SAPIENT CORP, 10-K, 2000-03-30

SAPIENT CORP
10-K, 2000-03-30
COMPUTER INTEGRATED SYSTEMS DESIGN

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-28074

SAPIENT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

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DELAWARE 04-3130648
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
ONE MEMORIAL DRIVE, CAMBRIDGE, MA 02142
(Address of Principal Executive Offices) (Zip Code)
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(617) 621-0200
Registrant's Telephone Number, Including Area Code

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)

Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the Company was approximately $4,189,231,000 on March 10, 2000 based on the last
reported sale price of the Company's common stock on the Nasdaq National Market
System on March 10, 2000. There were 58,124,827 shares of common stock
outstanding as of March 10, 2000.
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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 24, 2000 are incorporated by reference in Items
10, 11, 12 and 13 of Part III of this Report.
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SAPIENT CORPORATION

ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

TABLE OF CONTENTS

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PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 10
Item 3. Legal Proceedings........................................... 10
Item 4. Submission of Matters to a Vote of Security Holders......... 10

PART II
Item 5. Market for Company's Common Equity and Related Stockholder
Matters..................................................... 12
Item 6. Selected Financial Data..................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 15
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 24
Item 8. Financial Statements and Supplementary Data................. 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial
Disclosure.................................................. 52

PART III
Item 10. Directors and Executive Officers of the Company............. 52
Item 11. Executive Compensation...................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 52
Item 13. Certain Relationships and Related Transactions.............. 52

PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 53
Signatures................................................................. 54
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). All statements, other
than statements of historical facts included in this Annual Report, 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 Annual Report, 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 Part I "Business -- Risk Factors" and elsewhere in this Annual
Report. We do not assume any obligation to update any of the forward-looking
statements we make.
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PART I

ITEM 1. BUSINESS

GENERAL

Sapient Corporation 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 2,100
people in offices across the United States and in London and Sydney. In
addition, we recently commenced a joint venture in Milan, Italy.

Our executive offices are located at One Memorial Drive, Cambridge, MA
02142, and our telephone number is (617) 621-0200. Our stock is traded on the
Nasdaq National Market under the symbol "SAPE". Our Internet address is
http://www.sapient.com. Unless the context otherwise requires, references in
this Annual Report on Form 10-K to "Sapient", "we", "us" or "our" refer to
Sapient Corporation and its subsidiaries.

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 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 a single 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 focus helps us accurately define and deliver
tailored solutions that

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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 solutions accurately reflect our clients' objectives and
have 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
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.

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, L.L.C., 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

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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,
multidisciplinary 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

The role of Sapient's marketing program is to create and sustain preference
and loyalty for Sapient as a leading e-services consultancy. Marketing is
performed 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
typically contemplate that Sapient and the client will subsequently enter into a
more detailed agreement, although the client's obligations under the commitment
letter are not conditioned upon the execution of the later 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.

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; and 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
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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 December 31, 1999, we had 2,111 full-time employees, comprised of
1,666 project personnel, 363 employees in general and administration and 82
employees in sales and marketing. None of our employees are subject to a
collective bargaining agreement. We believe that we have good relationships with
our employees.

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.

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.

RISK FACTORS

The following important factors, among others, could cause our actual
results to differ materially from those contained in forward-looking statements
made in this Annual Report on Form 10-K or presented elsewhere by management
from time to time.

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

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materially adversely affected. Consumers and businesses may delay adoption of
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 BE LIMITED IN ACCEPTING
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 and 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. 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 68% from $164.9 million in 1998
to $276.8 million in 1999. Our staff increased from 1,492 full-time employees at
December 31, 1998 to 2,111 at December 31, 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

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projects may cause significant variations in operating results in any particular
quarter and could have a material adverse effect on operations 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 and bad debts;

- the accuracy of our estimates of resources required to complete ongoing
projects; and

- general economic conditions.

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;

- political instability or changes in regulatory requirements; and

- U.S. imposed restrictions on the import and export of technologies.

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.

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 could 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
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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 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 1999, our five largest clients accounted for approximately
22% of our revenues, with one client 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 three 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.

OUR STOCK PRICE IS VOLATILE AND MAY RESULT IN SUBSTANTIAL LOSSES FOR INVESTORS

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.

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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 FACE SIGNIFICANT COMPETITION IN MARKETS THAT ARE NEW AND RAPIDLY CHANGING

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.

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.

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

8
<PAGE> 11

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, together own approximately 35.7% of
our common stock. 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 be able to
prevent the unauthorized disclosure or use of our technical knowledge, practices
or procedures by such personnel.

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;

9
<PAGE> 12

- 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.

ITEM 2. PROPERTIES

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 New York (2),
San Francisco (4), Chicago (2), Atlanta (2), Dallas, Los Angeles, Washington
D.C., Denver, Houston, London and Sydney.

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

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

Not Applicable.

EXECUTIVE OFFICERS OF SAPIENT

Below are the name, age and principal occupations for the last five years
of each current executive officer of Sapient. All such persons have been elected
to serve until their successors are elected and qualified or until their earlier
resignation or removal.

<TABLE>
<S> <C> <C>
Sheeroy D. Desai............ 33 Mr. 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.
Edward G. Goldfinger........ 38 Mr. Goldfinger joined Sapient in November 1999 and has
served as Chief Financial Officer since January 2000.
Prior to joining Sapient, Mr. Goldfinger served as Vice
President and Chief Financial Officer of Pepsi-Cola
International for the South American and Caribbean
regions from October 1997 until November 1999. From
October 1990 to October 1997, Mr. Goldfinger served as
Director of Strategic Planning and in other positions
for Pepsi-Cola International and PepsiCo.
Jerry A. Greenberg.......... 34 Mr. Greenberg co-founded Sapient in 1991 and has served
as Co-Chairman of the Board of Directors and Co-Chief
Executive Officer and as a director since Sapient's
inception.
J. Stuart Moore............. 38 Mr. Moore co-founded Sapient in 1991 and has served as
Co-Chairman of the Board of Directors and Co-Chief
Executive Officer and as a director since Sapient's
inception.
</TABLE>

10
<PAGE> 13
<TABLE>
<S> <C> <C>
Bruce D. Parker............. 52 Mr. Parker joined Sapient in December 1999 as an
Executive Vice President. Mr. Parker has been a
director of Sapient since September 1995. Prior to
joining Sapient, Mr. Parker served as Senior Vice
President and Chief Information Officer at United
Airlines, Inc. from December 1997 until December 1999.
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.
Merle Sprinzen.............. 45 Ms. Sprinzen joined Sapient in February 2000 as Chief
Marketing Officer. Prior to joining Sapient, Ms.
Sprinzen served as Global Director of Marketing and
Communications for Electronic Commerce and in other
capacities for Andersen Consulting from 1995 to 2000.
Desmond P. Varady........... 34 Mr. Varady joined Sapient in October 1993. He became
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 1998 and
as Senior Vice President until April 1999. Mr. Varady
is responsible for Sapient's five core disciplines. He
also oversees Sapient's innovation efforts, company
culture and One Team, Sapient's integrated
multidisciplinary process and knowledge management
approach.
</TABLE>

11
<PAGE> 14

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a)(1) Market Price of Common Stock

Our common stock is quoted on the Nasdaq National Market System under the
symbol "SAPE". The following table sets forth for the periods indicated the high
and low intraday sale prices for our common stock, and has been adjusted to
reflect the two-for-one stock splits effected as 100 percent stock dividends
paid on March 9, 1998 and November 5, 1999.

<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
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.................................. $141.25 $41.75
</TABLE>

On March 10, 2000, the last reported sale price of our common stock was
$114.0625 per share. As of March 10, 2000, there were approximately 337 holders
of record of our common stock.

(a)(2) Recent Sales of Unregistered Securities

In connection with our acquisition of E.Lab L.L.C. (E.Lab) in October 1999,
we issued a total of 88,044 shares of our common stock on October 8, 1999 to the
former members of E.Lab in exchange for substantially all of the assets of
E.Lab. The issuance of such shares was exempt from registration requirements
pursuant to Section 4(2) of the Securities Act because it did not involve a
public offering of securities.

(b) Use of Proceeds. There has been no change to the information previously
provided by Sapient on Form SR for the period ended July 3, 1996, as amended to
date, relating to securities sold by Sapient pursuant to Registration Statements
on Form S-1 (Registration Nos. 333-1586 and 333-3204), both of which were
declared effective on April 3, 1996.

12
<PAGE> 15

ITEM 6. SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Annual Report on Form 10-K. The Balance
Sheet Data at December 31, 1999 and the Statement of Income Data for the year
ended December 31, 1999 have been derived from the Consolidated Financial
Statements for such year, which have been audited by PricewaterhouseCoopers LLP,
independent accountants. The Balance Sheet Data at December 31, 1998, 1997, 1996
and 1995 and the Statement of Income Data for the years ended December 31, 1998,
1997, 1996 and 1995 have been derived from the Consolidated Financial Statements
for such years, which have been audited by KPMG LLP, independent auditors.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA(1):
Revenues............................... $276,844 $164,872 $92,027 $49,795 $24,481
Operating expenses:
Project personnel costs.............. 134,638 80,543 44,623 23,329 11,723
Selling and marketing................ 21,429 11,269 6,074 2,453 1,129
General and administrative........... 69,388 41,675 22,571 14,216 6,733
Amortization of intangible assets.... 2,284 687 -- -- --
Stock-based compensation............. 2,029 4,499 -- 260 --
In-process research and
development....................... -- 11,100 -- -- --
Acquisition costs.................... 2,340 -- 560 -- --
-------- -------- ------- ------- -------
Total operating expenses..... 232,108 149,773 73,828 40,258 19,585
-------- -------- ------- ------- -------
Income from operations................. 44,736 15,099 18,199 9,537 4,896
Interest income........................ 4,227 2,925 2,058 1,098 13
-------- -------- ------- ------- -------
Income before income taxes and net
equity loss from investee............ 48,963 18,024 20,257 10,635 4,909
Income taxes........................... 18,506 8,660 7,703 3,936 1,995
-------- -------- ------- ------- -------
Income before net equity loss from
investee............................. 30,457 9,364 12,554 6,699 2,914
Net equity loss from investee.......... 157 -- -- -- --
-------- -------- ------- ------- -------
Net income............................. $ 30,300 $ 9,364 $12,554 $ 6,699 $ 2,914
======== ======== ======= ======= =======
Basic net income per share............. $ 0.54 $ 0.18 $ 0.25 $ 0.15 $ 0.08
======== ======== ======= ======= =======
Diluted net income per share........... $ 0.48 $ 0.16 $ 0.23 $ 0.13 $ 0.07
======== ======== ======= ======= =======
Weighted average common shares......... 55,709 52,228 49,574 44,844 36,550
Weighted average common share
equivalents.......................... 7,104 5,174 4,166 4,850 5,702
-------- -------- ------- ------- -------
Weighted average common shares and
common share equivalents............. 62,813 57,402 53,740 49,694 42,252
======== ======== ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................ $257,251 $121,779 $76,409 $66,369 $ 5,785
Total assets........................... 343,189 182,955 98,867 80,077 12,893
Long-term debt, less current portion... -- -- -- -- 189
Total stockholders' equity(2).......... 304,959 154,814 82,307 66,969 5,595
</TABLE>

- ---------------
(1) This selected consolidated financial data gives retroactive effect to our
acquisition of Adjacency, Inc. (Adjacency) in March 1999 and EXOR
Technologies, Inc. (EXOR) in December 1997, which have been accounted for
as a pooling of interests. As a result of these business combinations, the

13
<PAGE> 16

financial information shown above has been restated to include the accounts
and results of operations of Adjacency and EXOR for all periods presented.
See Note 12 of Notes to Consolidated Financial Statements.

(2) We have never declared or paid any cash dividends.

14
<PAGE> 17

ITEM 7. 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 primarily on a fixed-price, fixed-timeframe basis.
Founded in 1991 as a Delaware corporation, we have experienced revenue growth in
each of the last nine years. We currently have approximately 2,100 employees in
offices in Cambridge, Massachusetts, New York, San Francisco, Chicago, Atlanta,
Dallas, Los Angeles, Washington D.C., Denver, Houston, London, England and
Sydney, Australia.

Our revenues 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 such projects, any delays incurred in
connection with a project, employee utilization rates, the adequacy of
provisions for losses, the use of estimates of resources required to complete
ongoing projects, general economic conditions and other factors. In addition,
revenues from a large client may constitute a significant portion of our total
revenues in a particular quarter.

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 distributed on November 5, 1999.

On December 15, 1997, we acquired all of the outstanding common stock of
EXOR 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 has been accounted for as a pooling-of-interests.

On August 25, 1998, we acquired Studio Archetype, Inc. (Studio Archetype)
in exchange for 996,628 shares of common stock and $250,000 in cash. 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. 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 in exchange for 1,581,348 shares of our 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. Costs, which consist primarily of investment banking,
accounting and legal fees related to the acquisition approximated $2.3 million,
have been reflected in the consolidated statement of income for the year ended
December 31, 1999.

