<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934
For the fiscal year ended December 31, 1997
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934
For the transition period from to
-------------- --------------
Commission File Number 0-28074
SAPIENT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 04-3130648
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
ONE MEMORIAL DRIVE, CAMBRIDGE, MA 02142
(Address of Principal Executive Offices) (Zip Code)
(617) 621-0200
Registrant's Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Company was approximately $422,700,000 on February 27, 1998 based on the last
reported sale prices of the Company's Common Stock on the Nasdaq National Market
on February 27, 1998. There were 24,361,540 shares of Common Stock outstanding
as of February 27, 1998.
--------------
<PAGE> 2
Except as otherwise noted, all information herein gives effect to the
two-for-one stock split effected by the Company as a 100% stock dividend
distributed on March 9, 1998 to stockholders of record on February 20, 1998.
Part II, Item 8 of the Annual Report on Form 10-K of Sapient Corporation
("Sapient" or the "Company") for the fiscal year ended December 31, 1997 is
hereby amended and restated in its entirety as follows:
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SAPIENT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report................................ 3
Consolidated Balance Sheets................................. 4
Consolidated Statements of Income........................... 5
Consolidated Statements of Stockholders' Equity............. 6
Consolidated Statements of Cash Flows....................... 7
Notes to Consolidated Financial Statements.................. 8
</TABLE>
2
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Sapient Corporation:
We have audited the accompanying consolidated balance sheets of Sapient
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sapient
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 23, 1998, except
for Note 13 which is
as of January 29, 1998
3
<PAGE> 4
SAPIENT CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $47,314 $50,301
Short term investments................................. 17,092 9,540
Accounts receivable, less allowance for doubtful
accounts of $425 and $150 for 1997 and 1996,
respectively......................................... 16,217 11,744
Unbilled revenues on contracts......................... 9,071 4,674
Prepaid expenses....................................... 680 317
Other current assets................................... 959 150
Deferred income taxes.................................. 35 318
------- -------
Total current assets.............................. 91,368 77,044
Property and equipment, net................................. 6,315 2,575
Other assets................................................ 330 68
------- -------
Total assets...................................... $98,013 $79,687
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank.................................. $ 208 $ 288
Accounts payable....................................... 15 96
Accrued expenses....................................... 1,924 1,569
Accrued compensation................................... 3,453 2,281
Income taxes payable................................... 1,255 1,551
Deferred income taxes.................................. 1,820 142
Deferred revenues on contracts......................... 6,308 4,916
------- -------
Total current liabilities......................... 14,983 10,843
Deferred income taxes.................................. 121 1,296
Other long term liabilities............................ 910 755
------- -------
Total liabilities................................. 16,014 12,894
------- -------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.01 per share; 5,000,000
shares authorized and none outstanding at December
31, 1996 and 1997.................................... -- --
Common stock, par value $0.01 per share, 40,000,000
shares authorized, 24,206,570 shares issued and
outstanding at December 31, 1997; 23,597,258 shares
issued and outstanding at December 31, 1996.......... 242 236
Additional paid-in capital............................. 57,479 54,662
Retained earnings...................................... 24,278 11,920
Notes receivable from stockholders..................... -- (25)
------- -------
Total stockholders' equity........................ 81,999 66,793
------- -------
Total liabilities and stockholders' equity........ $98,013 $79,687
======= =======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
4
<PAGE> 5
SAPIENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Revenues.................................................... $90,360 $49,009 $24,481
Operating expenses:
Project personnel costs................................ 43,816 22,985 11,723
Selling and marketing.................................. 5,893 2,422 1,129
General and administrative............................. 22,108 14,294 6,733
Acquisition costs...................................... 560 -- --
------- ------- -------
Total operating expenses.......................... 72,377 39,701 19,585
------- ------- -------
Income from operations................................. 17,983 9,308 4,896
Interest income............................................. 2,078 1,098 13
------- ------- -------
Income before income taxes............................. 20,061 10,406 4,909
Income taxes................................................ 7,703 3,936 1,995
------- ------- -------
Net Income........................................ $12,358 $ 6,470 $ 2,914
======= ======= =======
Basic net income per share.................................. $ 0.52 $ 0.30 $ 0.16
======= ======= =======
Diluted net income per share................................ $ 0.47 $ 0.27 $ 0.14
======= ======= =======
Weighted average common shares.............................. 23,996 21,631 18,275
Weighted average common share equivalents................... 2,083 2,425 2,851
