<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1996
REGISTRATION NO. 333-12671
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
SAPIENT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7373 04-3130648
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ONE MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS 02142
(617) 621-0200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------------
JERRY A. GREENBERG
J. STUART MOORE
CO-CHAIRMEN OF THE BOARD
CO-CHIEF EXECUTIVE OFFICERS
SAPIENT CORPORATION
ONE MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02142
(617) 621-0200
(NAMES, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENTS FOR SERVICE)
---------------------
COPIES TO:
<TABLE>
<S> <C>
PAUL P. BROUNTAS, ESQ. KEITH F. HIGGINS, ESQ.
HALE AND DORR ROPES & GRAY
60 STATE STREET ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02110
(617) 526-6000 (617) 951-7000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 9, 1996
1,040,000 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
----------------------
Of the 1,040,000 shares of Common Stock offered hereby, 500,000 shares are
being sold by Sapient Corporation and 540,000 shares are being sold by the
Selling Stockholders. The Company will not receive any of the proceeds from the
sale of the shares being sold by the Selling Stockholders. See "Principal and
Selling Stockholders".
The last reported sale price of the Common Stock, which is quoted under the
symbol "SAPE", on the Nasdaq National Market on October 8, 1996 was $46.00 per
share. See "Market Price of Common Stock".
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2) SELLING STOCKHOLDERS
-------------- ------------ ----------- --------------------
<S> <C> <C> <C> <C>
Per Share....... $ $ $ $
Total(3)........ $ $ $ $
<FN>
- ---------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) Before deducting estimated expenses of $400,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 156,000 shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments. If
such option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to Company will be $ ,
$ , and $ , respectively. See "Underwriting".
</TABLE>
----------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York, on or about
, 1996, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. MORGAN STANLEY & CO.
INCORPORATED
----------------------
The date of this Prospectus is , 1996.
<PAGE> 3
[Diagram showing the stages of the Company's QUADD
(Quality Design and Delivery) process]
Sapient was incorporated in Delaware in September 1991 under the name
"Sapient Computing Corporation". The Company's name was changed to Sapient
Corporation in November 1992. Unless the context requires otherwise, references
in this Prospectus to "Sapient" and the "Company" refer to Sapient Corporation
and its wholly-owned subsidiaries. The Company's executive offices are located
at One Memorial Drive, Cambridge, MA 02142, and its telephone number is (617)
621-0200. The Company's internet address is http://www.sapient.com.
RIP(R) is a registered servicemark, and QUADD(SM) and Sapient(SM) are
servicemarks, of the Company.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS
AND SELLING GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE SHARES ON NASDAQ IN ACCORDANCE WITH
RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING".
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements, including the Notes thereto, appearing
elsewhere in this Prospectus. Except as otherwise noted herein, all information
in this Prospectus (i) gives effect to the automatic conversion into Common
Stock of all outstanding shares of Non-Voting Common Stock of the Company on
April 10, 1996 upon the closing of the Company's initial public offering and
(ii) assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting".
THE COMPANY
Sapient designs, develops, integrates and implements high quality, flexible
information technology applications and solutions for large organizations. The
Company develops client/server and Internet-enabled client/server software
applications designed to help organizations improve their processes and
performance. Sapient delivers its solutions for both enterprise-wide and
departmental initiatives on a fixed-price, fixed-timeframe basis using its
proprietary QUADD (Quality Design and Delivery) process. QUADD is a
workshop-based, rapid development methodology which emphasizes active client
participation to help visualize, prioritize and create time-critical business
and technology solutions. The Company believes that the QUADD process is an
important competitive differentiator that allows Sapient and its clients to
better understand the clients' business needs, and to design, develop, integrate
and implement solutions that address those needs.
The QUADD process consists of four stages: RIP workshop, Design,
Implementation and Production. The RIP (Rapid Implementation Plan) workshop is
designed to rapidly identify the client's needs and develop a strategy and
action plan to meet those needs. The Design workshop focuses on outlining the
proposed process changes and required software applications. The Implementation
stage primarily involves the development and testing of the new applications.
The Production stage primarily involves the maintenance, enhancement and support
of the solution after it has been installed and is operational.
Sapient targets clients in information-intensive businesses, including
financial services, telecommunications, utilities, manufacturing and retail, and
state governments. Sapient's principal customers include Digital Equipment
Corporation, Merrill Lynch, Pacific Bell Internet Services, Public Service
Electric & Gas of New Jersey, the State of Maine and Wells Fargo.
RISK FACTORS
For a discussion of considerations relevant to an investment in the Common
Stock, see "Risk Factors".
3
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............................... 500,000 shares
Common Stock offered by the Selling Stockholders.................. 540,000 shares
Common Stock to be outstanding after the offering................. 11,445,635 shares(1)
Nasdaq National Market symbol..................................... SAPE
Use of proceeds................................................... For working capital and
other general corporate
purposes.
</TABLE>
- ---------------
(1) Based on the number of shares outstanding as of September 30, 1996. Does not
include 1,431,315 shares of Common Stock issuable upon exercise of stock
options outstanding as of September 30, 1996.
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- -----------------
1992 1993 1994 1995 1995 1996
----- ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues................................ $ 953 $4,888 $9,373 $21,930 $14,090 $31,128
Operating expenses:
Project personnel costs............... 497 1,670 4,310 10,084 6,614 14,699
Selling and marketing................. 27 90 268 1,095 631 1,520
General and administrative............ 320 1,437 2,728 5,967 3,909 8,127
---- ------- ------ --------- ------- -------
Total operating expenses...... 844 3,197 7,306 17,146 11,154 24,346
Income from operations.................. 109 1,691 2,067 4,784 2,936 6,782
Interest income (expense), net.......... (3) -- 9 10 28 626
---- ------- ------ --------- ------- -------
Income before income taxes.............. 106 1,691 2,076 4,794 2,964 7,408
Income taxes............................ 33 691 851 1,964 1,213 2,885
---- ------- ------ --------- ------- -------
Net income.............................. $ 73 $1,000 $1,225 $ 2,830 $ 1,751 $ 4,523
==== ========= ========== ========== ======= =======
Net income per share.................... $0.01 $ 0.10 $ 0.12 $ 0.28 $ 0.17 $ 0.40
Weighted average common shares and
equivalents........................... 8,557 9,792 10,115 10,257 10,281 11,435
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................... $42,375 63,710
Total assets...................................................... 51,490 72,825
Long-term debt, less current portion.............................. -- --
Total stockholders' equity........................................ 42,345 63,680
</TABLE>
- ---------------
(1) Adjusted to give effect to the sale of the 500,000 shares of Common Stock
offered by the Company pursuant to the offering at an assumed public
offering price of $46.00 per share, after deducting the estimated
underwriting discount and offering expenses payable by the Company.
4
<PAGE> 6
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the Common Stock offered by this Prospectus. Except
for the historical information contained herein, the discussion in this
Prospectus contains certain forward-looking statements that involve risks and
uncertainties. The cautionary statements made in this Prospectus should be read
as being applicable to all related forward-looking statements wherever they
appear in this Prospectus. The Company's actual results could differ materially
from those discussed here. Important factors that could cause or contribute to
such differences include those discussed below, as well as those discussed
elsewhere herein.
MANAGEMENT OF GROWTH
The Company's growth has placed significant demands on its management and
other resources. The Company's revenues increased approximately 134% in 1995,
from $9.4 million in 1994 to $21.9 million in 1995 and revenues for the first
nine months of 1996 increased 121% over the comparable period of the prior year.
From the beginning of 1995 through September 30, 1996, the Company's staff
increased from 116 to 431 full-time employees and further significant increases
are expected in the remainder of 1996. The Company has also expanded
geographically by opening new offices, and expects to open additional offices.
The Company's ability to manage its growth effectively will require it to
continue to develop and improve its operational, financial and other internal
systems, as well as its business development capabilities, and to train,
motivate and manage its employees. In addition, the Company's future success
will depend in large part on its ability to continue to set fixed-price fees
accurately, maintain high rates of employee utilization and maintain project
quality, particularly if the average size of the Company's projects continues to
increase. The Company's management has limited experience managing a business of
the Company's size or managing a public company. If the Company is unable to
manage its growth and projects effectively, such inability could have a material
adverse effect on the quality of the Company's services and products, its
ability to retain key personnel and its business, financial condition and
results of operations.
NEED TO ATTRACT AND RETAIN PROFESSIONAL STAFF
The Company's business is labor intensive. The Company's success will
depend in large part upon its ability to attract, retain, train and motivate
highly-skilled employees, particularly project managers and other senior
technical personnel. There is significant competition for employees with the
skills required to perform the services the Company offers. Qualified project
managers and senior technical staff are in great demand and are likely to remain
a limited resource for the foreseeable future. There can be no assurance that
the Company will be successful in attracting a sufficient number of
highly-skilled employees in the future, or that it will be successful in
retaining, training and motivating the employees it is able to attract, and any
inability to do so could impair the Company's ability to adequately manage and
complete its existing projects and to bid for or obtain new projects. If the
Company's employees are unable to achieve expected performance levels, the
Company's business, financial condition and results of operations could be
adversely affected. See "Business -- Human Resources".
CUSTOMER CONCENTRATION; DEPENDENCE ON LARGE PROJECTS
The Company has derived, and believes that it will continue to derive, a
significant portion of its revenues from a limited number of large client
projects. In 1995, the Company's five largest clients accounted for
approximately 58% of its revenues. Merrill Lynch, Public Service Electric & Gas
of New Jersey and Digital Equipment Corporation each accounted for more than 10%
of such revenues and three other clients each accounted for more than 5% of such
revenues. In the first nine months of 1996, the Company's five largest clients
accounted for approximately 61% of its revenues. Digital Equipment Corporation
and Wells Fargo each accounted for more than 10% of such revenues and
5
<PAGE> 7
three other clients each accounted for more than 5% of such revenues. The volume
of work performed for specific clients is likely to vary from year to year, and
a major client in one year may not use the Company's services in a subsequent
year. The loss of any large client could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
revenues from a large client may constitute a significant portion of the
Company's total revenues in a particular quarter.
Most of the Company's contracts are terminable by the client following
limited notice and without significant penalty. The cancellation or a
significant reduction in the scope of a large project could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, while the QUADD process is designed as an integrated
approach, each stage of the QUADD process represents a separate contractual
commitment at the end of which the client may elect not to proceed to the next
stage. A decision by any large client not to proceed with a project to the stage
anticipated by Sapient could also have a material adverse effect on the
Company's business, financial condition and results of operations.
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's revenues and earnings may fluctuate from quarter to quarter
based on such factors as the number, size and scope of projects in which the
Company is engaged, the contractual terms and degree of completion of such
projects, any delays incurred in connection with a project, employee utilization
rates, the adequacy of provisions for losses, the accuracy of estimates of
resources required to complete ongoing projects, and general economic
conditions. A high percentage of the Company's operating expenses, particularly
personnel and rent, are relatively fixed in advance of any particular quarter.
As a result, unanticipated variations in the number, or progress toward
completion, of the Company's projects or in employee utilization rates may cause
significant variations in operating results in any particular quarter and could
result in losses for such quarter. An unanticipated termination of a major
project, a client's decision not to proceed to the stage of the project
anticipated by Sapient or the completion during a quarter of several major
client projects, could require the Company to maintain underutilized employees
and could therefore have a material adverse effect on the Company's business,
financial condition and results of operations.
FIXED-PRICE CONTRACTS
An important element of the Company's strategy is to enter into
fixed-price, fixed-timeframe contracts, rather than contracts in which payment
to the Company is determined on a time and materials basis. The Company's
failure to accurately estimate the resources required for a project or its
failure to complete its contractual obligations in a manner consistent with the
project plan upon which its fixed-price, fixed-timeframe contract was based
would adversely affect the Company's overall profitability and could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has been required to commit unanticipated
additional resources to complete certain projects, which has resulted in losses
on certain contracts. The Company recognizes that it will experience similar
situations in the future. In addition, for certain projects the Company may fix
the price before the design specifications are finalized, which could result in
a fixed price that turns out to be too low and therefore adversely affect the
Company's profitability.
EMERGING MARKET; DEPENDENCE ON PRINCIPAL SERVICE OFFERINGS
The Company has derived substantially all of its revenues from projects
based primarily on client/server architectures. The client/server market is
continuing to develop and is subject to rapid change. The Company's near-term
success is dependent in part on the continued acceptance of information
processing systems using client/server architectures. Any factors negatively
affecting the acceptance of client/server architectures could have a material
adverse effect on the Com-
6
<PAGE> 8
pany's business, financial condition and results of operations. See
"Business -- Background" and "-- Services".
The Company's success will also depend in part on its ability to develop
information technology solutions which keep pace with continuing changes in
technology, evolving industry standards and changing client preferences. There
can be no assurance that the Company will be successful in addressing these
developments on a timely basis or that if addressed the Company will be
successful in the marketplace. The Company's failure to address these
developments could have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION
The markets for the Company's services are highly competitive. The Company
believes that it currently competes principally with the internal information
systems groups of its prospective clients, as well as with consulting and
software integration firms, including Andersen Consulting, the "Big Six"
accounting firms, IBM, Cambridge Technology Partners, SHL Systemhouse (a
subsidiary of MCI), and Computer Sciences Corporation, and with application
software vendors. Many of these companies have significantly greater financial,
technical and marketing resources than the Company and generate greater revenues
and have greater name recognition than the Company. In addition, there are
relatively low barriers to entry into the Company's markets and the Company has
faced, and expects to continue to face, additional competition from new entrants
into its markets.
The Company believes that the principal competitive factors in its markets
include quality of service and deliverables, speed of development and
implementation, price, project management capability and technical and business
expertise. The Company believes that its ability to compete also depends in part
on a number of competitive factors outside its control, including the ability of
its competitors to hire, retain and motivate project managers and other senior
technical staff, the development by others of software that is competitive with
the Company's products and services and the extent of its competitors'
responsiveness to client needs. There can be no assurance that the Company will
be able to compete successfully with its competitors. See "Business --
Competition".
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in large part upon the continued services
of a number of key employees, including its founders and co-Chairmen of the
Board of Directors and co-Chief Executive Officers, Jerry A. Greenberg and J.
Stuart Moore. The Company's employment contracts with Messrs. Greenberg and
Moore and with the Company's other key personnel provide that employment is
terminable at will by either party. The loss of the services of either of
Messrs. Greenberg or Moore or of one or more of the Company's other key
personnel could have a material adverse effect on the Company. In addition, if
one or more of the Company's key employees resigns from the Company to join a
competitor or to form a competing company, the loss of such personnel and any
resulting loss of existing or potential clients to any such competitor could
have a material adverse effect on the Company's business, financial condition
and results of operations. In the event of the loss of any such personnel, there
can be no assurance that the Company would be able to prevent the unauthorized
disclosure or use of its technical knowledge, practices or procedures by such
personnel.
INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent, in part, upon its proprietary QUADD
methodology and other intellectual property rights. The Company relies upon a
combination of trade secret, nondisclosure and other contractual arrangements,
and copyright and trademark laws to protect its proprietary rights. The Company
enters into confidentiality agreements with its employees, generally requires
that its consultants and clients enter into such agreements, and limits access
to and
7
<PAGE> 9
distribution of its proprietary information. There can be no assurance that the
steps taken by the Company in this regard will be adequate to deter
misappropriation of its proprietary information or that the Company will be able
to detect unauthorized use and take appropriate steps to enforce its
intellectual property rights.
The Company's business generally involves the development of software
applications for specific client engagements. Ownership of such software is the
subject of negotiation and is frequently assigned to the client, with the
Company frequently retaining a license for certain uses. The Company also
develops software application frameworks and it is the Company's strategy to
retain significant ownership or marketing rights to these application frameworks
and to build application frameworks which it can market and adapt through
further customization for future client projects. Certain clients have
prohibited Sapient from marketing the application frameworks developed for them
for specified periods of time or to specified third parties and there can be no
assurance that clients will not demand similar or other restrictions in the
future. Issues relating to the ownership of and rights to use software
applications and frameworks can be complicated and there can be no assurance
that disputes will not arise that affect the Company's ability to resell or
reuse such applications and frameworks.
Although the Company believes that its services and products do not
infringe on the intellectual property rights of others, there can be no
assurance that such a claim will not be asserted against the Company in the
future, or that if asserted, any such claim will be successfully defended. See
"Business -- Intellectual Property Rights".
CONCENTRATION OF CONTROL
Upon completion of this offering, Messrs. Greenberg and Moore, the
Company's co-Chairmen of the Board of Directors and co-Chief Executive Officers,
will beneficially own approximately 62% of the Company's outstanding Common
Stock. As a result, these stockholders will have the ability to elect the
Company's directors and to determine the outcome of corporate actions requiring
stockholder approval. This concentration of ownership may have the effect of
delaying or preventing a change in control of the Company. See "Management" and
"Principal and Selling Stockholders".
SUSCEPTIBILITY TO GENERAL ECONOMIC CONDITIONS
The Company's revenues and results of operations will be influenced by
general economic conditions prevailing in the United States. In the event of a
general economic downturn or a recession in the United States, the Company's
clients and potential clients may substantially reduce their information
technology and related budgets. In the event of such an economic downturn, there
can be no assurance that the Company's business, financial condition and results
of operations would not be materially and adversely affected.
POSSIBLE VOLATILITY OF STOCK PRICE
The Common Stock has been listed on the Nasdaq National Market since April
1996. The market price of the Common Stock has experienced variations, ranging
from a high of $58.25 to a low of $29.25, and there can be no assurance that the
market price of the Common Stock will not experience fluctuations in the future
or will not fall below such levels. The trading price of the Common Stock could
be subject to wide fluctuations in response to quarterly variations in operating
results, changes in earnings estimates by analysts, announcements of new
contracts or service offerings by the Company or its competitors, general
economic or stock market conditions unrelated to the Company's operating
performance and other events or factors.
SIGNIFICANT UNALLOCATED NET PROCEEDS
The Company has not yet quantified the amount of the net proceeds of this
offering that will be used for the various purposes described under "Use of
Proceeds". The exact uses of the net
8
<PAGE> 10
proceeds, and the amount allocated for each use, will be subject to the
discretion of management. See "Use of Proceeds".
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate of Incorporation") and Amended and Restated Bylaws (the
"Restated Bylaws") provide that any action required or permitted to be taken by
stockholders of the Company must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in writing, and
require reasonable advance notice by a stockholder of a proposal or director
nomination which such stockholder desires to present at any annual or special
meeting of stockholders. Special meetings of stockholders may be called only by
a Chairman of the Board, a Chief Executive Officer or, if none, a President of
the Company or by the Board of Directors. The Restated Certificate of
Incorporation and Restated Bylaws provide for a classified Board of Directors,
and members of the Board of Directors may be removed only for cause upon the
affirmative vote of holders of at least two-thirds of the shares of capital
stock of the Company entitled to vote. In addition, the Board of Directors has
the authority, without further action by the stockholders, to fix the rights and
preferences of, and issue shares of, Preferred Stock. These provisions, and
other provisions of the Restated Certificate of Incorporation and Restated
Bylaws, may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over then current market prices. In addition, these provisions may limit
the ability of stockholders to approve transactions that they may deem to be in
their best interests. See "Description of Capital Stock -- Preferred Stock" and
" -- Delaware Law and Certain Charter and Bylaw Provisions".
9
<PAGE> 11
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 500,000 shares of
Common Stock offered by the Company pursuant to this offering are estimated to
be $21,335,000 ($28,116,320 if the Underwriters' over-allotment option is
exercised in full), assuming a public offering price of $46.00 per share and
after deducting the estimated underwriting discount and offering expenses. The
Company will not receive any proceeds from the sale of shares of Common Stock by
the Selling Stockholders hereunder. See "Principal and Selling Stockholders".
The Company plans to use the net proceeds from this offering for working
capital for the expansion of its business and for other general corporate
purposes. The Company may also use a portion of the net proceeds of this
offering to fund acquisitions of complementary businesses, products or
technologies, although there are currently no commitments or understandings with
respect to any such transactions. Pending such uses, the Company intends to
invest such funds in short-term, investment-grade, interest-bearing instruments.
The Company does not believe it can accurately estimate the amounts to be used
for each purpose at this time. See "Risk Factors -- Significant Unallocated Net
Proceeds".
