns Telerate, may reduce the services that we provide under our contract with Telerate. Accordingly, there are no assurances that Reuters will continue to buy services from our
company. Furthermore, given Reuters acquisition of Telerate, we anticipate that Reuters will continue to drive synergies in its operations, including the costs it pays to purchase products and services, which may result in a decline in the
level of services it purchases from us. The loss of this customer or a significant group of our other customers, or a considerable reduction in the amount of our services that Reuters purchases or a significant group of our customers purchase, could
materially reduce our revenues which, to the extent not offset by cost reductions or new customer additions, could materially reduce our cash flows and financial position. This may limit our ability to raise capital or fund our operations, working
capital needs and capital expenditures in the future.

We expect to continue to incur net losses.

We incurred a net loss of $12.4 million for the three months ended March 31, 2006, $69.1 million in fiscal year 2005, $148.8 million in fiscal year 2004, and $94.0
million in fiscal year 2003. We had positive cash flows from operating activities of $18.9 million for the three months ended March 31, 2006, $62.9 million in fiscal year 2005, and negative cash flows from operations of $26.8 million in
fiscal year 2004 and $0.3 million in fiscal year 2003. We expect to continue to incur net losses at least through 2008.

Our revenues and operating results are affected by a number of factors including the following:



| |  | demand for and market acceptance of our network, hosting, media services, industry solutions, and professional services;
| | - | ------------------------------------------------------------------------------------------------------------------------



| |  | increasing sales, marketing and other operating expenses;
| | - | ---------------------------------------------------------



| |  | our ability to retain key employees that maintain relationships with our customers;
| | - | -----------------------------------------------------------------------------------



| |  | the duration of the sales cycle for our services;
| | - | -------------------------------------------------



| |  | the announcement or introduction of new or enhanced services by our competitors;
| | - | --------------------------------------------------------------------------------



| |  | acquisitions we may make;
| | - | -------------------------



| |  | changes in the prices we pay for utilities, local access connections, Internet connectivity and longhaul backbone connections; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| |  | the timing and magnitude of capital expenditures, including costs relating to the expansion of operations, and of the replacement or upgrade of our hosting infrastructure.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Accordingly, we believe that period-to-period comparisons of our results of operations should not be relied upon as indications of future
performance. In addition, these factors may affect our long-term viability.

We have experienced revenue losses from reductions in services by
customers, price reductions on services and customer turnover in the past and may continue to do so in the future. If we continue to experience such revenue loss without a corresponding growth in new customers or services, our revenues would
decrease.

Revenue loss occurs for several reasons, such as individual site reductions in customer networks, price reductions, voluntary termination by
customers who choose to switch to a competing service and termination for nonpayment of bills or abuse of the network. While our experience in fiscal year 2005 and the three months ended March 31, 2006, has been of market pricing
stabilizing in some of the services we offer and in some cases increasing, we have experienced revenue loss in the past and, as our customer base grows, these revenue losses may recur. If, in the future, we were to lose a large number of
customers without signing contracts with new customers, our revenues would decrease.



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Our brand is not as well known as some of our competitors. Failure to develop brand recognition could hurt our ability
to compete effectively.

We need to strengthen our brand awareness to realize our strategic and financial objectives. Many of our competitors have
well-established brands associated with the provision of data networking, Internet access, hosting services, and digital content services, and significantly larger budgets for brand promotion than we do. The promotion and enhancement of our brand
also will depend in part on our success in continuing to provide high quality services. We cannot guarantee that we will be able to maintain or achieve these levels of quality.

Our failure to meet performance standards under our service level agreements could result in our customers terminating their relationship with us or our customers being entitled to receive service credits which
could lead to reduced revenues.

We have service level agreements with substantially all of our customers in which we provide various guarantees
regarding our levels of service. As a result, service interruptions could result in difficulty maintaining service level commitments required by these agreements. If we fail to provide the levels of service required by these agreements, our
customers may be able to receive service credits for their accounts, as well as terminate their relationship with us. In addition, any inability to meet our service level commitments could reduce the confidence of our customers and could
consequently impair our ability to obtain and retain customers, which would adversely affect both our ability to generate revenues and our operating results.

We depend on a number of third party providers, and the loss of or problems with one or more of these providers may impede our growth or cause us to lose customers.

We are dependent on third party providers to supply bandwidth capacity leased from telecommunications network providers in the quantities and quality we require. While we have entered into various agreements for
carrier line capacity, any failure to obtain additional capacity, if required, would impede the growth of our business and cause our financial results to suffer. In addition, our customers that use the services of these telecommunication providers
may in the future experience difficulties due to system failures unrelated to our systems. If, for any reason, these providers fail to provide the required services to our customers, our customers may lose confidence in our company, and we may not
be able to retain these customers.

