<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
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:
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<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. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share.......................... 1,196,000 shares $40.50 $48,438,000 $16,703.00
==========================================================================================================
</TABLE>
(1) Includes 156,000 shares which the Underwriters have the option to purchase
from the Company to cover over-allotments, if any. See "Underwriting".
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933,
as amended, and based on the average of the high and low sale prices on
September 20, 1996, as reported on the Nasdaq National Market.
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.
================================================================================
<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 SEPTEMBER 25, 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 September 24, 1996 was $40.00
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>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Per Share....... $ $ $ $
Total(3)........ $ $ $ $
</TABLE>
- ---------------
(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".
----------------------
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
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<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................. 11,444,220 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 August 31, 1996. Does not
include 1,416,365 shares of Common Stock issuable upon exercise of stock
options outstanding as of August 31, 1996.
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 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 $8,185 $19,628
Operating expenses:
Project personnel costs................. 497 1,670 4,310 10,084 3,733 9,321
Selling and marketing................... 27 90 268 1,095 289 1,042
General and administrative.............. 320 1,437 2,728 5,967 2,509 4,939
----- ------ ------ ------- ------ -------
Total operating expenses........ 844 3,197 7,306 17,146 6,531 15,302
Income from operations.................... 109 1,691 2,067 4,784 1,654 4,326
Interest income (expense), net............ (3) -- 9 10 30 298
----- ------ ------ ------- ------ -------
Income before income taxes................ 106 1,691 2,076 4,794 1,684 4,624
Income taxes.............................. 33 691 851 1,964 690 1,799
----- ------ ------ ------- ------ -------
Net income................................ $ 73 $1,000 $1,225 $ 2,830 $ 994 $ 2,825
===== ====== ====== ======= ====== =======
Net income per share...................... $0.01 $ 0.10 $ 0.12 $ 0.28 $ 0.10 $ 0.25
Weighted average common shares and
equivalents............................. 8,557 9,792 10,115 10,257 10,281 11,259
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................... $39,122 $ 57,622
Total assets...................................................... 51,080 69,580
Long-term debt, less current portion.............................. -- --
Total stockholders' equity........................................ 40,620 59,120
</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 $40.00 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
half of 1996 increased 140% over the comparable period of the prior year. From
the beginning of 1995 through August 31, 1996, the Company's staff increased
from 116 to 417 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 in 1996 and 1997.
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 six months of 1996, the Company's five largest clients
accounted for approximately 69% 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 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 $18,500,000 ($24,396,800 if the Underwriters' over-allotment option is
exercised in full), assuming a public offering price of $40.00 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 (through September 24, 1996)................... $ 46.00 $ 29.75
</TABLE>
On September 24, 1996, the last reported sale price of Sapient's Common
Stock was $40.00 per share. As of August 31, 1996, there were approximately 175
holders of record of the Common Stock.
10
<PAGE> 12
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
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 $40.00 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>
JUNE 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; 10,891,390 shares issued and outstanding; 11,391,390
shares issued and outstanding as adjusted......................... 109 114
Additional paid-in capital.......................................... 32,623 51,118
Retained earnings................................................... 7,913 7,913
Notes receivable from stockholders.................................. (25) (25)
------- -------
Total capitalization...................................... $40,620 $59,120
======= =======
<FN>
- ---------------
(1) Does not reflect shares of Common Stock issuable upon exercise of options to
purchase 1,361,010 shares of Common Stock outstanding as of June 30, 1996.
See "Management -- Benefit Plans".
</TABLE>
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 six month periods ended June 30, 1995 and 1996, and as of June 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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 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 $8,185 $19,628
Operating expenses:
Project personnel costs................. 497 1,670 4,310 10,084 3,733 9,321
Selling and marketing................... 27 90 268 1,095 289 1,042
General and administrative.............. 320 1,437 2,728 5,967 2,509 4,939
----- ------ ------ ------- ------ -------
Total operating expenses........ 844 3,197 7,306 17,146 6,531 15,302
Income from operations.................... 109 1,691 2,067 4,784 1,654 4,326
Interest income (expense), net ........... (3) -- 9 10 30 298
----- ------ ------ ------- ------ -------
Income before income taxes................ 106 1,691 2,076 4,794 1,684 4,624
Income taxes.............................. 33 691 851 1,964 690 1,799
----- ------ ------ ------- ------ -------
Net income................................ $ 73 $1,000 $1,225 $ 2,830 $ 994 $ 2,825
===== ====== ====== ======= ====== =======
Net income per share...................... $0.01 $ 0.10 $ 0.12 $ 0.28 $ 0.10 $ 0.25
Weighted average common shares and
equivalents............................. 8,557 9,792 10,115 10,257 10,281 11,259
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- JUNE 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 $ 39,122
Total assets...................................... 237 2,296 6,349 12,086 51,080
Long-term debt, less current portion.............. 31 56 61 37 --
Total stockholders' equity(1)..................... 146 1,149 2,350 5,211 40,620
</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 August 31, 1996, the Company's staff
increased from 116 to 417 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 in
1996 and 1997. 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>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 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 46 48
Selling and marketing................. 2 3 5 3 5
General and administrative............ 29 29 27 31 25
--- --- --- --- ---
Total operating expenses...... 65 78 78 80 78
--- --- --- --- ---
Income from operations.................. 35 22 22 20 22
Income taxes............................ 15 9 9 8 8
--- --- --- --- ---
Net income.............................. 20% 13% 13% 12% 14%
=== === === === ===
</TABLE>
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
REVENUES
Revenues for the first half of 1996 increased 140% over revenues for the
first half 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 $4.6 million at June 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 six month period ended June 30, 1996 was
primarily due to an increase in project personnel from 154 at June 30, 1995 to
276 at June 30, 1996. Project personnel costs increased as a percentage of
revenues from 46% for the first six months of 1995 to 48% for the same period in
1996. The increase was due to an increase in total headcount and a slight
increase in salaries compared to the same period in 1995.
