<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 2, 1999
REGISTRATION STATEMENT NO. 333-89467
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SAPIENT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 04-3130648
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</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)
------------------------
DEBORAH ENGLAND GRAY, ESQ.
GENERAL COUNSEL
SAPIENT CORPORATION
ONE MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02142
(617) 621-0200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JONATHAN WOLFMAN, ESQ. KEITH F. HIGGINS, ESQ.
HALE AND DORR LLP ROPES & GRAY
60 STATE STREET ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02110
TELEPHONE: (617) 526-6000 TELEPHONE: (617) 951-7000
TELECOPY: (617) 526-5000 TELECOPY: (617) 951-7050
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] 333-________.
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. [ ] 333-________.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
SHALL DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
All share numbers and per share information in this prospectus is adjusted
to give effect to the two-for-one stock split announced by Sapient on October
21, 1999. The stock split will be effected in the form of a 100% stock dividend
which is expected to be paid on or about November 5, 1999 to stockholders of
record on November 1, 1999.
<PAGE> 3
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION. DATED NOVEMBER 2, 1999.
3,500,000 Shares
[SAPIENT CORPORATION CORPORATE LOGO]
Common Stock
-------------------------
Sapient Corporation is offering 1,114,600 of the shares to be sold in the
offering. The selling stockholders identified in this prospectus are offering an
additional 2,385,400 shares. Sapient will not receive any of the proceeds from
the sale of shares being sold by the selling stockholders.
The common stock is quoted on the Nasdaq National Market under the symbol
"SAPE". The last reported sale price for the common stock on November 1, 1999
was $69.09 per share.
See "Risk Factors" beginning on page 5 to read about factors you should
consider before buying shares of the common stock.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial price to public..................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Sapient....................... $ $
Proceeds, before expenses, to the selling stockholders...... $ $
</TABLE>
To the extent that the underwriters sell more than 3,500,000 shares of
common stock, the underwriters have the option to purchase up to an additional
525,000 shares from two of the selling stockholders at the initial price to the
public, less the underwriting discount.
-------------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
MORGAN STANLEY DEAN WITTER
FIRST UNION SECURITIES, INC.
FRIEDMAN BILLINGS RAMSEY
-------------------------
Prospectus dated , 1999.
<PAGE> 4
SAPIENT is a leading e-services consultancy providing Internet strategy
consulting and sophisticated Internet-based solutions to Global 1000 companies
and startup businesses.
OUR SERVICES INCLUDE:
/ / DIGITAL BUSINESS STRATEGY
Sapient helps clients launch, or transform themselves into, Internet-based
businesses through strategic planning and organizational change management.
Inside Cover Artwork: Graphic depicting four overlapping circles
representing Sapient's services. Clockwise, the top circle is entitled "Digital
Business Strategy". The next circle is entitled "Experience Modeling". The
following circle is entitled "Technology" and then one entitled "Creative
Design". The circle in the center where these circles overlap is entitled
"Integrated Engagement Leadership".
/ / EXPERIENCE MODELING
Sapient's researchers employ a variety in innovative observation techniques to
help our clients understand and shape user experience.
/ / CREATIVE DESIGN
Sapient has extensive experience in developing visual and interactive content
and creating electronic brand experiences that enhance and extend our clients'
relationships with their customers.
/ / TECHNOLOGY DEVELOPMENT AND SYSTEMS INTEGRATION
Using our in-depth knowledge of the Internet and emerging technologies, Sapient
translates strategic, creative and business requirements into sophisticated and
functional technology platforms in short timeframes.
/ / INTEGRATED ENGAGEMENT LEADERSHIP
Sapient's integrated engagement leadership approach enables us to effectively
manage the relationships, complexities and risks associated with large-scale,
multidisciplinary engagements.
SAPIENT HAS APPROXIMATELY 1900
EMPLOYEES AND OFFICES IN
CAMBRIDGE, MASS. (HEADQUARTERS),
LONDON, MILAN, SYDNEY, ATLANTA,
CHICAGO, DALLAS, LOS ANGELES,
NEW YORK, SAN FRANCISCO,
AND WASHINGTON, D.C.
[LOGO]
SAPIENT
Architects for the
New Economy[TM]
<PAGE> 5
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PROSPECTUS SUMMARY
This summary does not contain all the information that you should consider
before investing in our common stock. You should read the entire prospectus
carefully, especially "Risk Factors" beginning on page 5.
SAPIENT CORPORATION
Sapient is a leading e-services consultancy providing Internet strategy
consulting and sophisticated Internet-based solutions to Global 1000 companies
and startup businesses. We help our clients define Internet strategies to
improve their competitive position and we design, architect, develop and
implement solutions to execute those strategies. These solutions focus on
large-scale and complex business-to-consumer and business-to-business electronic
commerce, digital customer relationship management, supply chain optimization,
electronic markets and Internet portals.
We believe that our key strength is our ability to deliver high quality
solutions, primarily on a fixed-price, fixed-timeframe basis, through a rapid,
effective and integrated process. Our services include:
- digital business strategy development;
- experience modeling;
- creative design;
- technology development and systems integration; and
- integrated engagement leadership.
We provide end-to-end solutions to our clients using multidisciplinary
teams composed of business strategists, researchers, creative specialists,
technology professionals and program managers. We deliver our solutions
primarily through five industry business units: financial services; media,
entertainment and communications; manufacturing, retail and distribution; public
sector; and energy services. Using this industry alignment helps us accurately
define and deliver tailored solutions that effectively address the market
dynamics and business opportunities that our clients face. We have been
providing Internet solutions for over five years and employ approximately 1,900
people in offices across the United States and in London, Milan and Sydney.
OUR MARKET OPPORTUNITY
The broad business acceptance of the Internet and electronic commerce has
created the need for companies to rapidly formulate Internet strategies and
solutions. Few organizations have the internal resources or skills necessary to
successfully design and implement Internet solutions. As a result, an increasing
number of organizations, from Global 1000 companies to startup Internet
businesses, are engaging Internet professional services firms. International
Data Corp. forecasts worldwide Internet services spending to grow from $7.8
billion in 1998 to $78.6 billion by 2003, which represents a compound annual
growth rate of more than 58%.
OUR OFFICES
Sapient Corporation was incorporated in Delaware in 1991. Our principal
executive offices are located at One Memorial Drive, Cambridge, MA 02142. Our
telephone number at that location is 617-621-0200 and our Internet address is
www.sapient.com. The information contained on our website is not incorporated by
reference in this prospectus. Unless the context otherwise requires, references
in this prospectus to "Sapient", "we", "us", and "our" refer to Sapient
Corporation and its subsidiaries.
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3
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Shares offered by Sapient......................... 1,114,600 shares
Shares offered by the selling stockholders........ 2,385,400 shares
Shares to be outstanding after the offering....... 57,188,500 shares
Nasdaq National Market symbol..................... SAPE
Use of proceeds................................... For general corporate purposes,
including working capital and possible
acquisitions and investments
</TABLE>
The shares of common stock to be outstanding after the offering exclude
12,430,214 shares issuable upon the exercise of outstanding stock options as of
September 30, 1999 at a weighted average exercise price of $18.22 per share.
All of the information in this prospectus:
- gives effect to the two-for-one stock split announced on October 21,
1999, to be effected as a 100% stock dividend, which is expected to be
distributed on or about November 5, 1999 to stockholders of record on
November 1, 1999; and
- assumes no exercise of the underwriters' overallotment option.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
This summary consolidated financial data includes for all periods presented
the accounts and operating results of EXOR and Adjacency, which we acquired in
transactions accounted for as poolings of interests, as described in Note 13 to
our consolidated financial statements. Income from operations for 1998 and for
the nine months ended September 30, 1998 include a charge for in-process
research and development of $11.1 million incurred in connection with our
acquisition of Studio Archetype.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ----------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues.................................. $11,796 $24,481 $49,795 $92,027 $164,872 $111,081 $195,021
Income from operations.................... 2,459 4,896 9,537 18,199 15,099 10,771 30,885
Net income................................ $ 1,589 $ 2,914 $ 6,699 $12,554 $ 9,364 $ 8,213 $ 20,833
Basic net income per share................ $ 0.04 $ 0.08 $ 0.15 $ 0.25 $ 0.18 $ 0.16 $ 0.38
Diluted net income per share.............. $ 0.04 $ 0.07 $ 0.13 $ 0.23 $ 0.16 $ 0.14 $ 0.33
Weighted average common shares............ 37,554 36,550 44,844 49,574 52,228 51,670 55,101
Weighted average common shares and common
share equivalents....................... 41,683 42,252 49,694 53,739 57,403 56,923 62,345
</TABLE>
The following table provides a summary of our consolidated balance sheets.
The as adjusted column also reflects our sale of 1,114,600 shares of common
stock at an assumed public offering price of $69.09 per share, after deducting
the estimated underwriters' discounts and commissions and offering expenses
payable by us.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1999
----------------------------------------------- ----------------------
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED
------ ------- ------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................... $1,894 $ 5,785 $66,369 $76,409 $121,779 $159,240 $232,222
Total assets.............................. 6,898 12,893 80,077 98,867 187,701 226,793 299,775
Total stockholders' equity................ 2,663 5,595 66,969 82,307 154,814 195,752 268,734
</TABLE>
4
<PAGE> 7
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the risks and uncertainties described below before purchasing
our common stock. If any of the following risks actually occur, our business,
financial condition or results of operations could be harmed. In that case, the
trading price of our common stock could decline, and you could lose all or part
of your investment.
IF BUSINESSES DO NOT INCREASE THEIR USE OF THE INTERNET AS A MEANS FOR
CONDUCTING COMMERCE, OUR REVENUES WILL BE ADVERSELY AFFECTED
Our future success depends heavily on the increased acceptance and use of
the Internet as a means for conducting commerce. We focus our services on the
development and implementation of Internet strategies and solutions. If commerce
on the Internet does not continue to grow, or grows more slowly than expected,
our revenue growth would slow or decline and our business, financial condition
and results of operations would be materially adversely affected. Consumers and
businesses may reject the Internet as a viable medium for commerce for a number
of reasons, including:
- inadequate network infrastructure;
- delays in the development of Internet enabling technologies and
performance improvements;
- delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity;
- delays in the development of security and authentication technology
necessary to effect secure transmission of confidential information;
- changes in, or insufficient availability of, telecommunications services
to support the Internet; and
- failure of companies to meet their customers' expectations in delivering
goods and services over the Internet.
IF WE DO NOT ATTRACT AND RETAIN QUALIFIED PROFESSIONAL STAFF, WE MAY NOT BE ABLE
TO ADEQUATELY PERFORM OUR CLIENT ENGAGEMENTS AND COULD NOT ACCEPT NEW CLIENT
ENGAGEMENTS
Our business is labor intensive and our success will depend in large part
upon our ability to attract, retain, train and motivate highly-skilled
employees. Because of the rapid growth of the Internet, there is intense
competition for employees who have strategic, experience modeling, creative
design, technical or program management experience. In addition, the Internet
has created many opportunities for people with the skills we seek to form their
own companies or join startup companies and these opportunities frequently offer
the potential for significant future financial profit through equity incentives
which we cannot match. During the third quarter of 1999, our rate of voluntary
employee turnover was higher than our target rate. We may not be successful in
attracting a sufficient number of highly skilled employees in the future, or in
retaining, training and motivating the employees we are able to attract. Any
inability to attract, retain, train and motivate employees could impair our
ability to adequately manage and complete existing projects and to bid for or
accept new client engagements.
IF WE DO NOT MANAGE OUR GROWTH EFFECTIVELY, OUR OPERATING RESULTS WILL BE
ADVERSELY AFFECTED
Our growth has placed significant demands on our management and other
resources. Our revenues increased approximately 79% in 1998 from $92.0 million
in 1997 to $164.9 million in 1998. Our revenues for the nine months ended
September 30, 1999 increased approximately 76% over the same period for 1998.
Our staff increased from 1,383 full-time employees at
5
<PAGE> 8
September 30, 1998 to 1,939 at September 30, 1999. Our future success will
depend on our ability to manage our growth effectively, including by:
- developing and improving our operational, financial and other internal
systems;
- integrating and managing acquired businesses, joint ventures and
strategic investments;
- training, motivating and managing our employees;
- estimating fixed-price fees and project timeframes accurately;
- maintaining high rates of employee utilization; and
- maintaining project quality and client satisfaction.
Our management has limited experience managing a business of Sapient's
current size. If we are unable to manage our growth and projects effectively,
the quality of our services and products, our ability to retain key personnel
and our business, financial condition and results of operations may be
materially adversely affected.
WE HAVE SIGNIFICANT FIXED OPERATING COSTS WHICH MAY BE DIFFICULT TO ADJUST IN
RESPONSE TO UNANTICIPATED FLUCTUATIONS IN REVENUES
A high percentage of our operating expenses, particularly personnel and
rent, are fixed in advance of any particular quarter. As a result, unanticipated
variations in the number, or progress toward completion, of our projects may
cause significant variations in operating results in any particular quarter and
could result in losses for that quarter.
An unanticipated termination of a major project, a client's decision not to
proceed with a project we anticipated, or the completion during a quarter of
several major client projects could require us to maintain underutilized
employees and could therefore have a material adverse effect on our business,
financial condition and results of operations. Our revenues and earnings may
also fluctuate from quarter to quarter based on such factors as:
- the contractual terms and timing of completion of projects;
- any delays incurred in connection with projects;
- the adequacy of provisions for losses;
- the accuracy of our estimates of resources required to complete ongoing
projects; and
- general economic conditions.
THE INCREASED SIZE AND COMPLEXITY OF THE SOLUTIONS WE ARE IMPLEMENTING MAKES IT
MORE LIKELY THAT WE WILL FAIL TO SATISFY CLIENT EXPECTATIONS, WHICH WOULD DAMAGE
OUR REPUTATION AND BUSINESS
The average dollar size of our solutions has grown significantly, while the
timeframe for delivering solutions has generally decreased. As our client
engagements become larger and more complex and must be completed in shorter
timeframes, it becomes more difficult to manage the development process and the
likelihood and consequences of any mistakes increase. Any inability by us to
complete client solutions in a timely manner, any defects contained in the
solutions we deliver and any other failure by us to achieve client expectations,
would have a material adverse effect on our reputation with the affected client
and generally within our industry and could have a material adverse effect on
our business, results of operations or financial condition.
6
<PAGE> 9
WE ENTER INTO FIXED-PRICE CONTRACTS AND COULD LOSE MONEY ON THESE CONTRACTS
Most of our projects are based on fixed-price, fixed-timeframe contracts,
rather than contracts in which payment to us is determined on a time and
materials basis. Our failure to accurately estimate the resources required for a
project or our failure to complete our contractual obligations in a manner
consistent with the project plan upon which our fixed-price, fixed-timeframe
contract was based would adversely affect our overall profitability and could
have a material adverse effect on our business, financial condition and results
of operations. We have been required to commit unanticipated additional
resources to complete projects in the past, which has resulted in losses on
those contracts. We recognize that we will experience similar situations in the
future and that the consequences could be more severe than in the past due to
the increased size and complexity of our solutions. In addition, for some
projects we may fix the price at an early stage of the process, which could
result in a fixed price that turns out to be too low and therefore would
adversely affect our profitability.
WE DEPEND HEAVILY ON A LIMITED NUMBER OF CLIENT PROJECTS, THE LOSS OF ANY OF
WHICH WOULD ADVERSELY AFFECT OUR OPERATING RESULTS
We have derived, and believe that we will continue to derive, a significant
portion of our revenues from a limited number of clients for whom we perform
large projects. In 1998, our five largest clients accounted for approximately
30% of our revenues, with four clients each accounting for more than 5% of our
revenues. For the nine months ended September 30, 1999, our five largest clients
accounted for approximately 26% of our revenues, with three clients each
accounting for more than 5% of our revenues. In addition, revenues from a large
client may constitute a significant portion of our total revenues in a
particular quarter. The loss of any principal client for any reason, including
as a result of the acquisition of that client by another entity, could have a
material adverse effect on our business, financial condition and results of
operations.
IF WE ARE UNABLE TO ACHIEVE ANTICIPATED BENEFITS FROM ACQUISITIONS, JOINT
VENTURES AND STRATEGIC INVESTMENTS, OUR BUSINESS COULD BE ADVERSELY AFFECTED
During the past two years, we have completed four acquisitions and entered
into one joint venture. The anticipated benefits from these and future
acquisitions, joint ventures and strategic investments may not be achieved. For
example, when we acquire a company, we cannot be certain that customers of the
acquired business will continue to do business with us or that employees of the
acquired business will continue their employment or become well integrated into
our operations and culture. The identification, consummation and integration of
acquisitions, joint ventures and strategic investments requires substantial
attention from management. The diversion of the attention of management relating
to these activities, as well as any difficulties encountered in the integration
process, could have an adverse impact on our business, financial condition and
results of operations.
IF CLIENTS UNEXPECTEDLY TERMINATE THEIR CONTRACTS FOR OUR SERVICES, OUR BUSINESS
COULD BE ADVERSELY AFFECTED
Some of our contracts can be canceled by the client with limited advance
notice and without significant penalty. Termination by any client of a contract
for our services could result in a loss of expected revenues and additional
expenses for staff which were allocated to that client's project. The
cancellation or a significant reduction in the scope of a large project could
have a material adverse effect on our business, financial condition and results
of operations.
7
<PAGE> 10
OUR STOCK PRICE IS VOLATILE AND MAY RESULT IN SUBSTANTIAL LOSSES FOR INVESTORS
PURCHASING SHARES IN THE OFFERING
The trading price of our common stock could be subject to wide fluctuations
in response to:
- quarterly variations in operating results and our achievement of key
business metrics;
- changes in earnings estimates by securities analysts;
- any differences between reported results and securities analysts'
published or unpublished expectations;
- announcements of new contracts or service offerings by us or our
competitors;
- market reaction to any acquisitions, joint ventures or strategic
investments announced by us or our competitors; and
- general economic or stock market conditions unrelated to our operating
performance.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. This type of litigation could result in substantial costs and a
diversion of management attention and resources.
IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGES, OUR COMPETITIVE POSITION WILL
SUFFER
Our markets and the technologies used in our solutions are characterized by
rapid technological change. Failure to respond in a timely and cost-effective
way to these technological developments would have a material adverse effect on
our business, financial condition and results of operations. We expect to derive
a substantial portion of our revenues from providing Internet solutions that are
based upon leading technologies and that are capable of adapting to future
technologies. As a result, our success will depend on our ability to offer
services that keep pace with continuing changes in technology, evolving industry
standards and changing client preferences. We may not be successful in
addressing future developments on a timely basis. Our failure to keep pace with
the latest technological developments would have a material adverse effect on
our business, financial condition and results of operations.
WE MAY BECOME SUBJECT TO CLAIMS THAT THE SOLUTIONS WE HAVE DESIGNED AND
IMPLEMENTED ARE NOT YEAR 2000 COMPLIANT
Since 1991, we have designed, developed and implemented solutions for a
large number of clients. There can be no way of assuring that all of these
solutions will be Year 2000 compliant. We have also recommended, implemented and
customized various third-party technology and software packages for our clients,
some of which may not be Year 2000 compliant. There can be no assurance that we
will not become involved in disputes with clients regarding Year 2000 problems
involving solutions we developed or implemented or the interaction of those
solutions with other applications. These disputes could require us to incur
unanticipated expenses and distract us from our core business and these expenses
and distractions could have a material adverse effect on our business, financial
condition and results of operations.
WE FACE SIGNIFICANT COMPETITION IN MARKETS THAT ARE NEW AND RAPIDLY CHANGING
The markets for the services we provide are highly competitive. We believe
that we currently compete principally with strategy consulting firms, Internet
professional services firms, systems integration firms, technology vendors and
internal information systems groups. Many of the companies that provide services
in our markets have significantly greater financial, technical and marketing
resources than we do and generate greater revenues and have greater name
recognition than we do. In addition, there are relatively low barriers to entry
into our markets and we have faced, and expect to continue to face competition
from new entrants into our markets.
8
<PAGE> 11
We believe that the principal competitive factors in our markets include:
- ability to integrate strategy, experience modeling, creative design and
technology services;
- quality of service, speed of delivery and price;
- industry knowledge;
- sophisticated project and program management capability; and
- Internet technology expertise and talent.
We believe that our ability to compete also depends in part on a number of
competitive factors outside our control, including:
- the ability of our competitors to hire, retain and motivate professional
staff;
- the development by others of Internet services or software that is
competitive with our solutions; and
- the extent of our competitors' responsiveness to client needs.
There can be no assurance that we will be able to compete successfully in
our markets.
IF CLIENTS REDUCE THEIR BUDGETS FOR THE SERVICES WE PROVIDE DUE TO YEAR 2000
ISSUES OR FOR OTHER REASONS, OUR BUSINESS WOULD BE ADVERSELY AFFECTED
During the next several months, the purchasing patterns of clients or
potential clients may be affected by the Year 2000 problem, as companies expend
significant resources to avoid or correct Year 2000 issues. Similarly, our
revenues and results of operations could be influenced from time to time by any
other general events or economic conditions which lead clients and potential
clients to reduce their information technology budgets. A reduction in client
funds available to purchase our services would have a material adverse effect on
our business, financial condition and results of operations.
GOVERNMENT REGULATION COULD INTERFERE WITH THE ACCEPTANCE OF THE INTERNET AND
ELECTRONIC COMMERCE, WHICH WOULD ADVERSELY AFFECT THE DEMAND FOR OUR SERVICES
Any new laws and regulations applicable to the Internet and electronic
commerce that are adopted by federal, state or foreign governments could dampen
the growth of the Internet and decrease its acceptance as a commercial medium.
If this occurs, companies may decide in the future not to pursue Internet
initiatives, which would decrease demand for our services. A decrease in the
demand for our services would have a material adverse effect on our business,
financial condition and results of operations.
INTERNATIONAL EXPANSION OF OUR BUSINESS COULD RESULT IN FINANCIAL LOSSES DUE TO
CHANGES IN FOREIGN ECONOMIC CONDITIONS OR FLUCTUATIONS IN CURRENCY AND EXCHANGE
RATES
We expect to continue to expand our international operations. We currently
have offices in the United Kingdom and Australia and have recently commenced a
joint venture in Italy. We have limited experience in marketing, selling and
providing our services internationally. International operations are subject to
other inherent risks, including:
- recessions in foreign countries;
- fluctuations in currency exchange rates;
- the scheduled conversion to the euro by most European Union members;
- difficulties and costs of staffing and managing foreign operations;
- reduced protection for intellectual property in some countries;
9
<PAGE> 12
- changes in regulatory requirements; and
- U.S. imposed restrictions on the import and export of technologies.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY METHODOLOGY, OUR BUSINESS COULD BE
ADVERSELY AFFECTED
Our success depends, in part, upon our proprietary methodology and other
intellectual property rights. We rely upon a combination of trade secrets,
nondisclosure and other contractual arrangements, and copyright and trademark
laws to protect our proprietary rights. We enter into confidentiality agreements
with our employees, generally require that our consultants and clients enter
into these agreements, and limit access to and distribution of our proprietary
information. There can be no assurance that the steps we take in this regard
will be adequate to deter misappropriation of our proprietary information or
that we will be able to detect unauthorized use and take appropriate steps to
enforce our intellectual property rights. In addition, although we believe that
our services and products do not infringe on the intellectual property rights of
others, there can be no assurance that infringement claims will not be asserted
against us in the future, or that if asserted that any infringement claim will
be successfully defended. A successful claim against us could materially
adversely affect our business, financial condition and results of operations.