If we are unable to provide satisfactory and high quality customer services, customer satisfaction and demand for
our services will suffer.

We believe that building strong relationships with our customers, as well as future growth in our sales, depends on our
ability to provide our customers with customer support, training, consulting and maintenance when necessary. We have an in-house technical infrastructure group, customer service group and field solutions group that are responsible for the delivery
of services to our customers. If we are unable to provide customers with satisfactory and quality customer support, training, consulting, maintenance and other services, we could face customer dissatisfaction, damage to our reputation, decreased
overall demand for our services and loss of revenue.

We may not be able to secure additional financing on favorable
terms, or at all, to meet our future capital needs.

If we do not have sufficient cash flow from our operations, we may need to raise additional funds
through equity or debt financings in order to meet our operating and capital needs. We may not be able to secure additional debt or equity financing on favorable terms, or at all, at the time when we need such funding. If we raise additional funds
through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and
privileges senior to those of holders of our common stock. In addition, any debt financing that we may secure in the future could have restrictive covenants relating to our capital raising activities and other financial and operational matters,
which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, if we decide to raise funds through debt or convertible debt financings, we may be unable to
meet our interest or principal payments.

Our significant indebtedness could limit our ability to operate our business
successfully.

We are highly leveraged. As of March 31, 2006, the total principal amount of our debt, including capital lease obligations, was
$335.5 million. We expect our interest expense to be approximately $67 million and $74 million in 2006 and 2007, respectively, under our current financing. In order to finance our acquisition of the assets of CWA and to provide ongoing funding to
its operations and capital expenditures, we issued $200.0 million in Series A Subordinated Notes in February 2004 that accrued interest at the rate of 12.5% per annum until February 3, 2005, and thereafter at 15% per annum. Interest
accrues on a non-cash basis and is payable semi-annually in additional Series A Subordinated Notes. The notes are due on January 30, 2009. Our senior credit facility and capital lease obligations require monthly and quarterly cash payments for
interest. Our senior credit facility matures in 2008 and our capital lease obligations have a maturity of three to thirteen years. Our level of indebtedness increases the possibility that we may not generate cash sufficient to



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pay, when due, the outstanding amount of our indebtedness. If we do not have sufficient cash available to repay our debt
obligations when they mature, we will have to refinance such obligations, and there can be no assurance that we will be successful in such refinancing or that the terms of any refinancing will be acceptable to us. The amount of our debt also means
that we will need to dedicate a substantial portion of our cash flow from operations to the payment of our indebtedness, reducing the funds available for operations, working capital, capital expenditures, acquisitions, and general corporate or other
purposes. Through fiscal 2008, a substantial portion of our debt and interest costs are non-cash pay but payment will become due beginning in 2009 and will total approximately $401.9 million. Our cash debt service obligation for our existing debt as
of March 31, 2006, is approximately $10 million and $15 million in 2006 and 2007, respectively.

We may make acquisitions or enter into joint
ventures or strategic alliances, each of which is accompanied by inherent risks.

If appropriate opportunities present themselves, we may make
acquisitions or investments or enter into joint ventures or strategic alliances with other companies. Risks commonly encountered in such transactions include:



| |  | the difficulty of assimilating the operations and personnel of the combined companies;
| | - | --------------------------------------------------------------------------------------



| |  | the risk that we may not be able to integrate the acquired services, products or technologies with our current services, products and technologies;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the potential disruption of our ongoing business;
| | - | -------------------------------------------------



| |  | the diversion of management attention from our existing business;
| | - | -----------------------------------------------------------------



| |  | the inability to retain key technical and managerial personnel;
| | - | ---------------------------------------------------------------



| |  | the inability of management to maximize our financial and strategic position through the successful integration of acquired businesses;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| |  | increases in reported losses as a result of charges for in-process research and development and the amortization of other intangible assets;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| |  | difficulty in maintaining controls, procedures and policies;
| | - | ------------------------------------------------------------



| |  | the impairment of relationships with employees, suppliers and customers as a result of any integration;
| | - | -------------------------------------------------------------------------------------------------------



| |  | losses of acquired base of customers and accompanying revenue; and
| | - | ------------------------------------------------------------------



| |  | the assumption of leased facilities, or other long-term commitments that could have a material adverse impact on our profitability and cash flow.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

As a result of these potential problems and risks, businesses that we may acquire or invest in may not produce the revenue, earnings, or business synergies that we
anticipated. In addition, we cannot assure you that any potential transaction will be successfully identified and completed or that, if completed, the acquired businesses or investment will generate sufficient revenue to offset the associated costs
or other potential harmful effects on our business.