SALES AND MARKETING
Sales and marketing costs consist primarily of salaries, employee benefits,
travel expenses and promotional costs. In the first half of 1996, sales and
marketing costs as a percentage of revenues were 5%, compared to 3% in the first
half of 1995. The increase was primarily the result of the Company's decision to
expand its sales and marketing group, which grew from seven employees at June
30, 1995 to 17 employees at June 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 six month period
ended June 30, 1996 was primarily due to an increase in the incremental costs
associated with the additional employees hired during 1996. The Company's total
headcount increased from 184 at June 30, 1995 to 345 at June 30, 1996. As a
percentage of revenues, general
14
<PAGE> 16
and administrative costs were 25% for the first half of 1996, compared to 31% in
the first half of 1995. The decrease as a percentage of revenues in the first
half 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.
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.
SALES AND MARKETING
In 1995, sales 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 sales and marketing group, which grew from
four employees at the end of 1994 to 13 employees at the end of 1995.
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.
15
<PAGE> 17
QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly results of
operations of the Company for 1995 and the first two 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 % 1995 % 1995 % 1995 % 1996 % 1996 %
--------- --- -------- --- ------------- --- ------------ --- --------- --- -------- ---
(IN THOUSANDS, EXCEPT PERCENTAGE INFORMATION)
<S> <C> <C> <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% $10,361 100%
Operating expenses:
Project personnel
costs............... 1,640 45 2,093 46 2,881 48 3,470 44 4,552 49 4,769 46
Selling and
marketing........... 91 3 198 4 342 6 464 6 467 5 575 6
General and
administrative...... 1,121 31 1,388 31 1,400 24 2,058 26 2,213 24 2,726 26
------ --- ------ --- ------ --- ------ --- ------ --- ------- ---
Total operating
expenses....... 2,852 79 3,679 81 4,623 78 5,992 76 7,232 78 8,070 78
------ --- ------ --- ------ --- ------ --- ------ --- ------- ---
Income from
operations............ 766 21 888 19 1,282 22 1,848 24 2,035 22 2,291 22
Interest income
(expense), net........ 27 1 3 1 (1) 0 (19) (1) 5 -- 293 3
------ --- ------ --- ------ --- ------ --- ------ --- ------- ---
Income before income
taxes................. 793 22 891 20 1,281 22 1,829 23 2,040 22 2,584 25
Income taxes........... 325 9 365 8 524 9 750 9 816 9 983 10
------ --- ------ --- ------ --- ------ --- ------ --- ------- ---
Net income............. $ 468 13% $ 526 12% $ 757 13% $1,079 14% $ 1,224 13% $ 1,601 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
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 June 30, 1996, the Company had no bank borrowings outstanding and
no material capital commitments.
Cash and cash equivalents increased to $36.2 million at June 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. During the second quarter of 1996, the proceeds
of the initial public offering were invested primarily in tax-exempt short-term
municipal bonds.
16
<PAGE> 18
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 six months of 1996, the Company's five largest clients
accounted for
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approximately 69% 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:
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, mortgage-backed securities allocators who perform back office tasks in
support of the traders, and information systems professionals, participated in a
five-day RIP workshop. The workshop team identified a number of ways to improve
Merrill Lynch's mortgage allocation system, which was based on several different
software applications and 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 allocator to enter, process and
distribute trade and inventory information from his or her workstation, which
displays the most frequently used information and provides easy access to more
detailed information. Previously, information was entered and processed in
several different systems, which required the allocators to switch frequently
between numerous screens and documents. The new system also permits allocators
to run real-time, online reports, monitor inventory throughout the day and
receive and send real-time trade and mortgage pool information. Access to
consolidated real-time data on one screen, which was not available under the old
system, enables allocators to make more informed business decisions.
The new system includes an automatic notification feature and integrated
fax server which takes advantage of new industry standards for distributing
trade information to the trade's counterparty. Under the old system, 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 during the past three years. The Company has implemented
applications for Merrill Lynch's whole loan trading and operations system and
its repurchase agreement collateral allocation system.
