<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SIEBEL SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 94-3187233
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
------------------------
1855 SOUTH GRANT STREET
SAN MATEO, CALIFORNIA 94402
(415) 295-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
THOMAS M. SIEBEL
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SIEBEL SYSTEMS, INC.
1855 SOUTH GRANT STREET
SAN MATEO, CALIFORNIA 94402
(415) 295-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
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JAMES C. GAITHER, ESQ. WILLIAM D. SHERMAN, ESQ.
ERIC C. JENSEN, ESQ. C. JEFFREY CHAR, ESQ.
COOLEY GODWARD LLP JOSEPH T. LIN, ESQ.
3000 SAND HILL ROAD, BLDG. 3, SUITE 230 MORRISON & FOERSTER LLP
MENLO PARK, CA 94025-7116 755 PAGE MILL ROAD
(415) 843-5000 PALO ALTO, CA 94304
(415) 813-5600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
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Common Stock, $.001 par value.......... 1,725,000 $42.8125 $73,851,562.50 $25,466.06
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</TABLE>
(1) Includes 225,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(a) under the Securities Act of
1933. Based on the average of the high and low sales prices of the Company's
Common Stock on the Nasdaq National Market on September 13, 1996.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 16, 1996
PROSPECTUS
1,500,000 SHARES
LOGO
COMMON STOCK
Of the 1,500,000 shares of Common Stock offered hereby, 750,000 shares are
being sold by the Company and 750,000 shares are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol SEBL. On September 12, 1996, the last reported sale price of the
Company's Common Stock was $43.75 per share. See "Price Range of Common Stock."
Upon completion of this offering, the directors and officers of the Company and
affiliated entities will exercise voting control over approximately 56.3% of the
outstanding Common Stock.
------------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
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Per Share.....................
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Total(3)......................
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $300,000.
(3) The Company and the Selling Stockholders have granted to the Underwriters a
30-day option to purchase up to an aggregate of 225,000 additional shares of
Common Stock solely to cover over-allotments, if any. If all such shares are
purchased, the total Price to Public, Underwriting Discount, Proceeds to
Company and Proceeds to Selling Stockholders will be $ ,
$ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1996 at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY
, 1996
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZATION, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ STOCK MARKET IN ACCORDANCE
WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE> 4
[GATEFOLD]
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Financial Statements and Notes
thereto, appearing elsewhere in this Prospectus. Certain of the statements
contained in this Prospectus are forward-looking statements. The Company's
actual results could differ materially from those in such forward-looking
statements. See "Risk Factors."
THE COMPANY
Siebel Systems, Inc. ("Siebel," "Siebel Systems" or the "Company") is an
industry leading provider of enterprise-class sales and marketing information
software systems. The Company designs, develops, markets, and supports Siebel
Sales Enterprise, a leading Internet-enabled, object oriented client/server
application software product family designed to meet the sales and marketing
information system requirements of even the largest multi-national
organizations.
In today's increasingly competitive global markets, businesses must
continuously improve their operations. Having spent considerable effort and
resources in previous years automating finance, manufacturing, distribution,
human resources management and general office operations, many businesses are
now looking to apply the leverage of information technology to their sales and
marketing processes. Unlike previous automation projects which have focused on
decreasing expenses, sales and marketing information systems focus primarily on
increasing revenues.
The Siebel Sales Enterprise is comprised of a broad range of advanced
client/server application products designed to allow corporations to deploy
comprehensive customer information systems, product information systems,
competitive information systems, and decision support systems on a global basis.
The Company's products provide support for multiple languages and multiple
currencies with support for a number of frequently interdependent distribution
channels, including direct field sales, telesales, telemarketing, distribution,
retail, and Internet-based selling.
The Siebel Sales Enterprise is built upon a modern technology foundation
including intranet and Internet enablement, client/server, object oriented
programming, 32-bit processing, OLE 2 automation, relational database support
for Oracle, Sybase, and Informix, and system support for Windows 95, Windows NT,
and UNIX. The Siebel Sales Enterprise is designed to scale to meet the needs of
large organizations deploying thousands of sales and marketing professionals
with very large data storage and retrieval requirements. The Siebel Sales
Enterprise is designed to be comprehensive in its scope of functionality and
highly configurable, allowing for highly customized industry-specific and
company-specific system deployments.
The Company's objective is to establish and maintain a global market
leadership position in the sales and marketing information systems market.
Siebel's position as a market leader has been acknowledged by recognized
industry experts, including AberdeenGroup, GartnerGroup and Ovum Ltd., each an
independent research organization. The Company's strategy is to provide high-end
enterprise client/server sales and marketing applications in a broad range of
industries, extend its advanced technology position, achieve universally
successful customer implementations of Siebel Sales Enterprise, expand its
global sales and support capacity, and continue to leverage strategic alignment
with leading third-party technology providers, system integrators, and
distributors. See "Business -- Strategy."
The Company markets and sells its software through its direct sales force,
telebusiness channels, and distributors in the Americas, Asia, Australia and
Europe. The Siebel Sales Enterprise has been licensed by customers in a wide
range of industries, including transportation, financial services, securities
brokerage, manufacturing, computers, communications, chemicals, and computer
software. The Company's customers as of June 30, 1996 were American President
Companies Ltd., AMP Incorporated, Andersen Consulting LLP, BMC Software, Inc.,
Charles Schwab & Co., Inc, Cisco Systems, Inc., Digital Equipment Corporation,
The Dial Corp, The Dow Chemical Company, Frank Russell Company, Hewlett-Packard
Japan, Ltd., Informix Software, Inc., LSI Logic Corporation, Montgomery
Securities, Nationwide Mutual Insurance Company, Newbridge Networks, Inc.,
Platinum Technology, Inc., Pure Software, Inc., The Quaker Oats Company, Texas
Commerce Bank National Association, Unisys Corporation and Viking Freight
System, Inc.