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Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could
harm our operating results.

Section 404 requires that we annually furnish an internal controls report of our managements assessment of the
effectiveness of our internal controls over financial reporting, and our auditors are required to attest to, and report on, our assessment. In addition, effective internal controls are necessary for us to provide reliable and accurate financial
reports and effectively prevent fraud. Although we received an unqualified opinion regarding the effectiveness of our internal controls over financial reporting as of December 31, 2005, in the course of our ongoing evaluation of our internal
controls over financing reporting, we have identified certain areas which we would like to improve and are in the process of evaluating and designing enhanced processes and controls to address these areas identified during our evaluation, none of
which we believe constitutes or will constitute a material change. However, we cannot be certain that our efforts will be effective or sufficient for us, or our independent registered public accounting firm, to issue unqualified reports in the
future, especially as our business continues to grow and evolve. Any failure to implement required new or improved controls, or difficulties encountered in their implementation or operation, could harm our operating results or cause management to be
unable to report that our internal controls over financial reporting are effective.

We may be liable for the material that content providers distribute
over our network.

The law relating to the liability of private network operators for information carried on or disseminated through their networks is
still unsettled. We may become subject to legal claims relating to the content disseminated on our network. For example, lawsuits may be brought against us claiming that material on our network on which one of our customers relied was
inaccurate. Claims could also involve matters such as defamation, invasion of privacy and copyright infringement. In addition, there are other issues such as online gambling where the legal issues remain unclear. Content providers
operating private networks have been sued in the past, sometimes successfully, based on the content of material. If we need to take costly measures to reduce our exposure to these risks, or are required to defend ourselves against such claims,
our financial results could be negatively affected.

Failures in our network, including any breach of security, could disrupt our ability to provide our
services, increase our capital costs, result in a loss of customers or otherwise negatively affect our business.

Our ability to implement our business
plan successfully depends upon our ability to provide high quality, reliable services. Interruptions in our ability to provide our services to our customers, through the occurrence of a natural disaster or other unanticipated problem, could
adversely affect our business and reputation. For example, problems at one or more of our data center facilities could result in service interruptions or significant equipment damage. In addition, our network could be subject to unauthorized access,
computer viruses, and other disruptive problems caused by customers, employees, or others. Unauthorized access, computer viruses or other disruptive problems could lead to interruptions, delays or cessation of service to our customers. Unauthorized
access could also potentially jeopardize the security of confidential information of our customers or our customers end-users, which might expose us to liability from customers and the government agencies that regulate us as well as also deter
potential customers from purchasing our services. We may be unable to implement disaster recovery or security measures in a timely manner or, if and when implemented, these measures may not be sufficient or could be circumvented through the
reoccurrence of a natural disaster or other unanticipated problem, or as a result of accidental or intentional actions. Resolving network failures or alleviating security problems may also require interruptions, delays or cessation of service to our
customers. Accordingly, problems at our data centers, network interruptions or breaches of security on our network may result in liability, a loss of customers and damage to our reputation.

Increased energy costs and power outages may adversely affect our operating results.

Our data centers are susceptible to regional costs of power and electrical power outages. We attempt to limit exposure to system downtime by using backup generators and
power supplies. However, we may not be able to limit our exposure entirely even with these protections in place. In addition, we may not always be able to pass on the increased costs of energy on to our customers, which could harm our business.

Our failure to successfully implement our growth strategy could harm our business.

Our growth strategy depends on our ability to identify, hire, train and retain IT professionals, technical engineers, operations employees, sales and senior management personnel who maintain relationships with our
customers and who can provide the technical, strategic and marketing skills required for our company to grow. There is a shortage of qualified personnel in these fields, and we compete with other companies for the limited pool of these personnel.
Furthermore, our growth strategy includes expanding our colocation business. Increasing our colocation business depends on our ability to either raise prices to existing customers or lease or acquire facilities in the desired markets where there is
a demand for these services on commercially reasonable terms. There is no assurance that we will be able to recruit or retain qualified personnel or that we will be able to lease or acquire facilities in growth markets on commercially reasonable
terms, and this failure to implement our growth strategy could cause our operations and financial results to be negatively impacted.



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We may not be able to protect our intellectual property rights.

We rely upon a combination of internal and external nondisclosure safeguards including confidentiality agreements as well as trade secret laws to protect our proprietary
rights. We cannot however assure you that the steps taken by us in this regard will be adequate to deter misappropriation of proprietary information or that we will be able to detect unauthorized use and take appropriate steps to enforce our
intellectual property rights. We also are subject to the risk of litigation alleging infringement of third-party intellectual property rights. Any such claims could require us to spend significant sums in litigation, pay damages, develop
non-infringing intellectual property, or acquire licenses to the intellectual property that is the subject of the alleged infringement.