PUBLIC SERVICE ELECTRIC AND GAS OF NEW JERSEY. The Company has been
working with PSE&G, the third largest combined electric and gas utility in the
United States, to design, develop and implement an automated dispatching and
wireless field service system for PSE&G's Gas Service Business. Due to the
impending competition from local contractors and other utilities as a result of
deregulation, PSE&G's goal was to differentiate itself by providing superior
levels of customer service. To accomplish this, PSE&G retained the Company to
assist it with a thorough redefinition of its key processes and information
systems.
The Company designed, developed and implemented an automated dispatching
and wireless field service system in which PSE&G's call center electronically
transmits service orders from its mainframe-based system to the dispatch
center's client/server based workstations. The dispatch center then assigns the
order to a service person in the field over a wireless network to the field
person's pen-based computer. When the service order is completed, the order
completion information is entered by the field person directly into the
pen-based computer and is transmitted back to the dispatch center
electronically. The service personnel also capture all of their time associated
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with a particular job and any materials used. This information is then fed back
in real-time to PSE&G's mainframe-based materials management and human resources
systems.
The new system also improves PSE&G's overall service levels to its
customers. Through the use of the pen-based computers in the field, the service
personnel are able to access pertinent history about a customer's appliances and
prior service calls before visiting the customer's location. Having such
information ahead of time reduces the amount of time needed to diagnose and
complete the work and allows the service person to provide other value-added
services to the customer. The system also allows both the dispatchers and call
center personnel to track the status of all outstanding service calls in
real-time. This functionality has allowed PSE&G to begin offering service
guarantees to their customers based upon PSE&G's ability to complete an assigned
order within a specified period of time.
The system was initially rolled out in February 1996 and is expected to be
fully deployed to all of its approximately 820 service personnel and dispatchers
by November 1996. Since its initial engagement, Sapient has worked for PSE&G in
a number of areas including transmission and distribution automated work
management, materials management, automated mapping and facilities management,
and sub-station maintenance.
OWENS-CORNING. Owens-Corning initially retained Sapient to develop an
activity-based costing system. Sapient conducted a RIP workshop with a
cross-functional group including financial analysts, product specialists and
information systems staff members. The workshop focused on the feasibility of
developing an activity-based method of cost allocation rather than a
conventional standards-based costing system.
Following the RIP, as the project moved into the Design stage, it became
clear that in order to develop an activity-based costing system the project
needed to address product definition and manufacturing process issues. Working
closely through the Implementation stage, Sapient and Owens-Corning designed,
developed and implemented a system that integrates the product definition,
costing and manufacturing process into one system, called "PRIDE" (Product
Related Information and Data Environment).
The PRIDE system allows Owens-Corning's central Product Data group to
define new product specifications into the system. The system then takes this
information, processes it through a rules-based system to produce product line
specific specifications, and then makes it available via PRIDE terminals to line
workers on the manufacturing floor. Previously, this information was
paper-based. This enables Owens-Corning workers to set the line specifications
based on this customized data.
Because PRIDE contains all the line-specific information for all products,
cost analysts can access the system and set up accurate standard costing models.
Each day PRIDE receives production information (raw materials usage, labor
information, production information, etc.) from approximately 30 systems,
covering all of Owens-Corning's U.S. Building Products plants. This information
allows Owens-Corning to make more informed decisions with respect to the costs
and benefits of manufacturing a particular product at a particular plant.
PRIDE also reduces the time and effort necessary to complete month-end
financial closings. Furthermore, by making product and costing information more
readily available, PRIDE provided Owens-Corning with the ability to consolidate
its financial planning staff and realize significant cost reductions.
SALES AND MARKETING
During 1995, the Company decided to strategically align its sales 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
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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.
As of August 31, 1996, the Company's sales and marketing group consisted of
19 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 August 31, 1996, the Company had 417 full-time employees, comprised
of 345 project personnel, 53 employees in finance and administration and 19
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,
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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 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 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.
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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 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.......................... 35 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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<PAGE> 32
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 $50,000 or ten percent
of the total annual salary and bonus for the Named Executive Officer for
such year.
(2) Represents payments made or to be made under the Company's 1995 Executive
Bonus Program for services rendered by the Named Executive Officer in 1995.
(3) Represents the Company's matching contribution under the Company's 401(k)
Plan.
All of the Company's employees, including its executive officers, have
executed agreements which prohibit them from competing with the Company for a
period of 12 months following termination of their employment with the Company.
31
<PAGE> 33
OPTION GRANTS, EXERCISES AND YEAR-END OPTION VALUES
The Company did not grant any stock options to the Named Executive Officers
in 1995. The following table sets forth certain information concerning each
exercise of a stock option during the year ended December 31, 1995 by each of
the Named Executive Officers and the number and value of unexercised options
held by each of the Named Executive Officers on December 31, 1995.
AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1995(#) DECEMBER 31, 1995($)(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 August 31, 1996, 1,282,215 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 August 31, 1996, 134,150 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)................ 3,833,750 35.0% 250,000 3,583,750 31.3%
J. Stuart Moore(2)(3)................ 3,787,500 34.6% 250,000 3,537,500 30.9%
Sheeroy D. Desai(4).................. 214,000 2.0% 0 214,000 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)................... 85,000 * 5,000 80,000 *
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).................. 100,250 * 5,000 95,250 *
All directors and executive officers
as a group (8 persons)(10)......... 7,846,850 71.6% 500,000 7,346,850 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;
276,559 shares held by the J. Stuart Moore Two Year Qualified Annuity
Trust; 986,686 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 19,000 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 August 31, 1996, there were issued and outstanding an aggregate of
10,944,220 shares of Common Stock held of record by approximately 175
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.