WE MAY NOT HAVE THE RIGHT TO RESELL OR REUSE SOLUTIONS DEVELOPED FOR SPECIFIC
CLIENTS
A portion of our business involves the development of technology solutions
for specific client engagements. Ownership of these solutions is the subject of
negotiation and is frequently assigned to the client, although we may retain a
license for certain uses. Some clients have prohibited us from marketing the
applications 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 solutions can be complicated and there can be no assurance that
disputes will not arise that affect our ability to resell or reuse these
solutions. Any limitation on our ability to resell or reuse a solution could
require us to incur additional expenses to develop new solutions for future
projects.
OUR CO-CHAIRMEN AND CO-CEOS HAVE SIGNIFICANT VOTING POWER AND MAY EFFECTIVELY
CONTROL THE OUTCOME OF ANY STOCKHOLDER VOTE
Jerry A. Greenberg and J. Stuart Moore, our co-Chairmen of the Board of
Directors and co-Chief Executive Officers, will beneficially own approximately
36.6% of our common stock after the offering. As a result, they have the ability
to substantially influence, and may effectively control, the outcome of
corporate actions requiring stockholder approval, including the election of
directors. This concentration of ownership may also have the effect of delaying
or preventing a change in control of Sapient even if such a change of control
would benefit other investors.
WE ARE DEPENDENT ON OUR KEY PERSONNEL
Our success will depend in large part upon the continued services of a
number of key employees, including Messrs. Greenberg and Moore. Our employment
contracts with Messrs. Greenberg and Moore and with our 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 our other
key personnel could have a material adverse effect on our business, financial
condition and results of operations. In addition, if one or more of our key
employees resigns from Sapient 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
our business, financial condition and results of operations. In the event of the
loss of any personnel, there can be no assurance that we would
10
<PAGE> 13
be able to prevent the unauthorized disclosure or use of our technical
knowledge, practices or procedures by such personnel.
WE WILL HAVE BROAD DISCRETION OVER THE USE OF THE PROCEEDS OF THE OFFERING AND
YOU MAY NOT AGREE WITH HOW WE USE THE PROCEEDS OF THE OFFERING
We have not designated any specific uses for the net proceeds of the
offering. As a result, our management will have broad discretion in how we use
these net proceeds, which may include funding acquisitions of complementary
businesses, products or technologies, funding joint ventures or making strategic
investments. The failure of management to use the proceeds of the offering
effectively could adversely affect our business, financial condition and results
of operations.
OUR CORPORATE GOVERNANCE PROVISIONS MAY DETER A FINANCIALLY ATTRACTIVE TAKEOVER
ATTEMPT
Provisions of our charter and by-laws may discourage, delay or prevent a
merger or acquisition that stockholders may consider favorable, including
transactions in which stockholders would receive a premium for their shares.
These provisions include the following:
- any action that may be taken by stockholders must be taken at an annual
or special meeting and may not be taken by written consent;
- stockholders must comply with advance notice requirements before raising
a matter at a meeting of stockholders or nominating a director for
election;
- a chairman of the board or a chief executive officer are the only ones
who may call a special meeting of stockholders;
- our board of directors is staggered into three classes and the members
may be removed only for cause upon the affirmative vote of holders of at
least two-thirds of the shares entitled to vote; and
- our 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.
Provisions of Delaware law may also discourage, delay or prevent someone
from acquiring us or merging with us. See "Description of Capital
Stock -- Preferred Stock" and "-- Delaware Law and Certain Charter and Bylaw
Provisions."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates forward-looking statements that
are subject to a number of risks and uncertainties. All statements, other than
statements of historical facts included or incorporated in this prospectus,
regarding our strategy, future operations, financial position, estimated
revenues, projected costs, prospects, plans and objectives of management are
forward-looking statements. When used in this prospectus, the words "will",
"believe", "anticipate", "intend", "estimate", "expect", "project" and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. We cannot
guarantee future results, levels of activity, performance or achievements and
you should not place undue reliance on our forward-looking statements. Our
forward-looking statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or strategic investments.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including the risks
described in "Risk Factors" and elsewhere in this prospectus. We do not assume
any obligation to update any of the forward-looking statements we make.
11
<PAGE> 14
USE OF PROCEEDS
We estimate that the net proceeds we will receive from our sale of
1,114,600 shares of common stock will be approximately $73.0 million, based on
an assumed offering price to the public of $69.09 per share and after deducting
the estimated underwriters' discounts and commissions and offering expenses
payable by us. We will not receive any proceeds from the sale of shares of
common stock by the selling stockholders.
We expect to use the net proceeds from this offering for general corporate
purposes, including working capital. We may also use a portion of the net
proceeds to acquire or invest in complementary businesses or to make strategic
investments. Except as described in the next paragraph, we have no current
commitments or agreements with respect to any acquisition or investment. Pending
these uses, the net proceeds of this offering will be invested in interest-
bearing, investment-grade securities.
Our board of directors has authorized us to make minority investments in
startup Internet businesses. We have made one such investment for $500,000 and
are evaluating other opportunities. These investments are being made using our
existing available funds and are not contingent on the completion of the
offering.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion of
our business and do not expect to pay any cash dividends.
PRICE RANGE OF COMMON STOCK
Our 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 intraday sale prices for our common stock as reported on the Nasdaq National
Market. These prices reflect the two-for-one stock split distributed on March 9,
1998 and the two-for-one stock split expected to be distributed on or about
November 5, 1999 to stockholders of record on November 1, 1999.
HIGH LOW
------ ------
1997
First Quarter............................................... $12.44 $ 7.78
Second Quarter............................................ $12.38 $ 7.50
Third Quarter............................................. $15.25 $12.13
Fourth Quarter............................................ $15.69 $11.94
1998
First Quarter............................................. $24.00 $14.53
Second Quarter............................................ $28.94 $18.50
Third Quarter............................................. $31.00 $13.69
Fourth Quarter............................................ $34.50 $12.13
1999
First Quarter............................................. $41.44 $25.63
Second Quarter............................................ $39.25 $25.50
Third Quarter............................................. $54.38 $23.88
Fourth Quarter (through November 1, 1999)................. $70.31 $41.75
On November 1, 1999, the closing sale price of our common stock as reported
on the Nasdaq National Market was $69.09 per share and we had approximately 300
holders of record of our common stock.
12
<PAGE> 15
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
- on an actual basis, giving effect to the two-for-one stock split to be
effected as a 100% stock dividend and expected to be distributed on or
about November 5, 1999 to stockholders of record on November 1, 1999; and
- on an as adjusted basis to reflect the estimated net proceeds from our
sale of 1,114,600 shares of common stock, at an assumed public offering
price of $69.09 per share and after deducting the estimated underwriters'
discounts and commissions and offering expenses payable by us.
This information excludes 12,430,214 shares of common stock issuable upon
the exercise of outstanding stock options as of September 30, 1999 at a weighted
average exercise price of $18.22 per share.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Preferred stock, par value, $0.01 per share, 5,000,000
shares authorized; none issued............................ $ -- $ --
Common stock, par value, $0.01 per share, 100,000,000 shares
authorized; 56,073,900 shares issued and outstanding,
actual; 57,188,500 shares issued and outstanding, as
adjusted.................................................... 561 572
Additional paid-in capital.................................. 141,601 214,572
Deferred compensation....................................... (798) (798)
Accumulated other comprehensive income...................... (356) (356)
Retained earnings........................................... 54,744 54,744
-------- -----------
Total stockholders' equity.................................. 195,752 268,734
-------- -----------
Total capitalization........................................ $195,752 $ 268,734
======== ===========
</TABLE>
13
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data along
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes to those statements and other
financial information included or incorporated in this prospectus. This selected
consolidated financial data includes for all periods presented the accounts and
results of operations of EXOR and Adjacency, which we acquired in transactions
accounted for as poolings of interests, as described in Note 13 to our
consolidated financial statements. The consolidated balance sheet data at
December 31, 1994, 1995, 1996, 1997 and 1998 and the consolidated statement of
income data for the fiscal years ended December 31, 1994, 1995, 1996, 1997 and
1998 have been derived from our audited consolidated financial statements. We
have derived the consolidated statement of income data for the nine months ended
September 30, 1998 and 1999, and the consolidated balance sheet data at
September 30, 1999 from unaudited consolidated financial statements that
include, in the opinion of our management, all adjustments, consisting of only
normal, recurring adjustments, necessary for a fair presentation of that
information. The historical results presented below are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues................................................ $11,796 $24,481 $49,795 $92,027 $164,872 $111,081 $195,021
Operating expenses:
Project personnel costs............................... 4,434 11,723 23,329 44,623 80,543 53,833 94,621
Selling and marketing................................. 268 1,129 2,453 6,074 11,269 7,569 15,312
General and administrative............................ 4,635 6,733 14,216 22,571 41,675 27,680 48,394
Amortization of intangible assets..................... -- -- -- -- 687 128 1,550
Stock-based compensation charge....................... -- -- 260 -- 4,499 -- 1,919
Charge for in-process research and development........ -- -- -- -- 11,100 11,100 --
Acquisition costs..................................... -- -- -- 560 -- -- 2,340
------- ------- ------- ------- -------- -------- --------
Total operating expenses............................ 9,337 19,585 40,258 73,828 149,773 100,310 164,136
------- ------- ------- ------- -------- -------- --------
Income from operations.................................. 2,459 4,896 9,537 18,199 15,099 10,771 30,885
Interest income......................................... 9 13 1,098 2,058 2,925 2,207 2,649
------- ------- ------- ------- -------- -------- --------
Income before income taxes.............................. 2,468 4,909 10,635 20,257 18,024 12,978 33,534
Income taxes............................................ 879 1,995 3,936 7,703 8,660 4,765 12,701
------- ------- ------- ------- -------- -------- --------
Net income.............................................. $ 1,589 $ 2,914 $ 6,699 $12,554 $ 9,364 $ 8,213 $ 20,833
======= ======= ======= ======= ======== ======== ========
Basic net income per share.............................. $ 0.04 $ 0.08 $ 0.15 $ 0.25 $ 0.18 $ 0.16 $ 0.38
Diluted net income per share............................ $ 0.04 $ 0.07 $ 0.13 $ 0.23 $ 0.16 $ 0.14 $ 0.33
Weighted average common shares.......................... 37,554 36,550 44,844 49,574 52,228 51,670 55,101
Weighted average common shares and common share
equivalents........................................... 41,683 42,252 49,694 53,740 57,402 56,923 62,345
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------ SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- -------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital......................................... $ 1,894 $ 5,785 $66,369 $76,409 $121,779 $159,240
Total assets............................................ 6,898 12,893 80,077 98,867 187,701 226,793
Long-term debt, less current portion.................... 132 189 -- -- -- --
Total stockholders' equity.............................. 2,663 5,595 66,969 82,307 154,814 195,752
</TABLE>
14
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a leading e-services consultancy providing Internet strategy
consulting and sophisticated Internet-based solutions to Global 1000 companies
and startup businesses. These solutions focus on large-scale and complex
business-to-consumer and business-to-business electronic commerce, digital
customer relationship management, supply chain optimization, electronic markets
and Internet portals. We provide end-to-end solutions to our clients using
multidisciplinary teams. We deliver our solutions primarily through five
industry business units and on a fixed-price, fixed-timeframe basis.
Our revenue and earnings may fluctuate from quarter to quarter based on the
number, size and scope of projects in which we are engaged, the contractual
terms and degree of completion of these 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, general economic conditions and other factors. In
addition, revenue from a large client project may constitute a significant
portion of our total revenue in a particular period.
Our financial statements have been restated for all periods presented to
reflect a two-for-one stock split distributed on March 9, 1998 and a two-for-one
stock split to be effected as a 100% stock dividend expected to be distributed
on or about November 5, 1999 to stockholders of record on November 1, 1999.
On December 15, 1997, we acquired all of the outstanding common stock of
EXOR Technologies, Inc. in exchange for 1,223,476 shares of our common stock.
Our financial statements have been restated for all periods presented to reflect
the acquisition of EXOR, which was accounted for as a pooling-of-interests.
On August 25, 1998, we acquired all of the outstanding common stock of
Studio Archetype, Inc. in exchange for 996,628 shares of common stock and
$250,000 in cash. We accounted for this acquisition as a purchase and,
accordingly, allocated the purchase price to the assets acquired and the
liabilities assumed based on their respective fair values. Studio Archetype's
results of operations are included in our results of operations from the date of
acquisition.
On March 29, 1999, we acquired all of the outstanding common stock of
Adjacency, Inc. in exchange for 1,581,348 shares of common stock. Our financial
statements have been restated for all periods presented to reflect the
acquisition of Adjacency, which has been accounted for as a
pooling-of-interests.
In September 1999, we expanded our European presence by opening an office
in Milan through a joint venture, Sapient & Cuneo SRL. The joint venture will
provide e-services in Italy to Italian-based businesses.
On October 8, 1999, we acquired substantially all of the assets of E.Lab,
L.L.C. in exchange for 88,044 shares of common stock and the assumption of some
of E.Lab's liabilities. We will account for this acquisition as a purchase and
will allocate the purchase price to the assets acquired and the liabilities
assumed based on their respective fair values.
15
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues of some items
included in our consolidated statements of income:
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
Revenues................................ 100% 100% 100% 100% 100%
Operating expenses:
Project personnel costs............... 47 48 49 48 48
Selling and marketing................. 5 7 7 7 8
General and administrative............ 29 25 25 25 25
Amortization of intangibles........... -- -- -- -- 1
Stock-based compensation charge....... -- -- 3 -- 1
Charge for in-process research and
development........................ -- -- 7 10 --
Acquisition costs..................... -- -- -- -- 1
--- --- --- --- ---
Total operating expenses........... 81 80 91 90 84
--- --- --- --- ---
Income from operations.................. 19 20 9 10 16
Interest income......................... 2 2 2 1 1
Income before income taxes.............. 21 22 11 11 17
Income taxes............................ 8 8 5 4 6
--- --- --- --- ---
Net income.............................. 13% 14% 6% 7% 11%
=== === === === ===
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
REVENUES
Our revenues for the nine months ended September 30, 1999 increased 76%
over our revenues for the same period in 1998. The increase in revenues
reflected increases in both the average size and number of client projects.
During the nine months ended September 30, 1999, our five largest clients
accounted for approximately 26% of our revenues, with no client accounting for
more than 10% of such revenues. During the nine months ended September 30, 1998,
our five largest clients accounted for approximately 33% of our revenues, with
no client accounting for more than 10% of such revenues.
PROJECT PERSONNEL COSTS
Project personnel costs consist primarily of salaries and employee benefits
for personnel dedicated to client projects and direct expenses incurred to
complete projects that were not reimbursed by the client. These costs represent
the most significant expense we incur in providing our services. The increase in
project personnel costs for the nine months ended September 30, 1999 was
primarily due to an increase in project personnel from 1,129 at September 30,
1998 to 1,564 at September 30, 1999. Project personnel costs remained constant
as a percentage of revenues at 48% for the nine months ended September 30, 1999
and 1998.
SELLING AND MARKETING
Selling and marketing costs consist primarily of salaries, employee
benefits, travel expenses of selling and marketing personnel and promotional
costs. Selling and marketing costs increased as a percentage of revenues to 8%
from 7% for the nine months ended September 30, 1999 from the nine months ended
September 30, 1998. The increase was primarily due to investments
16
<PAGE> 19
made by us in a new brand identity during the second quarter of 1999 and also
due to higher compensation for sales personnel. Selling and marketing personnel
increased from 47 employees at September 30, 1998 to 65 employees at September
30, 1999.
GENERAL AND ADMINISTRATIVE
General and administrative costs consist primarily of expenses associated
with our management, finance and administrative groups, including personnel
devoted to recruiting and training project personnel, and occupancy costs. The
increase in general and administrative costs for the nine months ended September
30, 1999 was primarily due to an increase in the number of employees hired
during 1999, an increase in occupancy costs related to significant expansion of
our office space, and increased depreciation costs related to our increased
investments in property and equipment. Our total headcount increased from 1,383
at September 30, 1998 to 1,939 at September 30, 1999. General and administrative
costs as a percentage of revenues remained constant at 25% for the nine month
periods ending September 30, 1999 and September 30, 1998.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets consists primarily of amortization of
marketing assets, customer lists, assembled workforce and goodwill resulting
from the acquisition of Studio Archetype. Amortization periods range from five
to seven years.
STOCK-BASED COMPENSATION CHARGE
Stock-based compensation charges consist of expenses associated with
Adjacency stock options that were granted, prior to our acquisition of
Adjacency, at below fair market value. We expect the amount of this charge to be
approximately $100,000 per quarter for each quarter during the next two years.
ACQUISITION COSTS
We incurred a one-time charge of approximately $2.3 million in 1999 for
costs associated with the Adjacency acquisition, which consisted primarily of
investment banking, accounting and legal fees.
INTEREST INCOME
Interest income for the nine months ended September 30, 1999 was derived
primarily from investments of the proceeds from our previous public stock
offerings, which were invested in tax-exempt, short-term municipal bonds,
commercial paper and U.S. government securities.
PROVISION FOR INCOME TAXES
Income tax expense represents combined federal and state income taxes at an
effective rate during the nine months ended September 30, 1999 of 37.9% and
during the nine months ended September 30, 1998 of 36.7%. The increase in our
tax rate resulted from the non-deductibility of Adjacency acquisition costs in
1999. Our effective tax rate may vary from period to period based on our future
expansion into areas with varying country, state, and local income tax rates.
17
<PAGE> 20
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES
Our revenues for 1998 increased 79% over our revenues for 1997. The
increase in revenues reflected increases in both the size and number of client
projects. The increase in unbilled revenues on contracts from $9.1 million at
December 31, 1997 to $10.3 million at December 31, 1998, was primarily a result
of increased volume and structure of contract billing schedules. In 1998, our
five largest clients accounted for approximately 30% of our revenues, with no
client accounting for more than 10% of such revenues. In 1997, our five largest
clients accounted for approximately 31% of our revenues, no clients accounted
for more than 10% of such revenues and three clients each accounted for more
than 5% of such revenues.
PROJECT PERSONNEL COSTS
Our project personnel costs for 1998 of $80.5 million increased from $44.6
million in 1997. The increase in project personnel costs for 1998 was primarily
due to an increase in project personnel from 692 at December 31, 1997 to 1,188
at December 31, 1998. Project personnel costs increased slightly as a percentage
of revenues to 49% in 1998 from 48% in 1997. The increase was due to increased
training costs during the period.
SELLING AND MARKETING
Selling and marketing costs as a percentage of revenues remained constant
at 7% for both 1998 and 1997. The dollar increase was mainly due to our decision
to expand our selling and marketing group through hiring, along with the
addition of Studio Archetype's selling and marketing group. Selling and
marketing personnel grew from 33 employees at December 31, 1997 to 51 employees
at December 31, 1998.
GENERAL AND ADMINISTRATIVE
General and administrative costs as a percentage of revenues remained
constant at 25% for both 1998 and 1997. The dollar increase in general and
administrative costs for 1998 compared to 1997 was primarily due to an increase
in the incremental costs associated with the additional employees hired during
1998. Our total headcount increased from 838 at December 31, 1997 to 1,492 at
December 31, 1998.
CHARGE FOR IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the acquisition of Studio Archetype in the third quarter
of 1998, we recorded a charge of $11.1 million for in-process research and
development and recorded a corresponding income tax benefit of $4.2 million.
This allocation represents the estimated fair value of such technology based on
risk-adjusted cash flows related to the development of projects that had not
reached technological feasibility at the time of the acquisition and with
respect to which the in-process research and development had no alternative
future uses. Accordingly, we expensed these costs as of the acquisition date.
INTEREST INCOME
Interest income for 1998 and 1997 consisted of interest earned on the
proceeds of our initial and follow-on public offerings of common stock, which
were invested primarily in tax-exempt, short-term municipal bonds.
18
<PAGE> 21
PROVISION FOR INCOME TAXES
Income tax expense represents combined federal and state income taxes at an
effective rate of 48% for 1998 and 38.0% for 1997. The increase in the effective
rate in 1998 was the result of compensation expenses recorded by Adjacency,
which were not tax deductible by us.
YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES
Our revenues for 1997 of $92.0 million increased 85% over our revenues for
1996. The increase in revenues reflected increases in both the size and number
of client projects. The increase in unbilled revenues on contracts from $4.7
million at December 31, 1996 to $9.1 million at December 31, 1997 was primarily
due to the increase in our revenues in 1997. In 1997, our five largest clients
accounted for approximately 31% of our revenues, with no client accounting for
more than 10% of such revenues and three clients each accounting for more than
5% of such revenues. In 1996, our five largest clients accounted for
approximately 51% of our revenues, two clients each accounted for more than 10%
of such revenues and five clients each accounted for more than 5% of such
revenues.
PROJECT PERSONNEL COSTS
The increase in project personnel costs for the year ended December 31,
1997 was primarily due to an increase in project personnel from 434 at December
31, 1996 to 692 at December 31, 1997. Project personnel costs increased slightly
as a percentage of revenues from 47% in 1996 to 48% in 1997. The increase was
mainly due to investments in training and higher non-reimbursement travel and
relocation fees due to the opening of three additional offices in the beginning
of 1997.
SELLING AND MARKETING
Selling and marketing costs as a percentage of revenues increased from 5%
in 1996 to 7% in 1997. This increase, as well as the dollar increase, was mainly
due to our decision to expand our selling and marketing group, which grew from
27 employees at December 31, 1996 to 33 employees at December 31, 1997.
GENERAL AND ADMINISTRATIVE
The increase in general and administrative costs for 1997 compared to 1996
was primarily due to an increase in the incremental costs associated with the
additional employees hired during 1997. Our total headcount increased from 537
at December 31, 1996 to 838 at December 31, 1997. As a percentage of revenue,
general and administrative costs were 25% in 1997, compared to 29% in 1996. The
decrease as a percentage of revenue in 1997 was primarily a result of lower cash
compensation bonuses paid to EXOR executives in 1997 and improved space
utilization.
STOCK-BASED COMPENSATION CHARGE
We incurred a one-time charge of approximately $260,000 in 1996 for
stock-based compensation paid to an EXOR stockholder in connection with the EXOR
acquisition.
ACQUISITION COSTS
We incurred a one-time charge of approximately $560,000 in the fourth
quarter of 1997 for professional services associated with the EXOR acquisition.
19
<PAGE> 22
INTEREST INCOME
Interest income for 1997 and 1996 consisted of interest earned on the
proceeds of our initial and follow-on public offerings of common stock, which
were invested primarily in tax-exempt, short-term municipal bonds.