In September 1999, we commenced a joint venture, Sapient & Cuneo SRL, in
Milan, Italy. 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 in
exchange for 88,044 shares of common stock and the assumption of certain
liabilities of E.Lab. 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. E.Lab's results of
operations are included in our results of operations from the date of
acquisition.

On November 19, 1999, we completed a public offering of common stock, which
resulted in the issuance of 1,114,600 shares of common stock. Proceeds to
Sapient, net of underwriting discounts and costs of the offering, were
approximately $83.3 million.

In connection with the acquisition of Adjacency, we assumed the outstanding
options granted under the Adjacency 1998 Stock Option Plan (the "Adjacency
Plan"). 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. In November 1998, prior to the
acquisition, Adjacency had granted a total of 437,000 options to its employees
at exercise prices between $2.36 and $12.15 per share. The shares

15
<PAGE> 18

vested ratably over three years starting on the date of employment, except for
certain employees who were granted accelerated vesting upon a change-in-control
of Adjacency. The total compensation charge to be taken over the vesting period
is approximately $7.2 million, resulting from the fact that the options were
granted at below fair market value. The charge in the fourth quarter of 1998 of
approximately $4.5 million was the result of certain employees being
substantially vested by December 31, 1998. A charge of approximately $1.7
million in the first quarter of 1999 was the result of the change-in-control
provisions. Beyond the first quarter of 1999, we expect the compensation expense
to be approximately $100,000 per quarter for the next seven quarters.
Stock-based compensation was approximately $2.0 million for the year ended
December 31, 1999. As a result of the acquisition, we have assumed the
obligations related to options to purchase 126,508 shares of our common stock.
No further grants may be made pursuant to the Adjacency Plan, and previously
outstanding options remain outstanding, and are exercisable for shares of our
common stock.

In connection with the acquisition of Studio Archetype in the third quarter
of 1998, the Company 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, this allocation was charged to expense as of the acquisition date.

The Company allocated values to the acquired 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
Archetype's next-generation enterprise-wide suite of development, scheduling,
bug tracking and content management applications. The integrated solution is
comprised of the following technologies: content management systems (CMS), an
Intranet, an Extranet, an Issues Server and an on-line User Interface Lab (UI
Lab) which together allow developers and clients to access prototypes and trial
deliverables and fully integrates user interface tools with client server,
advanced database and legacy systems. The CMS, Intranet and Extranet components
of the system were released in June 1999. The UI Lab was completed in March 1999
and the Issue Server was completed in September 1999. The integrated solution is
a comprehensive enterprise scale system. All components of the in-process R&D
project acquired by us with the acquisition of Studio Archetype are presently
being piloted on several client projects with the anticipation of rolling-out
the integrated, enterprise-wide solution in 2000. At the time of the
acquisition, expenditures on these projects were approximately $2.5 million, and
estimated costs to complete these projects were expected to total approximately
$625,000. The nature of the efforts to develop the acquired in-process
technology into commercially viable products and services principally related to
the completion of all planning, designing, prototyping, verification, and
testing activities that were necessary to establish that the proposed
technologies met their design specifications including functional, technical,
and economic performance requirements. The efforts to develop the purchased
in-process technology also included testing of the technology for compatibility
and interoperability with other applications. 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 them to their
present value. The revenue projection used to value the in-process research and
development was 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. We did not experience any
material variations in costs to complete or completion dates from our initial
assumptions. Following the acquisition of Studio Archetype, Studio Archetype was
fully integrated into our operations, making the isolation of specific revenues
attributable to the in-process technologies difficult. However, nothing has
occurred to materially change our expectations with respect to the underlying
assumptions used in projecting the expected future revenues associated with this
in-process R&D.

16
<PAGE> 19

The rates utilized to discount the net cash flows to their present value
were 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 to 30 percent were utilized for the
business enterprise and for the in-process research and development. The Company
believes that these discount rates were commensurate with Studio Archetype'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 future
technological advances at that time.

RESULTS OF OPERATIONS

The following table sets forth the percentage of revenues of some items
included in our Consolidated Statements of Income:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue................................................. 100% 100% 100%
Operating expenses:
Project personnel costs............................... 48 49 48
Selling and marketing................................. 8 7 7
General and administrative............................ 25 25 25
Amortization of intangible assets..................... 1 -- --
Stock-based compensation.............................. 1 3 --
In process research and development................... -- 7 --
Acquisition costs..................................... 1 -- --
--- --- ---
Total operating expenses...................... 84 91 80
--- --- ---
Income from operations.................................. 16 9 20
Interest income......................................... 2 2 2
--- --- ---
Income before income taxes and net equity loss from
investee.............................................. 18 11 22
Income taxes............................................ 7 5 8
--- --- ---
Income before net equity loss from investee............. 11 6 14
Net equity loss from investee........................... -- -- --
--- --- ---
Net income.............................................. 11% 6% 14%
=== === ===
</TABLE>

YEARS ENDED DECEMBER 31, 1999 AND 1998

Revenues

Revenues for 1999 increased 68% over revenues for 1998. The increase in
revenues was due to an increase in the number and size of client projects. In
1999, our five largest clients accounted for approximately 22% of our revenues;
no client accounted for more than 10% of such revenues and one client accounted
for more than 5% of such revenues. In 1998, our five largest clients accounted
for approximately 30% of our revenues; no clients accounted for more than 10% of
such revenues and four clients each accounted for more than 5% of such revenues.

Project Personnel Costs

Project personnel costs consist principally 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 year ended December 31, 1999 was
primarily due to an increase in project personnel

17
<PAGE> 20

from 1,188 at December 31, 1998 to 1,666 at December 31, 1999 and corresponds to
the increase in revenues. Project personnel costs decreased slightly as a
percentage of revenues to 48% in 1999 from 49% in 1998.

Selling and Marketing

Selling and marketing expenses consist principally of salaries, employee
benefits and travel expenses of selling and marketing personnel and promotional
expenses. Selling and marketing expenses increased as a percentage of revenues
to 8% in 1999 from 7% in 1998. The increase was primarily due to investments
that we made in a new brand identity during the second quarter of 1999 and also
due to an advertising campaign launched in the third quarter of 1999. Selling
and marketing personnel grew from 51 employees at December 31, 1998 to 82
employees at December 31, 1999.

General and Administrative

General and administrative expenses relate principally to salaries and
employee benefits associated with our management, finance and administrative
groups, including personnel devoted to recruiting and training project personnel
and occupancy expenses. The increase in general and administrative expenses for
1999 compared to 1998 was primarily due to an increase in the number of
employees hired during 1999, an increase in occupancy expenses related to
significant expansion of our office space and increased depreciation costs
related to our increased investments in property and equipment. General and
administrative personnel grew from 253 employees at December 31, 1998 to 363
employees at December 31, 1999. Our total headcount increased from 1,492 at
December 31, 1998 to 2,111 at December 31, 1999. Total occupancy at December 31,
1999 was approximately 613,000 square feet, compared to approximately 360,000
square feet at December 31, 1998. General and administrative costs as a
percentage of revenues remained constant at 25% for both 1999 and 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 acquisitions of Studio Archetype and E.Lab. The increase in
amortization of intangible assets costs for 1999 compared to 1998 was primarily
due to a full year of amortization expense for Studio Archetype in 1999 compared
to a partial year of expense in 1998. Also, amortization expense increased due
to the E.Lab acquisition in the fourth quarter of 1999. Amortization periods
range from four to seven years.

Stock-Based Compensation

Stock-based compensation consists of expenses associated with Adjacency
stock options that were granted, prior to our acquisition of Adjacency, at below
fair market value. The options were granted in November of 1998 with a
three-year vesting schedule commencing on the date of employment. The charge in
the fourth quarter of 1998 of approximately $4.5 million was the result of
certain employees being substantially vested by December 31, 1998. A charge of
approximately $1.7 million in the first quarter of 1999 was the result of
change-in-control provisions. We expect the amount of this charge to be
approximately $100,000 per quarter for the next seven quarters, or $400,000
annually.

Acquisition Costs

We incurred a 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 1999 and 1998 was derived primarily from investments of
the proceeds from our public stock offerings, which were invested in tax exempt,
short term municipal bonds, commercial paper and U.S. government securities.

18
<PAGE> 21

Provision for Income Taxes

Income tax expense represents combined federal and state income taxes at an
effective rate of 38% for 1999 and 48% for 1998. The higher effective rate in
1998 was the result of compensation expenses recorded by Adjacency in 1998,
which were not tax deductible by us. Our effective tax rate may vary from period
to period based on the Company's future expansion into areas with varying
country, state, and local income tax rates and deductibility of certain costs
and expenses by jurisdiction.

YEARS ENDED DECEMBER 31, 1998 AND 1997

Revenues

Our revenues for 1998 increased 79% over our revenues for 1997. The
increase in revenues was due to an increase in the number and size of client
projects. In 1998, our five largest clients accounted for approximately 30% of
our revenues, with no client accounting for more than 10% of such revenues and
four clients each accounted for more than 5% 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 were $80.5 million for 1998 and increased from
$44.6 million in 1997. The increase in project personnel costs in 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.

Selling and Marketing

Selling and marketing expenses remained constant as a percentage of
revenues 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 and a business
acquisition. 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 expenses remained constant as a percentage of
revenues at 25% for both 1998 and 1997 and were $41.7 million and $22.6 million,
respectively. 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. General and
administrative personnel grew from 113 employees at December 31, 1997 to 253
employees at December 31, 1998. Our total headcount increased from 838 at
December 31, 1997 to 1,492 at December 31, 1998. Total occupancy at December 31,
1998 was approximately 360,000 square feet, compared to approximately 219,000
square feet at December 31, 1997.

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

Stock-based compensation consist of expenses associated with Adjacency
stock options that were granted, prior to our acquisition of Adjacency, at below
fair market value. The options were granted in November of 1998 with a
three-year vesting schedule commencing on the date of employment. A charge in
the fourth quarter of 1998 of approximately $4.5 million was the result of
certain employees being substantially vested by December 31, 1998.

19
<PAGE> 22

In-Process Research and Development

In connection with the acquisition of Studio Archetype in the third quarter
of 1998, we 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,
this allocation was charged to expense as of the acquisition date.

Acquisition Costs

A charge of approximately $560,000 was recorded in 1997 for costs
associated with the EXOR acquisition, which consisted primarily of investment
banking, accounting and legal fees.

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.

Provision for Income Taxes

Income tax expense represents combined federal and state income taxes at an
effective rate of 48% for 1998 and 38% for 1997. The increase in the effective
rate in 1998 was the result of compensation expenses recorded by Adjacency in
1998, which were not tax deductible by us. Our effective tax rate may vary from
period to period based on the Company's future expansion into areas with varying
country, state, and local income tax rates and deductability of certain costs
and expenses by jurisdiction.

20
<PAGE> 23

QUARTERLY FINANCIAL RESULTS

The following tables set forth a summary of our unaudited quarterly results
of operations for 1999 and 1998. 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 included elsewhere in this Annual Report
on Form 10-K. The quarterly operating results are not necessarily indicative of
future results of operations.