Difficulties
presented by international economic, political, legal, accounting and business factors could harm our business in international markets.

In 2005, 18%
of our total revenue was generated in countries outside of the United States. Some risks inherent in conducting business internationally include:



| |  | unexpected changes in regulatory, tax and political environments;
| | - | -----------------------------------------------------------------



| |  | longer payment cycles and problems collecting accounts receivables;
| | - | -------------------------------------------------------------------



| |  | fluctuations in currency exchange rates;
| | - | ----------------------------------------



| |  | our ability to secure and maintain the necessary physical and telecommunications infrastructure;
| | - | ------------------------------------------------------------------------------------------------



| |  | challenges in staffing and managing foreign operations; and
| | - | -----------------------------------------------------------



| |  | laws and regulations on content distributed over the Internet that are more restrictive than those currently in place in the United States.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------

Any one or more of these factors could adversely affect our business.

Risks Related to Our Industry

The markets for our network, hosting, digital content services, industry
solutions, and professional services are highly competitive, and we may not be able to compete effectively.

The markets for our network, hosting,
digital content services, industry solutions, and professional services are extremely competitive, and there are few significant barriers to entry. We expect that competition will intensify in the future, and we may not have the financial resources,
technical expertise, sales and marketing abilities or support capabilities to compete successfully in these markets. Many of our current and potential competitors have longer operating histories, greater name recognition, access to larger customer
bases and greater market presence, engineering and marketing capabilities and financial, technological and personnel resources than we do. As a result, as compared to us, our competitors may:



| |  | develop and expand their networking infrastructures and service offerings more efficiently or more quickly;
| | - | -----------------------------------------------------------------------------------------------------------



| |  | adapt more rapidly to new or emerging technologies and changes in customer requirements;
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| |  | take advantage of acquisitions and other opportunities more effectively;
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| |  | develop products and services that are superior to ours or have greater market acceptance;
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| |  | adopt more aggressive pricing policies and devote greater resources to the promotion, marketing, sale, research and development of their products and services;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | make more attractive offers to our existing and potential employees;
| | - | --------------------------------------------------------------------



| |  | establish cooperative relationships with each other or with third parties; and
| | - | ------------------------------------------------------------------------------



| |  | more effectively take advantage of existing relationships with customers or exploit a more widely recognized brand name to market and sell their services.
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We may have to compete with an increased number of competitors.

We expect that new competitors will enter the data networking, Internet access and hosting markets. Such new competitors could include computer hardware, software, media
and other technology and telecommunications companies, as well as satellite and cable companies. A number of telecommunications companies and online service providers currently offer, or have announced plans to offer or expand, their data networking
services. Further, the ability of some of these potential competitors to bundle other services and products with their data networking services could place us at a competitive disadvantage. Various companies are also exploring the possibility of
providing, or are currently providing, high-speed data services using alternative delivery methods, including the cable television infrastructure, direct broadcast satellites, all optical networks, gigabit ethernet, wireless cable and wireless local
access. In addition, Internet backbone providers may benefit from technological developments, such as improved router technology that will enhance the quality of their services. Because we purchase telecommunications services from local competitors,
this may result in decreased local competition and increased our costs for local telecommunications services and thus increase prices to our customers.

Our failure to achieve desired price levels could impact our ability to achieve profitability or positive cash flow.

We have experienced
and expect to continue to experience pricing pressure for some of the services that we offer. Prices for voice, wireless, and Internet services have decreased in recent years, and we expect significant price declines in the future. In addition, by
bundling their services and reducing the overall cost of their services, telecommunications companies that compete with us may be able to provide customers with reduced communications costs in connection with their data networking, Internet access
or hosting services, thereby significantly increasing pricing pressure on us. We may not be able to offset the effects of any such price reductions even with an increase in the number of our customers, higher revenues from enhanced services, cost
reductions or otherwise. In addition, we believe that the data networking and VPNs and Internet access and hosting industries are likely to continue to encounter consolidation which could result in greater efficiencies in the future. Increased price
competition or consolidation in these markets could result in erosion of our revenues and operating margins and could prevent us from becoming profitable. Furthermore, in recent months, these larger consolidated telecommunication providers have
indicated that they want to start charging companies delivering services over the Internet for access to connected customers. If these providers are able to charge Internet companies for this, our costs will increase, and this could impact our
ability to be profitable.