PROVISION FOR INCOME TAXES
Income tax expenses represents combined federal and state income taxes at
an effective rate of 38.0% for 1997 and 37.0% for 1996.
20
<PAGE> 23
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth a summary of our unaudited quarterly
operating results for each of our eight most recently ended fiscal quarters. We
have derived this information from our unaudited interim consolidated financial
statements, which, in the opinion of our management, have been prepared on a
basis consistent with our financial statements contained elsewhere in this
prospectus and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation in accordance with generally
accepted accounting principles when read in conjunction with our consolidated
financial statements and related notes included elsewhere in this prospectus.
Our quarterly operating results are not necessarily indicative of future results
of operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $27,529 $31,595 $36,420 $43,066 $53,791 $57,793 $64,199 $73,029
Operating expenses:
Project personnel costs............ 13,312 15,221 17,511 21,101 26,710 28,334 30,618 35,669
Selling and marketing.............. 2,145 1,842 2,666 3,061 3,700 3,974 5,411 5,927
General and administrative......... 6,616 8,271 8,726 10,683 13,995 14,648 16,219 17,527
Amortization of intangibles........ -- -- -- 128 559 569 519 462
Stock-based compensation charge.... -- -- -- -- 4,499 1,699 110 110
Charge for in-process research and
development...................... -- -- -- 11,100 -- -- -- --
Acquisition costs.................. 560 -- -- -- -- 2,340 -- --
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses......... 22,633 25,334 28,903 46,073 49,463 51,564 52,877 59,695
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations........ 4,896 6,261 7,517 (3,007) 4,328 6,229 11,322 13,334
Interest income...................... 497 590 676 941 718 820 859 970
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes.... 5,393 6,851 8,193 (2,066) 5,046 7,049 12,181 14,304
Income taxes/expense (benefit)....... 2,105 2,504 2,929 (668) 3,895 2,771 4,495 5,436
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).................... $ 3,288 $ 4,347 $ 5,264 $(1,398) $ 1,151 $ 4,278 $ 7,686 $ 8,868
======= ======= ======= ======= ======= ======= ======= =======
Basic net income (loss) per share.... $ 0.07 $ 0.09 $ 0.10 $ (0.03) $ 0.02 $ 0.08 $ 0.14 $ 0.16
Diluted net income(loss) per share... $ 0.06 $ 0.08 $ 0.09 $ (0.03) $ 0.02 $ 0.07 $ 0.13 $ 0.14
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
-----------------------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. 100% 100% 100% 100% 100% 100% 100% 100%
Operating expenses:
Project personnel costs............ 48 48 48 49 50 49 48 49
Selling and marketing.............. 8 6 7 7 7 7 8 8
General and administrative......... 24 26 24 25 26 25 25 24
Amortization of intangibles........ -- -- -- -- 1 1 1 1
Stock-based compensation charge.... -- -- -- -- 8 3 -- --
Charge for in-process research and
development...................... -- -- -- 26 -- -- -- --
Acquisition costs.................. 2 -- -- -- -- 4 -- --
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses......... 82 80 79 107 92 89 82 82
Income (loss) from operations........ 18 20 21 (7) 8 11 18 18
Interest income...................... 2 2 1 2 1 1 1 2
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes.... 20 22 22 (5) 9 12 19 20
Income taxes/expense (benefit)....... 8 8 8 (2) 7 5 7 8
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).................... 12% 14% 14% (3)% 2% 7% 12% 12%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
21
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
We have primarily funded our operations from cash flow generated from
operations and the proceeds from our initial and follow-on public offerings. In
addition, we have a bank revolving line of credit providing for borrowings of up
to $5.0 million. Borrowings under this line of credit, which expires on June 30,
2000, bear interest at the bank's prime rate. The line of credit includes
covenants relating to the maintenance of some financial ratios and limits the
payment of dividends. At December 31, 1998 and September 30, 1999, we had no
bank borrowings outstanding and no material capital commitments.
We invest predominantly in instruments that are highly liquid, investment
grade securities and have maturities of less than one year. At September 30,
1999, we had approximately $99.9 million in cash, cash equivalents and
short-term investments compared to $91.8 million at December 31, 1998.
For 1998, the net cash provided by operating activities of $5.9 million was
offset by $44.1 million of cash used in investing activities primarily for
property and equipment expenditures of $9.3 million and net purchases of
short-term investments of $35.4 million. Cash provided by financing activities
was $30.2 million for 1998 and consisted primarily of cash received from a
follow-on public offering in March 1998.
Cash provided by operating activities was $1.6 million for the nine months
ended September 30, 1999 and resulted primarily from net income of $20.8 million
and non-cash charges of $9.0 million, offset by increases in accounts receivable
of $23.2 million and increases of $3.2 million in unbilled revenues on contracts
due to increases in revenues.
Cash used in investing activities was $29.3 million for the nine months
ended September 30, 1999. Purchases of short term investments, net of
maturities, during the period were $17.1 million and capital expenditures were
$12.2 million. Increased capital expenditures were due to the significant
expansion of our office space.
Cash provided by financing activities was $19.1 million for the nine months
ended September 30, 1999 and consisted primarily of cash received from the sale
of our common stock through our employee stock purchase plan and upon exercise
of stock options.
We believe that the cash provided from operations, borrowings available
under our revolving line of credit, existing cash, cash equivalents and
marketable securities and the proceeds from the offering will be sufficient to
meet our working capital and capital expenditure requirements for at least the
next 18 months.
RECENT ACCOUNTING PRONOUNCEMENTS
During 1998, we adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income". 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 are not required to be recorded in determining
net income but are rather reported as a separate component of stockholders'
equity. The adoption of SFAS 130 did not have a material impact on our financial
condition or results of operations.
During 1998, we adopted Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information". SFAS
131 established 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 adoption of SFAS 131 did not have a
material impact on our financial condition or results of operations.
22
<PAGE> 25
In the first quarter of 1999, we adopted SOP 98-1, "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use," which requires the
capitalization of some internal costs related to the implementation of computer
software obtained for internal use. The adoption of SOP 98-1 did not have a
material impact on our financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards for derivative instruments,
including some derivative instruments embedded in other contracts, collectively
referred to as derivatives, and for hedging activities. SFAS 133 requires the
recognition of all derivatives as either assets or liabilities in the statement
of financial position and the measurement of those instruments at fair value. We
are required to adopt this standard in the first quarter of 2000. We expect that
the adoption of SFAS 133 will not have a material impact on our financial
position or results of operations.
YEAR 2000 READINESS
The following disclosure shall be considered Year 2000 Readiness Disclosure
to the maximum extent allowed under the Year 2000 Information and Readiness
Disclosure Act.
We have developed a phased Year 2000 readiness plan to help identify and
resolve Year 2000 issues associated with our internal systems and the services
provided by us. The plan includes:
- development of corporate awareness;
- assessment;
- implementation, including remediation and upgrading of product versions;
- validation testing; and
- contingency planning.
Since we have installed nearly all of our internal hardware and software
systems since January 1997, we are not confronted with the task of having to
replace obsolete or legacy systems. Primarily, our task is to install upgrades
and patches to our internally used software and hardware to make such systems
and equipment Year 2000 compliant.
We created a company-wide Year 2000 team to oversee our Year 2000 program.
We have completed our assessment of our internal and third party computer
systems and our internal non-information technology systems, such as building
security, voice mail, telephone and other systems containing embedded
microprocessors. Our material internal information technology systems consist
principally of financial, accounting and human resources application software
created by third parties, and internally developed sales forecasting and project
management software applications. All of our internally developed applications
are Year 2000 compliant. With respect to the third-party software applications,
we believe that, based on oral statements made by manufacturers and/or
statements published on manufacturers' websites, that such products will be Year
2000 complaint. At the manufacturer's recommendation, we recently installed
patches in our versions of the Windows 95 and Windows NT operating systems in
order for those operating systems to become Year 2000 compliant. The
manufacturers of our computer hardware platforms, principally servers, have
indicated that the versions we currently use are Year 2000 compliant. We are in
the process of obtaining written assurances from each of our third party vendors
that their systems, both information technology and non-information technology,
are Year 2000 compliant.
We believe that we are approximately 85% complete in installing patches and
upgrades to our third party software and hardware. We have contracted with two
consultants to assist in the
23
<PAGE> 26
remediation and testing phase of our Year 2000 compliance plan and we expect to
complete our Year 2000 program by November 30, 1999.
While we do not separately track internal costs incurred for our Year 2000
projects, we believe that we may have to expend additional funds to utilize
third party resources to complete our assessment procedures and implement any
required fixes. We do not expect these expenditures to be material. If
compliance efforts are not completed on time, or additional compliance efforts
are required of which we are not currently aware, or the costs of any required
updating or modification of our information technology systems exceeds our
estimates, the Year 2000 issue could have a material adverse effect on our
business, results of operations and financial condition.
We are developing a comprehensive contingency plan to address the
situations that may result if we are unable to achieve Year 2000 readiness of
our major information technology and non-information technology systems. We
expect to complete this contingency plan by November 30, 1999. There can be no
assurance that any contingency plans developed by us will prevent any such
service interruption.
In addition to our internal systems, we rely on third party relationships
in the conduct of our business. For example, we rely on the services of the
landlords of our facilities, telecommunication companies, banks, utilities, and
commercial airlines. We are currently seeking assurances from our landlords and
material vendors regarding their Year 2000 readiness, and to the extent such
assurances are not given, we are devising contingency plans to ameliorate the
negative effects on our major information technology systems in the event the
Year 2000 issue results in the unavailability of services. We expect to complete
these contingency plans by November 30, 1999. There can be no assurance that any
contingency plans we develop will prevent any such service interruption by one
or more of our third party vendors or suppliers from having a material adverse
effect on our business, results of operations or financial condition. In
addition, the failure on the part of the accounting systems of our clients due
to the Year 2000 issue could result in a delay in the payment of invoices issued
by us for services and expenses. A failure of the accounting systems of a
significant number of our clients would have a material adverse effect on our
business, results of operations and financial condition.
Our business involves designing, developing and implementing critical
business solutions for our clients. In addition, we have recommended,
implemented and customized various third-party software packages for our
clients, some of which may not be Year 2000 compliant. Former, present and
future clients may assert that some services performed by us involved or are
affected by the Year 2000 issue. Because we have designed, developed and
implemented software and systems for a large number of clients since 1991, there
can be no way of assuring that all such software programs and systems will be
Year 2000 compliant. This uncertainty is magnified by the fact that in many
cases our clients retain the right to maintain, alter and modify the systems
developed and implemented by us after the completion of an engagement. Due to
the potential significance of the Year 2000 issue upon client operations, upon
any failure of critical client systems or processes that may be directly or
indirectly connected or related to systems or software we analyzed, designed,
developed, or implemented, we may be subject to claims regardless of whether the
failure is related to the services we provided. If asserted, such claims and the
associated defense costs could have a material adverse effect on our business,
results of operations and financial condition.
Our policy has been to attempt to include provisions in our client
contracts that, among other things, disclaim implied warranties, limit the
duration of express warranties, limit our liability to the amount of fees paid
by the client to us in connection with the project and disclaim any liability
arising from third-party software that we implemented, customized or installed.
There can be no assurance that we will be able to obtain these contractual
protections in agreements concerning future projects, or that any contractual
provisions governing current and completed projects will
24
<PAGE> 27
prevent clients from asserting claims against us with respect to the Year 2000
issue. There also can be no assurance that the contractual protections, if any,
obtained by us will effectively operate to protect us from, or limit the amount
of, any liability arising from claims asserted against us.
The foregoing discussion of our Year 2000 readiness contains
forward-looking statements including estimates of the timeframes and costs for
addressing the known Year 2000 issues confronting us and is based on
management's current estimates, which were derived using numerous assumptions.
There can be no assurance that these estimates will be achieved and actual
events and results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not limited
to, our ability to identify and correct all Year 2000 problems and the success
of third parties with whom we do business in addressing their Year 2000 issues.
25
<PAGE> 28
BUSINESS
OVERVIEW
Sapient is a leading e-services consultancy providing Internet strategy
consulting and sophisticated Internet-based solutions to Global 1000 companies
and startup businesses. We help our clients define Internet strategies to
improve their competitive position and we design, architect, develop and
implement solutions to execute those strategies. These solutions focus on
large-scale and complex business-to-consumer and business-to-business electronic
commerce, digital customer relationship management, supply chain optimization,
electronic markets and Internet portals.
We believe that our key strength is our ability to deliver high quality
solutions, primarily on a fixed-price, fixed-timeframe basis, through a rapid,
effective and integrated process. Our services include:
- digital business strategy development;
- experience modeling;
- creative design;
- technology development and systems integration; and
- integrated engagement leadership.
We provide end-to-end solutions to our clients using multidisciplinary
teams composed of business strategists, researchers, creative specialists,
technology professionals and program managers. We deliver our solutions
primarily through five industry business units: financial services; media,
entertainment and communications; manufacturing, retail and distribution; public
sector; and energy services. Using this industry alignment helps us accurately
define and deliver tailored solutions that effectively address the market
dynamics and business opportunities that our clients face. We have been
providing Internet solutions for over five years and employ approximately 1,900
people in offices across the United States and in London, Milan and Sydney.
INDUSTRY BACKGROUND
The broad business acceptance of the Internet and electronic commerce has
led companies to adopt new business models and use technologies to take
advantage of a range of opportunities. These opportunities include selling and
marketing over the Internet to businesses and consumers, optimizing the supply
chain and creating electronic markets and exchanges.
Successfully creating and delivering a comprehensive Internet strategy and
solution requires a diversified set of skills. Designing and developing Internet
solutions entails careful analysis and definition of the strategic implications
of the Internet for an organization, understanding the patterns of user behavior
and recognizing the creative possibilities for branding, content and user
experience. Additionally, the ability to rapidly deploy Internet solutions
requires substantial expertise to evaluate, select and implement appropriate
technologies.
Given the pace of adoption of the Internet and electronic commerce,
businesses are seeking to rapidly formulate their Internet strategies. Few
organizations have the internal resources or skills necessary to successfully
design and implement Internet solutions. As a result, an increasing number of
organizations, from Global 1000 companies to startup Internet businesses, are
engaging Internet professional services firms. International Data Corp.
forecasts worldwide Internet services spending to grow from $7.8 billion in 1998
to $78.6 billion by 2003, which represents a compound annual growth rate of more
than 58%.
A number of firms serve this market. Many of these firms have limited
industry expertise and possess only some of the core competencies needed to
design and implement an end-to-end
26
<PAGE> 29
Internet solution. Some firms have grown primarily through acquisitions which
may not result in integrated service delivery and management systems or a strong
and cohesive corporate culture. Few firms have the experience, ability and size
required to rapidly deliver large-scale, business-critical solutions.
We believe that companies that want to effectively capitalize on the
Internet are seeking an Internet professional services firm with extensive
expertise and a track record of delivering fully integrated end-to-end Internet
solutions. Furthermore, we believe that enterprises will increasingly select
Internet professional services firms that can provide effective program
management and industry expertise and quickly and predictably implement
large-scale, complex solutions.
SAPIENT'S SOLUTION
Our extensive experience in managing large-scale initiatives, our
multidisciplinary approach to delivering solutions and our in-depth industry
knowledge and partnership approach with clients enable us to rapidly deliver
Internet strategies and solutions that help our clients transform or launch
their businesses.
LARGE-SCALE PROGRAM MANAGEMENT. Our methodology and program management
approach builds upon over five years of experience implementing Internet
solutions. During this time, the size and complexity of our Internet solutions
have increased and we expect this trend to continue. During 1999, several of our
Internet projects have involved 50 or more team members and exceeded $10 million
in size. In addition, we often manage the entire client initiative, which
requires the coordination of numerous third-parties such as content providers,
technology vendors, infrastructure experts and telecommunications firms. We
believe our significant experience in managing large-scale, complex initiatives
is essential to achieving high levels of client satisfaction and repeat
business.
MULTIDISCIPLINARY APPROACH. We deliver end-to-end Internet solutions by
combining our five core services: digital business strategy; experience
modeling; creative design; technology development and systems integration; and
integrated engagement leadership. Multidisciplinary teams are able to quickly
communicate new information, identify potential issues and implement solutions.
Our integrated approach enables our clients to utilize one Internet professional
services firm to manage the delivery of an end-to-end solution.
IN-DEPTH INDUSTRY KNOWLEDGE. We have extensive knowledge and experience in
five industry sectors: financial services; media, entertainment and
communications; manufacturing, retail and distribution; public sector; and
energy services. We believe this helps us accurately define and deliver tailored
solutions that effectively address the market dynamics and business
opportunities that our clients face. As the market for Internet professional
services becomes more sophisticated, we believe that clients will increasingly
demand in-depth industry expertise.
PARTNERING WITH CLIENTS. Our culture and approach have always been based
on working with our clients to understand and achieve their business objectives.
Client representatives play an active and important role throughout the
engagement and are integrated into our project teams. This client involvement
helps ensure that the solution accurately reflects our clients' objectives and
has the support of critical client constituencies. In most cases, we further
align our interests with our clients' interests by entering into fixed-price,
fixed-timeframe contracts. Occasionally we enter into bonus arrangements with
our clients. These types of contracts and arrangements create incentives for us
to complete the project within budgeted timeframes and in a cost-effective
manner.
RAPID DELIVERY OF RELEVANT SOLUTIONS. Rapid time-to-market is crucial to
the effectiveness of an Internet solution. Each element of our solution helps
reduce the time required to complete our client engagements and ensures the
creation and delivery of strategies and solutions that are responsive to our
clients' needs. By delivering our services in an integrated fashion, we reduce
27
<PAGE> 30
time-consuming and costly handoffs of project tasks. Our experience in
delivering large-scale projects gives us the program management expertise to
quickly coordinate numerous aspects of complex engagements. Our industry
knowledge reduces our learning curve on new engagements, helps us to develop
industry best practices and allows us to implement solutions more efficiently.
Substantial client involvement reduces delays caused by difficulties in
obtaining critical information and resources from our client and helps ensure
that the solution addresses our client's needs.
SAPIENT SERVICES
We provide the wide range of services required to identify, design, develop
and deploy Internet strategies and solutions for Global 1000 companies and
startup businesses. Our services enable rapid delivery of complex solutions for
business-to-consumer and business-to-business electronic commerce, digital
customer relationship management, supply chain optimization, electronic markets
and Internet portals. The following descriptions highlight our core services.
- DIGITAL BUSINESS STRATEGY. Our digital business strategy development
services enable our clients to launch, or transform their existing
business into, Internet-based businesses. We help our clients define
their Internet strategy, including immediate and long-term objectives for
their customers, brands, business models and organizations. We also work
with clients to develop change management practices that help align their
organizational structure and processes with their Internet strategies.
- EXPERIENCE MODELING. An important component in a successful Internet
solution is understanding the patterns of behavior that reveal and
influence the nature of the users' experience. Our researchers use a wide
range of innovative observation techniques to understand both on-line and
off-line end-user experiences for our clients. This understanding enables
us to deliver strategies to help clients model and plan new customer
interaction experiences. We believe that our experience modeling helps
our clients compete in the new digital economy by delivering compelling
user experiences, effective market positioning and relevant brand
identities. Our experience modeling services have been enhanced by our
October 1999 acquisition of E.Lab, a leading experience-based research
firm.
- CREATIVE DESIGN. We have extensive experience in developing visual and
interactive content and creating electronic brand experiences that
enhance and extend our clients' relationships with their customers. Our
creative design services assess and analyze our clients' existing brands,
identify opportunities and provide user-focused solutions that are
appropriate and relevant to the customer-controlled Internet environment.
We believe that this helps our clients build sustainable, long-term
relationships with their customers.
- TECHNOLOGY DEVELOPMENT AND SYSTEMS INTEGRATION. Using our extensive
in-depth knowledge of the Internet and emerging technologies, we
translate strategic, creative and business requirements into
sophisticated and functional technology platforms in short timeframes.
Recognizing that technical infrastructure is the foundation for clients'
Internet solutions, we develop infrastructures that are reliable, robust,
secure and scalable. Our principal technology services include the
design, architecture and development of electronic commerce platforms,
digital customer relationship management systems, supply chain
collaboration systems, electronic markets and exchanges and Internet
portals, as well as the implementation of enterprise middleware and the
integration of Internet solutions with legacy systems.
- INTEGRATED ENGAGEMENT LEADERSHIP. The execution of large-scale,
multidisciplinary Internet solutions in a fixed timeframe requires
significant expertise in project and program management. Our integrated
engagement leadership approach enables us to effectively manage the
relationships, complexities and risks associated with large-scale,
multidiscipli-
28
<PAGE> 31
nary engagements. This allows us to plan, scope, manage and deliver
projects in a coordinated manner. We believe that our integrated
engagement leadership results in more successful engagements and enhances
client satisfaction with the entire process.
Our proprietary methodology, One Team, provides a framework of processes,
tools and best practices that we use to deliver our services. We believe that
One Team benefits our clients by providing an ability for us and our clients to:
- work together as an integrated team to understand and anticipate specific
client needs;
- work effectively in short timeframes to meet deadlines;
- set clearly-defined pricing for each phase of a project; and
- successfully manage the project and flow of information through all
phases of an engagement.
SELLING AND MARKETING
As of September 30, 1999, we employed 65 sales and marketing professionals.
The role of Sapient's marketing program is to create and sustain preference and
loyalty for Sapient as a leading e-services consultancy. Marketing occurs at the
corporate and business unit levels. The corporate marketing department has
overall responsibility for communications, advertising, public relations and our
website and also engineers and oversees central marketing and communications
programs for use by each of our business units.
Our dedicated marketing personnel within the business units undertake a
variety of marketing activities, including sponsoring focused multi-client
events to demonstrate our thought leadership, sponsoring and participating in
targeted conferences and holding private briefings with individual companies.
All of our sales professionals are organized along our five industry business
units. We believe that the industry focus of our sales professionals and our
business unit marketing personnel enhances their knowledge and expertise in
these industries and will generate additional client engagements.
We generally enter into written commitment letters with our clients at or
around the time we commence 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 subsequent agreements
contain varying terms and conditions and we do not generally believe it is
appropriate to characterize them as consisting of backlog. In addition, because
these written commitments and agreements often provide that the arrangement can
be terminated with limited advance notice or penalty, we do not believe the
projects in process at any one time are a reliable indicator or measure of
expected future revenues.
CLIENTS
Many large organizations in our target markets have adopted Internet
initiatives over the past several years and require the types of services we
provide. We target clients who are determined to gain a competitive advantage
and increase their value to their customers through the creation of new
products, services and business models facilitated by integrated business and
technology
29
<PAGE> 32
solutions. During the last 18 months, we have worked on Internet solutions for
the following clients:
Adobe
Answer Financial
BankBoston
Bank of America
Caterpillar
E*TRADE
Fidelity Investments
First Union
Friedman Billings Ramsey
Goldman Sachs
Hallmark
Hewlett-Packard
Houston Street Exchange
iWon.com
Janus Capital
Morgan Stanley Dean Witter
Nordstrom
Peet's Coffee and Tea
Plum Financial Services
SC Johnson
Sallie Mae
SpringStreet
Staples
State of Maine
State of New Hampshire
Steelcase
Sunglass Hut
United Airlines
Wells Fargo
Williams Companies
PEOPLE AND CULTURE
We have developed a strong corporate culture that is critical to our
success. Our key values are:
- client-focused delivery
- leadership
- long-term relationships
- creativity
- openness
- professional growth
To encourage the achievement of these values, we reward teamwork and
promote individuals who demonstrate these values. Also, we have an intensive
orientation program for new employees to introduce our core values and a number
of internal communications and training initiatives defining and promoting these
core values. We believe that our growth and success are attributable in large
part to the high caliber of our employees and our commitment to maintain the
values on which our success has been based.