37
<PAGE> 39
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.
38
<PAGE> 40
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> 41
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> 42
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> 43
SAPIENT CORPORATION
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $2,655,599 $ 378,019 $36,231,744
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 8,025,321
Unbilled revenues on contracts................. 18,088 2,282,011 4,614,467
Income tax receivable.......................... -- 479,892 --
Prepaid expenses and other current assets...... 93,984 129,792 317,188
---------- ----------- ----------
Total current assets................... 5,538,194 10,626,717 49,188,720
Property and equipment, net...................... 775,559 1,349,616 1,829,797
Other assets..................................... 35,310 110,011 61,088
---------- ----------- ----------
Total assets........................... $6,349,063 $12,086,344 $51,079,605
========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.............. $ 78,709 $ 55,994 $ --
Accounts payable............................... 326,398 489,481 589,178
Accrued expenses............................... 739,393 973,673 2,065,691
Accrued compensation........................... 369,000 862,131 1,307,379
Income taxes payable........................... 1,132,548 -- 465,584
Deferred income taxes.......................... 75,698 2,081,348 2,333,710
Deferred revenues on contracts................. 1,167,797 2,374,805 3,305,340
---------- ----------- ----------
Total current liabilities.............. 3,889,543 6,837,432 10,066,882
Long-term debt, less current portion............. 61,020 37,421 --
Other liabilities................................ 48,455 -- 392,836
---------- ----------- ----------
Total liabilities...................... 3,999,018 6,874,853 10,459,718
---------- ----------- ----------
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 June 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 10,891,390 shares
issued at June 30, 1996..................... 50,000 50,000 108,914
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 June 30,
1996........................................ 35,484 38,317
Additional paid-in capital..................... 57,351 110,683 32,623,324
Retained earnings.............................. 2,257,210 5,087,491 7,912,649
Notes receivable from stockholders............. (50,000) (75,000) (25,000)
---------- ----------- ----------
Total stockholders' equity............. 2,350,045 5,211,491 40,619,887
---------- ----------- ----------
Total liabilities and stockholders'
equity............................... $6,349,063 $12,086,344 $51,079,605
========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 44
SAPIENT CORPORATION
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................... $4,887,849 $9,372,708 $21,929,576 $8,184,748 $19,627,513
Operating expenses:
Project personnel costs.............. 1,669,987 4,310,354 10,083,500 3,732,999 9,321,026
Selling and marketing................ 89,313 268,158 1,095,446 289,137 1,041,554
General and administrative........... 1,437,204 2,727,388 5,966,620 2,508,661 4,939,048
---------- ---------- ----------- ---------- ----------
Total operating expenses...... 3,196,504 7,305,900 17,145,566 6,530,797 15,301,628
Income from operations........... 1,691,345 2,066,808 4,784,010 1,653,951 4,325,885
Other income (expense):
Interest income...................... 5,237 27,965 43,465 40,924 298,932
Interest expense..................... (5,535) (18,848) (33,394) (11,073) (1,221)
---------- ---------- ----------- ---------- ----------
Income before income taxes....... 1,691,047 2,075,925 4,794,081 1,683,802 4,623,596
Income taxes........................... 690,575 851,129 1,963,800 690,230 1,798,438
---------- ---------- ----------- ---------- ----------
Net income.................... $1,000,472 $1,224,796 $ 2,830,281 $ 993,572 $ 2,825,158
========== ========== =========== ========== ===========
Net income per share................... $ .10 $ .12 $ .28 $ .10 $ .25
========== ========== =========== ========== ===========
Weighted average common shares
and equivalents...................... 9,791,954 10,115,493 10,256,966 10,280,748 11,259,022
========== ========== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 45
SAPIENT CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND SIX MONTHS ENDED
JUNE 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
Exercised stock
options............ -- -- 100,300 1,003 3,816 -- -- 4,819
Net income........... -- -- -- -- -- 993,572 -- 993,572
--------- ------- --------- ------- -------- -------- ---------- ----------
Balance at June 30,
1995 (unaudited)..... 5,000,000 50,000 3,648,725 36,487 61,167 3,250,782 (50,000) 3,348,436
Notes receivable from
stockholders....... -- -- -- -- -- -- (25,000) (25,000)
Exercised stock
options............ -- -- 183,005 1,830 49,516 -- -- 51,346
Net income........... -- -- -- -- -- 1,836,709 -- 1,836,709
--------- ------- --------- ------- -------- -------- ---------- ----------
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............ 364,660 3,649 -- -- 126,239 -- -- 129,888
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........... -- -- -- -- -- 2,825,158 -- 2,825,158
--------- ------- --------- ------- -------- -------- ---------- ----------
Balance at June 30,
1996 (unaudited)..... 10,891,390 $108,916 -- -- $32,623,322 $7,912,649 $(25,000) $40,619,887
========== ======== ========= ======= =========== ========== ======== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 46
SAPIENT CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
JUNE 30, JUNE 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 $ 993,572 $ 2,825,158
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization............... 17,185 223,333 512,201 193,409 390,442
Deferred income taxes....................... 500,000 (454,302) 2,005,650 705,156 252,362
Provision for doubtful accounts............. 24,000 76,000 50,000 -- --
Changes in assets and liabilities:
Increase in accounts receivable........... (1,406,027) (1,375,900) (4,636,480) (134,428) (668,318)
Decrease (increase) in unbilled revenues
on contracts............................ (166,470) 461,156 (2,263,923) (1,259,312) (2,332,456)
Decrease (increase) in advances to
employees............................... (250,000) 244,165 (40,586) 29,278 16,463
(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 (586,901) (203,859)
(Increase) decrease in other assets....... (12,475) (20,310) (74,701) -- 48,923