The Company's principal executive offices are located at 1855 S. Grant
Street, San Mateo, CA 94402. Its telephone number is (415) 295-5000. Its e-mail
address is [email protected]. The Company maintains an Internet home page.
3
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................... 750,000 shares
Common Stock offered by the Selling Stockholders...... 750,000 shares
Common Stock to be outstanding after the offering..... 16,735,220 shares(1)
Use of proceeds....................................... For general corporate purposes,
including working capital
Nasdaq National Market symbol......................... SEBL
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 13, 1993 DECEMBER 31, JUNE 30,
(INCEPTION) TO ------------------- -------------------
DECEMBER 31, 1993 1994 1995 1995 1996
------------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues......................... $ -- $ 50 $ 8,038 $ 1,314 $12,255
Operating income (loss)................ (114) (1,779) 372 (1,183) 1,269
Net income (loss)...................... (114) (1,766) 317 (678) 899
Pro forma net income per share(2)...... $ .02 $ (.04) $ .05
Shares used in pro forma per share
computation(2)....................... 16,340 15,379 16,955
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996
-------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................. $ 30 $ 1,284 $ 2,564 $ 4,160 $ 4,709 $ 7,546
Operating income (loss)........................ (1,208 ) 25 422 1,133 211 1,058
Net income (loss).............................. (720 ) 42 287 708 198 701
Pro forma net income (loss) per share(2)....... $ (.05 ) $ -- $ .02 $ .04 $ .01 $ .04
Shares used in pro forma per share
computation(2)............................... 14,642 16,777 16,856 16,803 16,859 17,081
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................... $13,870 $ 45,858 $ 76,730
Total assets.................................................... 24,722 56,710 87,582
Total stockholders' equity...................................... 12,632 44,620 75,492
</TABLE>
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(1) Based on shares outstanding as of September 15, 1996. Excludes 4,203,450
shares of Common Stock issuable upon exercise of stock options outstanding
as of September 15, 1996 at a weighted average exercise price of $4.95 per
share. See "Management -- Equity Incentive Plans" and Notes 4 and 7 of Notes
to Financial Statements.
(2) See Note 1 of Notes to Financial Statements for a description of the
calculation of pro forma net income (loss) per share.
(3) Pro forma reflects the closing of the Company's initial public offering on
July 3, 1996 and the application of the net proceeds therefrom and the
conversion of all outstanding shares of Preferred Stock into shares of
Common Stock upon such closing.
(4) Adjusted to reflect the sale of 750,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $43.75 per share
after deduction of the estimated underwriting discount and offering expenses
payable by the Company. See "Use of Proceeds."
------------------------
Except as otherwise indicated, the information contained in this Prospectus
assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
4
<PAGE> 7
RISK FACTORS
The statements contained in this Registration Statement that are not
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, beliefs,
intentions or strategies regarding the future. Forward-looking statements
include, without limitation, statements regarding the extent and timing of
future revenues and expenses and customer demand under "Risk Factors --
Uncertainty of Future Operating Result; Fluctuations in Quarterly Operating
Results," "-- Lengthy Sales and Implementation Cycles," "-- Dependence on Large
License Fee Contracts and Customer Concentration" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations;" statements
regarding the deployment of the Company's products under "Risk
Factors -- Limited Deployment;" statements regarding reliance on third parties
under "Risk Factors -- Reliance on Andersen Consulting and Other Relationships;
Dependence on System Integrators" and "Business -- Global Strategic Alignment;"
and statements regarding product development and future technological change
under "Risk Factors -- Dependence on the Internet," "-- Risk Associated with
Emerging Client/Server and Sales Information Markets," "-- Risk Associated with
New Versions and New Products; Rapid Technological Change" and "Business." All
forward-looking statements included in this document are based on information
available to the Company as of the date hereof, and the Company assumes no
obligation to update any such forward-looking statement. It is important to note
that the Company's actual results could differ materially from those in such
forward-looking statements. Among the factors that could cause actual results to
differ materially are the factors detailed below. Prospective purchasers of the
Common Stock should consult the risk factors listed in the reports filed by the
Company from time to time on Forms 10-Q, 8-K and 10-K.