There is significant competition for employees with the skills required to
perform the services we offer. We believe that we have been successful in our
efforts to attract and retain employees, in part because of our emphasis on our
core values, training and professional growth. We intend to continue to recruit,
hire and promote employees who share our values.
As of September 30, 1999, we had 1,939 full-time employees, comprised of
1,564 project personnel, 310 employees in general and administration and 65
employees in sales and marketing. None of our employees is subject to a
collective bargaining agreement. We believe that our relations with our
employees are good.
COMPETITION
The markets for the services we provide are highly competitive. We believe
that we currently compete principally with strategy consulting firms, Internet
professional services firms, systems integration firms, technology vendors and
internal information systems groups. Many of the companies that provide services
in our markets have significantly greater financial, technical and marketing
resources than we do and generate greater revenues and have greater name
recognition than we do. In addition, there are relatively low barriers to entry
into our markets and we have faced, and expect to continue to face competition
from new entrants into our markets.
30
<PAGE> 33
We believe that the principal competitive factors in our markets include:
- ability to integrate strategy, experience modeling, creative design and
technology services;
- quality of service, speed of delivery and price;
- industry knowledge;
- sophisticated project and program management capability; and
- Internet technology expertise and talent.
We believe that we compete favorably when considering these factors and
that our extensive experience in managing large-scale initiatives,
multidisciplinary approach to delivering solutions, in-depth industry knowledge
and partnership approach with clients distinguish us from our competitors.
INTELLECTUAL PROPERTY RIGHTS
We rely upon a combination of trade secrets, nondisclosure and other
contractual arrangements, and copyright and trademark laws, to protect our
proprietary rights. We enter into confidentiality agreements with our employees,
generally require that our consultants and clients enter into such agreements,
and limit access to and distribution of our proprietary information. There can
be no assurance that the steps we take in this regard will be adequate to deter
misappropriation of our proprietary information or that we will be able to
detect unauthorized use and take appropriate steps to enforce our intellectual
property rights.
Our business involves the development of technology solutions for specific
client engagements. Ownership of these solutions is the subject of negotiation
and is frequently assigned to the client, although we may retain a license for
certain uses. Some clients have prohibited us from marketing the solutions
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 solutions can be complicated and there can be no assurance that disputes
will not arise that affect our ability to resell or reuse such solutions.
OFFICES
Our headquarters and principal administrative, finance, selling and
marketing operations are located in approximately 110,000 square feet of leased
office space in Cambridge, Massachusetts. We also lease offices in:
- Atlanta (2)
- Chicago (2)
- Dallas
- Los Angeles
- New York (2)
- San Francisco (3)
- Washington, D.C.
- London
- Milan
- Sydney
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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<PAGE> 34
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information about our directors and
executive officers as of October 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jerry A. Greenberg..................... 33 Co-Chairman of the Board of Directors, Co-Chief
Executive Officer and Director
J. Stuart Moore........................ 37 Co-Chairman of the Board of Directors, Co-Chief
Executive Officer and Director
Sheeroy D. Desai....................... 33 Co-Chief Operating Officer and Executive Vice
President
Susan D. Johnson....................... 34 Chief Financial Officer
Desmond P. Varady...................... 34 Co-Chief Operating Officer and Executive Vice
President
R. Stephen Cheheyl..................... 54 Director
Darius W. Gaskins, Jr.................. 60 Director
Bruce D. Parker........................ 51 Director
Carl S. Sloane......................... 62 Director
</TABLE>
JERRY A. GREENBERG co-founded Sapient in 1991 and has served as the
co-Chairman of the Board of Directors and co-Chief Executive Officer and as a
director since Sapient's inception.
J. STUART MOORE co-founded Sapient in 1991 and has served as the
co-Chairman of the Board of Directors and co-Chief Executive Officer and as a
director since Sapient's inception.
SHEEROY D. DESAI joined Sapient in 1991 and has served as Executive Vice
President since September 1994 and as co-Chief Operating Officer since October
1999. Mr. Desai is responsible for our five industry business units and our two
international units. He also oversees the hiring and people strategy
organizations.
SUSAN D. JOHNSON has served as Sapient's Chief Financial Officer since
joining Sapient in February 1994.
DESMOND P. VARADY joined Sapient in 1993, became an Executive Vice
President in April 1999 and co-Chief Operating Officer in October 1999. Mr.
Varady served as a Vice President from September 1994 to April 1999. Mr. Varady
is responsible for the strategic direction of Sapient's five core disciplines.
He also oversees our integrated multidisciplinary process, One Team methodology
and our knowledge management systems.
R. STEPHEN CHEHEYL has been a director of Sapient since January 1996. Since
his retirement in December 1995, Mr. Cheheyl has been a private investor and
independent consultant. From October 1994 until then, Mr. Cheheyl served as
Executive Vice President of Bay Networks, Inc., a manufacturer of computer
networking products, which was formed through the merger of Wellfleet
Communications, Inc. and Synoptics Communications, Inc. Mr. Cheheyl is also a
director of Auspex Systems, Inc. and MCMS, Inc.
DARIUS W. GASKINS, JR. has been a director of Sapient since September 1995.
Mr. Gaskins is a founding partner of Carlisle, Fagan, Gaskins & Wise, Inc., a
management consulting firm. Since 1991, Mr. Gaskins has also been a partner of
High Street Associates, Inc., which owns and manages a specialty chemical
company. Mr. Gaskins is also a director of Anacomp Inc. and Northwestern Steel
and Wire Company.
BRUCE D. PARKER has been a director of Sapient since September 1995. Since
December 1997, Mr. Parker has been Senior Vice President and Chief Information
Officer at United
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<PAGE> 35
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.
CARL S. SLOANE has been a director of Sapient 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 1991. Mr. Sloane is also a director of Ionics, Inc.,
The Pittston Company and Rayonier, Inc.
33
<PAGE> 36
SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of September 30, 1999 by the selling
stockholders. The "Options" columns reflect shares of our common stock subject
to options currently exercisable or exercisable within 60 days after September
30, 1999, which are deemed to be outstanding for the purpose of computing the
percentage of ownership of the person holding such options, but are not deemed
to be outstanding for computing the percentage of ownership of any other person.
Except as otherwise indicated in the footnotes to the table, each of the
stockholders has sole voting and investment power with respect to the shares of
common stock beneficially owned by such stockholders. The address for each of
the selling stockholders is c/o Sapient Corporation, One Memorial Drive,
Cambridge, Massachusetts 02142.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OFFERING OWNED AFTER THE OFFERING
------------------------------ ------------------------------
NUMBER NUMBER OF NUMBER
-------------------- SHARES BEING --------------------
NAME OF BENEFICIAL OWNER STOCK OPTIONS PERCENT OFFERED STOCK OPTIONS PERCENT
- -------------------------------- ---------- ------- ------- ------------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Jerry A. Greenberg(1)........... 11,793,360 0 21.0% 1,170,000 10,623,360 0 18.6%
J. Stuart Moore(2).............. 11,485,600 0 20.5% 1,170,000 10,315,600 0 18.0%
Sheeroy D. Desai................ 528,058 224,700 1.3% 20,000 508,058 224,700 1.3%
Susan D. Johnson................ 24,140 33,000 * 4,000 20,140 33,000 *
Desmond P. Varady............... 82,480 70,400 * 6,000 76,480 70,400 *
Other selling stockholders (3
persons, each of whom owns
less than 1% of the
outstanding common stock)..... 120,622 0 * 15,400 105,222 0 *
</TABLE>
- ---------------
* Less than one percent.
(1) Includes 4,435,258 shares held in trusts of which Mr. Greenberg is a
co-trustee and over which he shares voting and/or investment control. Only
shares directly held by Mr. Greenberg will be sold in this offering. If the
underwriters exercise their over-allotment option, Mr. Greenberg will sell
an additional 262,500 shares of common stock.
(2) Includes (a) 3,700,776 shares held in trust, of which Mr. Moore is the sole
trustee and over which Mr. Moore has sole voting and investment control, (b)
1,563,680 shares held in trusts of which Mr. Moore is a co-trustee and over
which shares Mr. Moore shares investment control, of which 876,426 shares
are held by the J. Stuart Moore Remainder Trust, (c) 30,220 shares held in
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 (d) 780,000 shares
held by the J. Stuart Moore Gift Trust, over which shares Mr. Moore does not
have voting or investment control but in which shares Mr. Moore's children
have 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. Of the 1,170,000 shares to be sold, 819,000
shares are to be sold by Mr. Moore directly, 234,000 shares are to be sold
by the J. Stuart Moore Gift Trust and 117,000 shares are to be sold by the
J. Stuart Moore Remainder Trust. If the underwriters exercise their
over-allotment option, Mr. Moore will sell an additional 183,750 shares of
common stock, the J. Stuart Moore Gift Trust will sell an additional 52,500
shares of common stock and the J. Stuart Moore Remainder Trust will sell an
additional 26,250 shares.
In the second quarter of 1999, we began discussions with a potential client
regarding a strategic relationship between our two companies, which would
include, among other things, Sapient being a preferred supplier to that client
and its numerous affiliated entities.
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<PAGE> 37
As part of the relationship, Messrs. Greenberg and Moore would each issue a
$10.0 million convertible note to the client. The notes would be convertible
into shares of Sapient common stock owned by Messrs. Greenberg and Moore, and
included in the above table, at a conversion rate which is 130% of the average
closing price of our common stock on the five days prior to the date a
definitive agreement is signed. The notes could not be converted prior to
February 28, 2002. The extent to which the notes can be converted will depend on
the client's ability to meet certain key metrics, including generating at least
$20.0 million in revenue for Sapient prior to December 31, 2001. On October 26,
1999, the parties entered into a non-binding letter of interest so that Sapient
would be allowed to commence a number of projects for this client. There can be
no assurance that this transaction will be completed on the terms described
above or at all.
35
<PAGE> 38
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common
stock, par value $.01 per share, and 5,000,000 shares of preferred stock, par
value $.01 per share. As of September 30, 1999, 56,073,900 shares of our common
stock were issued and outstanding and no shares of preferred stock were
outstanding. The number of outstanding shares has been adjusted to reflect the
two-for-one stock split to be effected as a 100% stock dividend, expected to be
distributed on or about November 5, 1999 to stockholders of record on November
1, 1999.
The following summary of our securities and provisions of our certificate
of incorporation and our bylaws is not intended to be complete and is qualified
by reference to the provisions of applicable law and to our certificate of
incorporation and bylaws.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share 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 preferred stock then outstanding. Upon any liquidation, dissolution or
winding-up, holders of common stock are entitled to receive ratably the net
assets available for distribution after the payment of all debts and other
liabilities and subject to any prior rights of any preferred stock then
outstanding. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of common stock are, and
the shares to be issued by us in the offering 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 we may designate and
issue in the future.
PREFERRED STOCK
Our board of directors is authorized, subject to any limitations prescribed
by law, but 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 may have such number of shares,
designations, preferences, voting powers, qualifications, restrictions and
special or relative rights or privileges as is determined by our board of
directors, which may include, among others, dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, conversion
rights and preemptive rights.
Our stockholders have granted the board of directors authority to issue
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 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, control of Sapient.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware, an antitakeover law. In general, 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
36
<PAGE> 39
interested stockholder. Subject to some 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.
Our certificate of incorporation and bylaws provide for the division of our
board of directors into three classes as nearly equal in size as possible with
staggered three-year terms. In addition, our certificate of incorporation and
bylaws provide that directors may be removed only for cause by the affirmative
vote of the holders of two-thirds of the shares of our capital stock entitled to
vote. Under our certificate of incorporation and 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 our 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 Sapient.
Our certificate of incorporation and bylaws also provide that any action
required or permitted to be taken by our stockholders 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.
Our certificate of incorporation and 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 or by the board of
directors. Under our bylaws, in order for any matter to be considered "properly
brought" before a meeting, a stockholder must comply with requirements regarding
advance notice to us. 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 our outstanding voting securities. These provisions
may also discourage another person from making a tender offer for our common
stock, because even if such person acquired a majority of our outstanding voting
securities it 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.
Our certificate of incorporation and bylaws require the affirmative vote of
the holders of at least 75% of the shares of our capital stock issued and
outstanding and entitled to vote to amend or repeal any of the provisions
described in the prior two paragraphs.
LIMITATION OF LIABILITY
Our certificate of incorporation contains provisions:
- eliminating a director's liability to us or our 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; and
- obligating us to indemnify our officers and directors to the fullest
extent permitted by the General Corporation Law of Delaware.
We believe that these provisions will assist us in attracting and retaining
qualified individuals to serve as directors.
STOCK TRANSFER AGENT
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
37
<PAGE> 40
UNDERWRITING
Sapient, the selling stockholders and the underwriters for the offering
named below have entered into an underwriting agreement with respect to the
shares being offered. Subject to various conditions, each underwriter has
severally agreed to purchase the number of shares indicated in the following
table. Goldman, Sachs & Co., Credit Suisse First Boston Corporation, Morgan
Stanley & Co. Incorporated, First Union Securities, Inc. and Friedman, Billings,
Ramsey & Co., Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co......................................
Credit Suisse First Boston Corporation...................
Morgan Stanley & Co. Incorporated........................
First Union Securities, Inc..............................
Friedman, Billings, Ramsey & Co., Inc....................
---------
Total............................................... 3,500,000
=========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 525,000
shares from two of the selling stockholders to cover such sales. They may
exercise that option for 30 days. If any shares are purchased pursuant to this
option, the underwriters will severally purchase shares in approximately the
same proportion as set forth in the table above.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the underwriters by Sapient and the selling
stockholders. Such amounts are shown assuming both no exercise and full exercise
of the underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
Paid by Sapient
---------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share....................................... $ $
Total........................................... $ $
</TABLE>
<TABLE>
<CAPTION>
Paid by the Selling
Stockholders
---------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share....................................... $ $
Total........................................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the underwriters to certain other
brokers or dealers at a discount of up to $ per share from the initial price
to public. If all the shares are not sold at the initial price to public, the
representatives may change the offering price and the other selling terms.
Sapient, its directors and executive officers and the selling stockholders
have agreed with the underwriters not to dispose of or hedge any of their common
stock or securities convertible into or exchangeable for shares of common stock
during the period from the date of this prospectus continuing through the date
90 days after the date of this prospectus, except with the prior written consent
of the representatives. In addition, Messrs. Greenberg and Moore, and their
38
<PAGE> 41
related trusts, who will hold 20,938,960 shares after the offering, have agreed
to the above restrictions for an additional 90-day period. The obligation of
Messrs. Greenberg and Moore is subject to exceptions for specified charitable
contributions and a pledge of shares of common stock by each in connection with
their proposed issuance of a convertible note. This agreement does not apply to
any existing employee benefit plans.
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
As permitted by Rule 103 under the Exchange Act, certain underwriters and
selling group members, if any, may act as "passive market makers" in the common
stock, which means they may make bids for or purchases of common stock in the
Nasdaq National Market until a stabilizing bid has been made. Rule 103 generally
provides:
- a passive market maker's net daily purchases of the common stock may not
exceed 30% of its average daily trading volume in such securities for the
two full consecutive calendar months, or any 60 consecutive days ending
within the 10 days, immediately preceding the filing date of the
registration statement of which this prospectus forms a part;
- a passive market maker may not effect transactions or display bids for
the common stock at a price that exceeds the highest independent bid for
the common stock by persons who are not passive market makers; and
- bids made by passive market makers must be identified as such.
Sapient estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $500,000. Two of
the selling stockholders, Jerry A. Greenberg and J. Stuart Moore, will pay a pro
rata share of this amount based on the percentage of the number of shares sold
by each such selling stockholder to the total number of shares sold in the
offering.
Sapient and the selling stockholders have agreed to indemnify the several
underwriters against some liabilities, including liabilities under the
Securities Act of 1933.
Sapient has provided services in the ordinary course of business to
Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, First Union Securities,
Inc., and Friedman, Billings, Ramsey & Co., Inc., four of the representatives.
During 1998, Goldman, Sachs & Co. accounted for approximately 5.5% of Sapient's
revenues and during the nine months ended September 30, 1999, 3.4% of Sapient's
revenues. During the nine months ended September 30, 1999, Morgan Stanley & Co.
Incorporated and First Union Securities, Inc. each accounted for less than 1% of
Sapient's revenues and Friedman, Billings, Ramsey & Co., Inc. accounted for
approximately 1.1% of Sapient's revenues. Sapient's work for all four
representatives is ongoing.
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<PAGE> 42
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Hale and Dorr LLP, Boston, Massachusetts. Legal matters for the underwriters
will be passed upon by Ropes & Gray, Boston, Massachusetts.
EXPERTS
Our financial statements as of December 31, 1998, 1997 and 1996 and the
consolidated statements of income, shareholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1998, have been
included and incorporated by reference in this prospectus and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
In July 1999, Sapient replaced KPMG LLP as its independent auditors with
PricewaterhouseCoopers LLP. The audit committee of Sapient's board of directors
recommended the change of accountants and that action was approved by the board
of directors. KPMG's dismissal was not due to or based on any disagreements on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other documents with the Securities
and Exchange Commission. You may read and copy any document we file at the SEC's
public reference room at Room 1024, Judiciary Plaza Building, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the SEC located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents upon payment of a duplicating fee, by writing to the SEC. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Sapient's SEC filings are also available to you on the
SEC's Internet site at http://www.sec.gov.
This prospectus is part of a registration statement we filed with the SEC.
The registration statement contains more information than this prospectus
regarding us and our common stock, including exhibits and schedules. You can
obtain a copy of the registration statement from the SEC at the addresses listed
above or from the SEC's Internet site.
The SEC allows us to "incorporate" into this prospectus information that we
file with the SEC in other documents. This means that we can disclose important
information to you by referring to other documents that contain that
information. The information incorporated by reference is considered to be part
of this prospectus. Information contained in this prospectus and information
that we file with the SEC in the future and incorporate by reference in this
prospectus automatically updates and supersedes previously filed information. We
are incorporating by reference the documents listed below and any future filings
we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 prior to the sale of all of the shares covered by this
prospectus:
(1) Our Annual Report on Form 10-K for the year ended December 31,
1998, filed with the SEC on March 16, 1999, as amended by Form 10-K/A filed
with the SEC on April 30, 1999;
(2) Our Quarterly Report on Form 10-Q for the quarter ended March 31,
1999, filed with the SEC on May 14, 1999, as amended by Form 10-Q/A filed
with the SEC on May 21, 1999;
40
<PAGE> 43
(3) Our Quarterly Report on Form 10-Q for the quarter ended June 30,
1999, filed with the SEC on August 13, 1999;
(4) Our Quarterly Report on Form 10-Q for the quarter ended September
30, 1999, filed with the SEC on October 21, 1999;
(5) Our Current Report on Form 8-K/A, filed with the SEC on February
23, 1999;
(6) Our Current Report on Form 8-K, filed with the SEC on April 7,
1999;
(7) Our Current Report on Form 8-K, filed with the SEC on April 23,
1999, as amended by Form 8-K/A filed with the SEC on April 23, 1999;
(8) Our Current Report on Form 8-K, filed with the SEC on July 26,
1999;
(9) All of our filings pursuant to the Exchange Act after the date of
filing the initial registration statement and prior to effectiveness of the
registration statement; and
(10) The description of our common stock contained in our Registration
Statement on Form 8-A, filed with the SEC on March 26, 1996, as amended by
Form 8-A/A filed with the SEC on March 28, 1996.
You may request a copy of these documents, which will be provided to you at
no cost, by contacting: Sapient Corporation, One Memorial Drive, Cambridge, MA
02142, Attention: Investor Relations, (617) 621-0200.