Increase (decrease) in accounts payable... 46,455 25,732 163,083 (243,792) 99,697
Increase in accrued expenses.............. 223,732 739,393 234,280 1,144,232 1,092,018
Increase (decrease) in accrued
compensation............................ 18,847 369,000 493,131 (369,000) 445,248
Increase (decrease) in income taxes
payable................................. 136,747 992,548 (1,132,548) (1,132,548) 465,584
Increase (decrease) in deferred revenue on
contracts............................... -- 895,524 1,207,008 (995,698) 930,535
Increase (decrease) in other
liabilities............................. 82,172 (33,717) (48,455) (18,842) 392,836
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities............................ 148,528 3,345,379 (1,176,173) (1,674,874) 4,234,525
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment............ (131,227) (853,081) (1,086,259) (437,900) (870,623)
----------- ----------- ----------- ----------- -----------
Net cash used for investing
activities............................ (131,227) (853,081) (1,086,259) (437,900) (870,623)
----------- ----------- ----------- ----------- -----------
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 4,819 129,888
Proceeds from note payable to bank............ 31,184 123,800 -- 91,504 --
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) (132,884) --
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) -- 32,489,823
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents................................... 78,872 2,514,283 (2,277,580) (2,149,335) 35,853,725
Cash and cash equivalents, at beginning of
year.......................................... 62,444 141,316 2,655,599 2,655,599 378,019
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, at end of year....... $ 141,316 $ 2,655,599 $ 378,019 $ 506,264 $36,231,744
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 47
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 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) 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.
(c) 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.
(d) 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.
(e) 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,
F-8
<PAGE> 48
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
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.
(f) 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.
(g) 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.
(h) 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.
(i) 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.
(j) 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.
F-9
<PAGE> 49
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
(k) Interim Financial Information
The financial statements as of and for the six months ended June 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 June 30, 1996 are as follows:
<TABLE>
<CAPTION>
JUNE 30,
1996
1994 1995 -----------
---------- ---------- (UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements.................... $ 226,309 $ 453,425 $ 517,870
Furniture and fixtures.................... 137,429 240,447 305,410
Office equipment.......................... 227,015 437,191 534,809
Computer equipment........................ 393,817 939,766 1,583,391
Equipment under capital lease............. 31,507 31,507 31,507
---------- ---------- -----------
1,016,077 2,102,336 2,972,987
Less accumulated depreciation and
amortization......................... (240,518) (752,720) (1,143,190)
---------- ---------- -----------
Property and equipment, net............... $ 775,559 $1,349,616 $ 1,829,797
========== ========== ===========
</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 June 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> 50
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 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> 51
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 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 suit 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 35% and 17%, respectively of total revenues in the first six
months of 1996 and 34% of accounts receivable at June 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> 52
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 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> 53
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 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 June
30, 1996, no options had been granted under the Directors Plan.
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
JUNE 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............. 1,251,500 412,700 438,950 319,050
Exercised........... (107,500) (305,925) (279,305) (382,660)
Cancelled........... -- (54,650) (77,475) (83,675)
------------ ------------- ------------- --------------
Outstanding options
at end of
period............ 1,374,000 1,426,125 1,508,295 1,361,010
============ ============= ============= ==============
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> 54
SAPIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 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> 55
UNDERWRITING
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:
<TABLE>
<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 employee stock option plans
existing, or on the conversion or exchange of convertible or exchangeable
securities outstanding, on the date of 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 500,000
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
8,198,000 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 7,121,250 of such
U-1
<PAGE> 56
8,198,000 shares, have agreed to the above described holdback for an additional
90 day period. Of the 8,198,000 shares of Common Stock subject to the holdback
agreements, 765,238 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> 57
- ----------------------------------------------------------
- ----------------------------------------------------------
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.................... 38
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> 58
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> 59
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> 60
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<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).
** To be filed by amendment.
(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> 61
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> 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cambridge, Commonwealth
of Massachusetts, on this 25th day of September, 1996.