Limited Operating History; History of Operating Losses. The Company
commenced operations in July 1993 and shipped version 1.0 of its product, Siebel
Sales Enterprise, in April 1995. As of September 15, 1996, only 24 entities have
licensed Siebel Sales Enterprise and most only on a trial or limited deployment
basis. Accordingly, the Company has only a limited operating history, and its
prospects must be evaluated in light of the risks and uncertainties encountered
by a company in its early stage of development. The new and evolving markets in
which the Company operates make these risks and uncertainties particularly
pronounced. To address these risks, the Company must, among other things,
successfully implement its sales and marketing strategy, respond to competitive
developments, attract, retain, and motivate qualified personnel, continue to
develop and upgrade its products and technologies more rapidly than its
competitors, and commercialize its products and services incorporating these
enhanced technologies. The Company incurred net losses in each quarter from
inception through the first quarter of 1995. The Company expects to continue to
devote substantial resources to its product development and sales and customer
support and, as a result, will need to generate significant quarterly revenues
to achieve and maintain profitability. The Company's limited operating history
makes it difficult to predict accurately future operating results. There can be
no assurance that any of the Company's business strategies will be successful or
the Company will be profitable in any future quarter or period. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Uncertainty of Future Operating Results; Fluctuations in Quarterly
Operating Results. Prior growth rates in the Company's revenue and net income
should not be considered indicative of future operating results. Future
operating results will depend upon many factors, including the demand for the
Company's products, the level of product and price competition, the length of
the Company's sales cycle, the size and timing of individual license
transactions, the delay or deferral of customer implementations, the Company's
success in expanding its customer support organization, direct sales force and
indirect distribution channels, the timing of new product introductions and
product enhancements, the mix of products and services sold, levels of
international sales, activities of and acquisitions by competitors, the timing
of new hires, changes in foreign currency exchange rates and the ability of the
Company to develop and market new products and control costs. In addition, the
decision to implement a sales and marketing information system is discretionary,
involves a significant
5
<PAGE> 8
commitment of customer resources and is subject to the budget cycles of the
Company's customers. The Company's sales generally reflect a relatively high
amount of revenue per order. The loss or delay of individual orders, therefore,
would have a significant impact on the revenue and quarterly results of the
Company. The timing of license revenue is difficult to predict because of the
length and variability of the Company's sales cycle, which has ranged to date
from two to eighteen months from initial contact to the execution of a license
agreement. The Company's operating expenses are based on anticipated revenue
trends and, because a high percentage of these expenses are relatively fixed, a
delay in the recognition of revenue from a limited number of license
transactions could cause significant variations in operating results from
quarter to quarter and could result in operating losses. To the extent such
expenses precede, or are not subsequently followed by, increased revenues, the
Company's operating results would be materially and adversely affected. To date,
the Company has not experienced significant seasonality of operating results.
The Company expects that future revenues for any period may be affected by the
fiscal or quarterly budget cycles of its customers. As a result of these and
other factors, revenues for any quarter are subject to significant variation,
and the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. It is likely that the Company's future
quarterly operating results from time to time will not meet the expectations of
market analysts or investors, which would likely have an adverse effect on the
price of the Company's Common Stock. In addition, fluctuations in operating
results may also result in volatility in the price of the Company's Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business -- Marketing" and "-- Sales."
Reliance on Andersen Consulting and Other Relationships; Dependence on
System Integrators. The Company has established strategic relationships with a
number of organizations that it believes are important to its worldwide sales,
marketing and support activities and the implementation of its products. The
Company believes that its relationships with such organizations provide
marketing and sales opportunities for the Company's direct sales force and
expand the distribution of its products. These relationships also assist it in
keeping pace with the technological and marketing developments of major software
vendors, and, in certain instances, provide it with technical assistance for its
product development efforts. In particular, the Company has established a
non-exclusive strategic relationship with Andersen Consulting, a principal
stockholder of the Company. In 1995 and the first half of 1996, approximately
46% and 62%, respectively, of the revenues of the Company were derived from
customers for which Andersen Consulting had been engaged to provide system
integration services. Any deterioration of the Company's relationship with
Andersen Consulting could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company has relationships with Itochu Corporation and Itochu Techno-Science
Corporation ("Itochu"), among others. The failure by the Company to maintain its
existing relationships, or to establish new relationships in the future, could
have a material adverse effect on the Company's business, results of operations
and financial condition. The Company's customers and potential customers
frequently rely on Andersen Consulting, as well as other third-party system
integrators to develop, deploy and/or manage Siebel Sales Enterprise. If the
Company is unable to train adequately a sufficient number of system integrators
or, if for any reason such integrators do not have or devote the resources
necessary to facilitate implementation of the Company's products or if such
integrators adopt a product or technology other than Siebel Sales Enterprise,
the Company's business, operating results and financial condition could be
materially and adversely affected. See "Business -- Global Strategic Alignment"
and "Principal and Selling Stockholders."
Dependence on the Internet. The Siebel Sales Enterprise facilitates online
communication over public and private networks. The success of the Company's
products may depend, in part, on the Company's ability to introduce products
which are compatible with the Internet and on the broad acceptance of the
Internet and the World Wide Web as a viable commercial marketplace. It is
difficult to predict with any assurance whether the Internet will prove to be a
viable commercial marketplace or whether the demand for Internet related
products and services will increase or decrease in the future. The increased
commercial use of the Internet could require substantial modification and
6
<PAGE> 9
customization of the Company's products and services and the introduction of new
products and services, and there can be no assurance that the Company would be
able to effectively migrate its products to the Internet or to successfully
compete in the market for Internet-related products and services.
The Internet may not prove to be a viable commercial marketplace because of
inadequate development of the necessary infrastructure, such as a reliable
network backbone with the necessary speed, data capability, and security, or
timely development of complementary products, such as high speed modems. The
Internet has experienced, and is expected to continue to experience, significant
growth in the number of users and amount of traffic. There can be no assurance
that the Internet infrastructure will continue to be able to support the demands
placed on it by this continued growth. In addition, the Internet could lose its
viability due to delays in the development or adoption of new standards and
protocols to handle increased levels of Internet activity or due to increased
governmental regulation. Moreover, critical issues concerning the commercial use
of the Internet (including security, reliability, data corruption, cost, ease of
use, accessibility and quality of service) remain unresolved and may negatively
affect the attractiveness of commerce and communication on the Internet. Because
global commerce and online exchange of information on the Internet and other
similar open wide area networks are new and evolving, there can be no assurance
that the Internet will prove to be a viable commercial marketplace. If critical
issues concerning the commercial use of the Internet are not favorably resolved,
if the necessary infrastructure and complementary products are not developed, or
if the Internet does not become a viable commercial marketplace, the Company's
business, operating results and financial condition could be materially and
adversely affected. See "Business -- Products" and "-- Technology."