41
<PAGE> 44
[This Page Intentionally Left Blank]
<PAGE> 45
SAPIENT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Income and Comprehensive
Income................................................................. F-4
Consolidated Statements of Stockholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-7
Notes to Consolidated Financial Statements............................... F-9
F-1
<PAGE> 46
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, 1998 and 1997, and the related
consolidated statements of income and comprehensive income, stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1998. 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, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
--------------------------------------
KPMG LLP
Boston, Massachusetts
April 16, 1999
F-2
<PAGE> 47
SAPIENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 47,314 $ 39,320 $ 30,713
Short term investments.................................... 17,092 52,500 69,207
Accounts receivable, less allowance for doubtful accounts
of $350, $569 and $612 (unaudited), respectively........ 16,775 42,797 66,010
Unbilled revenues on contracts............................ 9,071 10,306 13,530
Prepaid expenses.......................................... 680 438 2,089
Other current assets...................................... 971 3,296 2,418
Deferred income taxes..................................... 35 3,973 3,973
-------- -------- --------
Total current assets............................... 91,938 152,630 187,940
Property and equipment, net................................. 6,576 14,447 21,036
Deferred income taxes....................................... -- 5,702 5,702
Intangible assets........................................... -- 13,729 11,532
Due from shareholders....................................... -- 764 250
Other assets................................................ 353 429 333
-------- -------- --------
Total assets....................................... $ 98,867 $187,701 $226,793
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank..................................... $ 444 $ 117 $ --
Accounts payable.......................................... 224 1,064 1,527
Accrued expenses.......................................... 1,924 3,743 2,893
Accrued compensation...................................... 3,454 8,633 5,103
Income taxes payable...................................... 1,255 2,217 1,136
Deferred income taxes..................................... 1,820 4,170 4,170
Deferred revenues on contracts............................ 6,408 10,907 13,871
-------- -------- --------
Total current liabilities.......................... 15,529 30,851 28,700
Deferred income taxes....................................... 121 773 773
Other long term liabilities................................. 910 1,263 1,568
-------- -------- --------
Total liabilities.................................. 16,560 32,887 31,041
-------- -------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.01 per share; 5,000,000
shares authorized and none outstanding at December 31,
1998 and 1997........................................... -- -- --
Common stock, par value $0.01 per share, 100,000,000
shares authorized, 49,994,488 shares issued and
outstanding at December 31, 1997; 54,212,586 shares
issued and outstanding at December 31, 1998; 56,073,900
shares issued and outstanding at September 30, 1999
(unaudited)............................................. 500 542 561
Additional paid-in capital................................ 57,221 122,513 141,601
Deferred compensation..................................... -- (2,178) (798)
Accumulated other comprehensive income.................... -- 26 (356)
Retained earnings......................................... 24,586 33,911 54,744
-------- -------- --------
Total stockholders' equity......................... 82,307 154,814 195,752
-------- -------- --------
Total liabilities and stockholders' equity......... $ 98,867 $187,701 $226,793
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-3
<PAGE> 48
SAPIENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -------------------
1996 1997 1998 1998 1999
-------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................. $ 49,795 $92,027 $164,872 $111,081 $195,021
Operating expenses:
Project personnel costs............ 23,329 44,623 80,543 53,833 94,621
Selling and marketing.............. 2,453 6,074 11,269 7,569 15,312
General and administrative......... 14,216 22,571 41,675 27,680 48,394
Amortization of intangible
assets.......................... -- -- 687 128 1,550
Stock-based compensation charge.... 260 -- 4,499 -- 1,919
Charge for in-process research and
development..................... -- -- 11,100 11,100 --
Acquisition costs.................. -- 560 -- 2,340
-------- ------- -------- -------- --------
Total operating expenses... 40,258 73,828 149,773 100,310 164,136
-------- ------- -------- -------- --------
Income from operations............. 9,537 18,199 15,099 10,771 30,885
Interest income...................... 1,098 2,058 2,925 2,207 2,649
-------- ------- -------- -------- --------
Income before income taxes......... 10,635 20,257 18,024 12,978 33,534
Income taxes......................... 3,936 7,703 8,660 4,765 12,701
-------- ------- -------- -------- --------
Net Income................. $ 6,699 $12,554 $ 9,364 $ 8,213 $ 20,833
======== ======= ======== ======== ========
Foreign currency translation gain.... -- -- 26 -- (19)
Unrealized holding loss on short term
investments........................ -- -- -- -- (202)
-------- ------- -------- -------- --------
Comprehensive income....... $ 6,699 $12,554 $ 9,390 $ 8,213 $ 20,612
======== ======= ======== ======== ========
Basic net income per share........... $ 0.15 $ 0.25 $ 0.18 $ 0.16 $ 0.38
======== ======= ======== ======== ========
Diluted net income per share......... $ 0.13 $ 0.23 $ 0.16 $ 0.14 $ 0.33
======== ======= ======== ======== ========
Weighted average common shares....... 44,844 49,574 52,228 51,670 55,101
Weighted average common share
equivalents........................ 4,850 4,166 5,174 5,253 7,244
-------- ------- -------- -------- --------
Weighted average common shares and
common share equivalents........... 49,694 53,740 57,402 56,923 62,345
======== ======= ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-4
<PAGE> 49
SAPIENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
VOTING NON-VOTING
COMMON STOCK COMMON STOCK ADDITIONAL
---------------- ----------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995........... 22,744 $ 227 15,328 $ 153 $ (160)
Notes repaid from stockholders......... -- -- -- -- --
Exercised stock options.............. 1,864 19 -- -- 194
Distributions to stockholders........ -- -- -- -- --
Proceeds from public offerings....... 8,780 88 -- -- 54,009
Conversion of non-voting shares to
voting shares..................... 15,328 153 (15,328) (153) --
Tax benefit of disqualifying
dispositions of stock options..... -- -- -- -- 108
Stock-based compensation............. 62 1 -- -- 259
Net income........................... -- -- -- -- --
------ ------ ------- ----- --------
Balance at December 31, 1996........... 48,778 488 -- -- 54,410
Notes repaid from stockholders....... -- -- -- -- --
Exercised stock options.............. 1,216 12 -- -- 1,777
Distributions to stockholders........ -- -- -- -- --
Tax benefit of disqualifying
dispositions of stock options..... -- -- -- -- 1,034
Net income........................... -- -- -- -- --
------ ------ ------- ----- --------
Balance at December 31, 1997........... 49,994 500 -- -- 57,221
Exercised stock options.............. 1,916 19 -- -- 5,093
Translation gain..................... -- -- -- -- --
Proceeds from public offering........ 1,306 13 -- -- 29,078
Distributions to stockholders........ -- -- -- -- --
Common stock issued for acquisition
of Studio Archetype............... 996 10 -- -- 22,790
Tax benefit of disqualifying
dispositions of stock options..... -- -- -- -- 1,654
Deferred compensation................ -- -- -- -- 6,677
Net income........................... -- -- -- -- --
------ ------ ------- ----- --------
Balance at December 31, 1998........... 54,212 542 -- -- 122,513
====== ====== ======= ===== ========
Exercised stock options (unaudited).... 1,668 17 -- -- 14,014
Proceeds of Employee Stock
Purchase Plan (unaudited)............ 194 2 -- -- 4,535
Translation gain (loss) (unaudited).... -- -- -- -- --
Deferred compensation (unaudited)...... -- -- -- -- 539
Net income (unaudited).................
------ ------ ------- ----- --------
Balance at September 30, 1999
(unaudited).......................... 56,074 $ 561 -- $ -- $141,601
====== ====== ======= ===== ========
</TABLE>
F-5
<PAGE> 50
SAPIENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED NOTES
OTHER RECEIVABLE TOTAL
COMPREHENSIVE DEFERRED RETAINED FROM STOCKHOLDERS'
INCOME COMPENSATION EARNINGS STOCKHOLDERS EQUITY
------------- ------------ -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995........ -- -- $ 5,454 $ (75) $ 5,599
Notes repaid from stockholders...... -- -- -- 50 50
Exercised stock options........... -- -- -- -- 213
Distributions to stockholders..... -- -- (52) -- (52)
Proceeds from public offerings.... -- -- -- -- 54,097
Conversion of non-voting shares to
voting shares................... -- -- -- -- --
Tax benefit of disqualifying
dispositions of stock options... -- -- -- -- 108
Stock-based compensation.......... -- -- -- -- 260
Net income........................ -- -- 6,699 -- 6,699
------- --------- --------- ------- ----------
Balance at December 31, 1996........ -- -- 12,101 (25) 66,974
Notes repaid from stockholders.... -- -- -- 25 25
Exercised stock options........... -- -- -- -- 1,789
Distributions to stockholders..... -- -- (69) -- (69)
Tax benefit of disqualifying
dispositions of stock options... -- -- -- -- 1,034
Net income........................ -- -- 12,554 -- 12,554
------- --------- --------- ------- ----------
Balance at December 31, 1997........ -- -- 24,586 -- 82,307
Exercised stock options........... -- -- -- -- 5,112
Translation gain.................. 26 -- -- -- 26
Proceeds from public offering..... -- -- -- -- 29,091
Distributions to stockholders..... -- -- (39) -- (39)
Common stock issued for
acquisition of Studio
Archetype....................... -- -- -- -- 22,800
Tax benefit of disqualifying
dispositions of stock options... -- -- -- -- 1,654
Deferred compensation............. -- (2,178) -- -- 4,499
Net income........................ -- -- 9,364 -- 9,364
------- --------- --------- ------- ----------
Balance at December 31, 1998........ 26 (2,178) 33,911 -- 154,814
Exercised stock options
(unaudited)....................... -- -- -- -- 14,031
Proceeds from Employee Stock
Purchase Plan (unaudited)......... -- -- -- -- 4,537
Translation gain (loss)
(unaudited)....................... (382) -- -- -- (382)
Deferred compensation (unaudited)... -- 1,380 -- -- 1,919
Net income (unaudited).............. -- -- 20,833 -- 20,833
------- --------- --------- ------- ----------
Balance at September 30, 1999
(unaudited)....................... $ (356) $ (798) $ 54,744 $ -- $ 195,752
======= ========= ========= ======= ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-6
<PAGE> 51
SAPIENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- --------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 6,704 $ 12,554 $ 9,364 $ 8,213 $ 20,833
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 1,296 2,478 4,096 2,361 5,577
Charge for in-process research and
development........................... -- -- 11,100 11,100 --
Amortization of intangible assets....... -- -- 128 128 1,550
Deferred income taxes................... (1,030) 786 (6,638) (4,039) --
Allowance for doubtful accounts......... -- 275 200 -- --
Stock compensation expense.............. 260 -- 4,499 -- 1,919
Changes in operating assets and
liabilities:
Increase in accounts receivable....... (4,262) (5,170) (23,644) (12,498) (23,212)
Increase in unbilled revenues on
contracts........................... (2,392) (4,397) (651) (2,313) (3,224)
Decrease (increase) in prepaid
expenses............................ (26) (363) 321 (1,203) (876)
Increase in other current assets...... (150) (821) (2,383) -- --
Decrease in income tax receivable..... 480 -- -- -- --
Decrease (increase) in other assets... 49 (285) 70 39 97
Increase (decrease) in accounts
payable............................. (356) 104 395 1,270 345
(Decrease) increase in accrued
expenses............................ 546 332 (1,241) (1,584) (100)
Increase in accrued compensation...... 1,419 1,172 4,137 (95) (3,530)
Increase in income taxes payable...... 1,552 738 2,493 2,319 (1,081)
Increase in other long term
liabilities......................... 717 155 311 70 305
Increase in deferred revenues on
contracts........................... 2,541 1,492 3,365 (423) 2,963
-------- -------- -------- -------- --------
Net cash provided by operating
activities....................... 7,348 9,050 5,922 3,345 1,566
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment...... (2,193) (6,356) (9,307) (7,462) (12,166)
Net cash received from acquisition...... -- -- 561 561 --
Sales and maturities of short term
investments........................... -- 12,190 21,043 -- --
Purchases of short term investments..... (9,540) (19,742) (56,451) (45,533) (17,089)
-------- -------- -------- -------- --------
Net cash used in investing
activities....................... (11,733) (13,908) (44,154) (52,434) (29,255)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from stockholders for notes
receivable............................ 50 25 3,024 -- 514
Payments to stockholders for notes
receivable............................ -- -- (3,788) (3,788) --
Proceeds from Employee Stock Purchase
Plan.................................. -- -- -- 2,810 4,537
</TABLE>
F-7
<PAGE> 52
SAPIENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- --------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Exercise of stock options................. 213 1,789 5,112 1,311 14,031
Net proceeds from initial public
offering.............................. 32,403 -- -- -- --
Net proceeds from follow-on public
offering.............................. 21,694 -- 29,091 29,091 --
Distribution to stockholders............ -- (69) (39) -- --
Principal payments on notes payable to
bank.................................. (49) (6) (3,162) (2,909) --
-------- -------- -------- -------- --------
Net cash provided by financing
activities....................... 54,311 1,739 30,238 26,515 19,082
-------- -------- -------- -------- --------
(Decrease) increase in cash and cash
equivalents............................. 49,926 (3,119) (7,994) (22,574) (8,607)
Cash and cash equivalents, beginning of
year.................................... 507 50,433 47,314 47,314 39,320
-------- -------- -------- -------- --------
Cash and cash equivalents, end of year.... $ 50,433 $ 47,314 $ 39,320 $ 24,740 $ 30,713
======== ======== ======== ======== ========
Schedule of non-cash financing activities:
Tax benefit of disqualifying
dispositions of stock options......... $ 108 $ 1,034 $ 1,654
======== ======== ========
Supplemental disclosures of cash flow
information:
Net assets and liabilities recognized upon
acquisition of Studio Archetype:
Cash and cash equivalents............... $ 811
Accounts receivable..................... 2,578
Unbilled revenues on contracts.......... 629
Prepaid expenses and other current
assets................................ 34
Property and equipment.................. 2,077
Other assets............................ 100
Accounts payable........................ 445
Accrued expenses........................ 725
Accrued compensation.................... 880
Accrued income taxes payable............ 270
Deferred revenues on contracts.......... 1,134
Notes payable to bank................... 2,862
Other long term liabilities............. 42
Accrued acquisition costs............... 2,335
Supplemental disclosures of non-cash
investing activities:
Common stock issued for acquisition of
Studio Archetype...................... $ 22,800
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-8
<PAGE> 53
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS
Sapient is an innovative provider of e-business consulting and Internet
commerce solutions. Through the delivery of integrated services from strategy
and business transformation consulting through user-centered design and
technology implementation services, Sapient helps emerging and evolving
businesses transform themselves into e-businesses. Founded in 1991 as a Delaware
corporation, the Company currently has more than 1,400 employees in offices in
Cambridge, Massachusetts, New York, San Francisco, Chicago, Atlanta, Dallas, Los
Angeles, London, England and Sydney, Australia.
On March 29, 1999, Sapient acquired all of the outstanding Common Stock of
Adjacency in exchange for 1,581,348 shares of Sapient Common Stock (see Note
13). Sapient's Consolidated Financial Statements have been restated for all
periods presented to reflect the acquisition of Adjacency, which has been
accounted for as a pooling of interests.
On August 25, 1998, Sapient acquired Studio Archetype, Inc. ("Studio
Archetype") in exchange for 996,628 shares of Common Stock and paid $250,000 in
cash to the former Studio stockholders. The acquisition was accounted for as a
purchase and accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their respective fair values.
On December 15, 1997, Sapient acquired all of the outstanding common stock
of EXOR Technologies, Inc. ("EXOR") in exchange for 1,223,476 shares of Sapient
Common Stock (see Note 13). Sapient'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 Sapient and
its wholly owned subsidiaries. All significant intercompany transactions have
been eliminated in consolidation.
(b) CASH AND CASH EQUIVALENTS
All highly liquid investments with original maturities of three months or
less are considered 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.
F-9
<PAGE> 54
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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
Sapient 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
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 Sapient to a concentration
of credit risk consist of cash and cash equivalents and accounts receivable.
Sapient performs ongoing credit evaluations of its customers and generally
does not require collateral on accounts receivable. Sapient 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 fair market values of cash and cash equivalents, accounts receivable
and debt instruments at both December 31, 1998 and 1997 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,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of", the carrying value of intangible assets and other long-lived
assets is reviewed on a regular basis for the existence of facts or
circumstances, both internally and externally, that may suggest impairment. To
date, no such impairment has been indicated. Should there be an impairment in
F-10
<PAGE> 55
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the future, Sapient will measure the amount of the impairment based on
undiscounted expected future cash flows from the impaired assets. The cash flow
estimates that will be used will contain management's best estimates, using
appropriate and customary assumptions and projections at the time.
(j) RESEARCH AND DEVELOPMENT COSTS
Research and development expenditures are charged to operations as
incurred. To date, substantially all research and development activities of
Sapient have been pursuant to customer contracts and, accordingly, have been
expensed as project costs. Sapient 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 net income per share in the notes to the financial
statements. Sapient applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
under SFAS 123 for Sapient's stock option plans, and footnote disclosure is
provided in Note 9.
The deferred compensation expense appearing in the financial statements
relates to stock options that were granted to Adjacency employees prior to the
acquisition by Sapient at below fair market value. The deferred compensation is
being amortized on a straight-line basis over the vesting period of three years.
Certain employees completed their vesting upon the business combination
described in Note 1.
(l) EARNINGS PER SHARE
Under Statement of Financial Accounting Standards No. 128, Sapient 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.
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.
On October 21, 1999 the Company declared a two-for-one stock split to be
effected as a 100% stock dividend expected to be paid on or about November 5,
1999 to stockholders of record on November 1, 1999. This stock split has been
reflected in the consolidated financial statements.
(m) COMPREHENSIVE INCOME
During 1998, Sapient adopted 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 are not
F-11
<PAGE> 56
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
required to be recorded in determining net income but are rather reported as a
separate component of stockholders' equity. Sapient reports foreign currency
translation gains and losses as a component of comprehensive income.
(n) SEGMENT REPORTING
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 uses a management approach to report
financial and descriptive information about a company's operating segments.
Operating segments are revenue-producing components of the enterprise for which
separate financial information is produced internally for management. Under this
definition, Sapient operated as a single segment for all years presented. The
adoption of SFAS 131 did not have a material impact on Sapient's financial
condition or results of operations.
(o) GOODWILL AND OTHER PURCHASED INTANGIBLES
Goodwill and other purchased intangibles represent the excess of the
purchase price over the fair value of assets acquired. Goodwill and
substantially all other purchased intangibles are being amortized on a
straightline basis over lives ranging from five to seven years.
(p) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March, 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants, issued SOP 98-1, "Accounting
for the Cost of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1") which requires the capitalization of certain internal costs related to
the implementation of computer software obtained for internal use. Sapient is
required to adopt this standard in the first quarter of 1999. It is expected
that the adoption of SOP 98-1 will not have a material impact on Sapient's
financial position or its results of operations.
In June, 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
SFAS 133 requires the recognition of all derivatives as either assets or
liabilities in the statement of financial position and the measurement of those
instruments at fair value. Sapient is required to adopt this standard in the
first quarter of 2000. It is expected that the adoption of SFAS 133 will not
have a material impact on Sapient's financial position or its results of
operations.
(q) UNAUDITED INTERIM FINANCIAL DATA
In the opinion of management, Sapient has made all adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation of
Sapient's financial condition as of September 30, 1999 and the results of
operations and of cash flows for the nine months ended September 30, 1999 and
1998, as presented in the accompanying unaudited consolidated financial data.
F-12
<PAGE> 57
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT
The cost and accumulated depreciation of property and equipment at December
31, 1997 and 1998 are as follows:
1997 1998
-------- -------
(IN THOUSANDS)
Leasehold improvements................................ $ 3,604 $ 7,755
Furniture and fixtures................................ 928 2,418
Office equipment...................................... 1,744 2,706
Computer equipment.................................... 5,054 11,806
-------- -------
11,330 24,685
Less accumulated depreciation.................... (4,754) (10,238)
-------- -------
Property and equipment, net......................... $ 6,576 $14,447
======== =======
(4) INTANGIBLE ASSETS
Other assets include certain intangible assets that were acquired as part
of the Studio Archetype acquisition in August 1998. The following table
summarizes the cost and accumulated amortization of intangible assets at
December 31, 1998:
ESTIMATED
USEFUL
LIFE
(IN THOUSANDS) ---------
Marketing assets and customer lists.............. $ 3,800 7 Years
Assembled work force............................. 1,600 5-7 Years
Goodwill......................................... 9,015 7 Years
-------
14,415
Less accumulated amortization.................... (686)
-------
Intangible assets, net........................... $13,729
=======
(5) BANK LOAN
Sapient has a $5,000,000 loan facility with a bank which expires on June
30, 2000. Borrowings under this agreement bear interest at the bank's prime
rate. Sapient had no borrowings under this facility at December 31, 1997 or
1998. The facility contains various financial covenants, including limitations
on the payment of cash dividends and maintenance of certain financial ratios.
F-13
<PAGE> 58
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal, current..................................... $ 3,951 $5,220 $11,768
State, current....................................... 1,015 1,697 3,529
------- ------ -------
4,966 6,917 15,297
Foreign, deferred.................................... -- -- (382)
Federal, deferred.................................... (924) 647 (4,902)
State, deferred...................................... (106) 139 (1,353)
------- ------ -------
(1,030) 786 (6,637)
------- ------ -------
Income tax expense................................... $ 3,936 $7,703 $ 8,660
======= ====== =======
</TABLE>
Income tax expense for the years ended December 31, 1996, 1997 and 1998
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>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate................................. 35.0% 35.0% 35.0%
State income taxes, net of federal benefit................ 5.7 6.0 6.3
S Corporation loss (income)............................... (0.8) (0.4) 9.3
Tax exempt interest....................................... (2.6) (3.3) (4.1)
Other, net................................................ (0.3) 0.7 1.5
---- ---- ----
Effective income tax rate................................. 37.0% 38.0% 48.0%
==== ==== ====
</TABLE>
F-14
<PAGE> 59
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997 and 1998, 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:
1997 1998
------- -------
(IN THOUSANDS)
Deferred income tax assets:
Deferred revenue....................................... $ 1,855 $ 2,831
Allowance for doubtful accounts...................... 60 223
Accrual for compensation............................. 390 --
Other accruals....................................... 745 947
Property and equipment............................... 548 745
In-process research and development.................. -- 4,399
Goodwill and other intangibles....................... -- 148
Foreign NOL.......................................... -- 382
------- -------
Total gross deferred income tax assets....... $ 3,598 $ 9,675
======= =======
Deferred income tax liabilities:
Deferred taxes relating to the use of cash method of
accounting for tax purposes prior to 1996......... $(1,309) $ (773)
Unbilled revenue..................................... (3,652) (4,170)
Other accruals....................................... (543) --
------- -------
Total gross deferred income tax
liabilities................................ $(5,504) $(4,943)
======= =======
Net deferred income tax
assets/(liabilities)....................... $(1,906) $ 4,732
======= =======
In assessing the realizability of deferred income tax assets, Sapient
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 that Sapient
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, 1996, 1997 and
1998 was allocated as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes from continuing operations.............. $ 3,936 $ 7,703 $8,660
Stockholders' equity, for compensation expense for
tax purposes in excess of amounts recognized for
financial statement purposes......................... (108) (1,034) (1,654)
------- ------- ------
$ 3,828 $ 6,669 $7,006
======= ======= ======
</TABLE>
Total income taxes paid in 1996, 1997 and 1998 were approximately
$2,838,000, $6,179,000 and $12,383,000, respectively.
F-15
<PAGE> 60
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES
Sapient maintains its executive offices in Massachusetts and operating
offices in several locations throughout the United States and abroad. Sapient
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, 1998:
(IN THOUSANDS)
1999.................................................. $11,392
2000.................................................. 11,700
2001.................................................. 11,651
2002.................................................. 11,549
2003.................................................. 11,696
Thereafter............................................ $26,110
Rent expense for the years ended December 31, 1996, 1997 and 1998 was
approximately $3,167,000, $4,053,000, and $8,943,000, respectively.
Sapient has issued letters of credit with a bank in the aggregate amount of
$975,000 as security deposits for certain of its lease commitments.
Sapient has certain contingent liabilities that arise in the ordinary
course of its business activities. Sapient accrues contingent liabilities when
it is probable that future expenditures will be made and such expenditures can
be reasonably estimated.
In August 1999, the Company settled the legal proceedings brought against
it in April 1996 by John Adler, a former employee, who alleged, among other
things, wrongful termination of his employment. The suit was previously
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. In connection with the settlement, Mr. Adler received 24,000
shares of the Company's Common Stock and the parties released each other from
all future claims relating to the matter. The shares Mr. Adler received in the
settlement were originally issued into escrow in 1996 when this lawsuit
originated. The issuance of these shares has no effect on the Company's
operating results or financial condition.
(8) STOCK PLANS
(a) 1992 STOCK OPTION PLAN
During 1992, Sapient 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 10,000,000 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 Sapient'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
F-16
<PAGE> 61
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
Sapient).
(b) 1996 EQUITY STOCK INCENTIVE PLAN
Sapient'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, Sapient. The total number of shares of Common
Stock which may be issued under the 1996 Plan is 9,600,000 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 dates of options granted. 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
Sapient).
(c) EMPLOYEE STOCK PURCHASE PLAN
Sapient's 1996 Employee Stock Purchase Plan (the "Purchase Plan")
authorizes the issuance of up to 1,320,000 shares of Common Stock to
participating employees through a series of semi-annual offerings. The maximum
number of shares available in each offering was 100,000 shares (plus any
unpurchased shares available from previous offerings) for the first six
offerings, and is 120,000 shares (plus any unpurchased shares available from
previous offerings) for the next six offerings. An employee becomes eligible to
participate in the Purchase Plan when he or she is regularly employed by Sapient
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 61 percent
of eligible employees participated in the two offerings under the Purchase Plan
during the year ended December 31, 1998. Approximately 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, Sapient sold 67,660, 187,256 and
211,268 shares of Common Stock in 1996, 1997 and 1998, respectively.
