<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 0-28074
SAPIENT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
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)
</TABLE>
617-621-0200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of May 5, 2000, there were 58,830,149 shares of Common Stock, $.01 par
value, outstanding.
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<PAGE> 2
SAPIENT CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item
1. Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999........................................... 2
Consolidated Statements of Income for the Three Months Ended
March 31, 2000 and 1999..................................... 3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999............................... 4
Notes to Consolidated Financial Statements.................. 5-6
Item
2. Management's Discussion and Analysis of Financial Condition
and Results
of Operations............................................... 7-11
Item
3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 11
PART II. OTHER INFORMATION
Item
2. Changes in Securities and Use of Proceeds................... 12
Item
6. Exhibits and Reports on Form 8-K............................ 12
Signatures.......................................................... 13
Exhibit 10.9........................................................ 14
Exhibit 27.1........................................................ 20
</TABLE>
1
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SAPIENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 83,528 $ 51,582
Short term investments.................................... 136,304 144,527
Accounts receivable, less allowance for doubtful accounts
of $1,896 and $1,246, respectively..................... 77,917 75,170
Unbilled revenues on contracts............................ 15,773 13,474
Deferred income taxes..................................... 1,311 1,311
Prepaid expenses and other current assets................. 10,415 7,928
-------- --------
Total current assets................................... 325,248 293,992
Property and equipment, net................................. 31,625 23,591
Deferred income taxes....................................... 6,296 6,296
Intangible assets........................................... 15,698 16,582
Other assets................................................ 3,600 2,728
-------- --------
Total assets........................................... $382,467 $343,189
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,320 $ 4,437
Accrued expenses.......................................... 7,311 4,538
Accrued compensation...................................... 14,661 11,682
Accrued income taxes payable.............................. 4,172 948
Deferred revenues on contracts............................ 17,824 15,136
-------- --------
Total current liabilities.............................. 48,288 36,741
Other long term liabilities................................. 1,877 1,489
-------- --------
Total liabilities...................................... 50,165 38,230
-------- --------
Stockholders' equity:
Preferred stock, par value $.01 per share, 5,000,000
authorized and none outstanding at March 31, 2000 and
December 31, 1999...................................... -- --
Common stock, par value $.01 per share, voting,
100,000,000 shares authorized, 58,505,514 and
57,473,539 shares issued and outstanding at March 31,
2000 and December 31, 1999, respectively............... 585 575
Additional paid-in capital................................ 256,413 240,975
Deferred compensation..................................... (578) (688)
Accumulated other comprehensive loss...................... (219) (114)
Retained earnings......................................... 76,101 64,211
-------- --------
Total stockholders' equity............................. 332,302 304,959
-------- --------
Total liabilities and stockholders' equity............. $382,467 $343,189
======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
2
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SAPIENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
2000 1999
--------- ---------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $100,334 $57,793
-------- -------
Operating expenses:
Project personnel costs (exclusive of stock-based
compensation of $101 and $703 for 2000 and 1999,
respectively).......................................... 48,575 28,334
Selling and marketing (exclusive of stock-based
compensation of $435
for 1999).............................................. 7,885 3,974
General and administrative (exclusive of stock-based
compensation of $9 and $561 for 2000 and 1999,
respectively).......................................... 25,253 14,648
Amortization of intangible assets......................... 884 569
Stock-based compensation.................................. 110 1,699
Acquisition costs......................................... -- 2,340
-------- -------
Total operating expenses............................... 82,707 51,564
-------- -------
Income from operations...................................... 17,627 6,229
Interest income............................................. 2,473 820
-------- -------
Income before income taxes and equity in net loss from
unconsolidated affiliate.................................. 20,100 7,049
Income taxes................................................ 7,857 2,770
-------- -------
Income before equity in net loss from unconsolidated
affiliate................................................. 12,243 4,279
Equity in net loss from unconsolidated affiliate............ 353 --
-------- -------
Net income............................................. $ 11,890 $ 4,279
======== =======
Basic net income per share.................................. $ 0.20 $ 0.08
======== =======
Diluted net income per share................................ $ 0.18 $ 0.07
======== =======
Weighted average common shares.............................. 58,104 54,278
Weighted average common share equivalents................... 8,416 6,870
-------- -------
