LIONBRIDGE TECHNOLOGIES INC /DE/, 424B1, 1999-08-20

LIONBRIDGE TECHNOLOGIES INC /DE/
424B1, 1999-08-20
BUSINESS SERVICES, NEC

Previous: LIONBRIDGE TECHNOLOGIES INC /DE/, S-1/A, 1999-08-20

Next: UNISERVICE CORP/FL, 10QSB, 1999-08-20

<PAGE>
Pursuant to Rule 424(B)(1)
Registration No. 333-81233
PROSPECTUS
- --------------------------------------------------------------------------------

3,500,000 Shares

[LOGO]
Common Stock

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

Lionbridge Technologies, Inc. is offering 3,500,000 shares of its common stock
in an initial public offering. Prior to this offering, there has been no public
market for Lionbridge's common stock.

Lionbridge adapts and translates products, information and other materials to
the requirements of local markets for technology companies worldwide.

Limited partnerships sponsored by Advent International and Morgan Stanley Dean
Witter, who are existing Lionbridge stockholders, have indicated their interest
in purchasing up to $7,280,000 of our stock at the public offering price. These
stockholders will also receive approximately 49% of the net proceeds of this
offering.

The shares of Lionbridge will be quoted in the Nasdaq National Market under the
symbol "LIOX".

<TABLE>
<CAPTION>
Per Share Sold
Per Share Sold to Advent and
to Public Morgan Stanley Total
<S> <C> <C> <C> <C>
Public offering price....................................... $ 10.00 $ 10.00 $ 35,000,000

Underwriting discounts and commissions...................... $0.70 -- $1,940,400
Proceeds, before expenses, to Lionbridge.................... $9.30 $10.00 $ 33,059,600
</TABLE>

SEE "RISK FACTORS" ON PAGES 7 TO 13 FOR FACTORS THAT SHOULD BE CONSIDERED BEFORE
INVESTING IN THE SHARES OF LIONBRIDGE.

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

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.

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

The underwriters may purchase up to 525,000 additional shares from selling
stockholders and Lionbridge at the public offering price, less underwriting
discounts and commissions. Delivery and payment for the shares will be on August
25, 1999.

PRUDENTIAL SECURITIES

U.S. BANCORP PIPER JAFFRAY

ADAMS, HARKNESS & HILL, INC.

August 20, 1999
<PAGE>

INSIDE FRONT COVER

Representative Clients

Lionbridge has provided services to the following companies:

3Com
Adobe
Aurum
Autodesk
Avid
Baan
Bentley Systems
Bull
Candle
Cognos
Corel
Data General
Gateway
IBM
JD Edwards
Kodak
Macromedia
Microsoft
Motorola
Network Associates
Novell
Oce
Oracle
Page Factory
Parametric Technology
Portal
PowerQuest
SPSS
Silicon Graphics
Sun Microsystems

Language Diversity
Lionbridge has delivered multilingual versions in the following languages:

Arabic
Bulgarian
Chinese Simplified
Chinese Traditional
Czech
Danish
Dutch
English - American
English - UK
Finnish
French
French - Canadian
German
Greek
Hebrew
Hungarian
Italian
Japanese
Korean
Norwegian
Polish
Portuguese - Iberian
Portuguese - Brazilian
Romanian
Russian
Spanish Iberian
Spanish Latin American
Swedish
Thai
Turkish

Worldwide Locations
Lionbridge has facilities around the world
Lionbridge Globalization Centers

Japan
China
South Korea
Silicon Valley
Boston
Ireland
France
The Netherlands

Graphic showing world map with the locations of Lionbridge globalization
centers and VeriTest Testing Labs indicated

VeriTest Testing Labs

Los Angeles
Silicon Valley
France
Ireland
Japan

<PAGE>

INSIDE FRONT COVER - FOLDOUT

Simultaneous Worldwide Release ...Continuous Multilingual Delivery

[Two-page graphic illustrating Lionbridge processes and customer
examples. The graphic contains three sections.

On the far left are three computer screen capture images of English software
products from Lionbridge customers. Below each screen shot is text
indicating the customer and describing the software.

CISCO delivers Web-based education to thousands of schools
around the world through the Cisco Networking Academy Program.

To help launch NOVELL Groupwise in Asia, Lionbridge simultaneously
translated Japanese, Simplified Chinese, Traditional Chinese, and
Korean versions of Novell's messaging and collaboration software.

PORTAL is a rapidly growing Internet company that provides Internet
Service Providers with customer account management software. Their
customers are global telecommunications companies requiring global
solutions.

On the far right are the corresponding foreign language versions of the
screen samples in French, Chinese, and Japanese. Below each screen shot is
text describing the work performed by Lionbridge.

CISCO selected Lionbridge to localize the Networking Academy curriculum
and keep it continuously updated in several languages, including French.

Chinese versions of NOVELL Groupwise involved localization and testing
of the software, creation of Windows and HTML help systems, and
translation and publishing of the user documentation.

Lionbridge provided a complete globalization solution for PORTAL's
flagship Infranet product, including source code internationalization,
software localization in Japanese and seven other languages, and
client server testing.

In the middle is a large circle representing the Lionbridge globalization
process. Centered inside the circle is the lion head from the company logo.
Surrounding the outside of the circle are eight ovals, each representing a
step in the Lionbridge process. Below the circle is a rectangular box
representing Lionbridge's global network of translation resources.]

Text inside the circle, above the lion head: "Rapid Globalization
Methodology-TM-"

Text inside the circle, below the lion head: "LionTrack-TM- Workflow Systems"

Text inside the ovals:

Oval #1 "Localization Engineering"
Oval #2 "Internationalization Engineering
Oval #3 "Multilingual Technical Publishing"
Oval #4 "Project Management"
Oval #5 "Translation"
Oval #6 "Localization Testing"
Oval #7 "Compatibility Testing"
Oval #8 "Logo Certification"

Text inside the rectangular box: "Global Network of 2,000 Independent
Technical Translators"

Above and below each of the three sections of the graphic are rectangular
boxes with the following text:

Lower left (below the English screen shots): "Lionbridge clients ..."
Lower middle (below the Lionbridge circle): "...use our services ..."
Lower right (below the foreign language screen shots): "...to reach
global markets."

On the bottom in fine print is the following copyright notice:

"Cisco, Cisco Systems, and the Cisco Systems bridge logo are trademarks of
Cisco Systems, Inc. Portal, Infranet, and the Portal logo are registered
trademarks of Portal Software, Inc. Novell and GroupWise are registered
trademarks of Novell, Inc.

<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3

Risk Factors................................... 7

Forward-Looking Statements..................... 14

Use of Proceeds................................ 15

Dividend Policy................................ 15

Capitalization................................. 16

Dilution....................................... 17

Selected Consolidated Financial Data........... 18

Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 21

Business....................................... 33

Management..................................... 42

Certain Transactions........................... 50

Principal and Selling Stockholders............. 53

Description of Capital Stock................... 56

Shares Eligible For Future Sale................ 61

Underwriting................................... 63

Legal Matters.................................. 66

Experts........................................ 66

Available Information.......................... 66

Index to Financial Statements.................. F-1
</TABLE>

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

"Lionbridge" is a registered trademark and "lionbridge.com" and the
Lionbridge logo are trademarks of Lionbridge. "VeriTest" is a registered
trademark of Lionbridge. All other trade names and trademarks referred to in
this prospectus are the property of their respective owners.

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

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any jurisdiction where the offer or sale
is not permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front cover of
this prospectus.
<PAGE>
PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
Investors should read the entire prospectus carefully.

LIONBRIDGE

Lionbridge is a provider of globalization services to technology companies
worldwide. Globalization is the process of adapting products or services to meet
the demands of local cultures. Our software, test, Web, and linguistic
engineering groups create and maintain multilingual versions of our clients'
software and hardware, as well as Web-based technical support, training
materials, and sales and marketing information for worldwide release via
traditional means and the Internet.

Four business trends are driving the demand for our services:

- the increasingly global operations of companies around the world,

- the widespread adoption of information technology,

- the impact of the Internet on commerce, and

- the increased outsourcing by companies of technology services.

Lionbridge serves as a globalization partner throughout our clients' product
development and support lifecycle by offering the following services:

- LOCALIZATION. The modification and translation of user interfaces, online
help, documentation, technical support databases, training materials, and
sales and marketing information.

- INTERNATIONALIZATION. The modification of source code so that products and
applications are compatible with country-specific operating systems and
software.

- MULTILINGUAL PRODUCT TESTING. The testing of products to verify that they
have been properly localized and/or internationalized.

- PROJECT MANAGEMENT. The workflow and project management skills necessary
to direct, track, and monitor at times hundreds of discrete documents that
require the input of dozens of different service groups both inside and
outside Lionbridge.

As product releases, technical support and training have evolved toward a
Web-based business model, we have in turn begun to offer multilingual Internet
services. While the Internet has been an integral part of our operations and our
relationships with our customers for several years, in the last year we have
developed new multilingual Internet service offerings that are focused on this
rapidly changing business opportunity. These multilingual Internet service
offerings include:

- ERELEASE--we modify, translate, and test our clients' software products
and Web applications in multiple languages.

- ESUPPORT--we translate, test, and maintain technical support databases
which are accessible to our clients' customers through the Internet.

- ELEARNING--we enable our clients to provide updated training materials on
the Web in multiple languages.

- ECOMMERCE--we modify Web-based sales and marketing materials for our
clients who sell their products through the Internet in multiple
languages.

We use a proprietary methodology we call the Lionbridge RAPID GLOBALIZATION
METHODOLOGY and proprietary workflow management tools we call LIONTRACK to
deliver our services.

We service our technology clients, including IBM, Microsoft, Motorola,
Novell, Oracle, and Sun Microsystems from our facilities in the United States,
Europe, and Asia.

3
<PAGE>
OUR MARKET OPPORTUNITY

Companies around the world are increasingly operating on a global scale. To
operate efficiently, they must standardize their hardware, software, and
telecommunications infrastructures throughout their global organization.
Historically, technology providers first developed products for their home
markets and then created foreign language versions that were compatible with
local operating systems and standards. The complexity of developing these
localized versions often resulted in product releases being delayed from six
months to a year after delivery of the home-country version. In the interim, end
users often faced version and compatibility conflicts throughout their global
organizations. As a result, global end users of technology now demand:

- simultaneous product release of the home country and localized versions,

- independent third party testing and certification to provide assurance of
compatibility with local operating systems and international standards,
and

- customer support, testing, and training in local languages wherever the
end user operates.

To meet these end user demands, the market for globalization services has
evolved beyond translation to include adapting to local operating systems,
standards, products and cultural requirements.

With the increasing complexity of many technology products, globalization
requires the application of sophisticated project management skills to integrate
a broad range of disciplines and specialized technical resources.

Technology companies now use the Internet to release products, provide
technical support, deliver product training, and sell and market products.
Internet content is predominantly in English, but a growing percentage of
Internet users do not speak English as their first language. Although the
Internet offers significant opportunities, companies cannot take full advantage
of these opportunities on a global basis unless they accommodate users' local
languages, cultures, and technical environments.

Few companies have the combination of engineering, linguistic, testing, and
project management skills needed to globalize their products successfully. We
offer a complete globalization and multilingual Internet service that improves
the quality, consistency, and timeliness of our clients' international product
releases, technical support, training materials, and sales and marketing
information.

We believe that expanded global competition and worldwide Internet access
will increase the demand for our services. We also believe that by offering
one-stop globalization and multilingual Internet services, Lionbridge is an
attractive partner to companies operating in a global marketplace.

OUR STRATEGY

Lionbridge's goal is to become the leading provider of globalization and
multilingual Internet services. The following are the key elements of our
strategy:

- leverage existing clients,

- continue strategic acquisitions,

- evolve our methodology and workflow systems,

- pursue multi-year relationships with clients, and

- expand into additional vertical markets.

OUR HISTORY AND OFFICES

Our predecessor, Lionbridge America, Inc., was incorporated in Delaware in
September 1996 (under the name Lionbridge Technologies, Inc.). We were
incorporated in Delaware in October 1997 (under the name Lionbridge Technologies
Holdings, Inc.) and completed a reorganization in February 1998 in which
Lionbridge America became our wholly owned subsidiary. In June 1999, we changed
our name to Lionbridge Technologies, Inc. from Lionbridge Technologies Holdings,
Inc. and the name of our subsidiary Lionbridge Technologies, Inc. to Lionbridge
America, Inc. Our principal executive offices are located at 950 Winter Street,
Waltham, Massachusetts 02451, our telephone number is (781) 890-6612, and our
Web site is www.lionbridge.com. Information contained on our Web site is not a
part of this prospectus.

4
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Shares offered by Lionbridge................ 3,500,000 shares

Total shares outstanding after this 14,719,450 shares (1)
offering....................................

Use of proceeds............................. To (i) redeem our Series B redeemable
preferred stock, (ii) repay a portion of our
subordinated debt and (iii) provide for other
general corporate purposes.

Nasdaq National Market symbol............... LIOX
</TABLE>

(1) Based on 11,219,450 shares of common stock outstanding as of June 30, 1999.
Excludes 1,616,594 shares issuable upon exercise of warrants and 2,621,945
shares issuable upon the exercise of stock options as of June 30, 1999 and
2,890,791 shares available for future grant or issuance under our 1998 Stock
Plan and 1999 Employee Stock Purchase Plan.

Limited partnerships sponsored by Advent International and Morgan Stanley
Dean Witter, who are existing Lionbridge stockholders, have indicated their
interest in purchasing up to $7,280,000 of our stock from the underwriters at
the public offering price. The underwriters will not receive any underwriting
discounts or commissions in connection with the sale of shares to these
purchasers.

Except as set forth in the consolidated financial statements or as otherwise
indicated, all information in the prospectus:

- does not include 131,666 shares offered by Lionbridge if the underwriters
exercise their over-allotment option,

- reflects the conversion of our Series C preferred stock into shares of our
common stock and the redemption of our Series B preferred stock upon the
closing of the offering, and

- reflects a two-for-three reverse stock split effective August 13, 1999.

Upon the closing of the offering, Lionbridge will pay an aggregate of
approximately $21,531,000, or 67%, of its net proceeds from the offering to
affiliates of Lionbridge to redeem shares of our Series B redeemable preferred
stock and to repay $6,000,000 of our senior subordinated notes held by those
affiliates. For more information, see "Use of Proceeds."

5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table summarizes the financial data for our business. We
commenced operations on December 23, 1996 through the acquisition of the
localization businesses of Stream International. The information for the year
ended December 31, 1996 reflects Stream International's results of operations
for the acquired businesses. For the years ended December 31, 1997 and 1998 and
the six months ended June 30, 1998, our loss from operations and net loss
include restructuring charges of $541,000, $501,000 and $451,000 related to
workforce reductions in France.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>

<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................... $ 28,134 $ 26,462 $ 38,412 $ 18,132 $ 23,783
Gross profit................................ 3,157 7,548 12,866 5,906 7,176
Income (loss) from operations............... 13 (6,909) (3,404) (2,183) (4,142)
Net loss.................................... (213) (7,654) (4,262) (2,523) (9,765)
Basic and diluted net loss per common share
attributable to common stockholders....... $ (8.85) $ (2.99) $ (1.89) $ (4.64)
Shares used in computing basic and diluted
net loss per share attributable to common
stockholders.............................. 985 1,782 1,613 2,218
</TABLE>

The pro forma as adjusted column below gives effect upon the closing of this
offering to:

- the exchange of all outstanding shares of our Series A convertible
preferred stock and Series D nonvoting convertible preferred stock into
shares of our Series B redeemable preferred stock and Series C convertible
preferred stock,

- the redemption of all outstanding shares of our Series B redeemable
preferred stock for $100,000 per share plus an 8% annual premium,

- the conversion of all outstanding shares of our Series C convertible
preferred stock into shares of our common stock,

- the repayment of $6,000,000 of, or 50% of, the outstanding amounts due
under the subordinated notes, and

- the sale of 3,500,000 shares of common stock in this offering, after
deducting underwriting discounts and commissions and estimated offering
expenses, and application of the net proceeds.

<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------
DECEMBER 31, PRO FORMA
1998 ACTUAL AS ADJUSTED
------------ ----------- --------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA:
Cash.................................................................. $ 732 $ 1,455 $ 11,566
Working capital (deficit)............................................. (7,718) (2,919) 7,192
Total assets.......................................................... 22,402 28,107 38,218
Long-term debt, net of discount....................................... -- 10,964 4,964
Redeemable convertible preferred stock................................ 15,418 15,949 --
Total stockholders' equity (deficit).................................. (13,521) (17,032) 15,028
</TABLE>

6
<PAGE>
RISK FACTORS

You should carefully consider the following risk factors, in addition to the
other information set forth in this prospectus, before purchasing shares of
common stock of Lionbridge. Each of these risk factors could adversely affect
our business, operating results and financial condition, as well as adversely
affect the value of an investment in our common stock. This investment involves
a high degree of risk.

RISKS RELATED TO OUR BUSINESS

OUR REVENUE COULD BE NEGATIVELY AFFECTED BY THE DELAY OF ONE OF OUR CLIENTS'
PRODUCT RELEASES OR THE LOSS OF A MAJOR CLIENT.

A significant portion of our revenue is linked to the product release cycle
of our clients. As a result, we perform varying amounts of work for specific
clients from year to year based on their product development schedule. A major
client in one year may not have use for a similar level of our services in
another year. In addition, we derive a significant portion of our revenues from
large projects and programs for a limited number of clients. In 1998, IBM
accounted for approximately 14% of our revenue and our five largest clients
(including IBM) accounted for approximately 39% of our revenue. In the first six
months of 1999, our five largest clients accounted for approximately 34% of our
revenue. As a result, the loss of any major client or a significant reduction in
a large project's scope could materially reduce our revenue and cash flow, and
adversely affect our ability to achieve and maintain profitability.

WE GENERALLY DO NOT HAVE LONG-TERM CONTRACTS, WHICH MAKES REVENUE
FORECASTING DIFFICULT.

A majority of our revenue is derived from individual projects rather than
long-term contracts. We cannot assure you that a client will engage us for
further services once a project is completed or that a client will not
unilaterally reduce the scope of, or terminate, existing projects. You should
not predict or anticipate our future revenues based on the number of clients we
have or the size of our existing projects. The absence of long-term contracts
makes it difficult to predict our future revenues.

OUR BRIEF OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT OUR SUCCESS.

Lionbridge was formed in September 1996 to acquire the localization
businesses and assets of Stream International and commenced operations at the
end of December 1996 upon closing this acquisition. As a result, we have a brief
operating history upon which you can evaluate our business and prospects. Our
historical results of operations do not fully give effect to the operations of
the companies we have acquired after the Stream acquisition. As a result, our
historical results of operations may not give you an accurate indication of our
future results of operations or prospects. We are in an early stage of
development and the market for some of our services is new and rapidly evolving.
We cannot be sure that we will be successful in meeting the challenges we face.
If we are unable to do so, our business will not be successful and the value of
your investment in Lionbridge will decline.

WE HAVE AN ACCUMULATED DEFICIT, ARE NOT CURRENTLY PROFITABLE, AND ANTICIPATE
FUTURE LOSSES.

We have incurred substantial losses since Lionbridge was founded, and we
anticipate we will continue to incur substantial losses for the foreseeable
future. We had an accumulated deficit of approximately $24.5 million as of June
30, 1999 and a net loss of $4.3 million for the year ended December 31, 1998.
Although our revenues have grown significantly since 1997, this growth may not
be sustainable or indicative of future results of operations. We intend to
continue to invest in internal expansion, infrastructure, integration of our
acquired companies into our existing operations, select

7
<PAGE>
acquisitions, and our sales and marketing efforts. In addition, our acquisitions
have significantly increased our intangible assets, such as goodwill, and the
charges we expect to incur in connection with the amortization of these
intangible assets will have a material adverse impact on our ability to achieve
and maintain profitability for the foreseeable future. We cannot predict when we
will operate profitably, if ever.

IF OUR LOSSES CONTINUE, WE WILL NEED TO RAISE ADDITIONAL CAPITAL. IF WE ARE
UNABLE TO DO SO, OR WE DO SO ON UNFAVORABLE TERMS, THE VALUE OF YOUR
INVESTMENT IN OUR STOCK MAY DECLINE.

If our losses continue, we will be unable to pay our expenses unless we
raise additional capital. If we need to raise additional capital but are unable
to do so, we may not be able to continue as a going concern. If we need to raise
additional capital but are able to do so only on unfavorable terms, the value of
your investment in our stock may decline.

POTENTIAL FLUCTUATIONS IN OUR QUARTERLY RESULTS MAKE FINANCIAL FORECASTING
DIFFICULT AND COULD AFFECT OUR COMMON STOCK TRADING PRICE.

As a result of fluctuations in our revenues tied to our clients' product
release cycles, the length of our sales cycle, rapid growth, acquisitions, the
emerging nature of the markets in which we compete, and other factors outside
our control, we believe that quarter-to-quarter comparisons of results of
operations are not necessarily meaningful. You should not rely on the results of
any one quarter as an indication of our future performance. We may not
experience revenue increases in the remainder of 1999 comparable to the revenue
increases in 1998. If in some future quarter our results of operations were to
fall below the expectations of securities analysts and investors, the trading
price of our common stock would likely decline.

IF WE FAIL TO ATTRACT AND RETAIN PROFESSIONAL STAFF, OUR ABILITY TO COMPLETE
OUR PROJECTS AND OBTAIN NEW PROJECTS COULD SUFFER.

Our failure to attract and retain qualified employees could impair our
ability to complete existing projects and bid for or obtain new projects and, as
a result, could have a material adverse effect on our business and revenues. Our
ability to grow and increase our market share largely depends on our ability to
hire, train, retain, and manage highly skilled employees, including project
managers and technical, translation, and sales and marketing personnel. There is
a significant shortage of, and intense competition for, personnel who are
qualified to perform the services we provide. For example, in June 1998, the
general manager of our Irish operations, our largest operating location at the
time, unexpectedly resigned his employment with the Company. In addition, we
must make sure our employees maintain their technical expertise and business
skills. We cannot assure you that we will be able to attract a sufficient number
of qualified employees or that we will successfully train and manage the
employees we hire.

WE MAY BE UNABLE TO CONTINUE TO GROW AT OUR HISTORICAL GROWTH RATES OR TO
MANAGE OUR GROWTH EFFECTIVELY.

Continued, planned growth is a key component of increasing the value of our
common stock. In the past two years, our business has grown significantly and we
anticipate future internal growth and growth through acquisitions. From December
31, 1996 to June 30, 1999, our staff increased from approximately 270 to
approximately 450 employees. This rapid growth places a significant demand on
management and operational resources. In order to manage growth effectively, we
must implement and improve our operational systems and controls. In addition,
the proceeds of this offering will be used in part to expand our operations and
our sales and marketing capabilities. This additional growth may further strain
our management and operational resources. Our growth could also be adversely
affected by many other factors, including economic downturns. As a result of
these concerns, we cannot be sure

8
<PAGE>
that we will continue to grow, or, if we do grow, that we will be able to
maintain our historical growth rate.

BECAUSE OF THE CRITICAL NATURE OF THE SERVICES WE PROVIDE TO OUR CLIENTS, WE
MAY BE LIABLE FOR DEFECTS OR ERRORS IN THE SOLUTIONS WE DEVELOP.

Many of the services we provide are critical to our clients' businesses. Any
defects or errors in these solutions could result in:

- delayed or lost client revenues,

- adverse reaction to our clients from their end users and, ultimately,
toward Lionbridge,

- claims against us,

- negative publicity, and

- additional expenditures to correct the problem.

Liability claims could require us to spend significant time and money in
litigation or to pay significant damages. Although we maintain general liability
insurance, including coverage for errors and omissions, we cannot assure you
that this coverage will be available in amounts sufficient to cover one or more
large claims, or that the insurer will not disclaim coverage as to any future
claim.

OUR OUTSOURCE ACQUISITION STRATEGY MAY CAUSE US TO LOSE MONEY.

Part of our strategy is to acquire other companies' internal localization
operations and then enter into multi-year contracts with the sellers of these
operations to meet their globalization requirements on an outsourcing basis. As
such, our strategy is to buy these operations with the objective of recouping
our up-front purchase price out of future revenues from the seller. If we pay
too much for these acquisitions or these contracts prove unprofitable, our
revenues and profitability will suffer.

OUR INTANGIBLE ASSETS REPRESENT A SIGNIFICANT PORTION OF OUR ASSETS;
AMORTIZATION OF OUR INTANGIBLE ASSETS WILL ADVERSELY IMPACT OUR NET INCOME,
AND WE MAY NEVER REALIZE THE FULL VALUE OF OUR INTANGIBLE ASSETS.

Our original purchase of the business operations from Stream International
together with subsequent acquisitions have resulted in the creation of
significant goodwill and other intangible assets, which are being amortized over
five-year periods. At June 30, 1999, we had goodwill of approximately $10.3
million, net of accumulated amortization, which represented approximately 37% of
our total assets. The amount of goodwill associated with our acquisitions of
Japanese Language Services and VeriTest may increase in the future as a result
of the contingent purchase price that may become payable if the agreed-upon
operating targets for Japanese Language Services and VeriTest, as the case may
be, are fully met. We will continue to incur non-cash charges in connection with
the amortization of our intangible assets over their respective useful lives,
and we expect these charges will have a significant adverse impact on our
ability to achieve and maintain profitability for the foreseeable future.

We cannot assure you that we will ever realize the value of these intangible
assets. In the future, as events or changes in circumstances indicate that the
carrying amount of our intangible assets may not be recoverable, we will
evaluate the carrying value of our intangible assets and may take an accelerated
charge to our earnings. Any future determination requiring the write-off of a
significant portion of unamortized intangible assets could have a material
adverse effect on our ability to achieve and maintain profitability.

9
<PAGE>
WE MAY HAVE DIFFICULTY IN IDENTIFYING AND COMPETING FOR ACQUISITION
OPPORTUNITIES.

Our business strategy includes the pursuit of strategic acquisitions. From
time to time, we have engaged in discussions with third parties concerning
potential acquisitions of niche expertise, businesses, and operations. We
currently do not have commitments or agreements with respect to any acquisition.
In executing our acquisition strategy, we may be unable to identify suitable
acquisition candidates. In addition, we expect to face competition from other
companies for acquisition candidates, making it more difficult to acquire
suitable companies on favorable terms.

PURSUING AND COMPLETING POTENTIAL ACQUISITIONS COULD DIVERT MANAGEMENT
ATTENTION AND FINANCIAL RESOURCES AND MAY NOT PRODUCE THE DESIRED BUSINESS
RESULTS.

As part of our growth strategy, we intend to pursue and make acquisitions of
other complementary businesses. We do not have specific personnel dedicated
solely to pursuing and making acquisitions. As a result, if we pursue any
acquisition, our management, in addition to their operational responsibilities,
could spend a significant amount of time and management and financial resources
to pursue and integrate the acquired business with our existing business. To pay
for an acquisition, we might use capital stock, or cash, including the proceeds
from this offering, or a combination of both. Alternatively, we may borrow money
from a bank or other lender. If we use capital stock, our stockholders will
experience dilution. If we use cash or debt financing, our financial liquidity
will be reduced. In addition, from an accounting perspective, an acquisition may
involve nonrecurring charges or involve amortization of significant amounts of
goodwill that could adversely affect our ability to achieve and maintain
profitability.

Despite the investment of these management and financial resources and
completion of due diligence with respect to these efforts, an acquisition may
not produce the revenue, earnings or business synergies that we anticipated, and
an acquired service or technology may not perform as expected for a variety of
reasons, including:

- difficulties in the assimilation of the operations, technologies, products
and personnel of the acquired company,

- risks of entering markets in which we have no or limited prior experience,

- expenses of any undisclosed or potential legal liabilities of the acquired
company,

- the applicability of rules and regulations that might restrict our ability
to operate, and

- the potential loss of key employees of the acquired company.

For example, after we acquired Japanese Language Services, Inc. in February
1998, our Japanese language revenue (including that from both our existing and
the newly-acquired operations) for the quarter ended June 30, 1998 declined as
compared to the previous quarter.

IF WE FAIL TO KEEP PACE WITH CHANGING TECHNOLOGIES, WE MAY LOSE CLIENTS.

Our market is characterized by rapidly changing client requirements, and
evolving technologies and industry standards. If we cannot keep pace with these
changes, our business could suffer. The Internet's recent growth and strong
influence in our industry magnifies these characteristics. To achieve our goals,
we need to develop strategic business solutions and methodologies that keep pace
with continuing changes in industry standards, information technology, and
client preferences.

IF WE LOSE THE SERVICES OF OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER, RORY
J. COWAN, OR OTHER KEY PERSONNEL, OUR BUSINESS AND STOCK PRICE COULD SUFFER.

In order to continue to provide quality services in our rapidly changing
business, we believe it is particularly important to retain personnel with
experience and expertise relevant to our business. Our

10
<PAGE>
future success, therefore, depends in large part on the continued services of a
number of our key personnel, including our President and Chief Executive
Officer, Rory J. Cowan. The loss of the services of Mr. Cowan or any of our
other key personnel could seriously impede our success. We might not be able to
prevent key personnel, who may leave our employ in the future, from disclosing
or using our technical knowledge, practices or procedures. One or more of our
key personnel might resign and join a competitor or form a competing company. As
a result, we might lose existing or potential clients.

DIFFICULTIES PRESENTED BY INTERNATIONAL ECONOMIC, POLITICAL, LEGAL,
ACCOUNTING, AND BUSINESS FACTORS COULD NEGATIVELY AFFECT OUR BUSINESS IN
INTERNATIONAL MARKETS.

A large component of our operations is our ability to conduct business in
international markets, as evidenced by the fact that a majority of our current
operations are outside of the United States. As a result, our business is
subject to the political and economic fluctuations in various countries,
including Japan and other Asian countries. For example, in the past, we have
experienced periods of slowdowns in revenue growth as our clients reassessed
their strategies in China and Japan based on political and economic conditions.

We must employ and retain personnel throughout the world. Furthermore,
employment laws vary widely from country to country where we operate. To date,
we have been able to successfully staff our international operations, but if we
continue to grow our operations, it may become more difficult to manage our
business. If we fail to manage these operations successfully, our ability to
service our clients and grow our business will be seriously impeded.

We have experienced long payment cycles and occasional problems in
collecting accounts receivable originating outside of the United States. We have
experienced foreign currency fluctuations and they may have a more significant
impact on our revenues, cash flow and ability to achieve and maintain
profitability as we attempt to grow our business. For more information, see
"Management's Discussion and Analysis of Financial Condition--Foreign Currency
Exchange Rate Losses" and our consolidated financial statements.

WE COMPETE IN A HIGHLY COMPETITIVE MARKET THAT HAS LOW BARRIERS TO ENTRY.

The market for our services is very competitive and we face many
competitors. We cannot assure you that we will compete successfully against
these competitors in the future. Many of these companies have longer operating
histories; significantly greater resources; and greater name recognition than
Lionbridge. If we fail to be competitive with these companies in the future, we
may lose market share and our revenues could fail to grow or decline.

There are relatively few barriers preventing companies from competing with
us. We do not own any patented technology that precludes or inhibits others from
entering our market. As a result, new market entrants also pose a threat to our
business. In addition to our existing competitors, we may face further
competition in the future from companies that do not currently offer
globalization services. Companies currently providing information technology
services may choose to broaden their range of services to include globalization.
While we currently use translation memory software in our localization process,
and to a lesser extent machine translation software, these technologies may
improve and become sophisticated enough to enable more companies to offer
localization services and thus to compete with us. We cannot assure you that we
will be able to compete effectively with these potential future competitors. For
more information, see "Business--Competition."

WE MAY NOT BE ABLE TO MAINTAIN OUR REPUTATION OR EXPAND OUR NAME
RECOGNITION.

We believe that establishing and maintaining a good reputation and name
recognition is critical to retaining our existing clients and attracting new
clients. We also believe that the importance of reputation and name recognition
will increase due to the growing number of service providers in our

11
<PAGE>
segment. If our reputation is damaged or if potential clients do not know what
services we provide, we may become less competitive or lose market share.
Promotion and enhancement of our name will depend largely on our success in
providing high quality globalization and multilingual Internet services, which
we cannot assure. If clients do not perceive our services to be of high value or
high quality, our brand name and reputation could be materially and adversely
affected.

PROBLEMS RELATED TO THE YEAR 2000 ISSUE COULD REQUIRE US TO INCUR
UNANTICIPATED DELAYS AND EXPENSES IN THE OPERATION OF OUR BUSINESS.

Year 2000 problems could cause us to incur unanticipated delays and expenses
in the operation of our business. These delays and expenses could have a
material adverse effect on our business, financial condition and results of
operations. Clients' and potential clients' purchasing patterns may be affected
by Year 2000 issues as companies expend significant resources to correct or
replace their current systems for Year 2000 compliance. These clients and
potential clients may have fewer funds available to purchase our services. We
may experience operations difficulties because of undetected errors or defects
in the technology we use in our internal systems. We have made representations
to clients concerning Year 2000 compliance and may become involved in disputes
regarding Year 2000 problems involving our solutions.