(d) 1996 DIRECTORS STOCK OPTION PLAN
Sapient's 1996 Directors Stock Option Plan (the "Directors Plan")
authorizes the issuance of 120,000 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 20,000 shares of Common Stock at an exercise price equal to the grant
date fair market value of Sapient'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 and 1998, no options had been granted
under the Directors Plan.
F-17
<PAGE> 62
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) 1998 STOCK INCENTIVE PLAN
Sapient's 1998 Equity Stock Incentive Plan (the "1998 Plan") authorizes
Sapient 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, Sapient. The total number of shares of Common
Stock which may be issued under the 1998 Plan is 4,000,000 shares. The 1998 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 1998 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 Sapient). As
of December 31, 1998, no options had been granted under the 1998 Plan.
(f) ADJACENCY, INC. 1998 STOCK OPTION PLAN
In connection with the acquisition of Adjacency, Inc., the Company agreed
to assume the options granted under the Adjacency, Inc. 1998 Stock Option Plan
(the "Adjacency Plan") that were outstanding at the time of the acquisition. The
Adjacency Plan was originally adopted by Adjacency in 1998 and provided for the
grant of stock options up to an aggregate of 4,000,000 shares of Class B Common
Stock of Adjacency, Inc. As a result of the acquisition, the Company has assumed
the obligations related to options to purchase 126,508 shares of Sapient Common
Stock. No further grants may be made pursuant to the Adjacency Plan (but
previously outstanding options remain outstanding but are exercisable for shares
of Sapient Common Stock).
A summary of the status of Sapient's five fixed stock option plans as of
December 31, 1996, 1997 and 1998 and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
1996 1997 1998
------------------ ------------------ ------------------
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........................ 6,036 $ 0.37 5,964 $ 2.57 8,766 $ 7.24
Granted....................... 2,132 $ 6.59 4,196 $11.79 4,942 $19.76
Exercised..................... (1,864) $ 0.12 (1,216) $ 0.31 (1,916) $ 3.32
Forfeited..................... (340) $ 1.70 (178) $ 6.13 (70) $11.81
------ ------ ------ ------ ------ ------
Outstanding at end of year.... 5,964 $ 2.57 8,766 $ 7.24 11,722 $12.82
====== ====== ======
Options exercisable at year
end......................... 1,444 1,510 1,884
====== ====== ======
Weighted average grant date
fair market value of options
granted during the year..... $ 3.58 $ 6.33 $14.20
====== ====== ======
</TABLE>
F-18
<PAGE> 63
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------------
AVERAGE WEIGHTED WEIGHTED
DECEMBER 31, 1998 REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ----------------- -------------- ----------- -------- -------------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$0.00 to $1.25............. 1,614 2.8 years $ .70 836 $ .56
$1.26 to $3.50............. 722 3.0 years $ 2.89 154 $ 2.86
$3.51 to $10.00............ 758 8.0 years $ 8.71 236 $ 8.81
$10.01 to $12.50........... 2,184 8.3 years $11.38 588 $11.18
$12.51 to $15.00........... 2,104 8.8 years $13.08 70 $12.95
$15.01 to $17.50........... 362 9.7 years $16.74 -- --
$17.51 to $20.00........... 1,688 9.5 years $18.93 -- --
$20.01 to $22.50........... 1,742 9.4 years $21.00 -- --
$22.51 to $25.00........... 372 9.5 years $23.31 -- --
$25.01 to $38.69........... 176 9.4 years $27.15 -- --
$0.00 to $38.69............ 11,722 7.7 years $12.82 1,884 $ 5.57
</TABLE>
Sapient has five stock-based compensation plans, which are described above.
Sapient applies APB Opinion 25 and related interpretations in accounting for its
plans. No compensation has been recognized relative to grants under these plans,
other than deferred compensation charges of approximately $4.5 million related
to the value of stock options that were granted in 1998 under the Adjacency Plan
at below fair market value and which vest in 1998. 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 required under SFAS 123,
Sapient's net income and net income per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
-------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income
As reported....................................... $6,699 $12,554 $ 9,364
Pro forma....................................... $5,250 $ 5,470 $(15,842)
Basic net income per share
As reported..................................... $ 0.15 $ 0.25 $ 0.18
Pro forma....................................... $ 0.12 $ 0.11 $ (0.31)
Diluted net income per share
As reported..................................... $ 0.13 $ 0.23 $ 0.16
Pro forma....................................... $ 0.11 $ 0.10 $ (0.28)
</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 1996, 1997 and 1998, respectively: dividend yield
of 0.0 percent for each year, expected volatility of 0.0 percent for the 1992
Plan options and 104.9, 64.8 and 136.8 percent in 1996, 1997 and 1998,
respectively, 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. The assumptions used
F-19
<PAGE> 64
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with respect to Adjacency Plan options were the same as those used with respect
to the 1996 Plan.
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, 1996, 1997 and 1998: dividend yield of 0.0 percent, expected volatility of
67.5, 64.8 and 136.8 percent, respectively, risk free interest rate ranging from
5.7 to 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) SEGMENT REPORTING AND SIGNIFICANT CUSTOMERS
Sapient engages in business activities in one operating segment which
provides e-business consulting and Internet commerce solutions on a fixed-fee,
fixed time-frame basis. The chief operating decision-makers are provided
information about the revenues generated in key client industries. The resources
needed to deliver Sapient's services are not separately reported by industry.
Sapient's services are delivered to clients primarily in North America, and
Sapient's long-lived assets are located primarily in North America.
No customer accounted for greater than 10 percent of total revenues in 1997
or 1998. One customer accounted for 14 percent of accounts receivable at
December 31, 1998. No customer accounted for greater than 10 percent of accounts
receivable at December 31, 1997. Two clients accounted for 19 percent and 15
percent respectively, of total revenues in 1996 and 10 percent of accounts
receivable at December 31, 1996.
(10) RETIREMENT PLANS
Sapient established a 401(k) retirement savings plan for employees in June
1994. Under the provisions of the plan, Sapient matches 25 percent of an
employee's contribution, up to a maximum of $1,250 per employee per year. Total
Sapient contributions in 1996, 1997 and 1998 were approximately $356,000,
$520,000 and $1,014,000, respectively.
(11) PUBLIC OFFERINGS
Sapient completed its initial public offering (IPO) of Common Stock on
April 10, 1996. The IPO resulted in the issuance of 6,780,000 shares of Common
Stock. Proceeds to Sapient, net of underwriting discounts and costs of the
offering, were approximately $32.4 million.
Sapient completed a follow-on public offering of Common Stock on October
29, 1996 which resulted in the issuance of 2,000,000 shares of Common Stock.
Proceeds to Sapient, net of underwriting discounts and costs of the offering,
were approximately $21.7 million.
Sapient completed a follow-on public offering of Common Stock on April 7,
1998 which resulted in the issuance of 1,306,250 shares of Common Stock.
Proceeds to Sapient, net of underwriting discounts and costs of the offering,
were approximately $29.1 million.
(12) CAPITAL STOCK
(a) INCREASE IN AUTHORIZED COMMON STOCK; CONVERSION OF NON-VOTING COMMON STOCK
On February 13, 1996, Sapient'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
F-20
<PAGE> 65
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10,000,000 and provided that, upon the closing of an IPO, all shares of
non-voting Common Stock then outstanding would be converted automatically into
an equal number of shares of voting Common Stock and the authorized
capitalization of Sapient will consist of 40,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock.
At Sapient's Annual Meeting of Stockholders held on May 8, 1998, the
stockholders voted to approve an amendment to Sapient's Amended and Restated
Certificate of Incorporation which increased the number of authorized shares of
Common Stock from 40,000,000 to 100,000,000.
(b) PREFERRED STOCK
On February 13, 1996, the Board of Directors authorized an amendment to
Sapient'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.
(13) ACQUISITIONS
On March 29, 1999, the Company acquired all of the outstanding capital
stock of Adjacency, Inc. This acquisition was accomplished through the issuance
of 1,581,348 shares of the Company's common stock for all of the outstanding
shares of Adjacency Inc. This acquisition has been accounted for using the
pooling-of-interests method of accounting. Costs, which consist primarily of
investment banking, accounting and legal fees related to this acquisition
approximated $2.3 million, which was charged to operating expense in the first
quarter of 1999.
During the period from January 1, 1996 through March 29, 1999 (the date of
the Company's acquisition of Adjacency), Adjacency elected to be treated as an
S-Corporation for income tax purposes. Under this election, Adjacency's
individual stockholders are deemed to have received a pro rata distribution of
taxable income of Adjacency (whether or not an actual distribution was made),
which is included in each stockholder's taxable income. Accordingly, Adjacency
did not provide for income taxes during the period from January 1 through March
29, 1999. Adjacency's S-Corporation tax reporting status was terminated on the
date of acquisition. Pro forma net income per share data is presented below to
reflect the pro forma increase or decrease to historical income taxes related to
Adjacency as if Adjacency was a C-Corporation for tax reporting purposes during
those periods.
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 DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Sapient.......................................... $49,009 $90,360 $160,372
Adjacency........................................ 786 1,667 4,500
------- ------- --------
Combined......................................... $49,795 $92,027 $164,872
======= ======= ========
Net income (loss)
Sapient.......................................... $ 6,470 $12,358 $ 13,699
Adjacency........................................ 229 196 (4,335)
------- ------- --------
Combined......................................... $ 6,699 $12,554 $ 9,364
======= ======= ========
</TABLE>
F-21
<PAGE> 66
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Pro forma data (unaudited):
Historical income before income taxes.......... $10,635 $20,257 $18,024
Provision for income taxes:
Historical income taxes........................ 3,936 7,703 8,660
Pro forma (decrease)increase to historical
income taxes................................. 87 74 (1,648)
Pro forma net income........................... 6,612 12,480 11,012
Pro forma basic net income per share........... $ 0.14 $ 0.25 $ 0.21
Pro forma diluted net income per share......... $ 0.13 $ 0.23 $ 0.19
Weighted average number of common shares
outstanding.................................. 44,970 49,700 52,354
Weighted average number of common and common
equivalent shares outstanding................ 49,820 53,866 57,510
</TABLE>
On August 25, 1998, the Company acquired Studio Archetype in exchange for
996,628 shares of Sapient Common Stock and paid $250,000 in cash to the former
Studio stockholders. The acquisition was accounted for as a purchase and
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their respective fair values.
In connection with the acquisition of Studio Archetype in the third quarter
of 1998, Sapient allocated $11.1 million to in-process technology and recorded a
corresponding income tax benefit of $4.2 million. This allocation represents the
estimated fair value of such technology based on risk-adjusted cash flows
related to the development of projects that had not reached technological
feasibility at the time of the acquisition and with respect to which the
in-process research and development had no alternative future uses. Accordingly,
these costs were expensed as of the acquisition date.
Sapient allocated values to the in-process research and development
projects by identifying significant research projects for which technological
feasibility had not been established, including development, engineering and
testing activities associated with the introduction of Studio's Archetype
next-generation enterprise-wide suite of development, scheduling, bug tracking
and content management applications. The integrated solution will be a
comprehensive enterprise scale system, allowing developers and clients to access
prototypes and trial deliverables. It will fully integrate user interface tools
with client server, advanced database and legacy systems.
The value assigned to purchased in-process technology was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the resulting net cash flows from the
projects and discounting the net cash flows to their present value. The revenue
projection used to value the in-process research and development is based on
estimates of relevant market sizes and growth factors, expected trends in
technology and the nature and expected timing of new product introductions by
Studio Archetype and its competitors. The estimated revenues for the projects
are expected to be realized over a six year period through 2004 when other new
products are expected to enter the market. Studio Archetype projected revenues
are dependent upon successful introduction of the in-process projects.
The nature of the efforts to develop the acquired in-process technology
into commercially viable products and services principally relate to the
completion of all planning, designing, prototyping, verification, and testing
activities that are necessary to establish that the proposed
F-22
<PAGE> 67
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
technologies meet their design specifications including functional, technical,
and economic performance requirements. The efforts to develop the purchased
in-process technology also include testing of the technology for compatibility
and interoperability with other applications. Expenditures on these projects to
date have been approximately $2.5 million, and estimated costs to complete these
projects are expected to total approximately $625,000 through 2001. These
estimates are subject to change, given the uncertainties of the development
process, and no assurance can be given that deviations from these estimates will
not occur. Several milestones have been or are near completion including a
comprehensive needs analysis mapping data, technical and information
architectures and building an integrated prototype.
The rates utilized to discount the net cash flows to their present value
are based on venture capital rates of return. Due to the nature of the forecast
and the risks associated with the projected growth, profitability and
developmental projects, discount rates of 25.0 to 30.0 percent were utilized for
the business enterprise and for the in-process research and development. Sapient
believes that these discount rates are commensurate with Studio's stage of
development, the uncertainties in the economic estimates described above, the
inherent uncertainty surrounding the successful development of the purchased
in-process technology, the useful life of such technology, the profitability
levels of such technology, and, the uncertainty of technological advances that
are unknown at this time.
The forecasts used by Sapient in valuing in-process research and
development were based upon assumptions that the Company believes to be
reasonable but which are inherently uncertain and unpredictable. Sapient's
assumptions may be incomplete or inaccurate, and unanticipated events and
circumstances are likely to occur. For these reasons, actual results may vary
materially from the assumed results and could have a material adverse effect on
Sapient's business, results of operations and financial condition.
Sapient believes that the assumptions used in the forecasts were
reasonable. No assurance can be given, however, that the underlying assumptions
used to estimate expected project sales, development costs or profitability, or
the events associated with such projects, will transpire as estimated. For these
reasons, actual results may vary from the assumed results and could have a
material adverse effect on Sapient's business, results of operations and
financial condition.
Sapient expects to continue its support of these efforts and believes
Studio Archetype has a reasonable chance of successfully completing the research
and development programs. However, there is risk associated with the completion
of the projects and there is no assurance that any of the projects will meet
with either technological or commercial success.
If these projects are not successfully developed, the sales and
profitability of Studio Archetype may be adversely affected in future periods.
Additionally, the value of the other intangible assets acquired may become
impaired. Studio expects to benefit from the purchased in-process technology
beginning in 1999.
Other intangible assets of $14.4 million is comprised of $3.8 million for
marketing assets, $1.6 million for assembled work force and approximately $9.0
million of goodwill comprising the reputation of Studio Archetype, all of which
have estimated useful lives of approximately 7 years. However there are no
assurances that the value of these intangible assets acquired will not become
impaired.
Below are the pro forma results of operations for Sapient and Studio
Archetype, assuming that the acquisition of Studio occurred at the beginning of
the twelve-month period ended December 31, 1997.
F-23
<PAGE> 68
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 1998
----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
Net revenues....................................... $102,386 $174,971
Net income......................................... $ 11,954 $ 7,626
Basic net income per share......................... $ 0.24 $ 0.15
Diluted net income per share....................... $ 0.22 $ 0.13
On December 15, 1997, Sapient issued 1,223,476 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 (the combined numbers are before considering the
acquisition of Adjacency).
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED)
(IN THOUSANDS)
Revenues
Sapient.............................. $44,580 $57,319
EXOR................................. 4,429 6,076
------- -------
Combined............................. $49,009 $63,395
======= =======
Net income (loss)
Sapient.............................. $ 6,571 $ 8,505
EXOR................................. (101) 617
------- -------
Combined............................. $ 6,470 $ 9,122
======= =======
(14) RELATED PARTY TRANSACTIONS
The Company has provided technology services to certain start-up companies.
As partial payment for services delivered, Sapient has received non-controlling
equity interests in such start-up companies. Due to the start-up nature of these
entities, Sapient has valued these investments at zero as there is no readily
determinable measure of value based on the underlying operating performance and
future cash flows of the start-up companies. During 1998 and the nine months
ended September 30, 1999 Sapient recognized approximately $2,200,000 and
$3,600,000, respectively, in net revenues from consulting services provided to
these companies. In addition, certain members of management of the Company have
provided funding to certain of these companies.
(15) QUARTERLY FINANCIAL RESULTS
The following tables set forth certain unaudited quarterly results of
operations of Sapient for 1998 and 1997. In the opinion of management, this
information has been prepared on the same basis as the audited Consolidated
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
Consolidated Financial Statements and Notes thereto. The quarterly operating
results are not necessarily indicative of future results of operations.
F-24
<PAGE> 69
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues........................................ $31,595 $36,420 $43,066 $53,791
Operating expenses:
Project personnel costs....................... 15,221 17,511 21,103 26,710
Selling and marketing......................... 1,842 2,666 3,061 3,700
General and administrative.................... 8,271 8,726 10,680 13,995
Stock based compensation charge............... 4,499
Amortization of intangibles................... -- -- 128 559
Charge for in-process research and
development................................ -- -- 11,100 --
------- ------- ------- -------
Total operating expenses................... 25,334 28,903 46,072 49,463
------- ------- ------- -------
Income (loss) from operations................... 6,261 7,517 (3,006) 4,328
Interest income................................. 590 676 941 718
------- ------- ------- -------
Income (loss) before income taxes............... 6,851 8,193 (2,065) 5,046
Income taxes (benefit).......................... 2,504 2,929 (668) 3,895
------- ------- ------- -------
Net income (loss)............................... $ 4,347 $ 5,264 $(1,397) $ 1,151
======= ======= ======= =======
Basic net income (loss) per share............... $ 0.09 $ 0.10 $ (0.03) $ 0.02
======= ======= ======= =======
Diluted net income (loss) per share............. $ 0.08 $ 0.09 $ (0.03) $ 0.02
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues........................................ $18,359 $21,226 $24,914 $27,529
Operating expenses:
Project personnel costs....................... 8,830 10,122 12,359 13,312
Selling and marketing......................... 1,145 1,184 1,600 2,145
General and administrative.................... 4,669 5,348 5,937 6,616
Amortization of intangibles................... -- -- -- --
Charge for in-process research and
development................................ -- -- -- --
Acquisition costs............................. -- -- -- 559
------- ------- ------- -------
Total operating expenses................... 14,644 16,654 19,896 22,632
------- ------- ------- -------
Income from operations.......................... 3,715 4,572 5,018 4,897
Interest income................................. 515 567 479 496
------- ------- ------- -------
Income before income taxes...................... 4,230 5,139 5,497 5,393
Income taxes.................................... 1,620 1,900 2,077 2,105
------- ------- ------- -------
Net income...................................... $ 2,610 $ 3,239 $ 3,420 $ 3,288
======= ======= ======= =======
Basic net income per share...................... $ 0.05 $ 0.07 $ 0.07 $ 0.07
======= ======= ======= =======
Diluted net income per share.................... $ 0.05 $ 0.06 $ 0.06 $ 0.06
======= ======= ======= =======
</TABLE>
F-25
<PAGE> 70
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) SUBSEQUENT EVENTS (UNAUDITED)
(a) STOCK SPLIT
On October 21, 1999 the Company declared a two-for-one stock split to be
effected as a 100% stock dividend expected to be paid on or about November 5,
1999 to stockholders of record on November 1, 1999. This stock split has been
reflected in the consolidated financial statements.
(b) RECLASSIFICATION
Reclassifications of operating expenses for amortization of intangibles and
stock based compensation charges have been made to the consolidated statements
of income and comprehensive income for the years ended December 31, 1996, 1997
and 1998 in order to conform to the 1999 presentation.
F-26
<PAGE> 71
[This Page Intentionally Left Blank]
<PAGE> 72
[This Page Intentionally Left Blank]
<PAGE> 73
Sapient(R) is a registered service mark of Sapient. All other service marks,
trademarks or trade names referenced in this prospectus are the property of
their respective owners.
<PAGE> 74
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 5
Special Note Regarding Forward -
Looking Statements................. 11
Use of Proceeds...................... 12
Dividend Policy...................... 12
Price Range of Common Stock.......... 12
Capitalization....................... 13
Selected Consolidated Financial
Data............................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 15
Business............................. 26
Management........................... 32
Selling Stockholders................. 34
Description of Capital Stock......... 36
Underwriting......................... 38
Legal Matters........................ 40
Experts.............................. 40
Where You Can Find More
Information........................ 40
Index to Financial Statements........ F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,500,000 Shares
SAPIENT CORPORATION
Common Stock
-------------------------
[SAPIENT CORPORATION CORPORATE LOGO]
-------------------------
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
MORGAN STANLEY DEAN WITTER
FIRST UNION SECURITIES, INC.
FRIEDMAN BILLINGS RAMSEY
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the sale and distribution of the securities being registered
hereby, other than the underwriting discounts and commissions. Two of the
selling stockholders, Jerry A. Greenberg and J. Stuart Moore, will pay a pro
rata share of the amounts shown below based on the ratio of the number of shares
sold by each such selling stockholder to the total number of shares sold in the
offering. All other amounts shown below will be paid by Sapient. All amounts
shown are estimates except for the various filing fees.
SEC registration fee........................................ $ 48,465
NASD filing fee............................................. 17,933
Nasdaq National Market listing fee.......................... 17,500
Printing expenses........................................... 150,000
Legal fees and expenses..................................... 125,000
Accounting fees and expenses................................ 50,000
Blue Sky fees and expenses (including legal fees)........... 5,000
Transfer agent and registrar fees and expenses.............. 5,000
Miscellaneous............................................... 81,102
--------
Total.................................................. $500,000
========
ITEM 15. 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
II-1
<PAGE> 76
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 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.
The Delaware General Corporation Law and Sapient's charter and by-laws
provide for indemnification of Sapient's directors and officers for liabilities
and expenses that they may incur in such capacities. In general, directors and
officers are indemnified with respect to actions taken in good faith in a manner
reasonably believed to be in, or not opposed to, the best interests of Sapient
and, with respect to any criminal action or proceeding, actions that the
indemnitee had no reasonable cause to believe were unlawful.
The Underwriting Agreement provides that the underwriters are obligated,
under some circumstances, to indemnify directors, officers and controlling
persons of Sapient against some 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 1.1 hereto.
II-2
<PAGE> 77
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS:
EXHIBIT
NO. EXHIBIT
- ------- -------
1.1 Form of Underwriting Agreement.
5.1 Opinion of Hale and Dorr LLP.
23.1 Consent of Hale and Dorr LLP (contained in Exhibit 5.1).
23.2 Consent of KPMG LLP.
24.1** Power of Attorney.
- ---------------
** Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES.
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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 will 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 of 1933, 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.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the indemnification provisions described herein, 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 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.
II-3
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Cambridge, Commonwealth of Massachusetts, on this 1st day of November 1999.
SAPIENT CORPORATION
By: /s/ SUSAN D. JOHNSON
-----------------------------------
Name: Susan D. Johnson
Title: Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Co-Chief Executive Officer and November 1, 1999
- --------------------------------------------------- Director (Principal
Jerry A. Greenberg Executive Officer)
* Co-Chief Executive Officer and November 1, 1999
- --------------------------------------------------- Director (Principal
J. Stuart Moore Executive Officer)
* Chief Financial Officer November 1, 1999
- --------------------------------------------------- (Principal Financial and
Susan D. Johnson Accounting Officer)
* Director November 1, 1999
- ---------------------------------------------------
Carl S. Sloane
* Director November 1, 1999
- ---------------------------------------------------
Darius W. Gaskins, Jr.