Risk Associated with Emerging Client/Server and Sales Information
Markets. The client/server application software market is a relatively new
market and is intensely competitive, highly fragmented and subject to rapid
change. The Company markets its products only to customers who have migrated or
are in the process of migrating their enterprise computing systems to
client/server computing environments. The Company does not market its products
to customers exclusively using legacy computer systems. The Company's future
financial performance will depend in large part on continued growth in the
number of organizations successfully adopting client/server computing
environments. There can be no assurance that the client/server market will
maintain its current level of growth or continue to grow at all. If the
client/server market fails to grow or grows more slowly than the Company
currently anticipates, the Company's business, operating results and financial
condition could be materially and adversely affected. Similarly, the market for
sales and marketing information software is intensely competitive, highly
fragmented and subject to rapid change. The Company's future financial
performance will depend primarily on growth in the number of sales information
applications developed for use in client/server environments. There can be no
assurance that the market for sales and marketing information software will
continue to grow. If the sales information software market fails to grow or
grows more slowly than the Company currently anticipates, the Company's
business, operating results and financial condition would be materially and
adversely affected. See "Business -- Industry Background," "-- Products,"
"-- Technology" and "-- Competition."
Limited Deployment. The Company first shipped Siebel Sales Enterprise
version 1.0 in April 1995. As of September 15, 1996, many of the Company's
customers were in the pilot phase of implementing the Company's software. Only a
few of the Company's customers have completed a significant portion of their
enterprise-wide development and deployment of Siebel Sales Enterprise, while
most have recently commenced such development and deployment. As a result, the
Company's products are currently being used by only a limited number of sales
professionals. There can be no assurance that such enterprise-wide deployments
will be successful. The Company's customer licenses frequently contemplate the
deployment of the product commercially to large numbers of sales and marketing
personnel, many of whom have not previously used application software systems,
and there can be no assurance of such end-users' acceptance of the product. The
Company's product is expected to be
7
<PAGE> 10
deployed on a variety of computer hardware platforms and to be used in
connection with a number of third-party software applications and programming
tools. Such deployment presents very significant technical challenges,
particularly as large numbers of sales personnel attempt to use the Company's
products concurrently. If any of the Company's customers are not able to
customize and deploy Siebel Sales Enterprise successfully and on a timely basis
to the number of anticipated users, the Company's reputation could be
significantly damaged, which could have a material adverse effect on the
Company's business, operating results and financial condition. In addition to
revenues from new customers, the Company expects that a significant percentage
of any future revenues will be derived from sales to existing customers.
However, such customers are not contractually committed in all cases to purchase
additional licenses. If existing customers have difficulty further deploying
Siebel Sales Enterprise or for any other reason are not satisfied with Siebel
Sales Enterprise, the Company's business, operating results and financial
condition could be materially and adversely affected. See
"Business -- Products."
Reliance on Single Product Family. Approximately 93% of the Company's
revenues to date have been attributable to sales of Siebel Sales Enterprise. The
remaining revenues were primarily attributable to maintenance and training
services related to such product family. The Company currently expects Siebel
Sales Enterprise and related maintenance and training services to continue to
account for a substantial majority of the Company's future revenues. As a
result, factors adversely affecting the pricing of or demand for Siebel Sales
Enterprise, such as competition or technological change, could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company's future financial performance will depend, in
significant part, on the successful deployment of current versions of Siebel
Sales Enterprise and the development, introduction and customer acceptance of
new and enhanced versions of Siebel Sales Enterprise and other products. There
can be no assurance that the Company will be successful in marketing Siebel
Sales Enterprise product or other products. In the event that the Company
continues to derive a substantial percentage of its revenues from perpetual
license fees for Siebel Sales Enterprise and is successful in licensing such
product to a very large portion of the customers in the markets targeted by the
Company, the Company's business, financial condition and results of operations
could be materially and adversely affected unless the Company is able to
establish additional sources of revenue. See "Business -- Products" and
"-- Marketing."
Lengthy Sales and Implementation Cycles. The license of the Company's
software products is often an enterprise-wide decision by prospective customers
and generally requires the Company to provide a significant level of education
to prospective customers regarding the use and benefits of the Company's
products. In addition, the implementation of the Company's products involves a
significant commitment of resources by prospective customers and is commonly
associated with substantial reengineering efforts which may be performed by the
customer or third-party system integrators. The cost to the customer of the
Company's product is typically only a portion of the related hardware, software,
development, training and integration costs of implementing a large-scale sales
and marketing information system. For these and other reasons, the period
between initial contact and the implementation of the Company's products is
often lengthy (ranging to date from between two and twenty-four months) and is
subject to a number of significant delays over which the Company has little or
no control. The Company's implementation cycle could be lengthened by increases
in the size and complexity of its license transactions and by delays in its
customers' implementation of client/server computing environments. Delay in the
sale or implementation of a limited number of license transactions could have a
material adverse effect on the Company's business and operations and cause the
Company's operating results to vary significantly from quarter to quarter.