Consolidation in the telecommunications industry may impede our ability to compete
effectively.

Recently, several telecommunication companies completed mergers with other telecommunication companies, including the mergers of SBC
Communications Inc. with AT&T Corp. and Verizon Communications, Inc. with MCI, Inc. This consolidation in the telecommunications industry results in fewer companies competing in this market, changing the nature of the market and possibly
causing us to pay higher prices for the services that we receive from these companies, which may impede our ability to compete effectively.

Our
operations could be adversely affected if we are unable to maintain peering arrangements with Internet Service Providers on favorable terms.

We enter
into peering agreements with Internet Service Providers that allow us to access the Internet and exchange traffic with these providers. Previously, many providers agreed to exchange traffic without charging each other. Recently, however, many
providers that previously offered peering have reduced peering relationships or are seeking to impose charges for transit. Increases in costs associated with Internet and exchange traffic could have an adverse effect on our business. If we are not
able to maintain our peering relationships on favorable terms, we may not be able to provide our customers with affordable services, which would adversely affect our results from operations.

New technologies could displace our services or render them obsolete.

New technologies or industry standards have the potential to replace or provide lower cost alternatives to our Internet access services, data networking and hosting
services. The adoption of such new technologies or industry standards could render these services obsolete or unmarketable. For example, these services rely on the continued widespread commercial use of the set of protocols, services and
applications for linking computers known as Internet protocol. Alternative sets of protocols, services and applications for linking computers could emerge and become widely adopted. For example, improvements in Internet protocol to allow for the
assignment of priorities to data packets in order to ensure their delivery in the manner customers prefer would eliminate one advantage of the Asynchronous Transfer Mode (ATM) architecture of our network. In addition, improvements in heating and
cooling technology could render our data centers obsolete. We cannot guarantee that we will be able to identify new service opportunities successfully and develop and bring new products and services to market in a timely and cost-effective manner,
or that products software and services or technologies developed by others will not render our current and future services non-competitive or obsolete. In addition, we cannot guarantee that our current and future services will achieve or sustain
market acceptance or be able to address effectively the compatibility and interoperability issues raised by technological changes or new industry standards. If we fail to anticipate the emergence of, or obtain access to a new technology or industry
standard, we may incur increased costs if we seek to use those technologies and standards, or our competitors that use such technologies and standards may use them more cost-effectively than we do.



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The data networking and Internet access industries are highly regulated in many of the countries in which we plan to
provide services, which could restrict our ability to conduct business in the United States and internationally.

We are subject to varying degrees of
regulation in each of the jurisdictions in which we provide services. Local laws and regulations, and their interpretation and enforcement, differ significantly among those jurisdictions. Future regulatory, judicial and legislative changes
may have a material adverse effect on our ability to deliver services within various jurisdictions. For example, the EU will enact a data retention scheme that will include certain IP data that could have an impact on our operations in
Europe. Moreover, national regulatory frameworks that are consistent with the policies and requirements of the World Trade Organization have only recently been, or are still being put in place in many countries. Accordingly, many countries
are still in the early stages of providing for and adapting to a liberalized telecommunications market. As a result, in these markets we may encounter more protracted and difficult procedures to obtain licenses and negotiate interconnection
agreements.

Within the United States, the U.S. government continues to evaluate the data networking and Internet access industries. The FCC has a number
of on-going proceedings that could impact our ability to provide services. For example, the FCC has determined that the Communications Assistance for Law Enforcement Act applies to broadband access providers and interconnected VoIP, and the FCC has
also issued a policy statement on net neutrality principles that it believes should govern the Internet. Such regulations and policies may complicate our efforts to provide services in the future. Our operations are dependent on licenses
and authorizations from governmental authorities in most of the foreign jurisdictions in which we operate or plan to operate and, with respect to a limited number of our services, in the United States. These licenses and authorizations generally
will contain clauses pursuant to which we may be fined or our license may be revoked on short notice. Consequently, we may not be able to obtain or retain the licenses necessary for our operations.

Risks Related to Our Common Stock

We are controlled by parties whose interests may not be aligned with yours.