RISKS RELATED TO THIS OFFERING

THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK OR FOR THE COMMON
STOCK OF OTHER COMPANIES OFFERING THE RANGE OF SERVICES WE PROVIDE, AND THE
PRICE OF OUR COMMON STOCK AFTER THIS OFFERING MAY BE LOWER THAN THE PRICE
YOU PAY.

Prior to this offering, there has not been a public market for our common
stock or for companies providing the same range of services we offer. We intend
to include the common stock for quotation in the Nasdaq National Market. We do
not know the extent to which investor interest in Lionbridge will lead to the
development of a trading market for our common stock or how our common stock
will trade in the future. The public offering price has been determined by
negotiations between us and the representatives of the underwriters. You may not
be able to resell your shares at or above the initial public offering price.

WE ARE CONTROLLED BY A SMALL NUMBER OF STOCKHOLDERS WHICH COULD RESULT IN
THEIR TAKING ACTIONS WHICH OTHER STOCKHOLDERS DO NOT APPROVE.

Immediately following this offering and assuming the limited partnerships
sponsored by Advent International and Morgan Stanley Dean Witter purchase an
aggregate of up to 728,000 shares in the offering, Rory Cowan, Morgan Stanley
Dean Witter Venture Partners, Advent International, and Capital Resource
Partners collectively will beneficially own approximately 82.4% of the
outstanding shares (or 84.1% if the underwriters' over-allotment options are
exercised in full). If these stockholders choose to act or vote in concert, they
will have the power to influence the election of our directors, the appointment
of new management and the approval of any other action requiring the approval of
our stockholders, including any amendments to our Certificate of Incorporation
and mergers or sales of all of our assets. If these stockholders withhold their
consent, we could be prevented from entering into transactions that could be
beneficial to us.

SHARES ARE RESTRICTED FROM IMMEDIATE RESALE BUT MAY BE SOLD INTO THE MARKET
IN THE NEAR FUTURE. THIS COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO
DROP SIGNIFICANTLY.

After this offering, we will have outstanding 14,719,450 shares of common
stock. This includes the 3,500,000 shares we are selling in this offering, of
which 2,772,000 shares may be resold in the public market immediately. The
remaining 11,947,450 shares of our total outstanding shares will become
available for resale in the public market as shown in the chart below.

12
<PAGE>
As restrictions on resale end, the market price could drop significantly if
the holders of these restricted shares sell them or are perceived by the market
as intending to sell them.

<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR RESALE
NUMBER OF SHARES INTO PUBLIC MARKET
- ------------------ ----------------------------------------------------------------------------------------------
<S> <C>
11,923,178 180 days after the date of this prospectus due to a lock-up agreement these shareholders have
with Prudential Securities. However, Prudential Securities can waive this restriction at any
time and without notice.

24,272 Between 180 and 365 days after the date of this prospectus due to the requirements of the
federal securities laws.
</TABLE>

An additional 1,533,260 shares will be available for resale between 180 and
365 days after the date of this prospectus if Capital Resource Lenders and the
Morgan Stanley-sponsored limited partnerships exercise their warrants in full.
For more information, see "Certain Transactions."

OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF A PORTION OF THE NET
PROCEEDS FROM THIS OFFERING AND MAY ALLOCATE THESE NET PROCEEDS IN WAYS IN
WHICH YOU DO NOT AGREE.

Our management has significant flexibility in applying the proceeds we
receive in this offering. Although we are required to repay our subordinated
indebtedness and to redeem our Series B redeemable preferred stock, the
remaining net proceeds will not be allocated to any specific investment or
transaction.

YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION BECAUSE THE NET TANGIBLE
BOOK VALUE OF OUR COMMON STOCK ISSUED IN THIS OFFERING WILL BE LESS THAN THE
OFFERING PRICE.

The initial public offering price for this offering is substantially higher
than the net tangible book value per share of the outstanding common stock
immediately after the offering. If you purchase common stock in the offering,
you will incur immediate and substantial dilution of $9.68 per share, based on
an initial public offering price of $10.00 per share. Dilution is a reduction in
the net tangible book value per share from the price you pay per share for our
common stock. We also have outstanding a large number of stock options and
warrants to purchase common stock with exercise prices significantly below the
estimated initial public offering price of the common stock. To the extent these
options or warrants are exercised, there will be further dilution. We intend to
continue to grant a significant number of stock options to our employees.

YOU SHOULD NOT EXPECT TO RECEIVE DIVIDENDS FROM US.

Our commercial credit facility and subordinated debt restrict our ability to
pay dividends and we do not expect to declare or pay any cash dividends in the
near future.

13
<PAGE>
FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements based largely on our
current expectations and projections about future events and financial trends
affecting the financial condition of our business. The words "believe", "may",
"will", "estimate", "continue", "anticipate", "intend", "expect" and similar
expressions, as they relate to Lionbridge, our business or our management, are
intended to identify forward-looking statements. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions,
including, among other things:

- general economic and business conditions, both nationally and in our
markets,

- our expectations and estimates concerning future financial performance,
financing plans and the impact of competition,

- anticipated trends in our business,

- existing and future regulations affecting our business,

- our acquisition opportunities, and

- other risk factors set forth under "Risk Factors" in this prospectus.

We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-looking
statements.

14
<PAGE>
USE OF PROCEEDS

The net proceeds to Lionbridge from the sale of the 3,500,000 shares of
common stock in this offering are approximately $32,060,000 ($33,284,000 if the
underwriters' over-allotment option is exercised in full from us), after
deducting underwriting discounts and commissions and estimated offering
expenses.

The principal purposes of this offering are to:

- repay debt;

- obtain working capital;

- establish a public market for our common stock and increase our visibility
in the marketplace;

- create a currency for future acquisitions;

- facilitate future access to public capital markets; and

- provide liquidity to existing stockholders and optionholders.

We intend to use the net proceeds as follows:

- To pay off an aggregate of $6,000,000 of the $12,000,000 principal amount
of our senior subordinated notes held by affiliates of our directors,
Stephen M. Jenks and Guy L. de Chazal. The notes accrue interest of 12.0%
per year, interest is required to be paid quarterly and the notes mature
upon the earlier of August 25, 2001, and the completion of an underwritten
public offering by Lionbridge (other than this offering) with aggregate
gross proceeds of at least $10,000,000. Lionbridge issued the notes in
February and March 1999 and used the proceeds to finance the acquisition
of its VeriTest business and for general corporate purposes.

- To redeem all outstanding shares of our Series B redeemable preferred
stock at $100,000 per share plus and 8% annual premium. Although we have
the option to defer the redemption in full of our Series B redeemable
preferred stock under the terms of our certificate of incorporation, we
have decided to redeem all of our Series B redeemable preferred stock upon
the closing of this offering. As of June 30, 1999, the redemption amount
is approximately $15,949,000; of which approximately $843,000 is payable
to Rory J. Cowan, $7,209,000 is payable to affiliates of our director
Marcia J. Hooper, $7,209,000 is payable to affiliates of our director Guy
L. de Chazal, and $120,000 is payable to our director Paul Kavanagh.

- For general corporate purposes, including expanding our sales and
marketing capabilities, capital expenditures and potential acquisitions.

Pending these uses, we may invest the net proceeds from this offering
temporarily in short-term, investment-grade, interest-bearing securities or
guaranteed obligations of the United States government.

Lionbridge will not receive any proceeds from the sale of common stock by
the selling stockholders if the underwriters exercise their over-allotment
options.

DIVIDEND POLICY

Lionbridge has not declared or paid and does not anticipate declaring or
paying any dividends on its common stock in the near future. In addition, the
terms of our credit facility with Silicon Valley Bank prohibit the payment of
cash dividends to us by our European subsidiaries and the terms of the
subordinated notes held by Capital Resource Lenders and limited partnerships
sponsored by Morgan Stanley prohibit us from paying any dividends to our
stockholders. We currently intend to retain future earnings, if any, to fund the
expansion and growth of our business. Any future determination as to the
declaration and payment of dividends will be at the discretion of our Board of
Directors and will depend on then existing conditions, including our financial
condition, results of operations, contractual restrictions, capital
requirements, business prospects, and other factors as our Board of Directors
considers relevant.

15
<PAGE>
CAPITALIZATION

The following table sets forth as of June 30, 1999:

(i) the actual capitalization of Lionbridge,

(ii) the pro forma as adjusted capitalization of Lionbridge after giving
effect upon the closing of this offering to:

- the redemption of all outstanding shares of our Series B redeemable
preferred stock for $100,000 per share plus an 8% annual premium,

- the conversion of all outstanding shares of our Series C convertible
preferred stock into shares of our common stock,

- the repayment of $6,000,000 of the subordinated notes, and

- the sale of 3,500,000 shares of our common stock in this offering, after
deducting underwriting discounts and commissions and estimated offering
expenses, and application of the net proceeds.

You should read the following table in conjunction with Lionbridge's
consolidated financial statements and related notes appearing elsewhere in this
prospectus. This information excludes 2,621,945 shares of common stock issuable
upon exercise of outstanding options as of June 30, 1999, of which options to
purchase 472,490 shares were then exercisable, and 1,890,791 shares of common
stock reserved for future issuance under our 1998 Stock Plan. This information
also excludes 1,616,594 shares of common stock issuable upon exercise of
warrants as of June 30, 1999 and 1,000,000 shares reserved for issuance under
our 1999 Employee Stock Purchase Plan.

<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED) (UNAUDITED)

(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
DATA)
<S> <C> <C>
Amounts owed to banks........................................................... $ 143 $ 143
Short-term debt................................................................. 5,893 5,893
Long-term debt, net of discount................................................. 10,964 4,964

Redeemable convertible preferred stock, $0.01 par value:
Series A convertible preferred stock, 17,271,314 shares authorized; 13,271,314
shares issued and outstanding actual; no shares issued and outstanding pro
forma as adjusted .......................................................... 15,949 --
Series B redeemable preferred stock, 200 shares authorized; no shares issued
and outstanding actual and pro forma as adjusted............................ -- --
Series C convertible preferred stock, 17,271,514 shares authorized; no shares
issued and outstanding actual and pro forma as adjusted..................... -- --
Series D nonvoting convertible preferred stock, 200 shares authorized; 140
shares issued and outstanding actual; no shares issued and outstanding pro
forma as adjusted........................................................... -- --

Stockholders' equity (deficit):
Common stock, $0.01 par value; 25,950,867 shares authorized; 2,371,799 shares
issued and outstanding actual; 14,719,450 shares issued and outstanding pro
forma as adjusted........................................................... 24 147
Additional paid-in capital.................................................... 10,516 42,453
Accumulated deficit........................................................... (24,518) (24,518)
Deferred compensation......................................................... (3,529) (3,529)
Accumulated other comprehensive income (1).................................... 475 475
----------- -----------
Total stockholders' equity (deficit).......................................... (17,032) 15,028
----------- -----------
Total capitalization............................................................ $ 15,917 $ 26,028
----------- -----------
----------- -----------
</TABLE>

- --------------------------
(1) Represents the cumulative effect of foreign currency translation
adjustments. For more information, see Note 2 of notes to consolidated
financial statements.

16
<PAGE>
DILUTION

Purchasers of the common stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the common stock from
the initial public offering price. Net tangible book value per share represents
the amount of the total tangible assets less total liabilities of Lionbridge,
divided by the number of shares of common stock outstanding. At June 30, 1999,
Lionbridge had a pro forma net tangible book value of $(27,357,000) or $(2.44)
per share of common stock, assuming

- the redemption of all outstanding shares of our Series B redeemable
preferred stock for $100,000 per share plus an 8% annual premium upon the
closing of this offering, and

- the conversion of all outstanding shares of our Series C convertible
preferred stock into shares of our common stock upon the closing of this
offering.

After giving effect to the sale of 3,500,000 shares of common stock offered
by Lionbridge at an initial public offering price of $10.00 per share and after
the deduction of underwriting discounts and commissions and estimated offering
expenses, the pro forma net tangible book value of Lionbridge as of June 30,
1999 would have been approximately $4,703,000, or $0.32 per share. This
represents an immediate increase in pro forma net tangible book value of $2.76
per share to existing stockholders and an immediate and substantial dilution of
$9.68 per share to new investors purchasing shares of common stock in this
offering. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price.............................................. $ 10.00
Pro forma net tangible book value per share at June 30,
1999........................................................ $ (2.44)
Increase attributable to new investors........................ $ 2.76
---------
Pro forma net tangible book value after this offering...................... $ 0.32
---------
Dilution in pro forma net tangible book value to new investors............. $ 9.68
---------
---------
</TABLE>

The following table summarizes, on the pro forma basis set forth above as of
June 30, 1999, the differences between existing stockholders and new investors
in this offering with respect to the number of shares of common stock purchased
from Lionbridge, the consideration paid to Lionbridge and the average
consideration paid per share (before the deduction of underwriting discounts and
commissions and offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 11,219,450 76% $13,860,000 28% $ 1.24
New investors............................ 3,500,000 24% $35,000,000 72% $ 10.00
--------- ----- ---------- -----
Totals............................. 14,719,450 100% $48,860,000 100%
--------- ----- ---------- -----
--------- ----- ---------- -----
</TABLE>

The foregoing discussion and tables assume no sale of shares of common stock
held by existing stockholders pursuant to the underwriters' over-allotment
options. The foregoing discussion and tables also do not assume exercise of any
stock options or warrants after June 30, 1999. As of June 30, 1999, there were
83,334 shares of common stock issuable upon exercise of outstanding warrants at
an exercise price of $2.40 per share and 1,533,260 shares of common stock
issuable upon exercise of outstanding warrants at an exercise price of $0.015
per share. As of June 30, 1999, there were 2,621,945 shares of common stock
issuable upon exercise of outstanding stock options, at a weighted average
exercise price of $1.69 per share; and 1,890,791 shares of common stock reserved
for issuance under Lionbridge's 1998 Stock Plan. In addition, in June 1999,
effective upon closing of this offering, Lionbridge adopted the 1999 Employee
Stock Purchase Plan, pursuant to which 1,000,000 shares of common stock were
initially reserved for issuance. To the extent that these options are exercised,
there will be further dilution to new investors.

17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

Lionbridge was incorporated on September 11, 1996 and commenced operations
on December 23, 1996 through the acquisition of the localization businesses of
Stream International in France, Ireland, and The Netherlands. Until 1996, Stream
did not maintain complete accounting records for these localization businesses.
As a result, the accounting information required to prepare financial statements
for any period prior to 1996 is not available; and, therefore, we cannot present
selected financial data for 1994 and 1995.

The selected financial data for the year ended December 31, 1996 relating to
Stream's European localization businesses have been derived from the combined
financial statements of The Localization Businesses of Stream International
Holdings, Inc. in Ireland, The Netherlands and France which appear elsewhere in
this prospectus and which have been audited by PricewaterhouseCoopers LLP,
independent public accountants. The selected consolidated financial data as of
December 31, 1997 and 1998 and for the years then ended have been derived from
the consolidated financial statements of Lionbridge which appear elsewhere in
this prospectus and which have been audited by PricewaterhouseCoopers LLP,
independent public accountants. The selected financial data as of June 30, 1999
and for the six months ended June 30, 1998 and 1999 have been derived from
unaudited consolidated financial statements which appear elsewhere in this
prospectus. In the opinion of management, the unaudited consolidated financial
statements have been prepared on a basis consistent with the audited
consolidated financial statements that appear elsewhere in this prospectus and
include all adjustments, which are only normal recurring adjustments, necessary
for a fair presentation.

The results of operations of Lionbridge for the period from inception
(September 11, 1996) to December 31, 1996, are immaterial, consisting of no
revenues, general and administrative expenses of $158,000, interest expense of
$1,000, and a net loss of $159,000. As a result, we do not present selected
consolidated financial data for this period.

The historical results presented are not necessarily indicative of future
results. You should read the data set forth below in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes included
elsewhere in this prospectus.

18
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED
------------------------------ JUNE 30,
1996(1) 1997 1998 -------------------------
-------- -------- -------- 1998 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue........................................... $ 28,134 $ 26,462 $ 38,412 $18,132 $23,783
Cost of revenue................................... 24,977 18,914 25,546 12,226 16,607
-------- -------- -------- ----------- -----------
Gross profit.................................. 3,157 7,548 12,866 5,906 7,176
-------- -------- -------- ----------- -----------
Operating expenses:
Sales and marketing (1)......................... -- 1,306 2,735 1,206 2,613
General and administrative...................... 3,144 8,210 10,889 5,238 6,894
Amortization of acquisition-related intangible
assets........................................ -- 4,400 2,145 1,194 1,579
Restructuring charges........................... -- 541 501 451 --
Stock-based compensation........................ -- -- -- -- 232
-------- -------- -------- ----------- -----------
Total operating expenses...................... 3,144 14,457 16,270 8,089 11,318
-------- -------- -------- ----------- -----------
Income (loss) from operations..................... 13 (6,909) (3,404) (2,183) (4,142)
Interest expense:
Interest on outstanding debt.................... (154) (127) (648) (265) (889)
Amortization of original issue discount......... -- -- -- -- (4,099)
Other income (expense), net....................... (72) (506) 49 (22) (320)
-------- -------- -------- ----------- -----------
Loss before income taxes.......................... (213) (7,542) (4,003) (2,470) (9,450)
Provision for income taxes........................ -- 112 259 53 315
-------- -------- -------- ----------- -----------
Net loss.......................................... (213) (7,654) (4,262) (2,523) (9,765)
Accrued dividends on preferred stock.............. -- (1,062) (1,062) (531) (531)
-------- -------- -------- ----------- -----------
Net loss attributable to common stockholders...... $ (213) $ (8,716) $ (5,324) $(3,054) $(10,296)
-------- -------- -------- ----------- -----------
-------- -------- -------- ----------- -----------
Basic and diluted net loss per share attributable
to common stockholders (2)...................... $ (8.85) $ (2.99) $ (1.89) $ (4.64)
Shares used in computing basic and diluted net
loss per share attributable to common
stockholders.................................... 985 1,782 1,613 2,218
</TABLE>

(1) Results for the year ended December 31, 1996 reflect Stream International's
results of operations for the businesses we acquired from Stream
International on December 23, 1996. These businesses did not have any
dedicated sales and marketing personnel; therefore, Stream International
allocated a portion of its total sales and marketing expenses to these
businesses and these expenses are reflected within general and
administrative expenses for that period.

(2) See Note 2 to Lionbridge's consolidated financial statements for an
explanation of the basis used to calculate net loss per share attributable
to common stockholders.

19
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1999
-------------------- -------------------------
1997 1998 ACTUAL PRO FORMA
-------- --------- ----------- AS ADJUSTED
-----------
(UNAUDITED)
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash........................................................ $ 1,098 $ 732 $ 1,455 $ 11,566
Working capital (deficit)................................... (1,476) (7,718) (2,919) 7,192
Total assets................................................ 18,756 22,402 28,107 38,218
Long-term debt, net of discount............................. -- -- 10,964 4,964
Redeemable convertible preferred stock...................... 14,356 15,418 15,949 --
Stockholders' equity (deficit).............................. (8,086) (13,521) (17,032) 15,028
</TABLE>

The pro forma as adjusted column above gives effect upon the closing of this
offering to:

- the redemption of all outstanding shares of our Series B redeemable
preferred stock for $100,000 per share plus an 8% annual premium,

- the conversion of all outstanding shares of our Series C convertible
preferred stock into shares of our common stock,

- the repayment of $6,000,000 of the subordinated notes, and

- the sale of 3,500,000 shares of our common stock in this offering, after
deducting underwriting discounts and commissions and estimated offering
expenses, and application of the net proceeds.

20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the accompanying financial statements
and related notes included elsewhere in this prospectus.

OVERVIEW

ORGANIZATION OF LIONBRIDGE

Our predecessor, Lionbridge America, was incorporated in September 1996
(under the name Lionbridge Technologies, Inc.) to acquire the localization
businesses and assets of Stream International, as described in further detail
below under "--ACQUISITIONS." We were incorporated in October 1997 (under the
name Lionbridge Technologies Holdings, Inc.) and completed a reorganization in
February 1998 in which Lionbridge America became a wholly owned subsidiary of
Lionbridge. In June 1999, we changed our name to Lionbridge Technologies, Inc.
from Lionbridge Technologies Holdings, Inc. and the name of our subsidiary
Lionbridge Technologies, Inc. to Lionbridge America, Inc.

GENERAL

Lionbridge is a provider of globalization and multilingual Internet services
to industry-leading software publishers, computer hardware manufacturers, and
telecommunications companies. Since 1996, we have focused primarily on
globalization services, including localization, internationalization, and
testing, that enable simultaneous worldwide release and ongoing maintenance of
products and product-related technical support, training materials, and sales
and marketing information in multiple languages. More recently, as product
release, technical support, and training have evolved toward a Web-based
business model, we have begun to offer multilingual Internet services.

Lionbridge's revenues are derived from fees for services generated on a
project-by-project basis. Projects are generally billed on a time and materials
basis. Revenue is recognized using the percentage of completion method of
accounting, based on management's estimate of progress against the project plan.
The agreements entered into in connection with projects are generally terminable
by clients upon 30 days' prior written notice. If a client terminates an
agreement, it is required to pay Lionbridge for time and materials incurred
through the termination date. If clients terminate existing projects or if
Lionbridge is unable to enter into new engagements, our financial condition and
results of operations could be materially and adversely affected.

On March 19, 1999, in connection with our February and March 1999
subordinated debt financing, the Boston Business Journal published an article in
which Lionbridge was reported as estimating revenues for 1999 of $60 million.
This estimate was made while we were a private company (and thus at a time when
we did not contemplate the impact such a statement might have on potential
public investors) and was not based on a formal analysis or set of projections.
This estimate also reflected our expectation at the time that we would complete
an acquisition that we later decided not to pursue. This estimate does not
accurately reflect our current estimates of our financial performance and should
not be relied upon. In the future, our policy as a public company will be to
avoid making public estimates of our future financial performance unless
required to by law, stock exchange regulation or other compelling reasons.

Lionbridge has experienced operating losses, as well as net losses, for each
year of its operations and, as of June 30, 1999, had an accumulated deficit of
$24.5 million.

ACQUISITIONS

We have grown our business through a combination of acquisitions and organic
growth. Since our inception, we have acquired the following businesses and
assets.

21
<PAGE>
In 1996, we acquired the localization businesses of Stream International in
Ireland, The Netherlands, and France by acquiring all of the capital stock of
five subsidiaries of Stream--two subsidiaries incorporated in the Netherlands
and one each in Belgium, France and Ireland. The Belgian subsidiary was inactive
and was subsequently dissolved by Lionbridge. Stream's business was formed as
the result of a combination of R.R. Donnelley's localization business with the
business of another company, Corporate Software. R.R. Donnelley owned a majority
interest in Stream. We acquired these businesses on December 23, 1996 for $11.3
million in cash and the assumption of $100,000 of liabilities. Our acquisition
of the businesses was recorded as though the purchase had occurred on December
31, 1996, as the results of operations and changes in financial position between
the actual date of the purchase (December 23, 1996) and this date were
immaterial. In connection with this acquisition, we recorded $9.2 million of
goodwill, which is being amortized over five years. Additionally, during 1997,
we renegotiated an earlier agreement with Stream and purchased assets, including
cash, property and equipment, rights under contracts, and accounts receivable,
from three subsidiaries of Stream International which represented the
localization businesses of Stream in Japan, China, South Korea and Taiwan. We
paid approximately $100,000 in cash and assumed liabilities of $317,000 in
exchange for these assets. Following this transaction, we expanded our business
in Asia.

In June 1998, we entered into an agreement with Stream settling outstanding
inter-company balances as well as claims that we had made that Stream had
breached some of the representations, warranties and covenants that it had made
in connection with our acquisition of the European businesses. Our principal
claim was that in connection with this acquisition we had assumed more
liabilities and fewer assets than Stream had previously disclosed to us. Under
the terms of the settlement agreement, our purchase price for the European
business was reduced by $531,000.

As of January 2, 1998, Lionbridge acquired Japanese Language Services, a
company specializing in Japanese localization services with operations in the
United States and Japan, for total initial consideration of $2,323,000
consisting of cash of $2,237,000 and 286,959 shares of common stock valued at
$86,000. The shares of common stock may be redeemed, at the option of the
holder, at a price of $1.35 per share at any time from July 2001 to September
2001. Subsequent to the acquisition date, Lionbridge paid a further $449,000 and
issued 24,268 shares of common stock, valued at $36,400, in connection with the
purchase. Lionbridge may be required to pay up to an additional $125,000 in cash
based on future operating results of Japanese Language Services through December
31, 1999. In connection with this acquisition, we have recorded $2.7 million of
goodwill, not including any additional contingent amounts that may be paid in
the future. The goodwill is being amortized over five years.

In April 1998, Lionbridge acquired the business and assets of the Monterey,
California-based localization services division of Lucent Technologies for $1.0
million in cash. In connection with this acquisition, Lionbridge recorded
$470,000 of goodwill, which is being amortized over five years. The purchase of
assets from the former Lucent business provided us with a West Coast, U.S.-based
operation to enable us to further penetrate U.S.-based customers.

In January 1999, Lionbridge acquired all of the stock of VeriTest, a
California-based provider of contract and logo certification testing services.
Lionbridge paid $3.3 million in cash and issued notes totaling $750,000 and
66,668 shares of our common stock valued at $344,000. Lionbridge may also be
required to pay up to an additional $1.0 million in cash dependent upon future
operating performance of VeriTest through December 2000. In connection with this
acquisition, Lionbridge recorded $4.3 million of goodwill, not including any
additional contingent amounts that may be paid in the future. The goodwill is
being amortized over five years.

We believe our acquisitions contributed to our growth by rapidly expanding
our employee base, geographic coverage, client base, industry expertise, and
technical skills. Lionbridge anticipates that a material portion of its future
growth will be accomplished by acquiring existing businesses. Most of
Lionbridge's growth in personnel to date has been through acquisitions. The
success of this plan depends upon, among other things, Lionbridge's ability to
integrate acquired personnel, operations,

22
<PAGE>
products, and technologies into its organization effectively; to retain and
motivate key personnel of acquired businesses; and to retain customers of
acquired firms. Lionbridge cannot guarantee that it will be able to identify
suitable acquisition opportunities, obtain any necessary financing on acceptable
terms to finance any acquisitions, consummate any acquisitions, or successfully
integrate acquired personnel and operations.

RESTRUCTURING CHARGES

During the fourth quarter of 1997, the first quarter of 1998, and the fourth
quarter of 1998, Lionbridge recorded restructuring charges of $541,000, $451,000
and $50,000, respectively, in operating expenses. These charges related to
reductions to our workforce in France, where we reduced our technical staff by 9
and 5 employees in 1997 and 1998, respectively, as a result of a decrease in
resources required on a specific customer contract. These reductions in
workforce were completed to correspond with the anticipated lower volume of work
orders under the contract. All employees had been informed of their termination
and related benefits in the period that the corresponding charge was recorded
and have now left Lionbridge. The liabilities recorded in relation to the cost
of these reductions were matched by corresponding expenditures in 1998, and we
do not anticipate any future costs related to these actions nor do we anticipate
any further resource reductions associated with the customer contract. The
Company does not anticipate any significant net effect on operating results from
these actions.

NON-CASH CHARGES

DEFERRED COMPENSATION

Lionbridge recorded deferred compensation of approximately $3.8 million in
the first six months of 1999, representing the difference between the exercise
price of stock options granted and the fair market value for accounting purposes
of the underlying common stock at the date of the grant. The deferred
compensation is being amortized over the four-year vesting period of the
applicable options. Of the total deferred compensation amount, $232,000 had been
amortized as of June 30, 1999. The amortization of deferred compensation is
recorded as an operating expense. We currently expect to amortize the following
remaining amounts of deferred compensation as of June 30, 1999 in the fiscal
periods ending:

<TABLE>
<S> <C>
December 31, 1999................................................. $ 470,000
December 31, 2000................................................. $ 940,000
December 31, 2001................................................. $ 940,000
December 31, 2002................................................. $ 940,000
December 31, 2003................................................. $ 239,000
</TABLE>

ORIGINAL ISSUE DISCOUNT ON SUBORDINATED NOTES

Interest expense for the six months ended June 30, 1999 includes $4.1
million for the accretion of the original issue discount on $12.0 million of
subordinated notes issued in that period. This discount represents the $6.0
million value attributable to detachable warrants to purchase 1,533,260 shares
of common stock, at an exercise price of $0.015 per share, granted in connection
with this debt financing. As we were previously required to repay the
subordinated notes in full upon the closing of this offering, we are recording
the expense of this discount on a straight-line basis over a six-month period
from date of debt issuance to the date by which we expect this offering to
occur. Pursuant to an amendment of the debt agreements effective August 19,
1999, Lionbridge is now required to redeem only $6.0 million of the subordinated
notes upon the closing of this offering. We currently expect to record an
expense for the discount remaining as of June 30, 1999 as follows:

<TABLE>
<S> <C>
Quarter ending September 30, 1999.............................. $1.9 million
</TABLE>

23
<PAGE>
RESULTS OF OPERATIONS

The following table presents results of operations data for Lionbridge as a
percentage of total revenue for the periods presented:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1996(1) 1997 1998 1998 1999
----- ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.......................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue.................................................. 88.8 71.5 66.5 67.4 69.8
----- ------ ------ ------ ------
Gross profit..................................................... 11.2 28.5 33.5 32.6 30.2
----- ------ ------ ------ ------
Operating expenses:
Sales and marketing(1)......................................... -- 4.9 7.1 6.6 11.0
General and administrative..................................... 11.2 31.1 28.4 28.9 29.0
Amortization of acquisition-related intangible assets.......... -- 16.6 5.6 6.6 6.6
Restructuring charges.......................................... -- 2.0 1.3 2.5 --
Stock-based compensation....................................... -- -- -- -- 1.0
----- ------ ------ ------ ------
Total operating expenses..................................... 11.2 54.6 42.4 44.6 47.6
----- ------ ------ ------ ------
Loss from operations........................................... -- (26.1) (8.9) (12.0) (17.4)
Interest expense................................................. (0.5) (0.5) (1.6) (1.5) (21.0)
Other income (expense), net...................................... (0.3) (1.9) 0.1 (0.1) (1.3)
----- ------ ------ ------ ------
Loss before income taxes......................................... (0.8) (28.5) (10.4) (13.6) (39.7)
Provision for income taxes....................................... -- 0.4 0.7 0.3 1.4
----- ------ ------ ------ ------
Net loss......................................................... (0.8)% (28.9)% (11.1)% (13.9)% (41.1)%
----- ------ ------ ------ ------
----- ------ ------ ------ ------
</TABLE>

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

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998

REVENUE. Revenue for the six months ended June 30, 1999 increased 31.2% to
$23.8 million as compared to $18.1 million for the same period of the prior
year. This increase results from additional project volume during the first half
of 1999 as compared to the first half of 1998, reflecting the continued impact
of a strengthened sales organization. In addition, the first half of 1999 also
reflects revenue derived from the operations of VeriTest, which was not included
in the first half of 1998 and accounted for $1.7 million in revenue in 1999.

COST OF REVENUE. Cost of revenue consists primarily of outsourcing expense
incurred for translation services provided by third parties as well as salaries
and associated employee benefits for personnel related to client projects. As a
percentage of revenue, cost of revenue remained relatively consistent for the
six months ended June 30, 1999 from the corresponding period of the prior year.
However, the Company's fixed costs of revenue as a percentage of revenue
increased in the six months ended June 30, 1999 compared to the corresponding
period in 1998 primarily as a result of the acquisition of VeriTest in January
1999.

24
<PAGE>
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and associated employee benefits, travel expenses of sales
and marketing personnel, and promotional expenses. Sales and marketing expenses
increased 116.7% to $2.6 million for the six months ended June 30, 1999 from
$1.2 million for the six months ended June 30, 1998. This increase is
attributable to increases in the number of employees and additional marketing
initiatives to support the continued growth of the business. As a percentage of
revenue, sales and marketing expenses increased to 11.0% for the six months
ended June 30, 1999 from 6.6% for the six months ended June 30, 1998. Sales and
marketing expenses are expected to continue to increase in absolute dollars as
we continue to expand our marketing programs and sales force.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of
salaries of the management, purchasing, process and technology, finance and
administrative groups, and associated employee benefits; facilities costs,
including depreciation and amortization; information systems costs; professional
fees; travel; and all other site and corporate costs. General and administrative
expenses increased 31.6% to $6.9 million for the six months ended June 30, 1999
from $5.2 million for the six months ended June 30, 1998. This increase was
principally due to increased staffing and additional depreciation expense from a
larger fixed asset base necessary to support Lionbridge's continued growth. As a
percentage of revenue, general and administrative expenses remained constant for
the six months ended June 30, 1999 compared with the corresponding six months of
1998.

AMORTIZATION OF ACQUISITION-RELATED INTANGIBLE ASSETS. Amortization of
acquisition-related intangible assets consists of amortization of goodwill and
other intangible assets resulting from acquired businesses. Amortization
increased 32.2% to $1.6 million for the six months ended June 30, 1999 from $1.2
million for the six months ended June 30, 1998. This increase was due to the
amortization of goodwill recognized on the acquisition of VeriTest in the first
half of 1999.