------- ------- -------
Weighted average common shares and common share
equivalents............................................... 26,079 24,056 21,126
======= ======= =======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
5
<PAGE> 6
SAPIENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<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
------ ------ ------ ------ ---------- -------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994......... 10,581 $106 7,098 $ 71 $ -- $ 2,536 $(50) $ 2,663
Notes receivable from
stockholders.......... -- -- -- -- -- -- (25) (25)
Exercised stock
options............... -- -- 566 6 37 -- -- 43
Net income.............. -- -- -- -- -- 2,914 -- 2,914
------ ---- ------ ---- ------- ------- ---- -------
Balance at
December 31, 1995......... 10,581 106 7,664 77 37 5,450 (75) 5,595
Notes repaid from
stockholders.......... -- -- -- -- -- -- 50 50
Exercised stock
options............... 932 9 -- -- 204 -- -- 213
Proceeds from public
offerings............. 4,390 44 -- -- 54,053 -- -- 54,097
Conversion of non-voting
shares to voting
shares................ 7,664 77 (7,664) (77) -- -- -- --
Tax benefit of
disqualifying
dispositions of stock
options............... -- -- -- -- 108 -- -- 108
Stock based
compensation.......... 31 -- -- -- 260 -- -- 260
Net income.............. -- -- -- -- -- 6,470 -- 6,470
------ ---- ------ ---- ------- ------- ---- -------
Balance at
December 31, 1996......... 23,598 236 -- -- 54,662 11,920 (25) 66,793
Notes repaid from
stockholders.......... -- -- -- -- -- -- 25 25
Exercised stock
options............... 608 6 -- -- 1,783 -- -- 1,789
Tax benefit of
disqualifying
dispositions of stock
options............... -- -- -- -- 1,034 -- -- 1,034
Net income.............. -- -- -- -- -- 12,358 -- 12,358
------ ---- ------ ---- ------- ------- ---- -------
Balance at
December 31, 1997......... 24,206 $242 -- $ -- $57,479 $24,278 $ -- $81,999
====== ==== ====== ==== ======= ======= ==== =======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
6
<PAGE> 7
SAPIENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 12,358 $ 6,470 $ 2,914
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 2,450 1,244 512
Deferred income taxes.................................. 786 (1,030) 1,997
Allowance for doubtful accounts........................ 275 -- 50
Stock compensation expense............................. -- 260 --
Changes in operating assets and liabilities:
Increase in accounts receivable................... (4,748) (4,080) (4,674)
Increase in unbilled revenues on contracts........ (4,397) (2,392) (2,264)
Increase in prepaid expenses...................... (363) (172) (125)
(Increase) decrease in other current assets....... (809) (150) 94
Decrease (increase) in income tax receivable...... -- 480 (480)
(Increase) decrease in other assets............... (262) 49 (65)
(Decrease) increase in accounts payable........... (81) (397) 164
Increase in accrued expenses...................... 355 546 275
Increase in accrued compensation.................. 1,172 1,419 478
Increase (decrease) in income taxes payable....... 738 1,552 (1,160)
Increase (decrease) in other long term
liabilities..................................... 155 717 (48)
Increase in deferred revenues on contracts........ 1,392 2,541 1,207
-------- -------- -------
Net cash provided by (used in) operating
activities................................. 9,021 7,057 (1,125)
-------- -------- -------
Cash flows from investing activities:
Purchase of property and equipment..................... (6,190) (2,034) (1,116)
Sales and maturities of short term investments......... 12,190 -- --
Purchases of short term investments.................... (19,742) (9,540) --
-------- -------- -------
Net cash used in investing activities........ (13,742) (11,574) (1,116)
-------- -------- -------
Cash flows from financing activities:
Proceeds from (payments to) stockholders for notes
receivable........................................... 25 50 (25)
Exercise of stock options.............................. 1,789 213 43
Net proceeds from initial public offering.............. -- 32,403 --
Net proceeds from follow-on public offering............ -- 21,694 --
Principal payments on notes payable to related
parties.............................................. -- -- (16)
Principal payments on notes payable to bank............ (80) (49) (18)
-------- -------- -------
Net cash provided by financing activities.... 1,734 54,311 (16)
-------- -------- -------
(Decrease) increase in cash and cash equivalents............ (2,987) 49,794 (2,257)
Cash and cash equivalents, beginning of year................ 50,301 507 2,764
-------- -------- -------
Cash and cash equivalents, end of year...................... $ 47,314 $ 50,301 $ 507
-------- -------- -------
Schedule of non-cash financing activities:
Tax benefit of disqualifying dispositions of stock
options.............................................. $ 1,034 $ 108 $ --
======== ======== =======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
7
<PAGE> 8
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS
Sapient Corporation (together with its wholly owned subsidiaries, "Sapient"
or the "Company") develops client/server and Web-based software applications
designed to help organizations improve their processes and performance. Services
provided include implementation and integration of packaged software solutions,
custom software development, ERP implementations, production support and
business and operational consulting.
On December 15, 1997, the Company acquired all of the outstanding common
stock of EXOR Technologies, Inc. ("EXOR") in exchange for 611,738 shares of
Sapient Common Stock (see Note 12). The Company's Consolidated Financial
Statements have been restated for all periods presented to reflect the
acquisition of EXOR, which has been accounted for as a pooling of interests.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
(b) 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.