<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
----------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues........................... $57,793 $64,199 $73,029 $81,823
Operating expenses:
Project personnel costs.......... 28,334 30,618 35,669 40,017
Selling and marketing............ 3,974 5,411 5,927 6,117
General and administrative....... 14,648 16,219 17,527 20,994
Amortization of intangible
assets........................ 569 519 462 734
Stock-based compensation......... 1,699 110 110 110
Acquisition costs................ 2,340 -- -- --
------- ------- ------- -------
Total operating
expenses............... 51,564 52,877 59,695 67,972
------- ------- ------- -------
Income from operations............. 6,229 11,322 13,334 13,851
Interest income.................... 820 859 970 1,578
------- ------- ------- -------
Income before income taxes and net
equity loss from investee........ 7,049 12,181 14,304 15,429
Income taxes....................... 2,770 4,495 5,436 5,805
------- ------- ------- -------
Income before net equity loss from
investee......................... 4,279 7,686 8,868 9,624
Net equity loss from investee...... -- -- -- 157
------- ------- ------- -------
Net income......................... $ 4,279 $ 7,686 $ 8,868 $ 9,467
======= ======= ======= =======
Basic net income per share......... $ 0.08 $ 0.14 $ 0.16 $ 0.17
======= ======= ======= =======
Diluted net income per share....... $ 0.07 $ 0.13 $ 0.14 $ 0.14
======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
----------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues........................... $31,595 $36,420 $43,066 $53,791
Operating expenses:
Project personnel costs.......... 15,221 17,511 21,101 26,710
Selling and marketing............ 1,842 2,666 3,061 3,700
General and administrative....... 8,271 8,726 10,683 13,995
Amortization of intangible
assets........................ -- -- 128 559
Stock-based compensation......... -- -- -- 4,499
In-process research and
development................... -- -- 11,100 --
------- ------- ------- -------
Total operating
expenses............... 25,334 28,903 46,073 49,463
------- ------- ------- -------
Income (loss) from operations...... 6,261 7,517 (3,007) 4,328
Interest income.................... 590 676 941 718
------- ------- ------- -------
Income (loss) before income
taxes............................ 6,851 8,193 (2,066) 5,046
Income taxes....................... 2,504 2,929 (668) 3,895
------- ------- ------- -------
Net income (loss).................. $ 4,347 $ 5,264 $(1,398) $ 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>

21
<PAGE> 24

<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
THREE MONTHS ENDED (UNAUDITED)
----------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues............................. 100% 100% 100% 100%
Operating expenses:
Project personnel costs............ 49 48 49 49
Selling and marketing.............. 7 8 8 7
General and administrative......... 25 25 24 26
Amortization of intangible
assets.......................... 1 1 1 1
Stock-based compensation........... 3 -- -- --
Acquisition costs.................. 4 -- -- --
--- --- --- ---
Total operating expenses... 89 82 82 83
--- --- --- ---
Income from operations............... 11 18 18 17
Interest income...................... 1 1 2 2
--- --- --- ---
Income before income taxes and net
equity loss from investee.......... 12 19 20 19
Income taxes......................... 5 7 8 7
--- --- --- ---
Income before net equity loss from
investee........................... 7 12 12 12
Net equity loss from investee........ -- -- -- --
--- --- --- ---
Net income........................... 7% 12% 12% 12%
=== === === ===
</TABLE>

<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
THREE MONTHS ENDED (UNAUDITED)
----------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues............................. 100% 100% 100% 100%
Operating expenses:
Project personnel costs............ 48 48 49 50
Selling and marketing.............. 6 7 7 7
General and administrative......... 26 24 25 26
Amortization of intangible
assets.......................... -- -- -- 1
Stock-based compensation........... -- -- -- 8
In-process research and
development..................... -- -- 26 --
--- --- --- ---
Total operating expenses... 80 79 107 92
--- --- --- ---
Income (loss) from operations........ 20 21 (7) 8
Interest income...................... 2 1 2 1
--- --- --- ---
Income (loss) before income taxes.... 22 22 (5) 9
Income taxes......................... 8 8 (2) 7
--- --- --- ---
Net income (loss).................... 14% 14% (3)% 2%
=== === === ===
</TABLE>

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 stock
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 certain financial
ratios and limits the payment of dividends. At December 31, 1999, the Company
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 December 31,
1999, we had approximately $196.1 million in cash, cash equivalents and short
term investments compared to $91.8 million at December 31, 1998.

Cash provided by operating activities was $18.1 million for the year ended
December 31, 1999. This resulted primarily from net income of $30.3 million,
non-cash charges of $12.6 million, increases in accounts payable, accrued
expenses and accrued compensation of $5.2 million and increases in accrued
income taxes

22
<PAGE> 25

payable of $5.3 million, principally due to the overall growth of the Company,
offset by increases in accounts receivable of $32.4 million and increases of
$3.0 million in unbilled revenues on contracts due to increases in revenue.

Cash used in investing activities was $100.2 million for the year ended
December 31, 1999. This was due primarily to purchases of short term investments
(net of maturities) during the period of $78.5 million, which resulted primarily
from the investment of the proceeds from a public stock offering, and also by
capital expenditures of $17.0 million due to significant expansion of the
Company's office space and computer equipment purchases.

Cash provided by financing activities was $108.0 million for the year ended
December 31, 1999 and was principally due to proceeds from a public stock
offering of $83.3 million. Also, cash of $24.0 million was provided from the
sale of common stock through the Company's 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 will be sufficient to meet our working capital and capital
expenditure requirements for at least the next 18 months.

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 developed a phased Year 2000 readiness plan to help identify and resolve
Year 2000 issues associated with our internal systems, external vendors and the
services provided by us. In December 1999, we 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 are 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 also completed a comprehensive contingency plan in December
1999 to address the situations that may result if we were unable to achieve Year
2000 readiness of our major information technology and non-information
technology systems.

To date, including since January 1, 2000, we have not experienced any
material malfunctions or interruptions with our internal computer systems or our
internal non-information technology systems as a result of the Year 2000 issue.
We have not experienced any material interruptions resulting from the computer
systems of third parties with which we do business, such as landlords,
telecommunications companies, banks, utilities and commercial airlines. We also
have no knowledge of any material malfunctions or interruptions caused by the
Year 2000 issue in the business solutions we have designed, developed and
implemented for our clients. There can be no assurance that any such
malfunctions or interruptions will not arise in the future, and the future
occurrence of any such malfunctions or interruptions could have a material
adverse effect on our business, results of operations and financial condition.

We believe that our most reasonably likely worst case scenario for Year
2000 problems would be (a) the postponement of client projects while clients
respond to their own Year 2000 problems, (b) having to rely on manual internal
operational capabilities, or (c) having to defend a number of Year 2000 lawsuits
from our clients. If our clients experience Year 2000 problems, we may be
precluded from continuing to provide services for these clients until their
problems are resolved. Additionally, if clients' Year 2000 problems affect their
accounting systems, this could result in delayed payment of our invoices.

23
<PAGE> 26

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
This statement was amended by the issuance of SFAS 137, "Deferral of the
Effective Date of FASB Statement No. 133", which changed the effective date of
SFAS 133 to all fiscal years beginning after June 15, 2000 (Fiscal 2001 for the
Company) and requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if so,
the type of hedge transaction. Management of the Company anticipates that the
adoption of SFAS 133 will not have a material impact on the Company's financial
position or its results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not believe that we have any material market risk exposure with
respect to derivative or other financial instruments which would require
disclosure under this item.

24
<PAGE> 27

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SAPIENT CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Reports of Independent Accountants.......................... 26
Consolidated Balance Sheets................................. 28
Consolidated Statements of Income........................... 29
Consolidated Statements of Changes in Stockholders'
Equity.................................................... 30
Consolidated Statements of Cash Flows....................... 31
Notes to Consolidated Financial Statements.................. 32

Financial Statement Schedule:
Reports of Independent Accountants on Financial Statement
Schedule............................................... 49
Schedule II -- Valuation and Qualifying Accounts and
Reserves............................................... 51
</TABLE>

25
<PAGE> 28

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
Sapient Corporation:

In our opinion, the accompanying consolidated balance sheet as of December
31, 1999 and the related consolidated statements of income, of changes in
stockholders' equity, and of cash flows present fairly, in all material
respects, the financial position of Sapient Corporation and its subsidiaries at
December 31, 1999, and the results of their operations and their cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Boston, Massachusetts
January 27, 2000

26
<PAGE> 29

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Sapient Corporation:

We have audited the accompanying consolidated balance sheet of Sapient
Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the two-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 the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.

KPMG LLP

Boston, Massachusetts
April 16, 1999

27
<PAGE> 30

SAPIENT CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 51,582 $ 25,720
Short term investments.................................... 144,527 66,100
Accounts receivable, less allowance for doubtful accounts
of $1,246 and $550 for 1999 and 1998, respectively..... 75,170 42,797
Unbilled revenues on contracts............................ 13,474 10,306
Prepaid expenses.......................................... 3,893 438
Other current assets...................................... 4,035 3,296
Deferred income taxes..................................... 1,311 --
-------- --------
Total current assets.............................. 293,992 148,657
Property and equipment, net................................. 23,591 14,447
Deferred income taxes....................................... 6,296 4,929
Intangible assets........................................... 16,582 13,729
Other assets................................................ 2,728 1,193
-------- --------
Total assets...................................... $343,189 $182,955
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,437 $ 1,181
Accrued expenses.......................................... 4,538 3,743
Accrued compensation...................................... 11,682 8,633
Income taxes payable...................................... 948 2,217
Deferred income taxes..................................... -- 197
Deferred revenues on contracts............................ 15,136 10,907
-------- --------
Total current liabilities......................... 36,741 26,878
Other long term liabilities................................. 1,489 1,263
-------- --------
Total liabilities................................. 38,230 28,141
-------- --------
Commitments and contingencies (Note 8)...................... -- --
Stockholders' equity:
Preferred stock, par value $0.01 per share; 5,000,000
shares authorized and none outstanding at December 31,
1999 and 1998.......................................... -- --
Common stock, par value $0.01 per share, 100,000,000
shares authorized, 57,473,539 shares issued and
outstanding at December 31, 1999; 54,212,586 shares
issued and outstanding at December 31, 1998............ 575 542
Additional paid-in capital................................ 240,975 122,513
Deferred compensation..................................... (688) (2,178)
Accumulated other comprehensive income (loss)............. (114) 26
Retained earnings......................................... 64,211 33,911
-------- --------
Total stockholders' equity........................ 304,959 154,814
-------- --------
Total liabilities and stockholders' equity........ $343,189 $182,955
======== ========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.
28
<PAGE> 31

SAPIENT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues.................................................... $276,844 $164,872 $92,027
Operating expenses:
Project personnel costs (exclusive of stock-based
compensation of $1,005 and $3,900 for 1999 and 1998,
respectively).......................................... 134,638 80,543 44,623
Selling and marketing (exclusive of stock-based
compensation of $435 and $249 for 1999 and 1998,
respectively).......................................... 21,429 11,269 6,074
General and administrative (exclusive of stock-based
compensation of $589 and $350 for 1999 and 1998,
respectively).......................................... 69,388 41,675 22,571
Amortization of intangible assets......................... 2,284 687 --
Stock-based compensation.................................. 2,029 4,499 --
In-process research and development....................... -- 11,100 --
Acquisition costs......................................... 2,340 -- 560
-------- -------- -------
Total operating expenses............................... 232,108 149,773 73,828
-------- -------- -------
Income from operations.................................... 44,736 15,099 18,199
Interest income............................................. 4,227 2,925 2,058
-------- -------- -------
Income before income taxes and net equity loss from
investee............................................... 48,963 18,024 20,257
Income taxes................................................ 18,506 8,660 7,703
-------- -------- -------
Income before net equity loss from investee............... 30,457 9,364 12,554
Net equity loss from investee............................... 157 -- --
-------- -------- -------
Net Income............................................. $ 30,300 $ 9,364 $12,554
======== ======== =======
Basic net income per share.................................. $ 0.54 $ 0.18 $ 0.25
======== ======== =======
Diluted net income per share................................ $ 0.48 $ 0.16 $ 0.23
======== ======== =======
Weighted average common shares.............................. 55,709 52,228 49,574
Weighted average common share equivalents................... 7,104 5,174 4,166
-------- -------- -------
Weighted average common shares and common share
equivalents............................................... 62,813 57,402 53,740
======== ======== =======
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.
29
<PAGE> 32

SAPIENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
VOTING ACCUMULATED
COMMON STOCK ADDITIONAL COMPRE- OTHER
--------------- PAID-IN DEFERRED HENSIVE COMPREHENSIVE RETAINED
SHARES AMOUNT CAPITAL COMPENSATION INCOME INCOME (LOSS) EARNINGS
------ ------ ---------- ------------ ------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996... 48,778 $488 $ 54,410 $ -- -- $ -- $12,101
Notes repaid from
stockholders............... -- -- -- -- -- -- --
Shares issued under stock
option and purchase
plans...................... 1,216 12 1,777 -- -- -- --
Distributions to
stockholders............... -- -- -- -- -- -- (69)
Tax benefit of disqualifying
dispositions of stock
options.................... -- -- 1,034 -- -- -- --
Comprehensive income:
Net income................... -- -- -- -- $12,554 -- 12,554
-------
Comprehensive income......... 12,554
=======
------ ---- -------- ------- ----- -------
Balance at December 31, 1997... 49,994 500 57,221 -- -- -- 24,586
Shares issued under stock
option and purchase
plans...................... 1,916 19 5,093 -- -- -- --
Proceeds from public
offering................... 1,306 13 29,078 -- -- -- --
Distributions to
stockholders............... -- -- -- -- -- -- (39)
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 (2,178) -- -- --
Comprehensive income:
Net income................... -- -- -- -- 9,364 -- 9,364
Other comprehensive income:
Currency translation
adjustments.............. -- -- -- -- 26 26 --
-------
Comprehensive income....... 9,390
=======
------ ---- -------- ------- ----- -------
Balance at December 31, 1998... 54,212 542 122,513 (2,178) 26 33,911
Shares issued under stock
option and purchase
plans...................... 2,059 21 23,965 -- -- -- --
Proceeds from public
offering................... 1,115 11 83,265 -- -- -- --
Common stock issued for
acquisition of E.Lab....... 88 1 4,137 -- -- -- --
Tax benefit of disqualifying
dispositions of stock
options.................... -- -- 6,556 -- -- -- --
Deferred compensation........ -- -- 539 1,490 -- -- --
Comprehensive income:
Net income................... -- -- -- -- 30,300 -- 30,300
Other comprehensive income:
Currency translation
adjustments.............. -- -- -- -- (44) (44) --
Net unrealized loss on
short term investments... -- -- -- -- (96) (96) --
-------
Comprehensive income....... $30,160
=======
------ ---- -------- ------- ----- -------
Balance at December 31, 1999... 57,474 $575 $240,975 $ (688) $(114) $64,211
====== ==== ======== ======= ===== =======