INTEREST EXPENSE. Interest expense represents interest payable on debt and
the accretion of original issue discount on subordinated notes with detachable
warrants. Interest expense increased to $5.0 million for the six months ended
June 30, 1999 as compared to $265,000 for the six months ended June 30, 1998.
This increase was principally due to accretion of $4.1 million on the original
issue discount on our subordinated notes issued in 1999 and to increased
interest as a result of greater borrowings through notes issued, and our
commercial credit facility.

OTHER INCOME (EXPENSE), NET. Other income (expense), net consists primarily
of foreign currency transaction gains or losses arising from exchange rate
fluctuations on transactions denominated in currencies other than the local
currencies of the countries in which the transactions are recorded. As a
percentage of revenue, other income (expense), net increased to (1.3)% for the
six months ended June 30, 1999 from (0.1)% for the corresponding six months of
1998.

PROVISION FOR INCOME TAXES. The provision for income taxes in the six-month
periods ended June 30, 1999 and 1998 represents taxes generated in foreign
jurisdictions for which U.S. tax credit utilization is currently uncertain. We
recorded no tax benefit for losses generated during these periods due to the
uncertainty of realizing any benefit.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

REVENUE. In 1998, revenue increased 45.2% to $38.4 million from $26.5
million in 1997. This increase results from additional project volume during
1998 as compared to 1997, reflecting the impact of a more established sales and
marketing organization in 1998. Additionally, 1998 results reflect the impact of
the Japanese Language Services acquisition, which accounted for approximately
$4.0 million of revenue in 1998.

25
<PAGE>
COST OF REVENUE. As a percentage of revenue, cost of revenue decreased to
66.5% during 1998 as compared to 71.5% during 1997 due to improved utilization
of employees as Lionbridge realized increased operating leverage from its
services personnel.

SALES AND MARKETING. Sales and marketing costs increased 109.4% to $2.7
million in 1998 from $1.3 million in 1997. This increase was primarily due to
expenses associated with the hiring of additional direct sales personnel in
fiscal 1998 as we continued to establish our sales and marketing organization.
As a percentage of revenue, sales and marketing expenses increased to 7.1% from
4.9% during 1997.

GENERAL AND ADMINISTRATIVE. General and administrative costs increased
32.6% to $10.9 million in 1998 from $8.2 million in 1997 as a result of the
hiring of additional employees and other personnel-related costs as well as the
additional infrastructure costs of adding the Japanese Language Services,
Monterey and Ballina facilities. As a percentage of revenue, general and
administrative expenses decreased to 28.4% in 1998 from 31.1% in 1997 as we
began to realize the operating leverage from our infrastructure.

AMORTIZATION OF ACQUISITION-RELATED INTANGIBLE ASSETS. Amortization
decreased 51.3% to $2.1 million in 1998 from $4.4 million in 1997. This decrease
is due to the amortization of a six-month non-compete agreement between
Lionbridge and Stream International, valued at $2.6 million, which was fully
amortized in 1997. Partially offsetting this decrease is amortization expense
attributable to goodwill on the acquisition of the Japanese Language Services
and Lucent businesses in 1998.

INTEREST EXPENSE. Interest expense increased 410.2% to $648,000 in 1998
from $127,000 in 1997. The increase is due to additional interest incurred on
our commercial credit facility during 1998 as outstanding borrowings rose from
$2.2 million at December 31, 1997 to $7.7 million at December 31, 1998 to
support our growth.

OTHER INCOME (EXPENSE), NET. Other income (expense), net, was $49,000 for
the twelve months ended December 31, 1998 as compared to $(506,000) for the
twelve months ended December 31, 1997, or 0.1% and (1.9)% of revenue,
respectively.

PROVISION FOR INCOME TAXES. The provision for income taxes for the years
ended December 31, 1998 and 1997 represents taxes generated in foreign
jurisdictions for which U.S. tax credit utilization is currently uncertain. The
benefit from our utilization of net operating loss carryforwards in Europe
during those periods was recorded as a reduction of goodwill, rather than a tax
provision benefit, since the deferred tax assets associated with these
carryforwards had been fully reserved at the time we acquired Stream
International's localization businesses. We recorded no tax benefit for losses
generated during these periods due to the uncertainty of realizing any benefit.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

REVENUE. In 1997, revenue decreased 5.9% to $26.5 million as compared to
Stream International's revenues from the European localization business of $28.1
million in 1996. The decrease is primarily due to the expiration of two large
contracts at the end of 1996 and beginning of 1997. In addition, because Stream
International did not transfer any sales and marketing personnel to us, we
needed to build a sales and marketing team. As a result, sales in 1997 were
adversely impacted as we built this team.

OPERATING COSTS AND EXPENSES. Operating costs and expenses consist of cost
of revenue, sales and marketing, general and administrative expenses, and
restructuring charges. Our operating costs and expenses increased 3.0% to $29.0
million in 1997 from $28.1 million in 1996. As a percentage of revenue,
operating costs and expenses increased to 109.5% of revenue in 1997, up from
100.0% in 1996, reflecting the costs of establishing our direct sales force,
increased marketing activities, and the

26
<PAGE>
addition of centralized management and finance functions after the purchase of
Stream International's businesses in 1996.

PROVISION FOR INCOME TAXES. The provision for income taxes for the year
ended December 31, 1997 represents taxes generated in foreign jurisdictions for
which U.S. tax credit utilization is currently uncertain. The benefit from our
utilization of net operating loss carryforwards in Europe during that period was
recorded as a reduction of goodwill, rather than a tax provision benefit, since
the deferred tax assets associated with these carryforwards had been fully
reserved at the time we acquired Stream International's localization businesses.
We recorded no tax benefit for losses generated during this period due to the
uncertainty of realizing any benefit. There was no tax provision recorded for
the year ended December 31, 1996 because Stream International benefited the tax
provision with the utilization of previously unrecognized net operating loss
carryforwards.

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth unaudited consolidated quarterly financial
data for the periods indicated. We derived this data from our unaudited
consolidated financial statements, and, in the opinion of management, they have
been prepared on the same basis as the audited financial statements contained
elsewhere in this prospectus and include all adjustments, which consist only of
normal recurring adjustments, necessary to present fairly the financial results
for the periods. The operating results for any quarter are not necessarily
indicative of results for any future period.

27
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------
SEPT. MARCH SEPT. MARCH
30, DEC. 31, 31, JUNE 30, 30, DEC. 31, 31,
1997 1997 1998 1998 1998 1998 1999
-------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue........................................... $ 6,866 $ 7,382 $ 7,438 $10,694 $10,021 $10,259 $11,690
Cost of revenue................................... 5,161 5,138 5,344 6,882 6,550 6,770 8,195
-------- --------- -------- --------- -------- --------- --------
Gross profit.................................. 1,705 2,244 2,094 3,812 3,471 3,489 3,495
-------- --------- -------- --------- -------- --------- --------
Operating expenses:
Sales and marketing............................. 341 369 527 679 749 780 1,172
General and administrative...................... 2,139 2,327 2,387 2,851 2,690 2,961 3,233
Amortization of acquisition-related intangible
assets........................................ 1,100 1,100 561 633 441 510 766
Restructuring charges........................... -- 541 451 -- -- 50 --
Stock-based compensation........................ -- -- -- -- -- -- 45
-------- --------- -------- --------- -------- --------- --------
Total operating expenses...................... 3,580 4,337 3,926 4,163 3,880 4,301 5,216
-------- --------- -------- --------- -------- --------- --------
Loss from operations.............................. (1,875) (2,093) (1,832) (351) (409) (812) (1,721)
Interest expense.................................. (36) (27) (86) (179) (196) (187) (1,468)
Other income (expense), net....................... 60 (535) 42 (64) (22) 93 (181)
-------- --------- -------- --------- -------- --------- --------
Loss before income taxes.......................... (1,851) (2,655) (1,876) (594) (627) (906) (3,370)
Provision for income taxes........................ -- 112 36 17 36 170 45
-------- --------- -------- --------- -------- --------- --------
Net loss.......................................... $(1,851) $(2,767) $(1,912) $ (611) $ (663) $(1,076) $(3,415)
-------- --------- -------- --------- -------- --------- --------
-------- --------- -------- --------- -------- --------- --------
AS A PERCENTAGE OF REVENUE:
Revenue........................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue................................... 75.2 69.6 71.8 64.4 65.4 66.0 70.1
-------- --------- -------- --------- -------- --------- --------
Gross profit.................................. 24.8 30.4 28.2 35.6 34.6 34.0 29.9
-------- --------- -------- --------- -------- --------- --------
Operating expenses:
Sales and marketing............................. 5.0 5.0 7.1 6.3 7.5 7.6 10.0
General and administrative...................... 31.1 31.5 32.1 26.7 26.8 28.9 27.6
Amortization of acquisition-related intangible
assets........................................ 16.0 14.9 7.5 5.9 4.4 5.0 6.6
Restructuring charges........................... -- 7.3 6.1 -- -- 0.4 --
Stock-based compensation........................ -- -- -- -- -- -- 0.4
-------- --------- -------- --------- -------- --------- --------
Total operating expenses...................... 52.1 58.7 52.8 38.9 38.7 41.9 44.6
-------- --------- -------- --------- -------- --------- --------
Loss from operations.............................. (27.3) (28.3) (24.6) (3.3) (4.1) (7.9) (14.7)
Interest expense.................................. (0.5) (0.4) (1.2) (1.7) (2.0) (1.8) (12.6)
Other income (expense), net....................... 0.8 (7.3) 0.6 (0.6) (0.2) 0.9 (1.5)
-------- --------- -------- --------- -------- --------- --------
Loss before income taxes.......................... (27.0) (36) (25.2) (5.6) (6.3) (8.8) (28.8)
Provision for income taxes........................ -- 1.5 0.5 0.1 0.3 1.7 0.4
-------- --------- -------- --------- -------- --------- --------
Net loss.......................................... (27.0)% (37.5)% (25.7)% (5.7)% (6.6)% (10.5)% (29.2)%
-------- --------- -------- --------- -------- --------- --------
-------- --------- -------- --------- -------- --------- --------

JUNE 30,
1999
---------

<S> <C>
Revenue........................................... $12,093
Cost of revenue................................... 8,412
---------
Gross profit.................................. 3,681
---------
Operating expenses:
Sales and marketing............................. 1,441
General and administrative...................... 3,661
Amortization of acquisition-related intangible
assets........................................ 813
Restructuring charges........................... --
Stock-based compensation........................ 187
---------
Total operating expenses...................... 6,102
---------
Loss from operations.............................. (2,421)
Interest expense.................................. (3,520)
Other income (expense), net....................... (139)
---------
Loss before income taxes.......................... (6,080)
Provision for income taxes........................ 270
---------
Net loss.......................................... $(6,350)
---------
---------
AS A PERCENTAGE OF REVENUE:
Revenue........................................... 100.0%
Cost of revenue................................... 69.6
---------
Gross profit.................................. 30.4
---------
Operating expenses:
Sales and marketing............................. 11.9
General and administrative...................... 30.3
Amortization of acquisition-related intangible
assets........................................ 6.7
Restructuring charges........................... --
Stock-based compensation........................ 1.5
---------
Total operating expenses...................... 50.4
---------
Loss from operations.............................. (20.0)
Interest expense.................................. (29.1)
Other income (expense), net....................... (1.2)
---------
Loss before income taxes.......................... (50.3)
Provision for income taxes........................ 2.2
---------
Net loss.......................................... (52.5)%
---------
---------
</TABLE>

Lionbridge has experienced quarter-to-quarter variability in its revenues
and gross profit. This variability is due to fluctuations in our clients'
product release cycles, the length of our sales cycle, rapid growth,
acquisitions, the emerging nature of the markets in which we compete and other
factors outside our control. We believe that quarter-to-quarter comparisons of
results of operations are not necessarily meaningful. You should not rely on
these comparisons as a measure of future performance.

28
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

Since its formation, Lionbridge has relied primarily on private sales of
equity securities (totaling approximately $13.3 million through December 31,
1998) and borrowings to fund operations. We have incurred significant losses
since our inception and, at June 30, 1999, had an accumulated deficit of $24.5
million and a working capital deficit of $2.9 million. We conduct our business
through our wholly owned subsidiaries in the United States and overseas.

We have a commercial credit facility with Silicon Valley Bank that allows
Lionbridge to borrow up to $8.0 million and that expires on September 20, 1999.
The facility requires Lionbridge to maintain financial ratios and restricts the
payment of dividends. The facility bears interest at the bank's prime rate plus
1% (8.75% at June 30, 1999) and is collateralized by worldwide accounts
receivable and work in process. As of June 30, 1999, $5.9 million was
outstanding under the facility.

In the first quarter of 1999, we entered into subordinated loan agreements
with Morgan Stanley Venture Capital Fund II Annex, L.P. and Morgan Stanley
Venture Investors Annex, L.P., each stockholders of Lionbridge, and Capital
Resource Lenders III, L.P. Under the terms of the agreements, we issued $12.0
million of subordinated notes with detachable warrants to purchase 1,533,260
shares of our common stock at an exercise price of $0.015 per share. In
connection with this offering, we are repaying $6.0 million of these notes. The
remaining $6.0 million of these notes bear interest at 12% per year and are due
upon the earlier of August 25, 2001 and our completion of an underwritten public
offering (other than this offering) with aggregate gross proceeds of at least
$10.0 million. Capital Resource Lenders and the limited partnerships affiliated
with Morgan Stanley agreed to defer the repayment of $6 million in subordinated
notes that would otherwise have been due upon the completion of this offering in
order to enable Lionbridge to meet its anticipated liquidity needs over the next
18 months with reasonable liquidity reserves to meet unanticipated
contingencies. As of March 31, 1999, we were not in compliance with one of the
covenants common to each of the above loan agreements. We subsequently obtained
waivers from the Morgan Stanley-sponsored limited partnerships and Capital
Resource Lenders which release us from the requirement to comply with that
covenant for the quarter ended March 31, 1999 and for the quarters ending June
30 and September 30, 1999.

Net cash used in operations was $1.4 million in 1997, $1.7 million in 1998,
and $4.4 million in the six months ended June 30, 1999. Cash used in these
periods was primarily to fund the net losses of $7.7 million, $4.3 million and
$9.8 million incurred during these periods, respectively, offset in part by
depreciation, amortization and other non-cash expenses and increases in
operating assets and liabilities. Increases in operating assets and liabilities
were largely the result of the growth of our business operations during these
periods. We have not experienced any significant trends in accounts receivable
other than changes relative to increases in sales. Fluctuations in accounts
receivable from period to period relative to changes in sales are a result of
the timing of customer invoicing and receipt of milestone payments from
customers.

Net cash used in investing activities was $426,000 in 1997, $4.5 million in
1998, and $4.8 million in the six months ended June 30, 1999. Investing
activities for these periods were primarily purchases of equipment and the
acquisitions of Japanese Language Services and the localization services
division of Lucent Technologies in 1998 and VeriTest in 1999.

Net cash provided by financing activities was $1.3 million in 1997, $5.9
million in 1998, and $10.0 million in the six months ended June 30, 1999,
primarily due to the borrowings against our bank line of credit in each period
as well as the issuance of the subordinated debt in 1999.

As of June 30, 1999, Lionbridge's other significant financial commitments
consisted of $750,000 of notes payable as well as obligations under operating
leases. Additionally, we will redeem our Series B

29
<PAGE>
redeemable preferred stock upon the closing of this offering. The redemption
amount at June 30, 1999 was approximately $15.9 million.

Lionbridge has an agreement with the Irish Industrial Development Agency
regarding financial grants to our Irish subsidiary from this agency. Under the
agreement, the Irish subsidiary may not pay dividends or otherwise distribute
its cash, including any distributions to Lionbridge. In addition, our European
subsidiaries, including our Irish subsidiary, are restricted from paying
dividends to us under the terms of our commercial credit facility with Silicon
Valley Bank. These restrictions have not had a material impact on Lionbridge or
any of our subsidiaries and we do not expect that these restrictions will have a
material impact in the future.

As of June 30, 1999, we had cash of $1.5 million and an additional $2.1
million available for borrowing under the bank line of credit. Our future
financing requirements will depend upon a number of factors, including the
Company's operating performance and increases in operating expenses associated
with growth in our business. We anticipate that the net proceeds of this
offering, together with existing cash and available financing, should provide
adequate cash to fund our currently anticipated cash needs through at least the
next 18 months. We cannot assure you that additional financing, if needed, will
be available to Lionbridge at terms acceptable to us, if at all.

YEAR 2000 READINESS DISCLOSURE

The Year 2000 problem is the potential for system and processing failures of
date-related data arising from the use of two digits by computer-controlled
systems, rather than four digits, to define the applicable year. Because we and
our clients are dependent, to a very substantial degree, upon the proper
functioning of our and their computer systems, a failure of our or their systems
to correctly recognize dates beyond December 31, 1999 could materially disrupt
our operations, which could materially and adversely affect our business,
results of operations, and financial condition. Additionally, our failure to
provide Year 2000-compliant services to our clients could result in financial
loss, harm to our reputation and legal liability. Likewise, the failure of
computer systems and products of the third parties with which we transact
business to be Year 2000-compliant could materially disrupt their and our
operations.

STATE OF READINESS. We have made an assessment of the Year 2000 readiness
of our information technology ("IT") systems, including the hardware and
software that enable us to provide services. Our Year 2000 readiness plan
consists of:

- quality assurance testing of our internally developed proprietary
software,

- contacting third-party vendors and licensors of material software and
services that are both directly and indirectly related to the delivery of
our services,

- assessing our repair and replacement requirements, and

- creating contingency plans in the event of Year 2000 failures.

We have begun to contact our third party vendors and service providers to
assess their Year 2000 compliance. We have been informed by all of our material
software component vendors that the products we use are currently Year
2000-compliant. We are currently completing the assessment of our non-IT systems
and will seek assurance of Year 2000 compliance from providers of material
non-IT systems. We expect to complete this review by September 30, 1999 and any
resulting contingency plans by October 31, 1999. Until testing is complete and
we contact these vendors and providers, we will not be able to completely
evaluate whether our IT systems or non-IT systems will need to be revised or
replaced.

COSTS. We have made the majority of our equipment and other purchases over
the course of the last two years, and we believe this equipment is Year
2000-compliant. As a result, we have not incurred

30
<PAGE>
any material costs in identifying or evaluating Year 2000 compliance issues.
Based on our assessment to date, we do not anticipate that costs associated with
remediating our non-compliant IT systems or non-IT systems will be material. We
expect that our existing employees or consultants will perform any significant
work pertaining to Year 2000 compliance.

RISKS. We believe that our internal software and hardware systems will
function properly with respect to dates in the Year 2000 and thereafter. Year
2000 problems of our clients, suppliers and service providers could affect our
systems or operations. Our primary vendors consist of individual translators and
other service professionals who are not expected to be materially impacted by
the Year 2000 issue. We do have relationships with various financial
institutions and telecommunications providers throughout the world which could
be materially impacted by this problem. We have contacted our financial
institutions and critical telecommunications providers and based on their
responses, we believe our operations will not be materially impacted by Year
2000 problems. In addition, we cannot assure you that governmental agencies,
utility companies, Internet access companies, third party service providers, and
others outside our control will be Year 2000-compliant. Because we depend
heavily on the availability of the Internet to conduct our business and provide
services to our clients, disruptions in the use of the Internet arising from
Year 2000 problems could materially affect our business, financial condition,
and results of operations.

Widespread Year 2000 difficulties could also decrease demand for our
services as companies expend resources upgrading their computer systems.
Although, as a general matter, we do not specifically contract with or warrant
to our clients that our work will be Year 2000-compliant, several clients have
requested and received this warranty. In these cases, we do not warrant the
compliance of the client's source material; rather, we warrant only that the
localized version created by us will not include new routines which fail to be
Year 2000-compliant. In addition, through our VeriTest labs we provide Year 2000
testing services on customer products, but we expressly exclude any warranty,
guaranty, or certification of Year 2000 compliance, compatability or the
functionality of the customer's products. Although we believe we have
effectively limited our risk of warranty claims for Year 2000 problems, there is
still a risk that clients for whom we have localized or tested software will
attempt to hold us liable for any damages that result in connection with Year
2000 problems.

CONTINGENCY PLAN. As discussed above, we are engaged in an ongoing Year
2000 assessment and are developing contingency plans in case of Year 2000
disruptions. We will take into account the results of our Year 2000 simulation
testing and the responses received from third party vendors and service
providers in determining the nature and extent of any contingency plans.

FOREIGN CURRENCY EXCHANGE RATE LOSSES

The majority of our contracts with clients are denominated in U.S. dollars.
However, 73% of our costs and expenses in 1998 and 62% of our costs and expenses
for the six months ended June 30, 1999 were denominated in foreign currencies.
59% and 64% of our assets were recorded in foreign currencies as of December 31,
1998 and June 30, 1999. 48% and 43% of our liabilities were recorded in foreign
currencies as of December 31, 1998 and June 30, 1999. Therefore, we are exposed
to foreign currency exchange risks. We have not historically tried to reduce our
exposure to exchange rate fluctuations by using hedging transactions. However,
we may choose to do so in the future. We may not be able to do this
successfully. Accordingly, we may experience economic loss and a negative impact
on earnings and equity as a result of foreign currency exchange rate
fluctuations.

CONVERSION TO THE EURO

On January 1, 1999, 11 European countries began using the euro as their
single currency, while still continuing to use their own notes and coins for
cash transactions. Banknotes and coins denominated in euros are expected to be
in circulation by 2002, at which time local notes and coins will

31
<PAGE>
cease to be legal tender. Lionbridge conducts a significant amount of business
in these countries. The introduction of the euro has not resulted in any
material adverse impact upon our operations, although we continue to monitor the
effects of the conversion.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair values. Changes in
the fair values of derivatives are recorded each period in current earnings or
other comprehensive income (loss), depending on whether or not a derivative is
designated as part of a hedge transaction and, if it is, depending on the type
of hedge transaction. SFAS No. 133, as amended by SFAS No. 137, will be
effective for Lionbridge's fiscal quarter beginning January 1, 2001, and we do
not expect its adoption will have a material impact on our financial position or
results of operations.

In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for our fiscal 1999 financial statements, and we do not
expect its adoption will have a material effect on our financial position or
results of operations.

32
<PAGE>
BUSINESS

OVERVIEW

Lionbridge is a provider of globalization services to industry-leading
software publishers, computer hardware manufacturers, and telecommunications
companies. Globalization is the process of adapting products or services to meet
the demands of local cultures. Since 1996, we have focused primarily on
globalization services, including localization, internationalization, and
testing, that enable simultaneous worldwide release and ongoing maintenance of
products and related technical support, training materials, and sales and
marketing information in multiple languages. As product releases, technical
support and training have evolved toward a Web-based business model, we have in
turn begun to offer multilingual Internet services. While the Internet has been
an integral part of our operations and our relationships with our customers for
several years, in the last year we have developed new multilingual Internet
service offerings that are focused on this rapidly changing business
opportunity.

INDUSTRY BACKGROUND

Companies around the world are increasingly operating on a global scale. To
operate efficiently, companies must standardize their hardware, software, and
telecommunications infrastructures throughout their global organization. As a
result, technology companies that provide hardware, software, and
telecommunications products must also operate on a global scale to address their
customers' needs. This is one of the reasons that in 1997 approximately 54% of
worldwide software sales were generated outside of the United States, according
to International Data Corporation.

Historically, technology companies first developed products for their home
markets and then created foreign language versions that were compatible with
local operating systems and standards. The complexity of developing these
localized versions often resulted in product releases being delayed from six
months to a year after delivery of the home-country version. In the interim, end
users of technology products often faced version and compatibility conflicts
throughout their global organizations. As a result, global end users of
technology now demand:

- simultaneous product release of the home-country and localized versions,

- independent third party testing and certification to provide assurance of
compatibility with local operating systems and international standards,
and

- customer support, testing, and training in local languages wherever the
end user operates around the world.

To meet these demands, the market for globalization services has evolved
beyond translation to encompass:

- LOCALIZATION. The re-engineering and translation of user interfaces,
online help, documentation, technical support databases, training
materials, and sales and marketing information.

- INTERNATIONALIZATION. The re-engineering of source code so that products
and applications are compatible with country-specific operating systems
and software.

- MULTILINGUAL PRODUCT TESTING. The testing of products to verify that they
have been properly localized and/or internationalized.

With the increasing complexity of many technology products today, product
globalization requires the integration of a broad range of disciplines and
specialized technical resources with a global communications and project
management infrastructure.

The Internet is transforming business worldwide by removing the barriers of
time and geography. As the world becomes more technology-enabled, companies are
using the Internet to conduct operations, manage constituents, distribute
products, and communicate both internally and externally

33
<PAGE>
on a worldwide basis. Internet content is predominantly in English, but a
growing percentage of Internet users do not speak English as their first
language. Computer Economics, an independent research firm, predicts that by
2002 a majority of Internet users will be non-English speaking. Although the
Internet offers significant opportunities, companies cannot take full advantage
of these opportunities unless they accommodate users' local languages, cultures,
and technical environments.

Technology companies now use the Internet to:

- RELEASE PRODUCTS. Software products are increasingly distributed over the
Internet or redesigned as Web-based applications. Today, many software
publishers regularly post product updates and enhancements on their Web
sites.

- PROVIDE TECHNICAL SUPPORT. Demonstrated cost benefits and improved
customer satisfaction are driving businesses to provide Web-based
technical support for their end users. As a result, companies are
supplementing technical support call centers with Web-based self-help
offerings such as frequently asked questions and technical support
databases. Gartner Group has estimated that the cost of providing
Internet-based support ranges between $0.25 and $3.50 per request compared
to $5.01 per call using traditional telephone-based customer support.
International Data Corporation estimates that this market was
approximately $1.8 billion in 1998 and expects it to grow to approximately
$13.9 billion in 2003.

- DELIVER PRODUCT TRAINING. Self-directed Web-based courseware, product
training, and accreditation is beginning to replace classroom-based,
instructor-led training. International Data Corporation estimates that the
market for Internet-based information technology learning will grow from
$440 million in 1998 to $4.1 billion in 2002.

- MARKET AND SELL PRODUCTS. Lionbridge believes that e-commerce, while
predominately U.S.-based today, will become a global phenomenon. Today,
companies routinely localize their sales and marketing information for
posting to their Web site. Lionbridge believes this trend will expand to
include Internet storefronts and e-commerce applications.

The following diagram depicts the effect the Internet is having on the way
companies conduct business.

[GRAPHIC]

Few companies have the combination of engineering, linguistic, testing, and
project management skills needed to successfully globalize their products and
services for simultaneous worldwide release. In addition, because the demand for
globalization services at most companies is variable, it is usually not

34
<PAGE>
cost-effective for them to maintain a full suite of in-house globalization
resources. Lionbridge believes that technology companies recognize that
localization is not a core competency. As a result, they are increasingly
outsourcing their globalization and multilingual Internet activities, which
allows them to accelerate time-to-market, minimize their fixed costs, and
reallocate their resources to core product development activities.

Although many companies provide translation and other discrete
localization-related services, Lionbridge believes few companies offer a
complete globalization and multilingual Internet solution. Lionbridge believes
that technology companies are demanding a one-stop globalization and
multilingual Internet service provider to meet their global product development,
technical support, training, and sales and marketing requirements.

LIONBRIDGE'S SOLUTION

We provide a complete globalization and multilingual Internet offering to
businesses, particularly industry-leading software publishers, computer hardware
manufacturers, and telecommunications companies. Our full suite of services
improve the quality, consistency, and timeliness of our clients' international
product releases, technical support, training materials, and sales and marketing
information. Lionbridge serves as a globalization partner throughout a client's
product development and support lifecycle by offering:

- localization, translation, and internationalization services,

- compliance, compatibility, and localization testing of software and
hardware, and

- project management throughout the globalization process.

We have invested in the development of our proprietary RAPID GLOBALIZATION
METHODOLOGY, a process which is at the heart of each client engagement. Our
RAPID GLOBALIZATION METHODOLOGY standardizes processes, defines key activities,
and specifies goals for each project. This approach to a project benefits our
clients by enabling Lionbridge to provide consistent quality and timely delivery
of localized versions of products and related materials across multiple
geographies and languages. Our RAPID GLOBALIZATION METHODOLOGY emphasizes the
integration of process and technology into the globalization process to achieve
operational efficiencies and predictable, measurable results. This methodology
also facilitates the identification, capture, and sharing of valuable knowledge
and best practices throughout our organization, enabling us to continuously
improve the quality and efficiency of our services. The RAPID GLOBALIZATION
METHODOLOGY is generally supported by our proprietary internal LIONTRACK
workflow systems, LIONTRACK WORKGROUP and LIONTRACK ENTERPRISE.

- LIONTRACK WORKGROUP enables our clients to submit files and translation
instructions to us via the Internet for automated routing throughout the
localization process. Our clients can use LIONTRACK WORKGROUP to monitor
the real-time progress of individual components of an assignment, which
allows them to plan their product release schedule more effectively.

- LIONTRACK ENTERPRISE has been designed for the demanding localization
requirements of large, complex Web sites that are subject to continuous
updating, and LIONTRACK ENTERPRISE, which became operational in July 1999,
connects directly to our client's Web site, automatically detecting and
extracting required changes through our Web-crawling technology. LIONTRACK
ENTERPRISE routes those changes for translation and localization, and
automatically inserts the localized material into the client's
multilingual Web sites. We expect LIONTRACK ENTERPRISE to enable clients
to maintain continuously updated multilingual Web sites without
disruption, freeing them to focus on content development.

We believe that expanded global competition and worldwide Internet access
will increase the demand for our services. We also believe that by offering a
one-stop solution to globalization and

35
<PAGE>
multilingual Internet service needs, Lionbridge is an attractive strategic
partner to companies operating in a global marketplace.

LIONBRIDGE'S GROWTH STRATEGY

Lionbridge's goal is to become the leading provider of globalization and
multilingual Internet services. The following are the key elements of our
strategy:

LEVERAGE EXISTING CLIENTS. We seek to increase the services we provide to
our existing clients by selling to other product groups within the same
client organization. In addition, we seek to leverage product knowledge
acquired on one project (for example, globalization of a product release) to
sell services to different enterprise functions within the same client (for
example, compliance testing, logo certification, localization of customer
support knowledgebases, and training materials).

CONTINUE STRATEGIC ACQUISITIONS. We intend to continue pursuing strategic
acquisitions that provide greater niche expertise, complementary service
offerings, additional geographic reach, and new clients. In 1998, we
acquired businesses that gave us valuable expertise in Japanese localization
and a facility on the west coast of the United States. In 1999, we acquired
compliance testing and certification capabilities.

EVOLVE OUR METHODOLOGY AND WORKFLOW SYSTEMS. Lionbridge intends to continue
investing in the development of our RAPID GLOBALIZATION METHODOLOGY and
LIONTRACK workflow systems. We have a dedicated process and technology group
that works closely with our operations groups to refine and enhance our core
methodology and systems based on best practices and client feedback. This
focus enables Lionbridge to continuously improve the quality,
predictability, and efficiency of our services across geographies and
languages.

PURSUE MULTI-YEAR RELATIONSHIPS WITH CLIENTS. We intend to pursue multi-year
relationships with clients who seek an outsourcing partner. This could
involve the acquisition of selected companies' internal localization
operations and entering into multi-year agreements with the sellers of these
operations.

EXPAND INTO ADDITIONAL VERTICAL MARKETS. We initially focused on providing
globalization and multilingual Internet services to software publishers and
computer hardware manufacturers. Our client base has since expanded to
include telecommunications companies. We intend to continue expanding into
additional industries that are global and information-intensive, such as the
automotive and medical device industries.

LIONBRIDGE SERVICES

We provide a full suite of globalization and multilingual Internet services
to businesses--primarily technology businesses--to improve the quality,
consistency, and timeliness of their international product releases, technical
support, training materials, and sales and marketing information. Our
globalization services consist of the following:

- SOFTWARE LOCALIZATION. Lionbridge creates foreign language versions of
software products and applications, including the user interface, online
help systems, and documentation. We provide our clients with
re-engineered, fully tested, and culturally adapted multilingual versions
of their products and applications.

- INTERNATIONALIZATION. Lionbridge provides source code analysis and
engineering services that enable software to be compatible with
country-specific operating systems and localized software. Through a
complex and highly specialized process, we re-engineer code to support the
"double-byte" character set requirements of the Japanese, Chinese, and
Korean languages.

36
<PAGE>
- TRANSLATION. Lionbridge uses a combination of internal and external
translators, as well as translation software, for its projects. We have
approximately 35 translators who are employees and we also have
established relationships with a global network of over 2,000 in-country
translators, including independent agencies and freelance professionals. A
majority of our translation costs are attributable to outsourcing these
services to in-country translators. We develop and apply glossaries to
ensure consistent terminology across projects for a specific company or
industry. We also use translation memory software to identify previously
translated material for re-use. Our project editors review translated
material to ensure that it meets our standards for quality and accuracy.
Historically, a majority of our revenue from translation services has
involved translating information from English to various foreign
languages.