(c) Short-term Investments
Short-term investments are available-for-sale securities, which are
recorded at fair market value. The difference between fair market value and cost
is not material. Realized gains and losses from sales of available-for-sale
securities were not material for any period presented.
(d) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are computed using the straight
line and accelerated methods 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.
(e) 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). Revenues
pursuant to time and material contracts are generally recognized as services are
provided. 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 are comprised of costs, plus
earnings on certain contracts in excess of contractual billings on such
contracts. Billings in excess of costs plus earnings are classified as deferred
revenues.
(f) Income Taxes
The Company records income taxes using the asset and liability method.
Deferred income 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 income
tax bases, operating
8
<PAGE> 9
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
loss and tax credit carryforwards. Deferred income 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 income tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
(g) Financial Instruments and 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 and cash equivalents, accounts receivable
and debt instruments at both December 31, 1997 and 1996 approximate their
carrying amounts.
(h) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(i) Impairment of Long-Lived Assets
In accordance with Financial Accounting Standards Board Statement No. 121,
the Company records impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount.
(j) Research and Development Costs
Research and development expenditures are charged to operations as
incurred. To date, substantially all research and development activities of the
Company have been pursuant to customer contracts and, accordingly, have been
expensed as project costs. The Company has not capitalized any software
development costs since such costs have neither been significant nor can the
future economic benefit be reasonably determined.
(k) Stock-Based Compensation
Statement of Financial Accounting Standards No. 123 ("SFAS 123") requires
that companies either recognize compensation expense for grants of stock, stock
options, and other equity instruments based on fair value, or provide pro forma
disclosure of net income and earnings per share in the notes to the financial
statements. The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
under SFAS No. 123 for the Company's stock option plans, and footnote disclosure
is provided in Note 8.
(l) New Accounting Pronouncements
During 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 establishes a
different method of computing net income per share than previously required
under the provisions of Accounting Principles Board Opinion No. 15, "Earnings
per
9
<PAGE> 10
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Share," and requires restatement of all prior periods presented. Under SFAS 128,
the Company presents both basic net income per share and diluted net income per
share. Basic net income per share is based on the weighted average number of
shares outstanding during the period. Diluted net income per share reflects the
per share effect of dilutive stock options and other dilutive common stock
equivalents.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for reporting comprehensive income and its
components in the body of the financial statements. Comprehensive income
includes net income as currently reported under Generally Accepted Accounting
Principles and also considers the effect of additional economic events that
affect a Company but are not required to be recorded in determining net income
but are rather reported as a separate component of stockholders' equity. These
events include certain foreign currency transactions and related hedging
activities accounted for under Statement of Financial Accounting Standards No.
52 "Foreign Currency Translation" and unrealized gains and losses on investments
in marketable securities accounted for under Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities." The Company plans to adopt SFAS 130 in 1998. The effect of adopting
SFAS 130 is not expected to be material to the Company.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information", which establishes standards for reporting
information about operating segments in annual and interim financial statements
issued to shareholders. This Statement also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The Company plans to adopt this Statement in 1998.
(3) PROPERTY AND EQUIPMENT
The cost and accumulated depreciation of property and equipment at December
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Leasehold improvements...................................... $ 3,559 $ 548
Furniture and fixtures...................................... 904 562
Office equipment............................................ 1,714 981
Computer equipment.......................................... 4,810 2,706
------- -------
10,987 4,797
Less accumulated depreciation and amortization......... (4,672) (2,222)
------- -------
Property and equipment, net................................. $ 6,315 $ 2,575
======= =======
</TABLE>
(4) BANK LOAN
The Company has a $5,000,000 loan facility with a bank which expires in
June 1998. Borrowings under this agreement bear interest at the bank's prime
rate. The Company had no borrowings under this facility at December 31, 1997 or
1996. The facility contains various financial covenants, including limitations
on the payment of cash dividends and maintenance of certain financial ratios.