<CAPTION>
NOTES
RECEIVABLE TOTAL
FROM STOCKHOLDERS'
STOCKHOLDERS EQUITY
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Balance at December 31, 1996... $(25) $ 66,974
Notes repaid from
stockholders............... 25 25
Shares issued under stock
option and purchase
plans...................... -- 1,789
Distributions to
stockholders............... -- (69)
Tax benefit of disqualifying
dispositions of stock
options.................... -- 1,034
Comprehensive income:
Net income................... -- 12,554
Comprehensive income.........
---- --------
Balance at December 31, 1997... -- 82,307
Shares issued under stock
option and purchase
plans...................... -- 5,112
Proceeds from public
offering................... -- 29,091
Distributions to
stockholders............... -- (39)
Common stock issued for
acquisition of Studio
Archetype.................. -- 22,800
Tax benefit of disqualifying
dispositions of stock
options.................... -- 1,654
Deferred compensation........ -- 4,499
Comprehensive income:
Net income................... -- 9,364
Other comprehensive income:
Currency translation
adjustments.............. -- 26
Comprehensive income.......
---- --------
Balance at December 31, 1998... -- 154,814
Shares issued under stock
option and purchase
plans...................... -- 23,986
Proceeds from public
offering................... -- 83,276
Common stock issued for
acquisition of E.Lab....... -- 4,138
Tax benefit of disqualifying
dispositions of stock
options.................... -- 6,556
Deferred compensation........ -- 2,029
Comprehensive income:
Net income................... 30,300
Other comprehensive income:
Currency translation
adjustments.............. -- (44)
Net unrealized loss on
short term investments... -- (96)
Comprehensive income.......
---- --------
Balance at December 31, 1999... $ -- $304,959
==== ========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.
30
<PAGE> 33

SAPIENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 30,300 $ 9,364 $ 12,554
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................... 8,007 3,537 2,478
In-process research and development..................... -- 11,100 --
Amortization of intangible assets....................... 2,284 687 --
Deferred income taxes................................... (2,874) (6,637) 786
Allowance for doubtful accounts......................... 690 200 275
Stock-based compensation................................ 2,029 4,499 --
Acquisition costs....................................... 2,340 -- 560
Net equity loss from investee........................... 157 -- --
Changes in operating assets and liabilities:
Increase in accounts receivable..................... (32,432) (23,644) (5,170)
Increase in unbilled revenues on contracts.......... (3,019) (651) (4,397)
Decrease (increase) in prepaid expenses............. (3,447) 321 (363)
Increase in other current assets.................... (842) (2,383) (821)
Decrease (increase) in other assets................. (39) 70 (285)
Increase in accounts payable........................ 3,172 395 104
(Decrease) increase in accrued expenses............. (998) (1,241) 332
Increase in accrued compensation.................... 3,049 4,137 1,172
Increase in income taxes payable.................... 5,287 2,493 738
Increase in other long term liabilities............. 181 310 155
Increase in deferred revenues on contracts.......... 4,229 3,365 1,492
--------- --------- --------
Net cash provided by operating activities....... 18,074 5,922 9,610
--------- --------- --------
Cash flows from investing activities:
Purchase of property and equipment...................... (16,987) (9,307) (6,356)
Net cash received from acquisition...................... 15 561 --
Investments in and advances to affiliates............... (2,332) -- --
Cash paid for acquisition costs......................... (2,340) -- (560)
Sales and maturities of short term investments.......... 123,708 133,374 33,417
Purchases of short term investments..................... (202,231) (147,232) (33,235)
--------- --------- --------
Net cash used in investing activities........... (100,167) (22,604) (6,734)
--------- --------- --------
Cash flows from financing activities:
Proceeds from stockholders for notes receivable......... 3,826 3,024 25
Payments to stockholders for notes receivable........... (3,133) (3,788) --
Proceeds from stock option and purchase plans........... 23,986 5,112 1,789
Net proceeds from follow-on public offering............. 83,276 29,091 --
Distribution to stockholders............................ -- (39) (69)
Principal payments on notes payable to bank............. -- (3,162) (6)
--------- --------- --------
Net cash provided by financing activities....... 107,955 30,238 1,739
--------- --------- --------
Increase in cash and cash equivalents....................... 25,862 13,556 4,615
Cash and cash equivalents, beginning of year................ 25,720 12,164 7,549
--------- --------- --------
Cash and cash equivalents, end of year...................... $ 51,582 $ 25,720 $ 12,164
========= ========= ========
Schedule of non-cash financing activities:
Tax benefit of disqualifying dispositions of stock
options................................................. $ 6,556 $ 1,654 $ 1,034
========= ========= ========
Supplemental disclosures of cash flow information:
Net assets and liabilities recognized upon acquisitions:
Cash and cash equivalents............................... $ 15 $ 811 $ --
Accounts receivable..................................... 631 2,578 --
Unbilled revenues on contracts.......................... 149 629 --
Prepaid expenses and other current assets............... 8 34 --
Property and equipment.................................. 164 2,077 --
Other assets............................................ 14 100 --
Accounts payable........................................ 84 445 --
Accrued expenses........................................ 1,589 725 --
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............................... 875 2,335 --
Supplemental disclosures of non-cash investing activities:
Common stock issued for acquisition of Studio Archetype... -- 22,800 --
Common stock issued for acquisition of E.Lab.............. 4,138 -- --
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.
31
<PAGE> 34

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) NATURE OF BUSINESS

Sapient Corporation (Sapient or the Company) 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, the Company helps
emerging and evolving businesses transform themselves into e-businesses. Founded
in 1991 as a Delaware corporation, the Company has experienced revenue growth in
each of the last nine years. The Company currently has approximately 2,100
employees in offices in Cambridge, Massachusetts, New York, San Francisco,
Chicago, Atlanta, Dallas, Los Angeles, Washington D.C., Denver, Houston, London,
England and Sydney, Australia.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation and Basis of Presentation

The Consolidated Financial Statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.

On October 8, 1999, the Company acquired substantially all of the net
assets of E.Lab L.L.C. (E.Lab) in exchange for 88,044 shares of common stock. On
August 25, 1998, the Company acquired Studio Archetype, Inc. (Studio Archetype)
in exchange for 996,628 shares of common stock and $250,000 in cash. The
acquisitions were accounted for as purchases and accordingly, the purchase price
was allocated to the assets acquired and liabilities assumed based on their
respective fair values. The results of operations of the acquired companies are
included in the Company's Statements of Income from the respective dates of
acquisition.

On March 29, 1999, the Company acquired all of the outstanding common stock
of Adjacency, Inc. (Adjacency) in exchange for 1,581,348 shares of the Company's
common stock. On December 15, 1997, the Company acquired all of the outstanding
common stock of EXOR Technologies, Inc. (EXOR) in exchange for 1,223,476 shares
of the Company's common stock. The Company's Consolidated Financial Statements
have been restated for all periods presented to reflect the acquisitions of
Adjacency and EXOR, which have been accounted for as poolings of interests (See
Note 12).

Certain amounts in previously issued financial statements have been
reclassified to conform to the current presentation.

(b) 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.

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
high-grade commercial paper. At December 31, 1999 and 1998, the Company has
classified its cash equivalent investments, totaling approximately $19.2 million
and $6.0 million respectively, as available-for-sale. These investments are
stated at amortized costs, which approximates fair value.

32
<PAGE> 35
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(d) Short term Investments

Short term investments are available-for-sale securities which are recorded
at fair market value. The difference between amortized cost and fair market
value, net of tax effect, is shown as a separate component of stockholders'
equity. The cost of securities available-for-sale is adjusted for amortization
of premiums and discounts to maturity. Interest and amortization of premiums and
discounts for all securities are included in interest income. Realized gains and
losses from sales of available-for-sale securities were not material for any
period presented.

(e) Financial Instruments and Concentration of Credit Risk

Financial instruments which potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable.

The Company performs ongoing credit evaluations of its customers and
generally does not require collateral on accounts receivable. The Company
maintains allowances for potential credit losses and such losses have been
within management's expectations. Write-offs of accounts receivable have not
been material for any of the periods presented. No customer accounted for
greater than 10 percent of total revenues in 1999, 1998 or 1997. One customer
accounted for 14 percent of accounts receivable at December 31, 1998.

The fair market values of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and debt instruments at both December 31,
1999 and 1998 approximate their carrying amounts.

(f) 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 method over the estimated useful lives of the related assets,
which range from three to five years. Leasehold improvements are amortized over
the lesser of the estimated useful lives of the assets or the lease term.

(g) Goodwill and Other Purchased Intangibles

Goodwill and other purchased intangibles are being amortized on a
straight-line basis over lives ranging from four to seven years.

(h) 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
the future, the Company will measure the amount of the impairment based on the
fair value of 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.

(i) Other Assets

Other assets include long term investments recorded under both the cost and
equity methods of accounting. The Company uses the equity method of accounting
for investments when it has an ownership interest of 20% to 50% or the ability
to exercise significant influence over an investee's operating activities.
Investments accounted for under the equity method and cost method amounted to
approximately $1.6 million and $600,000 at December 31, 1999, respectively.

33
<PAGE> 36
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(j) Revenue Recognition

All revenue generated from fixed-price contracts is recognized on the
percentage-of-completion method of accounting based on the ratio of costs
incurred to total estimated costs. All revenue generated from time and material
contracts is 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 comprise costs plus earnings on
contracts in excess of contractual billings on such contracts. Billings in
excess of costs plus earnings are classified as deferred revenues.

(k) Research and Development Costs

Substantially all research and development activities of the Company
(except those incurred in connection with purchased business combinations) have
been pursuant to customer contracts and, accordingly, have been expensed as
project costs as incurred. The Company has not capitalized any software
development costs since such costs have not been significant.

(l) 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. The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
under SFAS 123 for the Company'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 at below fair
market value, prior to the acquisition by the Company. 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 9(f).

(m) Income Taxes

The Company records income taxes using the asset and liability method.
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective income
tax bases, operating 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.

(n) Earnings Per Share

Under Statement of Financial Accounting Standards No. 128, the Company
presents both basic net income per share and diluted net income per share. Basic
net income per share is based on the weighted average number of shares
outstanding during the period. Diluted net income per share reflects the per
share effect of dilutive stock options.

34
<PAGE> 37
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(o) Comprehensive Income

During 1998, the Company 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 required to be
recorded in determining net income but are rather reported as a separate
component of stockholders' equity. The Company reports foreign currency
translation gains and losses and unrealized gains and losses on short term
investments as a component of comprehensive income.

(p) Segment Reporting

The Company engages in business activities in one operating segment, which
provides e-business consulting, and Internet commerce solutions primarily on a
fixed-price, fixed-timeframe basis. The Company's services are delivered to
clients primarily in North America, and the Company's long-lived assets are
located primarily in North America.

(q) Recently Issued Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
This statement was amended by the issuance of SFAS 137, "Deferral of the
Effective Date of FASB Statement No. 133", which changed the effective date of
SFAS 133 to all fiscal years beginning after June 15, 2000 and requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if so, the type of hedge
transaction. Management of the Company anticipates that the adoption of SFAS 133
will not have a material impact on the Company's financial position or its
results of operations.

(3) SHORT TERM INVESTMENTS

At December 31, 1999 and 1998, all of the Company's short term investments
were classified as available-for-sale. Short term investments are carried on the
balance sheet at their fair market value.

The following tables summarize the Company's short term investments in
thousands of dollars:

<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Commercial paper.............. $ 16,840 $ 4 $ (2) $ 16,842
U.S. government agencies...... 68,780 -- (35) 68,745
Municipal notes and bonds..... 55,903 16 (97) 55,822
Corporate debt securities..... 3,100 18 -- 3,118
-------- --- ----- --------
Short term investments...... $144,623 $38 $(134) $144,527
======== === ===== ========
</TABLE>

35
<PAGE> 38
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Commercial paper.................. $ -- $ -- $ -- $ --
U.S. government agencies.......... -- -- -- --
Municipal notes and bonds......... 65,956 180 (36) 66,100
Corporate debt securities......... -- -- -- --
------- ---- ---- -------
Short term investments.......... $65,956 $180 $(36) $66,100
======= ==== ==== =======
</TABLE>

Contractual maturities of short term investments at December 31, 1999:

<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
--------- --------
<S> <C> <C>
Less than one year..................................... $102,751 $102,739
Due in 1-2 years....................................... 14,578 14,534
Due in 2-5 years....................................... 2,189 2,184
Due after 5 years...................................... 25,105 25,070
-------- --------
Short term investments............................... $144,623 $144,527
======== ========
</TABLE>

Actual maturities may differ from contractual maturities because some
borrowers have the right to call or prepay obligations. Gross realized gains and
losses on the sale of securities are calculated using the specific
identification method and were not material to the Company's consolidated
results of operations for the years ended 1999, 1998 and 1997.