Weighted average common shares and common share
equivalents............................................... 66,520 61,148
======== =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
3
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SAPIENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
2000 1999
--------- ---------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 11,890 $ 4,279
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 2,238 1,508
Amortization of intangible assets...................... 884 568
Stock-based compensation............................... 110 1,699
Equity in net loss from unconsolidated affiliate....... 353 --
Changes in assets and liabilities:
Increase in accounts receivable...................... (2,747) (8,333)
Decrease (increase) in unbilled revenues on
contracts........................................... (2,299) 47
Decrease (increase) in prepaid expenses and other
current assets...................................... (2,487) 675
Decrease in other assets............................. 33 32
(Decrease) increase in accounts payable.............. (117) 1,208
Increase in accrued expenses......................... 2,773 1,695
(Decrease) increase in accrued compensation.......... 2,979 (4,915)
(Decrease) increase in income taxes payable.......... 7,224 (1,190)
(Decrease) increase in deferred revenues on
contracts........................................... 2,688 (1,562)
(Decrease) increase in other long term liabilities... 357 (61)
-------- -------
Net cash provided by (used in) operating
activities...................................... 23,879 (4,350)
-------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (10,272) (4,304)
Investments in and advances to affiliates................. (268) --
Long term investments..................................... (1,060) --
Maturities of short term investments...................... 8,148 8,546
-------- -------
Net cash provided by (used in) investing
activities...................................... (3,452) 4,242
-------- -------
Cash flows from financing activities:
Repayments from stockholders for notes receivable......... 71 710
Proceeds from stock option and purchase plans............. 11,448 5,289
Principal payments on notes payable to bank............... -- (117)
-------- -------
Net cash provided by financing activities......... 11,519 5,882
-------- -------
Increase in cash and cash equivalents....................... 31,946 5,774
Cash and cash equivalents, at beginning of period........... 51,582 25,720
-------- -------
Cash and cash equivalents, at end of period................. $ 83,528 $31,494
======== =======
Schedule of non-cash financing activities:
Tax benefit of disqualifying dispositions of stock
options................................................ $ 4,000 $ --
======== =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
4
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SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by Sapient Corporation (the "Company" or "Sapient") pursuant to the
rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 1999 included in the Company's Annual Report on Form 10-K. The accompanying
consolidated financial statements reflect all adjustments (consisting solely of
normal, recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of results for the interim periods presented.
The results of operations for the three month period ended March 31, 2000 are
not necessarily indicative of the results to be expected for any future period
or the full fiscal year.
On March 29, 1999, the Company acquired all of the outstanding common stock
of Adjacency, Inc. in exchange for 1,581,348 shares of common stock. The
Company's financial statements have been restated for all periods presented to
reflect the acquisition of Adjacency, which was accounted for as a pooling of
interests. Costs, which consisted primarily of investment banking, accounting
and legal fees related to the acquisition and approximated $2.3 million, have
been reflected in the consolidated statements of income for the quarter ended
March 31, 1999.
On October 8, 1999, the Company acquired substantially all of the assets of
E.Lab L.L.C. in exchange for 88,044 shares of common stock and the assumption of
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 the Company's consolidated statements of income from
the date of acquisition.
On October 21, 1999, the Company declared a two-for-one stock split
effected as a 100% stock dividend distributed on November 5, 1999 to all
shareholders of record on November 1, 1999. The Company's financial statements
have been restated for all periods presented to reflect the effect of this stock
dividend.
(2) EARNINGS PER SHARE
The following information presents the Company's computation of basic and
diluted EPS for the periods presented in the consolidated statements of income
(in thousands, except per share data):
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
--------- ---------
<S> <C> <C>
Net income.................................................. $11,890 $ 4,279
Basic net income per share:
Weighted average common shares outstanding................ 58,104 54,278
------- -------
Basic net income per share................................ $ 0.20 $ 0.08
======= =======
Diluted net income per share:
Weighted average common shares outstanding................ 58,104 54,278
Dilutive stock options.................................... 8,416 6,870
------- -------
Shares used in computing per share amount................. 66,520 61,148
------- -------
Diluted net income per share.............................. $ 0.18 $ 0.07
======= =======
</TABLE>
5
<PAGE> 7
SAPIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") establishes standards for reporting
comprehensive income. 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. Sapient reports foreign currency translation gains and
losses and unrealized gains and losses on short term investments as components
of comprehensive income. Comprehensive income was $11.8 million and $4.3 million
for the three months ended March 31, 2000 and 1999, respectively.