10
<PAGE> 11
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Federal, current........................................ $5,220 $ 3,951 $ (4)
State, current.......................................... 1,697 1,015 2
------ ------- ------
6,917 4,966 (2)
Federal, deferred....................................... 647 (924) 1,543
State, deferred......................................... 139 (106) 454
------ ------- ------
786 (1,030) 1,997
------ ------- ------
Income tax expense...................................... $7,703 $ 3,936 $1,995
====== ======= ======
</TABLE>
Income tax expense for the years ended December 31, 1997, 1996 and 1995
differed from the amounts computed by applying the U.S. statutory income tax
rate to pre-tax income as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate................................... 35.0% 35.0% 34.0%
State income taxes, net of federal benefit.................. 6.0 5.7 6.3
Tax exempt interest......................................... (3.3) (2.6) --
Other, net.................................................. 0.7 (0.3) 0.3
---- ---- ----
Effective income tax rate................................... 38.4% 37.8% 40.6%
==== ==== ====
</TABLE>
At December 31, 1997 and 1996, deferred income tax assets and liabilities
resulted from reporting differences in the recognition of income and expense for
income tax and financial reporting purposes. The sources and tax effects of
these temporary differences are presented below:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Deferred revenue....................................... $1,855 $1,736
Allowance for doubtful accounts........................ 60 62
Accrual for compensation............................... 390 408
Other accruals......................................... 745 634
Property and equipment................................. 548 108
Stock compensation..................................... -- 104
------ ------
Total gross deferred income tax assets............ 3,598 3,052
====== ======
Deferred income tax liabilities:
Deferred taxes relating to the use of cash method of
accounting for tax purposes prior to 1996............ (1,309) (2,248)
Unbilled revenue....................................... (3,652) (1,924)
Other accruals......................................... (543) --
------- -------
Total gross deferred income tax liabilities....... $(5,504) $(4,172)
------- -------
Net deferred income tax liabilities............... $(1,906) $(1,120)
======= =======
</TABLE>
In assessing the realizability of deferred income tax assets, the Company
considers whether it is more likely than not that some portion or all of the
deferred income tax assets will not be realized. Due to the fact
11
<PAGE> 12
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that the Company has sufficient taxable income in the federal carryback period
and anticipates sufficient future taxable income over the periods in which
deferred income tax assets are deductible, the ultimate realization of deferred
income tax assets for federal and state income tax purposes appears more likely
than not.
Total income tax expense for the years ended December 31, 1997, 1996 and
1995 was allocated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes from continuing operations................... $ 7,703 $3,936 $1,995
Stockholders' equity, for compensation expense for tax
purposes in excess of amounts recognized for financial
statement purposes...................................... (1,034) (108) --
------- ------ ------
$ 6,669 $3,828 $1,995
======= ====== ======
</TABLE>
Total income taxes paid in 1997, 1996 and 1995 were approximately
$6,179,000, $2,838,000 and $226,000, respectively.
(6) COMMITMENTS AND CONTINGENCIES
The Company maintains its executive office in Massachusetts and operating
offices in several locations throughout the United States. The Company also
leases office equipment under various operating leases. Future minimum rental
commitments under all noncancelable operating leases with initial or remaining
terms in excess of one year were as follows at December 31, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1998........................................................ $ 7,140
1999........................................................ 7,184
2000........................................................ 6,745
2001........................................................ 7,744
2002........................................................ 6,358
Thereafter.................................................. 23,267
</TABLE>
Rent expense for the years ended December 31, 1997, 1996 and 1995 was
approximately $3,996,000, $3,144,000, and $1,300,000, respectively.
The Company has issued letters of credit with a bank in the aggregate
amount of $975,000 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 contingent liabilities
when it is probable that future expenditures will be made and such expenditures
can be reasonably estimated.
The Company is in arbitration 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. The
Company plans to vigorously contest these claims. Although the Company does not
expect the claims to have a material adverse effect on the Company's business,
results of operations or financial condition, an adverse judgment or settlement
could have a material adverse effect on the operating results reported by the
Company for the period in which any such adverse judgment or settlement occurs.
12
<PAGE> 13
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) SIGNIFICANT CUSTOMERS
No customer accounted for greater than 10 percent of total revenues in 1997
or accounts receivable at December 31, 1997. Two customers accounted for 19
percent and 15 percent, respectively, of total revenues in 1996 and 10 percent
of accounts receivable at December 31, 1996. Three customers accounted for 14
percent, 14 percent and 12 percent, respectively, of total revenues in 1995 and
34 percent of accounts receivable at December 31, 1995.
(8) STOCK 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 up to an aggregate
of 5,000,000 shares of non-voting Common Stock. Since consummation of its
initial public offering of Common Stock in April 1996, no further grants or
awards may be made pursuant to the 1992 Stock Plan (but previously outstanding
awards remain outstanding but are exercisable for voting Common Stock).
Most 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 was specified by the Board at the
date the option was granted, but in the case of an ISO, was not less than the
fair market value of the Company's Common Stock on the date of grant. The
duration of any option was specified by the Board, but no option designated as
an ISO can be exercised beyond ten years from the date of grant. Stock options
granted under the 1992 Plan 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 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 awards 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 Plan is 4,800,000
shares. The 1996 Plan is administered by the Compensation Committee of the Board
of Directors, which selects the persons to whom stock options and other 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 grant
date fair market value of the Common Stock. The exercise price of options
qualifying as Incentive Stock Options may not be less than the grant date fair
market value of the Common Stock. Stock options granted under the 1996 Plan are
nontransferable, 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).