Therefore, the Company believes that its quarterly operating results are likely
to vary significantly in the future. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business -- Sales" and
" -- Marketing."
Risks Associated with Expanding Distribution. To date, the Company has
sold its products primarily through its direct sales force and has supported its
customers with its technical and customer
8
<PAGE> 11
support staff. The Company's ability to achieve significant revenue growth in
the future will depend in large part on its success in recruiting and training
sufficient direct sales, technical and customer support personnel and
establishing and maintaining relationships with its strategic partners. Although
the Company is currently investing, and plans to continue to invest, significant
resources to expand its direct sales force and its technical and customer
support staff, and to develop distribution relationships with strategic
partners, the Company has at times experienced and continues to experience
difficulty in recruiting qualified personnel and in establishing necessary
third-party relationships. There can be no assurance that the Company will be
able to expand successfully its direct sales force or other distribution
channels or that any such expansion will result in an increase in revenues. The
Company believes the complexity of its products and the large-scale deployments
anticipated by its customers will require a number of highly trained customer
support personnel. There can be no assurance that the Company will successfully
expand its technical and customer support staff to meet customer demands. Any
failure by the Company to expand its direct sales force or other distribution
channels, or to expand its technical and customer support staff, could
materially and adversely affect the Company's business, operating results and
financial condition. See " -- Management of Growth; Dependence upon Key
Personnel," "Business -- Strategy," " -- Sales," " -- Marketing," and
" -- Customer Support and Training."
Dependence on Large License Fee Contracts and Customer Concentration. A
relatively small number of customers have accounted for a significant percentage
of the Company's revenues. For 1995 and the first half of 1996, sales to the
Company's 10 largest customers accounted for 93% and 82% of total revenues,
respectively. For 1995, Charles Schwab & Co., Inc., Informix Software, Inc.,
Itochu and Unisys Corporation accounted for 23%, 20%, 12% and 10% of total
revenues, respectively. For the first half of 1996, The Dow Chemical Company and
LSI Logic Corporation accounted for 28% and 14% of total revenues, respectively.
The Company expects that sales of its products to a limited number of customers
will continue to account for a significant percentage of revenue for the
foreseeable future. The loss of any major customer or any reduction or delay in
orders by any such customer, or the failure of the Company to market
successfully its products to new customers could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Customers and Markets."
Risk Associated with New Versions and New Products; Rapid Technological
Change. The software market in which the Company competes is characterized by
rapid technological change, frequent introductions of new products, changes in
customer demands and evolving industry standards. The introduction of products
embodying new technologies and the emergence of new industry standards can
render existing products obsolete and unmarketable. For example, the Company's
customers have adopted a wide variety of hardware, software, database and
networking platforms, and as a result, to gain broad market acceptance, the
Company must support Siebel Sales Enterprise on a variety of such platforms. The
Company's future success will depend upon its ability to address the
increasingly sophisticated needs of its customers by supporting existing and
emerging hardware, software, database and networking platforms and by developing
and introducing enhancements to Siebel Sales Enterprise and new products on a
timely basis that keep pace with technological developments, evolving industry
standards and changing customer requirements. The Company currently ships
production versions of its software running on MS Windows 3.1, MS Windows 95 and
Windows NT clients, as well as on NT application servers, and NT, Sun and HP
UNIX database server platforms. The Company plans, in the future, to support
subsequent versions of Microsoft's Windows client operating system, as well as
UNIX application servers and Digital Alpha and additional UNIX database server
platforms. There can be no assurance that the Company will be successful in
releasing Siebel Sales Enterprise for use on such platforms or in developing and
marketing enhancements, including Siebel Virtual Computing, that respond to
technological developments, evolving industry standards or changing customer
requirements, or that the Company will not experience difficulties that could
delay or prevent the successful development, introduction and sale of such
enhancements or that such enhancements will adequately meet the requirements of
the marketplace and achieve any significant degree of market
9
<PAGE> 12
acceptance. If release dates of any future Siebel Sales Enterprise enhancements
or new products are delayed or if these products or enhancements fail to achieve
market acceptance when released, the Company's business, operating results and
financial condition could be materially and adversely affected. In addition, the
introduction or announcement of new product offerings or enhancements by the
Company or the Company's competitors or major hardware, systems or software
vendors may cause customers to defer or forgo purchases of the Company's
products, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Technology" and
"-- Development Methodology."
Competition. The market for the Company's products is intensely
competitive, subject to rapid change and significantly affected by new product
introductions and other market activities of industry participants. The
Company's products are targeted at the emerging market for sales and marketing
information systems, and the Company faces competition primarily from customers'
internal information technology departments and systems integrators, as well as
from other application software providers that offer a variety of products and
services to address this market. Many of the Company's customers and potential
customers have in the past attempted to develop sales and marketing information
systems in-house either alone or with the help of systems integrators. The
Company is able to compete successfully against these customers' and potential
customers' internal development efforts only to the extent such development
efforts fail.
The Company relies on a number of systems consulting and systems
integration firms for implementation and other customer support services, as
well as recommendations of its products during the evaluation stage of the
purchase process, particularly Andersen Consulting. Although the Company seeks
to maintain close relationships with these service providers, many of them have
similar, and often more established, relationships with the Company's
competitors. If the Company is unable to develop and retain effective, long-term
relationships with these third parties, the Company's competitive position could
be materially and adversely effected. Further, there can be no assurance that
these third parties, many of which have significantly greater resources than the
Company, will not market software products in competition with the Company in
the future or will not otherwise reduce or discontinue their relationships with
or support of the Company and its products.