(4) NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
(5) RELATED PARTY TRANSACTIONS
During the three months ended March 31, 2000 and 1999, the Company
recognized approximately $0.0 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 at both March 31, 2000 and
December 31, 1999. In addition, certain members of management of the Company
have provided funding to these companies.
On January 31, 2000, the Company entered into a strategic relationship with
a client which included, among other things, the Company becoming a preferred
supplier to that client and its affiliated entities. As part of the
relationship, the co-CEOs and co-chairmen of the Board of Directors of the
Company each issued a $10.0 million convertible note to the client. The notes
are convertible into shares of the Company's common stock owned by the co-CEOs
and co-chairmen at a conversion rate equal to the closing price of the Company's
common stock on the date the convertible notes were executed. The client's
ability to convert the notes is subject to certain vesting restrictions, based
upon the client's ability to achieve certain revenue targets to Sapient within
prescribed timeframes. The notes cannot be converted before May 15, 2002.
6
<PAGE> 8
SAPIENT CORPORATION
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.
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. Certain significant estimates include
percentage of completion estimates used for fixed price contracts and the
allowance for doubtful accounts. These items are constantly monitored and
analyzed by management for changes in facts and circumstances and material
changes in these estimates could occur in the future.
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 consisted primarily of investment banking,
accounting and legal fees related to the acquisition and approximated $2.3
million, have been reflected in the consolidated statements of income for the
quarter ended March 31, 1999.
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 consolidated statements of income from the date
of acquisition.
Our financial statements have been restated for all periods presented to
reflect a two-for-one stock split distributed on November 5, 1999.
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.
7
<PAGE> 9
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues of certain items
included in our consolidated statements of income:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------
2000 1999
---- ----
<S> <C> <C>
Revenues.................................................... 100% 100%
--- ---
Operating expenses:
Project personnel costs................................... 48 49
Selling and marketing..................................... 8 7
General and administrative................................ 25 25
Amortization of intangible assets......................... 1 1
Stock-based compensation.................................. -- 3
Acquisition costs......................................... -- 4
--- ---
Total operating expenses............................... 82 89
--- ---
Income from operations...................................... 18 11
Interest income............................................. 2 1
--- ---
Income before income taxes and equity in net loss from
unconsolidated affiliate.................................. 20 12
Income taxes................................................ 8 5
--- ---
Income before equity in net loss from unconsolidated
affiliate................................................. 12 7
Equity in net loss from unconsolidated affiliate............ -- --
--- ---
Net Income.................................................. 12% 7%
=== ===
</TABLE>
Revenues
Revenues for the three months ended March 31, 2000 increased 74% over
revenues for the three months ended March 31, 1999. The increase in revenues was
attributable to an increase in the number and average size of client projects,
billing rate increases, and improved utilization of project personnel. For the
three months ended March 31, 2000, our five largest clients accounted for
approximately 23% of our revenues, compared to 32% of revenues for the three
months ended March 31, 1999. No client accounted for more than 10% of revenues
in either period.
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 three months ended March 31, 2000
was primarily due to an increase in the number of project personnel from 1,299
at March 31, 1999 to 1,786 at March 31, 2000 and to higher compensation for
project personnel. Project personnel costs decreased slightly as a percentage of
revenues to 48% for the three months ended March 31, 2000 compared to 49% for
the three months ended March 31, 1999.
Selling and Marketing
Selling and marketing costs consist principally of salaries, employee
benefits, and travel expenses of selling and marketing personnel and promotional
costs. Selling and marketing costs increased as a percentage of revenues from 7%
for the three months ended March 31, 1999 to 8% for the three months ended March
31, 2000. The increase was primarily due to higher compensation for sales
personnel and an increase in the
8
<PAGE> 10
number of selling and marketing personnel from 58 employees at March 31, 1999 to
92 employees at March 31, 2000.