- LOCALIZATION AND INTERNATIONALIZATION TESTING. We provide both
localization testing, and software, hardware, and telecommunications
internationalization testing through our global network of VeriTest labs.
Testing provides an opportunity to uncover errors before the product is
placed into production and into the hands of end users. The goal of
localization testing is to ensure that local language versions of the
product perform consistently with the source language version.
Internationalization testing is necessary to ensure that localized
products function properly in the local hardware and software environment,
including local operating systems, peripheral devices, and networking and
communications standards.

- LOGO CERTIFICATION. Lionbridge, under its VeriTest brand, provides logo
certification programs for many of the leading software companies,
including Autodesk, BMC Software, Microsoft, and Oracle. These sponsoring
companies retain Lionbridge to develop and administer test criteria that
independent software vendors must satisfy before they may display the
sponsor's logo (such as Microsoft's CERTIFIED FOR WINDOWS 2000-TM-) on
their products. The logo is an indication of software quality and
compatibility for end users. Other Lionbridge logo programs include BUILT
WITH OBJECT ARX-TM- (Autodesk), BMC CERTIFIED FOR PATROL-TM-, DESIGNED FOR
MICROSOFT WINDOWS NT AND WINDOWS 98-TM-, and ORACLE E-CERTIFIED
WAREHOUSE-TM-.

- MULTILINGUAL TECHNICAL PUBLISHING. We localize user manuals, marketing and
training materials, and other product support information using a variety
of desktop publishing and graphics software. Using workflow technology,
multiple language versions are simultaneously delivered to our clients in
formats ready for printing or Internet delivery.

Our revenues from primary products and services, excluding non-multilingual
compatibility testing and logo certification, were 100%, 100%, and approximately
93% of consolidated revenues for the years ended December 31, 1997 and 1998 and
for the six-month period ended June 30, 1999, respectively.

As our clients increasingly use the Internet to deliver products, technical
support, training materials, and sales and marketing information, we are
adapting our service offerings to support our clients' Web-based initiatives. We
are organizing our multilingual Internet services in four key areas:

ERELEASE

Lionbridge localizes software products and Web applications into multiple
languages. With the emergence of the Internet, our clients are redesigning their
software products as Web components and applications, then releasing them and
providing continuous updates over the Internet. Lionbridge provides the
methodology and workflow systems to support continuous release of multilingual
products and updates via the Web.

37
<PAGE>
ESUPPORT

We offer localization and maintenance of technical support Web sites,
including frequently asked questions, product specifications, white papers, and
technical support databases. As our clients continuously update this Web-based
information, we automatically update the multilingual versions as well. We have
also begun to assist our clients in providing local language responses to
technical support questions through e-mail.

ELEARNING

Our multilingual eLearning services enable our clients to provide updated
training materials on the Web in multiple languages and culturally appropriate
formats as they move from instructor-led classroom training to Internet distance
learning.

ECOMMERCE

We localize Web-based sales and marketing materials for our clients who sell
their products via the Internet. Our services support continuous updates and
revisions to these materials.

As corporate Web sites become an integrated global resource, Lionbridge
believes that our multilingual Internet services will assist multinational
corporations in maintaining the quality and consistency of their Web-based
products and content in multiple languages.

SALES AND MARKETING
Substantially all of Lionbridge's revenue has been generated through its
dedicated direct sales force. We currently have 20 direct sales professionals
based in the United States, Europe, and Asia who sell the full range of
Lionbridge globalization and multilingual Internet services. Our sales approach
is highly consultative and often involves planning for an organization's ongoing
requirements, including future versions of products, and ongoing support,
maintenance, and training, related to both traditional and Web deployment. There
are often several different functional areas within the same organization that
require one or more of our services. Many of our clients do not coordinate these
purchases but buy these services at the department head level. As a result, our
sales professionals may call on several functional departments and at various
management levels within the same client organization. Our sales cycle varies
significantly, but typically takes six to twelve months.

Lionbridge's marketing efforts are designed to create brand recognition and
demand for Lionbridge services throughout the world. Lionbridge's seven-person
corporate marketing team is supplemented by marketing representatives in each
country in order to provide a consistent global message. Marketing programs
include targeted industry and solution-specific advertising campaigns, trade
show participation, speaking engagements, and promotion of customer success
stories. We plan to continue expanding our sales and marketing activities.

38
<PAGE>
CLIENTS

Lionbridge customers are generally large multi-national organizations in the
software, hardware and telecommunications industries. The following companies
are representative Lionbridge clients in 1998:

<TABLE>
<S> <C> <C>
3Com Corel Novell
Adobe Data General Oce
Aurum Gateway Oracle
Autodesk IBM Page Factory
Avid J.D. Edwards Parametric Technology
Baan Kodak Portal
Bentley Systems Macromedia PowerQuest
Bull Microsoft Silicon Graphics
Candle Motorola SPSS
Cognos Network Associates Sun Microsystems
</TABLE>

In 1998, Lionbridge's largest client, IBM, accounted for approximately 14%
of total revenue. In 1997 and 1998, our five largest clients accounted for
approximately 52% and 39%, respectively, of revenue.

COMPETITION

Lionbridge provides a broad range of globalization and multilingual Internet
service offerings to its clients. The market for our services is highly
fragmented, and we have many competitors. Our current competitors include the
following:

- localization or translation services providers such as Berlitz
International, Bowne & Co., Lernout and Hauspie, Sykes Enterprises and
regional vendors of translation services specializing in specific
languages in particular geographic areas,

- companies providing outsourcing of technical support call centers
including Stream International and Sykes Enterprises, and

- independent testing labs providing testing and logo certification services
such as National Software Testing Laboratories (a division of CMP Media),
and Keylabs.

Although we have competed favorably with these companies to date, we cannot
assure you that we will be able to do so in the future. Many of these companies
have longer operating histories; significantly greater financial, marketing and
other resources; and greater name recognition than Lionbridge. If we fail to be
competitive with these companies in the future, our business will be materially
and adversely affected.

Lionbridge also faces competition from internal localization departments in
large multi-national companies. Although many companies are finding that
simultaneous global release and ongoing maintenance of Web-based applications
require new skill sets that are not available in-house, many companies may still
perform these services in-house rather than outsourcing them. If these companies
continue to localize their own products, Lionbridge's business, financial
condition and results of operations may be adversely affected.

We may also face competition from companies that provide outsourcing of
technical support call centers. As businesses shift from telephonic support
centers to Web-based support, companies such as Stream International, Sykes
Enterprises and others that currently provide traditional outsourcing services
may decide to provide comparable services over the Internet. If these or other
companies

39
<PAGE>
choose to expand their service offerings, we cannot assure you that Lionbridge
will be able to compete with them successfully.

Lionbridge believes the principal competitive factors in providing its
services include project management expertise, quality, speed of service
delivery, vertical industry knowledge, the ability to provide clients end-to-end
localization solutions, expertise in certain geographic areas, corporate
reputation, and expertise in Internet-related services.

We believe we compete favorably with respect to these factors. We have
developed significant expertise in project management which has allowed us to
provide high-quality and quick service in our clients' particular industries and
geographic regions. We have been able to successfully provide our customers with
a one-stop globalization service and have recently begun to offer our
Internet-related services. As a result, we have been able to develop a strong
reputation in our industry.

There are relatively few barriers preventing companies from competing with
us. We do not own any patented technology that precludes or inhibits others from
entering our market. As a result, new market entrants pose a threat to our
business. In addition to our existing competitors, we may face further
competition in the future from companies that do not presently offer
globalization services. Companies currently providing information technology
services may choose to broaden their range of services to include globalization.
While we presently use translation memory software licensed from third parties
in our localization process, and to a lesser extent machine translation software
also licensed from third parties, these technologies may improve and become
sophisticated enough to compete with our localization service offering. We
cannot assure you that we will be able to compete effectively with these
potential future competitors.

INTELLECTUAL PROPERTY RIGHTS

Our success is dependent, in part, upon our proprietary RAPID GLOBALIZATION
METHODOLOGY, our LIONTRACK workflow systems, and other intellectual property
rights. We do not have any patents or patent applications pending. Lionbridge
relies on a combination of trade secret, nondisclosure and other contractual
agreements, and copyright and trademark laws to protect its proprietary rights.
Existing trade secret and copyright laws afford us only limited protection. We
enter into confidentiality agreements with our employees, require that our
consultants and generally our clients enter into these agreements, and limit
access to and distribution of Lionbridge's proprietary information. We cannot
assure you that these arrangements 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.

EMPLOYEES

As of June 30, 1999, we had 447 employees. Of these, 348 were consulting and
service delivery professionals and 99 were management and administrative
personnel performing marketing, sales, operations, process and technology,
finance, accounting, and administrative functions.

We have been successful in hiring individuals with leading-edge technical
skills and project management experience. In addition, Lionbridge is committed
to employee training and retention. Lionbridge has a dedicated process and
technology team that initiates and oversees the training and development of
Lionbridge professionals. Key organizational development initiatives include
ongoing technical and project management classes as well as career path
management and guidance. We plan to continue to invest in attracting the best
employees.

Lionbridge's employees in Paris, France are represented by a labor union,
and we have a works council in The Netherlands. We have never experienced a work
stoppage. We believe our employee relations are good.

40
<PAGE>
FACILITIES

We maintain offices in the United States, Ireland, France, The Netherlands,
China, Japan, and South Korea. We maintain sales offices in Charlotte, North
Carolina and the metropolitan areas of Seattle, Houston, Los Angeles, and San
Francisco in the United States; Dublin, Ireland; Paris, France; Beijing, China;
Tokyo, Japan; and Osaka, Japan.

Lionbridge's headquarters and principal administrative, finance, legal, and
marketing operations are located in leased office space in Waltham,
Massachusetts. Lionbridge's lease is for a term of 3 years and expires on August
1, 2002. Lionbridge maintains a facility in metropolitan Dublin, Ireland and
leases three floors under three separate leases expiring between September 14,
2025 and March 1, 2026. We also lease office space in Santa Monica, California;
Monterey, California; Ballina, Ireland; Velizy, France; Sophia Antipolis,
France; Amsterdam, The Netherlands; Seoul, South Korea; Beijing, China; Tokyo,
Japan; and Osaka, Japan. Lionbridge expects that it will need additional space
as it expands its business and believes that it will be able to obtain
additional space as needed on commercially reasonable terms.

LEGAL PROCEEDINGS

Lionbridge is not a party to any material legal proceedings.

41
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table presents information about each of Lionbridge's
executive officers and directors.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------------
<S> <C> <C>
Rory J. Cowan................. 46 Chairman of the Board, Chief Executive Officer and
President
Stephen J. Lifshatz........... 40 Chief Financial Officer, Treasurer and Secretary
Myriam Martin-Kail............ 46 Vice President, Operations
Peter H. Wright............... 38 Vice President, Sales
Guy L. de Chazal.............. 51 Director
Marcia J. Hooper.............. 45 Director
Stephen M. Jenks.............. 40 Director
Paul Kavanagh................. 57 Director
Claude P. Sheer............... 49 Director
</TABLE>

RORY J. COWAN founded Lionbridge in September 1996. Mr. Cowan served as
Chairman and Chief Executive Officer of Stream International, Inc., a software
and services provider, from May 1995 to June 1996. Mr. Cowan was also the Chief
Executive Officer of Interleaf, Inc. from October 1996 to January 1997. He was
an Executive Vice President of R.R. Donnelley & Sons, a provider of commercial
print and print-related services, from January 1991 to June 1996. Mr. Cowan also
serves as a director of NewsEDGE Corporation and Interleaf, Inc., where he is
Chairman of the Board.

STEPHEN J. LIFSHATZ joined Lionbridge in January 1997. Mr. Lifshatz served
as the Chief Financial Officer of The Dodge Group from May 1996 to January 1997.
He served in a number of senior financial roles, including Chief Financial
Officer of Marcam Corporation, a publicly traded software company, from May 1984
to May 1996.

MYRIAM MARTIN-KAIL joined Lionbridge in December 1996. Ms. Martin-Kail
served as European Director for Localization of Stream International, Inc. from
April 1995 to December 1996 and Operations Manager, Dublin from September 1994
to September 1995. She was Internationalization Manager for Digital Equipment
Corporation in Europe from January 1992 to November 1994.

PETER H. WRIGHT joined Lionbridge in January 1997. Mr. Wright was previously
the Sales Director at Berlitz International, Inc. for their localization
business from August 1991 to November 1996.

GUY L. DE CHAZAL has been a director of Lionbridge since February 1998. Mr.
de Chazal has been with Morgan Stanley since 1984, most recently as a managing
director of Morgan Stanley and the President and a general partner of Morgan
Stanley Dean Witter Venture Partners. Mr. de Chazal is a director of PageMart
Wireless, Inc. and several private companies.

MARCIA J. HOOPER has been a director of Lionbridge since December 1996.
Since May 1996, Ms. Hooper has been a partner with the Information Technology
Group of Advent International Corporation, a venture capital company. From July
1994 to April 1996, she served as a partner of Viking Capital Group, a venture
capital company focused on early stage investments. Ms. Hooper was a partner of
Paine Webber/Ampersand Ventures, a venture capital company, from September 1985
to June 1994. Ms. Hooper is also a director of Wang Laboratories, Inc.,
Interleaf, Inc., Worldgate Communications, Inc. and PolyMedica Corporation.

STEPHEN M. JENKS has been a director of Lionbridge since March 1999. Mr.
Jenks has been a member of Capital Resource Management, LLC since 1993. He is
also a director of several privately held companies.

42
<PAGE>
PAUL KAVANAGH has been a director of Lionbridge since December 1996. Mr.
Kavanagh has served as an industry consultant since January 1998. Mr. Kavanagh
served as President Europe, Middle East and Africa of Stream International, Inc.
from August 1995 to January 1998. From April 1992 to August 1995, Mr. Kavanagh
was Managing Director Europe, Middle East and Africa of R.R. Donnelley & Sons.

CLAUDE P. SHEER has been a director of Lionbridge since March 1999. Mr.
Sheer has served as Senior Advisor to Ziff Davis since April 1999. Mr. Sheer
served as Chief Internet Strategist of Ziff Davis from November 1998 to April
1999. From 1980 to November 1998, Mr. Sheer served in a number of executive
roles for Ziff Davis, including President, ZD Publishing; President US
Publications; and President, Business Media Group.

The Board of Directors is currently fixed at six members. Lionbridge's
second amended and restated certificate of incorporation, as in effect
immediately following this offering, divides the Board of Directors into three
classes. The members of each class of directors serve for staggered three-year
terms. The Board of Directors is composed of (i) two Class I directors (Messrs.
Jenks and Sheer), whose terms expire upon the election and qualification of
directors at the annual meeting of stockholders to be held in 2000, (ii) two
Class II directors (Mr. de Chazal and Ms. Hooper), whose terms expire upon the
election and qualification of directors at the annual meeting of stockholders to
be held in 2001, and (iii) two Class III directors (Messrs. Cowan and Kavanagh),
whose terms expire upon the election and qualification of directors at the
annual meeting of stockholders to be held in 2002.

Our executive officers are elected by and serve at the discretion of the
Board of Directors. There are no family relationships among any of our executive
officers and directors.

COMMITTEES OF THE BOARD OF DIRECTORS

We have a standing compensation committee and audit committee of the Board
of Directors. The members of the compensation committee consist of Messrs. de
Chazal, Kavanagh and Sheer. The compensation committee's duties are to review
and evaluate the salaries and incentive compensation of our management and
employees and administer our 1998 Stock Plan and, upon adoption at the closing
of this offering, our 1999 Employee Stock Purchase Plan.

The members of the audit committee consist of Messrs. Jenks and Kavanagh and
Ms. Hooper. The audit committee is responsible for the selection of and
determination of fees paid to Lionbridge's independent public accountants,
reviewing the scope and results of audits and other services provided by our
independent public accountants and reviewing Lionbridge's system of internal
accounting and financial controls. The audit committee also reviews other
matters with respect to our accounting, auditing, and financial reporting
practices and procedures as it may find appropriate or may be brought to its
attention.

DIRECTOR COMPENSATION

Lionbridge does not currently compensate its directors. Each director is
reimbursed for reasonable travel and other out-of-pocket expenses incurred in
attending meetings of the Board of Directors or of any committee of the Board.
Non-employee directors are eligible to receive options to purchase shares of our
common stock.

43
<PAGE>
EXECUTIVE COMPENSATION

The following summary compensation table sets forth the total compensation
paid or accrued for the year ended December 31, 1998 for our Chief Executive
Officer and all other executive officers whose salary and bonus for services
rendered in any capacities to Lionbridge for the fiscal year ended December 31,
1998 exceeded $100,000. We will use the term "named executive officers" to refer
to these people later in this prospectus.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- -------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS/SARS
- ----------------------------------------------------------- ---------- ---------- ----------------- -------------
<S> <C> <C> <C> <C>
Rory J. Cowan.............................................. $ 249,144 $ 112,500 -- --
Chairman of the Board, President and Chief Executive
Officer
Stephen J. Lifshatz........................................ $ 182,750 $ 41,250 -- 36,667
Chief Financial Officer, Treasurer and Secretary
Myriam Martin-Kail......................................... $ 128,256 $ 31,205 -- 20,000
Vice President, Operations
Peter H. Wright............................................ $ 151,614 $ 30,000 -- 33,334
Vice President, Sales
</TABLE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table summarizes the options granted to each of Lionbridge's
named executive officers during the fiscal year ended December 31, 1998.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
------------------------------------------------------ STOCK
NUMBER OF PERCENT OF PRICE APPRECIATION
SECURITIES TOTAL OPTIONS FOR
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------
NAME GRANTED FISCAL YEAR PRICE(1) DATE 5% 10%
- ------------------------------------------- ----------- --------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rory J. Cowan.............................. -- -- -- -- -- --
Stephen J. Lifshatz........................ 36,667 9.0% $ 0.30 2/08/08 $ 6,918 $ 17,531
Myriam Martin-Kail......................... 20,000 4.9% $ 0.30 2/08/08 $ 3,773 $ 9,562
Peter H. Wright............................ 33,334 8.2% $ 0.30 4/01/08 $ 6,289 $ 15,937
</TABLE>

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

(1) The exercise price equals the fair market value of the common stock as of
the grant date as determined by our board of directors.

(2) The potential realizable value is calculated based on the term of the option
at the time of grant (10 years). Assumed stock price appreciation of 5% and
10% is based on the fair value at time of the grant.

44
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table sets forth information with respect to exercisable and
unexercisable stock options held as of December 31, 1998 by each of the named
executive officers and with respect to stock options exercised by the named
executive officers during the fiscal year ended December 31, 1998.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1998 AT DECEMBER 31, 1998(2)
ACQUIRED VALUE -------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Rory J. Cowan........................... 187,689 $ 53,492 187,689 750,763 $ 1,845,921 $ 7,383,754
Stephen J. Lifshatz..................... 97,155 $ 34,004 -- 198,595 -- $ 1,950,661
Myriam Martin-Kail...................... -- -- 121,455 222,430 $ 1,196,332 $ 2,187,936
Peter H. Wright......................... -- -- 44,769 119,065 $ 440,975 $ 1,172,790
</TABLE>

(1) The value realized by Messrs. Cowan and Lifshatz upon the exercise of these
options represents the aggregate amount of the difference between the fair
market value for a share of our common stock on the date of exercise and the
exercise price per share, multiplied by the number of shares underlying such
options.

(2) There was no public trading market for our common stock as of December 31,
1998. Accordingly, as permitted by the rules of the Securities and Exchange
Commission, the value of unexercised in-the-money options has been
calculated by determining the difference between the exercise price per
share payable upon exercise of such options and an initial public offering
price of $10.00.

STOCK PLANS

1998 STOCK PLAN. The 1998 Stock Plan has a total of 5,522,032 shares of
common stock reserved for issuance. The 1998 Stock Plan provides for the grant
of stock-based awards to our employees, officers, directors, and consultants.
Under the 1998 Stock Plan, we may grant options that are intended to qualify as
incentive stock options within the meaning of Section 422 of the Code, options
not intended to qualify as incentive stock options, stock-based awards and
opportunities to make direct purchases of stock. Incentive stock options may be
granted only to employees of Lionbridge. In general, options granted pursuant to
the 1998 Stock Plan are exercisable within ten years of the original grant date
and become exercisable over a period of four years as follows: 25% on the first
anniversary of the date of grant and semi-annually thereafter, in six equal
installments over the remaining three-year period. As of June 30, 1999, an
aggregate of 2,621,945 shares of common stock at an average exercise price of
$1.69 per share were outstanding under the 1998 Stock Plan. The maximum number
of shares with respect to which options, awards or purchase rights may be
granted to any employee under the 1998 Stock Plan shall not exceed 2,333,334
shares of common stock during any fiscal year of Lionbridge.

The 1998 Stock Plan is administered by the compensation committee. Subject
to the provisions of the 1998 Stock Plan, the compensation committee has the
authority to select the persons to whom options, awards or purchase rights are
granted and determine the terms of each option, award or purchase right,
including the number of shares of common stock subject to the option or award.
The compensation committee may also provide that any option shall become
immediately exercisable, in full or in part. Payment of the exercise price of an
option or award or purchase rights may be made in cash or check or, if approved
by the compensation committee, shares of common stock, a promissory note, an
assignment of common stock proceeds or any combination of the foregoing.
Incentive stock options are not assignable or transferable except by wills or
the laws of decent or distribution. Non-qualified stock options and other awards
or purchase rights are assignable or transferable to the extent set forth in the
agreement relating to the non-qualified stock option or award or purchase
rights.

45
<PAGE>
1999 EMPLOYEE STOCK PURCHASE PLAN. The 1999 Employee Stock Purchase Plan
(the "1999 Purchase Plan") was adopted by the Board of Directors and our
stockholders on June 15, 1999, to be effective upon the closing of this
offering. The 1999 Purchase Plan provides for the issuance of a maximum of
1,000,000 shares of common stock.

The 1999 Purchase Plan will be administered by the compensation committee of
the Board of Directors. All employees of Lionbridge whose customary employment
is for more than 20 hours per week and for more than three months in any
calendar year are eligible to participate in the 1999 Purchase Plan. Employees
who would own 5% or more of the total combined voting power or value of our
stock immediately after the grant of the option may not participate in the 1999
Purchase Plan. To participate in the 1999 Purchase Plan, an employee must
authorize us to deduct an amount (not less than one percent nor more than 10
percent of a participant's total cash compensation) from his or her pay during
six-month payment periods (each, a "Payment Period"). The first Payment Period
will commence on the earlier to occur of (1) November 1, 1999 and (2) the first
day of the first calendar month following the effective date of the Registration
Statement on Form S-8 filed with respect to the shares issued under the 1999
Purchase Plan and shall end April 30, 2000. Thereafter, the Payment Periods will
commence on the six-month periods commencing on May 1 and November 1,
respectively, and ending on the following October 31 and April 30, respectively,
of each year, but in no case shall an employee be entitled to purchase more than
500 shares in any one Payment Period. The exercise price for the option granted
in each Payment Period is 85% of the lesser of the average market price of the
common stock on the first or last business day of the Payment Period, in either
event rounded up to the nearest cent. If an employee is not a participant on the
last day of the Payment Period, such employee is not entitled to exercise his or
her option, and the amount of his or her accumulated payroll deductions will be
refunded. Options granted under the 1999 Purchase Plan may not be transferred or
assigned. An employee's rights under the 1999 Purchase Plan terminate upon his
or her voluntary withdrawal from the plan at any time or upon termination of
employment. No options have been granted to date under the 1999 Purchase Plan.

401(K) PLAN

We maintain a 401(k) plan qualified under Section 401(a) of the Code. Most
of our U.S.-based employees who are at least 21 years of age are eligible to
participate in the 401(k) plan. Under the 401(k) plan, a participant may
contribute a maximum of 15% of his or her pre-tax salary, commissions and
bonuses through payroll deductions (up to the statutorily prescribed annual
limit of $10,000 in calendar year 1999) to the 401(k) plan. The percentage
elected by more highly compensated participants may be required to be lower. In
addition, at the discretion of the Board of Directors, we may make matching
contributions to the 401(k) plan for all eligible employees. During the plan
year ended December 31, 1998, we made no matching contributions to the 401(k)
plan.

PENSION PLANS

We maintain a defined contribution pension plan for our employees in
Ireland. Our permanent employees in Ireland are eligible to participate in the
plan after one year of employment with us. Under the Ireland pension plan, we
contribute 5% of a participant's gross salary (excluding any overtime or bonus
payments) to the plan and a participant is entitled to contribute between 5% and
15% of his or her total earnings (gross salary plus bonus, overtime, and other
earnings) to the plan.

We also maintain a defined benefit pension plan for our employees in France
as required by and in accordance with French law. All of our employees in France
are entitled to participate in the plan. We and our employees in France
contribute to the plan in varying amounts based upon French statutory
requirements.

46
<PAGE>
We maintain a defined benefit pension plan for our employees in The
Netherlands. All of our employees in The Netherlands with a fixed contract are
entitled to participate in the plan. The cost of funding the plan is split
equally between us and the participants. For married employees, 8% of their
salaries are contributed to the plan on an annual basis. and, for single
employees, 5% of their salaries are contributed to the plan on an annual basis.

EMPLOYMENT AND NON-COMPETITION AGREEMENTS

Rory J. Cowan entered into an employment agreement with Lionbridge on
December 23, 1996. Mr. Cowan's employment agreement provides for a two-year term
with automatic one-year renewals. Under the terms of his employment agreement,
Mr. Cowan receives a base salary of $225,000, subject to increase from time to
time by the Board of Directors in its sole discretion, and an annual
discretionary bonus in an amount up to Mr. Cowan's then current base salary.
Pursuant to his employment agreement, we also issued Mr. Cowan options to
purchase up to 1,501,529 shares of our common stock at an exercise price of
$0.15 per share. Mr. Cowan's options vest over a four-year period and 50% of any
unvested options held by Mr. Cowan will vest and become immediately exercisable
upon a merger or sale of all or substantially all of the assets of Lionbridge or
upon the disposition by Advent International and Morgan Stanley Dean Witter
Venture Partners of more than 50% of the aggregate amount of our capital stock
owned by them. If Lionbridge terminates Mr. Cowan's employment other than for
cause, he is entitled to receive twelve monthly severance payments, each in an
amount equal to his then current monthly base compensation (i.e., 1/12(th) of
Mr. Cowan's base salary). If Mr. Cowan is terminated for cause, he will not be
entitled to any severance payments or other benefits except as required by law.

Mr. Cowan entered into a non-competition agreement with Lionbridge on
December 23, 1996. The agreement provides that Mr. Cowan will not, during the
course of his employment and the twelve months following the date of the
termination of his employment with Lionbridge (1) engage or otherwise have a
financial interest in any business activity which is in competition with any of
the products or services being provided by Lionbridge, (2) solicit our employees
or (3) solicit or do business with any present or past customer of ours, or any
prospective customer of ours in connection with any business activity which
would be in violation of the non-competition agreement.

Stephen J. Lifshatz entered into an employment agreement with Lionbridge on
February 11, 1997. Mr. Lifshatz's employment agreement provides for a one-year
term with automatic one-year renewals. Under the terms of his employment
agreement, Mr. Lifshatz receives a base salary of $165,000, subject to increase
from time to time by the Board of Directors in its sole discretion, and an
annual discretionary bonus in an amount up to 50% of his then current base
salary. In connection with his employment agreement, we also issued Mr. Lifshatz
options to purchase up to 259,082 shares of our common stock at an exercise
price of $0.15 per share. Mr. Lifshatz's options vest over a four-year period.
If, during the six-month period following a change in control of Lionbridge, Mr.
Lifshatz ceases to be the Chief Financial Officer of the parent of the surviving
entity or suffers a substantial diminution of his responsibilities, 50% of any
unvested options then held by Mr. Lifshatz shall vest and become immediately
exercisable. If Lionbridge terminates Mr. Lifshatz's employment other than for
cause, he is entitled to receive six monthly severance payments, each in an
amount equal to his then current monthly base compensation (i.e., 1/12(th) of
Mr. Lifshatz's base salary). If Mr. Lifshatz is terminated for cause, he will
not be entitled to any severance payments or other benefits except as required
by law.

Mr. Lifshatz entered into a non-competition agreement with Lionbridge on
February 11, 1997. The agreement provides that Mr. Lifshatz will not, during the
course of his employment and the twelve months following the date of the
termination of his employment with Lionbridge (1) engage or otherwise have a
financial interest in any business activity which is in competition with any of
the products or services being provided by Lionbridge, (2) solicit our employees
or (3) solicit or do

47
<PAGE>
business with any present or past customer of ours, or any prospective customer
of ours in connection with any business activity which would be in violation of
the non-competition agreement.

Myriam Martin-Kail entered into an employment agreement with Lionbridge on
February 24, 1997, effective as of January 1, 1997. Under the terms of her
employment agreement, Ms. Martin-Kail receives a base salary of 650,000 French
Francs, subject to increase from time to time by the Board of Directors in its
sole discretion, and an annual discretionary bonus in an amount up to 50% of her
then current base salary. Ms. Martin-Kail is also entitled to a car allowance of
up to 63,000 French Francs per year. In connection with her employment
agreement, we also issued Ms. Martin-Kail options to purchase up to 323,885
shares of our common stock at an exercise price of $0.15 per share. Ms.
Martin-Kail's options vest over a four-year period. If Lionbridge terminates Ms.
Martin-Kail's employment, she is entitled to receive twelve monthly severance
payments, each in an amount equal to her then current monthly base compensation
(i.e., 1/12(th) of Ms. Martin-Kail's base salary).

Ms. Martin-Kail entered into a non-competition agreement with Lionbridge on
February 24, 1997. The agreement provides that Ms. Martin-Kail will not, during
the course of her employment and the twelve months following the date of the
termination of her employment with Lionbridge (1) engage or otherwise have a
financial interest in any business activity which is in competition with any of
the products or services being provided by Lionbridge, (2) solicit our employees
or (3) solicit or do business with any present or past customer of ours or any
prospective customer of ours which would be in violation of the non-competition
agreement.

Peter H. Wright entered into an employment agreement with Lionbridge on
February 28, 1997. Mr. Wright's employment agreement provides for a one-year
term with automatic one-year renewals. Under the terms of his employment
agreement, Mr. Wright receives a base salary of $125,000, subject to increase
from time to time by the Board of Directors in its sole discretion, and an
annual discretionary bonus in an amount up to 50% of his then current base
salary. In connection with his employment agreement, we issued Mr. Wright
options to purchase up to 97,166 shares of our common stock at an exercise price
of $0.15 per share. Mr. Wright's options vest over a four-year period. If
Lionbridge terminates Mr. Wright's employment other than for cause, he is
entitled to receive six monthly severance payments, each in an amount equal to
his then current monthly base compensation (i.e., 1/12(th) of Mr. Wright's base
salary). If Mr. Wright is terminated for cause, he will not be entitled to any
severance payments or other benefits except as required by law.

Mr. Wright entered into a non-competition agreement with Lionbridge on
February 28, 1997. The agreement provides that Mr. Wright will not, during the
course of his employment and the six months following the date of the
termination of his employment with Lionbridge (1) engage or otherwise have a
financial interest in any business activity which is in competition with any of
the products or services being provided by Lionbridge, (2) solicit our employees
or (3) solicit or do business with any present or past customer of ours, or any
prospective customer of ours which would be in violation of the non-competition
agreement.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to June 1999, we did not have a separate compensation committee or
other board committee performing equivalent functions. These functions were
performed by our board of directors. In June 1999, we established a compensation
committee and appointed Messrs. de Chazal, Kavanagh and Sheer to serve on the
compensation committee.

The compensation committee evaluates the salaries and incentive compensation
of management and employees of Lionbridge and administers our equity incentive
plans. No member of this committee was at any time during the past year an
officer or employee of Lionbridge, was formerly an officer of

48
<PAGE>
Lionbridge or any of its subsidiaries, or had any relationship with Lionbridge.
During the last year, none of our executive officers served as:

- a member of the compensation committee (or other committee of the Board of
Directors performing equivalent functions or, in the absence of any such
committee, the entire Board of Directors) of another entity, one of whose
executive officers served on the compensation committee of Lionbridge;

- a director of another entity, one of whose executive officers served on
the compensation committee of Lionbridge; or

49
<PAGE>
CERTAIN TRANSACTIONS

ORGANIZATION OF LIONBRIDGE

In September 1996, Lionbridge America, Inc., our predecessor holding company
and current wholly owned subsidiary formerly known as Lionbridge Technologies,
Inc., issued 2,000 shares of its common stock to Rory J. Cowan, our President
and Chief Executive Officer at a purchase price of $0.15 per share, for an
aggregate of $30.