(c) Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan")
authorizes the issuance of up to 300,000 shares of Common Stock to participating
employees through a series of semi-annual offerings. The maximum number of
shares available in each offering is 50,000 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 percent 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. Approximately
13
<PAGE> 14
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
57 percent of eligible employees participated in the two offerings under the
Purchase Plan during the year ended December 31, 1997. Approximately 70 percent
of eligible employees participated in the first offering under the Purchase
Plan, which terminated on December 31, 1996. Under the Purchase Plan, the
Company sold 93,628 and 33,830 shares of Common Stock in 1997 and 1996,
respectively.
(d) 1996 Directors Stock Option Plan
The Company's 1996 Directors Stock Option Plan (the "Directors Plan")
authorizes the issuance of 60,000 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 10,000 shares of Common Stock at an exercise price equal to the grant
date fair market value of the Company's Common Stock. Options granted 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 December 31, 1997, no options had been granted under the
Directors Plan.
A summary of the status of the Company's two fixed stock option plans as of
December 31, 1997 and 1996 and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
------------- ------ -------- ------ -------- ------ --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............ 2,982 $ 5.14 3,018 $ 0.75 2,852 $0.28
Granted..................................... 2,098 $23.59 1,066 $13.18 878 $1.94
Exercised................................... (608) $ 0.63 (932) $ 0.25 (566) $0.08
Forfeited................................... (89) $12.27 (170) $ 3.41 (146) $0.97
----- ----- -----
Outstanding at end of year.................. 4,383 $14.49 2,982 $ 5.14 3,018 $0.76
====== ===== =====
Options exercisable at year end............. 755 722 928
====== ===== =====
Weighted average grant date fair
value of options granted during the
year...................................... $12.67 $7.16 $0.10
====== ===== =====
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
------------------------ ----------- ---------------- -------- ----------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
0.00 to $ 2.50..................... 1,353 2.7 years $ 1.19 551 $ 0.73
2.51 to $ 7.00..................... 445 4.2 years $ 5.71 37 $ 5.33
7.01 to $ 20.00.................... 410 9.0 years $17.22 73 $17.89
20.01 to $ 22.50................... 632 9.0 years $21.07 93 $21.08
22.51 to $ 25.00................... 604 9.7 years $24.28 1 $23.25
25.01 to $27.50.................... 939 9.9 years $25.88 -- --
----- ---
4,383 6.9 years $14.49 755 $ 5.15
===== ===
</TABLE>
The Company has four stock-based compensation plans, which are described
above. The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. No compensation has been recognized relative to grants
under these plans. Had compensation cost for the awards under those plans been
determined based on the grant date fair values for awards under those plans
consistent with the method
14
<PAGE> 15
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
required under SFAS 123, the Company's net income and net income per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1994
---- ---- ----
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Net income
As reported........................................ $12,358 $6,470 $2,914
Pro forma.......................................... $ 5,274 $5,021 $2,899
Basic net income per share
As reported........................................ $ 0.52 $ 0.30 $ 0.16
Pro forma.......................................... $ 0.22 $ 0.23 $ 0.16
Diluted net income per share
As reported........................................ $ 0.47 $ 0.27 $ 0.14
Pro forma.......................................... $ 0.20 $ 0.21 $ 0.14
</TABLE>
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997, 1996 and 1995, respectively: dividend yield
of 0.0 percent for each year, expected volatility of 0.0 percent for the 1992
Plan options and 64.8, 104.9 and 0.0 percent for the 1996 Plan options, risk
free interest rates ranging from 5.0 to 5.25 percent for the 1992 Plan options
and 5.0 to 5.7 percent for the 1996 Plan options, and expected lives of 4 years
for the 1992 Plan and the 1996 Plan options.
Pro-forma compensation cost related to the Purchase Plan is recognized for
the fair value of the employees' purchase rights, which was estimated using the
Black-Scholes model with the following assumptions for the years ended December
31, 1997 and 1996: dividend yield of 0.0 and 0.0 percent, expected volatility of
64.8 and 67.5 percent, risk free interest rate of 5.7 and 5.0 percent and
expected life of 6 months.
Pro forma net income derived as a result of applying SFAS 123 may not be
representative of the effects on reported net income for future years.
(9) RETIREMENT PLANS
The Company established a 401(k) retirement savings plan for employees in
June 1994. Under the provisions of the plan, the Company matches 25 percent of
an employee's contribution, up to a maximum of $1,250 per employee per year.
Total Company contributions in 1997, 1996 and 1995 were approximately $520,000,
$356,000 and $94,000, respectively.
(10) PUBLIC OFFERINGS
The Company completed its initial public offering (IPO) of Common Stock on
April 10, 1996. The IPO resulted in the issuance of 3,390,000 shares of Common
Stock. Proceeds to the Company, net of underwriting discounts and costs of the
offering, were approximately $32.4 million.
The Company completed a follow-on offering of Common Stock on October 29,
1996 which resulted in the issuance of 1,000,000 shares of Common Stock.
Proceeds to the Company, net of underwriting discounts and costs of the
offering, were approximately $21.7 million.