A large number of personal, departmental and other products exist in the
sales automation market. Some of the Company's current and potential competitors
and their products include Symantec (ACT!), Borealis Corporation (Arsenal),
Brock International (Brock Activity Manager), Early Cloud & Co. (CallFlow), IMA
(EDGE), Marketrieve Company (Marketrieve PLUS), Clarify, Inc. (ClearSales),
Oracle Corporation (Oracle Sales Manager), SaleSoft (PROCEED), Pivotal Software,
Inc. (Relationship), SalesBook Systems (SalesBook), SalesKit Software
Corporation (SalesKit), Aurum (SalesTrak), Sales Technologies (SNAP for
Windows), Saratoga Systems (SPS for Windows) and The Vantive Corporation
(Vantive Sales). Many of these competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
significantly greater name recognition and a larger installed base of customers
than the Company. In addition, many competitors have well-established
relationships with current and potential customers of the Company. As a result,
these competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products, than can the
Company.
It is also possible that new competitors or alliances among competitors may
emerge and rapidly acquire significant market share. The Company also expects
that competition will increase as a result of consolidation in the software
industry. Increased competition may result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely affect
the Company's business, operating results and financial condition. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially and adversely affect its business, operating results
and financial condition. See "Business -- Competition."
10
<PAGE> 13
Reliance on Third-Party Vendors. The Company incorporates into its
products certain software licensed to it by third-party software developers.
Although the Company believes there are other sources for these products, any
significant interruption in the supply of such products could have a material
adverse impact on the Company's sales unless and until the Company can replace
the functionality provided by these products. Because the Company's products
incorporate software developed and maintained by third parties, the Company is
to a certain extent dependent upon such third parties' abilities to enhance
their current products, to develop new products on a timely and cost-effective
basis and to respond to emerging industry standards and other technological
changes. There can be no assurance that the Company would be able to replace the
functionality provided by the third-party software currently offered in
conjunction with the Company's products in the event that such software becomes
obsolete or incompatible with future versions of the Company's products or is
otherwise not adequately maintained or updated. The absence of or any
significant delay in the replacement of that functionality could have a material
adverse effect on the Company's sales. See "Business -- Products" and
"-- Development Methodology."
Risk of Product Defects. Software products as internally complex as those
offered by the Company frequently contain errors or failures, especially when
first introduced or when new versions are released. Although the Company
conducts extensive product testing during product development, the Company has
been forced to delay commercial release of products until the correction of
software problems and, in some cases, has provided product enhancements to
correct errors in released products. The Company could, in the future, lose
revenues as a result of software errors or defects. The Company's products are
intended for use in sales applications that may be critical to a customer's
business. As a result, the Company expects that its customers and potential
customers have a greater sensitivity to product defects than the market for
software products generally. There can be no assurance that, despite testing by
the Company and by current and potential customers, errors will not be found in
new products or releases after commencement of commercial shipments, resulting
in loss of revenue or delay in market acceptance, diversion of development
resources, damage to the Company's reputation, or increased service and warranty
costs, any of which could have a material adverse effect upon the Company's
business, operating results and financial condition. See
"Business -- Development Methodology."
Management of Growth; Dependence upon Key Personnel. In the event that the
significant growth of the Company's revenues continues, such growth may place a
significant strain upon the Company's management systems and resources. The
Company's ability to compete effectively and to manage future growth, if any,
will require the Company to continue to improve its financial and management
controls, reporting systems and procedures on a timely basis and expand, train
and manage its employee work force. There can be no assurance that the Company
will be able to do so successfully. The Company's failure to do so could have a
material adverse effect upon the Company's business, operating results and
financial condition. The Company's future performance depends in significant
part upon the continued service of its key technical, sales and senior
management personnel, particularly Thomas M. Siebel, the Company's Chairman and
Chief Executive Officer, none of whom has entered into an employment agreement
with the Company. The loss of the services of one or more of the Company's
executive officers could have a material adverse effect on the Company's
business, operating results and financial condition. The Company's future
success also depends on its continuing ability to attract and retain highly
qualified technical, customer support, sales and managerial personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to retain its key technical, sales and managerial
employees or that it can attract, assimilate or retain other highly qualified
technical, sales and managerial personnel in the future. See "--Risks Associated
with Expanding Distribution," "Business -- Sales," "-- Marketing" and
"Management."
Proprietary Rights; Risks of Infringement. The Company relies primarily on
a combination of patent, copyright, trade secret and trademark laws,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company also believes that factors such as the technological and
creative skills of its personnel, new product developments, frequent product
11
<PAGE> 14
enhancements, name recognition and reliable product maintenance are essential to
establishing and maintaining a technology leadership position. The Company seeks
to protect its software, documentation and other written materials under patent,
trade secret and copyright laws, which afford only limited protection. The
Company currently has two patent applications pending in the United States.
There can be no assurance that any patents issued to the Company will not be
invalidated, circumvented or challenged, that the rights granted thereunder will
provide competitive advantages to the Company or that any of the Company's
pending or future patent applications, whether or not being currently challenged
by applicable governmental patent examiners, will be issued with the scope of
the claims sought by the Company, if at all. Furthermore, there can be no
assurance that others will not develop technologies that are similar or superior
to the Company's technology or design around any patents issued to the Company.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain and
use information that the Company regards as proprietary. Policing unauthorized
use of the Company's products is difficult, and while the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights as fully as do
the laws of the United States. There can be no assurance that the Company's
means of protecting its proprietary rights in the United States or abroad will
be adequate or that the Company's competitors will not independently develop
similar technology. The Company has entered into agreements with substantially
all of its customers which require the Company to place Siebel Sales Enterprise
source code into escrow. Such agreements generally provide that such parties
will have a limited, non-exclusive right to use such code in the event that
there is a bankruptcy proceeding by or against the Company, if the Company
ceases to do business or if the Company fails to meet its support obligations.