SAPIENT CORPORATION
By: /s/ JERRY A. GREENBERG
------------------------------------
Name: Jerry A. Greenberg
Title: Co-Chief Executive Officer
By: /s/ J. STUART MOORE
------------------------------------
Name: J. Stuart Moore
Title: Co-Chief Executive Officer
SIGNATURES AND POWER OF ATTORNEY
We, the undersigned officers and directors of Sapient Corporation, hereby
severally constitute and appoint Susan D. Johnson, Deborah England Gray, Paul P.
Brountas and Jonathan Wolfman, and each of them, our true and lawful attorneys,
with full power to them and each of them singly, to sign for us in our names in
the capacities indicated below, any and all pre-effective and post-effective
amendments to this Registration Statement (or any registration statement for the
same offering that is to be effective upon filing pursuant to Rule 462(b) under
the Securities Act of 1933), and generally to do all things in our names and on
our behalf in our capacities as officers and directors to enable Sapient
Corporation to comply with the provisions of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys or any of them by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
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 September 25, 1996
- ------------------------------------- Director (Principal Executive
Jerry A. Greenberg Officer)
/s/ J. STUART MOORE Co-Chief Executive Officer and September 25, 1996
- ------------------------------------- Director (Principal Executive
J. Stuart Moore Officer)
/s/ SUSAN D. JOHNSON Chief Financial Officer September 25, 1996
- ------------------------------------- (Principal Financial and
Susan D. Johnson Accounting Officer)
/s/ CARL S. SLOANE Director September 25, 1996
- -------------------------------------
Carl S. Sloane
</TABLE>
II-5
<PAGE> 63
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- --------------------------------- -------------------
<C> <S> <C>
/s/ DARIUS W. GASKINS, JR. Director September 25, 1996
- -------------------------------------
Darius W. Gaskins, Jr.
/s/ BRUCE D. PARKER Director September 25, 1996
- -------------------------------------
Bruce D. Parker
/s/ R. STEPHEN CHEHEYL Director September 25, 1996
- -------------------------------------
R. Stephen Cheheyl
</TABLE>
II-6
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------- ----
<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).
** To be filed by amendment.
<PAGE> 1
Exhibit 10.9
SAPIENT CORPORATION
STANDARD FORM EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made this ___ day of ______________, by and between
Sapient Corporation, whose principal place of business is One Memorial Drive,
Cambridge, MA 02142 ("Sapient") and ___________________, an individual residing
at ________________________________________.
In consideration of employment by Sapient of the Employee, and the compensation
paid by Sapient to the Employee now and hereafter, Sapient and Employee agree as
follows:
1. EMPLOYMENT. [_________________________________________________]
2. TERMINATION OF EMPLOYMENT. Employee's employment by Sapient shall be at
will, and may be terminated by either party at any time.
3. STOCK PURCHASE. (None specified)
4. Confidential Information.
------------------------
(a) SAPIENT INFORMATION. Employee agrees at all times during the term of his or
her employment and thereafter to hold in strictest confidence, and not to use,
except for the benefit of Sapient, or to disclose to any person, firm or
corporation without written authorization of the Board of Directors of Sapient,
any Confidential Information of Sapient. Employee understands that "Confidential
Information" means any company proprietary information, technical data, trade
secrets or know-how, including, but not limited to, research and development
information, product plans, products, services, customer lists and customers
(including, but not limited to, customers of Sapient on whom Employee calls or
with whom Employee becomes acquainted during the term of his employment),
suppliers, markets, software, developments, inventions, processes, formulas,
technology, designs, drawings, engineering information, hardware configuration
information, marketing information, costs, pricing, finances or other business
information disclosed to Employee by Sapient either directly or indirectly in
writing, orally or by drawings or inspection of parts or equipment. Employee
<PAGE> 2
further understands that Confidential Information does not include any of the
foregoing items which has become publicly known and made generally available
through no wrongful act of Employee. Employee further agrees that all
Confidential Information shall at all times remain the property of Sapient.
(b) FORMER EMPLOYER INFORMATION. Employee agrees that he or she will not, during
his or her employment with Sapient, improperly use or disclose any proprietary
information or trade secrets of any former employer or other person or entity
with which Employee has an agreement or duty to keep in confidence information
acquired by him in confidence, if any, and that Employee will not bring onto the
premises of Sapient any unpublished document or proprietary information
belonging to any such employer, person or entity unless consented to in writing
by such employer, person or entity.
(c) THIRD PARTY INFORMATION. Employee recognizes that Sapient has received and
in the future will receive from third parties their confidential or proprietary
information subject to a duty on Sapient's part to maintain the confidentiality
of such information and to use it only for certain limited purposes. Employee
agrees to hold all such confidential or proprietary information in the strictest
confidence and not to disclose it to any person, firm or corporation or to use
it except as necessary in carrying out his or her work for Sapient consistent
with Sapient's agreement with such third party.