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
the three months ended March 31, 2000 compared to the three months ended March
31, 1999 was primarily due to an increase in the number of employees hired
during the past year, an increase in occupancy expenses related to significant
expansion of our office space and increased depreciation costs related to
investments in property and equipment. General and administrative personnel grew
from 290 employees at March 31, 1999 to 405 employees at March 31, 2000. Our
total headcount increased from 1,647 at March 31, 1999 to 2,283 at March 31,
2000. Total occupancy at March 31, 2000 was approximately 670,000 square feet,
compared to approximately 438,000 square feet at March 31, 1999. General and
administrative costs as a percentage of revenues remained constant at 25% for
the three months ended March 31, 2000 and 1999.
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, Inc. and E.Lab. The increase in
amortization of intangible assets for the three months ended March 31, 2000
compared to the three months ended March 31, 1999 was primarily related 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 the Company's 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 of approximately $1.7 million in the first quarter of 1999 was the result
of change-in-control provisions. We expect this charge to be approximately
$100,000 for the next six quarters.
Acquisition Costs
Costs associated with the Adjacency acquisition, which consisted primarily
of investment banking, accounting and legal fees, were approximately $2.3
million and were charged to expense in the three months ended March 31, 1999.
Interest Income
Interest income for the three months ended March 31, 2000 and 1999 was $2.5
million and $0.8 million, respectively, and was derived primarily from
investments of the proceeds from our public stock offerings which were invested
primarily in tax-exempt, short-term municipal bonds, commercial paper and U.S.
government securities. The increase in interest income for the three months
ended March 31, 2000 compared to the three months ended March 31, 1999 was due
to the investment of the proceeds from the follow-on public offering of our
common stock in November of 1999.
Provision for Income Taxes
Income tax expense for the three months ended March 31, 2000 and 1999 was
$7.9 million and $2.8 million, respectively, or effective rates of 39.1% and
39.3%, respectively. Our effective tax rate may vary from period to period based
on our future expansion into areas with varying country, state, and local income
tax rates and deductibility of certain costs and expenses by jurisdiction and as
a result of acquisitions.
9
<PAGE> 11
Equity in Net Loss from Unconsolidated Affiliate
Equity in net loss from unconsolidated affiliate for the three months ended
March 31, 2000 was approximately $353,000. In September 1999, we commenced a
joint venture, Sapient S.p.A. in Milan, Italy. We use the equity method of
accounting for this investment in which we have a 50% interest.
Liquidity and Capital Resources
We have primarily funded our operations from cash flow generated from
operations and the proceeds from our 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 March 31, 2000, the Company had no bank borrowings outstanding.
We invest predominantly in instruments that are highly liquid, investment
grade securities and have maturities of less than one year. At March 31, 2000,
we had approximately $219.8 million in cash, cash equivalents and short term
investments compared to $196.1 million at December 31, 1999.
Cash provided by operating activities was $23.9 million for the three
months ended March 31, 2000. This resulted primarily from net income of $11.9
million, non-cash charges of $3.6 million, increases in accrued expenses and
accrued compensation of $5.8 million, increases in accrued income taxes payable
of $7.2 million and increases in deferred revenues on contracts of $2.7 million,
offset by increases in accounts receivable of $2.7 million, increases of $2.3
million in unbilled revenues on contracts and increases in prepaid expenses and
other current assets of $2.5 million, all of which were principally related to
the overall growth of the Company.
Cash used in investing activities was $3.5 million for the three months
ended March 31, 2000. This was due primarily to capital expenditures of $10.3
million for significant expansion of the Company's office space and computer
equipment purchases and long term investments of $1.1 million, offset by
maturities of short term investments (net of purchases) of $8.1 million.
Cash provided by financing activities was $11.5 million for the three
months ended March 31, 2000 and was principally due to $11.4 million provided
from the sale of common stock through the Company's employee stock purchase plan
and the exercise of employee stock options.
We have entered into a strategic alliance with a third party to help
established companies create new businesses to compete successfully in the New
Economy. We have initially committed to invest up to $100.0 million in these new
businesses and expect to raise additional capital from other strategic partners.
Funds for this strategic alliance will be provided from our existing cash and
short term investment balances.
We believe that the cash provided from operations, borrowings available
under our revolving line of credit, existing cash, cash equivalents and short
term investments will be sufficient to meet our working capital, capital
expenditure, and strategic alliance 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 compliant. At the manufacturer's
recommendation, we recently installed patches in our versions of the
10
<PAGE> 12
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.
NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not believe that it has any material market risk exposure
with respect to derivative or other financial instruments which would require
disclosure under this item.
11
<PAGE> 13
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
There has been no change to the information previously provided by the
Company on Form SR for the period ended July 3, 1996, as amended, relating to
securities sold by the Company pursuant to Registration Statements on Form S-1
(Registration Nos. 333-1586 and 333-3204).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<C> <S>
10.9 Agreement dated November 15, 1999 between Bruce D. Parker
and Sapient Corporation
27.1 Financial data schedule
</TABLE>
(b) Reports on Form 8-K.
On January 4, 2000, the Company filed a Current Report on Form 8-K dated
January 3, 2000 in connection with the appointment of Edward G. Goldfinger as
Chief Financial Officer of the Company and of Susan D. Johnson as a Senior Vice
President of the Company.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements 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.
<TABLE>
<S> <C>
SAPIENT CORPORATION
Date: May 12, 2000 By: /s/ JERRY A. GREENBERG
----------------------------------------
Jerry A. Greenberg
Co-Chief Executive Officer
Co-Chairman of the Board
Date: May 12, 2000 By: /s/ EDWARD G. GOLDFINGER
----------------------------------------
Edward G. Goldfinger
Chief Financial Officer
</TABLE>
13
<PAGE> 1
EXHIBIT 10.9
LETTER AGREEMENT WITH BRUCE PARKER
November 15, 1999
Mr. Bruce D. Parker
Dear Bruce:
We are very pleased to offer to you the position of Executive Vice President of
Sapient. Your start date will on or prior to December 20, 1999. If you are in
agreement with the following terms please acknowledge your agreement with your
signature at the end of this letter and return copy to me.
POSITION
Executive Vice President reporting to Jerry Greenberg, Co-CEO. Your
responsibilities will include internal development of the company organization,
management and infrastructure to sustain and promote growth, external
development of the company in new market development, International development,
merger and acquisitions, large client development and major customer deal
development. This responsibility will include the recruiting and hiring of other
senior leaders.
SAPIENT BOARD MEMBER
You will not be asked to resign from the Sapient Board of Directors because of
your employment with Sapient and you will remain a member of Sapient's Board of
Director, unless and until you are removed or not re-elected by the Sapient
stockholders. Jerry Greenberg and Stuart Moore agree to nominate for reelection
to the Board of Sapient as long as you remain employed by Sapient and to vote
their shares in favor of all such re-elections of your to the board. As an
employee-director, you will not receive any compensation for your participation
on the Board. Notwithstanding anything to the contrary included in Sapient's
stock option plans or stock option agreements, the stock options you currently
hold as a Board member will continue to vest according to their terms. As an
employee-Director, you will have to resign from the Audit and Compensation
committee of the Board as of your date of hire.
OUTSIDE BOARD MEMBERSHIP
<PAGE> 2
you will be allowed to be a member of the Board of Directors of one other
company as long as such company is not a competitor of Sapient and your
position does not pose any other type of conflict.
LOCATION
It is understood that you will maintain your personal residence in Miami, FL. In
addition to other locations, it is expected that you will spend a considerable
amount of your time working out of our Cambridge office. As such, Sapient will
provide you with an apartment in Cambridge or Boston at Sapient's expense
including all reasonable utilities, telephone service charges and miscellaneous
living expenses. Sapient will also reimburse you for your reasonable travel
expenses incurred in commuting to and from work from your Miami residence. In
the event you decide to relocate to Sapient's headquarters, or any other Sapient
location, Sapient will reimburse you for reasonable relocation expenses
including closing costs associated with the purchase and/or sale of a primary
residence, attorneys' fees, brokers' fees, recording of deeds and mortgages,
municipal liens, certified plot plans, document preparation, parking and moving
of your household goods, expenses incurred for two house hunting trips
associated with your relocation and other expenses typically reimbursed for
relocation of other senior executives of Sapient. In the event you resign from
Sapient prior to one year from being reimbursed for relocation expenses, you
agree to repay to Sapient such expenses within 30 days of your departure.