In December 1996, Lionbridge America acquired the localization businesses of
Stream International in Ireland, The Netherlands and France for $11,300,000 in
cash and the assumption of $100,000 of liabilities through its acquisition of
all of the capital stock of the following five foreign subsidiaries of Stream:
R.R. Donnelley Language Solutions International B.V., INK Nederland B.V., R.R.
Donnelley Language Solutions Belgium N.V., R.R. Donnelley Language Solutions
France SARL, and Stream International Language Solutions. Rory J. Cowan was an
executive officer of Stream International until June 1996 and our director Paul
A. Kavanagh was an executive officer of Stream International and R.R. Donnelley
& Sons until January 1998. As a result of this transaction, R.R. Donnelley
Language Solutions International B.V. became a subsidiary of Lionbridge America
and is now known as Lionbridge Technologies Holdings, B.V. and each of INK
Nederland B.V. (now known as Lionbridge Technologies B.V.), R.R. Donnelley
Language Solutions France SARL (now known as Lionbridge Technologies (France)),
and Stream International Language Solutions (now known as Lionbridge
Technologies Ireland) became subsidiaries of Lionbridge Technologies Holdings,
B.V. R.R. Donnelley Language Solutions Belgium N.V. was an inactive subsidiary
and was subsequently dissolved by Lionbridge. All subsidiaries of Lionbridge
are, directly or indirectly, wholly owned by Lionbridge.

In July 1997, Lionbridge America, through its Lionbridge Technologies
Holdings, B.V. subsidiary, acquired assets from the localization businesses of
Stream International in Japan, China, South Korea and Taiwan for $100,000 in
cash and the assumption of $317,000 of liabilities.

In June 1998, Lionbridge and Stream International entered into an agreement
to settle indemnity claims of Lionbridge against Stream under the December 1996
purchase agreement. Under the terms of the settlement agreement, Lionbridge's
purchase price for the European businesses acquired from Stream International
was reduced by $531,000.

The purchase price for and terms of these acquisitions and the terms of the
settlement agreement described above were the result of arms'-length
negotiations.

SALES OF STOCK OF LIONBRIDGE AMERICA

In December 1996, Lionbridge America issued 701,454 shares of its Series A
convertible preferred stock at a purchase price of $1.00 per share, for an
aggregate of $701,454, and an option to purchase up to 1,501,529 shares of its
common stock at an exercise price of $0.15 per share to Mr. Cowan.

In December 1996, Lionbridge America issued an aggregate of 1,000 shares of
its Series AA preferred stock to five limited partnerships sponsored by Advent
International Corporation, at a purchase price of $0.01 per share, for an
aggregate purchase price of $10.00. In December 1996, Lionbridge Technologies
Holdings, B.V., a subsidiary of Lionbridge, issued an aggregate of 248 of its
ordinary shares to the Advent-sponsored limited partnerships at a purchase price
of $24,193.55 per share, for an aggregate of $6,000,000. Marcia J. Hooper, a
partner of Advent International, has served as a member of the Board of
Directors of Lionbridge since December 1996.

In December 1996, Lionbridge America issued an aggregate of 6,000,000 shares
of its Series A convertible preferred stock to Morgan Stanley Venture Capital
Fund II Annex, L.P. and Morgan Stanley Venture Investors Annex, L.P. at purchase
price of $1.00 per share, for an aggregate of $6,000,000. Guy L. de Chazal, the
managing general partner of Morgan Stanley Venture Partners II, L.P., the
general partner of each of the Morgan Stanley-sponsored limited partnerships,
has served as a member of the Board of Directors of Lionbridge since February
1998.

50
<PAGE>
In December 1996, Lionbridge America issued 971,654 shares of its Series A
convertible preferred stock to Stream International at a purchase price of $1.00
per share, for an aggregate of $971,654. The shares issued to Stream
International were subject to a stock option agreement providing a call option
to the Advent-sponsored limited partnerships, the Morgan Stanley-sponsored
limited partnerships and Lionbridge America to purchase the shares from Stream
and a put option to Stream to sell the shares to the Advent-sponsored limited
partnerships, the Morgan Stanley-sponsored limited partnerships and Lionbridge
America at Stream's original purchase price. In September 1997, Stream
International exercised its put option and sold the shares to Lionbridge America
at a purchase price of $1.00 per share, for an aggregate of $971,654.

In July 1997, Lionbridge America issued 100,000 shares of its Series A
convertible preferred stock to Paul Kavanagh at a purchase price of $1.00 per
share, for an aggregate of $100,000. Mr. Kavanagh has served as a member of the
Board of Directors of Lionbridge since December 1996.

SALES OF STOCK, NOTES AND WARRANTS OF LIONBRIDGE

In February 1998, Lionbridge America became a subsidiary of Lionbridge. We
accomplished this by issuing an aggregate of 1,359,993 shares of our common
stock, 13,271,314 shares of our Series A convertible preferred stock and 140
shares of our Series D nonvoting convertible preferred stock to Mr. Cowan, the
Advent-sponsored limited partnerships, the Morgan Stanley-sponsored limited
partnerships, and the other stockholders of Lionbridge America in exchange for
all of the outstanding shares of capital stock of Lionbridge America held by
these stockholders and the outstanding ordinary shares of Lionbridge
Technologies Holdings, B.V. held by the Advent-sponsored limited partnerships.
Lionbridge America also redeemed all of the outstanding shares of its Series AA
preferred stock held by the Advent-sponsored limited partnerships at the
original purchase price of $0.01 per share, for an aggregate of $10.00.

In January 1999, Lionbridge borrowed $4,000,000 from Capital Resource
Lenders, III, L.P. under a 12% senior subordinated convertible note due January
8, 2000. In connection with our issuance of the note to Capital Resource
Lenders, many of our subsidiaries executed guarantees in favor of Capital
Resource Lenders. In February 1999, we borrowed an additional $2,000,000 from
Capital Resource Lenders under an amended and restated 12% senior subordinated
note due February 26, 2006 in the aggregate principal amount of $6,000,000 and
issued to Capital Resource Lenders and an affiliated entity of Capital Resource
Lenders common stock purchase warrants exercisable for an aggregate of 1,277,716
shares of our common stock at an exercise price of $0.015 per share.

In February 1999, our indirect wholly owned subsidiary, Lionbridge
Technologies Holdings, B.V. borrowed $4,000,000 from Capital Resource Lenders
under a 12% senior subordinated note due February 26, 2006. In connection with
Lionbridge Technologies Holdings, B.V.'s issuance of the note to Capital
Resource Lenders, many of our subsidiaries executed guarantees in favor of
Capital Resource Lenders. Stephen M. Jenks, a member of Capital Research
Partners III, L.L.C. which is the general partner of Capital Resource Lenders,
has served as a member of our Board of Directors since March 1999.

In March 1999, Lionbridge and Lionbridge Technologies Holdings, B.V.
borrowed an aggregate of $2,000,000 from the Morgan Stanley-sponsored limited
partnerships under 12% senior subordinated notes due March 9, 2006 and issued to
the Morgan Stanley-sponsored limited partnerships common stock purchase warrants
exercisable for an aggregate of 255,544 shares of our common stock at an
exercise price of $0.015 per share. In connection with our issuance of the notes
to the Morgan Stanley-sponsored limited partnerships, many of our subsidiaries
executed guarantees in favor of the Morgan Stanley-sponsored limited
partnerships.

On August 19, 1999, Capital Resource Lenders and the Morgan
Stanley-sponsored limited partnerships agreed to defer, until the earlier of
August 25, 2001 and the completion of an underwritten public offering (other
than this offering) with aggregate gross proceeds of at least $10.0 million, our
repayment of $5,000,000 and $1,000,000, respectively, of the principal amount of
the subordinated notes due in 2006. These notes had previously required all of
the principal amount to be

51
<PAGE>
repaid upon the closing of this offering. Capital Resource Lenders and the
limited partnerships affiliated with Morgan Stanley agreed to defer repayment of
$6 million of the subordinated notes in order to enable Lionbridge to meet its
anticipated liquidity needs over the next 18 months with reasonable liquidity
reserves to meet unanticipated contingencies.

TRANSACTIONS OCCURRING AT THE CLOSING OF THIS OFFERING

Upon closing of this offering:

- 50% of the principal amount of the notes issued to Capital Resource
Lenders and the Morgan Stanley-sponsored limited partnerships will be paid
in full. As of June 30, 1999, the amount to be repaid under the notes is
$5,000,000 and $1,000,000, respectively,

- the 13,271,314 outstanding shares of our Series A convertible preferred
stock and 140 outstanding shares of our Series D nonvoting convertible
preferred stock held by our preferred stockholders including Mr. Cowan,
Mr. Kavanagh, the Advent-sponsored limited partnerships and the Morgan
Stanley-sponsored limited partnerships will automatically be exchanged for
an aggregate of 132.7145 shares of our Series B redeemable preferred stock
and 8,847,649 shares of our Series C convertible preferred stock,

- the 132.7145 outstanding shares of our Series B redeemable preferred stock
will be redeemed for $100,000 per share plus an 8% annual premium. As of
June 30, 1999, the redemption amount to be paid to Mr. Cowan, the
Advent-sponsored limited partnerships, the Morgan Stanley-sponsored
limited partnerships, and Mr. Kavanagh is approximately $843,000,
$7,209,000, $7,209,000, and $120,000, respectively, and

- the 8,847,649 outstanding shares of our Series C convertible preferred
stock held by our preferred stockholders including Mr. Cowan, Mr.
Kavanagh, the Advent-sponsored limited partnerships and the Morgan
Stanley-sponsored limited partnerships will automatically convert into
8,847,649 shares of our common stock.

In addition, the Advent-sponsored limited partnerships have indicated their
interest in purchasing up to approximately $3,640,000 of Lionbridge shares at
the public offering price and the Morgan Stanley-sponsored limited partnerships
have indicated their interest in purchasing up to approximately $3,640,000 of
Lionbridge shares at the public offering price.

TRANSACTIONS OCCURRING AFTER THE CLOSING OF THIS OFFERING

Capital Resource Lenders and the Morgan Stanley-sponsored limited
partnerships have indicated to us that they intend to exercise their warrants to
acquire an aggregate of 1,533,260 shares promptly after the closing of this
offering, subject to compliance with applicable law.

STOCKHOLDERS' AGREEMENT

Lionbridge, Mr. Cowan, Mr. Kavanagh, the Advent-sponsored limited
partnerships, the Morgan Stanley-sponsored limited partnerships, Capital
Resource Lenders and each of the other preferred stockholders of Lionbridge are
parties to a Second Restated Stockholders' Agreement dated as of February 26,
1999. The stockholders agreement contains arrangements with respect to voting,
rights of first refusal, rights of first offer, as well as other agreements
relating to corporate governance. This agreement will terminate upon the closing
of this offering.

REGISTRATION RIGHTS AGREEMENT

We have entered into a Second Restated Registration Rights Agreement dated
as of February 26, 1999 with Mr. Cowan, Mr. Kavanagh, the Advent-sponsored
limited partnerships, the Morgan Stanley-sponsored limited partnerships, Capital
Resource Lenders, CRP Investment Partners and each of our other preferred
stockholders. This registration rights agreement provides these holders with
rights with respect to the registration by Lionbridge of their shares under the
Securities Act.

Lionbridge believes that all transactions described above were made on terms
no less favorable to us than would have been obtained from unaffiliated third
parties. All future transactions, if any, with our executive officers, directors
and affiliates will be on terms no less favorable to us than could be obtained
from unrelated third parties and will be approved by a majority of the Board of
Directors and by a majority of the disinterested members of the Board of
Directors.

52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of our common stock as of June 30, 1999, and as adjusted to reflect
the sale of the shares of common stock offered hereby, by:

- each of Lionbridge's directors and named executive officers,

- all directors and executive officers of Lionbridge as a group,

- each person who is known by us to own beneficially more than five percent
of the outstanding shares of our common stock, and

- each person who is a selling stockholder if the underwriters exercise
their over-allotment options.

Except as noted below, the address of each person listed on the table is c/o
Lionbridge Technologies, Inc., 950 Winter Street, Waltham, Massachusetts 02451,
and each person has sole voting and investment power over the shares shown as
beneficially owned, except to the extent authority is shared by spouses under
applicable law unless otherwise noted below.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. For purposes of calculating the percentage
of shares beneficially owned, the number of shares of our common stock
outstanding as of June 30, 1999 is 11,219,450 shares. Shares of common stock
issuable by Lionbridge to a person or entity named below pursuant to options or
warrants which may be exercised within 60 days after June 30, 1999 are deemed to
be beneficially owned and outstanding for purposes of calculating the number of
shares and the percentage beneficially owned by that person or entity. However,
these shares are not deemed to be beneficially owned and outstanding for
purposes of computing the percentage beneficially owned by any other person or
entity. The number of shares of common stock deemed outstanding after this
offering includes an additional 3,500,000 shares that are being offered for sale
by us in this offering.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING (1)
---------------------- ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------------ --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Rory J. Cowan (2)..................................... 2,390,706 21.0% 2,390,706 16.0%

Marcia J. Hooper (3)(15).............................. 4,000,004 35.7 4,000,004 27.2
c/o Advent International Corporation
75 State Street
Boston, MA 02109

Guy L. de Chazal (4)(15).............................. 4,255,546 37.1 4,255,546 28.4
c/o Morgan Stanley Dean Witter Venture Capital
1221 Avenue of the Americas, 33(rd) Floor
New York, New York 10020

Paul Kavanagh (5)..................................... 69,166 * 69,166 *
"Arcachon"
Strathmore Road
Killiney, Co. Dublin, Ireland

Stephen M. Jenks (6).................................. 1,277,716 10.2 1,277,716 8.0
c/o Capital Resource Lenders III, L.P.
85 Merrimac Street, Suite 200
Boston, MA 02114
</TABLE>

53
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING (1)
---------------------- ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------------ --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Claude P. Sheer....................................... 0 * 0 *
240 Main Street
Boxford, MA 01921

Myriam Martin-Kail (7)................................ 209,925 1.8 209,925 1.4

Stephen J. Lifshatz (8)............................... 175,674 1.6 175,674 1.2

Peter H. Wright (9)................................... 85,726 * 85,726 *

Morgan Stanley-sponsored limited partnerships 4,255,546 37.1 4,255,546 28.4
(10)(15)............................................
1221 Avenue of the Americas, 33(rd) Floor
New York, New York 10020

Advent-sponsored limited partnerships (11)(15)........ 4,000,004 35.7 4,000,004 27.2
75 State Street
Boston, MA 02109

Capital Resource Lenders III, L.P. (12)............... 1,277,716 10.2 1,277,716 8.0
85 Merrimac Street, Suite 200
Boston, MA 02114

All executive officers and directors as a group (9
persons)............................................ 12,499,986 94.6 12,499,986 74.8

Kenneth L. Coleman Irrevocable Trust (13)............. 66,666 * 66,666 *

Martha Lynne Paschetag (14)........................... 9,582 * 9,582 *
</TABLE>

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

* Less than 1% of the outstanding shares.

(1) If the underwriters exercise their over-allotment option in full, then the
following stockholders named in the table above will sell the following
number of shares: Rory J. Cowan, 266,667 shares (200,001 shares from Mr.
Cowan personally, 33,333 shares from the Cowan Manchester Trust of which
Mr. Cowan is the settlor and is primarily for the benefit of Mr. Cowan's
children and 33,333 shares from the Cowan Stream Trust of which Mr. Cowan
is the settlor and is primarily for the benefit of Mr. Cowan's siblings and
their lineal descendants); Stephen J. Lifshatz, 50,000 shares; Peter H.
Wright, 50,000 shares; Kenneth L. Coleman Irrevocable Trust, 20,000 shares;
and Martha Lynne Paschetag, 6,667 shares.

(2) Includes an aggregate of 266,667 shares held by affiliated trusts of Mr.
Cowan. Includes 187,692 shares deemed to be beneficially owned by Mr. Cowan
pursuant to options exercisable within 60 days of June 30, 1999.

(3) Includes 328,001 shares held by Advent Euro-Italian Direct Investment
Program Limited Partnership; 88,001 shares held by Advent Partners Limited
Partnership; 2,396,000 shares held by Global Private Equity II Limited
Partnership; 504,001 shares held by Global Private Equity II-- Europe
Limited Partnership; and 684,001 shares held by Global Private Equity
II--PGGM Limited Partnership. Ms. Hooper is a partner of Advent
International Corporation, which is the general partner of Advent
International Limited Partnership, the general partner of each of the
Advent-sponsored entities. Ms. Hooper may be deemed to beneficially own the
shares held by the Advent-sponsored entities. Ms. Hooper disclaims
beneficial ownership of all such shares, except to the extent of her
pecuniary interest therein.

(4) Includes 3,743,642 shares, including 224,802 shares deemed to be
beneficially owned pursuant to warrants exercisable within 60 days of June
30, 1999, held by Morgan Stanley Venture Capital Fund II Annex, L.P. and
511,904 shares, including 30,742 shares deemed to be beneficially owned
pursuant to warrants exercisable within 60 days of June 30, 1999, held by
Morgan Stanley Venture Investors Annex, L.P. Mr. de Chazal is a general
partner of Morgan Stanley Venture Partners II, L.P., which is the managing
general partner of each of the Morgan Stanley-sponsored limited

54
<PAGE>
partnerships. Mr. de Chazal may be deemed to beneficially own the shares
held by the Morgan Stanley-sponsored limited partnerships. Mr. de Chazal
disclaims beneficial ownership of all such shares, except to the extent of
his pecuniary interest therein.

(5) Includes 2,499 shares deemed to be beneficially owned by Mr. Kavanagh
pursuant to options exercisable within 60 days of June 30, 1999.

(6) Represents an aggregate of 1,277,716 shares held by Capital Resource
Lenders III, L.P. and CRP Investment Partners III, L.L.C. deemed to be
beneficially owned pursuant to warrants exercisable within 60 days of June
30, 1999. Mr. Jenks is a member of Capital Resource Partners III, L.L.C.,
which is the general partner of Capital Resource Lenders III, L.P., and a
manager of CRP Investment Partners III, L.L.C. Mr. Jenks may be deemed to
beneficially own the shares held by Capital Resource Lenders and CRP
Investment Partners. Mr. Jenks disclaims ownership of all such shares,
except to the extent of his pecuniary interest therein.

(7) Represents 209,925 shares deemed to be beneficially owned by Ms.
Martin-Kail pursuant to options exercisable within 60 days of June 30,
1999.

(8) Includes 36,966 shares deemed to be beneficially owned by Mr. Lifshatz
pursuant to options exercisable within 60 days of June 30, 1999.

(9) Includes an aggregate of 6,668 shares held in trusts for the benefit of Mr.
Wright's children and 24,642 shares deemed to be beneficially owned by Mr.
Wright pursuant to options exercisable within 60 days of June 30, 1999.

(10) Includes 3,743,642 shares, including 224,802 shares deemed to be
beneficially owned pursuant to warrants exercisable within 60 days of June
30, 1999, held by Morgan Stanley Venture Capital Fund II Annex, L.P. and
511,904 shares, including 30,742 shares deemed to be beneficially owned
pursuant to warrants exercisable within 60 days of June 30, 1999, held by
Morgan Stanley Venture Investors Annex, L.P. The managing general partner
of each of the Morgan Stanley-sponsored limited partnerships is Morgan
Stanley Venture Partners II, L.P. Morgan Stanley Venture Capital II, Inc.
is the managing general partner of Morgan Stanley Venture Partners II, L.P.
and exercises sole voting and investment power with respect to all shares
held of record by the Morgan Stanley-sponsored limited partnerships;
individually, no stockholder, director or officer of Morgan Stanley Venture
Capital II, Inc. is deemed to have or share such voting or investment
power.

(11) Includes 328,001 shares held by Advent Euro-Italian Direct Investment
Program Limited Partnership; 88,001 shares held by Advent Partners Limited
Partnership; 2,396,000 shares held by Global Private Equity II Limited
Partnership; 504,001 shares held by Global Private Equity II-- Europe
Limited Partnership; and 684,001 shares held by Global Private Equity
II--PGGM Limited Partnership. The general partner of each of the
Advent-sponsored limited partnerships is Advent International Limited
Partnership. Advent International Corporation is the general partner of
Advent International Limited Partnership and exercises sole voting and
investment power with respect to all shares held of record by the
Advent-sponsored limited partnerships; individually, no stockholder,
director or officer of Advent International Corporation is deemed to have
or share such voting or investment power.

(12) Represents an aggregate of 1,277,716 shares held by the Capital Resource
Lenders III, L.P. and CRP Investment Partners III, L.L.C. deemed to be
beneficially owned pursuant to warrants exercisable within 60 days of June
30, 1999.

(13) Includes 16,257 shares held by Kenneth L. Coleman, our Vice President,
Marketing, and 415 shares deemed to be beneficially owned by Mr. Coleman
pursuant to options exercisable within 60 days of June 30, 1999. Mr.
Coleman is the settlor of the Kenneth L. Coleman Irrevocable Trust which is
for the benefit of the spouse and children of Mr. Coleman.

(14) Includes 2,080 shares deemed to be beneficially owned by Ms. Paschetag, our
Director of Financial Planning and Analysis, pursuant to options
exercisable within 60 days of June 30, 1999.

(15) Does not include any shares that the limited partnerships sponsored by
Advent International and Morgan Stanley may purchase in the offering.

55
<PAGE>
DESCRIPTION OF CAPITAL STOCK

Effective upon the closing of this offering and the filing of our Second
Amended and Restated Certificate of Incorporation, the authorized capital stock
of Lionbridge will consist of 100,000,000 shares of common stock, par value
$0.01 per share, and 5,000,000 shares of preferred stock, par value $0.01 per
share.

The following summary description of Lionbridge's capital stock, as of the
closing of this offering, is not intended to be complete and is qualified by
reference to Lionbridge's Second Amended and Restated Certificate of
Incorporation and Amended and Restated By-laws filed as exhibits to the
registration statement of which this prospectus is a part.

COMMON STOCK

As of June 30, 1999, there were 11,219,450 shares of common stock
outstanding and held of record by 37 stockholders, after giving effect to (1)
the exchange of all of the 13,271,314 outstanding shares of Series A convertible
preferred stock and 140 outstanding shares of Series D nonvoting convertible
preferred stock for an aggregate of 132.7145 shares of Series B redeemable
preferred stock and 8,847,649 shares of Series C convertible preferred stock,
(2) the redemption of all of the 132.7145 outstanding shares of Series B
redeemable preferred stock for $100,000 per share plus an 8% annual premium, and
(3) the conversion of all of the 8,847,649 outstanding shares of our Series C
convertible preferred stock into 8,847,649 shares of common stock upon the
closing of this offering. Based upon the number of shares outstanding as of June
30, 1999, assuming these exchanges and conversions and giving effect to the
issuance of the shares of common stock offered by Lionbridge hereby, there will
be 14,719,450 shares of common stock outstanding upon the closing of this
offering. In addition, as of June 30, 1999, there were outstanding stock options
and warrants for the purchase of a total of 4,238,539 shares of common stock.
Capital Resource Lenders and the Morgan Stanley-sponsored limited partnerships
have indicated to us they intend to exercise their warrants to acquire an
aggregate of 1,533,260 shares promptly after the closing of this offering,
subject to compliance with applicable law.

Holders of common stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of stockholders and do not
have cumulative voting rights. Directors are elected by a plurality of the votes
of the shares present in person or by proxy at the meeting. The holders of
common stock are entitled to receive ratably such lawful dividends as may be
declared by the Board of Directors. However, such dividends are subject to
preferences that may be applicable to the holders of any outstanding shares of
preferred stock. In the event of a liquidation, dissolution or winding up of the
affairs of Lionbridge, whether voluntarily or involuntarily, the holders of
common stock will be entitled to receive pro rata all of the remaining assets of
Lionbridge available for distribution to its stockholders. Any such pro rata
distribution would be subject to the rights of the holders of any outstanding
shares of preferred stock. The common stock has no preemptive, redemption,
conversion or subscription rights. All outstanding shares of common stock are
fully paid and non-assessable. The shares of common stock to be issued by
Lionbridge in this offering, when issued in consideration of payment, will be
fully paid and non-assessable. The rights, powers, preferences and privileges of
holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock which
Lionbridge may designate and issue in the future.

PREFERRED STOCK

The Board of Directors is authorized, subject to any limitations prescribed
by Delaware law, without further stockholder approval, to issue from time to
time up to an aggregate of 5,000,000 shares of preferred stock, in one or more
series. The Board of Directors is also authorized, subject to the

56
<PAGE>
limitations prescribed by Delaware law, to establish the number of shares to be
included in each series and to fix the designations, preferences, rights and any
qualifications, limitation or restrictions of the shares of any series,
including the dividend rights, dividend rates, conversion rights, voting rights,
redemption terms and prices, liquidation preferences and the number of shares
constituting any series. The Board of Directors is authorized to issue preferred
stock with voting, conversion and other rights and preferences that could
adversely affect the voting power or other rights of the holders of common
stock.

Upon the closing of this offering, there will be no shares of preferred
stock outstanding. Lionbridge has no current plans to issue any preferred stock.
However, the issuance of preferred stock or of rights to purchase preferred
stock could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, a majority
of the outstanding common stock of Lionbridge.

REGISTRATION RIGHTS

The Second Restated Registration Rights Agreement dated as of February 26,
1999, provides holders (the "Registration Rights Holders") of 12,215,870 shares
of our common stock (the "Registrable Shares") rights with respect to the
registration of the Registrable Shares under the Securities Act. If we propose
to register any of our securities under the Securities Act, either for our own
account or for the account of another securityholder, the Registration Rights
Holders are entitled to notice of this registration and to include the
Registrable Shares in this registration. However, in the event of a registration
pursuant to an underwritten public offering of common stock, the underwriters
will have the right to limit the number of shares included in the registration.
The Registration Rights Holders currently have piggyback registration rights in
connection with this offering. These holders have agreed to waive their
piggyback registration rights with respect to this offering. In addition, a
majority of the Registration Rights Holders have entered into a 180-day lock-up
agreement with the underwriters. After expiration of this lock-up period, these
Registration Rights Holders will have the ability to exercise the registration
rights set forth above.

In addition, six months after this offering, the holders of at least 40% of
the then outstanding Registrable Shares issued are entitled to request that we
file a registration statement under the Securities Act covering the sale of some
or all of the shares held by the requesting holder or holders. Upon the receipt
of a request, Lionbridge is generally required to use its best efforts to effect
a registration. Lionbridge is not required to effect more than two demand
registrations for the Registration Rights Holders, and each demand registration
must cover the sale shares of common stock representing at least 20% of the
Registrable Shares or any lesser percentage, so long as anticipated offering
price for these shares exceeds $5,000,000.

Once Lionbridge has qualified to use Form S-3 to register securities under
the Securities Act, the Registration Rights Holders have the right to request
that we file a registration statement on Form S-3 or any successor form for a
public offering of all or any portion of their Registrable Shares, provided that
the reasonably anticipated aggregate price to the public of such offering would
be at least $1,000,000. Upon the receipt of such a request, Lionbridge is
generally required to use its best efforts to effect such registration.

In general, all fees, costs and expenses of such registrations (other than
underwriting discounts and selling commissions), including the fees and
disbursements of one counsel to the Registration Rights Holders, will be borne
by us. Lionbridge has agreed to indemnify the Registration Rights Holders
against, and provide contribution with respect to, liabilities relating to any
registration in which any Registrable Shares of Registration Rights Holders are
sold under the Securities Act.

The previously described registration rights shall terminate for a
Registration Rights Holder upon the earlier to occur of (1) the fifth
anniversary of the closing of this offering, (2) such time as the

57
<PAGE>
particular holder remains an "affiliate" of Lionbridge pursuant to Rule 144
under the Securities Act and could sell all of such holder's shares under Rule
144 within any three month period, or (3) such time as the particular holder
ceases to be an "affiliate" of Lionbridge pursuant to Rule 144 and could sell
all of such holder's shares under the terms of Rule 144(k) under the Securities
Act.

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF LIONBRIDGE'S SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BY-LAWS AND DELAWARE LAW

Lionbridge's Second Amended and Restated Certificate of Incorporation (the
"Charter"), Lionbridge's Amended and Restated By-Laws (the "By-Laws") and
Delaware General Corporation Law contain provisions that could discourage, delay
or prevent a change in control of Lionbridge or an acquisition of Lionbridge at
a price which many stockholders may find attractive. The existence of these
provisions could limit the price that investors might be willing to pay in the
future for shares of common stock.

CHARTER AND BY-LAWS

The Charter provides for the division of the Board of Directors into three
classes as nearly as equal in size as possible with staggered three-year terms.
In addition, the Charter provides that directors may be removed without cause by
the affirmative vote of the holders of 75% of the shares of capital stock of
Lionbridge entitled to vote or with cause by the affirmative vote of the holders
of a majority of the shares. The By-Laws provide that, except as otherwise
provided by law or the Charter, newly created directorships resulting from an
increase in the authorized number of directors or vacancies on the Board may be
filled only by:

- a majority of the directors then in office, even though less than a quorum
may then be in office, or

- the sole remaining director.

These provisions prevent a stockholder from enlarging the Board and filling the
new directorships with this stockholder's own nominees without Board approval.

These provisions of the By-Laws may have the effect of discouraging a third
party from initiating a proxy contest, making a tender offer or otherwise
attempting to gain control of Lionbridge, or attempting to change the
composition or policies of the Board, even though these attempts might be
beneficial to Lionbridge or its stockholders.

The Charter and By-Laws provide that, unless otherwise prescribed by law,
only the Chairman of the Board, a majority of the Board of Directors, or the
President is able to call a special meeting of stockholders. The Charter and the
By-Laws also provide that, unless otherwise prescribed by law, stockholder
action may be taken only at a duly called and convened annual or special meeting
of stockholders and may not be taken by written consent. These provisions, taken
together, prevent stockholders from forcing consideration by the stockholders of
stockholder proposals over the opposition of the Board, except at an annual
meeting.

The By-Laws provide that any action required or permitted to be taken by the
stockholders of Lionbridge at an annual meeting or special meeting of
stockholders may only be taken if Lionbridge is given proper advance notice of
the action (the "Notice Procedure"). The Notice Procedure affords the Board an
opportunity to consider the qualifications of proposed director nominees or the
merit of stockholder proposals, and, to the extent deemed appropriate by the
Board, to inform stockholders about such matters. The Notice Procedure also
provides a more orderly procedure for conducting annual meetings of
stockholders. The By-Laws do not give the Board any power to approve or
disapprove stockholder nominations for the election of directors or proposals
for action. However, the Notice Procedure may prevent a contest for the election
of directors or the consideration of

58
<PAGE>
stockholder proposals. This could deter a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal if the proper advance notice procedures are not followed, without
regard to whether consideration of such nominees or proposals might be harmful
or beneficial to Lionbridge and its stockholders.

Lionbridge, without stockholder approval, can issue shares of common stock
and preferred stock up to the number of shares authorized for issuance in its
Charter, except as limited by Nasdaq rules. Lionbridge could use these
additional shares for a variety of corporate purposes. These purposes include
future public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. Lionbridge's ability to issue these shares of common
stock and preferred stock could make it more difficult or discourage an attempt
to obtain control of Lionbridge by means of a proxy contest, tender offer,
merger or otherwise.

The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares issued and outstanding is required
to amend a corporation's certificate of incorporation or by-laws, unless a
corporation's certificate of incorporation or by-laws, as the case may be,
requires a greater percentage. The Charter requires the affirmative vote of the
holders of at least 75% of the issued and outstanding shares of our capital
stock to amend many Charter provisions, including provisions relating to any
reduction in the number of authorized shares of our capital stock, our staggered
board, and director and officer indemnification. The By-Laws require the
affirmative vote of the holders of at least 75% of the issued and outstanding
shares of capital stock of Lionbridge entitled to vote to amend or repeal any of
the foregoing provisions of the By-Laws. The 75% stockholder vote would be in
addition to any separate class vote that might be required pursuant to the terms
of any series of preferred stock that might be outstanding at the time any
amendments are submitted to stockholders.

DELAWARE LAW

Lionbridge is subject to Section 203 of the Delaware General Corporation Law
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the time that such stockholder became an
interested stockholder.

Section 203 does not apply if:

- prior to such time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;

- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or

- at or subsequent to such time, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder.

The application of Section 203 may limit the ability of stockholders to approve
a transaction that they may deem to be in their best interests.

59
<PAGE>
Section 203 defines "business combination" to include:

- any merger or consolidation involving the corporation and the interested
stockholder;

- any sale, lease, transfer, pledge or other disposition of 10% or more of
the assets of the corporation to or with the interested stockholder;

- subject to limited exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder;

- any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or

- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.

In general, Section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation or is an affiliate or associate of the corporation and was the owner
of 15% or more of the outstanding voting stock of the corporation at any time
within the past three years, and any entity or person associated with,
affiliated with or controlling or controlled by such entity or person.

LIMITATION OF LIABILITY

The Charter provides that no director of Lionbridge shall be personally
liable to Lionbridge or to its stockholders for monetary damages for breach of
fiduciary duty as a director, except that the limitation shall not eliminate or
limit liability to the extent that the elimination or limitation of such
liability is not permitted by the Delaware General Corporation Law as the same
exists or may hereafter be amended.

The Charter further provides for the indemnification of Lionbridge's
directors and officers to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, including circumstances in which
indemnification is otherwise discretionary. A principal effect of these
provisions is to limit or eliminate in most situations the potential liability
of Lionbridge's directors for monetary damages arising from breaches of their
duty of care. These provisions may also shield directors from liability under
federal and state securities laws.