Entering into such agreements may increase the likelihood of misappropriation by
third parties.
The Company is not aware that it is infringing any proprietary rights of
third parties. There can be no assurance, however, that third parties will not
claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Furthermore, there can be no assurance that former employers
of the Company's present and future employees will not assert claims that such
employees have improperly disclosed confidential or proprietary information to
the Company. Any such claims, with or without merit, could be time consuming to
defend, result in costly litigation, divert management's attention and
resources, cause product shipment delays or require the Company to pay money
damages or enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, if at all. In the event of a successful claim of product infringement
against the Company and failure or inability of the Company to license the
infringed or similar technology, the Company's business, operating results and
financial condition would be materially and adversely affected.
The Company relies upon certain software that it licenses from third
parties, including software that is integrated with the Company's internally
developed software and used in Siebel Sales Enterprise to perform key functions.
There can be no assurance that these third-party software licenses will continue
to be available to the Company on commercially reasonable terms. The loss of, or
inability to maintain, any such software licenses could result in shipment
delays or reductions until equivalent software could be developed, identified,
licensed and integrated which would materially adversely affect the Company's
business, operating results and financial condition. See "Business --
Intellectual Property and Other Proprietary Rights."
International Operations. The Company's sales are primarily to large
multi-national companies. To service the needs of such companies, both
domestically and internationally, the Company must provide worldwide product
support services. As a result, the Company has expanded and intends to continue
to expand its international operations and enter additional international
markets, which will require significant management attention and financial
resources and could adversely affect the
12
<PAGE> 15
Company's operating margins and earnings, if any. Revenues from international
sales accounted for approximately 12% and 10% of the Company's total revenues in
1995 and the first half of 1996, respectively. The Company believes that in
order to increase sales opportunities and profitability it will be required to
expand its international operations. The Company has committed and continues to
commit significant management time and financial resources to developing direct
and indirect international sales and support channels. There can be no
assurance, however, that the Company will be able to maintain or increase
international market demand for Siebel Sales Enterprise. To the extent that the
Company is unable to do so in a timely manner, the Company's international sales
will be limited, and the Company's business, operating results and financial
condition could be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
International operations are subject to inherent risks, including the
impact of possible recessionary environments in economies outside the United
States, costs of localizing products for foreign markets, longer receivables
collection periods and greater difficulty in accounts receivable collection,
unexpected changes in regulatory requirements, difficulties and costs of
staffing and managing foreign operations, reduced protection for intellectual
property rights in some countries, potentially adverse tax consequences and
political and economic instability. There can be no assurance that the Company
or its distributors or resellers will be able to sustain or increase
international revenues from licenses or from maintenance and service, or that
the foregoing factors will not have a material adverse effect on the Company's
future international revenues and, consequently, on the Company's business,
operating results and financial condition. The Company's direct international
revenues are generally denominated in local currencies. The Company does not
currently engage in hedging activities. Revenues generated by the Company's
distributors and resellers are generally paid to the Company in United States
dollars. Although exposure to currency fluctuations to date has been
insignificant, there can be no assurance that fluctuations in currency exchange
rates in the future will not have a material adverse impact on revenues from
international sales and thus the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Customers and Markets,"
" -- Sales" and "-- Marketing."
Product Liability. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. It is possible, however, that the limitation
of liability provisions contained in the Company's license agreements may not be
effective under the laws of certain jurisdictions. Although the Company has not
experienced any product liability claims to date, the sale and support of
products by the Company may entail the risk of such claims, and there can be no
assurance that the Company will not be subject to such claims in the future. A
successful product liability claim brought against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition.
Legal Proceedings. On or about June 10, 1996, while the Company was in
registration with the Securities and Exchange Commission in connection with its
initial public offering, the Company and Thomas M. Siebel were served with a
complaint by Debra Christoffers, a former employee of the Company, alleging
various causes of action and seeking damages in connection with the termination
of her employment with the Company. The Company and Mr. Siebel have responded to
the complaint and the parties are currently in discovery. The Company has also
received a letter from counsel to Terence Lenaghan, a former employee of the
Company, seeking certain compensation in connection with the termination of his
employment with the Company. The Company employed Mr. Lenaghan as Vice President
Finance and Administration of the Company for a period of approximately five
weeks, ending on March 1, 1996. On June 5, 1996, while the Company was in
registration with the Securities and Exchange Commission in connection with its
initial public offering, the Company received a letter from counsel representing
Mr. Lenaghan raising claims against the Company and Mr. Siebel and offering to
settle such claims upon the receipt of $300,000 and 140,000 shares of the
Company's Common Stock. The Company strongly believes that the claims raised by
Ms. Christoffers and Mr. Lenaghan are baseless and without merit and intends to
vigorously defend the complaint filed by
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<PAGE> 16
Ms. Christoffers and any action that Mr. Lenaghan may bring. No communications
regarding the threatened action have been received from Mr. Lenaghan or his
counsel since July 1, 1996. There can be no assurance, however, that the outcome
of either such matter will not have an adverse effect on the Company's
operations or financial condition. See "Business -- Legal Proceedings."