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and currently intends to retain all available funds for use in the operation and
expansion of its business. In addition, the Company's bank facility contains a
covenant prohibiting the payment of cash dividends without the bank's consent.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources". The Company does not anticipate
that any cash dividends will be declared or paid in the foreseeable future.
MARKET PRICE OF COMMON STOCK
Sapient's Common Stock is quoted on the Nasdaq National Market under the
symbol "SAPE". The following table sets forth for the periods indicated the high
and low sale prices for Sapient's Common Stock.
<TABLE>
<CAPTION>
1996 HIGH LOW
------------------------------------------------------------- -------- --------
<S> <C> <C>
Second Quarter (from April 3, 1996).......................... $ 58.25 $ 29.25
Third Quarter................................................ $ 46.00 $ 29.75
Fourth Quarter (through October 8, 1996)..................... $ 46.50 $ 44.50
</TABLE>
On October 8, 1996, the last reported sale price of Sapient's Common Stock
was $46.00 per share. As of September 30, 1996, there were 171 holders of record
of the Common Stock.
10
<PAGE> 12
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 (i) on an actual basis and (ii) as adjusted to give effect to
the sale of 500,000 shares of Common Stock offered by the Company in this
offering at an assumed public offering price of $46.00 per share, after
deducting the estimated underwriting discount and offering expenses. This table
should be read in conjunction with the Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
<S> <C> <C>
Long-term debt, less current portion................................ $ -- $ --
Preferred Stock, par value $.01 per share, 5,000,000 shares
authorized; none issued........................................... -- --
Common Stock, par value $.01 per share, 40,000,000 shares
authorized; 10,945,635 shares issued and outstanding; 11,445,635
shares issued and outstanding as adjusted......................... 109 114
Additional paid-in capital.......................................... 32,650 53,980
Retained earnings................................................... 9,611 9,611
Notes receivable from stockholders.................................. (25) (25)
------ -------
Total capitalization...................................... $42,345 $ 63,680
====== =======
</TABLE>
- ---------------
(1) Does not include 1,431,315 shares of Common Stock issuable upon exercise of
stock options outstanding as of September 30, 1996. See
"Management -- Benefit Plans".
11
<PAGE> 13
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Financial Statements and the Notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in
this Prospectus. The Balance Sheet Data at December 31, 1994 and 1995 and the
Statement of Income Data for the years ended December 31, 1994 and 1995 have
been derived from the Financial Statements for such years, which have been
audited by KPMG Peat Marwick LLP, independent auditors. The Statement of Income
Data for the year ended December 31, 1993 are derived from the Financial
Statements for such year which has been audited by Ernst & Young LLP,
independent auditors, whose report appears elsewhere herein. The Balance Sheet
Data as of December 31, 1992 and 1993 and the Statement of Income Data for the
year ended December 31, 1992 are derived from the Company's Financial Statements
for such years, which are not included herein, all of which have been audited by
Ernst & Young LLP, independent auditors. The selected data presented below for
the nine month periods ended September 30, 1995 and 1996, and as of September
30, 1996, are derived from the unaudited Financial Statements of the Company
included elsewhere in this prospectus which, in the opinion of management, have
been prepared on the same basis as the audited Financial Statements and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the results of operations and financial position for and
as of such periods. The results of operations for interim periods are not
necessarily indicative of the results that may be expected for the entire year.
The Company was incorporated in September 1991 and financial information prior
to 1992 is insignificant.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- -----------------
1992 1993 1994 1995 1995 1996
----- ------ ------ ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATE)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues................................ $ 953 $4,888 $9,373 $21,930 $14,090 $31,128
Operating expenses:
Project personnel costs............... 497 1,670 4,310 10,084 6,614 14,699
Selling and marketing................. 27 90 268 1,095 631 1,520
General and administrative............ 320 1,437 2,728 5,967 3,909 8,127
------ ------ ------- ------- ------- -------
Total operating expenses...... 844 3,197 7,306 17,146 11,154 24,346
Income from operations.................. 109 1,691 2,067 4,784 2,936 6,782
Interest income (expense), net ......... (3) -- 9 10 28 626
------ ------ ------- ------- ------- -------
Income before income taxes.............. 106 1,691 2,076 4,794 2,964 7,408
Income taxes............................ 33 691 851 1,964 1,213 2,885
------ ------ ------- ------- ------- -------
Net income.............................. $ 73 $1,000 $1,225 $ 2,830 $ 1,751 $ 4,523
====== ====== ======= ======= ======= =======
Net income per share.................... $0.01 $ 0.10 $ 0.12 $ 0.28 $ 0.17 $ 0.40
Weighted average common shares and
equivalents........................... 8,557 9,792 10,115 10,257 10,281 11,435
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996
---- ------ ------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................ $174 $1,127 $1,649 $ 3,789 $42,375
Total assets................................... 237 2,296 6,349 12,086 51,490
Long-term debt, less current portion........... 31 56 61 37 --
Total stockholders' equity(1).................. 146 1,149 2,350 5,211 42,345
</TABLE>
- ---------------
(1) The Company has never declared or paid any cash dividends.
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Sapient performs its services on a fixed-price, fixed-timeframe basis. To
determine its proposed fixed price for a project, the Company uses an internally
developed estimation process which takes into account standard billing rates and
the risks associated with the particular project, such as the number and type of
key functions to be developed, the technology environment and application type
to be applied, the project's timetable and the overall technical complexity of
the project. Each fixed-price proposal must be approved by a member of the
Company's senior management team.
The Company recognizes revenues from fixed-price projects using the
percentage of completion method based on the ratio of costs incurred to total
estimated project costs. The Company has a resource tracking and allocation
system, which is used to update the current estimate of costs to complete a
project on a daily basis. Senior management reviews the progress of client
projects on a weekly basis. The cumulative impact of any revisions to the
estimate of the percentage of completion of any contract is reflected in the
quarter in which such impact becomes known. Provisions for estimated losses on
uncompleted contracts are made on a contract by contract basis and are
recognized in the period in which the losses are determined. See "Risk
Factors -- Fixed-Price Contracts". In certain limited situations, the Company
sets the fixed price before the cost to complete the project can be estimated
with reasonable certainty because design of the solution has not been fully
completed. In such cases, the Company defers recognition of any profit on the
project until more complete estimates of total contract costs can be made.
The Company generally requires payment of 10% of the fixed fee prior to
commencement of the Implementation stage of a project, bills 80% of the fee over
the course of the project pursuant to a negotiated payment schedule and bills
the remaining 10% upon completion. Revenues from contracts which exceed
contractual billings with respect to such contracts are recorded as current
assets and are shown as unbilled revenues on contracts in the Financial
Statements. Billings in excess of revenues are recorded as current liabilities
and are shown as deferred revenues in the Financial Statements.
The Company's revenues and earnings may fluctuate from quarter to quarter
based on such factors as the number, size and scope of projects in which the
Company is engaged, the contractual terms and degree of completion of such
projects, any delays incurred in connection with a project, employee utilization
rates, the adequacy of provisions for losses, the accuracy of estimates of
resources required to complete ongoing projects, and general economic
conditions. See "Risk Factors -- Variability of Quarterly Operating Results". In
addition, revenues from a large client may constitute a significant portion of
the Company's total revenues in a particular quarter.
From the beginning of 1995 through September 30, 1996, the Company's staff
increased from 116 to 431 full-time employees and further significant increases
are expected in the remainder of 1996. The Company has also expanded
geographically by opening new offices, and expects to open additional offices.
Personnel and rent expenses represent a high percentage of the Company's
operating expenses and are relatively fixed in advance of any particular
quarter. Accordingly, to the extent revenues do not increase at a rate
commensurate with these additional expenses, the Company's results of operations
could be materially and adversely affected. In addition, the Company's liquidity
may also be adversely affected if revenues do not increase at a rate
commensurate with these additional expenses to the extent the Company is unable
to reduce operating expenses.
13
<PAGE> 15
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues of certain items
included in the Company's statements of income for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
-------------------------- ---------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues................................ 100 % 100 % 100 % 100 % 100 %
Operating expenses:
Project personnel costs............... 34 46 46 47 47
Selling and marketing................. 2 3 5 4 5
General and administrative............ 29 29 27 28 26
--- --- --- --- ---
Total operating expenses...... 65 78 78 79 78
--- --- --- --- ---
Income from operations.................. 35 22 22 21 22
Interest income......................... -- -- -- --- ---
Income taxes............................ 15 9 9 9 9
--- --- --- --- ---
Net income.............................. 20 % 13 % 13 % 12 % 15 %
=== === === ==== ===
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
REVENUES
Revenues for the first nine months of 1996 increased 121% over revenues for
the first nine months of 1995. The increase in revenues reflects increases in
both the size and number of client projects. The increase in "unbilled revenues
on contracts" from $2.3 million at December 31, 1995 to $4.8 million at
September 30, 1996 was primarily due to the increase in revenues in 1996, as
well as to contractual billing and payment terms on certain projects which are
more heavily weighted toward the end of projects.
PROJECT PERSONNEL COSTS
Project personnel costs consist primarily of salaries and employee benefits
for personnel dedicated to client assignments and fees paid to subcontractors
for work performed in connection with projects. These costs represent the most
significant expense the Company incurs in providing its services. The increase
in project personnel costs for the nine month period ended September 30, 1996
was primarily due to an increase in project personnel from 188 at September 30,
1995 to 350 at September 30, 1996. Project personnel costs remained constant as
a percentage of revenues at 47% for the first nine months of 1995 and 1996.
SELLING AND MARKETING
Selling and marketing costs consist primarily of salaries, employee
benefits, travel expenses and promotional costs. In the first nine months of
1996, selling and marketing costs as a percentage of revenues were 5%, compared
to 4% in the first nine months of 1995. The increase was primarily the result of
the Company's decision to expand its selling and marketing group, which grew
from nine employees at September 30, 1995 to 20 employees at September 30, 1996.
GENERAL AND ADMINISTRATIVE
General and administrative costs consist primarily of expenses associated
with the Company's management, finance and administrative groups, including
personnel devoted to recruiting and training project personnel, and occupancy
costs. The increase in general and administrative costs for the nine month
period ended September 30, 1996 was primarily due to an increase in the
14
<PAGE> 16
incremental costs associated with the additional employees hired during 1996.
The Company's total headcount increased from 225 at September 30, 1995 to 431 at
September 30, 1996. As a percentage of revenues, general and administrative
costs were 26% for the first nine months of 1996, compared to 28% in the first
nine months of 1995. The decrease as a percentage of revenues in the first nine
months of 1996 was a result of the growth in revenues combined with a decline in
the administrative staff as a percent of total staff, lower travel related
expenses and improved office space utilization.
INTEREST INCOME
Interest income for the first nine months of 1996 consisted of interest
earned on the proceeds of the Company's initial public offering, which were
invested primarily in tax-exempt, short-term municipal bonds.
PROVISION FOR INCOME TAXES
Income tax expense represents combined federal and state taxes at an
effective rate of 39% for 1996 and 41% for 1995. The decrease in the effective
tax rate primarily represents a reduction in the effective federal tax rate
because excess cash has been invested in tax-exempt municipal bonds.
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
REVENUES
Revenues were $21.9 million in 1995, representing an increase of 134% over
1994 revenues of $9.4 million. Revenues in 1994 were 92% higher than 1993
revenues of $4.9 million. The increase in revenues in each period reflected
increases in both the size and number of client projects. For 1995, the increase
in revenues was primarily attributable to an increase in the number of client
projects, but was also significantly impacted by an increase in the average size
of client projects. Revenues derived from the Company's five largest clients in
1995, 1994 and 1993 as a percentage of total revenues were 58%, 87% and 96%,
respectively. The Company expects the percentage of total revenues derived from
its five largest clients in 1996 will represent a substantial portion of total
revenues for such year. The increase in "unbilled revenues on contracts" from
$18,000 at December 31, 1994 to $2.3 million at December 31, 1995 was primarily
due to the increase in revenues in 1995 compared with 1994 as well as to
contractual billing and payment terms on certain projects which are more heavily
weighted toward the end of the projects.
PROJECT PERSONNEL COSTS
The increase in project personnel costs in 1994 and 1995 was primarily due
to an increase in project personnel from 38 at the end of 1993 to 95 at the end
of 1994 and 213 at the end of 1995. Project personnel costs increased as a
percentage of revenues from 34% in 1993 to 46% in 1994 and 1995. The increase as
a percentage of revenues in 1994 compared to 1993 was primarily due to an
increase in the number of employees to more equitably allocate workload and in
anticipation of future growth, as well as to higher salaries.
SELLING AND MARKETING
In 1995, selling and marketing costs as a percentage of revenues were 5%
compared to 3% in 1994 and 2% in 1993. This increase was primarily a result of
the Company's decision to expand its selling and marketing group, which grew
from four employees at the end of 1994 to 13 employees at the end of 1995.
15
<PAGE> 17
GENERAL AND ADMINISTRATIVE
As a percentage of revenues, general and administrative costs were 27% in
1995, compared to 29% in both 1994 and 1993. The decrease as a percentage of
revenues in 1995 was a result of improved office space utilization. In addition,
the administrative staff as a percentage of total staff declined in 1995.
PROVISION FOR INCOME TAXES
Income tax expense represents combined federal and state taxes at an
effective rate of 41% for each year.
QUARTERLY RESULTS
<TABLE>
The following table sets forth certain unaudited quarterly results of
operations of the Company for 1995 and the first three quarters of 1996. In the
opinion of management, this information has been prepared on the same basis as
the audited Financial Statements and all necessary adjustments, consisting only
of normal recurring adjustments, have been included in the amounts stated below
to present fairly the quarterly information when read in conjunction with the
audited Financial Statements and Notes thereto included elsewhere in this
Prospectus. The quarterly operating results are not necessarily indicative of
future results of operations.
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 % 1995 % 1995 % 1995 % 1996 %
--------- --- -------- --- ------------- --- ------------ --- --------- ---
(IN THOUSANDS, EXCEPT PERCENTAGE INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................... $3,618 100% $4,567 100% $5,905 100% $7,840 100% $9,267 100%
Operating expenses:
Project personnel costs............... 1,640 45 2,093 46 2,881 48 3,470 44 4,552 49
Selling and marketing................. 91 3 198 4 342 6 464 6 467 5
General and administrative............ 1,121 31 1,388 31 1,400 24 2,058 26 2,213 24
------ --- ------ --- ------ --- ------ --- ------ ---
Total operating
expenses........................ 2,852 79 3,679 81 4,623 78 5,992 76 7,232 78
------ --- ------ --- ------ --- ------ --- ------ ---
Income from operations................. 766 21 888 19 1,282 22 1,848 24 2,035 22
Interest income (expense), net......... 27 1 3 1 (1) 0 (19) (1) 5 --
------ --- ------ --- ------ --- ------ --- ------ ---
Income before income taxes............. 793 22 891 20 1,281 22 1,829 23 2,040 22
Income taxes........................... 325 9 365 8 524 9 750 9 816 9
------ --- ------ --- ------ --- ------ --- ------ ---
Net income............................. $ 468 13% $ 526 12% $ 757 13% $1,079 14% $1,224 13%
====== === ====== === ====== === ====== === ====== ===
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 % 1996 %
-------- --- ------------- ---
<S> <C> <C> <C> <C>
Revenues............................... $10,361 100% $11,501 100%
Operating expenses:
Project personnel costs............... 4,769 46 5,378 47
Selling and marketing................. 575 6 479 4
General and administrative............ 2,726 26 3,188 28
------- --- ------- ---
Total operating
expenses........................ 8,070 78 9,045 79
------- --- ------- ---
Income from operations................. 2,291 22 2,456 21
Interest income (expense), net......... 293 3 328 3
------- --- ------- ---
Income before income taxes............. 2,584 25 2,784 24
Income taxes........................... 983 10 1,086 9
------- --- ------- ---
Net income............................. $ 1,601 15% $ 1,698 15%
======= === ======= ===
</TABLE>
STOCK-BASED COMPENSATION
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 ("SFAS 123"), which establishes a fair value based method of
accounting for stock-based compensation plans. SFAS 123 allows companies to
retain the current approach set forth in APB Opinion No. 25 "Accounting for
Stock Issued to Employees" for recognizing stock-based expense in the basic
financial statements. Companies that do not follow the new fair value based
method are required to provide pro forma disclosures of net income and earnings
per share as if they had adopted the fair value accounting method. The Company
has elected to continue to account for employee stock options under APB Opinion
No. 25 and will provide the required expanded disclosures in the footnotes to
its December 31, 1996 Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering, the Company financed its operations
and investments in property and equipment primarily through cash generated from
operations, bank borrowings and capital lease financing. In April 1996, the
Company completed an initial public offering of Common Stock resulting in net
proceeds to the Company of approximately $32.4 million. The Company has a
revolving line of credit with Fleet Bank of Massachusetts, N.A. providing for
borrowings of up to $5.0 million. Borrowings under this line of credit, which
expires on June 30, 1997, are collateralized by the Company's accounts
receivable and bear interest at the bank's prime rate. The line of credit
16
<PAGE> 18
includes covenants relating to the maintenance of certain financial ratios, such
as minimum net worth and profitability, and prohibits the payment of any
dividends. At September 30, 1996, the Company had no bank borrowings outstanding
and no material capital commitments.
Cash and cash equivalents increased to $29.3 million at September 30, 1996
from $0.4 million at December 31, 1995. The increase was primarily due to cash
provided as a result of the completion of the Company's initial public offering
and cash provided by operations.
The Company believes that the cash provided from operations, borrowings
available under its revolving line of credit, the net proceeds of its initial
public offering and the net proceeds to the Company of this offering will be
sufficient to meet the Company's working capital and capital expenditure
requirements for the foreseeable future.
17
<PAGE> 19
BUSINESS
Sapient designs, develops, integrates and implements high quality, flexible
information technology applications and solutions for large organizations. The
Company develops client/server and Internet-enabled client/server software
applications designed to help organizations improve their processes and
performance. The Company delivers its solutions for both enterprise-wide and
departmental initiatives on a fixed-price, fixed-timeframe basis using its
proprietary QUADD (Quality Design and Delivery) process. QUADD is a
workshop-based, rapid development methodology which emphasizes active client
participation to help visualize, prioritize and create time-critical business
and technology solutions. The Company believes that the QUADD process is an
important competitive differentiator that allows Sapient and its clients to
better understand the clients' business needs, and to design, develop, integrate
and implement solutions that address those needs.
Sapient targets clients in information-intensive businesses, including
financial services, telecommunications, utilities, manufacturing and retail, and
state governments. Sapient's principal customers include Digital Equipment
Corporation, Merrill Lynch, Pacific Bell Internet Services, Public Service
Electric & Gas of New Jersey, the State of Maine and Wells Fargo.
BACKGROUND
Pressure from competition, deregulation and technological innovation is
accelerating the rate of change in business. Large organizations must adapt to
these changes as well as improve service, lower costs, reduce cycle times, and
increase value to customers. A key to achieving these objectives is improving
the processes and the underlying business information systems by which
organizations operate and deliver their products and services. As a result, the
Company believes that the rapid and effective deployment of new processes and
supporting systems will play an increasingly prominent role in an organization's
competitiveness. These new processes and supporting systems must be deployed
rapidly, meet current business needs and be flexible to adapt to changing
requirements. The Company believes that client/server technologies allow for
faster deployment and more functional and flexible applications and, as a
result, are well suited to the information technology needs of large
organizations.
Although client/server technologies offer the promise of faster, more
functional and more flexible software applications, implementing client/server
solutions presents major challenges. Developing these solutions requires the
expertise of many highly skilled individuals in client/server technologies and
architectures and the management discipline to ensure that projects will be
completed in appropriate timeframes and will fit current and future business
needs. Information systems professionals with the needed technology skills to
implement such solutions are in short supply and, even when they are available,
companies are often reluctant to expand their information systems departments.
Many organizations are also seeking ways to perform projects on a fixed-price,
fixed-timeframe basis to mitigate the risks associated with large technology
projects.
The Company believes many businesses are concluding that using outside
specialists who employ proven approaches to project management enables them to
develop better solutions, in shorter timeframes, with reduced implementation
risks. By employing outside expertise to gain these benefits, large
organizations can improve their ability to compete by rapidly deploying new
processes and the flexible business information systems that support them.