(4) PROPERTY AND EQUIPMENT

The cost and accumulated depreciation of property and equipment at December
31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL
1999 1998 LIFE
-------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Lesser of
lease term or
Leasehold improvements.................. $ 10,995 $ 7,755 life of asset
Furniture and fixtures.................. 4,282 2,418 5 years
Office equipment........................ 4,860 2,706 5 years
Computer equipment...................... 21,959 11,806 3 years
-------- --------
42,096 24,685
Less accumulated depreciation......... (18,505) (10,238)
-------- --------
Property and equipment, net............. $ 23,591 $ 14,447
======== ========
</TABLE>

Depreciation and amortization expense was approximately $8.0 million, $3.5
million and $2.5 million for the years ended 1999, 1998 and 1997, respectively.

36
<PAGE> 39
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) INTANGIBLE ASSETS

Other assets include certain intangible assets that were acquired as part
of the E.Lab acquisition in October 1999 and the Studio Archetype acquisition in
August 1998. The following table summarizes the cost and accumulated
amortization of intangible assets at December 31, 1999 and 1998:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL
1999 1998 LIFE
------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Marketing assets and customer lists........... $ 3,800 $ 3,800 7 Years
Assembled work force.......................... 2,203 1,600 4 Years
Goodwill...................................... 13,550 9,016 7 Years
------- -------
19,553 14,416
Less accumulated amortization................. (2,971) (687)
------- -------
Intangible assets, net........................ $16,582 $13,729
======= =======
</TABLE>

(6) BANK LOAN FACILITY

The Company has a $5.0 million loan facility with a bank, which expires on
June 30, 2000. Borrowings under this agreement bear interest at the bank's prime
rate. The Company had no borrowings under this facility at December 31, 1999 or
1998. The facility contains various financial covenants, including limitations
on the payment of cash dividends and maintenance of certain financial ratios.

(7) INCOME TAXES

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal, current............................... $19,166 $11,768 $5,220
State, current................................. 2,131 3,529 1,697
Foreign, current............................... 83 -- --
------- ------- ------
Subtotal, current income tax provision.... 21,380 15,297 6,917
Federal, deferred.............................. (2,816) (4,902) 647
State, deferred................................ (440) (1,353) 139
Foreign, deferred.............................. 382 (382) --
------- ------- ------
Subtotal, deferred income tax provision
(benefit)............................... (2,874) (6,637) 786
------- ------- ------
Income tax provision........................... $18,506 $ 8,660 $7,703
======= ======= ======
</TABLE>

The income tax benefits of the employee stock option compensation expense
for tax purposes in excess of amounts recognized for financial reporting
purposes credited to additional paid-in capital was $6.6 million, $1.7 million
and $1.0 million for the years ended December 31, 1999, 1998 and 1997,
respectively.

37
<PAGE> 40
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax expense for the years ended December 31, 1999, 1998 and 1997
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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate............................. 35.0% 35.0% 35.0%
State income taxes, net of federal benefit............ 5.6 6.3 6.0
S Corporation loss (income)........................... -- 9.3 (0.4)
Tax exempt interest................................... (1.4) (4.1) (3.3)
Other, net............................................ (1.4) 1.5 0.7
---- ---- ----
Effective income tax rate............................. 37.8% 48.0% 38.0%
==== ==== ====
</TABLE>

At December 31, 1999 and 1998, deferred income tax assets and liabilities
resulted from differences in the recognition of income and expense for tax and
financial reporting purposes. The sources and tax effects of these temporary
differences are presented below:

<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets (liabilities), current:
Deferred revenue....................................... $ 3,811 $ 2,831
Allowance for doubtful accounts........................ 464 223
Other reserves and accruals............................ 1,138 919
Unbilled revenue....................................... (4,102) (4,170)
------- -------
Net deferred income tax assets (liabilities),
current...................................... $ 1,311 $ (197)
======= =======
Deferred income tax assets (liabilities), non-current:
Property and equipment................................. $ 813 $ 745
In-process research and development.................... 4,192 4,399
Deferred taxes relating to the use of cash method of
accounting for tax purposes prior to 1996........... (75) (773)
Goodwill and other intangibles......................... 489 148
Foreign NOL............................................ -- 382
Other.................................................. 56 28
Deferred compensation.................................. 821 --
------- -------
Net deferred income tax assets, non-current.... $ 6,296 $ 4,929
======= =======
</TABLE>

In assessing the realizability of deferred income tax assets, the Company
considers whether it is more likely than not that some portion or all of the
deferred income tax assets will not be realized. Due to the fact that the
Company has sufficient taxable income in the federal carryback period and
anticipates sufficient future taxable income over the periods in which the
differences which created the deferred income tax assets are deductible, the
ultimate realization of deferred income tax assets for federal and state income
tax purposes is considered more likely than not.

38
<PAGE> 41
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Total income taxes paid in 1999, 1998 and 1997 were approximately $16.0
million, $12.4 million and $6.2 million, respectively.

(8) COMMITMENTS AND CONTINGENCIES

The Company maintains its executive office in Cambridge, Massachusetts and
operating offices in several locations throughout the United States and abroad.
Future minimum rental commitments under noncancelable operating leases with
initial or remaining terms in excess of one year were as follows at December 31,
1999:

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
2000........................................................ $17,779
2001........................................................ 18,424
2002........................................................ 18,768
2003........................................................ 19,227
2004........................................................ 13,713
Thereafter.................................................. 46,482
</TABLE>

Rent expense for the years ended December 31, 1999, 1998 and 1997 was
approximately $14.4 million, $8.9 million and $4.1 million, respectively.

The Company has issued letters of credit with a bank in the aggregate
amount of $975,000 as security deposits for certain of its lease commitments.

The Company has certain contingent liabilities that arise in the ordinary
course of its business activities. The Company accrues contingent liabilities
when it is probable that future expenditures will be made and such expenditures
can be reasonably estimated.

(9) STOCK PLANS

(a) 1992 Stock Option Plan

During 1992, the Company approved the 1992 Stock Plan (the "1992 Plan") for
its employees. The 1992 Plan provided for the Board of Directors to grant stock
options, stock purchase authorizations and stock bonus awards up to an aggregate
of 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 (previously outstanding
awards remain outstanding but are exercisable for voting common stock).

Most stock options granted under the 1992 Plan qualify as Incentive Stock
Options ("ISO") under Section 422 of the Internal Revenue Code. The price at
which shares may be purchased with an option was specified by the Board at the
date the option was granted, but in the case of an ISO, was not less than the
fair market value of the Company's common stock on the date of grant. The
duration of any option was specified by the Board, but no option designated as
an ISO can be exercised beyond ten years from the date of grant. Stock options
granted under the 1992 Plan generally become exercisable over a four-year
period, are nontransferable, and expire six years after the date of grant
(subject to earlier termination in the event of the termination of the
optionee's employment or other relationship with the Company).

(b) 1996 Equity Stock Incentive Plan

The Company's 1996 Equity Stock Incentive Plan (the "1996 Plan") authorizes
the Company to grant options to purchase common stock, to make awards of
restricted common stock, and to issue certain other equity-related awards to
employees and directors of, and consultants to, the Company. The total number of
shares of common stock which may be issued under the 1996 Plan is 9,600,000
shares. The 1996 Plan is

39
<PAGE> 42
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 the
Company).

The Company'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 is 100,000 shares (plus any
unpurchased shares available from previous offerings) for the first six
offerings, and 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 the
Company for at least 20 hours a week and for more than five months in a calendar
year on the first day of the applicable offering. The price at which employees
may purchase common stock in an offering is 85 percent of the closing price of
the common stock on the Nasdaq National Market on the day the offering commences
or on the day the offering terminates, whichever is lower. Approximately 55
percent, 61 percent and 57 percent of eligible employees participated in at
least one of the two offerings under the Purchase Plan during the years ended
December 31, 1999, 1998 and 1997, respectively. Under the Purchase Plan, the
Company sold 193,840, 211,268 and 187,256 shares of common stock in 1999, 1998
and 1997, respectively.

(d) 1996 Director Stock Option Plan

The Company's 1996 Director Stock Option Plan (the "Director 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 Director
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 the Company's common stock. Options granted pursuant
to the Directors Plan vest in four equal annual installments commencing on the
first anniversary of the date of grant and generally expire ten years after the
date of grant. As of December 31, 1999 and 1998, no options had been granted
under the Director Plan.

(e) 1998 Stock Incentive Plan

The Company's 1998 Equity Stock Incentive Plan (the "1998 Plan") authorizes
the Company to grant options to purchase common stock, to make awards of
restricted common stock, and to issue certain other equity-related awards to
employees and directors of, and consultants to, the Company. The total number of
shares of common stock which may be issued under the 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 the
Company).

40
<PAGE> 43
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(f) Adjacency, Inc. 1998 Stock Option Plan

In connection with the acquisition of Adjacency, the Company assumed the
outstanding options granted under the Adjacency 1998 Stock Option Plan (the
"Adjacency Plan"). 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. In November 1998, prior to the
acquisition, Adjacency had granted a total of 437,000 options to its employees
at exercise prices between $2.36 and $12.15 per share. The shares vested ratably
over three years starting on the date of employment, except for certain
employees who were granted accelerated vesting upon a change-in-control of
Adjacency. The total compensation charge to be taken over the vesting period is
approximately $7.2 million, resulting from the fact that the options were
granted at below fair market value. The charge in the fourth quarter of 1998 of
approximately $4.5 million was the result of certain employees being
substantially vested by December 31, 1998. A charge of approximately $1.7
million in the first quarter of 1999 was the result of the change-in-control
provisions. Beyond the first quarter of 1999, the Company expects the
compensation expense to be approximately $100,000 per quarter for the next seven
quarters. Stock-based compensation was approximately $2.0 million for the year
ended December 31, 1999. As a result of the acquisition, the Company has assumed
the obligations related to options to purchase 126,508 shares of the Company's
common stock. No further grants may be made pursuant to the Adjacency Plan, and
previously outstanding options remain outstanding, and are exercisable for
shares of the Company's common stock.

41
<PAGE> 44
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the status of the Company's five stock option plans as of
December 31, 1999, 1998 and 1997 and changes during the years then ended is
presented below:

<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
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......................... 11,750 $12.82 8,766 $ 7.24 5,964 $ 2.57
Granted........................ 4,467 $37.23 4,970 $19.76 4,196 $11.79
Exercised...................... (2,059) $ 8.26 (1,297) $ 3.32 (1,216) $ 0.31
Forfeited...................... (1,634) $19.76 (689) $11.81 (178) $ 6.13
------- ------- -------
Outstanding at end of year..... 12,524 $21.53 11,750 $12.82 8,766 $ 7.24
======= ======= =======
Options exercisable at year
end.......................... 2,524 1,884 1,510
======= ======= =======
Weighted average grant date
fair market value of options
granted during the year...... $ 21.62 $ 14.20 $ 6.33
======= ======= =======
Weighted average grant date
fair market value of options
granted during the year below
fair market value (see Note
9(f) relating to the
Adjacency 1998 Stock Option
Plan)........................ $ 21.94 $ 17.42 $ --
======= ======= =======
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
DECEMBER 31, 1999 AVERAGE AVERAGE AVERAGE
- ---------------------------- NUMBER REMAINING EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- ---------------------------- -------------- ---------------- -------- -------------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$0.00 to $11.30............. 2,568 4.8 years $ 5.49 1,428 $ 4.93
$11.31 to $22.60............ 5,561 8.2 years $ 16.81 1,016 $15.96
$22.61 to $33.90............ 3,032 9.2 years $ 28.12 80 $25.60
$33.91 to $45.20............ 731 9.5 years $ 38.34 -- --
$45.21 to $56.50............ 143 9.7 years $ 47.59 -- --
$56.51 to $67.80............ 71 9.8 years $ 58.44 -- --
$67.81 to $79.10............ 238 9.9 years $ 75.94 -- --
$79.11 to $90.40............ 12 9.9 years $ 82.84 -- --
$90.41 to $101.70........... -- -- -- -- --
$101.71 to $113.00.......... 168 10.0 years $112.35 -- --
------ -----
$0.00 to $113.00............ 12,524 7.9 years $ 21.53 2,524 $10.03
====== =====
</TABLE>

42
<PAGE> 45
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has five stock-based compensation plans, which are described
above. The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Had compensation cost for the awards under those plans
been determined based on the grant date fair values consistent with the method
required under SFAS 123, the Company's net income and net income per share would
have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1999 1998 1997
--------- ---------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss)
As reported................................ $30,300 $ 9,364 $12,554
Pro forma.................................. $(9,798) $(15,842) $ 5,470
Basic net income (loss) per share
As reported................................ $ 0.54 $ 0.18 $ 0.25
Pro forma.................................. $ (0.18) $ (0.30) $ 0.11
Diluted net income (loss) per share
As reported................................ $ 0.48 $ 0.16 $ 0.23
Pro forma.................................. $ (0.18) $ (0.30) $ 0.10
</TABLE>

The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model. The following are the weighted
average assumptions for grants in 1999, 1998 and 1997: dividend yield of 0.0
percent for each year, expected volatility of 72.5, 136.8 and 64.8 percent in
1999, 1998 and 1997, respectively, risk free interest rates ranging from 5.0 to
5.7 percent and expected lives of 4 years. Because additional option grants are
expected to be made each year, the pro forma impact on the three years ended
December 31, 1999 is not representative of the pro forma effects which may be
expected in future years.