* Director November 1, 1999
- ---------------------------------------------------
Bruce D. Parker
* Director November 1, 1999
- ---------------------------------------------------
R. Stephen Cheheyl
*By: /s/ SUSAN D. JOHNSON November 1, 1999
---------------------------------------------
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 79
EXHIBIT INDEX
EXHIBIT
NO. EXHIBIT
- ------- -------
1.1 Form of Underwriting Agreement.
5.1 Opinion of Hale and Dorr LLP.
23.1 Consent of Hale and Dorr LLP (contained in Exhibit 5.1).
23.2 Consent of KPMG LLP.
24.1** Power of Attorney.
- ---------------
** Previously filed
<PAGE> 1
Exhibit 1.1
SAPIENT CORPORATION
COMMON STOCK
($.01 PAR VALUE PER SHARE)
----------------------------------
UNDERWRITING AGREEMENT
November __, 1999
Goldman, Sachs & Co.
Credit Suisse First Boston
Morgan Stanley & Co. Incorporated
First Union Securities, Inc.
Friedman, Billings, Ramsey & Co., Inc.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Sapient Corporation, a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
1,114,600 shares of Common Stock, $.01 par value per share ("Stock") of the
Company, and the stockholders of the Company named in Schedule II hereto (the
"Selling Stockholders") propose, subject to the terms and conditions stated
herein, to sell to the Underwriters an aggregate of 2,385,400 shares and, at the
election of the Underwriters, Jerry A. Greenberg, J. Stuart Moore, the J. Stuart
Moore Remainder Trust and the J. Stuart Moore Gift Trust (collectively, the
"Principal Selling Stockholders"), propose, subject to the terms and conditions
stated herein, to sell an aggregate of an additional 525,000 shares. The
aggregate of 3,500,000 shares to be sold by the Company and the Selling
Stockholders is herein called the "Firm Shares" and the aggregate of 525,000
additional shares to be sold by the Principal Selling Stockholders is herein
called the "Optional Shares". The Firm Shares and the Optional Shares that the
Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called the "Shares".
<PAGE> 2
1. (a) The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(i) A registration statement on Form S-3 (File No. 333-89467) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement (including any pre-effective amendment thereto and
any post-effective amendment thereto), each in the form heretofore
delivered to you, and, excluding exhibits thereto but including all
documents incorporated by reference in the prospectus contained therein, to
you for each of the other Underwriters, have been declared effective by the
Commission in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Act"), which became (or will become) effective upon
filing, no other document with respect to the Initial Registration
Statement (including any pre-effective amendment thereto) or document
incorporated by reference therein has heretofore been filed with the
Commission (other than certain ancillary documents, copies of which have
been provided to you and prospectuses filed pursuant to Rule 424(b) of the
rules and regulations of the Commission under the Act, each in the form
heretofore delivered to the Representatives); and no stop order suspending
the effectiveness of the Initial Registration Statement (including any
pre-effective amendment thereto), any post-effective amendment thereto or
the Rule 462(b) Registration Statement, if any, has been issued and no
proceeding for that purpose has been initiated or, to the knowledge of the
Company, threatened by the Commission (any preliminary prospectus included
in the Initial Registration Statement (including any pre-effective
amendment thereto) or filed with the Commission pursuant to Rule 424(a) of
the rules and regulations of the Commission under the Act, is hereinafter
called a "Preliminary Prospectus"); the various parts of the Initial
Registration Statement and the Rule 462(b) Registration Statement, if any,
including all exhibits thereto and including (i) the information contained
in the form of final prospectus filed with the Commission pursuant to Rule
424(b) under the Act in accordance with Section 5(a) hereof and deemed by
virtue of Rule 430A under the Act to be part of the Initial Registration
Statement at the time it was declared effective and (ii) documents
incorporated by reference in the prospectus contained in the Initial
Registration Statement or the Rule 462(b) Registration Statement, if any,
at the time it became or hereafter becomes effective, each as amended at
the time such part of such registration statement became effective, are
hereinafter collectively called the "Registration Statement"; and such
final prospectus, in the form first filed pursuant to Rule 424(b) under the
Act, is hereinafter called the "Prospectus" and any reference herein to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Item 12
of Form S-3 under the Act, as of the date of such Preliminary Prospectus or
Prospectus, as the case may be; and any reference to any amendment or
supplement to any Preliminary Prospectus or the Prospectus shall be deemed
to refer to and include any documents filed after the date of such
Preliminary Prospectus or Prospectus, as the case may be, under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
incorporated by reference in such Preliminary Prospectus or Prospectus, as
the case may be; and any reference to any amendment to the Registration
Statement shall be deemed to refer to and include any annual report of the
Company filed pursuant to Section 13(a) or 15(d) of the Exchange Act after
the effective date of the Registration Statement that is incorporated by
reference in the Registration Statement;
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this
-2-
<PAGE> 3
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter through Goldman, Sachs & Co.
expressly for use therein or by a Selling Stockholder expressly for use in
the preparation of the answers therein to Item 7 of Form S-3;
(iii) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the Act or
the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and any further documents so filed and incorporated by
reference in the Prospectus or any further amendment or supplement thereto,
when such documents become effective or are filed with the Commission, as
the case may be, will conform in all material respects to the requirements
of the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(iv) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use therein or
by a Selling Stockholder expressly for use in the preparation of the
answers therein to Item 7 of Form S-3;
(v) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock (other than
as a result of (A) the exercise of stock options outstanding as of such
dates and (B) the issuance of 88,044 shares in connection with the
Company's acquisition of the assets of E.Lab, L.L.C.) or long-term debt of
the Company or any of its subsidiaries or any material adverse change, or
any development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus;
(vi) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; and any real property
-3-
<PAGE> 4
and buildings held under lease by the Company and its subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions
as are not material and do not materially interfere with the use made and
proposed to be made of such property and buildings by the Company and its
subsidiaries;
(vii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; and each
subsidiary of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(viii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description of the Stock contained in
the Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims;
(ix) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued and fully paid and non-assessable and will conform
in all material respects to the description of the Stock contained in the
Prospectus;
(x) The issue and sale of the Shares to be sold by the Company and
the compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries is bound or to which any of the property or assets
of the Company or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters or under the rules of the
National Association of Securities Dealers, Inc.;
(xi) Neither the Company nor any of its subsidiaries (a) is in
violation of its Certificate of Incorporation or By-laws, or (b) other than
any defaults that singly or in the aggregate will not have a material
adverse effect on the financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, is in default in the
performance or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
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<PAGE> 5
agreement, lease or other agreement or instrument to which it is a party or
by which it or any of its properties may be bound;
(xii) The statements set forth in the Prospectus under the caption
"Underwriting" insofar as they purport to describe the provisions of the
laws and documents referred to therein, are accurate descriptions of such
terms and provisions in all material respects;
(xiii) Other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
reasonably be expected to have a material adverse effect on the current or
future consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and, to the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(xiv) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(xv) KPMG LLP, who has certified certain financial statements of the
Company and its subsidiaries, and PricewaterhouseCoopers LLP who has
reviewed certain financial statements of the Company and its subsidiaries,
are each independent public accountants as required by the Act and the
rules and regulations of the Commission thereunder;
(xvi) The Company and its subsidiaries have sufficient interests in
all patents, trademarks, service marks, trade names, copyrights, trade
secrets, information, proprietary rights and processes ("Intellectual
Property") necessary for their business as now conducted and as proposed to
be conducted without, to the knowledge of the Company, any conflict with or
infringement of the interests of others and have taken reasonable steps to
secure from third parties interests in such Intellectual Property as is
necessary for their business as described in the Prospectus; neither the
Company nor any of its subsidiaries is aware of outstanding options,
licenses or agreements of any kind relating to the Intellectual Property,
except as set forth in (A) written agreements pursuant to which the Company
provides its services to its clients, (B) marketing alliance agreements
entered into in the ordinary course of business which provide for sharing
of information on a nonexclusive basis and (C) agreements with Sapient &
Cuneo SRL and except such as would not have a material adverse effect on
the financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, and neither the Company nor its
subsidiaries is a party to or bound by any options, licenses or agreements
with respect to the Intellectual Property of any other person or entity
except as set forth in (A) written agreements pursuant to which the Company
provides its services to its clients, (B) marketing alliance agreements
entered into in the ordinary course of business which provide for sharing
of information on a nonexclusive basis and (C) agreements with Sapient &
Cuneo SRL; none of the technology employed by the Company or its
subsidiaries has been obtained or is being used by the Company or its
subsidiaries in violation of any contractual or fiduciary obligation
binding on the Company, its subsidiaries or any of their respective
directors or executive officers or, to the Company's knowledge, any of
their respective employees or consultants or otherwise in violation of the
rights of any person; none of the Company, its subsidiaries and, to the
Company's knowledge, any of its employees has received any written or, to
the Company's knowledge, oral communications alleging that the Company or
any of its subsidiaries has violated or, by conducting its business as
proposed, would violate any of the Intellectual Property of any other
person or entity;
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<PAGE> 6
neither the execution nor delivery of this Agreement, nor the operation of
the Company's business by the employees of the Company or its subsidiaries,
nor the conduct of the Company's business as proposed, will, to the
Company's knowledge, result in a breach or violation of the terms,
conditions or provisions of, or constitute a default under, any material
contract, covenant or instrument under which any of such employees is now
obligated; and the Company and its subsidiaries have taken and will
maintain reasonable measures to prevent the unauthorized dissemination or
publication of its confidential information or the confidential information
of third parties in its possession;
(xvii) The Company has reviewed, as described in the Prospectus, its
operations and that of its subsidiaries and any third parties with which
the Company or any of its subsidiaries has a material relationship to
evaluate the extent to which the business or operations of the Company or
any of its subsidiaries will be affected by the Year 2000 Problem. As a
result of such review, except as described in the Prospectus, the Company
has no reason to believe, and does not believe, that the Year 2000 Problem
will have a material adverse effect on the general affairs, management, the
current or future consolidated financial position, business prospects,
stockholders' equity or results of operations of the Company and its
subsidiaries or result in any material loss or interference with the
Company's business or operations. The "Year 2000 Problem" as used herein
means any significant risk that computer hardware or software used in the
receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the case of dates
or time periods occurring after December 31, 1999, function at least as
effectively as in the case of dates or time periods occurring prior to
January 1, 2000.
(xviii) The Company has filed all reports it has been required to file
under the Exchange Act; such reports when filed conformed in all material
respects to the requirements of the Exchange Act; and none of such reports
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(b) Each of the Selling Stockholders severally represents and warrants to,
and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary
for the execution and delivery by such Selling Stockholder of this
Agreement and the Power of Attorney and the Custody Agreement hereinafter
referred to, and for the sale and delivery of the Shares to be sold by such
Selling Stockholder hereunder, have been obtained; and such Selling
Stockholder has full right, power and authority to enter into this
Agreement, the Power-of-Attorney and the Custody Agreement and to sell,
assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of the
provisions of this Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder is bound or to which any of the property or
assets of such Selling Stockholder is subject, nor will such action result
in any violation of the provisions of any trust instrument or document if
such Selling Stockholder is a trust or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over such Selling Stockholder or the property of such Selling Stockholder;
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<PAGE> 7
(iii) Such Selling Stockholder has and immediately prior to the
First Time of Delivery (as defined in Section 4 hereof) such Selling
Stockholder will have, good and valid title to the Shares to be sold by
such Selling Stockholder hereunder, free and clear of all liens,
encumbrances, equities or claims; and, upon delivery of such Shares and
payment therefor pursuant hereto, good and valid title to such Shares, free
and clear of all liens, encumbrances, equities or claims, will pass to each
of the several Underwriters that has purchased such shares in good faith
and without notice of any lien, encumbrance, equity or law or any other
adverse claim within the meaning of the Uniform Commercial Code;
(iv) Such Selling Stockholder has entered into a 90 day lock-up
agreement in the form attached as Annex IA; provided, however, Messrs.
Greenberg and Moore and any trusts of which, Messrs. Greenberg or Moore or
any immediate family member of either Messrs. Greenberg or Moore is a
trustee, co-trustee, beneficiary or co-beneficiary has entered into a 180
day lock-up agreement in the form attached as Annex IB.
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, any
amendment or supplement thereto or any document incorporated by reference
therein are made in reliance upon and in conformity with written
information furnished to the Company by such Selling Stockholder expressly
for use therein, such Preliminary Prospectus and the Registration Statement
did, and the Prospectus and any further amendments or supplements to the
Registration Statement and the Prospectus and any document incorporated by
reference therein, when they become effective or are filed with the
Commission, as the case may be, will conform in all material respects to
the requirements of the Act and the rules and regulations of the Commission
thereunder and will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or at
the First Time of Delivery (as hereinafter defined) a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof);
(viii) Certificates in negotiable form representing all of the Shares
to be sold by such Selling Stockholder hereunder have been placed in
custody under a Custody Agreement, in the form heretofore furnished to you
(the "Custody Agreement"), duly executed and delivered by such Selling
Stockholder to the Company, as custodian (the "Custodian"), and such
Selling Stockholder has duly executed and delivered a Power of Attorney, in
the form heretofore furnished to you (the "Power of Attorney"), appointing
the persons indicated in Schedule II hereto, and each of them, as such
Selling Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with
authority to execute and deliver this Agreement on behalf of such Selling
Stockholder, to determine the purchase price to be paid by the Underwriters
to the Selling Stockholders as provided in Section 2 hereof, to authorize
the delivery of the Shares to be sold by such Selling Stockholder hereunder
and otherwise to act on behalf of such
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<PAGE> 8
Selling Stockholder in connection with the transactions contemplated by
this Agreement and the Custody Agreement; and
(ix) The Shares represented by the certificates held in custody for
such Selling Stockholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder; the arrangements made by such
Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable; the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death or
incapacity of any individual Selling Stockholder or, in the case of an
estate or trust, by the death or incapacity of any executor or trustee or
the termination of such estate or trust, or by the occurrence of any other
event; if any individual Selling Stockholder or any such executor or
trustee should die or become incapacitated, or if any such estate or trust
should be terminated, or if any other such event should occur, before the
delivery of the Shares hereunder, certificates representing the Shares
shall be delivered by or on behalf of the Selling Stockholders in
accordance with the terms and conditions of this Agreement and of the
Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant to
the Powers of Attorney shall be as valid as if such death, incapacity,
termination, or other event had not occurred, regardless of whether or not
the Custodian, the Attorneys-in-Fact, or any of them, shall have received
notice of such death, incapacity, termination, dissolution or other event.
2. Subject to the terms and conditions herein set forth, (a) the Company and
each of the Selling Stockholders agree, severally and not jointly, to sell to
each of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from each of the Company and the Selling Stockholders, at a
purchase price per share of $[_____], the number of Firm Shares (to be adjusted
by you so as to eliminate fractional shares) determined by multiplying the
aggregate number of Firm Shares to be sold by the Company and each of the
Selling Stockholders as set forth opposite their respective names in Schedule II
hereto by a fraction, the numerator of which is the aggregate number of Firm
Shares to be purchased by such Underwriter as set forth opposite the name of
such Underwriter in Schedule I hereto and the denominator of which is the
aggregate number of Firm Shares to be purchased by all of the Underwriters from
the Company and all of the Selling Stockholders hereunder and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Principal Selling Stockholders agree to
sell to each of the Underwriters, and each of the Underwriters agrees, severally
and not jointly, to purchase from the Principal Selling Stockholders, at the
purchase price per share set forth in clause (a) of this Section 2, that portion
of the number of Optional Shares as to which such election shall have been
exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Principal Selling Stockholders hereby grant to the Underwriters the
right to purchase at their election up to 525,000 Optional Shares, at the
purchase price per share set forth in the paragraph above, for the sole purpose
of covering over-allotments in the sale of the Firm Shares. Any such election to
purchase Optional Shares may be exercised only by written notice from you to the
Company, as custodian for each of the Principal Selling Stockholders, given
within a period of 30 calendar days after the date of this Agreement and setting
forth the aggregate number of Optional Shares to be purchased and the date on
which such Optional Shares are to be delivered, as determined by you but in no
event earlier than the First Time of Delivery (as defined in Section 4 hereof)
or, unless you and each of the Principal Selling Stockholders otherwise agree in
writing, earlier than two or later than ten business days after the date of such
notice.
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<PAGE> 9
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders shall be delivered by or on
behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co.,
through the facilities of the Depository Trust Company ("DTC"), for the account
of such Underwriter, against payment by or on behalf of such Underwriter of the
purchase price therefor by wire transfer of Federal (same-day) funds to the
account specified by the Company and the Custodian, as their interests may
appear, to Goldman, Sachs & Co. at least forty-eight hours in advance. The
Company will cause the certificates representing the Shares to be made available
for checking and packaging at least twenty-four hours prior to the Time of
Delivery (as defined below) with respect thereto at the facilities of DTC (the
"Designated Office"). The time and date of such delivery and payment shall be,
with respect to the Firm Shares, 9:30 a.m., New York time, on November __, 1999
or such other time and date as Goldman, Sachs & Co., the Company and the Selling
Stockholders may agree upon in writing, and, with respect to the Optional
Shares, 9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co.
in the written notice given by Goldman, Sachs & Co. of the Underwriters'
election to purchase such Optional Shares, or such other time and date as
Goldman, Sachs & Co., and the Company may agree upon in writing. Such time and
date for delivery of the Firm Shares is herein called the "First Time of
Delivery", such time and date for delivery of the Optional Shares, if not the
First Time of Delivery, is herein called the "Second Time of Delivery", and each
such time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(k) hereof, will be delivered at the offices of Hale and
Dorr LLP, 60 State Street, Boston, Massachusetts 02109 (the "Closing Location"),
and the Shares will be delivered at the Designated Office, all at such Time of
Delivery. A meeting will be held at the Closing Location at 3:00 p.m., New York
time, on the New York Business Day next preceding such Time of Delivery or such
earlier time as agreed upon by counsel for the Underwriters and the Company, at
which meeting the final drafts of the documents to be delivered pursuant to the
preceding sentence will be available for review by the parties hereto. For the
purposes of this Section 4, "New York Business Day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus which shall be
disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any supplement to
the Prospectus or any amended Prospectus has been filed and to furnish you with
copies thereof; to file promptly all reports and any definitive proxy or
information statements required to be filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of the Prospectus and for so long as the delivery of a prospectus is
required in connection with the offering or sale of the Shares; to advise you,
promptly after it receives notice thereof, of the issuance by the Commission of
any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus,
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<PAGE> 10
of the suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or suspending any
such qualification, promptly to use its best efforts to obtain the withdrawal of
such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 a.m., New York time, on the New York Business Day next
succeeding the date of this Agreement and from time to time, to furnish the
Underwriters with copies of the Prospectus in New York City in such quantities
as you may from time to time reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months after
the time of issue of the Prospectus in connection with the offering or sale of
the Shares and if at such time any events shall have occurred as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such period to amend or
supplement the Prospectus or to file under the Exchange Act any document
incorporated by reference in the Prospectus in order to comply with the Act or
the Exchange Act, to notify you and upon your request to file such document and
to prepare and furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct such
statement or omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of the Shares
at any time nine months or more after the time of issue of the Prospectus, upon
your request but at the expense of such Underwriter, to prepare and deliver to
such Underwriter as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
of the Commission thereunder (including, at the option of the Company, Rule
158);
(e) Except as necessary to satisfy the Company's obligations under the
Principal Stockholder Stock Purchase Agreement dated as of March 29, 1999 among
the Company, Adjacency, Inc. and certain individuals named therein during the
period beginning from the date hereof and continuing to and including the date
90 days after the date of the Prospectus, not to offer, sell, contract to sell
or otherwise dispose of, except as provided hereunder, any securities of the
Company that are substantially similar to the Shares, including but not limited
to any securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than pursuant to stock plans existing on, or upon the
conversion or exchange of convertible or exchangeable securities outstanding as
of, the date of this Agreement, or pursuant to other obligations described in
the Prospectus), without your prior written consent;
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<PAGE> 11
(f) To furnish to its stockholders as soon as practicable after the end of
each fiscal year an annual report (including a balance sheet and statements of
income, stockholders' equity and cash flows of the Company and its consolidated
subsidiaries certified by independent public accountants);
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission), provided, however, that this
clause shall not obligate the Company to disclose information that in its sole
judgment it considers confidential;
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the Nasdaq
National Market; and
(j) If the Company elects to rely upon Rule 462(b), to file a Rule 462(b)
Registration Statement with the Commission in compliance with Rule 462(b) by
10:00 p.m., Washington, D.C. time, on the date of this Agreement, and at the
time of filing either to pay to the Commission the filing fee for the Rule
462(b) Registration Statement or to give irrevocable instructions for the
payment of such fee pursuant to Rule 111(b) under the Act.
6. The Company and each of the Principal Selling Stockholders covenant and
agree with one another and with the several Underwriters that (a) the Company
will pay or cause to be paid a pro rata share (based on the ratio of the number
of Shares to be sold by the Company and each Selling Stockholder, who is not a
Principal Selling Stockholder, to the total number of Shares sold hereunder) and
each Principal Selling Stockholder will pay or cause to be paid a pro rata share
(based on the ratio of the number of shares to be sold by such Principal Selling
Stockholder to the total number of shares sold hereunder) of the following: (i)
the fees, disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey;
(iv) all fees and expenses in connection with listing the Shares on the Nasdaq
National Market; (v) the filing fees incident to, and the fees and disbursements
of counsel for the Underwriters in connection with, securing any required review
by the National Association of Securities Dealers, Inc. of the terms of the sale
of the Shares; (vi) the cost of preparing stock certificates; (vii) the cost and
charges of any transfer agent or registrar; and (viii) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section 6; and (b) each Selling
Stockholder will pay or cause to be paid all costs and expenses incident to the
performance of such Selling Stockholder's obligations hereunder which are not
otherwise specifically provided for in this Section 6, including, to the extent
requested by the Company, (i) any fees and expenses of counsel for such Selling
Stockholder, (ii) such Selling Stockholder's
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<PAGE> 12
pro rata share of the fees and expenses of the Attorneys-in-Fact and the
Custodian, and (iii) all expenses and taxes incident to the sale and delivery of
the Shares to be sold by such Selling Stockholder to the Underwriters hereunder.