Investment partnerships sponsored by Welsh, Carson,
Anderson & Stowe (Welsh Carson) own approximately 57% of our outstanding voting stock as of March 31, 2006. In addition, these investment partnerships currently have the right to appoint half of the members of our Board of Directors
pursuant to an Investors Rights Agreement among us and certain of our stockholders. During 2002, we issued $133.3 million of our 11.5% Series A convertible preferred stock (Series A Preferred) to investment partnerships sponsored by and individuals
affiliated with Welsh Carson. The Series A Preferred accrues dividends at the rate of 11.5% per annum on the outstanding accreted value thereof and these accrued but unpaid dividends are added to the outstanding accreted value quarterly. The
Series A Preferred is convertible into such number of our common stock equal to the outstanding accreted value divided by the conversion price of $0.75, and votes with our common stock on an as-converted basis. As of March 31, 2006, the
accreted value of Series A Preferred held by Welsh Carson was $219.0 million, which was convertible into approximately 292.0 million shares of common stock. As of March 31, 2006, including outstanding common stock of approximately
54.8 million, investment partnerships sponsored by Welsh Carson had outstanding voting stock representing a total of approximately $346.8 million votes. In 2004, in order to fund our acquisition of the CWA net assets, we issued $200.0
million of our Series A Subordinated Notes. As of March 31, 2006, investment partnerships sponsored by Welsh Carson held approximately $154.6 million of these notes. Both the Series A Subordinated Notes and Series A Preferred contain provisions
relating to a change of control of our Company. These factors, among others, could result in decisions concerning our operations or financial structure that may present conflicts of interest between Welsh Carson and its affiliates and our other
common stockholders.

Holders of our common stock will continue to suffer significant dilution so long as our Series A Preferred Stock remains
outstanding.

In 2002, as part of our recapitalization, we issued $203.1 million of Series A Preferred. The Series A Preferred accrues dividends at the
rate of 11.5% annum on the outstanding accreted value thereof, and these accrued but unpaid dividends are added to the outstanding accreted value quarterly. The Series A Preferred is convertible into such number of our common stock equal to the
outstanding accreted value divided by the conversion price of $0.75, and votes with our common stock on an as-converted basis. As of March 31, 2006, the accreted value of all Series A Preferred was $317.0 million, which is convertible into
approximately 422.7 million shares of common stock.



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There may not be an active, liquid market for our common stock.

There is no guarantee that an active trading market for our common stock will be maintained on the Nasdaq Capital Market. The Nasdaq Stock Market (Nasdaq) may delist our
stock from the Nasdaq Capital Market if we fail to meet its listing requirements, such as the requirement to maintain a minimum bid price of $1.00 or more. On October 3, 2005, we received a notice from the Listing Qualifications division of
Nasdaq indicating that our common stock was subject to potential delisting from the Nasdaq Capital Market because our common stock closed under $1.00 for thirty consecutive days. We received a letter from Nasdaq on March 28, 2006, indicating
that the Company had regained compliance with the Nasdaq Capital Market listing criteria. However, if trading in our stock is not active, Nasdaq may delist our stock and investors may not be able to sell their shares quickly or at the latest market
price.

We may effect a reverse stock split to avoid our common stock being delisted from the Nasdaq Capital
Market.

We may effect a reverse stock split in order to avoid being delisted from the Nasdaq Capital Market. However, while we expect that the
resulting reduction in our outstanding shares of common stock will increase the market price of our common stock, we cannot assure you that the reverse stock split will increase the market price of our common stock by a multiple equal to the number
of pre-split shares in the reverse split ratio, or result in any permanent increase in the market price. In some cases the stock price of companies that have effected reverse stock splits has subsequently declined back to pre-reverse split levels. A
reverse stock split is often viewed negatively by the market and, consequently, could lead to a decrease in our overall market capitalization.

Sales of
a significant amount of our common stock in the public market could reduce our stock price and impair our ability to raise funds in new stock offerings.

We have approximately 191.0 million shares of common stock outstanding as of April 20, 2006. In addition, as of March 15, 2006, we have approximately 422.7 million common shares issuable pursuant to the conversion of our
Series A Preferred and approximately 6.7 million shares of common stock issuable pursuant to the exercise of outstanding warrants. The holders of our Series A Preferred and warrants are also entitled to certain registration rights. Sales of
substantial amounts of shares of our common stock in the public market, or the perception that those sales will occur, could cause the market price of our common stock to decline. Those sales also might make it more difficult for us to sell equity
and equity-related securities in the future at a time and at a price that we consider appropriate.

Our stock price is
subject to significant volatility.

Since March 2005 until the present, the price per share of our common stock has ranged from a high of $1.92 per
share to a low of $0.41 per share. Our stock price has been and may continue to be subject to significant volatility due to sales of our securities by significant shareholders and the other risks and uncertainties described in this report. The price
of our common stock may also fluctuate due to conditions in the technology industry or in the financial markets generally.

Our certificate of incorporation, bylaws and Delaware law contain provisions that could discourage a takeover.