(10) RETIREMENT PLANS

The Company established a 401(k) retirement savings plan for employees in
June 1994. Under the provisions of the plan, the Company matches 25 percent of
an employee's contribution, up to a maximum of $1,250 per employee per year.
Total Company contributions in 1999, 1998 and 1997 were approximately
$1,438,000, $957,000 and $520,000, respectively.

(11) STOCKHOLDERS' EQUITY

(a) Increase in Authorized Common Stock; Stock Splits

At the Company's Annual Meeting of Stockholders held on May 8, 1998, the
stockholders voted to approve an amendment to the Company'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.

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
effected as a 100 percent stock dividend distributed on November 5, 1999, to all
shareholders of record on November 1, 1999.

(b) Preferred Stock

On February 13, 1996, the Board of Directors authorized an amendment to the
Company's Certificate of Incorporation giving the Board the authority to issue
up to 5,000,000 shares, $0.01 par value, of preferred stock with terms to be
established by the Board at the time of issuance.

43
<PAGE> 46
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following information presents the Company's computation of basic and
diluted EPS from continuing operations for the periods presented in the
consolidated statements of income (in thousands, except per share data):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net Income.................................... $30,300 $ 9,364 $12,554
Basic Net Income per Share:
Weighted average common shares
outstanding.............................. 55,709 52,228 49,574
Shares used in computing per share amount... 55,709 52,228 49,574
------- ------- -------
Basic net income per share.................. $ 0.54 $ 0.18 $ 0.25
======= ======= =======
Diluted Net Income per Share:
Weighted average common shares
outstanding.............................. 55,709 52,228 49,574
Dilutive stock options...................... 7,104 5,174 4,166
------- ------- -------
Shares used in computing per share amount... 62,813 57,402 53,740
------- ------- -------
Diluted net income per share................ $ 0.48 $ 0.16 $ 0.23
======= ======= =======
</TABLE>

(12) ACQUISITIONS

On October 8, 1999, the Company acquired substantially all of the assets of
E.Lab for approximately $5.0 million, including acquisition costs of
approximately $875,000. The Company issued 88,044 shares of its common stock and
assumed certain liabilities of E.Lab, a provider of experience modeling
services. 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. Included in intangible assets on the
accompanying consolidated balance sheet for the year ended December 31, 1999 is
approximately $5.7 million related to the E.Lab acquisition. This is comprised
of approximately $500,000 for assembled workforce and $5.2 million for goodwill,
which represents the excess of the purchase price over the fair value of
identifiable assets acquired. These intangible assets are being amortized on a
straight-line basis over a period of four to seven years.

Below are the pro forma results of operations for the Company and E.Lab,
assuming that the acquisition of E.Lab occurred at the beginning of the
twelve-month period ended December 31, 1998.

<TABLE>
<CAPTION>
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net revenues........................................ $280,018 $168,557
Net income.......................................... $ 30,094 $ 9,894
Basic net income per share.......................... $ 0.54 $ 0.19
Diluted net income per share........................ $ 0.48 $ 0.17
</TABLE>

On March 29, 1999, the Company acquired all of the outstanding capital
stock of Adjacency. 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, a provider of integrated full service e-business solutions. 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 and are
included in the accompanying consolidated statement of income for the year ended
December 31, 1999.

44
<PAGE> 47
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 (loss) 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,
1996 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>
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Sapient....................................... $160,372 $90,360
Adjacency..................................... 4,500 1,667
-------- -------
Combined...................................... $164,872 $92,027
======== =======
Net income (loss):
Sapient....................................... $ 13,699 $12,358
Adjacency..................................... (4,335) 196
-------- -------
Combined...................................... $ 9,364 $12,554
======== =======
</TABLE>

<TABLE>
<CAPTION>
1998 1997
----------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Pro forma data (unaudited):
Historical income before income taxes......... $18,024 $20,257
Provision for income taxes:
Historical income taxes....................... 8,660 7,703
Pro forma (decrease) increase to historical
income taxes............................... (1,648) 74
------- -------
Pro forma net income.......................... $11,012 $12,480
======= =======
Pro forma basic net income per share.......... $ 0.21 $ 0.25
Pro forma diluted net income per share........ $ 0.19 $ 0.23
Weighted average number of common shares
outstanding................................ 52,228 49,574
Weighted average number of common and common
equivalent shares outstanding.............. 57,402 53,740
</TABLE>

On August 25, 1998, the Company acquired Studio Archetype for approximately
$25.3 million in stock and cash, including acquisition costs of approximately
$2.3 million, pursuant to which the Company issued 996,628 shares of the
Company's common stock and $250,000 in cash to the former Studio Archetype
stockholders. Studio Archetype was a provider of user-centered design services.
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.

45
<PAGE> 48
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company allocated values to the acquired 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
Archetype's next-generation enterprise-wide suite of development, scheduling,
bug tracking and content management applications. The integrated solution is
comprised of the following technologies: content management systems (CMS), an
Intranet, an Extranet, an Issues Server and an on-line User Interface Lab (UI
Lab) which together allow developers and clients to access prototypes and trial
deliverables that fully integrates user interface tools with client server,
advanced database and legacy systems. The CMS, Intranet and Extranet components
of the system were released in June 1999. The UI Lab was completed in March 1999
and the Issue Server was completed in September 1999. The integrated solution is
a comprehensive enterprise scale system. All components of the in-process R&D
project acquired by the Company with the acquisition of Studio Archetype are
presently being piloted on several client projects with the anticipation of
rolling-out the integrated, enterprise-wide solution in 2000. At the time of the
acquisition, expenditures on these projects were approximately $2.5 million, and
estimated costs to complete these projects were expected to total approximately
$625,000. The nature of the efforts to develop the acquired in-process
technology into commercially viable products and services principally related to
the completion of all planning, designing, prototyping, verification, and
testing activities that were necessary to establish that the proposed
technologies met their design specifications including functional, technical,
and economic performance requirements. The efforts to develop the purchased
in-process technology also included testing of the technology for compatibility
and interoperability with other applications. 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 was 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 Company did not experience any material variations in costs to
complete or completion dates from its initial assumptions. Following the
acquisition of Studio Archetype, Studio Archetype was fully integrated into the
Company's operations, making the isolation of specific revenues attributable to
the in-process technologies difficult. However, nothing has occurred to
materially change the Company's expectations with respect to the underlying
assumptions used in projecting the expected future revenues associated with this
in-process R&D.

Other intangible assets of $14.4 million is comprised of approximately $3.8
million for marketing assets, $1.6 million for assembled work force and $9.0
million of goodwill comprising the reputation of Studio Archetype. These assets
are being amortized on a straight-line basis over lives ranging from 4 to 7
years.

46
<PAGE> 49
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Below are the pro forma results of operations for the Company and Studio
Archetype, assuming that the acquisition of Studio Archetype occurred at the
beginning of the twelve-month period ended December 31, 1997.

<TABLE>
<CAPTION>
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net revenues........................................ $174,971 $102,386
Net income.......................................... $ 7,626 $ 11,954
Basic net income per share.......................... $ 0.15 $ 0.24
Diluted net income per share........................ $ 0.13 $ 0.22
</TABLE>

On December 15, 1997, Sapient issued 1,223,476 shares of the Company's
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. Costs, which
consist primarily of investment banking, accounting and legal fees related to
this acquisition approximated $560,000 and are included in the accompanying
consolidated statement of income for the year ended December 31, 1997.

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).

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
Revenues:
Sapient.................................................. $57,319
EXOR..................................................... 6,076
-------
Combined................................................. $63,395
=======
Net income:
Sapient.................................................. $ 8,505
EXOR..................................................... 617
-------
Combined................................................. $ 9,122
=======
</TABLE>

(13) RELATED PARTY TRANSACTIONS

During 1999 and 1998, the Company recognized approximately $3.6 million and
$2.2 million, respectively, in net revenues from consulting services provided to
related parties in which the Company has non-controlling equity interests. The
Company had receivables due from these entities of approximately $5.2 million
and $1.2 million at December 31, 1999 and 1998, respectively. In addition,
certain members of management of the Company have provided funding to these
companies.

47
<PAGE> 50
SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(14) QUARTERLY FINANCIAL RESULTS

The following tables set forth certain unaudited quarterly results of
operations of the Company for 1999 and 1998. The quarterly operating results are
not necessarily indicative of future results of operations.

<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
-------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.............................. $57,793 $64,199 $73,029 $81,823
Operating expenses:
Project personnel costs............. 28,334 30,618 35,669 40,017
Selling and marketing............... 3,974 5,411 5,927 6,117
General and administrative.......... 14,648 16,219 17,527 20,994
Amortization of intangible assets... 569 519 462 734
Stock-based compensation............ 1,699 110 110 110
Acquisition costs................... 2,340 -- -- --
------- ------- ------- -------
Total operating expenses......... 51,564 52,877 59,695 67,972
------- ------- ------- -------
Income from operations................ 6,229 11,322 13,334 13,851
Interest income....................... 820 859 970 1,578
------- ------- ------- -------
Income before income taxes and net
equity loss from investee........... 7,049 12,181 14,304 15,429
Income taxes.......................... 2,770 4,495 5,436 5,805
------- ------- ------- -------
Income before net equity loss from
investee............................ 4,279 7,686 8,868 9,624
Net equity loss from investee......... -- -- -- 157
------- ------- ------- -------
Net income............................ $ 4,279 $ 7,686 $ 8,868 $ 9,467
======= ======= ======= =======
Basic net income per share............ $ 0.08 $ 0.14 $ 0.16 $ 0.17
======= ======= ======= =======
Diluted net income per share.......... $ 0.07 $ 0.13 $ 0.14 $ 0.14
======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
-------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.............................. $31,595 $36,420 $43,066 $53,791
Operating expenses:
Project personnel costs............. 15,221 17,511 21,101 26,710
Selling and marketing............... 1,842 2,666 3,061 3,700
General and administrative.......... 8,271 8,726 10,683 13,995
Amortization of intangible assets... -- -- 128 559
Stock-based compensation............ -- -- -- 4,499
In-process research and
development...................... -- -- 11,100 --
------- ------- ------- -------
Total operating expenses......... 25,334 28,903 46,073 49,463
------- ------- ------- -------
Income (loss) from operations......... 6,261 7,517 (3,007) 4,328
Interest income....................... 590 676 941 718
------- ------- ------- -------
Income (loss) before income taxes..... 6,851 8,193 (2,066) 5,046
Income taxes.......................... 2,504 2,929 (668) 3,895
------- ------- ------- -------
Net income (loss)..................... $ 4,347 $ 5,264 $(1,398) $ 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>

48
<PAGE> 51

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders
Sapient Corporation:

Our audit of the consolidated financial statements referred to in our
report dated January 27, 2000 appearing in this Annual Report on Form 10-K also
included an audit of the financial statement schedule listed in Item 14(a) of
this Form 10-K. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein for the year
ended December 31, 1999 when read in conjunction with the related consolidated
financial statements.

PricewaterhouseCoopers LLP

Boston, Massachusetts
January 27, 2000

49
<PAGE> 52

REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE

To the Stockholders and Board of Directors
Sapient Corporation:

Under the date of April 16, 1999, we reported on the consolidated balance
sheets of Sapient Corporation and subsidiaries as of December 31, 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the two-year period ended December 31, 1998, which are
included in the Form 10-K for the year ended December 31, 1999. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule listed in Item
14(a) in the Form 10-K as of and for the two years ended December 31, 1998. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.

In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

KPMG LLP

Boston, Massachusetts
April 16, 1999

50
<PAGE> 53

SAPIENT CORPORATION

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT OTHER BALANCE AT
BEGINNING CHARGE TO ADDITIONS TO END
ALLOWANCE FOR DOUBTFUL ACCOUNTS OF YEAR EXPENSE ALLOWANCES WRITE-OFFS OF YEAR
- --------------------------------------------- ---------- --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1997............................ $150 $ 275 $-- $ (75) $ 350
==== ====== == ===== ======
December 31, 1998............................ $350 $ 200 $-- $ -- $ 550
==== ====== == ===== ======
December 31, 1999............................ $550 $1,246 $-- $(550) $1,246
==== ====== == ===== ======
</TABLE>

51
<PAGE> 54

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On July 21, 1999, the Company dismissed KPMG LLP ("KPMG") as its
independent certified public accountant. The reports of KPMG on our financial
statements for the fiscal years ended December 31, 1998 and 1997 did not contain
an adverse opinion, or disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principles. During our two most
recent fiscal years and subsequent interim periods, there were no disagreements
with KPMG on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedures, which disagreements, if
not resolved to the satisfaction of KPMG would have caused it to make reference
to such disagreement in its reports. The Audit Committee of our Board of
Directors recommended the change of accountants and that action was approved by
our Board of Directors.