It is understood, however, that except as provided in this Section, and Sections
8 and 11 hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes on resale of any of
the Shares by them, and any advertising expenses connected with any offers they
may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 5(a) hereof;
if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 p.m., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Ropes & Gray, counsel for the Underwriters, shall have furnished to
you such opinion or opinions, dated such Time of Delivery, with respect to the
matters covered in paragraphs (i), (ii), (vi, (viii) and (xi) of subsection (c)
below as well as such other related matters as you may reasonably request, and
such counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(c) Hale and Dorr LLP, counsel for the Company, shall have furnished to
you their written opinion, dated such Time of Delivery, substantially in the
form previously delivered to your counsel and attached hereto as Annex II, to
the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct its
business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
(including the Shares being delivered at such Time of Delivery) have been
duly authorized and validly issued and are fully paid and non-assessable;
and the Shares conform to the description of the Stock contained in the
Prospectus;
(iii) Each United States subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation; and all of the issued
shares of capital stock of each such subsidiary have been duly authorized
and validly issued, are fully paid and non-assessable, and are directly or
indirectly owned of record and, to such counsel's knowledge, beneficially
by the Company, free and clear to such counsel's knowledge of all liens,
encumbrances, equities or claims (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of the Company or
its subsidiaries, provided that such counsel shall state that they believe
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<PAGE> 13
that both you and they are justified in relying upon such opinions and
certificates and shall provide to you copies of such opinions and
certificates);
(iv) To such counsel's knowledge and other than as set forth in the
Prospectus, there are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or of which any property
of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate reasonably be expected to have a material
adverse effect on the current or future consolidated financial position
stockholders' equity or results of operations of the Company and its
subsidiaries; and, to such counsel's knowledge, no such proceedings are
threatened by governmental authorities or threatened by others which would
individually or in the aggregate reasonably be expected to have a material
adverse effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries;
(v) This Agreement has been duly authorized, executed and delivered
by the Company;
(vi) The issue and sale of the Shares being delivered at such Time
of Delivery to be sold by the Company and the compliance by the Company
with all of the provisions of this Agreement and the consummation by the
Company of the transactions herein contemplated do not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument filed by the Company with the
Commission to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any of
the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions of
the Certificate of Incorporation or By-laws of the Company or any order
specifically applicable to the Company or its U.S. subsidiaries, or any
statute, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or any of
its U.S. subsidiaries or any of their respective properties;
(vii) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares, and such consents, approvals,
authorizations, orders, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters or under the rules of the
National Association of Securities Dealers, Inc.;
(viii) The statements set forth in the Prospectus under the caption
"Underwriting," insofar as they purport to describe the provisions of the
laws and documents referred to therein, are accurate descriptions of such
terms and provisions in all material respects;
(ix) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act;
(x) The documents incorporated by reference in the Prospectus or
any further amendment or supplement thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules and other financial data contained therein, as to which such
counsel need express no opinion), when they became effective or were filed
with the Commission, as the case may be, complied as to form in all
material respects with the requirements of the Exchange Act, and the rules
and regulations of the Commission thereunder; and
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<PAGE> 14
(xi) The Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to such Time
of Delivery (other than the financial statements and related schedules and
other financial data contained therein, as to which such counsel need
express no opinion) comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder; although
they do not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or the
Prospectus, no facts have come to their attention that have caused them to
believe that, as of its effective date, the Registration Statement or any
further amendment thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules and
other financial data contained therein, as to which such counsel need
express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that, as of its date, the
Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial statements
and related schedules and other financial data contained therein, as to
which such counsel need express no opinion) contained an untrue statement
of a material fact or omitted to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading or that, as of such Time of Delivery, the
Prospectus or any further supplement thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules and other financial data contained therein, as to which such
counsel need express no opinion) contains an untrue statement of a material
fact or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and they do not know of any amendment to the Registration
Statement required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration Statement
or required to be incorporated by reference into the Prospectus or required
to be described in the Registration Statement or the Prospectus which are
not filed or incorporated by reference or described as required;
(d) Hale and Dorr LLP, as special counsel for each of the Selling
Stockholders, shall have furnished to you their written opinion with respect to
(x) each of the Selling Stockholders, dated the First Time of Delivery and (y)
the Principal Selling Stockholders, dated each Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) A Power-of-Attorney and a Custody Agreement have been duly
executed and delivered by such Selling Stockholder and constitute valid and
binding agreements of such Selling Stockholder in accordance with their
terms;
(ii) This Agreement has been duly executed and delivered by or on
behalf of such Selling Stockholder; and the sale of the Shares to be sold
by such Selling Stockholder hereunder and the compliance by such Selling
Stockholder with all of the provisions of this Agreement, the
Power-of-Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel to which
such Selling Stockholder is a party or by which such Selling Stockholder is
bound or to which any of the property or assets of such Selling Stockholder
is subject, nor will such action result in any violation of the provisions
of or any order specifically applicable to a Selling Stockholder, statute,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over such Selling Stockholder or the
property of such Selling Stockholder;
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<PAGE> 15
(iii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement in connection with the Shares
to be sold by such Selling Stockholder hereunder, except such as have been
obtained under the Act and such as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of such
Shares by the Underwriters;
(iv) Immediately prior to the First Time of Delivery, based solely on
an examination of the Company's stock record books, such Selling
Stockholder was the sole record holder of the Shares to be sold by such
Selling Stockholder under this Agreement, free and clear of all liens,
encumbrances, equities or claims, and full right, power and authority to
sell, assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder; and
(v) Upon the Underwriters obtaining control of the Stock to be sold
by the Selling Stockholders and assuming the Underwriters purchased such
Stock for value and without notice of any adverse claim to such Stock
within the meaning of Section 8-102 of the Uniform Commercial Code as in
effect in The Commonwealth of Massachusetts, the Underwriters will have
acquired all rights of the Selling Stockholders in such Stock free of any
adverse claim, any lien in favor of the Company and any restrictions on
transfer imposed by the Company.
In rendering such opinion in paragraph (iv), such counsel may rely upon opinions
of counsel in the case of trusts which are Selling Stockholders and upon a
certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold by
such Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate;
(e) Deborah England Gray, general counsel to the Company, shall have
furnished to you her written opinion, dated such Time of Delivery, in
substantially the form previously delivered to your counsel, to the effect that:
(i) The Company has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of each
of The Commonwealth of Massachusetts, the states of California, New Jersey,
New York, Georgia, Illinois, Texas, Washington, the District of Columbia,
the United Kingdom and Australia, which, are the only jurisdictions in
which the Company maintains a permanent office;
(ii) To such counsel's knowledge and other than as set forth in the
Prospectus, there are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or of which any property
of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate reasonably be expected to have a material
adverse effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries; and, to such counsel's knowledge, no such proceedings are
threatened by governmental authorities or threatened by others which would,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries; and
(iii) The issue and sale of the Shares being delivered at such Time of
Delivery to be sold by the Company and the compliance by the Company with
all of the provisions of this Agreement and the consummation by the Company
of the transactions herein contemplated do not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any
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<PAGE> 16
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
is bound or to which any of the property or assets of the Company or any of
its subsidiaries is subject.
(iv) The documents incorporated by reference in the Prospectus or any
further amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related schedules
and other financial data contained therein, as to which such counsel need
express no opinion), when they became effective or were filed with the
Commission, as the case may be, complied as to form in all material
respects with the requirements of the Exchange Act, and the rules and
regulations of the Commission thereunder; although she does not assume any
responsibility for the accuracy, completeness or fairness of any such
documents, no facts have come to her attention that have caused her to
believe that, when such documents were so filed or become effective (except
to the extent the statements in such documents were superseded by a
subsequently filed document which is also incorporated by reference in the
Prospectus or the Registration Statement), as the case may be, such
documents or any further amendment thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules and other financial data contained therein, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that,
as of such Time of Delivery, any such document or any further amendment
thereto (except to the extent the statements in such documents were
superseded by a subsequently filed document which is also incorporated by
reference in the Prospectus or the Registration Statement), made by the
Company prior to such Time of Delivery (other than the financial statements
and related schedules and other financial data contained therein, as to
which such counsel need express no opinion) contains an untrue statement of
a material fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading or that, in the case of other documents which were
filed under the Exchange Act with the Commission, as of such Time of
Delivery, any such document or any further amendment thereto made by the
Company prior to such Time of Delivery (other than the financial statements
and related schedules and other financial data contained therein, as to
which such counsel need express no opinion) contains an untrue statement of
a material fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and
(f) On the date of the Prospectus at a time prior to the execution of this
Agreement, at 9:30 a.m., New York time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, PricewaterhouseCoopers
LLP and KPMG LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory to you,
to the effect set forth in Annex III hereto; shall have furnished to you a
letter or letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annex II hereto;
(g) Neither the Company nor any of its subsidiaries shall have sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus, and
(ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock (other than
as a result of the exercise of stock options outstanding as of such dates) or
long-term debt of the Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting the
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<PAGE> 17
general affairs, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in any such case
described in Clause (i) or (ii), is in the judgment of the Representatives so
material and adverse as to make it impracticable or inadvisable to proceed with
the public offering or the delivery of the Shares being delivered at such Time
of Delivery on the terms and in the manner contemplated in the Prospectus;
(h) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on the Nasdaq National Market; (ii)
a suspension or material limitation in trading in the Company's securities on
the Nasdaq National Market; (iii) a general moratorium on commercial banking
activities declared by either Federal or New York or Massachusetts state
authorities; or (iv) the outbreak or escalation of hostilities involving the
United States or the declaration by the United States of a national emergency or
war, if the effect of any such event specified in this Clause (iv) in the
judgment of the Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered at such
Time of Delivery on the terms and in the manner contemplated in the Prospectus;
(i) The Shares at such Time of Delivery shall have been duly listed for
quotation on the Nasdaq National Market; and
(j) The Company has obtained and delivered to the Underwriters executed
copies of an agreement from each of the stockholders listed on Schedule III
hereto, substantially to the effect set forth in Subsection 1(b)(iv) hereof in
form and substance satisfactory to you;
(k) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement; and
(l) The Company shall have furnished or caused to be furnished to you at
such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such Time of
Delivery, and as to such other matters as you may reasonably request, and the
Company shall have furnished or caused to be furnished certificates as to the
matters set forth in subsections (a) and (g) of this Section.
(m) The Selling Stockholders shall have furnished or caused to be
furnished to you at the First Time of Delivery and in the case of the Principal
Selling Stockholders at each Time of Delivery, certificates of the Selling
Stockholders satisfactory to you as to the accuracy of the representations and
warranties of the Selling Stockholders herein at and as of the First Time of
Delivery and in the case of the Principal Selling Stockholders at each Time of
Delivery, as to the performance by the Selling Stockholders of all of their
respective obligations hereunder to be performed at or prior to the First Time
of Delivery and in the case of the Principal Selling Stockholders at each Time
of Delivery, and as to such other matters as you may reasonably request.
8. (a) The Company and each of the Principal Selling Stockholders, jointly
and severally, will indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, any amendment or supplement thereto or any document
incorporated by
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<PAGE> 18
reference therein, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Company and the
Selling Stockholders shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus, any
such amendment or supplement or any document incorporated by reference therein
in reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Goldman, Sachs & Co. expressly for use
therein; provided, further, however, that the liability of each Principal
Selling Stockholder pursuant to this Section 8 shall not exceed the aggregate
net proceeds received by such Selling Stockholder other than Mr. Moore whose
liability pursuant to this Section 8 shall not exceed the aggregate net proceeds
received by him and each of the J. Stuart Moore Gift Trust and the J. Stuart
Moore Remainder Trust (together the "Moore Trusts").
(b) Each Selling Stockholder other than each Principal Selling Stockholder
(collectively, the "NonPrincipal Selling Stockholders"), severally and not
jointly, will indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue statement
or omission of alleged omission was made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by such Non-Principal Selling Stockholder expressly for use therein;
provided, however, that the liability of such Non-Principal Selling Stockholder
pursuant to this Section 8 shall not exceed the aggregate net proceeds received
by such Non-Principal Selling Stockholder hereunder.
(c) Each Underwriter will indemnify and hold harmless the Company and each
Selling Stockholder against any losses, claims, damages or liabilities to which
the Company or such Selling Stockholder may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Underwriter through Goldman, Sachs & Co. expressly for use therein; and will
reimburse the Company and each Selling Stockholder for any legal or other
expenses reasonably incurred by the Company or such Selling Stockholder in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be
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<PAGE> 19
made against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party shall not relieve it from any liability which
it may have to any indemnified party otherwise than under such subsection. In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (d) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Selling
Stockholders on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, each of the Selling
Stockholders and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (e) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (e). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (e) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (e),
(i) no Underwriter shall be
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<PAGE> 20
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission and (ii) the liability of each Selling
Stockholder pursuant to this subsection 8(e) shall not exceed the difference
between the aggregate net proceeds received by such Selling Stockholder and the
amount of any indemnification payments made by such Selling Stockholder pursuant
to subsections 8(a) or 8(b), as the case may be, other than Mr. Moore whose
liability pursuant to this subsection 8(e) shall not exceed the aggregate net
proceeds received by both him and each of the Moore Trusts, and the amount of
any indemnification payments made by such Selling Stockholders pursuant to
subsection 8(a). No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (e) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under this
Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company (including any person
who, with his or her consent, is named in the Registration Statement as about to
become a director of the Company) and to each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company and the Selling Stockholders shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Shares on such terms. In the event
that, within the respective prescribed periods, you notify the Company and the
Selling Stockholders that you have so arranged for the purchase of such Shares,
or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholders shall have the right to postpone a Time of Delivery for a period of
not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Stockholders shall have the right to require
each non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of
-20-
<PAGE> 21
such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company to sell the Optional Shares) shall
thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company or the Selling Stockholders, except for the expenses
to be borne by the Company and the Selling Stockholders and the Underwriters as
provided in Section 6 hereof and the indemnity and contribution agreements in
Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. The respective indemnities, agreements, representations, warranties and
other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof, neither
the Company nor the Selling Stockholders shall then be under any liability to
any Underwriter except as provided in Sections 6 and 8 hereof; but, if for any
other reason any Shares are not delivered by or on behalf of the Company and the
Selling Stockholders as provided herein, the Company and each Principal Selling
Stockholder pro rata (based on the ratio of the number of Shares to be sold by
the Company or each Principal Selling Stockholder, as the case may be, to the
total number of Shares sold hereunder) will reimburse the Underwriters through
you for all out-of-pocket expenses approved in writing by you, including fees
and disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Shares not so delivered,
but the Company and the Selling Stockholders shall then be under no further
liability to any Underwriter in respect of the Shares not so delivered except as
provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary; provided,
however,
-21-
<PAGE> 22
that any notice to an Underwriter pursuant to Section 8(d) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such Underwriter
at its address set forth in its Underwriters' Questionnaire or telex
constituting such Questionnaire, which address will be supplied to the Company
or the Selling Stockholders by you on request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit of,
the Underwriters, the Company and the Selling Stockholders and, to the extent
provided in Sections 8 and 10 hereof, the officers and directors of the Company
and each person who controls the Company, any Selling Stockholder or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the term
"business day" shall mean any day when the Commission's office in Washington,
D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties hereto in
any number of counterparts, each of which shall be deemed to be an original, but
all such counterparts shall together constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us nine counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters, the Company and
each of the Selling Stockholders. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company and the Selling Stockholders for examination, upon
request, but without warranty on your part as to the authority of the signers
thereof.
-22-
<PAGE> 23
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power-of-Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
Sapient Corporation
By: _________________________________
Name: Jerry A. Greenberg
Title: Co-Chief Executive Officer
Jerry A. Greenberg
J. Stuart Moore
Michael W. Moore and Paul E. George,
as trustees for the J. Stuart Moore
Gift Trust of 1995
________________ and ________________
as trustees for the J. Stuart Moore
Remainder Trust
Sheeroy D. Desai and Barbara Desai,
as joint tenants
Susan D. Johnson
Desmond P. Varady
John T. Cain
Rick E. Robinson
Kenneth Raley
By: _________________________________
Name:
Title:
As Attorney-in-Fact acting on behalf
of each of the Selling Stockholders
named in Schedule II to this
Agreement.
Accepted as of the date hereof:
Goldman, Sachs & Co.
Credit Suisse First Boston
Morgan Stanley & Co. Incorporated
First Union Securities, Inc.
Friedman, Billings, Ramsey & Co., Inc.
By: _______________________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
<PAGE> 24
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co.
Credit Suisse First Boston
Morgan Stanley Dean Witter & Co.
First Union Securities, Inc.
Friedman, Billings, Ramsey & Co. Inc.
Total
</TABLE>
<PAGE> 25
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF
TOTAL NUMBER OF OPTIONAL SHARES
FIRM SHARES TO BE SOLD IF
TO BE SOLD MAXIMUM EXERCISED
--------------- -----------------
<S> <C> <C>
The Company
The Selling Stockholder(s)(a)
Jerry A. Greenberg 1,170,000 262,500
J. Stuart Moore 819,000 183,750
Michael W. Moore and Paul E. George,
as trustees for the J. Stuart Moore Gift Trust of 1995 234,000 52,500
_______________ and ______________ as trustees
for the J. Stuart Moore Remainder Trust 117,000 26,250
Sheeroy D. Desai and Barbara Desai as joint tenants 20,000
Susan D. Johnson 4,000
Desmond P. Varady 6,000
John T. Cain 3,000
Rick E. Robinson 2,400
Kenneth Raley 10,000
---------
Total 2,385,400 525,000
========= =======
</TABLE>
(a) These Selling Stockholders are represented by Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts 02109 and have appointed each of Deborah England
Gray and Susan D. Johnson as the Attorneys-in-Fact for such Selling
Stockholders.
<PAGE> 26
SCHEDULE III
HOLDBACK AGREEMENTS
180 Day
- -------
Jerry A. Greenberg
J. Stuart Moore
Jerry A. Greenberg Three-Year Qualified Annuity Trust - 1996
Jerry A. Greenberg Eight-Year Qualified Annuity Trust - 1996
Jerry A. Greenberg Three-Year Qualified Annuity Trust - 1997
J. Stuart Moore Eight-Year Qualified Annuity Trust - 1996
J. Stuart Moore Two-Year Qualified Annuity Trust - 1996
J. Stuart Moore Two-Year Qualified Annuity Trust - 1998
J. Stuart Moore Remainder Trust
J. Stuart Moore Irrevocable Trust
J. Stuart Moore Gift Trust of 1995
90 Day
- ------
Sheeroy D. Desai and Barbara Desai
Susan D. Johnson
Desmond P. Varady
John T. Cain
Rick E. Robinson
Kenneth Raley
<PAGE> 1
Exhibit 5.1
HALE AND DOOR LLP
C O U N S E L L O R S A T L A W
60 STATE STREET, BOSTON, MASSACHUSETTS 02109
617-526-6000 - FAX 617-526-5000
November 2, 1999
Sapient Corporation
One Memorial Drive
Cambridge, MA 02142
Re: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-3 (File No. 333-89467) (the "Registration Statement") filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
of an aggregate of 4,025,000 shares of Common Stock, $0.01 par value per share
(the "Shares"), of Sapient Corporation, a Delaware corporation (the "Company"),
of which (i) up to 1,114,600 Shares will be issued and sold by the Company and
(ii) the remaining 2,384,400 Shares (including 525,000 Shares issuable upon
exercise of the underwriters' over-allotment option) will be sold by certain
stockholders of the Company (the "Selling Stockholders").
The Shares are to be sold by the Company and the Selling Stockholders
pursuant to an underwriting agreement (the "Underwriting Agreement") to be
entered into by and among the Company, the Selling Stockholders and Goldman,
Sachs & Co., Credit Suisse First Boston Corporation, Morgan Stanley & Co.
Incorporated, First Union Securities, Inc. and Friedman, Billings, Ramsey & Co.,
Inc., as representatives of the several underwriters named in the Underwriting
Agreement, the form of which has been filed as Exhibit 1 to the Registration
Statement.
We are acting as counsel for the Company in connection with the sale by
the Company and the Selling Stockholders of the Shares. We have examined signed
copies of the Registration Statement as filed with the Commission. We have also
examined
WASHINGTON, DC BOSTON, MA LONDON, UK*
- --------------------------------------------------------------------------------
HALE AND DORR LLP INCLUDES PROFESSIONAL CORPORATIONS
*BROBECK HALE AND DORR INTERNATIONAL (AN INDEPENDENT JOINT VENTURE LAW FIRM)
<PAGE> 2
Page 2
and relied upon the Underwriting Agreement, minutes of meetings of the
stockholders and the Board of Directors of the Company as provided to us by the
Company, stock record books of the Company as provided to us by the Company, the
Certificate of Incorporation and By-Laws of the Company, each as restated and/or
amended to date, and such other documents as we have deemed necessary for
purposes of rendering the opinions hereinafter set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
Our opinion in clause (ii) below, insofar as it relates to the Selling
Stockholders' shares being fully paid, is based solely on a certificate of the
Chief Financial Officer of the Company.
We assume that the appropriate action will be taken, prior to the offer
and sale of the Shares in accordance with the Underwriting Agreement, to
register and qualify the Shares for sale under all applicable state securities
or "blue sky" laws.
We express no opinion herein as to the laws of any state or
jurisdiction other than the state laws of the Commonwealth of Massachusetts, the
Delaware General Corporation Law and the federal laws of the United States of
America. To the extent that any other laws govern the matters as to which we are
opining herein, we have assumed that such laws are identical to the state laws
of the Commonwealth of Massachusetts, and we are expressing no opinion herein as
to whether such assumption is reasonable or correct.
Based upon and subject to the foregoing, we are of the opinion that (i)
the Shares to be issued and sold by the Company have been duly authorized for
issuance and, when such Shares are issued and paid for in accordance with the
terms and conditions of the Underwriting Agreement, such Shares will be validly
issued, fully paid and nonassessable and (ii) the Shares to be sold by the
Selling Stockholders have been duly authorized and are validly issued, fully
paid and nonassessable.
It is understood that this opinion is to be used only in connection
with the offer and sale of the Shares while the Registration Statement is in
effect.
Please note that we are opining only as to the matters expressly set
forth herein, and no opinion should be inferred as to any other matters. This
opinion is based upon currently existing statutes, rules, regulations and
judicial decisions, and we disclaim any obligation to advise you of any change
in any of these sources of law or subsequent legal or factual developments which
might affect any matters or opinions
<PAGE> 3
Page 3
set forth herein.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters." In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ Hale and Dorr LLP
HALE AND DORR LLP
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Sapient Corporation:
We consent to inclusion in this registration statement on Form S-3 of Sapient
Corporation of our report dated April 16, 1999, with respect to the
consolidated balance sheets of Sapient Corporation and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of income
and comprehensive income, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1998.
We consent to incorporation by reference in this registration statement on Form
S-3 of Sapient Corporation of our report dated April 16, 1999, with respect to
the supplemental consolidated balance sheets of Sapient Corporation and
subsidiaries as of December 31, 1998 and 1997, and the related supplemental
consolidated statements of income and comprehensive income, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998, which report appears in the December 31, 1998 Supplemental
Consolidated Financial Statements on Form 8-K/A of Sapient Corporation.
We consent to the incorporation by reference in this registration statement on
Form S-3 of Sapient Corporation of our report dated January 22, 1999, with
respect to the consolidated balance sheets of Sapient Corporation as of
December 31, 1998 and 1997, and the related consolidated statements of income
and comprehensive income, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1998, which report appears in
the December 31, 1998 annual report on Form 10-K of Sapient Corporation.
We also consent to the reference to our firm under the heading "Experts" in the
Prospectus.
/s/ KPMG LLP
KPMG LLP
Boston, Massachusetts
November 1, 1999