COMPENSATION
Your annual base salary will be $325,000, paid twice monthly. Your base salary
will be reviewed annually by Mr. Greenberg, Co-CEO, and the Board of Directors,
for potential increases taking into consideration your performance, Sapient's
financial condition and compensation competitiveness.
BONUS CASH COMPENSATION
In addition to your base salary, your cash compensation includes an annual cash
bonus target of $175,000. This performance incentive ("PI") target amount may
be increased annually with or without any increase of base salary.
SIGN-ON BONUS
Within 15 days of your first day of employment, you will be paid $450,000 as a
partial offset of the your loss of cash bonus and restricted stock from your
current employer as a result of leaving such employment to join Sapient. In
the event you resign from, or
<PAGE> 3
are terminated by Sapient for "cause" (defined below) prior to your third
anniversary, you will repay this bonus, or a portion thereof, within 30 days of
your departure. If you do leave Sapient prior to your third anniversary, the
amount to be repaid to Sapient would be calculated as follows: [(36 - the months
of employment)/36] times $450,000. Such repayment amount would be reduced by any
income taxes or wage-based taxes paid by you or withheld by Sapient on this
bonus. You agree to forward to Sapient any tax advantages from repayment that
should result to you that would exceed a neutral tax position.
DEFERRED COMPENSATION AND 401k PLAN CONTRIBUTIONS CAP
Before your start date we agree to work with you to structure the payout of your
1999 and 2000 cash compensation over time so that you are able to defer your
cash compensation, including 401(k) company matches, to future years if you
wish. You agree that after your start date, you will work on the potential
creation of a Sapient deferred compensation plan with a rabbi like trust to
enable Sapient executives to defer up to 100% of their cash compensation.
STOCK OPTIONS
In addition to your cash compensation, you will be granted stock options to
purchase Sapient common stock as set forth below. All such stock options will
have a term of ten years form the date of grant and will be granted at the
closing price of the Sapient common stock on the date of grant. Unless otherwise
set forth in this letter or your option agreements, all your options will vest
25% per year over four years beginning on the first day of the month following
the grant date. All your options will be incentive stock options to the extent
permissible under, and up to the limits permitted by, the Internal Revenue Code.
The Grant 1 and 2 options set forth below do account for our November 1999 two
for one stock split and are stated on a post-split basis. The Grant 3 option
grant will be adjusted for any future stock splits or changes in Sapient's
capitalization.
Grant 1 - 75,000 shares on or within 10 days of your first day of employment
Grant 2 - 50,000 shares within 90 days following January 1, 2000 Grant 3 -
Between 75,000 and 125,000 options within 90 days following January 1, 2001
The actual number of shares to be granted for Grant 3 will be calculated as
follows: 100,000 times 1.30 times the Grant 2 exercise price dividend by the
closing price of the Sapient common stock on the day of grant of Grant 3. In any
event, the total number of options granted for Grant 3 will not exceed 125,000
shares or be less than 75,000 shares.
<PAGE> 4
ADDITIONAL ANNUAL OPTION GRANTS
Annually beginning in 2001, you will be eligible to receive additional stock
option grants. The number of options granted to you will be at least equal to
the average number of option grants being granted to other senior executives
reporting to a Co-CEO and who have demonstrated similar performance as you.
RETIREMENT
You may retire at age 60 or an earlier age if agreeable to Sapient and you will
receive full retiree benefits to the extent allowable under Sapient's benefit
plans and such benefits will not be discounted in relation to your age or years
of service at retirement. Sapient does not currently have a defined retirement
benefits plan. However, we agree to establish such a Plan that is reasonable
and customary for a firm like Sapient. Notwithstanding anything to the contrary
included in Sapient's stock option plans or stock option agreement, all
unvested stock options held by you at the time of your retirement will vest
immediately in full on your retirement date.
CHANGE OF CONTROL / TERMINATION WITHOUT CAUSE / RESIGNATION FOR GOOD REASON
In the event of (a) an unsolicited take over of Sapient where over 50 percent
of Sapient's outstanding shares are acquired, or (b) an offer is made and
accepted that would result in the change of the board of directors or of Mr.