We solicited proposals from various accounting firms and following review
of such proposals, engaged PricewaterhouseCoopers LLP ("PWC") to act as our
independent certified public accountants effective July 22, 1999. During the two
most recent fiscal years and subsequent interim periods, we have not consulted
PWC regarding the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on our financial statements, or any matter that was the
subject of a disagreement or a reportable event.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

A. Directors

The response to this Item regarding the directors of the Company and
compliance with Section 16(a) of the Exchange Act by the Company's officers and
directors will be contained in the Proxy Statement for the 2000 Annual Meeting
of Shareholders under the captions "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" and is incorporated herein.

B. Executive Officers of the Company

The response to this Item is contained in Part I, after Item 4.

ITEM 11. EXECUTIVE COMPENSATION

The response to this Item will be contained in the Proxy Statement for the
2000 Annual Meeting of Shareholders under the captions "Director Compensation"
and "Compensation of Executive Officers" and is incorporated herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The response to this Item will be contained in the Proxy Statement for the
2000 Annual Meeting of Shareholders under the caption "Security Ownership of
Certain Beneficial Owners and Management" and is incorporated herein.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The response to this Item will be contained in the Proxy Statement for the
2000 Annual Meeting of Shareholders under the caption "Certain Relationships and
Related Transactions" and is incorporated herein.

52
<PAGE> 55

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

14(a)(1) Financial Statements

The Consolidated Financial Statements filed as part of this report are
listed and indexed on page 25. Schedules other than those listed in the index
have been omitted because they are not applicable or the required information
has been included elsewhere in this report.

14(a)(2) Consolidated Financial Statement Schedules

Schedule II -- Valuation and Qualifying Accounts and Reserves are included
in this report.

14(a)(3) Exhibits

The exhibits filed as part of this Annual Report on Form 10-K are listed in
the Exhibit Index immediately preceding the exhibits. The Company has identified
in the Exhibit Index each management contract and compensation plan filed as an
exhibit to this Annual Report on Form 10-K in response to Item 14(c) of Form
10-K.

14(b) Reports on Form 8-K

On December 10, 1999, the Company filed a Current Report on Form 8-K with
the SEC in connection with the appointment of Bruce D. Parker as an Executive
Vice President of the Company.

On December 28, 1999, the Company filed a Current Report on Form 8-K with
the SEC providing an update to the Risk Factors contained in the Company's
Registration Statements on Form S-3. In addition, the Form 8-K was filed to
update the Company's Registration Statements on Form S-3 to reflect the change
in share numbers resulting from the two-for-one stock split effected on November
5, 1999.

53
<PAGE> 56

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

SAPIENT CORPORATION

By: /s/ JERRY A. GREENBERG
------------------------------------
JERRY A. GREENBERG
CO-CHIEF EXECUTIVE OFFICER

Dated: March 30, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the following capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

PRINCIPAL EXECUTIVE OFFICERS:

/s/ JERRY A. GREENBERG Co-Chief Executive Officer and March 30, 2000
- --------------------------------------------------- Secretary
JERRY A. GREENBERG

/s/ J. STUART MOORE Co-Chief Executive Officer March 30, 2000
- ---------------------------------------------------
J. STUART MOORE

PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:

/s/ EDWARD G. GOLDFINGER Chief Financial Officer and March 30, 2000
- --------------------------------------------------- Treasurer
EDWARD G. GOLDFINGER

DIRECTORS:

/s/ JERRY A. GREENBERG March 30, 2000
- ---------------------------------------------------
JERRY A. GREENBERG

/s/ J. STUART MOORE March 30, 2000
- ---------------------------------------------------
J. STUART MOORE

/s/ R. STEPHEN CHEHEYL March 30, 2000
- ---------------------------------------------------
R. STEPHEN CHEHEYL

/s/ DARIUS W. GASKINS, JR. March 30, 2000
- ---------------------------------------------------
DARIUS W. GASKINS, JR.

/s/ BRUCE D. PARKER March 30, 2000
- ---------------------------------------------------
BRUCE D. PARKER

/s/ CARL S. SLOANE March 30, 2000
- ---------------------------------------------------
CARL S. SLOANE
</TABLE>

54
<PAGE> 57

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1+ Amended and Restated Certificate of Incorporation
3.2+++ Certificate of Amendment of the Amended and Restated
Certificate of Incorporation
3.3+ Amended and Restated Bylaws
4.1+ Specimen Certificate for Shares of Common Stock, $.01 par
value, of the Company
10.1(a)+ Lease dated March 30, 1994 between the Company and One
Memorial Drive Limited Partnership for offices at One
Memorial Drive, Cambridge, MA
10.1(b)++ Second Amendment to Lease dated April 1997 for offices at
One Memorial Drive, Cambridge, MA
10.2++++ Principal Stockholder Stock Purchase Agreement by and among
Sapient Corporation, the Principal Stockholders of
Adjacency, Inc., and Andrew Sather (as Exchange Agent) dated
March 29, 1999
10.3*+ 1992 Stock Plan
10.4*+ 1996 Equity Stock Incentive Plan
10.5*+ 1996 Director Stock Option Plan
10.6*+++ 1998 Stock Incentive Plan
(1)10.7*** 1999 Performance Bonus Incentive Plan
10.8+ Revolving Loan Facility with Fleet Bank of Massachusetts,
N.A., dated July 11, 1994, as amended July 1, 1995 and
February 15, 1996
10.8(a)++ Amendment dated June 30, 1997 to the Revolving Loan Facility
with Fleet Bank of Massachusetts, N.A., dated July 11, 1994,
as amended July 1, 1995 and February 15, 1996
10.8(b)+++ Amendment dated October 13, 1998 to the Revolving Loan
Facility with Fleet Bank of Massachusetts, N.A., dated July
11, 1994, as amended July 1, 1995, February 15, 1996 and
June 30, 1997
21** List of Subsidiaries
23.1(a)** Consent of PricewaterhouseCoopers LLP
23.1(b)** Consent of KPMG LLP
27** Financial Data Schedule
</TABLE>

- ---------------

* Exhibits previously filed pursuant to Item 14(c) of Form 10-K.

** Exhibits filed herewith.

*** Exhibits filed herewith and pursuant to Item 14(c) of Form 10-K.

+ Incorporated herein by reference to the Company's Registration Statement on
Form S-1 (File No. 333-1586)

++ Incorporated herein by reference to the Company's Form 10-Q for the fiscal
quarter ended September 30, 1997 (File No. 000-28074)

+++ Incorporated herein by reference to the Company's Form 10-K for the fiscal
year ended December 31, 1999 (File No. 000-28074)

++++ Incorporated herein by reference to the Company's Form 8-K dated April 7,
1999 (File No. 000-28074)

(1) Confidential treatment requested as to certain portions.

<PAGE> 1

Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

EXHIBIT 10.7
1999 PERFORMANCE INCENTIVE BONUS PLAN

SAPIENT 1999 PI COMPENSATION PLAN

DIRECTORS, VICE PRESIDENTS, EXECUTIVE OFFICERS AND BUSINESS DEVELOPMENT ROLES

A. OVERVIEW

Sapient Directors, Vice Presidents, executive officers and Business Development
people are compensated for their contributions to Sapient in three components:
base salary, Performance Incentive (PI) and stock options. This 1999 PI
Compensation Plan (the Plan) focuses specifically on PI, which is intended to
reward Sapient Directors, Vice Presidents, executive officers and Business
Development people for specific Sapient outcome performance as outlined in this
Plan.

This Plan will be effective as of January 1, 1999 for all eligible Directors,
Vice Presidents, executive officers and Business Development people employed by
Sapient in a covered role (Plan Participants) on or after that date. The
objectives of this Plan are two-fold:

- - To align all members of the leadership team of Sapient around the same
business objectives

- - Reward teamwork and joint accountability

MEASUREMENT AREAS AND COMPENSATION STRATEGY
There are four key measurement areas found in this Plan:
1. Client Project Satisfaction
2. People
3. Revenue
4. Operating Margin

Depending on role (see matrix attached as Attachment #1-A) each Director, Vice
President, executive officer or Business Development person will be eligible for
different percentages of his or her Performance Incentive, based on achievement
in each of the key measurement areas. Also depending on role, a Director, Vice
President, executive officer or Business Development person will be measured on
the results at different levels of the Company. For example, some people may be
measured on Company-wide results, while others may be measured at an industry,
geography or other measurement level.

CONFIDENTIALITY: This Plan contains highly confidential information on revenue
targets and other Sapient business information. This Plan may not be shared with
anyone inside or outside of Sapient, and each Plan Participant is required to
keep this Plan and its contents confidential at all times.

B. PERFORMANCE INCENTIVE

Measurement period: The Plan is an annual plan.

Payment period: PI will be paid annually, within 45 days of the close
of the fiscal year. Plan Participants may receive a
twice-monthly recoverable draw against the Plan equal
to a specific percentage (as determined by the
appropriate Business Unit Leader, Industry Leader or
Vice President) of what the Plan would pay at 100%.
Final plan payment will be net of the twice-monthly
draw.

SAPIENT CONFIDENTIAL

<PAGE> 2

Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

Eligibility: Plan Participants must be employed in an eligible role and
qualified under the Plan on the last day of the fiscal year
(i.e. December 31, 1999) to be paid the annual PI. If the Plan
Participant ceases to be eligible or qualified under the Plan
prior to the last day of the fiscal year, he or she will be
paid based on his or her last complete quarter worked, with
changes to the calculations as noted in Section F below.

C. MEASUREMENT DEFINITION AREAS

The following are the definitions for specific measures to be used to determine
payment under this Plan. PLEASE REFER TO THE MATRIX ATTACHED AS ATTACHMENT #1-A
FOR MORE INFORMATION ON YOUR SPECIFIC METRICS UNDER THE PLAN.

1. CLIENT PROJECT SATISFACTION

Based on the weighted average (using the weighting factors listed below) of
all unadjusted client satisfaction scores pertaining to either your
clients, your business unit or Sapient overall (depending on your role and
as stated in the matrix attached as Attachment #1-A), Client Satisfaction
will be calculated based on the formula below.

Target: [**]

Performance % = Actual/Target

Final Score = (Performance % * 1.5) - .5

Weighting Factors:

Project Weight
------- ------
RIP 1
Design 3
IMP < [**] 10
IMP >= [**] 15

If the actual Client Project Satisfaction is below a 3, the payout for this
metric will be 0%.

2. PEOPLE

Based on the achievement of specific goals for annualized voluntary
turnover in your geography, business unit, or Sapient-wide (based on your
role and as stated in the matrix attached as Attachment #1-A), the People
metric will be based on the following formula:

Target: [**]

Performance % = 1/(Actual/Target)

Final Score = (Performance % * 1.5) - .5

If the actual People performance is over [**], the payout for this metric
will be 0%.

3. REVENUE

Revenue will be calculated based on the achievement of personal,
geographical, business unit or Sapient-wide goals (based on your role and
as stated in the matrix attached as Attachment #1-A). Revenue is based on
actual work performed by Sapient on projects for clients, unless no binding
commitment letter, contract or PO has

SAPIENT CONFIDENTIAL 2
<PAGE> 3

Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

been signed and work has been going on for more than 60 days, in which
event such revenue will not be included in the calculation. Sales made
and/or services provided that determine targets and qualify for PI
calculation include sales of Sapient services that are in accordance with
currently established terms and prices. Revenue associated with Studio
Archetype will be included in Sapient-wide goals and actuals but will not
be included in personal, geographical or business unit goals and actuals.
Revenue included in the calculation may not necessarily match revenue
recorded on the financial statements. Should an acquisition occur in 1999
and financials consolidated, these numbers will be adjusted to reflect the
revenue after the acquisition. Sapient reserves the right to change the
revenue plans based on changes in circumstances.

Targets: Will be determined at the personal, geography, business unit
or Sapient-wide levels, as stated on the Attachment #1-A
matrix. These targets will be provided by the person
responsible for communicating this plan, and will be
handwritten on your plan document and initialed by the
appropriate Industry Leader, Business Unit Leader or Vice
President. Certain Revenue Targets by office, industry group
and other business units are included on the spreadsheet
attached as Attachment #1-B.

Revenue Leverage =
If your target is based on a personal target, 1.5
If your business unit or geography target <= [**], 1.3
If your business unit or geography target >[**] 1.4
If your business unit or geography target > [**], 1.5
If your target is based on a Sapient-wide target, 1.5

Performance % = Actual/Target

Final Score = (Performance % * Revenue Leverage) - (Revenue Leverage -
1)

If your target is based on Sapient-wide revenue and actual Sapient-wide
revenue performance is less than [**] of the target, the payout for
this metric will be 0%. If your target is based on Business Unit or
Geography level and actual Business Unit or Geography revenue
performance is less than [**] of the target; the payout for this metric
will be 0%. If your target is an individual target and your actual
Individual performance is less than [**] of the target, the payout for
this metric will be 0%.