18
<PAGE> 20
THE SAPIENT SOLUTION
Sapient's QUADD process involves active client participation and is
designed to rapidly deliver business applications that improve processes and
performance. The Company believes that its solution offers the following
advantages:
Focus on Improved Business Processes and Information Systems. The
Company's approach facilitates the concurrent definition of business
processes and information systems, which helps ensure that its clients'
business objectives are appropriately addressed by the information systems
that Sapient develops.
Fixed-Price and Fixed-Timeframe. The Company performs its services on
a fixed-price, fixed-timeframe basis, which the Company believes aligns its
objectives with those of its clients.
Project Prioritization. Through the use of visual tools, the QUADD
process enables the Company and its clients to prioritize needed changes in
the clients' business and technology systems. Accurate prioritization helps
clients maximize the return on their fixed-price investment in the
Company's services.
Short Development Timeframes. The Company believes that a rapid time
to market for the solutions it develops is important to meet its clients'
business objectives. Through the QUADD process, the Company divides,
structures and manages the project to reduce the time needed to reach a
solution for its clients.
STRATEGY
The Company's objective is to be a leader in developing and delivering high
quality, flexible business software applications that address core business
needs of large organizations. To achieve this objective, the Company is pursuing
the following strategies:
ACHIEVE HIGH LEVELS OF CLIENT SATISFACTION. The Company believes that
satisfying client expectations within established fixed contract prices and
timeframes is critical to gaining repeat business and generating new business
from referrals. To determine whether it is meeting client expectations, the
Company employs a defined client feedback process designed to obtain continuous
client evaluations throughout each engagement. More than 50% of the total cash
compensation of the Company's senior executives involved in the delivery of
client projects is directly linked to these measurements of client satisfaction.
CONSISTENTLY EMPLOY AND CONTINUOUSLY ENHANCE THE QUADD PROCESS. The
Company's interactive, proprietary QUADD methodology is at the core of its
ability to deliver high quality solutions on a fixed-price, fixed-timeframe
basis. The QUADD process is dynamic and scalable and the Company continuously
strives to capture and implement process improvements. The Company believes that
using and improving QUADD will enhance its competitive position in three key
areas: quality, speed and predictability of delivery.
EXPAND IN KEY VERTICAL MARKETS. The Company believes that large
organizations with intensive information processing needs in key vertical
markets, such as financial services, telecommunications, utilities,
manufacturing, retail and state governments, provide the best near-term market
opportunities for the Company's services. The Company intends to continue to
focus its sales, marketing and development efforts on high-value opportunities
in these markets by leveraging its vertical market expertise and client base.
The Company also intends to continue to explore opportunities to provide its
services in other industry sectors with similar needs.
DEVELOP AND LEVERAGE PROPRIETARY APPLICATION FRAMEWORKS. In the course of
its engagements, the Company has developed, and expects to continue to develop,
software application components and software application frameworks that it will
use, in connection with the QUADD process, in client engagements. The Company
has developed application frameworks for several important business functions,
including automated work management, wireless dispatching and
19
<PAGE> 21
variable sales compensation. Leveraging these application components and
frameworks should allow the Company to reduce the time required to complete
projects, limit project risks and enhance the Company's marketing capability.
APPLY NEW TECHNOLOGIES AND ARCHITECTURES. Although its engagements to date
have principally involved the Company's client/server expertise, the Company has
also performed work involving new technology architectures. For example, several
of the Company's client projects employ Internet-enabled client/server
technology. The Company's strategy is to apply new technologies and
architectures as they are developed and become appropriate for use in specific
projects.
ATTRACT AND RETAIN HIGHLY SKILLED, MOTIVATED EMPLOYEES. Because the
Company believes that its future success depends upon its ability to continue to
attract and retain highly skilled employees, the Company focuses on maintaining
its corporate culture, employment environment and incentive systems to continue
to motivate and reward its employees and to align their goals with those of the
Company.
SERVICES
The Company developed QUADD as an innovative approach to designing,
developing and implementing business solutions. QUADD is a highly disciplined,
integrated, workshop-oriented methodology which emphasizes short cycle times and
fixed-price, fixed-timeframe projects. QUADD uses a high level of client
interaction to achieve timely delivery of high quality, flexible solutions to
meet the client's business needs.
The QUADD process consists of the following four stages, each of which
integrates the disciplines of strategy, process and technology:
[Diagram showing the stages of the Company's QUADD
(Quality Design and Delivery) process]
20
<PAGE> 22
While the QUADD process is designed as an integrated approach, each stage
represents a separate contractual commitment and concludes with the delivery of
a discrete value-added deliverable. Clients are able to elect at each stage
whether to proceed to the next stage of the process. Fees for most client
engagements which involve the completion of all stages of the QUADD process
range from approximately $750,000 to $5,000,000.
RIP WORKSHOP. The RIP (Rapid Implementation Plan) workshop is designed to
rapidly identify the client's needs and develop a strategy and action plan to
meet those needs. A team of Sapient personnel leads the RIP workshop at one of
the Company's 13 Design Centers. A cross-functional team of executives, managers
and end-users from the client's various business and technical units works with
the Sapient team to create a common vision, goal and action plan.
The RIP workshop uses visual tools and approaches, including process
matrices, prototyping and electronic storyboards, to help clients articulate
their needs more clearly than with traditional interview methods. The RIP
workshop employs rapid iteration and prioritization to focus on those aspects of
a solution that will provide the greatest business benefit and generally
concludes with consensus on the following key items: a clear statement of the
client's business need; a statement of vision that addresses the business need;
a plan to achieve the vision; a visual representation of the solution; and a
cost/benefit analysis of, and if appropriate, a business justification for
proceeding with, the outlined plan. The client team generally presents an
executive summary of the workshop to other senior members of the client's
organization. The Company believes these presentations increase the likelihood
that the client will proceed to the Design stage.
DESIGN. In the Design stage, a team consisting of Company and client
participants outlines more thoroughly the proposed processes and required
software applications. This workshop focuses on functional definition,
identifies process redesign opportunities and attempts to synthesize broad-based
support for the proposed changes. During this stage, the Company again uses
rapid prototyping and electronic storyboards, as well as object modeling
techniques, to help the project team iteratively define system functionality,
process flows, systems architectures and object models. The Company also uses
software and techniques it has developed to help clients visualize batch
processes or other difficult to define business processing elements. In
addition, during this workshop the project team typically creates a detailed
prototype and defines the required system interfaces.
The client's workshop participants typically present the proposed solution
to other members of the client's organization both during and at the end of the
Design stage. The Company believes that these client presentations are critical
to validating the workshop's results and gaining broad-based support for the
proposed changes and also increase the likelihood that the client will commit to
complete development of the proposed solution. At the conclusion of Design, the
client and the Sapient teams generally have defined a proposed solution to the
client's business needs and a detailed plan to develop and implement this
solution. At this point, the Company generally delivers to the client a
fixed-price, fixed-timeframe proposal for developing and implementing the
solution. In addition to pricing and timing, this proposal identifies the
critical tasks for the client to complete, such as preparing interfaces to and
modifications of legacy systems, preparing, formatting and collecting existing
data and testing and verifying the software application.
IMPLEMENTATION. Implementation primarily involves the development and
testing of a new software application, or customization of an existing
third-party application or Sapient application framework, to meet the client's
needs identified during the Design stage.
A Sapient project manager and system architect manage Sapient's development
team, which usually consists of five to thirty people. The project manager
tracks the progress of the implementation on a daily basis and senior management
reviews each project's progress on a weekly basis by analyzing its expected time
to completion as compared to previous estimates. The Sapient development team
typically works in a dedicated workspace within the Company's 40 Development
Centers.
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Throughout the Implementation stage, Sapient and the client work together
to ensure that the solution continues to meet the client's business needs.
Proposed changes in the scope of the project resulting from a change in the
client's needs are analyzed using the QUADD process, and any adjustments to the
contract's fixed-price, fixed-timeframe parameters are negotiated in advance of
implementing the change.
During the later parts of the Implementation stage, technical, process,
data and organizational changes are integrated into the client's organization.
At this time, the Company may also participate in rolling out the application
and training end-users as it transitions the solution to the production
environment. Implementation generally ends with the delivered software
application in use in the client's business.
PRODUCTION. During the Production stage, the Company maintains, enhances
and supports the solution after it has been installed and is operational.
Generally, the Company provides at least six months of production support and
maintenance after a system has been installed, pricing for which is agreed upon
during the Implementation stage. After the initial six-month period, clients may
assume responsibility for on-going support or choose to have Sapient provide
these services under a separate fixed-price agreement. To date, revenues from
support/maintenance agreements have not been material to the Company.
CLIENT SATISFACTION AND CONTINUOUS QUADD PROCESS IMPROVEMENT. Achieving
high levels of client satisfaction is fundamental to the Company's business
strategy. The Company has designed formal processes to measure client
satisfaction at frequent points throughout each engagement. At the end of each
QUADD stage, and at multiple times during the Implementation stage, clients
complete written evaluations of Sapient, the QUADD process, and the project's
deliverables. The Company also performs internal peer reviews at various points
during Design and Implementation to track the consistency of implementation of
the QUADD process, to review technical design and implementation of the solution
and to identify and address potential development problems at an early stage.
These internal reviews are performed by senior technical and management
personnel. The compensation of all project personnel is based to some degree on,
and more than 50% of the total cash compensation of the Company's senior
executives involved in the delivery of client projects is directly linked to,
these measurements of client satisfaction.
Sapient has a dedicated staff who review and analyze all client evaluations
to identify possible improvements to the QUADD process. A member of this staff
also attends the Sapient debriefing held after each stage of the QUADD process
to capture ideas for improvement. From this information, the QUADD staff
identifies potential enhancements to the QUADD process, which are disseminated
throughout the Company. The QUADD staff is also responsible for training new
employees in the QUADD process.
MARKETS AND CLIENTS
Sapient focuses its marketing efforts on clients in information-intensive
businesses, including financial services, telecommunications, utilities,
manufacturing and retail, and state governments. Many large organizations in
these vertical markets have moved over the past several years to client/server
computing and require the type of services provided by the Company. Within these
vertical markets, the Company has targeted clients with large scale information
access and processing needs. The Company intends to continue to explore
opportunities to provide its services in other industry sectors with similar
needs.
The Company expects, based on its past experience, that a significant
portion of its annual revenues will be derived from a relatively small number of
major client projects. In 1995, the Company's five largest clients accounted for
approximately 58% of its revenues. Merrill Lynch, Public Service Electric & Gas
of New Jersey and Digital Equipment Corporation each accounted for more than 10%
of such revenues and three other clients each accounted for more than 5% of such
revenues. In the first nine months of 1996, the Company's five largest clients
accounted for
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approximately 61% of its revenues. Digital Equipment Corporation and Wells Fargo
each accounted for more than 10% of such revenues and three other clients each
accounted for more than 5% of such revenues. The volume of work performed for
specific clients is likely to vary from year to year, and a significant client
in one year may not use the Company's services in a subsequent year. In
addition, revenues from a large client may constitute a significant portion of
the Company's total revenues in a particular quarter. See "Risk
Factors -- Customer Concentration; Dependence on Large Projects".
While each client engagement differs, the following case studies illustrate
the types of business needs the Company has addressed:
WELLS FARGO. Wells Fargo, a leading commercial bank based in California,
retained Sapient to design an online, real-time banking system targeted to small
business users. Working closely with a cross-functional team from Wells Fargo
throughout the QUADD process, Sapient designed, developed and implemented the
system, called "Business Gateway", in less than a year, making it one of the
banking industry's first such systems to be commercially available.
Business Gateway uses Windows-based software to create a convenient new
channel for online banking in a World Wide Web server/browser environment. Using
Business Gateway, Wells Fargo's small-business customers can transfer money
between accounts, view real-time account information and balances, track when
checks have cleared and request stop payment orders. In addition, the system is
designed to automatically alert users upon login to any potential overdraft
situations, thereby enabling them to take corrective action, in many cases
before incurring overdraft charges. The system allows small businesses to
authorize employee access to selected accounts and to place limits on a user's
authority to make transactions or access information. Business Gateway is
designed to accommodate a high number of concurrent users, 24 hours a day, seven
days a week, while providing customers with an easy-to-use, high quality
service. The system is also designed to be highly flexible and adaptable to
future changes in network configurations and technological advances.
SONAT POWER MARKETING. Sonat Power Marketing, Inc., an electric power
marketer owned by Sonat Inc., retained Sapient to assist it in quickly
developing an electric power marketing system designed to respond to the new
market opportunity created by the Federal Energy Regulatory Commission's April
1996 order promoting competition in the wholesale electricity market.
Sapient designed, developed and implemented the new system, called "RAMP",
in three months. Introduced in June 1996, RAMP has helped provide Sonat Power
Marketing with an opportunity to expand its electricity marketing business
nationwide by enabling it to manage end-to-end electricity trading in North
America. The new system is designed to manage customer contacts (including
initiation and prioritization of key buyers), list available power and
corresponding market prices, administer contracts, rapidly execute power trades
between utilities, generate trade confirmations and invoices, and schedule power
flow across North America (including the ability to manage short or long
positions at each interface point in the U.S. power grid).
STATE OF MAINE. Recent federal legislative changes have shifted a greater
number of Medicaid-related financial, administrative and management
responsibilities to the states. Faced with escalating costs for its Medicaid
program and fewer federal dollars to support recipients' needs, the State of
Maine's Bureau of Medical Services ("BMS") recognized that it needed a more
cost-effective way to administer its Medicaid program. BMS retained Sapient to
develop a system to assist in the transition of the majority of Maine's Medicaid
recipients from a traditional "fee-for-service" program to a managed care
program.
Working closely with BMS personnel in RIP and Design workshops, Sapient
helped BMS redesign its organizational infrastructure and reach internal
consensus on policy decisions for the project. During the subsequent stages of
the QUADD process, Sapient developed and implemented a client/server-based
managed care enrollment and capitation system, called "MECAPS". The new
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system enables BMS to assign primary care providers and to establish capitated
rates for different subsets of individuals within its managed care population.
MECAPS automatically recalculates capitated rates and adjusts periodic payments
to managed care providers based upon changes to Medicaid recipients' status. In
addition, information from managed care organizations inputed in MECAPS enables
BMS to more effectively monitor the receipt of care by Medicaid recipients. This
in turn assists BMS in better understanding the components of its program-wide
expenditures and highlights opportunities for preventative care and potential
efficiencies.
In conjunction with the MECAPS project, the State of Maine has also engaged
Sapient to design a system for enhancing its ability to monitor and manage its
entire Medicaid program. The Maine Medicaid Decision Support System currently
being designed by Sapient is intended to provide improved access to Medicaid
claims data and allow the state to monitor the quality of care delivered in
Maine.
MERRILL LYNCH. Merrill Lynch retained Sapient to design a new mortgage
allocation system to support Merrill Lynch's mortgage-backed securities trading
unit. Initially, a cross-functional team from Merrill Lynch comprised of
traders, allocators and information systems professionals, participated in a
five-day RIP workshop. The workshop team identified a number of ways to improve
Merrill Lynch's existing system, which required extensive manual operations. The
workshop team then outlined a new automated client/server system, called
"AWESOME", designed to enable Merrill Lynch to maintain its high volume of
trading, but with better performance and fewer operations staff.
The new system allows each mortgage-backed securities allocator to enter,
process and distribute trade and inventory information from his or her
workstation. Previously, information was entered and processed in several
different systems, which required the allocators to switch frequently between
numerous screens and documents. Access to consolidated real-time data on one
screen enables allocators to make more informed business decisions. The new
system also includes an automatic notification feature and integrated fax server
for distributing trade information to the trade's counterparty. Previously,
Merrill Lynch's allocators and sales force had to manually fax mortgage pool
information to investors before the market's 3:00 p.m. deadline to avoid
overnight finance charges.
The AWESOME system is one of several applications Sapient has developed for
Merrill Lynch. The Company has implemented applications for Merrill Lynch's
whole loan trading and operations system and its repurchase agreement collateral
allocation system.
SELLING AND MARKETING
During 1995, the Company decided to strategically align its selling and
marketing efforts along key vertical markets. To implement this plan, the
Company significantly expanded its dedicated sales and marketing force by hiring
several individuals with experience in the industry sectors on which the Company
focuses. This group works with Sapient's senior management, which continues to
be involved in a significant portion of Sapient's sales and marketing
activities. The Company believes that focusing on vertical markets will broaden
its knowledge and expertise in selected key industries, and generate additional
client engagements in these industries.
The Company's direct sales force employs a variety of business development
and marketing techniques, including presenting QUADD at industry trade shows,
sponsoring "Industry Leaders Dinners" and direct marketing activities. In
addition to other marketing strategies, the Company believes that satisfying
client expectations within established fixed contract prices and time schedules
is critical to gaining repeat business and obtaining new business from
referrals.
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As of September 30, 1996, the Company's selling and marketing group
consisted of 20 employees in its three offices.
The Company's services typically require a substantial financial commitment
by clients. Sales cycles typically range from two to six months from the time
the Company initially meets with a prospective client until the client decides
whether to authorize commencement of an engagement. The Company often encounters
longer sales cycles for clients such as utilities and state governments.
The Company generally enters into written commitment letters with its
clients at or around the time it commences work on a project. These commitment
letters generally contemplate that Sapient and the client will subsequently
enter into a more detailed agreement. These written commitments and contracts
contain varying terms and conditions and the Company does not generally believe
it is appropriate to characterize them as consisting of backlog. In addition,
because these written commitments and contracts often provide that the
arrangement can be terminated with limited advance notice or penalty, the
Company does not believe the projects in process at any one time are a reliable
indicator or measure of expected future revenues. In the event a client
terminates a project, the client would remain obligated to pay the Company for
services performed through the termination date.
COMPETITION
The markets for the Company's services are highly competitive. The Company
believes that it currently competes principally with the internal information
systems groups of its prospective clients, as well as with consulting and
software integration firms, including Andersen Consulting, the "Big Six"
accounting firms, IBM, Cambridge Technology Partners, SHL Systemhouse (a
subsidiary of MCI), and Computer Sciences Corporation, and with application
software vendors. Many of these companies have significantly greater financial,
technical and marketing resources than the Company and generate greater revenues
and have greater name recognition than Sapient. In addition, there are
relatively low barriers to entry into the Company's markets and the Company has
faced and expects to continue to face, additional competition from new entrants
into its markets.
The Company believes that the principal competitive factors in its markets
include quality of service and deliverables, speed of development and
implementation, price, project management capability and technical and business
expertise. The Company believes it competes favorably with respect to these
factors and that its QUADD methodology, focus on providing high-quality
solutions to client business needs and fixed-price, fixed-timeframe contracting
practices distinguish it from its competitors.
HUMAN RESOURCES
As of September 30, 1996, the Company had 431 full-time employees,
comprised of 350 project personnel, 61 employees in finance and administration
and 20 employees in sales and marketing. The Company's management believes that
certain key values, namely, client-focused delivery, leadership, openness, and
professional growth, are critical to attaining success and has developed the
Company's corporate culture around these values. To encourage the achievement of
these values, Sapient rewards teamwork and promotes individuals who demonstrate
these values. Also, the Company has an intensive orientation program for new
employees, a variable compensation system centered around these values, and an
internal group to help define, track and promote these values. The Company
believes that its growth and success are attributable in large part to the high
caliber of its employees and the Company's commitment to maintain the values on
which its success has been based. The Company believes that it has been
successful in its efforts to attract and retain the number and quality of
professionals needed to support present operations and future growth, in part
because of its emphasis on training and its QUADD methodology, which allows
employees to
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<PAGE> 27
progress with one client through multiple phases of a project. The Company
intends to continue to recruit, hire and promote employees who share the
Company's values.
The Company believes that its future success will depend in large part upon
its ability to attract, retain, train and motivate highly-skilled employees,
particularly project managers and other senior technical personnel. Although the
Company expects to continue to attract sufficient numbers of highly-skilled
employees and to retain its existing project managers and other senior personnel
for the foreseeable future, there can be no assurance that the Company will be
able to do so. See "Risk Factors -- Need to Attract and Retain Professional
Staff".
None of the Company's employees is subject to a collective bargaining
agreement. The Company believes that its relations with its employees are good.
INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent, in part, upon its proprietary QUADD
methodology and other intellectual property rights. The Company relies upon a
combination of trade secret, nondisclosure and other contractual arrangements,
and copyright and trademark laws, to protect its proprietary rights. The Company
enters into confidentiality agreements with its employees, generally requires
that its consultants and clients enter into such agreements, and limits access
to and distribution of its proprietary information. There can be no assurance
that the steps taken by the Company in this regard will be adequate to deter
misappropriation of its proprietary information or that the Company will be able
to detect unauthorized use and take appropriate steps to enforce its
intellectual property rights.
The Company's business generally involves the development of software
applications for specific client engagements. Ownership of such software is the
subject of negotiation and is frequently assigned to the client, with the
Company frequently retaining a license for certain uses. The Company also
develops software application frameworks and it is the Company's strategy to
retain significant ownership or marketing rights to these application frameworks
and to build application frameworks which it can market and adapt through
further customization for future client projects. In connection with
Implementation stage projects which use previously developed application
frameworks, the Company may, in certain cases, obtain a license fee from the
client for use of the framework and a development fee from such client for any
required additional customization of the framework. A portion of the license fee
will generally be paid as a royalty to the client for which the original
framework was developed pursuant to such original client's agreement with the
Company.
FACILITIES
The Company's headquarters and principal administrative, finance, sales and
marketing operations are located in approximately 70,000 square feet of leased
office space in Cambridge, Massachusetts. The Company also leases approximately
35,000 square feet in metropolitan New York and 14,000 square feet in San
Francisco. The Company expects that additional space will be required as it
expands its business and believes that it will be able to obtain suitable space
as needed.
LEGAL PROCEEDINGS
Except as described below, there are no legal proceedings to which the
Company is a party or to which any of its property is subject. In April 1996 a
former employee of the Company (the "Plaintiff") commenced suit against the
Company and certain of its executive officers, both individually and in their
capacities as officers of the Company, in Middlesex Superior Court, Commonwealth
of Massachusetts. The Plaintiff's complaint alleges, among other things,
wrongful termination of his employment. In addition to seeking unspecified
damages, the Plaintiff is demanding that the Company issue to him 35,000 shares
of the Company's Common Stock pursuant to
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certain stock options that had previously been granted to him. In July 1996, the
Plaintiff amended his complaint to add a new claim for an additional 50,000
shares of Common Stock which he claims the Company owed him pursuant to a
purported oral option agreement for fully vested shares. In August 1996, the
court allowed the Company's motion to compel arbitration of the Plaintiff's
claims. The Plaintiff has indicated that he will submit his claims to
arbitration. Management denies that it breached any obligations or duties to the
Plaintiff, and believes that the Company has meritorious defenses (including
that a substantial number of the 35,000 shares subject to the stock options that
were granted to the Plaintiff had not vested in accordance with their terms at
the time the Plaintiff's employment was terminated by the Company). The Company
intends to vigorously defend the suit. Although the Company does not expect the
suit to have a material adverse effect on the Company's business, operating
income or financial condition, an adverse judgment or settlement could have a
material adverse effect on the operating results reported by the Company for the
period in which any such adverse judgment or settlement occurs.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The executive officers, key employees and directors of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Jerry A. Greenberg......................... 30 Co-Chairman of the Board of Directors,
Co-Chief Executive Officer and Director
J. Stuart Moore............................ 34 Co-Chairman of the Board of Directors,
Co-Chief Executive Officer and Director
Sheeroy D. Desai........................... 30 Executive Vice President
Susan D. Johnson........................... 31 Chief Financial Officer
Douglas J. Abel............................ 35 Vice President
Patricia P. Bentley........................ 42 Vice President
Preston B. Bradford........................ 40 Vice President
Steven B. Chanin........................... 28 Vice President
Christopher R. Davey....................... 32 Vice President
Anthony S. Jules........................... 28 Vice President
Craig P. Kauffman.......................... 36 Vice President
Mark P. Lobene............................. 42 Vice President
Michael B. Stankus......................... 38 Vice President
Desmond P. Varady.......................... 31 Vice President
R. Stephen Cheheyl(1)(2)................... 50 Director
Darius W. Gaskins, Jr.(1)(2)............... 57 Director
Bruce D. Parker (1)(2)..................... 48 Director
Carl S. Sloane (1)(2)...................... 59 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Greenberg co-founded the Company in 1991 and has served as co-Chairman
of the Board of Directors and co-Chief Executive Officer and as a director since
the Company's inception.
Mr. Moore co-founded the Company in 1991 and has served as co-Chairman of
the Board of Directors and co-Chief Executive Officer and as a director since
the Company's inception.
Mr. Desai joined the Company in September 1991 and has served as Executive
Vice President since September 1994. Mr. Desai is responsible for the management
of the Company's metropolitan New York office. From September 1990 to September
1991, Mr. Desai was a senior consultant at JYACC, Inc., a client/server software
tools company.
Ms. Johnson joined the Company as Chief Financial Officer in February 1994.
From April 1991 to February 1994, Ms. Johnson was employed by Bitstream, Inc., a
software company, where she served in various finance positions prior to
becoming Chief Financial Officer. Prior to joining Bitstream, from June 1987 to
April 1991, Ms. Johnson was a senior accountant at Arthur Andersen & Company, an
international accounting firm.
Mr. Abel joined Sapient in September 1992 and became a Vice President in
January 1996. Mr. Abel is based in the metropolitan New York office and is
responsible for client relations and the delivery of projects. From June 1992
until September 1992, he was in the technical marketing group at Software
Emancipation Technology, a developer of software tools. From June 1987 until May
1992, Mr. Abel was a senior software engineer at Alliant Computer Systems Corp.
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Ms. Bentley joined the Company in June 1992 and became a Vice President in
April 1995. Ms. Bentley is based in the metropolitan New York office and is
responsible for client relations and the delivery of projects. Ms. Bentley is
also a doctoral candidate in Science, Technology and Society at the
Massachusetts Institute of Technology ("MIT"). Prior to joining the Company, Ms.
Bentley was pursuing her doctoral studies at MIT on a full-time basis.
Mr. Bradford joined the Company in September 1994 and became a Vice
President in April 1995. Mr. Bradford is based in the Company's Cambridge office
and is responsible for client relations and the delivery of projects. From March
1992 to September 1994, Mr. Bradford was Director of Sales Compensation and
Corporate Marketing with Sprint Communications, Inc., a telecommunications
company, and from July 1988 until February 1992, Mr. Bradford was a Regional
Sales Director at Sprint.
Mr. Chanin joined Sapient in January 1992 and became a Vice President in
April 1995. Mr. Chanin is based in the Company's metropolitan New York office
and is responsible for client relations and the delivery of projects. From
January 1991 until January 1992, Mr. Chanin was a member of the technology staff
of Oracle Corporation, a computer software development company.
Mr. Davey joined the Company in February 1993 and became a Vice President
in September 1994. Mr. Davey is responsible for new business development in
several key vertical markets as well as corporate marketing. From June 1992
until February 1993, Mr. Davey served as a Regional Sales Director with Aurum
Software, Inc., a computer software development company. From October 1990 until
June 1992, Mr. Davey was a Regional Sales Manager with Pansophic Systems, an
applications software firm.
Mr. Jules joined Sapient in June 1992 and became a Vice President in
September 1994. Mr. Jules is responsible for the management of the Company's San
Francisco office. Prior to joining Sapient, Mr. Jules was enrolled in a Ph.D.
program at MIT.
Mr. Kauffmann joined the Company in May 1995 and became a Vice President in
June 1996. Mr. Kauffman is based in the Company's Cambridge office and is
responsible for client relations and the delivery of projects. From 1985 to May
1995, Mr. Kauffman was a principal at CSC Consulting and Systems Integration, a
division of Computer Sciences Corporation, a software development company,
focusing in their manufacturing, distribution and retail practices.
Mr. Lobene joined the Company in February 1996 and became a Vice President
in May 1996. Mr. Lobene is based in the metropolitan New York office and is
responsible for new business development and sales administration in financial
services and insurance, as well as for international opportunities. From 1988
until joining the Company, Mr. Lobene held various business development and
sales positions at Teknekron Software Systems, Inc. of Palo Alto (now TIBCO), a
systems integrator, most recently as Senior Director of Business Development.
Mr. Stankus joined Sapient in March 1995 and became a Vice President in
January 1996. Mr. Stankus is responsible for new business development in several
key vertical markets as well as sales administration. From August 1989 until
March 1995, Mr. Stankus was a member of the sales management group of
CompuServe, Inc., a computer information service and networking services
provider ("CompuServe"), most recently as Manager of Strategic Projects.
Mr. Varady joined the Company in October 1993 and became a Vice President
in September 1994. Mr. Varady is based in the Company's Cambridge office and is
responsible for client relations and the delivery of projects. From February
1993 until October 1993, Mr. Varady served as an assistant Vice President for
Citicorp, a multinational banking organization. From October 1990 until February
1993, Mr. Varady was an account manager with CompuServe.
Mr. Cheheyl has been a director of the Company since January 1996. Mr.
Cheheyl has been acting Chief Financial Officer of Nets Inc., a provider of
business-to-business electronic commerce services, since September 1996. From
October 1994 until he retired on December 31, 1995,
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Mr. Cheheyl served as Executive Vice President, Business Operations of Bay
Networks, Inc., a manufacturer of computer networking products, which was formed
through the merger of Wellfleet Communications, Inc. ("Wellfleet") and Synoptics
Communications, Inc. From December 1990 to October 1994, Mr. Cheheyl served as
Senior Vice President, Finance and Administration of Wellfleet. Mr. Cheheyl is
also a director of Auspex Systems, Inc., ON Technology Corporation and Software
2000, Inc.
Mr. Gaskins has been a director of the Company since September 1995. Mr.
Gaskins is a founding partner of Carlisle, Fagan, Gaskins & Wise, Inc., a
management consulting firm, which was formed in May 1993. Since June 1991, Mr.
Gaskins has also been a partner of High Street Associates, Inc., which owns and
manages specialty chemical companies. From June 1989 until June 1991, Mr.
Gaskins was a visiting professor at the Center for Business and Government at
the John F. Kennedy School of Government. Previously, he served as President and
Chief Executive Officer of Burlington Northern Railroad and as Chairman of the
Interstate Commerce Commission. Mr. Gaskins is also a director of Anacomp Inc.,
UNR Industries, Inc. and Northwestern Steel and Wire Company.
Mr. Parker has been a director of the Company since September 1995. Mr.
Parker has been Senior Vice President -- Management Information Systems and
Chief Information Officer at Ryder System, Inc., a transportation company, since
September 1994. From April 1993 to September 1994, Mr. Parker served as a Vice
President of American Airlines, Inc. and as President of its Sabre Development
Services Division. Mr. Parker served as Vice President of Sabre Computer
Services Division from 1988 until April 1993 and as Managing Director of
Customer Services for Sabre Computer Services Division from 1987 to 1988.
Mr. Sloane has been a director of the Company since September 1995. Mr.
Sloane is the Ernest L. Arbuckle Professor of Business Administration at Harvard
University's Graduate School of Business Administration, where he has been a
member of the faculty since September 1991. Previously, he served as Chairman
and Chief Executive Officer of Temple, Barker and Sloane, Inc., a management
consulting firm, and its successor corporation, Mercer Management Consulting,
Inc. Mr. Sloane is also a director of Ionics, Inc.
The Board of Directors is divided into three classes, each of whose members
serves for a staggered three-year term. The Board is comprised of two Class I
Directors (Messrs. Greenberg and Parker), two Class II Directors (Messrs. Moore
and Gaskins), and two Class III Directors (Messrs. Sloane and Cheheyl). At each
annual meeting of stockholders, a class of directors will be elected for a
three-year term to succeed the directors of the same class whose terms are then
expiring. The terms of the initial Class I Directors, Class II Directors and
Class III Directors will expire upon the election and qualification of successor
directors at the annual meeting of stockholders held following the end of
calendar years 1996, 1997 and 1998, respectively.
Executive officers of the Company are appointed by the Board of Directors
on an annual basis and serve until their successors have been duly elected and
qualified. There are no family relationships among any of the executive officers
or directors of the Company.
DIRECTOR COMPENSATION
Directors of the Company are reimbursed for expenses incurred in connection
with their attendance at Board and committee meetings. Directors receive no
other cash compensation for serving as directors.
On January 10, 1996, each of the Company's four non-employee directors was
granted a stock option under the Company's 1992 Stock Plan to acquire 5,000
shares of Common Stock at an exercise price of $8.00 per share, which the Board
determined to be the fair market value of the Common Stock on such date. Such
options vest in four equal annual installments starting on the first anniversary
of the date of grant.
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In February 1996, the Company adopted the 1996 Director Stock Option Plan
(the "Director Plan"), pursuant to which each non-employee director elected to
the Board of Directors in the future will be granted an option, upon his or her
initial election as a director, to purchase 5,000 shares of Common Stock. All
options granted under the Director Plan will have an exercise price equal to the
fair market value of the Common Stock on the date of grant, will vest over a
four period, provided the optionholder continues to serve as a director of the
Company, and will expire ten years from the date of grant (subject to earlier
termination in the event the optionee ceases to serve as a director of the
Company). The total number of shares of Common Stock that may be issued under
the Director Plan is 30,000 shares.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth certain information with respect to the
compensation for the year ended December 31, 1995 of the Company's co-Chairmen
of the Board of Directors and co-Chief Executive Officers and for the one other
person who served as an executive officer of the Company during the year ended
December 31, 1995 whose cash compensation exceeded $100,000 (the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(2) COMPENSATION(3)
- ------------------------------------------------------ --------- ----------- ---------------
<S> <C> <C> <C>
Jerry A. Greenberg.................................... $50,000 $ 110,500 $ 0
Co-Chairman of the Board of
Directors; Co-Chief Executive Officer
J. Stuart Moore....................................... 50,000 110,500 0
Co-Chairman of the Board of
Directors; Co-Chief Executive Officer
Sheeroy D. Desai...................................... 50,000 80,750 1,250
Executive Vice President
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), other compensation in the form of perquisites and other
personal benefits has been omitted because such perquisites and other
personal benefits constituted less than the lesser of $50,000 or ten percent
of the total annual salary and bonus for the Named Executive Officer for
such year.
(2) Represents payments made or to be made under the Company's 1995 Executive
Bonus Program for services rendered by the Named Executive Officer in 1995.
(3) Represents the Company's matching contribution under the Company's 401(k)
Plan.
All of the Company's executive officers have executed agreements which
prohibit them from competing with the Company for a period of 12 months
following termination of their employment with the Company.
31
<PAGE> 33
OPTION GRANTS, EXERCISES AND YEAR-END OPTION VALUES
The Company did not grant any stock options to the Named Executive Officers
in 1995. The following table sets forth certain information concerning each
exercise of a stock option during the year ended December 31, 1995 by each of
the Named Executive Officers and the number and value of unexercised options
held by each of the Named Executive Officers on December 31, 1995.
AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1995(#) DECEMBER 31, 1995($)(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jerry A. Greenberg(2)... -- -- -- -- -- --
J. Stuart Moore(2)...... -- -- -- -- -- --
Sheeroy D. Desai........ 35,000 $ 113,950 62,500 114,000 $ 481,055 $ 790,350
</TABLE>
- ---------------
(1) Calculated by determining the difference between the deemed fair market
value per share of the securities underlying the options on December 31,
1995 ($8.00) and the exercise price.
(2) Messrs. Greenberg and Moore do not participate in the Company's 1992 Stock
Plan. The Company has never issued any stock appreciation rights.
BENEFIT PLANS
1992 STOCK PLAN. As of September 30, 1996, 1,273,415 shares were subject
to outstanding stock options or awards granted under the Company's 1992 Stock
Plan (the "1992 Stock Plan"). The outstanding stock options generally become
exercisable over a four-year period, are nontransferable, and expire six years
after the date of grant (subject to earlier termination in the event of the
termination of the optionee's employment or other relationship with the
Company). No further stock awards will be granted under the 1992 Stock Plan.
1996 EQUITY STOCK INCENTIVE PLAN. The Company's 1996 Equity Stock
Incentive Plan (the "1996 Stock Plan") permits the Company to grant options to
purchase Common Stock, to make awards of restricted Common Stock, and to issue
certain other equity-related securities of the Company to employees and
directors of and consultants to the Company. The total number of shares of
Common Stock which may be issued under the 1996 Stock Plan is 2,400,000 shares.
The maximum number of shares which may be issued to any individual under the
1996 Stock Plan is 250,000 per year. As of September 30, 1996, 157,900 shares
were subject to outstanding stock options granted under the 1996 Stock Plan.
Stock options entitle the optionee to purchase Common Stock from the Company for
a specified exercise price during a period specified in the applicable option
agreement. Restricted stock awards entitle the recipient to purchase or
otherwise receive Common Stock from the Company under terms which provide for
vesting over a period of time and forfeiture of the unvested portion of the
Common Stock subject to the award upon the termination of the recipient's
employment or other relationship with the Company. The 1996 Stock Plan is
administered by the Compensation Committee of the Board of Directors, which
selects the persons to whom stock awards are granted and determines the number
of shares of Common Stock covered by the award, its exercise or purchase price,
its vesting schedule and (in the case of stock options) its expiration date.
Stock options granted under the 1996 Stock Plan will be nontransferable, and it
is expected that they will generally become exercisable over a four-year period
and expire ten years after the date of grant (subject to earlier termination in
the event of the termination of the optionee's employment or other relationship
with the Company).
1996 EMPLOYEE STOCK PURCHASE PLAN. The Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") authorizes the issuance of up to a total of
150,000 shares of Common Stock
32
<PAGE> 34
to participating employees through a series of six semiannual offerings, which
commence on each July 1 and January 1. The first such offering commenced on July
1, 1996. The maximum number of shares available in each offering is 25,000
shares, plus any unpurchased shares available from previous offerings. Any
employee of the Company or a participating subsidiary is eligible to participate
in an offering if he or she is regularly employed by the Company or the
subsidiary for at least 20 hours a week and for more than five months in a
calendar year on the first day of the applicable offering. The price at which
employees may purchase Common Stock in an offering is 85% of the closing price
of the Common Stock on the Nasdaq National Market on the day the offering
commences or on the day the offering terminates, whichever is lower. An employee
may elect to have up to 10% of his or her qualifying compensation withheld for
the purpose of purchasing stock under the Purchase Plan. If the total number of
shares of Common Stock that would otherwise be purchased in the offering with
accumulated payroll deductions exceeds the number of shares available during the
offering, the available shares will be allocated on a pro rata basis to
participating employees.
CASH BONUS PROGRAM
All executive officers and key employees of the Company are eligible to
receive bonus compensation under the Company's Executive Bonus Program. Bonus
compensation payments under this bonus program are based primarily on client
satisfaction and other key metrics determined by the Board of Directors. Bonus
payments under the Executive Bonus Program totaled approximately $570,000 in
1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee during the year ended
December 31, 1995 and compensation decisions during 1995 were made by the
Company's co-Chairmen of the Board of Directors and co-Chief Executive Officers.
In February 1996, the Board of Directors voted to establish a Compensation
Committee consisting of the four non-employee members of the Board.
CERTAIN TRANSACTIONS
The Company has adopted a policy that all material transactions between the
Company and its executive officers, directors and other affiliates must (i) be
approved by a majority of the members of the Company's Board of Directors and by
a majority of the disinterested members of the Company's Board of Directors and
(ii) be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties. In addition, the policy requires that any loans by
the Company to its executive officers, directors or other affiliates be for bona
fide business purposes only.