Our certificate of
incorporation and Delaware law contain provisions which may make it more difficult for a third party to acquire us, including provisions that give the Board of Directors the power to issue shares of preferred stock. We have also chosen to be subject
to Section 203 of the Delaware General Corporation Law, which, subject to certain exceptions, prevents a stockholder of more than 15% of a companys voting stock from entering into business combinations set forth under Section 203
with that company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

INTEREST RATE RISK

A significant portion of our outstanding debt is fixed. However, we are subject to market risks arising from changes in interest rates that affect our variable rate debt.
As of March 31, 2006, we had outstanding a total of $42.0 million under our Revolving Facility. Amounts borrowed under the Revolving Facility bear interest at LIBOR rates plus an applicable margin. As LIBOR rates fluctuate, interest
expense on amounts borrowed fluctuates. The interest rate on our variable rate debt as of March 31, 2006 was 7.63%. A hypothetical increase in the interest rate of our variable rate debt by 1% would increase annual interest expense by
approximately $0.4 million. The change in interest rates is based on hypothetical movements and is not necessarily indicative of the actual results that may occur. Future results of operations will be affected by actual fluctuations in interest
rates.

There have been no other material changes in our assessment of market risk sensitivity since our presentation of Quantitative and Qualitative
Disclosures About Market Risk, in our Annual Report on Form 10-K for the year ended December 31, 2005.



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ITEM 4. CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As of March 31, 2006, we conducted an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the Securities Act)) as of the end of the
period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There has been no change in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Act) during the quarter ended March 31, 2006, that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are subject to various legal proceedings and actions arising in the normal course of
business. While the results of such proceedings and actions cannot be predicted, we believe, based on facts known to us today, that the ultimate outcome of such proceedings and actions will not have a material adverse effect on our consolidated
financial position, results of operations or cash flows.

ITEM 1A. RISK FACTORS.

A restated description of the risk factors associated with our business is included under
Factors that Could Affect Future Results and the Trading Price of our Common Stock in Managements Discussion and Analysis of Financial Condition and Results of Operations, contained in Item 2 of Part I of this
Report. This description includes any material changes to and supersedes the description of the risk factors associated with our business previously disclosed in Part I, Item 1A. of our Form 10-K and is incorporated herein by reference.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the quarter ended March 31, 2006, we
issued 2.6 million shares of common stock upon the exercise of outstanding warrants. The warrants were issued on a cashless basis and the issuance was exempt from registration under the Securities Act of 1933 pursuant to section 3(a)(9)
thereof.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

At the Annual Meeting of Stockholders on April 25, 2006, our stockholders approved our Amended
and Restated 2003 Incentive Compensation Plan (the 2003 Plan) to the effect that:



| |  |  | The number of shares available under the 2003 Plan was increased by 50,000,000 shares to 90,000,000 shares;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | The shares currently available under our 1999 Stock Option Plan (the 1999 Plan) and any shares under the 1999 Plan that subsequently become available as a result of outstanding
stock options that are forfeited, expired or cancelled were rolled over into the 2003 Plan; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The restrictions limiting (i) the maximum aggregate number of shares of common stock that cumulatively may be available for issuance pursuant to awards other than awards of options
to 20,000,000 and (ii) the maximum number of shares of common stock that may be awarded to any individual, other than pursuant to options, to 10,000,000 per year, were removed.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A copy of the 2003 Plan is included as Exhibit 10.4 to this Form 10-Q.



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|ITEM 6. | EXHIBITS.
|------- | ---------

The following exhibits
are either provided with this Form 10-Q or are incorporated herein by reference.