(11) CAPITAL STOCK
(a) Increase in Authorized Common Stock; Conversion of Non-Voting Common
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, all shares of non-voting Common Stock then outstanding would be
15
<PAGE> 16
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
converted automatically into an equal number of shares of voting Common Stock
and 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, $0.01 par value, of Preferred Stock with terms to be
established by the Board at the time of issuance.
(12) ACQUISITIONS
On December 15, 1997, the Company issued 611,738 shares of Sapient Common
Stock for all of the outstanding shares of common stock of EXOR, a provider of
ERP implementation services using Oracle applications. This business combination
has been accounted for as a pooling of interests and, accordingly, the
Consolidated Financial Statements for the periods prior to the combination have
been restated to include the accounts and results of operations of EXOR.
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying Consolidated Financial
Statements are summarized below.
<TABLE>
<CAPTION>
YEAR ENDED
NINE MONTHS DECEMBER 31,
ENDED ------------------
SEPTEMBER 30, 1997 1996 1995
------------------ ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Net Revenues:
Sapient............................................. $57,319 $44,580 $21,930
EXOR................................................ 6,076 4,429 2,551
------- ------- -------
Combined............................................ $63,395 $49,009 $24,481
======= ======= =======
Net Income (Loss):
Sapient............................................. $ 8,505 $ 6,571 $ 2,830
EXOR................................................ 617 (101) 84
------- ------- -------
Combined............................................ $ 9,122 $ 6,470 $ 2,914
======= ======= =======
</TABLE>
(13) SUBSEQUENT EVENT
On January 29, 1998 the Company declared a two-for-one stock split effected
as a 100 percent stock dividend distributed on March 9, 1998, to all
shareholders of record on February 20, 1998. All financial results and share
information have been restated to reflect the effect of the stock dividend.
16
<PAGE> 17
Part III of the Annual Report on Form 10-K of Sapient for the fiscal year
ended December 31, 1997 is hereby amended and restated in its entirety as
follows:
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. DIRECTORS
Set forth below is certain information regarding all of the persons
currently serving as directors of the Company.
CURRENT DIRECTORS -- TERMS EXPIRING 1998
J. Stuart Moore 36 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.
Darius W. Gaskins, Jr. 58 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.
CURRENT DIRECTORS -- TERMS EXPIRING 1999
R. Stephen Cheheyl 52 Mr. Cheheyl has been a director of the Company
since January 1996. From October 1994 until he
retired on December 31, 1995, 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 Infinium Software, Inc.
Carl S. Sloane 61 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.
17
<PAGE> 18
CURRENT DIRECTORS -- TERMS EXPIRING 2000
Jerry A. Greenberg 32 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.
Bruce C. Parker 50 Mr. Parker has been a director of the Company
since September 1995. Since December 1997, Mr.
Parker has been Senior Vice President and Chief
Information Officer at United Airlines, Inc. From
September 1994 to December 1997, Mr. Parker was
Senior Vice President -- Management Information
Systems and Chief Information Officer at Ryder
System Inc., a transportation company. 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.
B. EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information regarding all of the persons
currently serving as executive officers of the Company.
Jerry A. Greenberg 32 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.
J. Stuart Moore 36 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.
Sheeroy Desai 31 Mr. Desai joined the Company in September 1991 and
has served as Executive Vice President since
September 1994. Mr. Desai is responsible for
managing the Company's metropolitan New York and
Atlanta offices.
Susan D. Johnson 32 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.
Preston Bradford 41 Mr. Bradford joined the Company in September 1994
and became a Vice President in April 1995. Mr.
Bradford is responsible for managing the Company's
Cambridge, Chicago and Dallas offices. From March
1992 to September 1994, Mr. Bradford was Director
of Sales Compensation and Corporate Marketing with
Sprint Communications, Inc., a telecommunications
company.
Christopher Davey 33 Mr. Davey joined the Company in February 1993
and became a Vice President in September 1994.
From June 1992 until February 1993, Mr.
18
<PAGE> 19
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.
Anthony Jules 30 Mr. Jules joined the Company in June 1992 and
became a Vice President in September 1994. From
March 1995 until December 1996, Mr. Jules was
responsible for managing the Company's San
Francisco office. In August 1997, Mr. Jules became
Vice President of the Company's People Strategy
Organization, which combines all of the Company's
recruiting, cultural, morale, communications,
benefits and leadership development teams. Prior
to joining Sapient, Mr. Jules was enrolled in a
Ph.D. program at MIT.
Desmond Varady 32 Mr. Varady joined the Company in October 1993 and
became a Vice President in September 1994. Mr.
Varady is responsible for managing the Company's
San Francisco and Los Angeles offices. 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, Inc., a
computer information service and networking
services provider.
C. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and holders of more than 10% of the
Common Stock to file with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Based solely upon a review of reports
submitted, and representations made, to the Company, the Company believes that
during 1997 its executive officers and directors and holders of more than 10% of
the Common Stock complied with all Section 16(a) filing requirements.