Officers, directors or other persons controlling Lionbridge may be entitled
under these indemnification provisions to indemnification for liabilities
arising under the Securities Act of 1933. We have been informed that in the
opinion of the Securities and Exchange Commission, this indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

STOCK TRANSFER AGENT

The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.

60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common
stock. The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that these sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.

After this offering, 14,719,450 shares of common stock will be outstanding,
14,851,116 shares if the underwriters exercise their over-allotment option from
us in full. Of these shares, the 3,500,000 shares sold in this offering will be
freely tradeable without restriction under the Securities Act except for the
728,000 shares that the Advent-sponsored limited partnerships and Morgan
Stanley-sponsored limited partnerships have indicated their interest in
purchasing and any other shares that may be purchased by "affiliates" of
Lionbridge as defined in Rule 144 under the Securities Act. The remaining
11,947,450 shares are "restricted securities" within the meaning of Rule 144
under the Securities Act. The restricted securities generally may not be sold
unless they are registered under the Securities Act or are sold pursuant to an
exemption from registration, such as the exemption provided by Rules 144 or 701
under the Securities Act.

We, our officers and directors, and a majority of our stockholders,
including the selling stockholders, have entered into lock-up agreements
pursuant to which we and they have agreed not to offer or sell any shares of
common stock or securities convertible into or exchangeable or exercisable for
shares of common stock for a period of 180 days from the date of this prospectus
without the prior written consent of Prudential Securities, on behalf of the
underwriters. Transfers or dispositions can be made in the case of gifts or
estate planning transfers where the donee signs a lock-up agreement. Prudential
Securities may, at any time and without notice, waive any of the terms of these
lock-up agreements specified in the underwriting agreement. Following the
lock-up period, these shares will not be eligible for sale in the public market
without registration under the Securities Act unless these sales meet the
conditions and restrictions of Rules 144 or 701 as described below.

As restrictions on resale end, the market price could drop significantly if
the holders of these restricted shares sell them, or are perceived by the market
as intending to sell them.

<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR RESALE
NUMBER OF SHARES INTO PUBLIC MARKET
- ------------------ ----------------------------------------------------------------------------------------------
<S> <C>
11,923,178 180 days after the date of this prospectus due to a lock-up agreement these stockholders have
with Prudential Securities. However, Prudential Securities can waive this restriction at any
time and without notice.

24,272 Between 180 and 365 days after the date of this prospectus due to the requirements of the
federal securities laws.
</TABLE>

In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for a period of at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of

- 1% of the then-outstanding shares of common stock and

- the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which the notice of such
sale on Form 144 is filed with the Securities and Exchange Commission.

61
<PAGE>
Sales under Rule 144 are also subject to certain provisions relating to
notice and manner of sale and the availability of current public information
about Lionbridge.

In addition, a person (or persons whose shares are aggregated) who has not
been an affiliate of Lionbridge at any time during the 90 days immediately
preceding a sale, and who has beneficially owned the shares for at least two
years, would be entitled to sell such shares under Rule 144(k) without regard to
the volume limitation and other conditions described above. Therefore, unless
otherwise restricted, Rule 144(k) shares may be sold immediately upon the
completion of this offering. The foregoing summary of Rule 144 is not intended
to be a complete description.

Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from Lionbridge by its employees, directors,
officers, consultants or advisors prior to the date the issuer becomes subject
to the reporting requirements of the Exchange Act. To be eligible for resale
under Rule 701, shares must have been issued pursuant to written compensatory
benefit plans or written contracts relating to the compensation of such persons.
In addition, the SEC has indicated that Rule 701 will apply to typical stock
options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of the offering). Securities
issued in reliance on Rule 701 are restricted securities and, subject to the
contractual restrictions described above, beginning 90 days after the date of
this prospectus, may be sold by persons other than affiliates, subject only to
the manner of sale provisions of Rule 144, and by affiliates, under Rule 144
without compliance with its one-year minimum holding period requirements. The
foregoing summary of Rule 701 is not intended to be a complete description.

Ninety days following the consummation of this offering, Lionbridge intends
to file a registration statement under the Securities Act to register the shares
of common stock available for issuance pursuant to its stock option plans as of
the date of this prospectus. Shares issued pursuant to these plans after the
effective date of such registration statement will be available for sale in the
open market subject to the lock-up period and, for affiliates of Lionbridge,
subject to conditions and restrictions of Rule 144.

62
<PAGE>
UNDERWRITING

We have entered into an underwriting agreement with the underwriters named
below, for whom Prudential Securities Incorporated, U.S. Bancorp Piper Jaffray
and Adams, Harkness & Hill, Inc. are acting as representatives. We and the
selling stockholders are obligated to sell, and the underwriters are obligated
to purchase, all of the shares offered on the cover page of this prospectus, if
any are purchased. Subject to conditions of the underwriting agreement, each
underwriter has severally agreed to purchase the shares indicated opposite its
name:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Prudential Securities Incorporated................................................................... 1,092,000
U.S. Bancorp Piper Jaffray Inc....................................................................... 1,092,000
Adams, Harkness & Hill, Inc.......................................................................... 546,000
Banc of America Securities LLC....................................................................... 70,000
BancBoston Robertson Stephens Inc.................................................................... 70,000
Bear, Stearns, & Co. Inc............................................................................. 70,000
CIBC World Markets Corp.............................................................................. 70,000
Donaldson, Lufkin & Jenrette Securities Corporation.................................................. 70,000
Hambrecht & Quist LLC................................................................................ 70,000
Salomon Smith Barney Inc............................................................................. 70,000
SG Cowen Securities Corporation...................................................................... 70,000
Sanford C. Bernstein & Co., Inc...................................................................... 35,000
Legg Mason Mood Walker, Incorporated................................................................. 35,000
Raymond James & Associates, Inc...................................................................... 35,000
Sutro & Co. Incorporated............................................................................. 35,000
Tucker Anthony Cleary Gull........................................................................... 35,000
C.E. Unterberg, Towbin............................................................................... 35,000
----------
Total............................................................................................ 3,500,000
----------
----------
</TABLE>

The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, over-allotment option to purchase up to
131,666 additional shares from us and 393,334 additional shares from the selling
stockholders. If any additional shares are purchased, the underwriters will
severally purchase the shares in the same proportion as per the table above. If
the underwriters exercise the over-allotment option in part, the shares to be
purchased by the underwriters will be allocated first pro rata among the selling
stockholders up to the entire 393,334 shares to be sold by the selling
stockholders and then from us.

The representatives of the underwriters have advised us and the selling
stockholders that the shares will be offered to the public at the offering price
indicated on the cover page of this prospectus. The underwriters may allow to
selected dealers a concession not in excess of $0.40 per share and such dealers
may reallow a concession not in excess of $0.10 per share to certain other
dealers. After the shares are released for sale to the public, the
representatives may change the offering price and the concessions. The
representatives have informed us that the underwriters do not intend to sell
shares to any investor who has granted them discretionary authority.

63
<PAGE>
We and the selling stockholders have agreed to pay to the underwriters the
following fees, assuming both no exercise and full exercise of the underwriters'
over-allotment options to purchase additional shares:

<TABLE>
<CAPTION>
TOTAL FEES
------------------------------------------------
WITHOUT EXERCISE
OF FULL EXERCISE OF
FEE PER OVER-ALLOTMENT OVER-ALLOTMENT
SHARE OPTIONS OPTIONS
---------- ----------------- -----------------
<S> <C> <C> <C>
Fees paid by us on shares sold to public...... $0.70 $1,940,400 $2,032,566
Fees paid by us on shares sold to limited
partnerships sponsored by Advent and Morgan
Stanley..................................... -- -- --
Fees paid by the selling stockholders......... $0.70 -- $275,334
</TABLE>

In addition, we estimate that we will spend approximately $1,000,000 in
expenses for this offering, including those of the selling stockholders. We and
the selling stockholders have agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act, or
contribute to payments that the underwriters may be required to make in respect
of these liabilities.

Prior to this offering, there has been no public market for the common stock
of Lionbridge. The public offering price, negotiated among Lionbridge and the
representatives, is based upon various factors such as Lionbridge's financial
and operating history and condition, our prospects, the prospects for our
industry, and prevailing market conditions.

Prudential Securities, on behalf of the underwriters, may engage in the
following activities in accordance with applicable securities rules:

- over-allotments involving sales in excess of the offering size, creating a
short position. Prudential Securities may elect to reduce this short
position by exercising some or all of the over-allotment options.

- stabilizing and short covering; stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in the
open market may also reduce the short position. These activities may cause
the price of the shares to be higher than would otherwise exist in the
open market.

- penalty bids permitting the representatives to reclaim concessions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.

Such activities, which may be commenced and discontinued at any time, may be
effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.

64
<PAGE>
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:

- the Public Offers of Securities Regulation 1995,

- the Financial Services Act 1986, and

- the Financial Services Act 1986, (Investment Advertisements) (Exemptions)
Order 1986 (as amended).

Limited partnerships sponsored by Advent International and Morgan Stanley
Dean Witter, who are existing Lionbridge stockholders, have indicated their
interest in purchasing up to $7,280,000 of our stock from the underwriters at
the public offering price. The underwriters will not receive any underwriting
discounts or commissions in connection with the sale of shares to these
purchasers.

We have asked the underwriters to reserve approximately 5% of the shares
offered for sale at the same offering price directly to our employees and other
business affiliates or related third parties. The number of shares available for
sale to the general public in the offering will be reduced to the extent such
persons purchase the reserved shares.

65
<PAGE>
LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for Lionbridge by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
George W. Lloyd, a partner at Testa, Hurwitz & Thibeault, LLP, is the beneficial
owner of 16,667 shares of common stock of Lionbridge. Certain legal matters will
be passed upon for the underwriters by Brobeck, Phleger & Harrison LLP,
Washington, District of Columbia.

EXPERTS

The consolidated financial statements of Lionbridge Technologies, Inc. as of
December 31, 1998 and 1997 and for the years then ended, the combined financial
statements of The Localization Businesses of Stream International Holdings, Inc.
in Ireland, The Netherlands and France for the year ended December 31, 1996, and
the financial statements of VeriTest, Inc. as of December 31, 1998 and for the
year then ended, included in this prospectus, have been so included in reliance
on the reports of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.

AVAILABLE INFORMATION

Lionbridge has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 under the Securities Act with
respect to the common stock offered hereby. This prospectus does not contain all
of the information set forth in the registration statement. For further
information with respect to Lionbridge and the common stock, reference is made
to the registration statement. Statements contained in this prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of the contract
or document filed as an exhibit to the registration statement, and each such
statement is qualified in all respects by reference to such exhibit. Copies of
the registration statement may be examined without charge at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Regional Offices of
the Commission at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661
and 7 World Trade Center, Thirteenth Floor, New York, New York 10048. Copies of
all or any portion of the registration statement may be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington D.C. 20549, or by calling the Commission at
1-800-SEC-0330, at prescribed rates. The Commission also maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, such as Lionbridge, that make
electronic filings with the Commission.

Lionbridge intends to furnish to its stockholders annual reports containing
financial statements audited by an independent public accounting firm.

66
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
LIONBRIDGE TECHNOLOGIES, INC.
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999 (unaudited)................. F-3
Consolidated Statements of Operations for the years ended December 31, 1997 and 1998 and the six months
ended June 30, 1998 and 1999 (unaudited)................................................................. F-4
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Deficit for the years
ended December 31, 1997 and 1998 and the six months ended June 30, 1999 (unaudited)...................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1998 and the six months
ended June 30, 1998 and 1999 (unaudited)................................................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7

THE LOCALIZATION BUSINESSES OF STREAM INTERNATIONAL HOLDINGS, INC. IN IRELAND,
THE NETHERLANDS AND FRANCE
Report of Independent Accountants.......................................................................... F-27
Combined Statement of Operations for the year ended December 31, 1996...................................... F-28
Combined Statement of Cash Flows for the year ended December 31, 1996...................................... F-29
Notes to Combined Financial Statements..................................................................... F-30

VERITEST, INC.
Report of Independent Accountants.......................................................................... F-34
Balance Sheet as of December 31, 1998...................................................................... F-35
Statement of Operations for the year ended December 31, 1998............................................... F-36
Statement of Shareholders' Equity for the year ended December 31, 1998..................................... F-37
Statement of Cash Flows for the year ended December 31, 1998............................................... F-38
Notes to Financial Statements.............................................................................. F-39

UNAUDITED PRO FORMA FINANCIAL INFORMATION
Introduction to Unaudited Pro Forma Financial Statements................................................... F-43
Unaudited Pro Forma Statement of Operations for the year ended December 31, 1998........................... F-44
Unaudited Pro Forma Statement of Operations for the six months ended June 30, 1999......................... F-45
Notes to Unaudited Pro Forma Financial Statements.......................................................... F-46
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Lionbridge Technologies, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, redeemable convertible preferred stock
and stockholders' deficit and cash flows present fairly, in all material
respects, the financial position of Lionbridge Technologies, Inc. at December
31, 1997 and 1998, and the consolidated results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards 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 audits provide a reasonable basis for the opinion expressed
above.

/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 9, 1999, except as to Note 17,
which is as of August 19, 1999

F-2
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------- JUNE 30, JUNE 30,
1997 1998 1999 1999
------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 2)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 1,098 $ 732 $ 1,455 $ 1,455
Accounts receivable, net of allowances of $366, $573
and $546 at December 31, 1997 and 1998 and June 30,
1999 (unaudited), respectively..................... 6,902 7,321 9,133 9,133
Work in process...................................... 2,386 3,929 3,674 3,674
Other current assets................................. 624 805 1,045 1,045
------- -------- ----------- -----------
Total current assets............................. 11,010 12,787 15,307 15,307

Property and equipment, net............................ 951 1,840 2,155 2,155
Goodwill, net.......................................... 6,710 7,370 10,325 10,325
Other assets........................................... 85 405 320 320
------- -------- ----------- -----------
Total assets................................... $18,756 $ 22,402 $ 28,107 $ 28,107
------- -------- ----------- -----------
------- -------- ----------- -----------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Amounts owed to banks................................ $ 88 $ 416 $ 143 $ 143
Short-term debt...................................... 2,200 7,693 5,893 27,842
Accounts payable..................................... 3,118 3,964 3,761 3,761
Accrued compensation and benefits.................... 2,057 2,356 2,855 2,855
Other accrued expenses............................... 4,499 5,664 5,175 5,175
Deferred revenue..................................... 524 412 399 399
------- -------- ----------- -----------
Total current liabilities........................ 12,486 20,505 18,226 40,175
------- -------- ----------- -----------

Long-term debt, net of discount........................ -- -- 10,964 4,964

Redeemable convertible preferred stock, $0.01 par
value:
Series A convertible preferred stock, 17,271,314
shares authorized; 13,271,314 shares issued and
outstanding at December 31, 1997 and 1998 and June
30, 1999 (unaudited); no shares issued and
outstanding on a pro forma basis (unaudited)....... 14,356 15,418 15,949 --
Series B redeemable preferred stock, 200 shares
authorized; no shares issued and outstanding....... -- -- -- --
Series C convertible preferred stock, 17,271,514
shares authorized; no shares issued and
outstanding........................................ -- -- -- --
Series D nonvoting convertible preferred stock, 200
shares authorized; 140 shares issued and
outstanding at December 31, 1997 and 1998 and June
30, 1999 (unaudited); no shares issued and
outstanding on a pro forma basis (unaudited)....... -- -- -- --

Commitments and contingencies (Note 7)

Stockholders' deficit:
Common stock, $0.01 par value; 25,950,867 shares
authorized; 1,359,993, 1,963,614 and 2,371,799
shares issued and outstanding at December 31, 1997
and 1998 and June 30, 1999 (unaudited),
respectively, and 11,219,450 shares issued and
outstanding on a pro forma basis (unaudited)....... 14 20 24 112
Additional paid-in capital........................... 57 300 10,516 10,428
Accumulated deficit.................................. (8,898) (14,222) (24,518) (24,518)
Deferred compensation................................ -- -- (3,529) (3,529)
Accumulated other comprehensive income............... 741 381 475 475
------- -------- ----------- -----------
Total stockholders' deficit...................... (8,086) (13,521) (17,032) (17,032)
------- -------- ----------- -----------
Total liabilities, redeemable convertible
preferred stock and stockholders' deficit.... $18,756 $ 22,402 $ 28,107 $ 28,107
------- -------- ----------- -----------
------- -------- ----------- -----------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

F-3
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ------------------------
1997 1998 1998 1999
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue.............................................. $ 26,462 $ 38,412 $ 18,132 $ 23,783
Cost of revenue...................................... 18,914 25,546 12,226 16,607
--------- --------- ----------- -----------
Gross profit................................... 7,548 12,866 5,906 7,176
--------- --------- ----------- -----------
Operating expenses:
Sales and marketing................................ 1,306 2,735 1,206 2,613
General and administrative......................... 8,210 10,889 5,238 6,894
Amortization of acquisition-related intangible
assets........................................... 4,400 2,145 1,194 1,579
Restructuring charges (Note 10).................... 541 501 451 --
Stock-based compensation........................... -- -- -- 232
--------- --------- ----------- -----------
Total operating expenses....................... 14,457 16,270 8,089 11,318
--------- --------- ----------- -----------
Loss from operations................................. (6,909) (3,404) (2,183) (4,142)
Interest expense..................................... (127) (648) (265) (4,988)
Other income (expense), net.......................... (506) 49 (22) (320)
--------- --------- ----------- -----------
Loss before income taxes............................. (7,542) (4,003) (2,470) (9,450)
Provision for income taxes........................... 112 259 53 315
--------- --------- ----------- -----------
Net loss............................................. (7,654) (4,262) (2,523) (9,765)
Accrued dividends on preferred stock................. (1,062) (1,062) (531) (531)
--------- --------- ----------- -----------
Net loss attributable to common stockholders......... $ (8,716) $ (5,324) $ (3,054) $ (10,296)
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Basic and diluted net loss per share attributable to
common stockholders................................ $ (8.85) $ (2.99) $ (1.89) $ (4.64)
Shares used in computing basic and diluted net loss
per share attributable to common stockholders...... 985 1,782 1,613 2,218
Unaudited pro forma basic and diluted net loss
per share.......................................... $ (0.43) $ (0.77)
Shares used in computing unaudited pro forma
basic and diluted net loss per share............... 12,371 13,314
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

F-4
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT

(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ------------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES PAR VALUE CAPITAL DEFICIT
--------- ----------- --------- ------------- ----------- ------------
Balance at December 31, 1996...................... 13,673,098 $ 13,696 984,608 $ 10 $ 5 $ (182)
<S> <C> <C> <C> <C> <C> <C>
Stock options exercised........................... 375,385 4 52
Issuance of Series A convertible preferred
stock........................................... 570,010 570
Repurchase of Series A convertible preferred stock
to be retired................................... (971,654) (972)
Accrual of dividends on preferred stock........... 1,062 (1,062)
Comprehensive loss:
Net loss........................................ (7,654)
Other comprehensive income:
Translation adjustment........................
Comprehensive loss..............................
--------- ----------- --------- --- ----------- ------------
Balance at December 31, 1997...................... 13,271,454 14,356 1,359,993 14 57 (8,898)
Issuance of common stock in connection with the
acquisition of Japanese Language Services,
Inc............................................. 286,959 3 83
Stock options exercised........................... 316,662 3 39
Accrual of dividends on preferred stock........... 1,062 (1,062)
Accretion of common stock to redemption value..... 121
Comprehensive loss:
Net loss........................................ (4,262)
Other comprehensive loss:
Translation adjustment........................
Comprehensive loss..............................
--------- ----------- --------- --- ----------- ------------
Balance at December 31, 1998...................... 13,271,454 15,418 1,963,614 20 300 (14,222)
Issuance of common stock in connection with the
acquisition of VeriTest, Inc.................... 66,668 1 343
Issuance of common stock in connection with the
acquisition of Japanese Language Services,
Inc............................................. 24,268 -- 35
Issuance of warrants in connection with debt
financing....................................... 5,967
Deferred compensation............................. 3,761
Amortization of deferred compensation.............
Stock options exercised........................... 317,249 3 50
Accrual of dividends on preferred stock........... 531 (531)
Accretion of common stock to redemption value..... 60
Comprehensive loss:
Net loss........................................ (9,765)
Other comprehensive income:
Translation adjustment........................
Comprehensive loss..............................
--------- ----------- --------- --- ----------- ------------
Balance at June 30, 1999 (unaudited).............. 13,271,454 $ 15,949 2,371,799 $ 24 $ 10,516 $ (24,518)
--------- ----------- --------- --- ----------- ------------
--------- ----------- --------- --- ----------- ------------

<CAPTION>
ACCUMULATED
OTHER TOTAL
DEFERRED COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE
COMPENSATION INCOME DEFICIT LOSS
--------------- --------------- ------------- ---------------
Balance at December 31, 1996...................... $ (167)
<S> <C> <C> <C> <C>
Stock options exercised........................... 56
Issuance of Series A convertible preferred
stock...........................................
Repurchase of Series A convertible preferred stock
to be retired...................................
Accrual of dividends on preferred stock........... (1,062)
Comprehensive loss:
Net loss........................................ (7,654) $ (7,654)
Other comprehensive income:
Translation adjustment........................ $ 741 741 741
---------------
Comprehensive loss.............................. $ (6,913)
------- ------------- ---------------
---------------
Balance at December 31, 1997...................... 741 (8,086)
Issuance of common stock in connection with the
acquisition of Japanese Language Services,
Inc............................................. 86
Stock options exercised........................... 42
Accrual of dividends on preferred stock........... (1,062)
Accretion of common stock to redemption value..... 121
Comprehensive loss:
Net loss........................................ (4,262) $ (4,262)
Other comprehensive loss:
Translation adjustment........................ (360) (360) (360)
---------------
Comprehensive loss.............................. $ (4,622)
------- ------------- ---------------
---------------
Balance at December 31, 1998...................... 381 (13,521)
Issuance of common stock in connection with the
acquisition of VeriTest, Inc.................... 344
Issuance of common stock in connection with the
acquisition of Japanese Language Services,
Inc............................................. 35
Issuance of warrants in connection with debt
financing....................................... 5,967
Deferred compensation............................. $ (3,761) --
Amortization of deferred compensation............. 232 232
Stock options exercised........................... 53
Accrual of dividends on preferred stock........... (531)
Accretion of common stock to redemption value..... 60
Comprehensive loss:
Net loss........................................ (9,765) $ (9,765)
Other comprehensive income:
Translation adjustment........................ 94 94 94
---------------
Comprehensive loss.............................. $ (9,671)
------- ------- ------------- ---------------
---------------
Balance at June 30, 1999 (unaudited).............. $ (3,529) $ 475 $ (17,032)
------- ------- -------------
------- ------- -------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

F-5
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ------------------------
1997 1998 1998 1999
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... $ (7,654) $ (4,262) $ (2,523) $ (9,765)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization of acquisition-related intangible
assets......................................... 4,400 2,145 1,194 1,579
Compensation expense for stock options granted... -- -- -- 232
Accretion of discount on subordinated notes
payable........................................ -- -- -- 4,099
Depreciation and amortization of property and
equipment...................................... 1,164 1,187 573 741
Provision for doubtful accounts.................. 380 182 75 35
Deferred income taxes............................ 112 206 -- --
Foreign currency (gain) loss on intercompany
transactions................................... 353 (67) 549 555
Changes in operating assets and liabilities, net
of effects of acquisitions:
Accounts receivable............................ 187 214 93 (2,334)
Work in process................................ (592) (828) (1,163) (47)
Other current assets........................... 690 (295) (229) (255)
Other assets................................... (78) (193) (34) 67
Accounts payable............................... (426) (401) (189) 90
Accrued compensation and benefits.............. 781 341 299 499
Other accrued expenses......................... 184 478 755 104
Deferred revenue............................... (943) (440) (105) 12
--------- --------- ----------- -----------
Net cash used in operating activities........ (1,442) (1,733) (705) (4,388)
--------- --------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment................ (923) (1,363) (1,154) (1,039)
Payments for businesses acquired, net of cash
acquired......................................... (18) (3,141) (3,141) (3,726)
Payments for Asian asset purchase, net of cash
acquired......................................... (85) -- -- --
Transfer of funds from escrow...................... 600 -- -- --
--------- --------- ----------- -----------
Net cash used in investing activities........ (426) (4,504) (4,295) (4,765)
--------- --------- ----------- -----------
Cash flows from financing activities:
Net increase (decrease) in amounts owed to banks... (522) 328 (68) (178)
Net increase (decrease) in short-term debt......... 1,197 5,551 5,795 (1,843)
Proceeds from long-term debt....................... -- -- -- 12,000
Proceeds from issuance of preferred stock.......... 570 -- -- --
Proceeds from exercise of common stock options..... 56 42 43 53
--------- --------- ----------- -----------
Net cash provided by financing activities.... 1,301 5,921 5,770 10,032
--------- --------- ----------- -----------
Net increase (decrease) in cash...................... (567) (316) 770 879
Effects of exchange rate changes on cash............. (130) (50) (89) (156)
Cash at beginning of period.......................... 1,795 1,098 1,098 732
--------- --------- ----------- -----------
Cash at end of period................................ $ 1,098 $ 732 $ 1,779 $ 1,455
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

F-6
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION:

NATURE OF THE BUSINESS

Lionbridge Technologies, Inc. and its subsidiaries (collectively,
"Lionbridge") is a provider of globalization services to software publishers,
computer hardware manufacturers and telecommunications companies. Globalization
services, including localization, internationalization and testing, enable
simultaneous worldwide release and ongoing maintenance of products and
product-related technical support, training materials, and sales and marketing
information in multiple languages. Lionbridge has its head office in the United
States, with operations in France, Ireland, The Netherlands, China, Japan, South
Korea and the United States.

FORMATION OF LIONBRIDGE AND BASIS OF PRESENTATION

Lionbridge was incorporated on September 11, 1996 in order to effect the
acquisition of certain elements of the localization businesses of Stream
International Holdings, Inc. ("Stream"). Funding for the acquisition was
provided through the issuance of common and preferred stock in Lionbridge and in
a majority-owned subsidiary of Lionbridge.

On December 23, 1996, Lionbridge entered into an agreement with Stream to
acquire its localization businesses in Ireland, The Netherlands and France (see
Note 4). The purchase accounting for the acquisition of the businesses was
recorded as though the purchase had occurred on December 31, 1996, as the
results of operations and changes in financial position between December 23,
1996 and this date were immaterial.

The December 23, 1996 agreement with Stream also contemplated the
acquisition of certain businesses in Asia. However, Lionbridge did not acquire
such businesses as planned, and renegotiated the agreement in July 1997. As a
result, a note payable for $840,000 issued to Stream in contemplation of the
December 23, 1996 agreement was canceled, and restricted cash of $600,000, which
was held in escrow at December 31, 1996 and was to be paid to Stream on
completion of the Asian acquisition, was returned to Lionbridge, net of certain
payments otherwise due.

On July 3, 1997, Lionbridge entered into a new agreement with Stream to
purchase work in process and certain other assets of Stream's Japanese, Chinese
and Taiwanese localization businesses as of April 1, 1997, and of the South
Korean localization business as of July 3, 1997, in exchange for approximately
$100,000 of cash plus the assumption of liabilities of $317,000 for the
completion of work under existing customer contracts. As these assets did not
comprise businesses, the Company allocated the purchase price based on their
fair values.

2. SIGNIFICANT ACCOUNTING POLICIES:

The accompanying consolidated financial statements of Lionbridge reflect the
application of certain significant accounting policies as described below:

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
Lionbridge and its wholly owned subsidiaries from the effective date of their
acquisition or formation. All significant intercompany accounts and transactions
have been eliminated in the consolidated financial statements.

F-7
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
UNAUDITED INTERIM FINANCIAL STATEMENTS

The consolidated financial statements and related notes of Lionbridge for
the six months ended June 30, 1998 and 1999 are unaudited. Management believes
the unaudited consolidated financial statements have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations in such
periods. Results of operations for the six months ended June 30, 1998 and 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999, or for any other future period.

UNAUDITED PRO FORMA BALANCE SHEET

Upon the closing of Lionbridge's anticipated initial public offering of
securities, certain transactions will occur automatically. The unaudited pro
forma information included on the balance sheet at June 30, 1999 reflects these
transactions as if they had occurred on June 30, 1999, as follows (see Notes 6
and 8):

- the exchange of an aggregate of 13,271,454 shares of Series A convertible
preferred stock and Series D nonvoting convertible preferred stock
outstanding as of June 30, 1999 for 132.7145 shares of Series B redeemable
preferred stock and 8,847,649 shares of Series C convertible preferred
stock;

- the redemption of the 132.7145 shares of Series B redeemable preferred
stock for $15,949,000, including accrued and unpaid dividends, presented
as a reclassification of long-term debt, net of discount to short-term
debt;

- the conversion of the 8,847,649 shares of Series C convertible preferred
stock into 8,847,649 shares of common stock; and

- the repayment of $6,000,000 of the subordinated notes, presented as a
reclassification of long-term debt, net of discount to short-term debt.

REVENUE RECOGNITION

Lionbridge recognizes revenue from the provision of services to its
customers on the percentage-of-completion method of accounting, based on costs
incurred as a percentage of management's estimates of total costs of individual
contracts. Anticipated losses by project, if any, are recognized in the period
in which determined.

ADVERTISING COSTS

Advertising costs are included in sales and marketing expenses and are
expensed as incurred. Advertising costs were $0 and approximately $120,000 for
the years ended December 31, 1997 and 1998, respectively.

FOREIGN CURRENCY TRANSLATION

The functional currency for each of Lionbridge's foreign operations is the
local currency of the country in which those operations are based. Revenues and
expenses of foreign operations are translated into U.S. dollars at the average
rates of exchange during the period. Assets and liabilities of

F-8
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
foreign operations are translated into U.S. dollars at period-end rates of
exchange. Resulting cumulative translation adjustments are reflected as a
separate component of accumulated other comprehensive income in stockholders'
deficit. Foreign currency transaction gains or losses, arising from exchange
rate fluctuations on transactions denominated in currencies other than the
functional currencies, are included in other income (expense), net in the
consolidated statements of operations and were $(472,000) and $49,000 for the
years ended 1997 and 1998, respectively.

For the purpose of the disclosure of comprehensive loss, Lionbridge does not
record tax provisions or benefits for the net changes in foreign currency
translation adjustments, as Lionbridge intends to permanently reinvest
undistributed earnings in its foreign subsidiaries.

WORK IN PROCESS

Work in process represents the value of work performed but not billed. Work
in process is calculated using the percentage-of-completion method based on
total anticipated costs and is stated at cost plus estimated profit, but not in
excess of net realizable value. Billing of amounts in work in process occurs
according to customer-agreed payment schedules or upon completion of specified
project milestones. All of Lionbridge's projects in work in process are expected
to be billed and collected within one year.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets using the straight-line method, based upon the
following asset lives:

<TABLE>
<S> <C>
Computer software and equipment 1 to 5 years
Furniture and office equipment 3 to 5 years
Leasehold improvements Shorter of lease term or useful life of
asset
</TABLE>

Upon retirement or other disposition, the cost and related accumulated
depreciation of the assets are removed from the accounts and the resulting gain
or loss is reflected in the determination of net income or loss. Expenditures
for maintenance and repairs are expensed as incurred.

INTANGIBLE ASSETS

Goodwill represents the excess of cost over the fair value of the net assets
of businesses acquired. Goodwill is amortized using the straight-line method
over five years.

LONG-LIVED ASSETS

Lionbridge periodically evaluates the net realizable value of long-lived
assets, including goodwill and property and equipment, relying on a number of
factors including operating results, business plans, economic projections and
anticipated future cash flows. An impairment in the carrying value of an asset
is assessed when the undiscounted, expected future operating cash flows derived
from the asset are less than its carrying value.

F-9
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES

Deferred income taxes are recognized based on the temporary differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the temporary differences are
expected to reverse. Valuation allowances are provided if, based on the weight
of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.

NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS AND PRO FORMA NET
LOSS PER SHARE

Basic and diluted earnings per share are computed in accordance with SFAS
No. 128, "Earnings per Share." Basic net loss per share attributable to common
stockholders is computed by dividing net loss attributable to common
stockholders by the weighted average number of shares of common stock
outstanding. There is no difference between basic and diluted earnings per share
since potential common shares from the conversion of preferred stock and
exercises of stock options and warrants are anti-dilutive for all periods
presented.

Unaudited pro forma basic and diluted net loss per share for the year ended
December 31, 1998 and the six months ended June 30, 1999 is computed using the
weighted average number of common shares outstanding, adjusted to include the
impact of certain transactions that will occur automatically upon the closing of
Lionbridge's anticipated initial public offering of securities, as follows:

- the addition of 8,847,649 shares of common stock for each of the year
ended December 31, 1998 and the six months ended June 30, 1999, resulting
from the exchange of an aggregate of 13,271,454 shares of Series A and
Series D convertible preferred stock for 8,847,649 shares of Series C
convertible preferred stock, and the conversion of these shares into
8,847,649 shares of common stock; and

- the addition of 1,741,157 and 2,248,799 shares of common stock for the
year ended December 31, 1998 and the six months ended June 30, 1999,
respectively, to reflect the number of shares of common stock from the
anticipated initial public offering from which proceeds are deemed to be
used to repay $6,000,000 of the subordinated notes and to redeem the
132.7145 shares of Series B redeemable preferred stock with accrued
dividends for $15,949,000, based on an assumed net offering price of $9.16
per share, weighted from the beginning of the periods for the preferred
stock and from the date of issuance for the subordinated notes.