|                     |  |                                                                                                                                                   |  |                       |  |                           |  |                         |  |              
|-------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- |  | ------------------------- |  | ----------------------- |  | -------------
|                     |  |                                                                                                                                                   |  |                       |  | Incorporated by Reference
|Exhibit Index Number |  | Exhibit Description                                                                                                                               |  | Filedwith theForm10-Q |  | Form                      |  | Filing Date with theSEC |  | ExhibitNumber
|3.1                  |  | Amended and Restated Certificate of Incorporation of the Registrant                                                                               |  |                       |  | S-1                       |  | November 12, 1999       |  | 3.1          
|                     |  |                                                                                                                                                   |  |                       | 
|3.2                  |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant                                                   |  |                       |  | S-1/A                     |  | January 31, 2000        |  | 3.2          
|                     |  |                                                                                                                                                   |  |                       | 
|3.3                  |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant                                                   |  |                       |  | 10-Q                      |  | August 14, 2002         |  | 3.3          
|                     |  |                                                                                                                                                   |  |                       | 
|3.4                  |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant                                                   |  |                       |  | 10-Q                      |  | August 13, 2004         |  | 3.4          
|                     |  |                                                                                                                                                   |  |                       | 
|3.5                  |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant                                                   |  |                       |  | 10-Q                      |  | August 5, 2005          |  | 3.5          
|                     |  |                                                                                                                                                   |  |                       | 
|3.6                  |  | Amended and Restated Bylaws of the Registrant                                                                                                     |  |                       |  | 10-Q                      |  | May 15, 2003            |  | 3.4          
|                     |  |                                                                                                                                                   |  |                       | 
|4.1                  |  | Form of Common Stock Certificate                                                                                                                  |  |                       |  | S-1/A                     |  | January 31, 2000        |  | 4.1          
|                     |  |                                                                                                                                                   |  |                       | 
|4.2                  |  | Certificate of Designations relating to the Registrants Series A Convertible Preferred Stock                                                     |  |                       |  | 8-K                       |  | March 27, 2002          |  | 4.2          
|                     |  |                                                                                                                                                   |  |                       | 
|4.3+                 |  | Warrant, dated June 28, 2002, to purchase the Registrants common stock issued to Constellation Venture Capital II, L.P.                          |  |                       |  | 8-K                       |  | July 8, 2002            |  | 4.7          
|                     |  |                                                                                                                                                   |  |                       | 
|4.4+                 |  | Warrant, dated June 28, 2002, to purchase the Registrants common stock issued to Constellation Venture Capital Offshore II, L.P.                 |  |                       |  | 8-K                       |  | July 8, 2002            |  | 4.8          
|                     |  |                                                                                                                                                   |  |                       | 
|4.5+                 |  | Warrant, dated June 28, 2002, to purchase the Registrants common stock issued to The BSC Employee Fund IV, L.P.                                  |  |                       |  | 8-K                       |  | July 8, 2002            |  | 4.9          
|                     |  |                                                                                                                                                   |  |                       | 
|4.6+                 |  | Warrant, dated, June 28, 2002, to purchase the Registrants common stock issued to CVC II Partners, L.L.C.                                        |  |                       |  | 8-K                       |  | July 8, 2002            |  | 4.10         
|                     |  |                                                                                                                                                   |  |                       | 
|4.7                  |  | Form of Series A Subordinated Note                                                                                                                |  |                       |  | 8-K                       |  | February 25, 2004       |  | 4.12         
|                     |  |                                                                                                                                                   |  |                       | 
|10.1                 |  | Amendment to Employment Agreement dated March 13, 2006, between John M. Finlayson and Registrant                                                  |  |                       |  | 8-K                       |  | March 15, 2006          |  | 10.1         
|                     |  |                                                                                                                                                   |  |                       | 
|10.2                 |  | Employment Agreement dated March 13, 2006, between Philip J. Koen and Registrant                                                                  |  | X                     |  |                           |  |                         |  |              
|                     |  |                                                                                                                                                   |  |                       | 
|10.3                 |  | Employment Agreement dated March 29, 2006, between Jonathan C. Crane and Registrant                                                               |  | X                     |  |                           |  |                         |  |              
|                     |  |                                                                                                                                                   |  |                       | 
|10.4                 |  | Amended and Restated 2003 Incentive Compensation Plan                                                                                             |  | X                     |  |                           |  |                         |  |              
|                     |  |                                                                                                                                                   |  |                       | 
|31.1                 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                |  | X                     |  |                           |  |                         |  |              
|                     |  |                                                                                                                                                   |  |                       | 
|31.2                 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                |  | X                     |  |                           |  |                         |  |              
|                     |  |                                                                                                                                                   |  |                       | 
|32.1                 |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | X                     |  |                           |  |                         |  |              
|                     |  |                                                                                                                                                   |  |                       | 
|32.2                 |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | X                     |  |                           |  |                         |  |              

---

|+ | Confidential treatment has been granted for this exhibit. The copy filed as an exhibit omits the information subject to the request for confidential treatment.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 thereunto duly authorized.





|                  |  |              |  |                                 
|----------------- |  | ------------ |  | --------------------------------
|                  |  | SAVVIS, Inc.
|                  |  |             
|Date: May 5, 2006 |  | By:          |  | /s/ Philip J. Koen              
|                  |  |              |  | Philip J. Koen                  
|                  |  |              |  | Chief Executive Officer         
|                  |  |              |  | (principal executive officer)   
|                  |  |             
|Date: May 5, 2006 |  | By:          |  | /s/ Jeffrey H. Von Deylen       
|                  |  |              |  | Jeffrey H. Von Deylen           
|                  |  |              |  | Chief Financial Officer         
|                  |  |              |  | (principal financial officer and
|                  |  |              |  | principal accounting officer)   



36