ITEM 11. EXECUTIVE COMPENSATION
A. EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation paid in each of the last three fiscal years to Messrs. Greenberg
and Moore, the Company's Co-Chief Executive Officers, and the Company's two
other executive officers during fiscal 1997 (the "Named Executive Officers"):
19
<PAGE> 20
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION(1) AWARDS
---------------------- ------------
NUMBER OF
SHARES UNDER-
LYING STOCK ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#)(2) ($)(3)
- --------------------------- ---- ---------- --------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Jerry A. Greenberg............. 1997 $ 50,000 $ 107,396 0 $ 470
Co-Chairman of the Board and 1996 50,000 106,567 0 0
Co-Chief Executive Officer 1995 50,000 110,500 0 0
J. Stuart Moore................ 1997 $ 50,000 $ 107,396 0 $ 1,250
Co-Chairman of the Board and 1996 50,000 106,567 0 1,250
Co-Chief Executive Officer 1995 50,000 110,500 0 0
Sheeroy D. Desai............... 1997 $ 50,000 $ 109,650 0 $ 1,250
Executive Vice President 1996 50,000 94,900 0 1,172
1995 50,000 80,750 0 1,250
Susan D. Johnson............... 1997 $ 60,000 $ 67,750 40,000 $ 1,250
Chief Financial Officer 1996 60,000 43,875 0 1,250
1995 60,000 26,230 30,000 1,250
</TABLE>
- ------------
(1) In accordance with the rules of the Securities and Exchange 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 $50,000 or ten percent of the total
annual salary and bonus for the Named Executive Officers for such year.
(2) The Company has never granted any stock appreciation rights.
(3) Amounts shown in this column represent the Company's matching
contributions under the Company's 401(k) Plan.
Each Named Executive Officer has executed agreements which prohibit them
from competing with the Company for a period of 12 months following termination
of their employment with the Company.
20
<PAGE> 21
B. OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1997 by the Company to the
Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------
POTENTIAL REALIZABLE
PERCENT OF VALUE AT
TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED PRICE APPRECIATION
UNDERLYING TO EXERCISE FOR OPTION
OPTIONS EMPLOYEES OR BASE TERM(3)
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#)(1) YEAR ($/SH)(2) DATE 5%($) 10%($)
- ------------------ --------- --------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jerry A. Greenberg -- -- -- -- -- --
J. Stuart Moore -- -- -- -- -- --
Sheeroy D. Desai -- -- -- -- -- --
Susan D. Johnson 10,000 .48% $20.25 1/14/07 $ 127,351 $ 322,733
30,000 1.43% $25.875 12/15/07 $ 488,179 $1,237,143
</TABLE>
- ----------
(1) Represents options granted pursuant to the Company's 1996 Equity Stock
Incentive Plan. Options granted become exercisable in four equal
installments commencing on the first anniversary of the date of grant.
(2) The exercise price is equal to the fair market value of the Company's
Common Stock on the date of grant.
(3) Potential realizable value is based on an assumption that the market price
of the stock will appreciate at the stated rate, compounded annually, from
the date of grant until the end of the 10-year term. These values are
calculated based on rules promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate or projection of
future stock prices. Actual gains, if any, on stock option exercises will
depend on the future performance of the Company's Common Stock, the
optionholder's continued employment through the option period and the date
on which the options are exercised.
C. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
The following table summarizes, for each of the Named Executive Officers,
the number of shares acquired on exercise of options during the fiscal year
ended December 31, 1997, the aggregate dollar value realized upon such exercise
and the number and value of unexercised options held by such officers on
December 31, 1997.
21
<PAGE> 22
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS AT FISCAL THE-MONEY OPTIONS AT
ACQUIRED YEAR-END FISCAL YEAR-END
ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($)(1) (#) ($)(2)
- --------------------------- -------- --------- -------------- ------------------------
<S> <C> <C> <C> <C>
Jerry A. Greenberg(3)...... -- -- -- --
J. Stuart Moore(3)......... -- -- -- --
Sherroy D. Desai........... 10,000 $260,225 72,000/128,000 $2,101,510/3,733,080
Susan D. Johnson........... 0 0 17,000/ 76,000 484,750/1,219,875
</TABLE>
- ------------
(1) Represents the difference between the exercise price and the fair market
value of the Common Stock on the date of exercise.
(2) Represents the difference between the last reported sale price per share
($30.625) of the Common Stock on December 31, 1997, as reported on the
Nasdaq National Market, and the exercise price.
(3) Messrs. Greenberg and Moore do not participate in the Company's stock
plans.
D. DIRECTOR COMPENSATION
Each non-employee director is paid $3,000 for attendance in person at a
quarterly Board meeting and $750 for attendance in person at any committee
meeting that is not held on the same day as a Board meeting. If a director
participates by telephone, rather than in person, one-half of such amount is
paid. In addition, each director is reimbursed for expenses incurred in
connection with attending meetings. Directors receive no other cash compensation
for serving as directors.