ACCOUNTING FOR STOCK-BASED COMPENSATION

Lionbridge accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense is recorded for options issued to employees
in fixed amounts and with fixed exercise prices at least equal to the fair
market value of Lionbridge's common stock at the date of grant. When the
exercise price of stock options granted to employees is less than the fair
market value of common stock at the date of grant, Lionbridge records that
difference multiplied by the number of shares under option as deferred
compensation, which is then amortized over the vesting period of the options.
Lionbridge has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," through disclosure only (see Note 8). All stock-based
awards to non-employees are accounted for at their fair value in accordance with
SFAS No. 123.

F-10
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates. Estimates are used when accounting for the collectibility of
receivables, calculating revenue using the percentage-of-completion method, and
valuing intangible assets, deferred tax assets and net assets of businesses
acquired.

CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

Financial instruments which potentially subject Lionbridge to concentrations
of credit risk consist principally of trade accounts receivables. Concentrations
of credit risk with respect to trade accounts receivable are limited due to the
dispersion of customers across different geographic regions, although globally
some customers constitute a significant percentage of total revenue (see Note
11). Lionbridge does not require collateral or other security against trade
receivable balances; however, it maintains reserves for potential credit losses
and such losses have been within management's expectations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments, including cash, accounts receivable, accounts
payable, redeemable preferred stock and debt, are carried in the consolidated
financial statements at amounts that approximate fair values at December 31,
1997 and 1998 and June 30, 1999 (unaudited). Fair values are based on quoted
market prices and assumptions concerning the amount and timing of estimated
future cash flows and assumed discount rates, reflecting varying degrees of
perceived risk.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The standard requires that all derivative
instruments be recorded on the balance sheet at their fair values. Changes in
the fair values of derivatives are recorded each period in current earnings or
other comprehensive income (loss), depending on whether or not a derivative is
designated as part of a hedge transaction and, if it is, depending on the type
of hedge transaction. SFAS No. 133, as amended by SFAS No. 137, will be
effective for Lionbridge's fiscal quarter beginning January 1, 2001 and its
adoption is not expected to have a material impact on Lionbridge's financial
position or results of operations.

In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for Lionbridge's fiscal 1999 financial statements, and
Lionbridge does not expect its adoption to have a material effect on its
financial position or results of operations.

F-11
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following at December 31:

<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
Computer software and equipment................................. $ 1,400,000 $ 2,035,000
Furniture and office equipment.................................. 527,000 708,000
Leasehold improvements.......................................... 138,000 327,000
------------- -------------
2,065,000 3,070,000
Less: Accumulated depreciation and amortization................. (1,114,000) (1,230,000)
------------- -------------
$ 951,000 $ 1,840,000
------------- -------------
------------- -------------
</TABLE>

4. BUSINESS COMBINATIONS:

LOCALIZATION BUSINESS OF STREAM

On December 23, 1996, Lionbridge acquired the localization businesses of
Stream in Ireland, The Netherlands and France (see Note 1). In accordance with
the acquisition agreement, Lionbridge paid Stream aggregate cash consideration
of $11,300,000 in exchange for all of the outstanding common stock of R.R.
Donnelley Language Solutions International B.V. and Stream International
Language Solutions as well as the assumption of tax liabilities of $100,000
incurred in connection with the transaction.

The business combination was accounted for using the purchase method of
accounting, and the results of the acquired localization business have been
included in Lionbridge's financial statements as of December 31, 1996 (see Note
1). The purchase price, including direct costs of the acquisition, was allocated
based on the fair values of the acquired assets and assumed liabilities as
follows:

<TABLE>
<CAPTION>
<S> <C>
Current assets................................................................ $ 11,417,000
Current liabilities........................................................... (12,516,000)
Property and equipment........................................................ 1,350,000
Non-compete agreement......................................................... 2,559,000
Goodwill...................................................................... 9,224,000
--------------
$ 12,034,000
--------------
--------------
</TABLE>

In 1997, Lionbridge submitted a claim to Stream for the reimbursement of a
portion of the purchase consideration under the indemnity terms of the December
23, 1996 agreement. This claim was ultimately resolved through a settlement
agreement with Stream, effective December 31, 1997 (see Note 6). Under the terms
of this agreement, the purchase price for the European businesses was reduced by
$531,000. This amount was deducted from goodwill at December 31, 1997.

During 1997 and 1998, acquired net operating loss carryforwards of
$1,120,000 and $1,291,000, respectively, were utilized to offset taxable income
in Ireland and The Netherlands. As the deferred tax assets associated with these
losses had been fully reserved at the time of the Stream acquisition, the
benefits were recorded as reductions to goodwill of $112,000 and $207,000 in
1997 and 1998, respectively.

F-12
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. BUSINESS COMBINATIONS: (CONTINUED)
JAPANESE LANGUAGE SERVICES

On February 27, 1998, Lionbridge entered into an agreement to acquire all of
the outstanding stock of Japanese Language Services, Inc., a company based in
Massachusetts with additional operations in Japan, for total initial
consideration of $2,323,000 consisting of cash of $2,237,000 and 286,959 shares
of common stock valued at $86,000. The shares of common stock may be redeemed,
at the option of the holder, at a price of $1.35 per share at any time from July
2001 to September 2001. The carrying amount of the redeemable common stock will
be increased to the redemption amount of $387,000 over the 30-month period
ending July 2001. The agreement also requires certain contingent stock
issuances, limited to 24,268 shares of common stock, and cash payments, limited
to $625,000, dependent on future operating results of Japanese Language
Services, Inc. through December 31, 1999. This agreement was effective January
2, 1998, when operating control of Japanese Language Services, Inc. was assumed
by Lionbridge. The acquisition was accounted for using the purchase method of
accounting, and the results of Japanese Language Services, Inc. have been
included in Lionbridge's financial statements as of the effective date. The
purchase price, including direct costs of the acquisition, was allocated based
on the fair values of the acquired assets and assumed liabilities as follows:

<TABLE>
<CAPTION>
<S> <C>
Current assets................................................................ $ 935,000
Current liabilities........................................................... (789,000)
Property and equipment........................................................ 247,000
Goodwill...................................................................... 1,999,000
--------------
$ 2,392,000
--------------
--------------
</TABLE>

The initial calculation of goodwill did not include any anticipated
contingent consideration. Additional goodwill of $375,000 was recorded at
December 31, 1998 in connection with an incremental payment being due under the
contingent payment arrangement. Future payments under the contingent payment
arrangement, if any, will similarly increase goodwill. Goodwill was also
increased by $120,000 and $60,000 (unaudited) during the year ended December 31,
1998 and the six months ended June 30, 1999, respectively, related to the
accretion to the redemption amount of the redeemable common stock. Pro forma
statements of operations would not differ materially from reported results.

ILT SOLUTIONS GROUP

On April 1, 1998, Lionbridge acquired certain assets and operations of the
ILT Solutions Group of Lucent Technologies, Inc. for cash of $1,000,000. The
acquisition was accounted for using the purchase method of accounting. The
purchase price, including direct costs of the acquisition, was allocated to
current assets of $244,000, property and equipment of $299,000 and goodwill of
$470,000 based on their fair values at the acquisition date. The results of the
ILT Solutions Group are included in these financial statements from the date of
the acquisition. Pro forma statements of operations would not differ materially
from reported results.

VERITEST, INC.

On January 11, 1999, Lionbridge entered into an agreement to acquire all of
the stock of VeriTest, Inc., a company based in California, for total initial
consideration of $4,354,000 consisting of cash of $3,260,000, 66,668 shares of
common stock valued at $344,000, and notes payable for $750,000.

F-13
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. BUSINESS COMBINATIONS: (CONTINUED)
The agreement also requires certain contingent cash payments, limited to
$1,000,000, dependent on future operating performance through December 31, 2000.
This acquisition was accounted for using the purchase method of accounting. The
purchase price, including direct costs of the acquisition, was allocated based
on the fair values of the acquired assets and assumed liabilities as follows:

<TABLE>
<CAPTION>
<S> <C>
Current assets................................................................ $ 522,000
Current liabilities........................................................... (616,000)
Property and equipment........................................................ 175,000
Goodwill...................................................................... 4,338,000
--------------
$ 4,419,000
--------------
--------------
</TABLE>

The initial calculation of goodwill did not include any contingent
consideration. Future payments, if any, under the contingent payment arrangement
will increase goodwill. The initial calculation of goodwill is subject to
adjustment when additional information on the valuation of customer contracts
and intellectual property is finalized. An allocation of the purchase price to
such assets, if any, would decrease goodwill by a corresponding amount. The
results of VeriTest, Inc. are included in these financial statements from the
date of acquisition.

The following unaudited pro forma consolidated results of operations for the
year ended December 31, 1998 and the six-month period ended June 30, 1999 assume
that the acquisition of VeriTest, Inc. occurred as of January 1, 1998:

<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C> <C>
Revenue......................................................... $ 42,147 $ 23,783
Net loss........................................................ (6,615) (9,982)
Basic and diluted net loss per share attributable to common
stockholders.................................................. (4.08) (4.72)
</TABLE>

For each period presented, the pro forma results include estimates of the
interest expense on debt used to finance the purchase and the depreciation and
amortization of intangible and other fixed assets based on the purchase price
allocation. These pro forma amounts do not purport to be indicative of the
results that would have actually been obtained if the acquisition had occurred
on January 1, 1998 or that may be obtained in the future.

The expense of amortizing goodwill from all acquisitions prior to December
31, 1998 was $1,841,000 and $2,145,000 in 1997 and 1998, respectively.
Additionally, amortization of $2,559,000 was recorded in 1997 in connection with
a noncompete agreement between Lionbridge and Stream.

5. AMOUNTS OWED TO BANKS:

Amounts owed to banks represent temporary, unsecured overdraft facilities
utilized by Lionbridge's operations in Ireland, France, Holland and the United
States.

6. DEBT:

SETTLEMENT AGREEMENT

On June 10, 1998, Lionbridge entered into an agreement with certain
companies that had previously been part of the Stream organization to settle
various outstanding amounts due between

F-14
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT: (CONTINUED)
Lionbridge and Stream, including the indemnity claim submitted by Lionbridge
(see Note 4); a note payable to Stream of $569,000, together with accrued
interest of $39,000; and the amount due to Stream on the exercise of its put
option to sell 971,654 shares of Series A convertible preferred stock to
Lionbridge (see Note 8). In settlement of all amounts due to and from Stream (or
successor companies), Lionbridge agreed to pay an interest-free amount of
$700,000 in seven equal monthly installments beginning February 1998. This note
was recorded in current liabilities at December 31, 1997 and was paid during
1998. The net effect of the settlement agreement was to reduce by $531,000 the
Company's purchase price for the European business acquired from Stream. The
effective date of this agreement was December 31, 1997, and its impact was
reflected in the consolidated financial statements as of that date.

LINE OF CREDIT

On September 26, 1997, Lionbridge entered into a line of credit agreement
with a commercial bank. The agreement was subsequently amended on May 21, 1998
and May 20, 1999 (unaudited) and expires on September 20, 1999. At the time of
the May 1998 amendment, Lionbridge issued a warrant for the purchase of 83,334
shares of common stock at an exercise price of $2.40 per share. This warrant was
exercisable immediately and expires on May 21, 2003. The value ascribed to this
warrant was immaterial. Under the amended terms of the agreement, Lionbridge may
borrow up to $8,000,000, based on the value of certain eligible current assets
worldwide.

The interest rate payable on any outstanding borrowings is prime plus 1% per
year (9.5% and 8.8% at December 31, 1997 and 1998, respectively), and Lionbridge
was required to pay a facility fee of $50,000 on the signing of the agreement.
This fee and other direct arrangement expenses were amortized over the initial
term of the agreement, which expired on May 22, 1998. Borrowings outstanding
under the line of credit agreement are collateralized by certain assets of
Lionbridge. The amount outstanding on the line of credit at December 31, 1997
and 1998 was $1,500,000 and $7,693,000, respectively, and $5,893,000 as of June
30, 1999 (unaudited).

The agreement requires Lionbridge to maintain certain financial ratios and
restricts the payment of dividends. As of December 31, 1997 and 1998, Lionbridge
was in compliance with the financial covenants as subsequently amended by the
bank.

ADDITIONAL FINANCING

On January 11, 1999, Lionbridge entered into two substantially identical
promissory note agreements with the former owners of VeriTest, Inc. in
connection with the acquisition of this business (see Note 4). The notes are for
an aggregate amount of $750,000 and are payable in one installment on January
11, 2001. Interest on the notes is due annually at a rate of 8%.

On January 8, 1999, Lionbridge entered into a bridge loan agreement with a
third party. Under the terms of the agreement, Lionbridge issued a $4,000,000,
12% senior subordinated note. On February 26, 1999, Lionbridge entered into a
new subordinated debt agreement with the same party and terminated the bridge
loan agreement. Under the terms of the new agreement, Lionbridge issued
$10,000,000, 12% senior subordinated convertible notes. The principal amounts of
the notes are repayable in quarterly installments beginning in March 2003, with
final settlement of the principal and interest due in February 2006. Interest is
due quarterly. The notes are subject to certain covenant restrictions, including
the maintenance of a defined minimum current asset to current liability ratio
and

F-15
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT: (CONTINUED)
a minimum profitability measure, and are collateralized by certain assets of
Lionbridge. In connection with the issuance of these notes, Lionbridge issued
detachable warrants to purchase 1,277,716 shares of common stock at a price of
$0.015 per share, valued at $4,972,000.

On March 9, 1999, Lionbridge entered into a subordinated debt agreement with
a stockholder. Under the terms of the agreement, Lionbridge issued $2,000,000,
12% senior subordinated convertible notes. The principal amounts of the notes
are repayable in quarterly installments beginning in March 2003, with final
settlement of the principal and interest due in March 2006. Interest is due
quarterly. The notes are collateralized by certain assets of Lionbridge and are
subject to certain covenant restrictions, including the maintenance of a defined
minimum current asset to current liability ratio and a minimum profitability
measure. In connection with the issuance of these notes, Lionbridge issued
detachable warrants to purchase 255,544 shares of common stock at a price $0.015
per share, valued at $995,000.

The detachable warrants issued in connection with these financings expire on
the later of (i) the seventh anniversary of the issuance of the warrant and (ii)
the date when each related note is paid in full. If not otherwise exercised, the
warrants will be automatically exercised in accordance with their terms
immediately prior to any expiration. The aggregate value of these warrants was
recorded as a discount on subordinated notes payable and is being amortized as
additional interest expense using the straight-line method over the period from
issuance until August 1999, based on the expected repayment of the debt upon the
initial public offering of securities by Lionbridge.

On August 19, 1999, Lionbridge entered into amendments to the subordinated
debt agreements pursuant to which the 12% senior subordinated convertible notes
were issued. As a result, Lionbridge is required to repay one-half of the
aggregate principal amount of each of the notes, together with all accrued and
unpaid interest thereon, upon the closing of certain defined liquidity events,
including the initial public offering of securities with aggregate proceeds of
at least $25,000,000. The remaining aggregate principal amount of such notes,
together with all accrued and unpaid interest thereon, is required to be repaid
upon the earlier of August 25, 2001 or an underwritten public offering by
Lionbridge subsequent to the initial public offering of securities with
aggregate proceeds of at least $10,000,000. Before amended, these notes had
required that all of the principal amount be paid upon a closing of an initial
public offering of securities with aggregate proceeds of at least $25,000,000.

As of March 31, 1999, Lionbridge was not in compliance with one of the
covenants common to each of the above notes. Lionbridge subsequently obtained
waivers from the debtholders which release it from the requirement to comply
with that covenant for the quarter ended March 31, 1999 and for the quarters
ending June 30 and September 30, 1999.

F-16
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES:

LEASE COMMITMENTS

The Company leases certain equipment and office space under noncancelable
agreements and leases which expire at various dates through 2003. Future minimum
lease payments under noncancelable operating leases at December 31, 1998 were as
follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------
<S> <C>
1999............................................................................ $ 746,000
2000............................................................................ 564,000
2001............................................................................ 334,000
2002............................................................................ 229,000
2003............................................................................ 298,000
Thereafter...................................................................... 2,019,000
------------
$ 4,190,000
------------
------------
</TABLE>

Total rental expenses charged to operations were $697,000 and $952,000 in
1997 and 1998, respectively.

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT:

SERIES A AND SERIES D CONVERTIBLE PREFERRED STOCK

VOTING

The holders of Series A preferred stock are entitled to one vote for each
whole share of common stock issuable upon conversion to Series C preferred stock
and thereon to common stock. The holders of Series A preferred stock vote with
the holders of common stock, and certain other outstanding preferred stock, as a
single class. The holders of Series D preferred stock have no voting rights.

DIVIDENDS

Holders of Series A and Series D preferred stock are entitled to receive
dividends or other distributions in an amount based upon, and in advance of, the
planned dividend or other distribution to holders of common stock.

LIQUIDATION

In the event of any liquidation, dissolution or winding up of Lionbridge,
the holders of Series A and Series D preferred stock are entitled to be paid out
of the assets available for distribution, in preference to any payment to the
holders of common or more junior preferred stock, but subordinated to payments
to the holders of more senior preferred stock, an amount of $1.00 per share,
plus any dividends declared but unpaid, plus a premium of $0.08 per year from
the date of issue, plus an amount per share that would have been payable had
each share of Series A and Series D preferred stock been converted into shares
of common stock immediately prior to liquidation, dissolution or winding up.

In the event of a merger or consolidation of Lionbridge with another
corporation, with certain exemptions, or the sale of substantially all the
assets of Lionbridge, holders of 66 2/3% or more of the Series A or Series D
preferred stock may elect to consider the event to be a liquidation of
Lionbridge.

F-17
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
EXCHANGE

Each share of Series A and Series D preferred stock is exchangeable, at the
option of the holder, into 1/100,000 of a share of Series B preferred stock and
a specified number of shares of Series C preferred stock based on an exchange
ratio, subject to adjustment under specified terms and conditions (2-for-3 at
December 31, 1998). Certain terms exist to protect the exchange rights of the
holders of Series A and Series D preferred stock in the event of further
issuances of common stock or a merger or reorganization of Lionbridge.

In the event of a public offering of the Company's common stock at a price
of at least $6.00 per share with gross proceeds of at least $15,000,000, all
shares of Series A and Series D preferred stock will automatically be exchanged
for shares of Series B and C preferred stock at the effective exchange rates.

SERIES B REDEEMABLE PREFERRED STOCK

VOTING

The holders of Series B preferred stock are not entitled to vote, except in
certain specified circumstances.

DIVIDENDS

Holders of Series B preferred stock are not entitled to receive dividends.

LIQUIDATION

In the event of any liquidation, dissolution or winding up of Lionbridge,
the holders of Series B preferred stock are entitled to be paid out of the
assets available for distribution, in preference to any payment to the holders
of common or more junior preferred stock, but subordinated to payments to the
holders of more senior preferred stock, an amount of $100,000 per share, plus
any dividends declared but unpaid, plus a premium of $8,000 per share per year.

REDEMPTION

On December 23, 2001, the Series B preferred stock becomes redeemable at the
request of 66 2/3% or more of the holders and to the extent permitted by legally
available funds. The redemption price is equal to $100,000 per share, plus any
unpaid dividends, plus a premium of $8,000 per share per year, for all shares of
Series B preferred stock issued or issuable upon conversion of the outstanding
Series A preferred stock and Series D preferred stock. In any event, to the
extent permitted by legally available funds, all outstanding shares of Series B
preferred stock must be redeemed by December 23, 2003.

In the event of a public offering of the Company's common stock at a price
of at least $6.00 per share with gross proceeds of at least $15,000,000, the
merger or consolidation of Lionbridge with another corporation, with certain
exemptions, or the sale of substantially all the assets of Lionbridge, all
shares of Series B preferred stock must be redeemed for the amount specified
above (a "Mandatory Redemption"). In connection with any Mandatory Redemption,
Lionbridge is not required to redeem a number of shares of its Series B
preferred stock that would result in it paying more than 50% of its consolidated
net income before taxes for the preceding year. The redemption of any shares not
redeemed as a result of the application of the provision described in the
preceding sentence is deferred

F-18
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
until the earlier of the date that Lionbridge has sufficient consolidated net
income before taxes to redeem such shares or December 23, 2003.

SERIES C CONVERTIBLE PREFERRED STOCK

VOTING

The holders of Series C preferred stock are entitled to one vote for each
whole share of common stock issuable upon conversion. The holders of Series C
preferred stock vote with the holders of common stock, and any other outstanding
preferred stock, as a single class.

DIVIDENDS

Holders of Series C preferred stock are entitled to receive dividends or
other distributions in an amount based upon, and in advance of, the planned
dividend or other distribution to holders of common stock.

LIQUIDATION

In the event of any liquidation, dissolution or winding up of Lionbridge,
the holders of Series C preferred stock are entitled to be paid out of the
assets available for distribution, in preference to any payment to the holders
of common or more junior preferred stock, but subordinated to payments to the
holders of more senior preferred stock, an amount per share that would have been
payable had each share of Series C preferred stock been converted into shares of
common stock.

In the event of a merger or consolidation of Lionbridge with another
corporation, with certain exemptions, or the sale of substantially all the
assets of Lionbridge, holders of 66 2/3% or more of the Series C preferred stock
may elect to consider the event to be a liquidation of Lionbridge.

CONVERSION

Each share of Series C preferred stock is convertible, at the option of the
holder, into a specified number of shares of common stock based on a conversion
ratio, subject to adjustment under specified terms and conditions (1-for-1 at
December 31, 1998). Certain terms exist to protect the conversion rights of the
holders of Series C preferred stock in the event of further issuances of common
stock or a merger or reorganization of Lionbridge.

In the event of a public offering of the Company's common stock at a price
of at least $6.00 per share with gross proceeds of at least $15,000,000, all
shares of Series C preferred stock will automatically be converted into shares
of common stock at the effective conversion rate.

TREASURY STOCK

In connection with the December 23, 1996 financing of Lionbridge, Stream was
granted a put option to sell 971,654 shares of Series A preferred stock to
Lionbridge.

On September 25, 1997, Stream exercised its put option and Lionbridge
acquired 971,654 shares of its Series A preferred stock at a cost of $971,654.
Settlement of this amount due to Stream was resolved through a subsequent
agreement (see Note 6). In 1998, Lionbridge retired all of the shares acquired.

F-19
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
STOCK OPTION PLANS

Lionbridge maintains a stock option plan (the "Plan") for the issuance of
incentive and nonqualified stock options. The number of shares of common stock
available for issuance under the Plan was 2,855,365 shares, an amount which
increased to 3,522,032 shares on April 23, 1998. Options to purchase common
stock are granted at the discretion of the Board of Directors.

Generally, stock options vest over a four-year period as follows: 25% on the
first anniversary of the date of grant and semi-annually thereafter in equal
installments over the remaining three-year period. Stock options generally
expire ten years (five years in certain cases) from the date of grant.

Under the terms of the Plan, the exercise price of incentive stock options
granted must not be less than 100% (110% in certain cases) of the fair market
value of the common stock on the date of grant, as determined by the Board of
Directors. The exercise price of nonqualified stock options may be less than the
fair market value of the common stock on the date of grant, as determined by the
Board of Directors, but in no case may the exercise price be less than the
statutory minimum. The Board of Directors, in assessing the fair market value of
Lionbridge's common stock, considers factors relevant at the time, including
recent third-party transactions, significant new customers, composition of the
management team, recent hiring results, Lionbridge's financial condition and
operating results and the lack of a public market for Lionbridge's common stock.

Transactions involving the Plan for the period from January 1, 1997 to
December 31, 1998 are summarized as follows:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- -----------
<S> <C> <C>
Outstanding at January 1, 1997........................................ 1,501,529 $ 0.165
Granted............................................................... 1,472,555 0.150
Exercised............................................................. (375,385) 0.150
Canceled.............................................................. (382,363) 0.150
----------
Outstanding at December 31, 1997...................................... 2,216,336 0.165
Granted............................................................... 407,573 0.525
Exercised............................................................. (316,662) 0.135
Canceled.............................................................. (115,025) 0.195
----------
Outstanding at December 31, 1998...................................... 2,192,222 0.225
----------
----------
</TABLE>

Options for 0 and 421,380 shares were exercisable at December 31, 1997 and
1998, respectively.

There were 263,644 and 637,763 shares available for future grant under the
Plan at December 31, 1997 and 1998, respectively.

F-20
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------- ------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------------ ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.150 - $0.165 8.09
1,800,349 years $ 0.165 421,380 $ 0.165
0.300 - 0.450 9.13
285,797 years 0.300 -- 0.300
0.900 9.58
69,917 years 0.900 -- 0.900
1.500 9.83
36,159 years 1.500 -- 1.500
----------- -----------
2,192,222 421,380
----------- -----------
----------- -----------
</TABLE>

Had compensation cost for stock options granted to employees been determined
based on the fair value at the date of grant for awards in the period from
inception (September 11, 1996) to December 31, 1998, consistent with the
provisions of SFAS No. 123, Lionbridge's net loss for 1997 and 1998 would have
been increased to $7,668,000 and $4,283,000, and the net loss per common share
attributable to common stockholders for 1997 and 1998 would have been increased
to $8.87 and $3.00, respectively. The fair value of options granted during 1997
and 1998 was $0.02 and $0.06, respectively.

For these pro forma calculations, the fair value of each option granted was
estimated on the date of grant using the minimum value option pricing model,
utilizing the following weighted-average assumptions: (1) weighted-average risk
free interest rates of 6.11% and 5.40% for 1997 and 1998, respectively, (2)
weighted-average expected option life of 4.0 years, and (3) expected dividend
yield of 0.

The effects of applying the fair value method may be material to the pro
forma results of operations in future years because the determination of the
fair value of all options granted after Lionbridge becomes a public entity will
include an expected volatility factor, additional option grants are expected to
be made subsequent to December 31, 1998, and most options vest over several
years.

DEFERRED COMPENSATION (UNAUDITED)

During the six months ended June, 1999, Lionbridge granted stock options to
purchase 843,700 shares of its common stock at exercise prices ranging from
$1.50 to $9.75 per share. Lionbridge recorded deferred compensation relating to
these options totaling $3,761,000, representing the aggregate difference between
the estimated fair market value of Lionbridge's common stock on the date of
grant and the exercise price of each option. This deferred compensation is being
amortized over the four-year vesting period of the related options, resulting in
amortization of $232,000 in the six months ended June 30, 1999.

9. INCOME TAXES:

The provisions for income taxes for the years ended December 31, 1997 and
1998 are due to taxable income generated in foreign jurisdictions for which U.S.
tax credit utilization is currently uncertain. The benefit from the utilization
of net operating loss carryforwards in Europe during the years ended December
31, 1997 and 1998 was recorded as a reduction of goodwill of $112,000 and

F-21
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. INCOME TAXES: (CONTINUED)
$207,000, respectively, rather than a tax provision benefit, since the deferred
tax assets associated with these carryforwards had been fully reserved at the
time of the acquisition of the businesses from Stream (see Note 4). Lionbridge
recorded no tax benefit for losses generated during these periods due to the
uncertainty of realizing such benefits.

The components of the loss before income taxes were as follows for the years
ended December 31:

<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
United States....................................................................... $ (6,115,000) $ (4,636,000)
Foreign............................................................................. (1,427,000) 633,000
------------- -------------
Loss before income taxes............................................................ $ (7,542,000) $ (4,003,000)
------------- -------------
------------- -------------
</TABLE>

The consolidated deferred tax assets of the Company were as follows at
December 31:

<TABLE>
<CAPTION>
1997 1998
------------- ------------
<S> <C> <C>
U.S. net operating loss carryforwards................................................ $ 564,000 $ 1,309,000
Foreign net operating loss carryforwards............................................. 1,623,000 1,696,000
Difference in accounting for amortization and depreciation........................... 1,136,000 1,113,000
Other................................................................................ 77,000 32,000
Valuation allowance.................................................................. (3,400,000) (4,150,000)
------------- ------------
Net deferred tax asset............................................................... -- --
------------- ------------
------------- ------------
</TABLE>

Management of Lionbridge has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets. Under the applicable
accounting standards, management has considered Lionbridge's history of losses
and concluded that it is more likely than not that Lionbridge will not generate
future taxable income prior to the expiration of these net operating losses.
Accordingly, the deferred tax assets have been fully reserved. Management
reevaluates the positive and negative evidence periodically.

At December 31, 1998, Lionbridge had net operating loss carryforwards for
U.S. Federal and state income tax purposes of approximately $3,252,000 which may
be used to offset future taxable income, beginning to expire in 2011.
Additionally, Lionbridge has net operating loss carryforwards in France of
approximately $4,218,000 which may be used to offset future taxable income,
beginning to expire in 1999; net operating loss carryforwards in Japan of
approximately $247,000 which expire in 2003; and net operating loss
carryforwards in The Netherlands of approximately $483,000 which may be carried
forward indefinitely.

Tax benefits recognized for the utilization of foreign net operating loss
carryforwards acquired in the December 23, 1996 acquisition of businesses from
Stream (see Note 4) are recorded as a reduction to goodwill, rather than as a
tax provision benefit.

Under the provisions of the Internal Revenue Code, certain substantial
changes in Lionbridge's ownership may limit in the future the amount of net
operating loss carryforwards which could be used annually to offset future
taxable income and income tax liability.

F-22
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. RESTRUCTURING CHARGES:

During the fourth quarter of 1997, the first quarter of 1998 and the fourth
quarter of 1998, Lionbridge recorded restructuring charges of $541,000, $451,000
and $50,000, respectively, in operating expenses. These charges related to
workforce reductions in France, consisting of nine technical staff in 1997 and
five technical and administrative staff in 1998. All employees had been informed
of their termination and related benefits in the period that the corresponding
charge was recorded. Lionbridge had balances of $541,000, $0 and $0 (unaudited)
remaining at December 31, 1997 and 1998 and at June 30, 1999, respectively, in
other accrued expenses in relation to these charges. As of June 30, 1999
(unaudited), none of these employees remained with Lionbridge and management
does not anticipate any future expenditures related to these actions.

11. SIGNIFICANT CUSTOMERS:

Lionbridge's two largest customers accounted for the following percentages
of total revenues for the periods ended:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer A......................................... 19% 14% 16% 14%
Customer B......................................... 10% 6% 7% 2%
</TABLE>

12. OPERATING SEGMENT AND GEOGRAPHICAL INFORMATION:

In June 1998, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 requires that public
business enterprises report certain information about operating segments in
annual and interim financial statements filed with the SEC and issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Operating segments
are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate resources
and in assessing their performance.

Lionbridge provides localization services to the information technology
industry, including language translation, cultural reformatting and testing of
applications. Lionbridge provides a full service offering to its clients on a
global basis and, although customers may utilize the results of Lionbridge's
services in a number of different formats, for example, through software manuals
or the Internet, management does not allocate resources or assess performance on
the basis of this end-use. As a result, management considers Lionbridge to have
only one operating segment.

F-23
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. OPERATING SEGMENT AND GEOGRAPHICAL INFORMATION: (CONTINUED)
A summary of Lionbridge's operations and other financial information by
geographical region follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
---------------------- ----------------------
1997 1998 1998 1999
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues:
United States........................... $ -- $4,683,000 $1,562,000 $4,846,000
Asia.................................... 1,510,000 4,801,000 1,934,000 3,451,000
France.................................. 11,070,000 9,094,000 4,634,000 6,035,000
Ireland................................. 11,157,000 14,296,000 6,889,000 7,907,000
The Netherlands......................... 3,724,000 6,799,000 3,668,000 2,835,000
Eliminations............................ (999,000) (1,261,000) (555,000) (1,291,000)
---------- ---------- ---------- ----------
$26,462,000 $38,412,000 $18,132,000 $23,783,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Long-lived assets:
United States....................................... $ 6,776,000 $ 7,990,000 $ 11,573,000
Asia................................................ 146,000 320,000 307,000
France.............................................. 121,000 207,000 163,000
Ireland............................................. 595,000 989,000 694,000
The Netherlands..................................... 108,000 109,000 63,000
------------- ------------- -------------
$ 7,746,000 $ 9,615,000 $ 12,800,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

Foreign revenue is presented based on the country in which projects are
managed. Long-lived assets in the United States as of December 31, 1997 and 1998
and June 30, 1999 include goodwill from acquisitions of $6,710,000, $7,370,000
and $10,325,000, respectively.

Lionbridge has an agreement with the Irish Industrial Development Agency
regarding financial grants to its Irish subsidiary from this agency. Under the
agreement, the Irish subsidiary may not pay dividends or otherwise distribute
its cash, including any distributions to Lionbridge.