5. Inventions.
----------
(a) INVENTIONS RETAINED AND LICENSED. Employee has attached hereto, as Exhibit
A, a list describing all inventions, original works of authorship, developments,
improvements, and trade secrets which were made by him or her prior to his
employment with Sapient (collectively referred to as "Prior Inventions"), which
belong to him or her, which relate to Sapient's proposed business, products or
research and development, and which are not assigned to Sapient hereunder; or,
if no such list is attached, Employee represents that there are no such Prior
Inventions. If in the course of his or her employment with Sapient, Employee
incorporates into a Company product, process or machine a Prior Invention owned
by him or her or in which Employee has an interest, Sapient is hereby granted
and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide
license to make, have made, modify, use and sell such Prior Invention as part of
or in connection with such product, process or machine.
<PAGE> 3
(b) ASSIGNMENT OF INVENTIONS. Employee agrees to promptly make full written
disclosure to Sapient and will hold in trust for the sole right and benefit of
Sapient, and Employee hereby assigns to Sapient, or its designee, all
Employee's right, title and interest in and to any and all inventions, original
works of authorship, developments, concepts, improvements or trade secrets, of
whatever nature and whether or not patentable or registrable under copyright or
similar laws, which Employee may solely or jointly conceive or develop or
reduce to practice, or cause to be conceived or developed or reduced to
practice, during the period of time Employee is in the employ of Sapient
(collectively referred to as "Inventions"); and Employee further agrees that
the foregoing shall also apply to Inventions which relate to the business of
Sapient or to Sapient's anticipated business as of the end of Employee's
employment and which are conceived, developed, or reduced to practice during a
period of one year after the end of Employee's employment. Without limiting the
foregoing, Employee further acknowledges that all original works of authorship
which are made by Employee (solely or jointly with others) within the scope of
Employee's employment and which are protectable by copyright are "works made
for hire," as that term is defined in the United States Copyright Act.
(c) MAINTENANCE OF RECORDS. Employee agrees to keep and maintain adequate and
current written records of all Inventions made by Employee (solely or jointly
with others) during the term of Employee's employment with Sapient. The records
will be in form of notes, sketches, drawings, and any other format that may be
specified by Sapient. The records will be available to and remain the sole
property of Sapient at all times.
(d) PATENT AND COPYRIGHT REGISTRATIONS. Employee agrees to assist Sapient, or
its designee, at Sapient's expense, in every proper way to secure Sapient's
rights in the Inventions and any copyrights, patents, mask work rights or other
intellectual property rights relating thereto in any and all countries,
including the disclosure to Sapient of all pertinent information and data with
respect thereto and the execution of all applications, specifications, oaths,
assignments and all other instruments which Sapient shall deem necessary in
order to apply for and obtain such rights and in order to assign and convey to
"Sapient, its successors, assigns and nominees the sole and exclusive rights,
title and interest in and to such Inventions, and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto.
<PAGE> 4
6. CONFLICTING EMPLOYMENT. During the term of Employee's employment with
Sapient, Employee will not engage in any other employment, occupation,
consulting or other business activity related to the business in which Sapient
is now involved or becomes involved during the term of his or her employment,
nor will Employee engage in any other activities that conflict with Employee's
obligation to Sapient.
7. RETURNING SAPIENT PROPERTY. Employee agrees that, at the time of
leaving the employ of Sapient, Employee will deliver to Sapient (and will not
keep in his or her possession or deliver to anyone else) any and all devices,
records, data, notes, reports, proposals, lists, correspondence,
specifications, drawings, blueprints, sketches, materials, equipment, other
documents or property, or electronic copies or other reproductions of any of
the aforementioned items, containing Confidential Information or otherwise
belonging to Sapient, its successors or assigns.
8. SOLICITATION OF EMPLOYEES. Employee shall not for a period of twelve
(12) months immediately following the termination of his or her employment with
Sapient for any reason, whether with or without cause, either directly or
indirectly solicit or take away, or attempt to solicit or take away employees
of Sapient, either for Employee's own business or for any other person or
entity.
9. COVENANTS AGAINST COMPETITION. EMPLOYEE ACKNOWLEDGES AND UNDERSTANDS
THAT THIS SECTION MAY AFFECT HIS OR HER RIGHT TO ACCEPT EMPLOYMENT WITH OTHER
COMPANIES SUBSEQUENT TO EMPLOYMENT BY SAPIENT.
(a) For the purposes of this Section:
(i) "Competing Product" means any product, process, or service of any
person or organization other than Sapient, in existence or under development,
(A) which is identical to, substantially the same as, or an adequate substitute
for any product, process, or service of Sapient, in existence or under
development, on which Employee works during the time of Employee's employment
with Sapient or about which Employee acquires Confidential Information, and (B)
which is (or could reasonably be anticipated to be) marketed or distributed in
such a manner and such a geographic area as to actually compete with such
product, process or service of Sapient.
<PAGE> 5
(ii) "Competing Organization" means any person or organization, including
Employee, engaged in, or about to become engaged in, research on or the
acquisition, development, production, distribution, marketing, or providing of
a Competing Product.
(b) As a material inducement to Sapient to employ Employee, and in order to
protect Sapient's Confidential Information and good will, Employee agrees to
the following stipulations:
(i) For a period of twelve (12) months after termination of Employee's
employment with Sapient or its affiliates, Employee shall not directly or
indirectly solicit or divert or accept business relating in any manner to
Competing Products or to products, processes or services of Sapient from any of
the customers or accounts of Sapient with which Employee had any contact as a
result of Employee's employment.