On July 17, 1997, each of the Company's four non-employee directors was
granted a stock option under the Company's 1996 Equity Stock Incentive Plan to
acquire 4,000 shares of Common Stock at an exercise price of $27.375 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.
In February 1996, the Board adopted and the stockholders approved the 1996
Director Stock Option Plan (the "Director Plan"), pursuant to which each new
non-employee director elected to the Board of Directors in the future will be
granted, upon his or her initial election as a director, an option to purchase
10,000 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-year 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). No options have ever been granted
under the Director Plan, which provides for the issuance of a maximum of 60,000
shares.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 28, 1998
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known to the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each director and nominee for director of the
Company, (iii) the Named Executive Officers, and (iv) the directors and
executive officers of the Company as of February 28, 1998 as a group.
22
<PAGE> 23
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP(1)
----------------------------------
NUMBER OF
BENEFICIAL OWNER SHARES PERCENT OF CLASS
- -------------------------------------------------------------- ------------ ----------------
<S> <C> <C>
5% STOCKHOLDERS
Jerry A. Greenberg............................................ 6,580,830(2) 27.0%
Co-Chief Executive Officer
c/o Sapient Corporation
One Memorial Drive
Cambridge, Massachusetts 02142
J. Stuart Moore............................................... 6,486,210(3) 26.6%
Co-Chief Executive Officer
c/o Sapient Corporation
One Memorial Drive
Cambridge, Massachusetts 02142
Pilgrim Baxter & Associates, Ltd.............................. 1,332,000(4) 5.5%
825 Duportail Road
Wayne, PA 19087
OTHER DIRECTORS
R. Stephen Cheheyl............................................ 7,600 *
Darius W. Gaskins, Jr......................................... 7,600 *
Bruce D. Parker............................................... 7,600 *
Carl S. Sloane................................................ 7,600 *
OTHER NAMED EXECUTIVE OFFICERS
Sheeroy D. Desai.............................................. 392,704 1.6%
Susan D. Johnson.............................................. 29,300 *
All executive officers and directors as a group (12 persons) 13,983,532 56.8%
</TABLE>
- ----------
* Less than 1%
(1) Each stockholder possesses sole voting and investment power with respect
to the shares listed, except as otherwise noted. Includes the following
number of shares issuable within the 60-day period following February 28,
1998 pursuant to the exercise of options: Mr. Cheheyl (5,000); Mr. Gaskins
(5,000); Mr. Parker (5,000); Mr. Sloane (5,000); Mr. Desai (94,000); Ms.
Johnson (20,500); and all executive officers and directors as a group
(272,600). As of February 28, 1998, there were 24,361,540 shares
outstanding.
(2) Includes 368,344 shares held by the Jerry A. Greenberg Three-Year
Qualified Annuity Trust-1996, 1,782,904 shares held by the Jerry A.
Greenberg Eight-Year Qualified Annuity Trust-1996 and 517,082 shares held
by the Jerry A. Greenberg Three-Year Qualified Annuity Trust-1997, of
which trusts Mr. Greenberg is a co-trustee with Samuel C. Sichko and over
which shares Mr. Greenberg shares voting and/or investment control.
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(3) Includes (i) 1,902,304 shares held by the J. Stuart Moore Eight-Year
Qualified Annuity Trust- 1996, of which Mr. Moore is the sole trustee and
over which Mr. Moore has sole voting and investment control, (ii) 428,000
shares held by the J. Stuart Moore Two-Year Qualified Annuity Trust-1996
and 26,666 shares held by the J. Stuart Moore Remainder Trust, of which
trusts Mr. Moore is a co-trustee and over which shares Mr. Moore shares
investment control, (iii) 11,410 shares held by the J. Stuart Moore
Irrevocable Trust, of which Mr. Moore's wife is a co-trustee and over
which shares Mr. Moore's wife shares voting and/or investment control and
(iv) 540,000 shares held by the J. Stuart Moore Gift Trust of 1995, over
which shares Mr. Moore does not have voting or investment control but in
which shares Mr. Moore has a beneficial interest. Mr. Moore disclaims
beneficial ownership of the shares held by the trusts except to the extent
of his proportionate pecuniary interest therein.
(4) The information reported is based on a Schedule 13G, dated February 13,
1998, filed with the Securities and Exchange Commission by Pilgrim Baxter
& Associates, Ltd ("Pilgrim"). Pilgrim is a registered investment advisor,
in which capacity it has sole voting power over 1,096,200 shares and sole
dispositive power over 1,332,000 shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SAPIENT CORPORATION
By: /s/ Susan D. Johnson
-------------------------------------
Susan D. Johnson
Chief Financial Officer and Treasurer
Dated: March 17, 1998
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