Greenberg as a co-CEO, or involve the dissolution or merger of Sapient with
another company, (a "Change of Control"), then notwithstanding anything to the
contrary included in Sapient's stock option plans or stock option agreements,
all options granted to you prior to the Change of Control will vest immediately
on the date the Change of Control is consummated and the term of such options
shall continue unchanged. In addition, you will receive a cash amount equal to
three times your then base salary and annual PI target. Such amount will be paid
to you in one lump sum following the consummation of the Change of Control.
In the event of a solicited merger or acquisition that would result in a merged
or acquiring company where more than 50 percent of the board of directors is no
longer made up of the previous members of the Sapient board of directors or Mr.
Greenberg does not remain as a co-CEO (a "Merger Event"), then notwithstanding
anything to the contrary included in Sapient's stock option plans or stock
option agreements, the number of months of employment under your option
agreements will increase by 24 months thus accelerating the vesting of your
options by 24 months.
<PAGE> 5
For the period of 24 months immediately following a Change of Control or Merger
Event, if you are terminated other than for "cause" or you resign because you
are assigned a new role of responsibilities that are substantially inconsistent
with your position, role or responsibilities as an Executive Vice President,
then notwithstanding anything to the contrary included in Sapient's stock option
plans or stock option agreements, any then remaining unvested options held by
you will vest immediately and the term of the options shall continue. In
addition, you will receive a cash amount equal to two times your then annual
base salary and PI target amount. Such amount will be paid to you in equal
installments throughout the two year period following your departure.
If there is no Change of Control or Merger Event but you are terminated by
Sapient other than for "cause", then, notwithstanding anything to the contrary
in Sapient's stock option plans or stock option agreements, the number of
months of employment under your agreements will increase by 24 months thus
accelerating the vesting of your options by 24 months and the original term of
the options shall continue. If Mr. Greenberg is the co-CEO at the time of your
termination, then as severance you will be paid an amount equal to one year of
your then annual base salary and PI target and such amount shall be paid to you
in equal installments throughout the one year period following your
termination. If Mr. Greenberg is not the co-CEO at the time you are terminated
without cause, then as severance you will be paid an amount equal to two years
of your then annual base salary and PI target and such amount shall be paid to
you in equal installments throughout the two year period following your
termination.
For purposes of this letter, "cause" means (a) having admitted to, or been
convicted of a felony or any crime involving moral turpitude; (b) the
abandonment of your duties for 30 days or more; (c) any breach by you of the
Non-Disclosure, Non-Solicitation and Non-Competition Agreement to be entered
into between you and Sapient; or (d) you have committed a material act that is
in direct conflict to normally accepted standards of corporate ethics and that
could reasonably be determined to damage Sapient's business, reputation or
financial condition or results of operations.
Upon your departure from Sapient, for whatever reason, you will not be entitled
to receive any cash payments or have any of the vesting of your stock options
accelerated as described in this letter if you have violated any terms of your
Non-Disclosure, Non-Solicitation and Non-Competition Agreement.
In the event your options are accelerated or you are paid severance or other
cash payments upon your departure from Sapient as described above, you agree
that in consideration of such payments or option acceleration, you will fully,
forever,
<PAGE> 6
irrevocably and unconditionally release, remise and discharge Sapient, its
officers, directors, stockholders, corporate affiliates, attorneys, agents and
employees ("Sapient Affiliates") from any and all claims, charges, complaints,
demands, actions, causes of actions, suits, rights, debts, sums of money,
costs, accounts, reckonings, covenants, contracts, agreements, promises,
doings, omissions, damages, executions, obligations, liabilities and expenses
(including attorneys' fees and costs), of every kind and nature which you ever
had or now have against Sapient or any Sapient Affiliate. You further agree not
to bring any complaints, charges or claims against Sapient or any Sapient
Affiliate with respect to any matters arising out of your employment with
Sapient.
VACATION
You will be eligible for 4 weeks of paid vacation in each calendar year
beginning in 2000.
INSURANCE
Following your hire date, you agree to review Sapient's life insurance benefits
with the intent to potentially create a life insurance benefit for Sapient's
executive officers.
CONTRACT
To the extent that either of us believe that this agreement needs to be
embodied in a formal contract we agree to develop in good faith such contract
agreements.
- ------------------------- -------------------------
Jerry A. Greenberg Bruce D. Parker
Co-CEO
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