F-24
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------- ------------------------
1997 1998 1998 1999
--------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest paid.................................................... $ 127,000 $ 648,000 $ 83,000 $ 332,000
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------

Noncash investing and financing activities:

Cancellation of note payable (Note 1).......................... $ 840,000 -- -- --

Issuance of warrants for common stock in connection with debt
(Note 6)..................................................... -- -- -- $5,967,000

Lionbridge entered into an agreement to settle various
outstanding amounts due between Lionbridge and Stream (Note
6) which reduced goodwill as follows:
Cancellation of note payable, including interest............. $ 608,000 -- -- --
Repurchase of Series A preferred stock from Stream 972,000 -- -- --
Settlement of operating accounts............................. (349,000) -- -- --
Amount payable by Lionbridge under agreement................. (700,000) -- -- --
--------- ---------- ----------- -----------
Reduction to goodwill...................................... $ 531,000 -- -- --
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
Lionbridge purchased all of the outstanding capital stock of
Japanese Language Services, Inc. for $2,323,000, effective
January 2, 1998. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired and goodwill................... -- $3,181,000 $3,181,000 --
Cash paid for capital stock.................................. -- (2,237,000) (2,237,000) --
Common stock issued.......................................... -- (86,000) (86,000) --
--------- ---------- ----------- -----------
Liabilities assumed........................................ -- $ 858,000 $ 858,000 --
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
Lionbridge purchased all of the outstanding capital stock of
VeriTest, Inc. for $4,354,000, effective January 11, 1999. In
conjunction with the acquisition, liabilities were assumed as
follows:
Fair value of assets acquired and goodwill................... -- -- -- $5,035,000
Cash paid for capital stock.................................. -- -- -- (3,260,000)
Common stock issued.......................................... -- -- -- (344,000)
Notes issued................................................. -- -- -- (750,000)
--------- ---------- ----------- -----------
Liabilities assumed........................................ -- -- -- $ 681,000
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
</TABLE>

14. VALUATION AND QUALIFYING ACCOUNTS:

The following table sets forth activity in Lionbridge's accounts receivable
reserve:

<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING CHARGES TO END OF
OF PERIOD OPERATIONS DEDUCTIONS PERIOD
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended:
- --------------------------------------------
December 31, 1997 $ -- $ 450,000 $ (84,000) $ 366,000
December 31, 1998 $ 366,000 $ 220,000 $ (13,000) $ 573,000
</TABLE>

F-25
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:

Diluted loss per share attributable to common stockholders does not differ
from basic loss per share attributable to common stockholders since potential
common shares from the conversion of preferred stock and the exercise of stock
options and warrants are anti-dilutive for all periods presented and are
therefore excluded from the calculation. Preferred stock convertible into
8,847,649 shares of common stock, options to purchase 2,216,336, 2,192,222 and
2,621,945 (unaudited) shares of common stock, and warrants to purchase 0, 83,334
and 1,616,594 (unaudited) shares of common stock, were outstanding as of
December 31, 1997 and 1998 and June 30, 1999, respectively, but were not
included in the calculation of diluted net loss per share attributable to common
shareholders because the effect of their inclusion would have been
anti-dilutive.

16. EMPLOYEE BENEFIT PLANS:

As of December 31, 1998, the Company maintained defined benefit pension
plans for employees in The Netherlands and France, and a defined contribution
scheme for employees in Ireland. Total pension contributions charged to
operations were $154,000 and $350,000 in 1997 and 1998, respectively.

17. SUBSEQUENT EVENTS:

CORPORATE ACTIONS

On June 15, 1999, the Board of Directors of Lionbridge approved the
following matters, among other items:

- the adoption, effective upon the closing of the anticipated initial public
offering, of the Second Amended and Restated Certificate of Incorporation,
which among other matters (a) increases the number of authorized shares of
common stock of Lionbridge to 100,000,000 and (b) decreases the number of
authorized shares of preferred stock of Lionbridge to 5,000,000 and
authorizes the Board of Directors to issue up to that amount of shares of
undesignated preferred stock, for which the Board of Directors will have
the power to determine designations and preferences;

- an amendment to Lionbridge's stock option plan to increase the number of
shares of common stock issuable under the plan by 2,000,000 to 5,522,032;
and

- the adoption, effective upon the closing of the anticipated initial public
offering, of an employee stock purchase plan, under which employees may
purchase shares of common stock in semi-annual offerings at a price equal
to the lower of 85% of the average market price on the beginning or ending
date of each offering period.

REVERSE STOCK SPLIT

Effective August 13, 1999, the Company's Board of Directors declared a
2-for-3 reverse stock split. All references in the consolidated financial
statements to shares of common stock have been retroactively adjusted to reflect
this reverse stock split.

SUBORDINATED DEBT AMENDMENTS

On August 19, 1999, Lionbridge entered into amendments to the subordinated
debt agreements. The amendments modified the terms of repayment of the debt, as
described in Note 6.

F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To The Board of Directors and Stockholders of
Lionbridge Technologies, Inc.:

We have audited the accompanying combined statements of operations and cash
flows of the Localization Businesses of Stream International Holdings, Inc. in
Ireland, The Netherlands and France (together, the "Entities") for the year
ended December 31, 1996. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined results of operations and cash flows of
the Entities for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
November 7, 1997

F-27
<PAGE>
THE LOCALIZATION BUSINESSES OF STREAM INTERNATIONAL
HOLDINGS, INC. IN IRELAND, THE NETHERLANDS AND FRANCE

COMBINED STATEMENT OF OPERATIONS

(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Revenue............................................................................................. $ 28,134
Cost of revenue..................................................................................... 24,977
------------
Gross profit.................................................................................. 3,157
Selling, general and administrative expenses........................................................ 3,144
------------
Income from operations.............................................................................. 13
Interest expense.................................................................................... (154)
Other income (expense), net......................................................................... (72)
------------
Net loss............................................................................................ $ (213)
------------
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED FINANCIAL
STATEMENTS.

F-28
<PAGE>
THE LOCALIZATION BUSINESSES OF STREAM INTERNATIONAL
HOLDINGS, INC. IN IRELAND, THE NETHERLANDS AND FRANCE

COMBINED STATEMENT OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Cash flows from operating activities:
Net loss.......................................................................................... $ (213)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of property and equipment......................................... 571
Provision for doubtful accounts................................................................. 62
Loss on disposal of equipment................................................................... 16
Changes in operating assets and liabilities:
Accounts receivable........................................................................... 1,603
Work in process............................................................................... (709)
Other current assets.......................................................................... 169
Accounts payable.............................................................................. 2,394
Accrued expenses.............................................................................. (1,457)
Deferred revenue.............................................................................. 445
------------
Net cash provided by operating activities................................................... 2,881
------------
Cash flows from investing activities:
Purchases of property and equipment............................................................... (444)
------------
Net cash used in investing activities....................................................... (444)
------------
Cash flows from financing activities:
Increase in short-term debt, net.................................................................. 890
Payment of notes payable.......................................................................... (554)
Net decrease in amounts owed to banks............................................................. (3,239)
------------
Net cash used in financing activities....................................................... (2,903)
------------
Net decrease in cash................................................................................ (466)
Effects of exchange rate changes on cash............................................................ (41)
Cash at beginning of year........................................................................... 715
------------
Cash at end of year................................................................................. $ 208
------------
------------
Supplemental disclosure of cash flow information:
Interest paid..................................................................................... $ 154
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED FINANCIAL
STATEMENTS.

F-29
<PAGE>
THE LOCALIZATION BUSINESSES OF STREAM INTERNATIONAL
HOLDINGS, INC. IN IRELAND, THE NETHERLANDS AND FRANCE

NOTES TO COMBINED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION:

NATURE OF THE BUSINESS

The Localization Businesses of Stream International Holdings, Inc. in
Ireland, The Netherlands and France (together, the "Entities") are providers of
outsourced localization services to the information technology industry. Their
customer base includes software publishers, hardware manufacturers and
telecommunications companies that must render versions of their software and
manuals in different languages and culturally appropriate formats.

ACQUISITION OF THE ENTITIES

Lionbridge Technologies, Inc. ("Lionbridge") was incorporated on September
11, 1996 in order to effect the acquisition of certain elements of the
localization businesses of Stream International Holdings, Inc. ("Stream").
Funding for the acquisition was provided through the issuance of common and
preferred stock in Lionbridge and in a majority-owned subsidiary of Lionbridge.

On December 23, 1996, Lionbridge entered into an agreement with Stream to
acquire its localization businesses in Ireland, The Netherlands and France for
total consideration of $11,400,000, principally consisting of cash. These
businesses consisted of legal entities in Ireland and Holland, a legal entity
and divisional operation in France, and a divisional operation in Belgium.

These combined financial statements have been prepared using Stream's
historical basis in the assets and liabilities and historical results of
operations related to the Entities, since the Entities were under the common
control of Stream. These combined financial statements generally reflect the
results of operations and cash flows of the Entities as if they were separate
entities for the period presented.

Certain costs and expenses presented in the combined financial statements
were allocated by the management of Stream, based on their estimates of the cost
of services provided to the Entities by Stream. Stream management believes that
these allocations and allocation methods are reasonable. However, the financial
information included herein may not necessarily reflect the combined results of
operations and cash flows of the Entities in the future, or what they would have
been had the Entities been separate from Stream during the period presented.

2. SIGNIFICANT ACCOUNTING POLICIES:

The accompanying combined financial statements of the Entities reflect the
application of certain significant accounting policies as described below:

BASIS OF PRESENTATION

The combined financial statements present the statements of operations and
cash flows as if the Entities had operated as separate entities for the year
ended December 31, 1996. All significant inter-entity transactions have been
eliminated on combination.

Transactions with other members of the Stream group have been treated as
dealings with third-parties. Management does not believe that the cost of such
transactions would differ materially if conducted with unrelated parties.

F-30
<PAGE>
THE LOCALIZATION BUSINESSES OF STREAM INTERNATIONAL
HOLDINGS, INC. IN IRELAND, THE NETHERLANDS AND FRANCE

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION

The Entities recognize revenue from the provision of localization services
to their customers on the percentage-of-completion method of accounting, based
on management's estimates of project progress. Anticipated losses by project, if
any, are recognized in the period in which determined.

ADVERTISING COSTS

Advertising costs are included in selling, general and administrative
expenses and are expensed as incurred.

ALLOCATED COSTS

Corporate expenses incurred by Stream on behalf of the Entities were
generally charged directly to these entities during the year ended December 31,
1996. These charges were allocated using a variety of methods depending on the
nature of the expense, including specified percentages of revenue measures and
management estimates.

When corporate expenses had not been previously charged, an amount has been
allocated in these financial statements based upon estimates made by management
of Stream of the cost attributable to the entity. Methods used to make
allocations were similar to those used to determine direct charges, with the
addition of headcount equivalents.

FOREIGN CURRENCY TRANSLATION

The functional currency for each of the Entities is the local currency of
the country in which operations are based. Revenues and expenses of foreign
operations are translated into U.S. dollars at the average rates of exchange for
the period. Resulting cumulative translation adjustments are reflected as a
separate component of accumulated comprehensive income in equity. Foreign
currency transaction losses arising from exchange rate fluctuations on
transactions denominated in currencies other than the functional currencies are
included in other income (expense), net in results of operations and were
$32,000 in 1996.

INCOME TAXES

Historically, the operations of the Entities have been included in the
consolidated U.S. Federal and certain state and foreign income tax returns filed
by Stream and its subsidiaries (see Note 1). Income tax expense has been
calculated on a separate-return basis for the purpose of these financial
statements. Deferred taxes arise primarily from unutilized net operating losses,
using enacted tax rates in effect in the years in which net operating losses are
expected to be utilized or differences are expected to reverse. Valuation
allowances are provided if, based on the weight of available evidence, it is
more likely than not that some or all of the deferred tax assets will not be
realized.

F-31
<PAGE>
THE LOCALIZATION BUSINESSES OF STREAM INTERNATIONAL
HOLDINGS, INC. IN IRELAND, THE NETHERLANDS AND FRANCE

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT

Property and equipment is depreciated over the estimated useful lives of the
assets using the straight-line method, based upon the following asset lives:

<TABLE>
<S> <C>
Computer software and equipment..... 1 to 3 years
Furniture and office equipment...... 3 to 5 years
Leasehold improvements.............. Shorter of lease term or useful life
of asset
</TABLE>

Upon retirement or other disposition, the cost and related accumulated
depreciation of the assets are removed from the accounts and the resulting gain
or loss is reflected in the determination of net income or net loss.
Expenditures for maintenance and repairs are expensed as incurred.

LONG-LIVED ASSETS

The Entities periodically evaluate the net realizable value of long-lived
assets relying on a number of factors including operating results, business
plans, economic projections and anticipated future cash flows. An impairment in
the carrying value of an asset is assessed when the undiscounted, expected
future operating cash flows derived from the asset are less than its carrying
value.

NET LOSS PER COMMON SHARE

As these financial statements have been prepared by combining the operating
results and cash flows of several legal entities and divisional operations,
there is no historical basis of common shares outstanding. As a result, earnings
per share information is not presented.

USE OF ESTIMATES

The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses during
the period presented. Actual results could differ from these estimates.
Estimates are used when accounting for the calculation of work in process,
depreciation and tax asset valuation allowances, and for the allocation of
corporate expenses from Stream.

3. RELATIONSHIP WITH STREAM:

Where corporate expenses incurred by Stream on behalf of the Entities were
not charged to the Entities during the year ended December 31, 1996, an
allocation of corporate expense has been included in operating expenses in the
combined statement of operations. The aggregate of amounts allocated to the
Entities for the year was $717,000, all relating to selling, general and
administrative expenses. No interest has been charged related to these
transactions.

4. LEASES:

The Entities leased certain equipment and office space. Total rental expense
charged to operations during the year ended December 31, 1996 was $90,000.

F-32
<PAGE>
THE LOCALIZATION BUSINESSES OF STREAM INTERNATIONAL
HOLDINGS, INC. IN IRELAND, THE NETHERLANDS AND FRANCE

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

5. EMPLOYEE BENEFIT PLANS:

During the year ended December 31, 1996, certain of the employees of the
Entities were members of defined benefit pension plans ultimately administered
by Stream. The pension contributions charged to operations during the year were
$324,000.

6. INCOME TAXES:

The Entities had no income tax expense for the year ended December 31, 1996,
as a result of incurred losses. A full valuation allowance was recorded against
the deferred tax assets generated by the 1996 losses, due to management's
uncertainty of realizing such benefits.

7. GEOGRAPHICAL INFORMATION:

Net revenue in 1996 arose entirely from activities in Europe, as follows:

<TABLE>
<S> <C>
France......................................................... $11,136,000
Ireland........................................................ 13,796,000
The Netherlands................................................ 2,514,000
Belgium........................................................ 688,000
----------
$28,134,000
----------
----------
</TABLE>

Foreign revenue is presented based on the country in which projects are
managed.

8. DONATED CAPITAL:

Immediately prior to the acquisition of the Entities by Lionbridge (see Note
1), a capital donation of $1,974,000 was made to the Dutch entities by Stream.
This donation was effected by the waiver of certain amounts payable to Stream.

9. VALUATION AND QUALIFYING ACCOUNTS:

The following table sets forth activity in the Entities' accounts receivable
reserve:

<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF CHARGES TO END OF
YEAR OPERATIONS DEDUCTIONS YEAR
------------ ----------- ------------- ----------
<S> <C> <C> <C> <C>
December 31, 1996.............................................. $ 202,000 $ 55,000 -- $ 257,000
</TABLE>

F-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of VeriTest, Inc.:

In our opinion, the accompanying balance sheet and the related statements of
operations, shareholders' equity and cash flows present fairly, in all material
respects, the financial position of VeriTest, Inc. (the "Company") at December
31, 1998, and the results of its operations and its cash flows for the year
ended December 31, 1998 in conformity with generally accepted accounting
principles. 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 generally accepted auditing standards 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.

/s/ PricewaterhouseCoopers LLP

Woodland Hills, California

June 16, 1999

F-34
<PAGE>
VERITEST, INC.

BALANCE SHEET

DECEMBER 31, 1998

<TABLE>
<S> <C>
ASSETS

Current assets:
Cash and cash equivalents....................................................... $ 144,288
Accounts receivable, net of allowance for doubtful accounts of $15,000.......... 317,258
Prepaid expenses and other current assets....................................... 52,117
---------
Total current assets.......................................................... 513,663
Property and equipment, net....................................................... 174,515
Other assets...................................................................... 8,728
---------
Total assets.................................................................. $ 696,906
---------
---------
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses........................................... 300,459
Deferred revenue................................................................ 173,122
---------
Total current liabilities..................................................... 473,581
---------
Commitments (Note 6)

Shareholders' equity:
Common stock, no par value; 100,000 shares authorized; 10,000 shares issued and
outstanding................................................................... 10,000
Retained earnings............................................................... 213,325
---------
Total shareholders' equity.................................................... 223,325
---------
Total liabilities and shareholders' equity.................................... $ 696,906
---------
---------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-35
<PAGE>
VERITEST, INC.

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C>
Net revenues.................................................................... $3,735,496

Operating expenses:
Cost of services.............................................................. 1,969,810
Selling and marketing......................................................... 190,590
General and administrative.................................................... 1,566,714
---------
Total operating expenses.................................................... 3,727,114
---------

Income before income taxes.................................................. 8,382

Provision for income taxes...................................................... 130
---------
Net income.................................................................. $ 8,252
---------
---------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-36
<PAGE>
VERITEST, INC.

STATEMENT OF SHAREHOLDERS' EQUITY

FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
COMMON STOCK
----------------------
SHARES RETAINED
OUTSTANDING AMOUNT EARNINGS TOTAL
----------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1997....................................... 10,000 $ 10,000 $ 350,073 $ 360,073
Net income..................................................... 8,252 8,252
Cash distributions, $14.50 per share........................... -- -- (145,000) (145,000)
----------- --------- ---------- ----------
Balance, December 31, 1998....................................... 10,000 $ 10,000 $ 213,325 $ 223,325
----------- --------- ---------- ----------
----------- --------- ---------- ----------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-37
<PAGE>
VERITEST, INC.

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 8,252
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation................................................................. 77,632
Provision for bad debts...................................................... 6,419
Changes in assets and liabilities:
Accounts receivable........................................................ 142,583
Prepaid expenses and other current assets.................................. (22,030)
Other assets............................................................... (2,086)
Accounts payable and accrued expenses...................................... 88,619
Deferred revenue........................................................... 53,329
---------
Net cash provided by operating activities................................ 352,718
---------
Cash flows from investing activities:
Purchases of property and equipment............................................ (93,018)
---------
Net cash used in investing activities.................................... (93,018)
---------
Cash flows from financing activities:
Cash distributions............................................................. (145,000)
---------
Net cash used in financing activities.................................... (145,000)
---------
Net increase in cash and cash equivalents................................ 114,700

Cash and cash equivalents, beginning of year..................................... 29,588
---------
Cash and cash equivalents, end of year........................................... $ 144,288
---------
---------
Supplemental disclosure of cash flow information:
Income taxes paid.............................................................. $ 1,660
Interest paid.................................................................. $ 490
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-38
<PAGE>
VERITEST, INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND BUSINESS:

GENERAL

VeriTest, Inc. ("VeriTest") was incorporated in California on December 21,
1987 and began operations in that month.

VeriTest offers specialized lab test verification for computer hardware and
software OEMS as well as other customers who want their product tested or
logo-certified. The areas of testing include hardware platform and peripherals,
client/server and Internet, mobile computing, software quality assurance, game
and multimedia software, logo compliance and Year 2000 compliance.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required 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.

CASH AND CASH EQUIVALENTS

VeriTest considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximates their carrying amounts
because of the short-term maturity of these instruments.

REVENUE RECOGNITION

VeriTest's revenues are derived principally from the performance of lab
testing on computer hardware, software and software logo certification services
performed for customers under a variety of contracts, some of which provide for
reimbursement on a fixed-price basis and others on a time and materials basis.
Generally, revenues and fees on VeriTest's long-term contracts are recognized as
services are performed, using the percentage-of-completion method of accounting.
Revenues on short-term contracts (typically three months or less) are generally
recognized under the completed-contract method upon completion of the lab
testing and delivery of the final report.

Billings and customer collections received prior to the completion of the
lab tests are recorded as deferred revenue until the completion of the tests and
services under the terms of the contracts.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method based upon the estimated
useful lives of the assets, ranging from four to seven years. Leasehold
improvements are amortized over the shorter of their estimated useful life or
the term of the lease. Useful lives are evaluated regularly by management in
order to

F-39
<PAGE>
VERITEST, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
determine recoverability in light of current technological conditions.
Maintenance and repairs are charged to expense as incurred, while renewals and
improvements are capitalized. Upon the sale or retirement of property and
equipment, the accounts are relieved of the cost and the related accumulated
depreciation, with any resulting gain or loss included in the Statement of
Operations.

INCOME TAXES

VeriTest elected to be taxed under Section 1361 of the Internal Revenue Code
as an S Corporation. Under these provisions, VeriTest does not pay federal
corporate income taxes on its taxable income. Instead, the shareholders are
individually liable for federal income taxes based on VeriTest's taxable income.
This election is also valid for state income tax reporting. However, a provision
for state income taxes is required based on a 1.5% state income tax rate, and
this state tax provision is included in the provision for income taxes in the
accompanying Statement of Operations.

COMPREHENSIVE INCOME

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement established standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income generally represents all changes in
shareholders' equity during the period except those resulting from investments
by, or distributions to, shareholders. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997 and requires restatement of earlier
periods presented. SFAS No. 130 defines comprehensive income as net income plus
all other changes in equity from non-owner sources. VeriTest has no other
comprehensive income items, and accordingly net income equals comprehensive
income.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the AICPA issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This statement provides guidance on accounting for the costs of
computer software developed or obtained for internal use. This SOP is effective
for fiscal periods commencing after December 15, 1998. Management does not
believe that the implementation of SOP 98-1 will have a material effect on the
financial statements.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established accounting and
reporting standards for derivative instruments and hedging activities and
requires companies to recognize all derivatives as either assets or liabilities
in the statement of financial position and measures those instruments at fair
value. This statement is expected to be effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. Management does not believe that the
implementation of SFAS No. 133 will have any impact on the financial statements
since VeriTest does not engage in derivative or hedging activities.

3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

Financial instruments which subject VeriTest to concentrations of credit
risk consist primarily of cash and cash equivalents, and trade accounts
receivable. VeriTest maintains cash and cash equivalents with various domestic
financial institutions. VeriTest performs periodic evaluations of the relative
credit

F-40
<PAGE>
VERITEST, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS (CONTINUED)
standing of these institutions. From time to time, VeriTest's cash balances with
any one financial institution may exceed Federal Deposit Insurance Corporation
insurance limits.

VeriTest's customers are primarily concentrated in the United States.
VeriTest performs ongoing credit evaluations and generally requires a deposit on
its larger customer contracts prior to commencing work. Historically, VeriTest
has not experienced any significant losses related to credit risk.

For the year ended December 31, 1998, two customers accounted for
approximately 21% and 15%, respectively, of all revenues generated by VeriTest,
and three customers accounted for approximately 33%, 16% and 12%, respectively,
of accounts receivable at December 31, 1998.

4. PROPERTY AND EQUIPMENT

Property and equipment, net is comprised of the following at December 31,
1998:

<TABLE>
<CAPTION>
USEFUL LIFE
-----------
<S> <C> <C>
Equipment............................................................ 4 years $ 412,826
Furniture and fixtures............................................... 7 years 38,256
Leasehold improvements............................................... 5 years 27,955
Automobiles.......................................................... 5 years 55,588
----------
534,625
Less: accumulated depreciation (360,110)
----------
$ 174,515
----------
----------
</TABLE>

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses is comprised of the following at
December 31, 1998:

<TABLE>
<CAPTION>
<S> <C>
Accounts payable.................................................................. $ 8,631
Accrued payroll................................................................... 85,820
Accrued vacation.................................................................. 51,520
Accrued profit sharing............................................................ 80,000
Accrued professional fees......................................................... 30,000
Other accrued expenses............................................................ 44,488
----------
$ 300,459
----------
----------
</TABLE>

F-41
<PAGE>
VERITEST, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. COMMITMENTS

VeriTest leases its facility under a noncancelable operating lease. The
following are the minimum lease obligations under the noncancelable operating
lease at December 31, 1998:

<TABLE>
<S> <C>
1999.............................................................. $ 224,724
2000.............................................................. 226,476
2001.............................................................. 228,427
2002.............................................................. 143,884
---------
Minimum lease payments............................................ $ 823,511
---------
---------
</TABLE>

Rent expense for the year ended December 31, 1998 amounted to $180,710.

7. PROFIT SHARING PLAN

VeriTest has a profit sharing plan covering employees with more than two
years of service. All contributions are made by VeriTest, are based on
VeriTest's performance, and are at the discretion of the Board of Directors.
Total VeriTest contributions for the year ended December 31, 1998 were $80,000.

8. CAPITALIZATION

As discussed in Note 2, VeriTest is a subchapter S Corporation with two
shareholders. During 1998, VeriTest made cash distributions to its shareholders
of $145,000 in the aggregate.

9. BANK LINES OF CREDIT

VeriTest has lines of credit available totaling $350,000 at December 31,
1998. There were no borrowings outstanding on these lines of credit at December
31, 1998. The lines of credit bear interest at rates ranging from a prime rate
plus 0.5% to a prime rate plus 0.75% (8.25% to 8.50% at December 31, 1998) and
are secured primarily by VeriTest's accounts receivable and/or property and
equipment. In addition, VeriTest's president and vice-president act as
guarantors for all indebtedness under the agreements.

10. SUBSEQUENT EVENT

Effective January 11, 1999, VeriTest's owners sold all their outstanding
shares of common stock to Lionbridge in exchange for consideration of
$4,354,000, consisting of cash of $3,260,000, 66,668 shares of common stock of
Lionbridge valued at $344,000, and notes payable for $750,000. The agreement
also requires certain contingent cash payments dependent on future operating
performance through December 31, 2000. Concurrent with the sale, VeriTest
converted its tax status from an S Corporation to a C Corporation.

F-42
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

On January 11, 1999, Lionbridge Technologies, Inc. ("Lionbridge") entered
into an agreement to acquire all of the stock of VeriTest, Inc. for
consideration of $4,354,000, consisting of cash of $3,260,000, 66,668 shares of
common stock valued at $344,000, and notes payable for $750,000. The agreement
also required certain contingent cash payments, limited to $1,000,000, dependent
on future operating performance through December 31, 2000. This acquisition was
accounted for using the purchase method of accounting. The net difference
between the total purchase price of $4,419,000 at the date of acquisition
(including direct costs of the acquisition) and the fair value of assets and
liabilities acquired was recognized as goodwill, totaling $4,338,000. The
initial calculation of goodwill does not include any contingent consideration.
Future payments, if any, under the contingent payment arrangement will increase
goodwill. The results of VeriTest, Inc. are included in the Lionbridge
consolidated financial statements from January 11, 1999.

The following unaudited pro forma combined statements of operations give
effect to this acquisition as if it had occurred on January 1, 1998 and include
all material pro forma adjustments necessary for this purpose. The pro forma
statement of operations for the six months ended June 30, 1999 combines the
results of VeriTest, Inc. from January 1, 1999 to the date of acquisition with
the consolidated results of Lionbridge for the six months ended June 30, 1999.
The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the operating results that would have actually
occurred if the acquisition had been consummated on January 1, 1998, nor is it
necessarily indicative of future operating results. This unaudited pro forma
information should be read in conjunction with the Lionbridge consolidated
financial statements and notes thereto, included elsewhere in this prospectus.
The combined financial position of Lionbridge and VeriTest, Inc. is presented in
the Lionbridge consolidated balance sheet as of June 30, 1999, included
elsewhere in this prospectus, and is therefore not presented on a pro forma
basis.

F-43
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1998

(UNAUDITED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
LIONBRIDGE
TECHNOLOGIES, VERITEST, PRO FORMA PRO FORMA
INC. INC. ADJUSTMENTS COMBINED
---------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue............................................. $ 38,412 $ 3,735 $ 42,147
Cost of revenue..................................... 25,546 1,970 27,516
------- ------------ -----------
Gross profit.................................. 12,866 1,765 14,631
------- ------------ -----------
Operating expenses:
Sales and marketing............................... 2,735 191 2,926
General and administrative........................ 10,889 1,567 12,456
Amortization of acquisition-releated intangible
assets.......................................... 2,145 -- $ 868(a) 3,013
Restructuring charges............................. 501 -- -- 501
------- ------------ ----------- -----------
Total operating expenses...................... 16,270 1,758 868 18,896
------- ------------ ----------- -----------

(Loss) income from operations....................... (3,404) 7 (868) (4,265)

(451)
Interest expense.................................... (648) -- (b)
(1,041)
(c) (2,140)
Other income (expense), net......................... 49 -- -- 49
------- ------------ ----------- -----------
(Loss) income before income taxes................... (4,003) 7 (2,360) (6,356)
Provision for income taxes.......................... 259 -- -- 259
------- ------------ ----------- -----------
Net (loss) income................................... (4,262) $ 7 $ (2,360) (6,615)
------------ -----------
------------ -----------
Accrued dividends on preferred stock................ (1,062) (1,062)
------- -----------
Net loss attributable to common stockholders........ $ (5,324) $ (7,677)
------- -----------
------- -----------
Basic and diluted net loss per share attributable to
common stockholders............................... $ (2.99) $ (4.08)
Shares used in computing basic and diluted net loss
per share attributable to common stockholders..... 1,782 100(d) 1,882
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED FINANCIAL
STATEMENTS.

F-44
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 1999

(UNAUDITED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
LIONBRIDGE
TECHNOLOGIES, PRO FORMA PRO FORMA
INC. VERITEST, INC. ADJUSTMENTS COMBINED
---------------- ----------------- ------------- -----------
<S> <C> <C> <C> <C>
Revenue........................................... $ 23,783 $ -- $ 23,783
Cost of revenue................................... 16,607 68 16,675
-------- ----- -----------
Gross profit (loss)......................... 7,176 (68) 7,108
-------- ----- -----------
Operating expenses:
Sales and marketing............................. 2,613 5 2,618
General and administrative...................... 6,894 80 6,974
Amortization of acquisition-releated intangible
assets........................................ 1,579 -- $ 24(e) 1,603
Stock-based compensation........................ 232 -- -- 232
-------- ----- ----- -----------
Total operating expenses.................... 11,318 85 24 11,427
-------- ----- ----- -----------
Loss from operations.............................. (4,142) (153) (24) (4,319)
(12)
Interest expense.................................. (4,988) -- (f)
(28)
(g) (5,028)
Other income (expense), net....................... (320) -- -- (320)
-------- ----- ----- -----------
Loss before income taxes.......................... (9,450) (153) (64) (9,667)
Provision for income taxes........................ 315 -- -- 315
-------- ----- ----- -----------
Net loss.......................................... (9,765) $ (153) $ (64) (9,982)
----- -----
----- -----
Accrued dividends on preferred stock.............. (531) (531)
-------- -----------
Net loss attributable to common stockholders...... $ (10,296) $ (10,513)
-------- -----------
-------- -----------
Basic and diluted net loss per share attributable
to common stockholders.......................... $ (4.64) $ (4.72)
Shares used in computing basic and diluted net
loss per share attributable to common
stockholders.................................... 2,218 11(h) 2,229
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED FINANCIAL
STATEMENTS.

F-45
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

Adjustments to reflect the acquisition of VeriTest, Inc. as if it had
occurred as of January 1, 1998 are as follows:

a) To increase amortization expense due to $4,338,000 of goodwill generated
from the acquisition of VeriTest, Inc., assuming one year of a five-year
amortization period.

b) To record interest expense for one year of interest on debt of
$4,010,000, used to finance the acquisition, at rates of 8% and 12%.

c) To record accretion of discount on notes payable for the value of
warrants issued in connection with debt used to finance the acquisition,
assuming one year of a twenty-month amortization period.

d) To adjust shares used in computing basic and diluted net loss per share
attributable to common stockholders for common shares issued upon the
acquisition that would have been outstanding for the entire year had the
acquisition occurred on January 1, 1998.

e) To increase amortization expense due to $4,338,000 of goodwill generated
from the acquisition of VeriTest, Inc., assuming ten days of a five-year
amortization period.

f) To record interest expense for ten days of interest on debt of
$4,010,000, used to finance the acquisition, at rates of 8% and 12%.

g) To record accretion of discount on notes payable for the value of
warrants issued in connection with debt used to finance the acquisition,
assuming ten days of a twenty-month amortization period.

h) To adjust shares used in computing basic and diluted net loss per share
attributable to common stockholders for common shares issued that would
have been outstanding for ten days had the acquisition occurred on
January 1, 1999.

F-46
<PAGE>
- --------------------------------------------------------------------------------

Until September 14, 1999, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the obligation of dealers to
deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------

[LOGO]

PRUDENTIAL SECURITIES

U.S. BANCORP PIPER JAFFRAY

ADAMS, HARKNESS & HILL, INC.

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