33
<PAGE> 35
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of August 31, 1996 and as
adjusted to reflect the sale of the shares in the offering by (i) each person or
entity known to the Company to beneficially own more than five percent of the
Company's Common Stock, (ii) each of the Company's directors, (iii) each of the
Named Executive Officers, (iv) all directors and executive officers of the
Company as a group and (v) each Selling Stockholder.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK TO BE
BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE SALE UNDER AFTER SALE UNDER
THIS PROSPECTUS(1) THIS PROSPECTUS(1)
---------------------- SHARES TO BE ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENTAGE SOLD NUMBER PERCENTAGE
- ------------------------------------- --------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Jerry A. Greenberg(2)................ 3,834,000 35.0% 250,000 3,584,000 31.3%
J. Stuart Moore(2)(3)................ 3,787,750 34.6% 250,000 3,537,750 30.9%
Sheeroy D. Desai(4).................. 214,250 2.0% 0 214,250 1.9%
R. Stephen Cheheyl................... 1,300 * 0 1,300 *
Darius W. Gaskins, Jr. .............. 1,300 * 0 1,300 *
Bruce D. Parker...................... 1,300 * 0 1,300 *
Carl S. Sloane....................... 1,300 * 0 1,300 *
Douglas J. Abel(5)................... 85,250 * 5,000 80,250 *
Patricia P. Bentley(6)............... 100,000 * 7,000 93,000 *
Anthony S. Jules(7).................. 125,000 1.1% 8,000 117,000 1.0%
Michael F. Oates(8).................. 150,000 1.4% 15,000 135,000 1.2%
Michael D. Odell(9).................. 96,250 * 5,000 91,250 *
All directors and executive officers
as a group (8 persons)(10)......... 7,847,600 71.6% 500,000 7,347,600 64.1%
</TABLE>
- ---------------
* Less than 1%
(1) Each stockholder possesses sole voting and investment power with respect to
the shares listed, except as otherwise noted. Includes, with respect to
each person, shares issuable to such person within the 60-day period
following August 31, 1996 pursuant to the exercise of options.
(2) These shares were issued to Messrs. Greenberg and Moore in connection with
their founding of the Company. The address for each of Messrs. Greenberg
and Moore is c/o Sapient Corporation, One Memorial Drive, Cambridge,
Massachusetts 02142.
(3) Includes 270,000 shares held by the J. Stuart Moore Gift Trust of 1995;
280,509 shares held by the J. Stuart Moore Two Year Qualified Annuity
Trust; 988,930 shares held by the J. Stuart Moore Eight Year Qualified
Annuity Trust; 13,333 shares held by the J. Stuart Moore Remainder Trust;
4,000 shares held by the J. Stuart Moore Irrevocable Trust; and 595,238
shares pledged as collateral for a loan.
(4) Includes 19,000 shares issuable pursuant to the exercise of options.
(5) Includes 37,000 shares issuable pursuant to the exercise of options.
(6) Includes 42,500 shares issuable pursuant to the exercise of options.
(7) Includes 90,700 shares issuable pursuant to the exercise of options.
(8) Includes 62,050 shares issuable pursuant to the exercise of options. Mr.
Oates is an employee of the Company.
(9) Includes 15,000 shares issuable pursuant to the exercise of options. Mr.
Odell is an employee of the Company.
(10) Includes 21,500 shares issuable pursuant to the exercise of options.
34
<PAGE> 36
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares
of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, par value $.01 per share.
COMMON STOCK
As of September 30, 1996, there were issued and outstanding an aggregate of
10,945,635 shares of Common Stock held of record by 171 stockholders.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the outstanding shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor, subject to the preferential dividend rights
of any outstanding Preferred Stock. Upon the liquidation, dissolution or
winding-up of the Company, holders of Common Stock are entitled to receive
ratably the net assets of the Company available for distribution after the
payment of all debts and other liabilities of the Company and subject to the
prior rights of any outstanding Preferred Stock. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are, and the shares offered hereby will be, when issued
and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of holders of shares of any series of Preferred Stock
that the Company may designate and issue in the future.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by law, without further stockholder approval, to issue from time to time up to
an aggregate of 5,000,000 shares of Preferred Stock, in one or more series. Each
such series of Preferred Stock shall have such number of shares, designations,
preferences, voting powers, qualifications and special or relative rights or
privileges as shall be determined by the Board of Directors, which may include,
among others, dividend rights, voting rights, redemption and sinking fund
provisions, liquidation preferences, conversion rights and preemptive rights.
The stockholders of the Company have granted the Board of Directors
authority to issue the Preferred Stock and to determine its rights and
preferences in order to eliminate delays associated with a stockholder vote on
specific issuances. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, a majority
of the outstanding voting stock of the Company. No shares of Preferred Stock are
issued or outstanding and the Company has no present plans to issue any shares
of Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Restated Certificate of Incorporation and Restated Bylaws provide for
the division of the Board of Directors into three classes as nearly equal in
size as possible with staggered three-year terms. See "Management". In addition,
the Restated Certificate of Incorporation and Restated
35
<PAGE> 37
Bylaws provide that directors may be removed only for cause by the affirmative
vote of the holders of two-thirds of the shares of capital stock of the Company
entitled to vote. Under the Restated Certificate of Incorporation and the
Restated Bylaws, any vacancy on the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, may only be
filled by vote of a majority of the directors then in office. The classification
of the Board of Directors and the limitations on the removal of directors and
filling of vacancies could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, control
of the Company.
The Restated Certificate of Incorporation and the Restated Bylaws also
provide that any action required or permitted to be taken by the stockholders of
the Company at an annual meeting or special meeting of stockholders may only be
taken if it is properly brought before such meeting and may not be taken by
written action in lieu of a meeting. The Restated Certificate of Incorporation
and the Restated Bylaws further provide that special meetings of the
stockholders may only be called by a Chairman of the Board of Directors, a Chief
Executive Officer or, if none, a President of the Company or by the Board of
Directors. Under the Company's Restated Bylaws, in order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply with
certain requirements regarding advance notice to the Company. The foregoing
provisions could have the effect of delaying until the next stockholders'
meeting stockholder actions which are favored by the holders of a majority of
the outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the Common
Stock, because such person or entity, even if it acquired a majority of the
outstanding voting securities of the Company, would be able to take action as a
stockholder (such as electing new directors or approving a merger) only at a
duly called stockholders' meeting, and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's Certificate of Incorporation or Bylaws, unless
a corporation's Certificate or Incorporation or Bylaws, as the case may be,
require a greater percentage. The Company's Restated Certificate of
Incorporation and the Restated Bylaws require the affirmative vote of the
holders of at least 75% of the shares of capital stock of the Company issued and
outstanding and entitled to vote to amend or repeal any of the provisions
described in the prior two paragraphs.
The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability to the
Company or its stockholders for monetary damages for a breach of fiduciary duty,
except in circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. The Restated Certificate of
Incorporation also contains provisions obligating the Company to indemnify its
officers and directors to the fullest extent permitted by the General
Corporation Law of Delaware. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hale and Dorr, Boston, Massachusetts, and for the
Underwriters by Ropes & Gray, Boston, Massachusetts.
36
<PAGE> 38
EXPERTS
The Financial Statements of the Company as of December 31, 1994 and 1995
and for each of the years in the two-year period ended December 31, 1995, have
been included herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent auditors, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The Financial Statements of the Company for the year ended December 31,
1993 appearing in this Prospectus and in the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and, in accordance therewith, files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information may be inspected and copied at the public reference room of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549, and at the public reference facilities at the Commission's Regional
Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may be obtained at prescribed rates by writing to the
Commission, Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549. In addition, the Company is required to file electronic
versions of these documents with the Commission through the Commission's
Electronic Data Gathering, Analysis and Retrieval (EDGAR) System. The Commission
maintains a World Wide Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The Company's Common Stock is
listed on the Nasdaq National Market and material filed by the Company may also
be inspected at the offices of the National Association of Securities Dealers,
Inc., Reports Section, 1735 K Street, N.W. , Washington, DC 20006.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement, including exhibits, schedules and
reports filed therewith. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Registration
Statement including the exhibits and schedules thereto, may be inspected without
charge and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Regional Offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
37
<PAGE> 39
SAPIENT CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Reports.......................................................... F-2
Balance Sheets......................................................................... F-4
Statements of Income................................................................... F-5
Statements of Stockholders' Equity..................................................... F-6
Statements of Cash Flows............................................................... F-7
Notes to Financial Statements.......................................................... F-8
</TABLE>
F-1
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Sapient Corporation:
We have audited the accompanying balance sheets of Sapient Corporation as
of December 31, 1994 and 1995, and the related statements of income,
stockholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sapient Corporation as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 9, 1996
F-2
<PAGE> 41
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sapient Corporation
We have audited the accompanying statements of income, stockholders'
equity, and cash flows of Sapient Corporation for the year ended December 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of Sapient Corporation's operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
May 6, 1994
F-3
<PAGE> 42
SAPIENT CORPORATION
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents...................... $2,655,599 $ 378,019 $29,280,852
Short-term investments......................... -- -- 3,015,120
Accounts receivable, less allowance for
doubtful accounts of $100,000 in 1994 and
$150,000 in 1995 and 1996................... 2,770,523 7,357,003 11,798,785
Unbilled revenues on contracts................. 18,088 2,282,011 4,834,502
Income tax receivable.......................... -- 479,892 --
Prepaid expenses and other current assets...... 93,984 129,792 457,106
---------- ----------- ----------
Total current assets................... 5,538,194 10,626,717 49,386,365
Property and equipment, net...................... 775,559 1,349,616 2,042,603
Other assets..................................... 35,310 110,011 61,088
---------- ----------- ----------
Total assets........................... $6,349,063 $12,086,344 $51,490,056
========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.............. $ 78,709 $ 55,994 --
Accounts payable............................... 326,398 489,481 252,597
Accrued expenses............................... 739,393 973,673 1,445,964
Accrued compensation........................... 369,000 862,131 1,832,927
Income taxes payable........................... 1,132,548 -- --
Deferred income taxes.......................... 75,698 2,081,348 773,710
Deferred revenues on contracts................. 1,167,797 2,374,805 2,706,639
---------- ----------- ----------
Total current liabilities.............. 3,889,543 6,837,432 7,011,837
Deferred income taxes............................ -- -- 1,560,000
Other liabilities................................ 109,475 37,421 573,661
---------- ----------- ----------
Total liabilities...................... 3,999,018 6,874,853 9,145,498
---------- ----------- ----------
Stockholders' equity:
Preferred stock, par value $.01 per share,
none authorized or outstanding at December
31, 1994 and 1995; 5,000,000 shares
authorized, none outstanding at September
30, 1996.................................... --
Common stock, par value $.01 per share, voting,
5,000,000 shares authorized and issued at
December 31, 1994 and 1995; 40,000,000
shares authorized and 10,945,635 shares
issued at September 30, 1996................ 50,000 50,000 109,456
Common stock, par value $.01 per share, non-
voting, 5,200,000 shares authorized,
3,548,425 shares issued in 1994 and
3,831,730 shares issued in 1995; none
authorized or outstanding at September 30,
1996........................................ 35,484 38,317
Additional paid-in capital..................... 57,351 110,683 32,649,373
Retained earnings.............................. 2,257,210 5,087,491 9,610,729
Notes receivable from stockholders............. (50,000) (75,000) (25,000)
---------- ----------- ----------
Total stockholders' equity............. 2,350,045 5,211,491 42,344,558
---------- ----------- ----------
Total liabilities and stockholders'
equity............................... $6,349,063 $12,086,344 $51,490,056
========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 43
SAPIENT CORPORATION
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $4,887,849 $9,372,708 $21,929,576 $14,089,657 $31,128,409
Operating expenses:
Project personnel costs............. 1,669,987 4,310,354 10,083,500 6,613,873 14,699,577
Selling and marketing............... 89,313 268,158 1,095,446 630,877 1,520,114
General and administrative.......... 1,437,204 2,727,388 5,966,620 3,909,047 8,126,689
---------- ---------- ----------- ----------- -----------
Total operating expenses..... 3,196,504 7,305,900 17,145,566 11,153,797 24,346,380
Income from operations.......... 1,691,345 2,066,808 4,784,010 2,935,860 6,782,029
Interest (expense) income........... (298) 9,117 10,071 28,626 625,788
---------- ---------- ----------- ----------- -----------
Income before income taxes...... 1,691,047 2,075,925 4,794,081 2,964,486 7,407,817
Income taxes.......................... 690,575 851,129 1,963,800 1,213,903 2,884,579
---------- ---------- ----------- ----------- -----------
Net income................... $1,000,472 $1,224,796 $ 2,830,281 $ 1,750,583 $ 4,523,238
========== ========== =========== =========== ===========
Net income per share.................. $ .10 $ .12 $ .28 $ .17 $ .40
========== ========== =========== =========== ===========
Weighted average common shares
and equivalents..................... 9,791,954 10,115,493 10,256,966 10,280,748 11,445,636
========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 44
SAPIENT CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VOTING NON-VOTING NOTES
COMMON STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
-------------------- -------------------- PAID-IN RETAINED FROM STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDERS EQUITY
---------- -------- ----------- ------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................. 5,000,000 $ 50,000 3,135,000 $31,350 $ 32,450 $ 31,942 -- $ 145,742
Exercised stock
options............ -- -- 107,500 1,075 2,150 -- -- 3,225
Net income........... -- -- -- -- -- 1,000,472 -- 1,000,472
--------- ------- --------- ------- -------- -------- ---------- ----------
Balance at December 31,
1993................. 5,000,000 50,000 3,242,500 32,425 34,600 1,032,414 -- 1,149,439
Notes receivable from
stockholders....... -- -- -- -- -- -- $(50,000) (50,000)
Exercised stock
options............ -- -- 305,925 3,059 22,751 -- -- 25,810
Net income........... -- -- -- -- -- 1,224,796 -- 1,224,796
--------- ------- --------- ------- -------- -------- ---------- ----------
Balance at December 31,
1994................. 5,000,000 50,000 3,548,425 35,484 57,351 2,257,210 (50,000) 2,350,045
--------- ------- --------- ------- -------- -------- ---------- ----------
Notes receivable from
stockholders....... -- -- -- -- -- -- (25,000) (25,000)
Exercised stock
options............ -- -- 283,305 2,833 53,332 -- -- 56,165
Net income........... -- -- -- -- -- 2,830,281 -- 2,830,281
--------- ------- --------- ------- -------- -------- ---------- ----------
Balance at December 31,
1995................. 5,000,000 50,000 3,831,730 38,317 110,683 5,087,491 (75,000) 5,211,491
--------- ------- --------- ------- -------- -------- ---------- ----------
Notes repaid by
stockholders....... -- -- -- -- -- -- 50,000 50,000
Exercised stock
options............ 418,905 4,189 -- -- 152,290 -- -- 156,479
Proceeds from public
offering........... 1,695,000 16,950 -- -- 32,386,400 -- -- 32,403,350
Conversion of
nonvoting shares to
voting shares...... 3,831,730 38,317 (3,831,730) (38,317) -- -- -- --
Net income........... -- -- -- -- -- 4,523,238 -- 4,523,238
--------- ------- --------- ------- -------- -------- ---------- ----------
Balance at September
30, 1996
(unaudited).......... 10,945,635 $109,456 -- -- $32,649,373 $9,610,729 $(25,000) $42,344,558
========= ======= ========= ======= ======== ======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 45
SAPIENT CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 1,000,472 $ 1,224,796 $ 2,830,281 $ 1,750,583 $ 4,523,238
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 17,185 223,333 512,201 330,458 700,979
Deferred income taxes................... 500,000 (454,302) 2,005,650 107,001 (1,307,638 )
Provision for doubtful accounts......... 24,000 76,000 50,000 50,000 --
Changes in assets and liabilities:
Increase in accounts receivable....... (1,406,027) (1,375,900) (4,636,480) (2,569,086) (4,441,782)
Decrease (increase) in unbilled
revenues on contracts............... (166,470) 461,156 (2,263,923) (2,265,999) (2,552,491)
Decrease (increase) in advances to
employees........................... (250,000) 244,165 (40,586) (20,960) (24,317)
(Increase) decrease in income tax
receivable.......................... -- -- (479,892) -- 479,892
(Increase) decrease in prepaid
expenses and other current assets... (66,110) (22,039) 4,778 (520,432) (302,997)
(Increase) decrease in other assets... (12,475) (20,310) (74,701) -- 48,923
Increase (decrease) in accounts
payable............................. 46,455 25,732 163,083 (242,753) (236,884)
Increase in accrued expenses.......... 223,732 739,393 234,280 781,878 472,291
Increase in accrued compensation...... 18,847 369,000 493,131 432,108 970,796
Increase (decrease) in income taxes
payable............................. 136,747 992,548 (1,132,548) -- --
Increase in non-current deferred
income taxes........................ -- -- -- -- 1,560,000
Increase (decrease) in deferred
revenue on contracts................ -- 895,524 1,207,008 (765,469) 331,834
Increase (decrease) in other
liabilities......................... 82,172 (33,717) (48,455) (18,055) 573,661
----------- ----------- ----------- ----------- ----------
Net cash provided by (used in)
operating activities.............. 148,528 3,345,379 (1,176,173) (2,950,726) 795,505
----------- ----------- ----------- ----------- ----------
Cash flows from investing activities:
Purchase of property and equipment........ (131,227) (853,081) (1,086,259) (754,006) (1,393,966)
Purchase of short-term investments........ -- -- -- -- (3,015,120 )
----------- ----------- ----------- ----------- ----------
Net cash used for investing
activities........................ (131,227) (853,081) (1,086,259) (754,006) (4,409,086)
----------- ----------- ----------- ----------- ----------
Cash flows from financing activities:
Decrease (increase) in notes receivable
from
stockholders............................ 42,837 (50,000) (25,000) -- 50,000
Exercise of stock options................. 3,225 25,810 56,166 11,496 156,479
Proceeds from note payable to bank........ 31,184 123,800 -- 1,169,281 --
Proceeds from note payable to related
parties................................. 7,200 -- -- -- --
Proceeds from public offering............. -- -- -- -- 32,403,350
Principal payments on notes payable to
related parties......................... (15,666) (19,718) (15,651) (131,644) --
Principal payments on notes payable to
bank.................................... (7,209) (57,907) (30,663) -- (93,415)
----------- ----------- ----------- ----------- ----------
Net cash provided by (used in)
financing activities.............. 61,571 21,985 (15,148) 1,049,133 32,516,414
----------- ----------- ----------- ----------- ----------
Increase (decrease) in cash and cash
equivalents............................... 78,872 2,514,283 (2,277,580) (2,655,599) 28,902,833
Cash and cash equivalents, at beginning of
period.................................... 62,444 141,316 2,655,599 2,655,599 378,019
----------- ----------- ----------- ----------- ----------
Cash and cash equivalents, at end of
period.................................... $ 141,316 $ 2,655,599 $ 378,019 -- $29,280,852
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 46
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
(1) NATURE OF BUSINESS
Sapient Corporation ("Sapient" or the "Company") designs, develops,
integrates and implements information technology applications and solutions for
large organizations. The Company develops client/server and Internet-enabled
client/server software applications designed to help organizations improve their
processes and performance.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalent balances consist of deposits and repurchase agreements with a large
U.S. commercial bank and tax exempt short-term municipal bonds.
(b) Short-term Investments
Short-term investments are available-for-sale securities, which are
recorded at fair market value. The difference between fair market value and cost
is not material. Realized gains and losses from sales of available-for-sale
securities were not material for any period presented.
(c) Property and Equipment
Property and equipment are stated at cost, net of accumulated amortization
and depreciation. Depreciation and amortization are computed using the straight
line and accelerated method over the estimated useful lives of the related
assets which range from three to seven years. Leasehold improvements are
amortized over the lesser of the estimated useful lives of the assets or the
lease term.
(d) Revenue Recognition
Revenues pursuant to fixed fee contracts are generally recognized as
services are rendered on the percentage-of-completion method of accounting
(based on the ratio of costs incurred to total estimated costs). Fixed fee
contracts entered into before design is completed are accounted for by deferring
profit until reasonable estimates of total contract costs can be made. Revenues
from maintenance agreements are recognized ratably over the terms of the
agreements.
Provisions for estimated losses on uncompleted contracts are made on a
contract by contract basis and are recognized in the period in which such losses
are determined. Unbilled revenues on contracts is comprised of earnings on
certain contracts in excess of contractual billings on such contracts. Billings
in excess of earnings are classified as deferred revenues.
(e) Income Taxes
The Company records income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-8
<PAGE> 47
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
(f) Net Income Per Share
Net income per share is computed using the weighted average number of
shares of common stock outstanding and dilutive common equivalent shares from
stock options using the treasury stock method. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, such computations include all
common and common equivalent shares issued within twelve months of the initial
public offering ("IPO") as if they were outstanding for all periods presented
using the treasury stock method and the IPO price. Fully diluted and primary
earnings per share are the same for all periods presented.
(g) Concentration of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral on accounts receivable. The Company
maintains allowances for potential credit losses and such losses have been
within management's expectations. Write-offs of accounts receivable have not
been material for any of the periods presented. The Company operates in one
industry segment and its customers are headquartered primarily in North America.