Attached is a spreadsheet entitled "PI Revenue Leverage Table"
(Attachment #1-C) which shows the results of these formulas being
applied to many "over" and "under" revenue scenarios. The spreadsheet
illustrates the effects of applying the revenue leverage formulas but
does not cover every possible scenario.

4. OPERATING MARGIN

Based on the achievement of meeting our Operating Margin goals, the
Operating Margin metric will be calculated on a Sapient-wide basis, based
on the following formula.

Target: [**]%

Performance % = Actual/Target

Score = (Performance % * 1.5) - .5

If the actual operating margin is less than [**], the payout for this
metric will be 0%.

D. ADDITIONAL REVENUE INFORMATION FOR BUSINESS DEVELOPMENT PEOPLE

For Business Development Plan Participants, at the beginning of each fiscal year
or at the time a Business

SAPIENT CONFIDENTIAL 3
<PAGE> 4
Development person's entry into this Plan is effective, the Business Development
person is assigned a Revenue Target by the appropriate Industry Leader, Business
Unit Leader or Vice President (see Attachment #2). Revenue Targets for certain
Business Development people are established based on roll-up of the Revenue
Targets for the individuals listed on Attachment #2 and on the Business
Development person's direct sales, as determined by the appropriate Industry
Leader, Business Unit Leader or Vice President. In the event one of the
individuals listed for roll-up on Attachment #2 leaves the Plan, the revenue
Target on Attachment #2 is not reduced. In the event a newly hired or other
Business Development person is added to an area of vertical sales or region, the
Revenue Target will be adjusted accordingly for the person who receives the
roll-up for that new hire.

Certain sales opportunities may require two or more Business Development people
to work as a team. In such cases, the Industry Leader will determine the
apportionment that is appropriate among the team members. Each Business
Development person will be credited a portion of accrued revenue for the
services sold by the team to be used in calculating the Revenue Component
payments. Total revenue credit received by all members of the team may not
exceed 100% of the actual revenue metric.

E. REPAYMENT OF EXCESS DRAW

In the event that the fiscal year has closed and a Plan Participant has received
a PI Draw in excess of his or her actual PI as calculated under this Plan, then
as long as the Plan Participant meets the qualifications of this Plan and
remains eligible to participate in this Plan the following applies: The Plan
Participant is responsible for repayment of the excess to Sapient within 120
days after the actual PI has been calculated. Any amounts due Sapient after the
120-day period will be deducted from the Plan Participant's compensation.
However, Sapient will not deduct unpaid excess PI from a Plan Participant's base
salary as long as he or she meets the qualifications and is an eligible
participant under the Plan.

In the event that the fiscal year has closed and an individual has received a PI
Draw in excess of his or her actual PI as calculated under this Plan, then if
that person no longer meets the qualifications of this Plan or is eligible to
participate in this Plan, then the individual is responsible for repayment of
the excess to Sapient within 30 days after the actual PI has been calculated. If
the individual's employment at Sapient ends for any reason prior to repayment in
full, the balance may be deducted from his or her paychecks, including payment
of base salary, vacation pay, PI pay and other compensation.

F. QUALIFICATIONS

1. Participation and Eligibility

A Director, Vice President, executive officer or Business Development person is
a qualified Plan Participant if that individual has been assigned to the Sapient
role described on Attachment #1-A, is in compliance with Sapient policies and
the terms of this Plan, has not left the Plan and, in the case of Business
Development people who have individualized revenue targets, has signed and
returned to the appropriate Industry Leader, Business Unit Leader or Vice
President two originals of this Plan and Attachment #2. Plan Participants must
be employed in an eligible role and qualified under the Plan on the last day of
the fiscal year to be eligible to receive PI under this Plan. If the Plan
Participant ceases to be eligible or qualified under the Plan prior to the last
day of the fiscal year, he or she will be paid PI based on his or her last
complete quarter worked, with unadjusted scores for Client Satisfaction and
other changes to the calculations as noted below.

2. Leaving the Plan

a. End of Employment

If a Plan Participant's employment with Sapient ends, voluntarily or
involuntarily, for any reason, he or she is no longer a Plan Participant as
of the effective date that employment ends. Examples of reasons for the end
of employment include resignation, retirement, death, layoff, long term
disability or discharge. Other events may also result in the end of
employment. If, before the end of a fiscal year, a Plan Participant in good
standing

SAPIENT CONFIDENTIAL 4
<PAGE> 5

ceases to be employed by Sapient, PI under this Plan will be paid through
the last completed quarter with the changes to the calculations of the
various metrics as noted below. If an individual has received a PI draw in
excess of his or her actual PI as calculated through the last complete
quarter, then the individual is responsible for repayment of the excess to
Sapient immediately, and the amount of any excess may be deducted from his
or her paychecks, including payment of base salary, vacation pay, PI pay
and other compensation.

b. Change to Role Not Covered in this Plan

A Plan Participant also leaves the Plan if he or she changes to a Sapient
role or job that is not described in the Plan. If a person remains employed
by Sapient but moves to a role that is not covered by this Plan, then that
person must decide, with the approval of the appropriate Industry Leader,
Business Unit Leader or Vice President, whether to remain on this Plan for
the entire fiscal year, including the remainder of the fiscal year after
the role change, or choose to go onto another Sapient PI plan for that
entire fiscal year, including the part of the fiscal year elapsed prior to
the role change. In the event of a switch to a different PI plan during a
fiscal year, all draws will cease effective with the change in role except
to the extent that they are permitted under the new PI plan chosen. In the
event that the individual has received a PI draw in excess of his or her
actual PI as calculated under the newly chosen plan for that fiscal year,
then the individual is responsible for repayment of the excess to Sapient
within 120 days after the actual PI has been calculated. Any amounts due
Sapient after the 120-day period will be deducted from the individual's
compensation. If the individual's employment at Sapient ends for any reason
prior to repayment in full, the balance may be deducted from his or her
paychecks, including payment of base salary, vacation pay, PI pay and other
compensation.

c. Change to Different Role Covered in this Plan

If a Plan Participant remains on this Plan for the entire fiscal year but
during that fiscal year switches to a different role also covered by this
Plan, then that Plan Participant will be paid using the metrics for the new
role for the entire fiscal year, including the part of the fiscal year
elapsed prior to the role change. For example, if a Director begins the
fiscal year on this Plan in the "Delivery-D" category, and switches to an
Office Owner role in July, this individual would be paid under this Plan in
the Office Owner category for all of the fiscal year.

d. Calculations Through Last Complete Quarter

When a Plan Participant leaves Sapient prior to the end of the fiscal year
and the final PI payment is calculated through the last complete quarter,
the targets for the Client Satisfaction, People and Operating Margin
metrics will remain the same as the annual targets, but the Revenue target
will be determined by dividing the annual Revenue Targets by 4 and then
multiplying by the number of completed quarters. Calculation of results for
each of the metrics will be as follows:

The Client Satisfaction metric will be the average (using the weighting
factors above) for client satisfaction scores available through all
prior completed quarters for the fiscal year. The People Metric will be
calculated using the average annualized data through the last complete
quarter. The Operating Margin metric will be determined as the average
of all prior completed quarters for the fiscal year. Accelerators and
decelerators will not be applied for the Client Satisfaction, People or
Operating Margin metrics.

For the Revenue metric, if performance is less than 100%, the Revenue
metric formula (see Section C.3 "Revenue") will be applied with Revenue
Leverage. If performance is 100% or more, the Revenue Leverage of the
Revenue Metric will not be applied. In that case, the Director, Vice
President, executive officer or Business Development person will be
paid a percent of his or her year-to-date prorated Revenue Target equal
to his or her percent performance.

In the event that a person's employment ends before the completion of the
first quarter, then he or she will not be paid PI for the partial quarter
and remains responsible to repay any draws. If applicable, for a Director,
Vice President, executive officer or Business Development person who leaves
the Plan because he or she ceases to be employed by Sapient before the end
of the fiscal year, Sapient will use diligent efforts to make payments due
to

SAPIENT CONFIDENTIAL 5
<PAGE> 6

that individual within 90 days after the date the individual leaves the
Plan.

3. Leaves of Absence and Short Term Disability

Plan Participants who are on paid leave (e.g., personal day,
company-approved vacation, paid portion of maternity leave, paid military
duty, jury duty or bereavement) continue to participate in the Plan and to
receive applicable quarterly payments under this Plan.

If a Plan Participant goes on short-term disability leave, that person
ceases to participate in the Plan on the last day of the completed quarter
prior to when short-term disability begins. The calculation in Section F.2
above under "Leaving the Plan" for people whose employment ceases will be
used to calculate payment of the metrics through the last day of the
completed quarter prior to the start of short-term disability. All PI draws
cease as of the date the employee goes on short-term disability, because
short-term disability payments are calculated based on amounts that include
the prior year's PI payments whether or not the employee was on this Plan.

If a Plan Participant goes on unpaid leave (e.g., any unpaid maternity
leave, unpaid Family and Medical leave, unpaid military duty or other
personal leave) more than 30 days, then he or she is considered to have
left the Plan, and all draws stop, as of the quarter last completed through
the 31st day of the unpaid leave. When a Director, Vice President,
executive officer or Business Development person returns to work after
unpaid leave, he or she re-enters the Plan under transition terms to be
determined by the applicable Industry Leader, Business Unit Leader or Vice
President.

G. DISPUTES

In the event a Plan Participant wishes to dispute a payment made or omitted
under this Plan, that individual must request reconsideration in writing. The
request must be given to the Industry Leader or Business Unit Leader for your
industry vertical group or business unit, respectively, by the end of the first
full month after the date the disputed amount was or would have been paid. The
Industry Leader or Business Unit Leader will resolve the disputed matter, upon
review of the circumstances and of the available documentation. The decision of
the Industry Leader or Business Unit Leader as to a dispute is final.

H. MISCELLANEOUS

This Plan does not constitute an employment agreement. Sapient may, at its
discretion and without notice, amend or terminate this Plan or take other
actions affecting Directors, Vice Presidents, executive officers, Business
Development people or other roles under this Plan. An Industry Leader, Business
Unit Leader or Vice President may delegate authority under this Plan to any Vice
President, Chief Financial Officer or Chief Executive Officer.

A Plan Participant may not assign this Plan or any PI payment or right to
payment. If a provision is found invalid, illegal or unenforceable, no other
provision is affected. This Plan supersedes all prior understandings,
negotiations and agreements, whether written or oral, between the Plan
Participant and Sapient as to the subject matter covered by this Plan.

SAPIENT CONFIDENTIAL 6

<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES

Sapient Australia Pty. Ltd. Australia
Sapient Securities Corporation Massachusetts
Sapient Limited United Kingdom
Sapient Services Corporation Delaware
Sapient Corporation Private Limited India

<PAGE> 1
EXHIBIT 23.1(a)
CONSENT OF PRICEWATERHOUSE COOPERS, LLP

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-05155, 333-07563, 333-07565, 333-53769,
333-53777, 333-77031 and 333-77033), and in the Registration Statements on Form
S-3 (Nos. 333-32168 and 333-32180) of Sapient Corporation of our report dated
January 27, 2000, appearing in this Annual Report on Form 10-K. We also consent
to the incorporation by reference of our report on the Financial Statement
Schedule, which appears in this Form 10-K.

PricewaterhouseCoopers LLP

Boston, Massachusetts
March 29, 2000

<PAGE> 1
EXHIBIT 23.1(b)
KPMG LLP

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Sapient Corporation:

We consent to incorporation by reference in the registration statements No.
333-05155, No. 333-07563, No. 333-07565, No. 333-53769, No. 333-53777, No.
333-77031 and No. 333-77033 on Form S-8 and No. 333-32168 and No. 333-32180 on
Form S-3 of Sapient Corporation, of our report dated April 16, 1999, relating to
the consolidated balance sheet of Sapient Corporation and subsidiaries as of
December 31, 1998, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1998, which reports appear in the December 31, 1998 annual
report on Form 10-K of Sapient Corporation.

KPMG LLP

Boston, Massachusetts
March 29, 2000

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 51,582 25,720
<SECURITIES> 144,527 66,100
<RECEIVABLES> 76,416 43,347
<ALLOWANCES> 1,246 550
<INVENTORY> 0 0
<CURRENT-ASSETS> 293,992 148,657
<PP&E> 42,096 24,685
<DEPRECIATION> 18,505 10,238
<TOTAL-ASSETS> 343,189 182,955
<CURRENT-LIABILITIES> 36,741 26,878
<BONDS> 0 0
575 542
0 0
<COMMON> 0 0
<OTHER-SE> 304,384 154,272
<TOTAL-LIABILITY-AND-EQUITY> 343,189 182,955
<SALES> 276,844 164,872
<TOTAL-REVENUES> 276,844 164,872
<CGS> 0 0
<TOTAL-COSTS> 232,108 149,773
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,227 2,925
<INCOME-PRETAX> 48,963 18,024
<INCOME-TAX> 18,506 8,660
<INCOME-CONTINUING> 30,300 9,364
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 30,300 9,364
<EPS-BASIC> 0.54 0.18
<EPS-DILUTED> 0.48 0.16

</TABLE>