(ii) For a period of twelve (12) months after termination of Employee's
employment with Sapient or its affiliates, Employee shall not render services,
directly or indirectly, as an employee, consultant or otherwise, to any
Competing Organization in connection with research on or the acquisition,
development, production, distribution, marketing, or providing of any
Competing Product.
(c) Employee agrees that the restrictions set forth in this Section are fair
and reasonable and are reasonably required for the protection of the interests
of Sapient. However, should an arbitrator or court nonetheless determine at a
later date that such restrictions are unreasonable in light of the circumstances
as they then exist, then Employee agrees that this Section shall be
construed in such a manner as to impose on Employee such restrictions as may
then be reasonable and sufficient to assure Sapient of the intended benefits of
this Section.
10. Arbitration and Equitable Relief.
--------------------------------
(a) ARBITRATION. Except as provided in Section 10 (b) below, Employee agrees
that any dispute or controversy arising out of or relating to any
interpretation, construction, performance or breach of this Agreement, shall be
settled by arbitration to be held in Boston, Massachusetts, in accordance with
the Commercial Arbitration Rules of the American Arbitration Association before
a single arbitrator who shall have experience in the area of the matter in
dispute.
<PAGE> 6
The arbitrator may grant relief in the nature of injunctions or other relief in
such dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties. Judgment may be entered on the
arbitrator's decision in any court having jurisdiction. Sapient and Employee
shall each pay one-half of the costs and expenses of such arbitration, and each
of them shall separately pay their own counsel fees and expenses and other
costs of the arbitration.
(b) EQUITABLE REMEDIES. Employee agrees that it would be impossible or
inadequate to measure and calculate Sapient's damages from any breach of the
covenants set forth in Sections 4, 5, 7 and 9 herein. Accordingly, at the sole
discretion of Sapient, Employee agrees that if Employee breaches any of such
Sections, Sapient will have, in addition to any other right or remedy
available, the right to obtain an injunction from a court of competent
jurisdiction restraining such breach or threatened breach and to specific
performance of any such provision of this Agreement and of Section 10 (a)
hereof and, if it prevails in such a proceeding, the right to recover from
Employee the costs and expenses thereof, including reasonable attorney's fees.
11. General Provisions.
------------------
(a) GOVERNING LAW. This Agreement will be governed by the laws of The
Commonwealth of Massachusetts.
(b) ENTIRE AGREEMENT. The Agreement sets forth the entire agreement and
understanding between Sapient and Employee relating to the subject herein and
merges all prior discussions with respect hereto. No modification of or
amendment to this Agreement, nor any waiver of any rights under this agreement,
will be effective unless in writing signed by the party to be charged. Any
subsequent change or changes in Employee's duties, salary or compensation will
not affect the validity or scope of this Agreement.
(c) SEVERABILITY. If one or more of the provisions in this Agreement are deemed
void by law, then the remaining provisions will continue in full force and
effect.
<PAGE> 7
(d) SUCCESSORS AND ASSIGNS. This agreement will be binding upon Employee's
heirs, executors, administrators and other legal representatives and will be
for the benefit of Sapient, its successors and assigns.
Executed under seal.
Date:
-------------
----------------------------------
Signature
SAPIENT CORPORATION
By:
------------------------------
<PAGE> 1
EXHIBIT 11
SAPIENT CORPORATION
<TABLE>
Computation of Shares Used in Computing Net Income Per Share
<CAPTION>
For the Six Months
ended June 30,
1995 1996
---- ----
<S> <C> <C>
Common Stock, beginning of period 8,548,425 8,831,730
Options exercised during the period 99,910 367,660
Weighted average options outstanding
other than exercised during the period 1,264,999 1,388,844
Weighted average shares related to initial
public offering - 828,455
Cheap stock relating to SAB No. 83(1) 519,525 -
Treasury Stock buyback (152,111) (157,667)
---------- ----------
10,280,748 11,259,022
========== ==========
<FN>
- ----------------
(1) In accordance with SEC Staff Accounting Bulletin No. 83 ("SAB No. 83"),
issuances of Common Stock equivalents (common stock and stock options)
one year prior to the initial filing date of the Company's registration
statement (February 22, 1996) at share prices below the public offering
price of $21.00 per share ("Cheap Stock"), are considered to have been
made in anticipation of the public offering and have been included as
if the shares were outstanding for all periods presented using the
treasury stock method at the public offering price of $21.00 per share.
</TABLE>
<PAGE> 1
Exhibit 21
Subsidiaries of the Registrant
Name Jurisdiction of Incorporation
- ---- -----------------------------
Sapient Ltd. United Kingdom
Sapient Securities Corporation Massachusetts
<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
September 23, 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 the
Registration Statement (Form S-1) and related Prospectus of Sapient Corporation
for the registration of its common stock.
ERNST & YOUNG LLP
Boston, Massachusetts
September 23, 1996