The fair market values of cash, cash equivalents, accounts receivable and
debt instruments approximate their carrying amounts.
(h) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(i) Accounting for Impairment of Long-Lived Assets
In accordance with Financial Accounting Standards Board Statement No. 121,
the Company records impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount.
(j) Research and Development Costs
Research and development expenditures are charged to operations as
incurred. To date, substantially all research and development activities of the
Company have been pursuant to customer contracts and, accordingly, have been
expensed as a cost of the projects.
(k) Stock-Based Compensation
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 ("SFAS 123"), which establishes a fair value based method of
accounting for stock-based compensation plans. SFAS 123 allows companies to
retain the current approach set forth in APB Opinion No. 25 "Accounting for
Stock Issued to Employees" for recognizing stock-based expense
F-9
<PAGE> 48
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
in the basic financial statements. Companies that do not follow the new fair
value based method are required to provide pro-forma disclosures of net income
and earnings per share as if they had adopted the fair value accounting method.
The Company has elected to continue to account for employee stock options under
APB Opinion No. 25 and will provide the required expanded disclosures in the
footnotes to its December 31, 1996 Financial Statements.
(l) Interim Financial Information
The financial statements as of and for the nine months ended September 30,
1995 and 1996 are unaudited; however, they include all adjustments (consisting
of normal recurring adjustments) considered necessary by management for a fair
presentation of the financial position and results of operations for these
periods. The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the entire year.
(3) PROPERTY AND EQUIPMENT
The cost and accumulated depreciation of property and equipment at December
31, 1994 and 1995 and September 30, 1996 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements.................... $ 226,309 $ 453,425 $ 517,870
Furniture and fixtures.................... 137,429 240,447 358,844
Office equipment.......................... 227,015 437,191 662,554
Computer equipment........................ 393,817 939,766 1,925,527
Equipment under capital lease............. 31,507 31,507 31,507
---------- ---------- -----------
1,016,077 2,102,336 3,496,302
Less accumulated depreciation and
amortization......................... (240,518) (752,720) (1,453,699)
---------- ---------- -----------
Property and equipment, net............... $ 775,559 $1,349,616 $ 2,042,603
========== ========== ===========
</TABLE>
(4) BANK LOANS
The Company has a $5,000,000 (as amended in February 1996) revolving loan
facility with a bank expiring in June 1997. Borrowings under this agreement are
secured by the Company's accounts receivable and bear interest at the bank's
prime rate. The Company had no borrowings under this facility as of December 31,
1994 and 1995 or September 30, 1996. The facility contains various financial
covenants, and a covenant which prohibits the Company from paying cash dividends
without the bank's consent.
The Company has fixed asset term loans at December 31, 1994 and 1995. All
term loans are payable in thirty-six monthly installments and bear interest at
the bank's prime rate plus 2%. The fixed asset term notes are secured by the
equipment purchased. The Company paid off all term loans subsequent to year end.
Interest paid on all loans in 1993, 1994 and 1995 was $5,535, $10,264 and
$27,414, respectively.
F-10
<PAGE> 49
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
(5) INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ---------- ----------
<S> <C> <C> <C>
Federal, current............................. $140,000 $ 971,096 $ (44,019)
State, current............................... 50,575 333,335 2,169
-------- ---------- ----------
190,575 1,304,431 (41,850)
-------- ---------- ----------
Federal, deferred............................ 380,000 (330,302) 1,551,412
State, deferred.............................. 120,000 (123,000) 454,238
-------- ---------- ----------
500,000 (453,302) 2,005,650
-------- ---------- ----------
Income tax expense........................... $690,575 $ 851,129 $1,963,800
======== ========== ==========
</TABLE>
Income tax expense for the years ended December 31, 1993, 1994 and 1995
differed from the amounts computed by applying the U.S. statutory tax rate of
34% to pre-tax income as a result of the following:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate..................................... 34.0% 34.0% 34.0%
State income taxes, net of federal benefit.................... 6.3 6.9 6.3
Effect of federal and state tax credits and net operating loss
carryforwards............................................... (.8) -- --
Other, net.................................................... 1.3 .1 .7
---- ---- ----
Effective income tax rate..................................... 40.8% 41.0% 41.0%
==== ==== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities used for financial
reporting purposes and the amounts used for income tax purposes. The temporary
differences for the Company relate to the difference in accounting method used
for financial statement reporting purposes (accrual method) and that used for
tax purposes (cash method). The Company had the following net deferred tax
liabilities as of December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
------- ----------
<S> <C> <C>
Net deferred tax liabilities:
Tax (cash) over book (accrual) accounting method.......... $75,698 $2,081,348
------- ----------
Total net deferred tax liabilities................ $75,698 $2,081,348
======= ==========
</TABLE>
Upon its IPO the Company's recorded deferred tax liability began to be
recognized for income tax return purposes over a four year period.
Total taxes paid in 1993, 1994 and 1995 were $76,000, $225,500 and
$731,700, respectively.
(6) COMMITMENTS AND CONTINGENCIES
The Company maintains its executive office in Massachusetts and operating
offices in metropolitan New York and San Francisco. The office leases begin to
expire in 1999. The Company also leases office equipment under various operating
leases. Future minimum rental commitments under
F-11
<PAGE> 50
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
all noncancelable operating leases with initial or remaining terms in excess of
one year are as follows at December 31, 1995:
<TABLE>
<CAPTION>
OPERATING
YEAR LEASES
---- -----------
<S> <C>
1996.................................................. $ 2,001,123
1997.................................................. 2,663,832
1998.................................................. 2,825,911
1999.................................................. 2,171,450
2000.................................................. 1,052,851
-----------
$10,715,167
===========
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 was
$79,700, $501,000 and $1,300,414, respectively.
The Company has issued letters of credit with a bank in the amount of
$675,000, as security deposits for certain of the Company's lease commitments.
The Company has certain contingent liabilities that arise in the ordinary
course of its business activities. The Company accrues liabilities when it is
probable that future costs will be incurred and such costs can be reasonably
estimated.
The Company is in litigation with a former employee who alleges breach of
certain contractual and other violations resulting from his termination as an
employee. Management denies that it breached any obligations or duties to this
former employee, and believes that the Company has meritorious defenses. In
August 1996, the Company's motion to compel arbitration of these claims was
allowed. The Company plans to vigorously contest these claims. Although the
Company does not expect the claims to have a material adverse effect on the
Company's business, results of operations or financial condition, an adverse
judgment or settlement could have a material adverse effect on the operating
results reported by the Company for the period in which any such adverse
judgment or settlement occurs.
(7) SIGNIFICANT CUSTOMERS
Four customers accounted for 31%, 30%, 17% and 15%, respectively, of total
revenues in 1993. Three customers accounted for 45%, 17% and 12%, respectively
of total revenues in 1994 and 61% of accounts receivable at December 31, 1994.
Three customers accounted for 16%, 16% and 13%, respectively of total revenues
in 1995 and 26% of accounts receivable at December 31, 1995. Two customers
accounted for 27% and 16%, respectively of total revenues in the first nine
months of 1996 and 18% of accounts receivable at September 30, 1996.
(8) EQUITY INCENTIVE PLANS
(a) 1992 Stock Option Plan
During 1992, the Company approved the 1992 Stock Plan (the "1992 Plan") for
its employees. The 1992 Plan provided for the Board of Directors to grant stock
options, stock purchase authorizations and stock bonus awards for non-voting
common stock up to an aggregate of 2,500,000 shares of nonvoting common stock.
Since consummation of its initial public offering, no further grants or awards
may be made pursuant to the 1992 Stock Plan (but previously outstanding awards
remain outstanding but are now exercisable for voting common stock).
F-12
<PAGE> 51
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
Certain of the stock options granted under the 1992 Plan qualify as
Incentive Stock Options ("ISO") under Section 422 of the Internal Revenue Code.
The price at which shares may be purchased with an option shall be specified by
the Board at the date the option is granted, but in the case of an incentive
stock option, shall not be less than the fair market value on the date of grant.
The duration of any option shall be specified by the Board, but no option
designated as an ISO may be exercised beyond ten years from the date of grant.
The outstanding stock options generally become exercisable over a four-year
period, are nontransferable, and expire six years after the date of grant
(subject to earlier termination in the event of the termination of the
optionee's employment or other relationship with the Company).
(b) 1996 Equity Stock Incentive Plan
The Company's 1996 Equity Stock Incentive Plan (the "1996 Stock Plan")
authorizes the Company to grant options to purchase common stock, to make awards
of restricted common stock, and to issue certain other equity-related securities
of the Company to employees and directors of and consultants to the Company. The
total number of shares of common stock which may be issued under the 1996 Stock
Plan is 2,400,000 shares. The 1996 Stock Plan is administered by the
Compensation Committee of the Board of Directors, which selects the persons to
whom stock options and restricted stock awards are granted and determines the
number of shares, the exercise or purchase prices, the vesting terms and the
expiration date. Non-qualified stock options may be granted at exercise prices
which are above, equal to or below the fair market value of the Common Stock.
The exercise price of shares of Common Stock subject to options qualifying as
incentive stock options or intended to qualify as performance-based compensation
under Section 162(m) of the Internal Revenue Code of 1986, as amended, may not
be less than the fair market value of the Common Stock on the date of the grant.
It is expected that stock options granted under the 1996 Stock Plan will be
nontransferable, and they will generally become exercisable over a four-year
period and expire ten years after the date of grant (subject to earlier
termination in the event of the termination of the optionee's employment with
the Company).
(c) 1996 Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan")
authorizes the issuance of up to 150,000 shares of common stock to participating
employees through a series of semi-annual offerings. The maximum number of
shares available in each offering is 25,000 shares (plus any unpurchased shares
available from previous offerings). An employee becomes eligible to participate
in the Purchase Plan when he or she is regularly employed by the Company for at
least 20 hours a week and for more than five months in a calendar year on the
first day of the applicable offering. The price at which employees may purchase
common stock in an offering is 85% of the closing price of the common stock on
the Nasdaq National Market on the day the offering commences or on the day the
offering terminates, whichever is lower. The first offering under the Purchase
Plan commenced on July 1, 1996 and is scheduled to be completed on December 31,
1996.
(d) 1996 Directors Stock Option Plan
The Company's 1996 Directors Stock Option Plan (the "Directors Plan")
authorizes the issuance of 30,000 shares of common stock. Each non-employee
director elected to the Board of Directors after the adoption of the Directors
Plan will, upon his or her election, automatically be granted an option to
purchase 5,000 shares of common stock at an exercise price equal to fair
F-13
<PAGE> 52
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
market value on the date of grant. Options pursuant to the Directors Plan vest
in four equal annual installments commencing on the first anniversary of the
date of grant and generally expire ten years after the date of grant. As of
September 30, 1996, no options had been granted under the Directors Plan.
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1993 1994 1995 1996
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
Outstanding options
at beginning of
period............ 230,000 1,374,000 1,426,125 1,508,295
Granted............. 1,251,500 412,700 438,950 428,150
Exercised........... (107,500) (305,925) (279,305) (420,330)
Cancelled........... -- (54,650) (77,475) (84,800)
----------- ----------- ----------- ------------
Outstanding options
at end of
period............ 1,374,000 1,426,125 1,508,295 1,431,315
=========== =========== =========== ============
Price range of
options granted... $.03 - $1.00 $1.00 - $2.50 $3.00 - $8.00 $8.00 - $51.25
=========== =========== =========== ============
Price range of
options
exercised......... $.03 $.03 - $1.00 $.03 - $2.50 $.03 - $21.00
=========== =========== =========== ============
Price range of
outstanding
options........... $.03 - $1.00 $.03 - $2.50 $.03 - $8.00 $.03 - $51.25
=========== =========== =========== ============
</TABLE>
At December 31, 1995, 163,975 shares were available for grant and options
representing 464,465 shares were exercisable.
(9) RETIREMENT PLAN
The Company established a retirement savings plan for employees in June
1994. Under the provisions of the plan, the Company matches 25% of an employee's
contribution, up to a maximum of $1,250 per employee per year. Total Company
contributions in 1994 and 1995 were $18,700 and $94,200, respectively.
(10) INITIAL PUBLIC OFFERING
On February 13, 1996, the Company's Board of Directors authorized
management of the Company to file a registration statement with the Securities
and Exchange Commission permitting the Company to sell shares of its common
stock to the public in an IPO. The offering which closed on April 10, 1996,
resulted in the issuance of 1,695,000 shares of Common Stock. Proceeds to the
Company net of underwriting discounts and costs of the offering were
approximately $32.4 million.
(11) CAPITAL STOCK
(a) Increase in Authorized Common Stock; Conversion of Non-Voting Common
Stock
On February 13, 1996, the Company's Board of Directors authorized an
increase in the authorized number of shares of voting common stock to 30,000,000
and non-voting common stock to 10,000,000 and provided that, upon the closing of
an IPO, (i) all shares of non-voting common stock then outstanding will be
converted automatically into an equal number of shares of voting
F-14
<PAGE> 53
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
common stock and (ii) the authorized capitalization of the Company will consist
of 40,000,000 shares of common stock and 5,000,000 shares of preferred stock.
(b) Preferred Stock
On February 13, 1996, the Board of Directors authorized an amendment to the
Company's Certificate of Incorporation giving the Board the authority to issue
up to 5,000,000 shares, $.01 par value, of preferred stock with terms to be
established by the Board at the time of issuance.
F-15
<PAGE> 54
UNDERWRITING
<TABLE>
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs
& Co. and Morgan Stanley & Co. Incorporated are acting as representatives, has
severally agreed to purchase from the Company and the Selling Stockholders, the
respective number of shares of Common Stock set forth opposite its name below:
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
----------- ---------
<S> <C>
Goldman, Sachs & Co......................................................
Morgan Stanley & Co. Incorporated........................................
---------
Total.................................................................. 1,040,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the public offering price set forth on the cover page
of this Prospectus, and in part to certain securities dealers at such price less
a concession of $ per share. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain brokers
and dealers. After the shares of Common Stock are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to 156,000 additional shares of
Common Stock, solely to cover over-allotments, if any. If the Underwriters
exercise their over-allotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them, as shown in
the foregoing table, bears to the 1,040,000 shares of Common Stock offered.
The Company has agreed during the period beginning from the date of this
Prospectus and continuing to and including the date 180 days after the date of
the Prospectus, not to offer, sell, contract to sell or otherwise dispose of any
securities of the Company (other than pursuant to stock plans existing, or on
the conversion or exchange of convertible or exchangeable securities
outstanding, on the date of this Prospectus, or as otherwise described in this
Prospectus) which are substantially similar to the shares of Common Stock or
which are convertible or exchangeable into securities which are substantially
similar to the shares of Common Stock, without the prior written consent of the
representatives, except for the shares of Common Stock offered by the Company in
connection with the offering.
The Company's executive officers and directors and certain other holders of
Common Stock (including the Selling Stockholders) who will hold in the aggregate
8,200,050 shares of Common Stock following this offering, have agreed not to
offer, sell, contract to sell, grant any option to purchase or otherwise dispose
of or agree to dispose of any shares of Common Stock or substantially similar
securities owned beneficially by them for 90 days after the date of this
Prospectus, other than up to 100,000 shares in the aggregate by certain
stockholders who are not Selling Stockholders. In addition, Messrs. Greenberg
and Moore, who will hold 7,121,750 of such
U-1
<PAGE> 55
8,200,050 shares, have agreed to the above described holdback for an additional
90 day period. Of the 8,200,050 shares of Common Stock subject to the holdback
agreements, 620,238 such shares have been pledged to financial institutions as
collateral for loans. None of the financial institutions to which such shares
have been pledged have agreed to any limitations on their ability to offer,
sell, contract to sell or otherwise dispose of such shares following the
occurrence of an event of default as defined in the loan agreements with any of
such stockholders.
In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Common Stock during the "cooling off" period immediately
preceding the commencement of sales in the offering. The Commission has,
however, adopted exemptions from these rules that permit passive market making
under certain conditions. These rules permit an underwriter to continue to make
a market subject to the conditions, among others, that its bid not exceed the
highest bid by a market maker not connected with the offering and that its net
purchases on any one trading day not exceed prescribed limits. Pursuant to these
exemptions, certain Underwriters, selling group members (if any) or their
respective affiliates may engage in passive market making in the Common Stock
during the cooling off period.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
U-2
<PAGE> 56
- ----------------------------------------------------------
- ----------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 5
Use of Proceeds.......................... 10
Dividend Policy.......................... 10
Market Price of Common Stock............. 10
Capitalization........................... 11
Selected Financial Data.................. 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 13
Business................................. 18
Management............................... 28
Principal and Selling Stockholders....... 34
Description of Capital Stock............. 35
Legal Matters............................ 36
Experts.................................. 37
Available Information.................... 37
Index to Financial Statements............ F-1
Underwriting............................. U-1
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
1,040,000 SHARES
SAPIENT CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
LOGO
------------------------
GOLDMAN, SACHS & CO.
MORGAN STANLEY & CO.
INCORPORATED
REPRESENTATIVES OF THE UNDERWRITERS
----------------------------------------------------------
----------------------------------------------------------
<PAGE> 57
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee and the NASD filing
fee. All of these fees are being paid by the Company.
<TABLE>
<S> <C>
SEC Registration Fee..................................................... $ 16,703
NASD Filing Fee.......................................................... 5,344
NNM Additional Listing Fee............................................... 10,000
Blue Sky Fees and Expenses............................................... 15,000
Transfer Agent and Registrar Fees........................................ 12,000
Accounting Fees and Expenses............................................. 55,000
Legal Fees and Expenses.................................................. 125,000
Printing, Engraving and Mailing Expenses................................. 150,000
Miscellaneous............................................................ 10,953
--------
Total.......................................................... $400,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Article EIGHTH of the Registrant's Amended and Restated Certificate of
Incorporation provides that a director or officer of the Registrant (a) shall be
indemnified by the Registrant against all expenses (including attorney's fees),
judgments, fines and amounts paid in settlement reasonably incurred in
connection with any litigation or other legal proceeding (other than an action
by or in the right of the Registrant) brought against him by virtue of his
position as a director or officer if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, and (b) shall be
indemnified by the Registrant against expenses (including attorney's fees) and
amounts paid in settlement reasonably incurred in connection with any action by
or in the right of the Registrant by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Registrant, except that no indemnification shall be made with respect to any
such matter as to which such director or officer shall have been adjudged to be
liable to the Registrant, unless and only to the extent that a court determines
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper. Notwithstanding the foregoing, to the extent
that a director or officer has been successful, on the merits or otherwise, he
shall be indemnified against all expenses (including attorney's fees) reasonably
II-1
<PAGE> 58
incurred by him in connection therewith. Expenses incurred in defending a civil
or criminal action, suit or proceeding shall be advanced by the Registrant to a
director or officer, at his request, upon receipt of an undertaking by the
director or officer to repay such amount if it is ultimately determined that he
is not entitled to indemnification.
Indemnification is required to be made unless the Registrant determines (in
the manner provided in its Amended and Restated Certificate of Incorporation)
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition a court to make an independent determination as to whether
such person is entitled to indemnification. As a condition precedent to the
right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article EIGHTH of the Registrant's Amended and Restated Certificate of
Incorporation further provides that the indemnification provided therein is not
exclusive, and provides that in the event that the General Corporation Law of
Delaware is amended to expand the indemnification permitted to officers and
directors, the Registrant must indemnify those persons to the fullest extent
permitted by such law as so amended.
Article SEVENTH of the Registrant's Amended and Restated Certificate of
Incorporation provides that, except to the extent that the General Corporation
Law of Delaware prohibits the elimination of liability of directors for breaches
of fiduciary duty, no director of the Registrant shall be personally liable to
the Registrant or its stockholders for monetary damages for any breach of
fiduciary duty as a director.
Under the Underwriting Agreement, the Underwriters are obligated, under
certain circumstances, to indemnify directors and officers of the Registrant
against certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). Reference is made to the form of
Underwriting Agreement filed as Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1993, the Registrant has sold the following securities
that were not registered under the Securities Act. The Registrant has issued and
sold a total of 814,015 shares of Common Stock (including shares of Non-Voting
Common Stock issued prior to the closing of its initial public offering) to 80
employees and consultants of the Company pursuant to the exercise of stock
options or stock awards. Upon the closing of the Company's initial public
offering, all outstanding shares of Non-Voting Common Stock were converted into
shares of Common Stock. The aggregate consideration paid upon the exercise of
the underlying options was approximately $157,460. These shares were offered and
issued in reliance upon the exemptions from registration set forth in Section
4(2), Section 3(a)(9) or Section 3(b) of the Securities Act and Rule 701 under
the Securities Act.
No underwriters were engaged in connection with any of the foregoing sales
of securities.
II-2
<PAGE> 59
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<C> <S> <C>
1 -- Form of Underwriting Agreement.
*3.1 -- Amended and Restated Certificate of Incorporation.
*3.2 -- Amended and Restated Bylaws.
*4.1 -- Specimen Certificate for Shares of Common Stock, $.01 par value, of the
Registrant.
5 -- Opinion of Hale and Dorr with respect to the validity of the securities being
offered.
*10.1 -- Lease between the Registrant and One Memorial Drive Limited Partnership, dated
March 30, 1994, as amended December 5, 1995, for offices at One Memorial Drive,
Cambridge, Massachusetts.
*10.2 -- Lease between the Registrant and S.P.N.W. Management Associates Limited
Partnership, dated November 2, 1995, for offices at 10 Exchange Place, Jersey
City, New Jersey.
*10.3 -- Lease between the Registrant and The Prudential Insurance Company of America,
dated July 17, 1995, for offices at 580 California Street, San Francisco,
California.
*10.4 -- 1992 Stock Plan.
*10.5 -- 1996 Equity Stock Incentive Plan.
*10.6 -- 1996 Director Stock Option Plan.
*10.7 -- Executive Bonus Plan.
*10.8 -- Revolving Loan Facility with Fleet Bank of Massachusetts, N.A., dated July 11,
1994, as amended July 1, 1995 and February 15, 1996.
**10.9 -- Standard Form Employment Agreement between the Registrant and its Employees.
**11 -- Calculation of shares used in determining earnings per share.
**21 -- List of subsidiaries.
23.1 -- Consent of Hale and Dorr (included in Exhibit 5).
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of Ernst & Young LLP.
**24.1 -- Powers of Attorney (included on the signature pages hereto).
</TABLE>
- ---------------
* Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 (File No. 333-1586).
** Previously filed.
(b) Financial Statement Schedules
All schedules have been omitted because they are not required or because
the required information is given in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation and Amended and Restated Bylaws of the Registrant
and the laws of the State of Delaware, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
II-3
<PAGE> 60
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Cambridge, Commonwealth of Massachusetts, on this 8th day of October, 1996.
SAPIENT CORPORATION
By: /s/ JERRY A. GREENBERG
------------------------------------
Name: Jerry A. Greenberg
Title: Co-Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------- ----------------
<C> <S> <C>
/s/ JERRY A. GREENBERG Co-Chief Executive Officer and October 8, 1996
- ------------------------------------- Director (Principal Executive
Jerry A. Greenberg Officer)
* Co-Chief Executive Officer and October 8, 1996
- ------------------------------------- Director (Principal Executive
J. Stuart Moore Officer)
* Chief Financial Officer (Principal October 8, 1996
- ------------------------------------- Financial and Accounting Officer)
Susan D. Johnson
* Director October 8, 1996
- -------------------------------------
Carl S. Sloane
* Director October 8, 1996
- -------------------------------------
Darius W. Gaskins, Jr.
* Director October 8, 1996
- -------------------------------------
Bruce D. Parker
* Director October 8, 1996
- -------------------------------------
R. Stephen Cheheyl
</TABLE>
*By: /s/ DEBORAH ENGLAND GRAY
----------------------------
Attorney-in-Fact
II-5
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------- ----
<C> <S> <C> <C>
1 -- Form of Underwriting Agreement. ..........................................
*3.1 -- Amended and Restated Certificate of Incorporation. .......................
*3.2 -- Amended and Restated Bylaws. .............................................
*4.1 -- Specimen Certificate for Shares of Common Stock, $.01 par value, of the
Registrant. ..............................................................
5 -- Opinion of Hale and Dorr with respect to the validity of the securities
being offered. ...........................................................
*10.1 -- Lease between the Registrant and One Memorial Drive Limited Partnership,
dated March 30, 1994, as amended December 5, 1995, for offices at One
Memorial Drive, Cambridge, Massachusetts. ................................
*10.2 -- Lease between the Registrant and S.P.N.W. Management Associates Limited
Partnership, dated November 2, 1995, for offices at 10 Exchange Place,
Jersey City, New Jersey. .................................................
*10.3 -- Lease between the Registrant and The Prudential Insurance Company of
America, dated July 17, 1995, for offices at 580 California Street, San
Francisco, California. ...................................................
*10.4 -- 1992 Stock Plan. .........................................................
*10.5 -- 1996 Equity Stock Incentive Plan. ........................................
*10.6 -- 1996 Director Stock Option Plan. .........................................
*10.7 -- Executive Bonus Plan. ....................................................
*10.8 -- Revolving Loan Facility with Fleet Bank of Massachusetts, N.A., dated July
11, 1994, as amended July 1, 1995 and February 15, 1996. .................
**10.9 -- Standard Form Employment Agreement between the Registrant and its
Employees. ...............................................................
**11 -- Calculation of shares used in determining earnings per share. ............
**21 -- List of subsidiaries. ....................................................
23.1 -- Consent of Hale and Dorr (included in Exhibit 5). ........................
23.2 -- Consent of KPMG Peat Marwick LLP. ........................................
23.3 -- Consent of Ernst & Young LLP. ............................................
**24.1 -- Powers of Attorney (included on the signature pages hereto). .............
</TABLE>
- ---------------
* Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 (File No. 333-1586).
** Previously filed.
<PAGE> 1
SAPIENT CORPORATION
COMMON STOCK
($.01 PAR VALUE PER SHARE)
-------------------------------------
UNDERWRITING AGREEMENT
----------------------
, 1996.
Goldman, Sachs & Co.,
Morgan Stanley & Co. Incorporated
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Sapient Corporation, a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of 500,000 shares and, at the election of the Underwriters, up to 156,000
additional shares of Common Stock, $.01 par value per share ("Stock") of the
Company, and the stockholders of the Company named in Schedule II hereto (the
"Selling Stockholders") propose, subject to the terms and conditions stated
herein, to sell to the Underwriters an aggregate of 540,000 shares. The
aggregate of 1,040,000 shares to be sold by the Company and the Selling
Stockholders is herein called the "Firm Shares" and the aggregate of 156,000
additional shares to be sold by the Company is herein called the "Optional
Shares". The Firm Shares and the Optional Shares that the Underwriters elect to
purchase pursuant to Section 2 hereof are herein collectively called the
"Shares".
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-12671) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the
Initial Registration Statement including any pre-effective amendment
thereto and any post-effective amendment thereto, each in the form
heretofore
1
<PAGE> 2
delivered to you, and, excluding exhibits thereto, to you for each of the
other Underwriters, have been declared effective by the Commission in such
form; other than a registration statement, if any, increasing the size of
the offering (a "Rule 462(b) Registration Statement"), filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended (the "Act"),
which became (or will become) effective upon filing, no other document
with respect to the Initial Registration Statement (including any
pre-effective amendment thereto) has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of the Initial
Registration Statement (including any pre-effective amendment thereto),
any post-effective amendment thereto or the Rule 462(b) Registration
Statement, if any, has been issued and no proceeding for that purpose has
been initiated or, to the knowledge of the Company, threatened by the
Commission (any preliminary prospectus included in the Initial
Registration Statement (including any pre-effective amendment thereto) or
filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act, is hereinafter called a
"Preliminary Prospectus"); the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including
all exhibits thereto and including the information contained in the form
of final prospectus filed with the Commission pursuant to Rule 424(b)
under the Act in accordance with Section 5(a) hereof and deemed by virtue
of Rule 430A under the Act to be part of the Initial Registration
Statement at the time it was declared effective or the Rule 462(b)
Registration Statement, if any, at the time it became or hereafter becomes
effective, each as amended at the time such part of the registration
statement became effective, are hereinafter collectively called the
"Registration Statement"; and such final prospectus, in the form first
filed pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus";
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder
expressly for use in the preparation of the answers therein to Items 7 and
11(I) of Form S-1;
(iii) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the
Company by an Underwriter through Goldman, Sachs & Co. expressly for use
2
<PAGE> 3
therein or by a Selling Stockholder expressly for use in the preparation
of the answers therein to Items 7 and 11(I) of Form S-1;
(iv) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Prospectus;
and, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change
in the capital stock (other than as a result of the exercise of stock
options outstanding as of such dates) or long-term debt of the Company or
any of its subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, otherwise than
as set forth or contemplated in the Prospectus;
(v) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; and any real property and
buildings held under lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases with such exceptions
as are not material and do not materially interfere with the use made and
proposed to be made of such property and buildings by the Company and its
subsidiaries;
(vi) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified in any such jurisdiction; and each subsidiary of the Company
has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation;
(vii) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description of the Stock contained in
the Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and (except for directors'
qualifying shares) are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims;
(viii) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued and fully paid and non-
3
<PAGE> 4
assessable and will conform in all material respects to the description of
the Stock contained in the Prospectus;
(ix) The issue and sale of the Shares to be sold by the Company and
the compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor will such
action result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or body
is required for the issue and sale of the Shares or the consummation by
the Company of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters or under the rules of the
National Association of Securities Dealers, Inc.;
(x) Neither the Company nor any of its subsidiaries (a) is in
violation of its Certificate of Incorporation or By-laws, or (b) other
than any defaults that singly or in the aggregate will not have a material
adverse effect on the financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, is in default in the
performance or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party
or by which it or any of its properties may be bound;
(xi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock and under the captions "Underwriting"
and "Management - - Benefit Plans," insofar as they purport to describe
the provisions of the laws and documents referred to therein, are accurate
descriptions of such terms and provisions in all material respects;
(xii) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
reasonably be expected to have a material adverse effect on the current or
future consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(xiii) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms
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<PAGE> 5
are defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
(xiv) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes;
(xv) Peat Marwick L.L.P., who have certified certain financial
statements of the Company and its subsidiaries, and Ernst & Young, L.L.P.,
who have certified certain financial statements of the Company and its
subsidiaries are each independent public accountants as required by the
Act and the rules and regulations of the Commission thereunder;
(xvi) The Company and its subsidiaries have sufficient interests in
all patents, trademarks, service marks, trade names, copyrights, trade
secrets, information, proprietary rights and processes ("Intellectual
Property") necessary for their business as now conducted and as proposed
to be conducted without, to the knowledge of the Company, any conflict
with or infringement of the interests of others and have taken reasonable
steps to secure from third parties interests in such Intellectual Property
as is necessary for their business as described in the Prospectus; neither
the Company nor any of its subsidiaries is aware of outstanding options,
licenses or agreements of any kind relating to the Intellectual Property,
except as set forth in the written agreements pursuant to which the
Company provides its services to its clients and except such as would not
have a material adverse effect on the financial position, stockholders'
equity or results of operations of the Company and its subsidiaries, and
neither the Company nor its subsidiaries is a party to or bound by any
options, licenses or agreements with respect to the Intellectual Property
of any other person or entity; none of the technology employed by the
Company or its subsidiaries has been obtained or is being used by the
Company or its subsidiaries in violation of any contractual or fiduciary
obligation binding on the Company, its subsidiaries or any of their
respective directors or executive officers or, to the Company's knowledge,
any of their respective employees or consultants or otherwise in violation
of the rights of any person; none of the Company, its subsidiaries and, to
the Company's knowledge, any of its employees has received any written or,
to the Company's knowledge, oral communications alleging that the Company
or any of its subsidiaries has violated or, by conducting its business as
proposed, would violate any of the Intellectual Property of any other
person or entity; neither the execution nor delivery of this Agreement,
nor the operation of the Company's business by the employees of the
Company or its subsidiaries, nor the conduct of the Company's business as
proposed, will, to the Company's knowledge, result in a breach or
violation of the terms, conditions or provisions of, or constitute a
default under, any material contract, covenant or instrument under which
any of such employees is now obligated; and the Company and its
subsidiaries have taken and will maintain reasonable measures to prevent
the unauthorized dissemination or publication of its confidential
information or the confidential information of third parties in its
possession; and
(xvii) The Company has filed all reports it has been required to file
under the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder (the "Exchange Act"); such
reports when filed conformed in all material respects to the requirements
of the Exchange Act; and none of such reports contained an untrue
statement of
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<PAGE> 6
a material fact or omitted to state a material fact required to be stated
therein to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(b) Each of the Selling Stockholders severally represents and warrants to,
and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Stockholder of this Agreement
and the Power of Attorney and the Custody Agreement hereinafter referred
to, and for the sale and delivery of the Shares to be sold by such Selling
Stockholder hereunder, have been obtained; and such Selling Stockholder
has full right, power and authority to enter into this Agreement, the
Power-of-Attorney and the Custody Agreement and to sell, assign, transfer
and deliver the Shares to be sold by such Selling Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of the
provisions of this Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder is bound or to which any of the property or
assets of such Selling Stockholder is subject, nor will such action result
in any violation of the provisions of or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over such Selling Stockholder or the property of such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to the First
Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder
will have, good and valid title to the Shares to be sold by such Selling
Stockholder hereunder, free and clear of all liens, encumbrances, equities
or claims; and, upon delivery of such Shares and payment therefor pursuant
hereto, good and valid title to such Shares, free and clear of all liens,
encumbrances, equities or claims, will pass to each of the several
Underwriters that has purchased such shares in good faith and without
notice of any lien, encumbrance, equity or law or any other adverse claim
within the meaning of the Uniform Commercial Code ;
(iv) During the period beginning from the date hereof and continuing
to and including the date 90 days, and in the case of Messrs. Greenberg
and Moore only, 180 days, after the date of the Prospectus, not to offer,
sell contract to sell or otherwise dispose of, except as provided
hereunder, any securities of the Company that are substantially similar to
the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities, without your
prior written consent;
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause
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<PAGE> 7
or result in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in
conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein, such Preliminary Prospectus
and the Registration Statement did, and the Prospectus and any further
amendments or supplements to the Registration Statement and the
Prospectus, when they become effective or are filed with the Commission,
as the case may be, will conform in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or at
the First Time of Delivery (as hereinafter defined) a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof);
(viii) Certificates in negotiable form representing all of the Shares
to be sold by such Selling Stockholder hereunder have been placed in
custody under a Custody Agreement, in the form heretofore furnished to
you (the "Custody Agreement"), duly executed and delivered by such
Selling Stockholder to the Company, as custodian (the "Custodian"), and
such Selling Stockholder has duly executed and delivered a Power of
Attorney, in the form heretofore furnished to you (the "Power of
Attorney"), appointing the persons indicated in Schedule II hereto, and
each of them, as such Selling Stockholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this Agreement
on behalf of such Selling Stockholder, to determine the purchase price to
be paid by the Underwriters to the Selling Stockholders as provided in
Section 2 hereof, to authorize the delivery of the Shares to be sold by
such Selling Stockholder hereunder and otherwise to act on behalf of such
Selling Stockholder in connection with the transactions contemplated by
this Agreement and the Custody Agreement; and
(ix) The Shares represented by the certificates held in custody for
such Selling Stockholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder; the arrangements made by such
Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable; the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death or
incapacity of any individual Selling Stockholder or, in the case of an
estate or trust, by the death or incapacity of any executor or trustee or
the termination of such estate or trust, or by the occurrence of any other
event; if any individual Selling Stockholder or any such executor or
trustee should die or become incapacitated, or if any such estate or trust
should be terminated, or if any other such event should occur, before the
delivery of the Shares hereunder, certificates representing the Shares
shall be delivered by or on behalf of the Selling Stockholders in
accordance with the terms and conditions of this Agreement
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<PAGE> 8
and of the Custody Agreements; and actions taken by the Attorneys-in-Fact
pursuant to the Powers of Attorney shall be as valid as if such death,
incapacity, termination, or other event had not occurred, regardless of
whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall
have received notice of such death, incapacity, termination, dissolution
or other event.
2. Subject to the terms and conditions herein set forth, (a) the Company and
each of the Selling Stockholders agree, severally and not jointly, to sell to
each of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from each of the Company and the Selling Stockholders, at a
purchase price per share of $..........., the number of Firm Shares (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
the aggregate number of Firm Shares to be sold by the Company and each of the
Selling Stockholders as set forth opposite their respective names in Schedule II
hereto by a fraction, the numerator of which is the aggregate number of Firm
Shares to be purchased by such Underwriter as set forth opposite the name of
such Underwriter in Schedule I hereto and the denominator of which is the
aggregate number of Firm Shares to be purchased by all of the Underwriters from
the Company and all of the Selling Stockholders hereunder and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at the purchase price per share set forth in clause
(a) of this Section 2, that portion of the number of Optional Shares as to which
such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of Optional
Shares by a fraction the numerator of which is the maximum number of Optional
Shares which such Underwriter is entitled to purchase as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the maximum number of Optional Shares that all of the Underwriters are entitled
to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 156,000. Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
over-allotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement and
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders shall be delivered by or on
behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co.,
through the facilities of the Depository Trust Company, for the account of such
Underwriter, against payment by or on behalf of such Underwriter of the purchase
price therefor by certified or official bank check or checks, payable to the
order of the Company and the Custodian, as their interests may appear, in
federal (same day) funds. The Company will cause the certificates representing
the Shares to be made available for
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<PAGE> 9
checking and packaging at least twenty-four hours prior to the Time of Delivery
(as defined below) with respect thereto at the office of Goldman, Sachs & Co.,
85 Broad Street, New York, New York 10004 (the "Designated Office"). The time
and date of such delivery and payment shall be, with respect to the Firm Shares,
9:30 a.m., New York time, on ............., 1996 or such other time and date as
Goldman, Sachs & Co., the Company and the Selling Stockholders may agree upon in
writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on
the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co., and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be delivered at the offices
of Hale and Dorr, 60 State Street, Boston, Massachusetts 02109 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
such Time of Delivery. A meeting will be held at the Closing Location at
.......p.m., New York City time, on the New York Business Day next preceding
such Time of Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 4, "New York Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you promptly after reasonable
notice thereof; to advise you, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been
filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish you with copies thereof;
to advise you, promptly after it receives notice thereof, of the issuance
by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any
such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or prospectus or suspending any such qualification, promptly to
use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may
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<PAGE> 10
request and to comply with such laws so as to permit the continuance of
sales and dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Shares, provided that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in
any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may from time to time reasonably request, and, if
the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time any
events shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not misleading, or, if for
any other reason it shall be necessary during such period to amend or
supplement the Prospectus in order to comply with the Act , to notify you
and upon your request to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as you may
reasonably request of an amended Prospectus or a supplement to the
Prospectus which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Shares at any time nine
months or more after the time of issue of the Prospectus, upon your
request but at the expense of such Underwriter, to prepare and deliver to
such Underwriter as many copies as you may request of an amended or
supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and
the rules and regulations of the Commission thereunder (including, at the
option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder, any securities of the Company that are substantially similar to
the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than
pursuant to stock plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement, or pursuant to other obligations described in the Prospectus),
without your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the end
of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants);
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(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports
and financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its stockholders generally or to the
Commission), provided, however, that this clause shall not obligate the
Company to disclose information that in its sole judgment it considers
confidential;
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under
the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations ("Nasdaq")
National Market; and
(j) If the Company elects to rely upon Rule 462(b), to file a Rule
462(b) Registration Statement with the Commission in compliance with Rule
462(b) by 10:00 p.m., Washington, D.C. time, on the date of this
Agreement, and at the time of filing either to pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or to give
irrevocable instructions for the payment of such fee pursuant to Rule
111(b) under the Act.
6. The Company and each of the Selling Stockholders covenant and agree with
one another and with the several Underwriters that (a) the Company will pay or
cause to be paid the following: (i) the fees, disbursements and expenses of the
Company's counsel and accountants in connection with the registration of the
Shares under the Act and all other expenses in connection with the preparation,
printing and filing of the Registration Statement, any Preliminary Prospectus
and the Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and dealers; (ii) the cost of
printing or producing any Agreement among Underwriters, this Agreement, the Blue
Sky Memorandum, closing documents (including any compilations thereof) and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
5(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey; (iv) all fees and expenses in connection with listing the
Shares on the Nasdaq National Market; (v) the filing fees incident to, and the
fees and disbursements of counsel for the Underwriters in connection with,
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of the sale of the Shares; (vi) the cost of preparing stock
certificates; (vii) the cost and charges of any transfer agent or registrar; and
(viii) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section 6; and (b) each Selling Stockholder will pay or cause to be paid all
costs and expenses incident to the performance of such Selling Stockholder's
obligations hereunder which are not otherwise specifically provided for in this
Section 6, including, to the extent requested by the Company, (i) any fees and
expenses of counsel for such Selling Stockholder, (ii) such Selling
Stockholder's pro rata share of the fees and expenses of the Attorneys-in-Fact
and the Custodian, and (iii) all expenses and taxes incident to the sale and
delivery of the Shares to be sold by
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<PAGE> 12
such Selling Stockholder to the Underwriters hereunder. It is understood,
however, that, except as provided in this Section, and Sections 8 and 11 hereof,
the Underwriters will pay all of their own costs and expenses, including the
fees of their counsel, stock transfer taxes on resale of any of the Shares by
them, and any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and with respect to the First Time of Delivery only, of the Selling
Stockholders herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company and the Selling Stockholders shall have performed
all of its and their obligations hereunder theretofore to be performed, and the
following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such
filing by the rules and regulations under the Act and in accordance with
Section 5(a) hereof; if the Company has elected to rely upon Rule 462(b),
the Rule 462(b) Registration Statement shall have become effective by
10:00 p.m., Washington, D.C. time, on the date of this Agreement; no stop
order suspending the effectiveness of the Registration Statement or any
part thereof shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission; and all
requests for additional information on the part of the Commission shall
have been complied with to your reasonable satisfaction;
(b) Ropes & Gray, counsel for the Underwriters, shall have furnished to
you such opinion or opinions, dated such Time of Delivery, with respect to
the matters covered in paragraphs (i), (ii), (vii), (x) and (xii) of
subsection (c) below as well as such other related matters as you may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon
such matters;
(c) Hale and Dorr, counsel for the Company, shall have furnished to you
their written opinion, dated such Time of Delivery, in substantially the
form previously delivered to your counsel, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and non-assessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws
of each of The Commonwealth of Massachusetts and the states of
California and New Jersey, which are the only jurisdictions in which
the Company maintains a permanent office;
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(iv) Each United States subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation; and all of the
issued shares of capital stock of each such subsidiary have been duly
and validly authorized and issued, are fully paid and non-assessable,
and are directly or indirectly owned of record and, to such counsel's
knowledge, beneficially by the Company, free and clear to such
counsel's knowledge of all liens, encumbrances, equities or claims
(such counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of
fact upon certificates of officers of the Company or its subsidiaries,
provided that such counsel shall state that they believe that both you
and they are justified in relying upon such opinions and certificates
and shall provide to you copies of such opinions and certificates);
(v) The real property under lease by the Company at One Memorial
Drive, Cambridge, Massachusetts is held by the Company under a valid,
subsisting and enforceable lease (except to the extent that the rights
and remedies created thereby may be limited by applicable bankruptcy,
insolvency, reorganization and similar laws affecting rights and
remedies of creditors and that the remedy of specific enforcement is
subject to the discretion of the courts) with such exceptions as to
enforceability as are not material and do not materially interfere
with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries (in giving the opinion
in this clause, such counsel may rely in respect to matters of fact
upon certificates of officers of the Company or its subsidiaries,
provided that such counsel shall state that they believe that both you
and they are justified in relying upon such certificates);
(vi) To such counsel's knowledge and other than as set forth in
the Prospectus, there are no legal or governmental proceedings pending
to which the Company or any of its subsidiaries is a party or of which
any property of the Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate reasonably be
expected to have a material adverse effect on the current or future
consolidated financial position stockholders' equity or results of
operations of the Company and its subsidiaries; and, to such counsel's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others which would
individually or in the aggregate reasonably be expected to have a
material adverse effect on the current or future consolidated
financial position, stockholders' equity or results of operations of
the Company and its subsidiaries;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) The issue and sale of the Shares being delivered at such
Time of Delivery to be sold by the Company and the compliance by the
Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument known
to such counsel to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or
to which any of the
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<PAGE> 14
property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the
Company or any statute or any order specifically applicable to the
Company or its U.S. subsidiaries, rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its U.S. subsidiaries or any
of their respective properties;
(ix) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
is required for the sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares, and such consents,
approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with
the purchase and distribution of the Shares by the Underwriters or
under the rules of the National Association of Securities Dealers,
Inc.;
(x) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute
a summary of the terms of the Stock, and under the captions
"Underwriting" and "Management -- Benefit Plans", insofar as they
purport to describe the provisions of the laws and documents referred
to therein, are accurate descriptions of such terms and provisions in
all material respects;
(xi) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act;
(xii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules and other financial data contained therein, as to
which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act and the rules and
regulations thereunder; although they do not assume any responsibility
for the accuracy, completeness or fairness of the statements contained
in the Registration Statement or the Prospectus, no facts have come to
their attention that have caused them to believe that, as of its
effective date, the Registration Statement or any further amendment
thereto made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules and other financial
data contained therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that, as of its date,
the Prospectus or any further amendment or supplement thereto made by
the Company prior to such Time of Delivery (other than the financial
statements and related schedules and other financial data contained
therein, as to which such counsel need express no opinion) contained
an untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that, as
of such Time of Delivery, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules and other financial data contained
therein, as to which such counsel need express no opinion)
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<PAGE> 15
contains an untrue statement of a material fact or omits to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and
they do not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration Statement or
the Prospectus which are not filed or described as required;
(d) Hale and Dorr, as special counsel for each of the Selling
Stockholders, shall have furnished to you their written opinion with
respect to each of the Selling Stockholders, dated the First Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) A Power-of-Attorney and a Custody Agreement have been duly
executed and delivered by such Selling Stockholder and constitute
valid and binding agreements of such Selling Stockholder in accordance
with their terms;
(ii) This Agreement has been duly executed and delivered by or on
behalf of such Selling Stockholder; and the sale of the Shares to be
sold by such Selling Stockholder hereunder and the compliance by such
Selling Stockholder with all of the provisions of this Agreement, the
Power-of-Attorney and the Custody Agreement and the consummation of
the transactions herein and therein contemplated will not conflict
with or result in a breach or violation of any terms or provisions of,
or constitute a default under, any statute, indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument known to
such counsel to which such Selling Stockholder is a party or by which
such Selling Stockholder is bound or to which any of the property or
assets of such Selling Stockholder is subject, nor will such action
result in any violation of the provisions of or any order specifically
applicable to a Selling Stockholder, rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over such Selling Stockholder or the property of such
Selling Stockholder;
(iii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement in connection with the
Shares to be sold by such Selling Stockholder hereunder, except such
as have been obtained under the Act and such as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of such Shares by the Underwriters;
(iv) Immediately prior to the First Time of Delivery, based on an
examination of the Company's stock record books, such Selling
Stockholder was the sole record holder of the Shares to be sold by
such Selling Stockholder under this Agreement, free and clear of all
liens, encumbrances, equities or claims, and full right, power and
authority to sell, assign, transfer and deliver the Shares to be sold
by such Selling Stockholder hereunder; and
(v) Assuming that the Underwriters are bona fide purchasers
purchasing in good faith without notice of any adverse claim within
the meaning of the Uniform Commercial Code, upon the delivery of and
payment for the Shares to be sold by such Selling Stockholder as
contemplated by this Agreement, each of the Underwriters will acquire
the Shares purchased by it from such Selling Stockholders free of any
adverse claim.
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<PAGE> 16
In rendering such opinion in paragraph (iv), such counsel may rely upon a
certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold by
such Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate;
(e) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time of
Delivery, Peat Marwick L.L.P. shall have furnished to you a letter or
letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annex I hereto;
and Ernst & Young L.L.P. shall have furnished to you a letter or letters,
dated the respective dates of delivery thereof, in form and substance
satisfactory to you, to the effect set forth in Annex II hereto;
(f) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus, and (ii) since the respective dates as of which information is
given in the Prospectus there shall not have been any change in the
capital stock (other than as a result of the exercise of stock options
outstanding as of such dates) or long-term debt of the Company or any of
its subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in Clause (i)
or (ii), is in the judgment of the Representatives so material and adverse
as to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of
Delivery on the terms and in the manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on the Nasdaq
National Market; (ii) a suspension or material limitation in trading in
the Company's securities on the Nasdaq National Market; (iii) a general
moratorium on commercial banking activities declared by either Federal or
New York or Massachusetts state authorities; or (iv) the outbreak or
escalation of hostilities involving the United States or the declaration
by the United States of a national emergency or war, if the effect of any
such event specified in this Clause (iv) in the judgment of the
Representatives makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares being delivered at such Time
of Delivery on the terms and in the manner contemplated in the Prospectus;
(h) The Shares at such Time of Delivery shall have been duly listed
for quotation on the Nasdaq National Market; and
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<PAGE> 17
(i) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each of the stockholders listed on
Schedule III hereto, substantially to the effect set forth in Subsection
1(b)(iv) hereof in form and substance satisfactory to you;
(j) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(k) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, and as to such other
matters as you may reasonably request, and the Company shall have
furnished or caused to be furnished certificates as to the matters set
forth in subsections (a) and (f) of this Section.
(l) The Selling Stockholders shall have furnished or caused to be
furnished to you at such Time of Delivery certificates of the Selling
Stockholders satisfactory to you as to the accuracy of the representations
and warranties of the Selling Stockholders herein at and as of the First
Time of Delivery, as to the performance by the Selling Stockholders of all
of their respective obligations hereunder to be performed at or prior to
the First Time of Delivery, and as to such other matters as you may
reasonably request.
8. (a) The Company and each of the Selling Stockholders, jointly and
severally, will indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company and the Selling Stockholders shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein; provided, further,
however, that each of the Selling Stockholders other than Jerry A. Greenberg and
J. Stuart Moore shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with information
furnished to the Company by any person other than such Selling Stockholder; and
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<PAGE> 18
provided, further, however, that the liability of each Selling Stockholder
pursuant to this Subsection 8(a) shall not exceed the product of the number of
Shares sold by such Selling Stockholder and the initial public offering price of
the Shares as set forth in the Prospectus.
(b) Each Underwriter will indemnify and hold harmless the Company and each
Selling Stockholder against any losses, claims, damages or liabilities to which
the Company or such Selling Stockholder may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Underwriter through Goldman, Sachs & Co. expressly for use therein; and will
reimburse the Company and each Selling Stockholder for any legal or other
expenses reasonably incurred by the Company or such Selling Stockholder in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute
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<PAGE> 19
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other from the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company and the
Selling Stockholders on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company and the
Selling Stockholders bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Selling Stockholders on
the one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, each of the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (d) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), (i) no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission and (ii) the liability
of each Selling Stockholder pursuant to this Subsection 8(d) shall not exceed
the difference between the product of the number of Shares sold by such Selling
Stockholder and the initial public offering price of the Shares as set forth in
the Prospectus and the amount of any indemnification payments made by such
Selling Stockholder pursuant to Subsection 8(a), as the case may be. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this
subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company and the Selling Stockholders under this
Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8
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<PAGE> 20
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company (including any person who, with his or her
consent, is named in the Registration Statement as about to become a director of
the Company) and to each person, if any, who controls the Company or any Selling
Stockholder within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company and the Selling Stockholders shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Shares on such terms. In the event
that, within the respective prescribed periods, you notify the Company and the
Selling Stockholders that you have so arranged for the purchase of such Shares,
or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholders shall have the right to postpone a Time of Delivery for a period of
not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Stockholders shall have the right to require
each non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company to sell the Optional Shares) shall
thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company or the Selling Stockholders, except for the expenses
to be borne by the Company and the Selling Stockholders and the Underwriters
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<PAGE> 21
as provided in Section 6 hereof and the indemnity and contribution agreements in
Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. The respective indemnities, agreements, representations, warranties and
other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company and the Selling Stockholders as provided herein, the Company will
reimburse the Underwriters through you for all out-of-pocket expenses approved
in writing by you, including fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of the Shares not so delivered, but the Company and the Selling
Stockholders shall then be under no further liability to any Underwriter in
respect of the Shares not so delivered except as provided in Sections 6 and 8
hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 8(c) hereof shall
be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire or telex
constituting such Questionnaire, which address will be supplied to the Company
or the Selling Stockholders by you on request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Stockholders and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and each person who controls the Company, any Selling Stockholder or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No
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purchaser of any of the Shares from any Underwriter shall be deemed a successor
or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us seven counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement among each of the Underwriters, the Company
and each of the Selling Stockholders. It is understood that your acceptance of
this letter on behalf of each of the Underwriters is pursuant to the authority
set forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company and the Selling Stockholders for examination, upon
request, but without warranty on your part as to the authority of the signers
thereof.
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Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power-of-Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
Sapient Corporation
By:
---------------------------------
Name: Susan Johnson
Title: Chief Financial Officer
Jerry A. Greenberg
J. Stuart Moore
Douglas J. Abel
Patricia P. Bentley
Anthony S. Jules
Michael F. Oates
Michael D. Odell
By:
---------------------------------
Name:
Title:
As Attorney-in-Fact acting on
behalf of each of the Selling
Stockholders named in Schedule II
to this Agreement.
Accepted as of the date hereof:
Goldman, Sachs & Co.
Morgan Stanley & Co., Incorporated
By:
----------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
23
<PAGE> 24
SCHEDULE I
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ---------
Goldman, Sachs & Co.
Morgan Stanley & Co. Incorporated
[NAMES OF OTHER UNDERWRITERS]
Total
<PAGE> 25
<TABLE>
SCHEDULE II
<CAPTION>
NUMBER OF
TOTAL NUMBER OF OPTIONAL SHARES
FIRM SHARES TO BE SOLD IF
TO BE SOLD MAXIMUM EXERCISED
---------- -----------------
<S> <C> <C>
The Company 500,000 156,000
The Selling Stockholder(s): (a)
Jerry A. Greenberg 250,000 -
J. Stuart Moore 250,000 -
Douglas J. Abel 5,000 -
Patricia P. Bentley 7,000 -
Anthony S. Jules 8,000 -
Michael F. Oates 15,000 -
Michael D. Odell 5,000
--------- -------
Total 1,040,000 156,000
<FN>
(a) The Selling Stockholders are represented by Hale and Dorr, 60 State Street,
Boston, Massachusetts 02109 and have appointed Deborah England Gray and Susan D.
Johnson, and each of them, as the Attorneys-in-Fact for such Selling
Stockholders.
</TABLE>
<PAGE> 26
SCHEDULE III
HOLDBACK AGREEMENTS
R. Stephen Cheheyl
Darius W. Gaskins
Bruce D. Parker
Carl S. Sloane
Susan D. Johnson
Steven B. Chanin
Sheeroy D. Desai
Preston B. Bradford
Desmond P. Varady
Christopher R. Davey
Michael Stankus
Mark Lobene
Craig Kauffman
Layne Ainsworth
Samuel Aronson
Gerard Kiley
<PAGE> 27
ANNEX I
Pursuant to Section 7(e) of the Underwriting Agreement, Peat Marwick
L.L.P. shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the Act
and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
separately furnished to the representatives of the Underwriters (the
"Representatives") and are attached hereto;
(iii) The unaudited selected financial information with respect
to the consolidated results of operations and financial position of the
Company for the four most recent fiscal years included in the Prospectus
agrees with the corresponding amounts (after restatements where
applicable) in the audited consolidated financial statements for such four
fiscal years;
(iv) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and
on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all material
respects with the disclosure requirements of Items 301, 302, 402 and
503(d), respectively, of Regulation S-K;
(v) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets
i
<PAGE> 28
and consolidated statements of cash flows included in the Prospectus
for them to be in conformity with generally accepted accounting
principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived any unaudited condensed
financial statements referred to in Clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, and conversions of convertible
securities, in each case which were outstanding on the date of the
latest financial statements included in the Prospectus) or any
increase in the consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current assets or
stockholders' equity or other items specified by the Representatives,
or any increases in any items specified by the Representatives, in
each case as compared with amounts shown in the latest balance sheet
included in the Prospectus, except in each case for changes, increases
or decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (E) there were any decreases in consolidated net revenues
or operating profit or the total or per share amounts of consolidated
net income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for decreases or increases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vi) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraphs
(iii) and (v) above, they have carried out certain specified procedures,
not
ii
<PAGE> 29
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
iii
<PAGE> 30
ANNEX II
Pursuant to Section 7(e) of the Underwriting Agreement, Ernst & Young
L.L.P. shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder; and
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder.
iv
<PAGE> 1
Exhibit 5
HALE AND DORR
COUNSELLORS AT LAW
60 STATE STREET, BOSTON, MASSACHUSETTS 02109
617-526-6000 o FAX 617-526-5000
October 9, 1996
Sapient Corporation
One Memorial Drive
Cambridge, MA 02142
Re: Registration Statement on Form S-1 (File No. 333-12671)
-------------------------------------------------------
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (File No. 333-12671) (the "Registration Statement"), filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
registration of an aggregate of 1,196,000 shares of Common Stock, $.01 par
value per share (the "Common Stock"), of Sapient Corporation, a Delaware
corporation (the "Company"), of which (i) up to 696,000 shares of Common Stock
(including 196,000 shares subject to an over-allotment option granted by the
Company to the Underwriters (as defined below)) will be issued and sold by the
Company to the Underwriters, and (ii) 540,000 shares of Common Stock will be
sold by certain stockholders of the Company (the "Selling Stockholders") to
the Underwriters (collectively, the "Shares").
The Shares are to be sold by the Company and the Selling Stockholders
pursuant to an underwriting agreement (the "Underwriting Agreement") to be
entered into by and among the Company, the Selling Stockholders, and Goldman,
Sachs & Co. and Morgan Stanley & Co. Incorporated, as representatives of the
several underwriters named in the Underwriting Agreement (the "Underwriters"),
the form of which has been filed as Exhibit 1 to the Registration Statement.
WASHINGTON, DC BOSTON, MA MANCHESTER, NH
- --------------------------------------------------------------------------------
HALE AND DORR IS A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
<PAGE> 2
Sapient Corporation
October 9, 1996
Page 2
We are acting as counsel for the Company in connection with the sale by the
Company and the Selling Stockholders of the Shares. We have examined signed
copies of the Registration Statement as filed with the Commission. We have also
examined and relied upon the Underwriting Agreement, minutes of meetings of the
stockholders and Board of Directors of the Company as provided to us by the
Company, stock record books of the Company as provided to us by the Company, the
Certificate of Incorporation and Bylaws of the Company, each as restated and/or
amended to date and such other documents as we have deemed necessary for
purposes of rendering the opinions hereinafter set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
We assume that the appropriate action will be taken, prior to the offer and
sale of the Shares in accordance with the Underwriting Agreement, to register
and qualify the Shares for sale under all applicable state securities or "blue
sky" laws.
We express no opinion herein as to the laws of any state or jurisdiction
other than the laws of the Commonwealth of Massachusetts, the Delaware General
Corporation Law statute and the federal laws of the United States of America.
Based upon and subject to the foregoing, we are of the opinion that (i) the
Shares to be issued and sold by the Company have been duly authorized and, when
issued and paid for in accordance with the terms and conditions of the
Underwriting Agreement, will be validly issued, fully paid and nonassessable,
and (ii) the Shares to be sold by the Selling Stockholders have been duly
authorized and are validly issued, fully paid and nonassessable.
It is understood that this opinion is to be used only in connection with
the offer and sale of the Shares while the Registration Statement is in effect.
Please note that we are opining only as to matters expressly set forth
herein, and no opinion should be inferred as to any other matters.
<PAGE> 3
Sapient Corporation
October 9, 1996
Page 3
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters." In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
HALE AND DORR
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
Sapient Corporation:
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
October 7, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Financial Data" and to the use of our report dated May 6, 1994, in
Amendment No. 1 to the Registration Statement (Form S-1) and related Prospectus
of Sapient Corporation for the registration of 1,196,000 shares of its common
stock.
ERNST & YOUNG LLP
Boston, Massachusetts
October 7, 1996