Control by Existing Stockholders. Upon completion of this offering, the
Company's officers, directors and affiliated entities together will beneficially
own approximately 56.3% of the outstanding shares of Common Stock (56.1% if the
Underwriters' over-allotment option is exercised in full). In particular, upon
completion of this offering Thomas M. Siebel, the Company's Chairman and Chief
Executive Officer, will own approximately 38.0% of the outstanding shares of
Common Stock (37.8% if the Underwriters' over-allotment option is exercised in
full). As a result, these stockholders will be able to exercise control over
matters requiring stockholder approval, including the election of directors, and
the approval of mergers, consolidations and sales of all or substantially all of
the assets of the Company. This may prevent or discourage tender offers for the
Company's Common Stock unless the terms are approved by such stockholders. See
"Principal and Selling Stockholders."
Possible Volatility of Stock Price. The Company's stock price has
fluctuated substantially since its initial public offering in June 1996. There
can be no assurance that the market price of the Common Stock will not decline
below the public offering price set forth on the cover page of this Prospectus.
The trading price of the Company's Common Stock is subject to significant
fluctuations in response to variations in quarterly operating results, the gain
or loss of significant orders, changes in earning estimates by analysts,
announcements of technological innovations or new products by the Company or its
competitors, general conditions in the software and computer industries and
other events or factors. In addition, the stock market in general has
experienced extreme price and volume fluctuations which have affected the market
price for many companies in industries similar or related to that of the Company
and which have been unrelated to the operating performance of these companies.
These market fluctuations have adversely affected and may continue to adversely
affect the market price of the Company's Common Stock.
Effect of Certain Charter Provisions; Antitakeover Effects of Certificate
of Incorporation, Bylaws and Delaware Law. The Company's Board of Directors has
the authority to issue up to 2,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
stockholders. The Preferred Stock could be issued with voting, liquidation,
dividend and other rights superior to those of the Common Stock. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. Further, certain
provisions of the Company's Certificate of Incorporation, including provisions
that create a classified board of directors and certain provisions of the
Company's Bylaws and of Delaware law, could delay or make more difficult a
merger, tender offer or proxy contest involving the Company. See "Description of
Capital Stock."
Shares Eligible for Future Sale; Registration Rights. Sales of substantial
numbers of shares of Common Stock in the public market following this offering
could adversely affect the market price for the Common Stock. Upon completion of
the offering, the Company will have outstanding an aggregate of 16,735,220
shares of Common Stock, assuming no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options and based upon the number of
shares outstanding as of September 15, 1996. In addition to the 1,500,000 shares
sold in this offering, 2,257,450 of such shares (which were sold in the
Company's initial public offering) are freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), unless such shares are held by "affiliates" of the Company,
as that term is defined in Rule 144 under the Securities Act ("Affiliates"),
except that 117,647 of such shares of Common Stock held by The Dow Chemical
Company (the "Dow Shares") are subject to an agreement not to sell any of such
shares until
14
<PAGE> 17
December 24, 1996 without the consent of Hambrecht & Quist LLC. The remaining
12,977,770 shares of Common Stock held by existing stockholders are "restricted
securities" as that term is defined in Rule 144 under the Securities Act
("Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 under the Securities Act. As a result of contractual
restrictions and the provisions of Rules 144 and 701, additional shares will be
available for sale in the public market as follows: (i) no Restricted Shares
will be eligible for immediate sale on the date of this Prospectus; (ii) 311,760
Restricted Shares (plus an aggregate of 328,522 shares of Common Stock
representing the Dow Shares and shares issuable to employees and consultants
pursuant to stock options that are then vested) will be eligible for sale upon
expiration of the lock-up agreements on December 24, 1996; (iii) 10,144,609
additional Restricted Shares will be eligible for sale beginning on January 3,
1997 (7,693,356 shares of which are held by Affiliates); and (iv) the remainder
of the Restricted Shares will be eligible for sale from time to time thereafter
upon expiration of their respective two-year holding periods, subject in each
case to the restrictions on such sales by Affiliates and certain vesting
provisions. The Securities and Exchange Commission has proposed amendments to
Rules 144 and 144(k) which, if adopted, would substantially increase the number
of Restricted Shares available for sale in the public market beginning on
December 24, 1996. Upon the completion of this offering, the holders of
10,331,994 Restricted Shares will be entitled to certain rights with respect to
the registration of such shares under the Securities Act. To the extent that a
significant portion of the Restricted Shares are sold by the holders thereof,
such sales may adversely effect the market price of the Company's Common Stock.
A significant decline in the price of the Company's Common Stock due to these or
other factors would reduce the ability of the Company to obtain significant
operating capital through the offering of additional shares of such Common
Stock. See "Certain Transactions," "Description of Capital Stock" and "Shares
Eligible for Future Sale."
Discretion as to Use of Proceeds. The primary purposes of this offering
are to obtain additional working capital. As of the date of this Prospectus, the
Company has no specific plans to use the net proceeds from this offering other
than for working capital and general corporate purposes. Accordingly, the
Company's management will retain broad discretion as to the allocation of the
net proceeds from this offering. Pending any such uses, the Company plans to
invest the net proceeds in investment-grade, interest-bearing securities. See
"Use of Proceeds."
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<PAGE> 18
THE COMPANY
The Company was incorporated under the laws of California in 1993 and was
reincorporated in Delaware in June 1996. The Company's principal executive
offices are located at 1855 S. Grant Street, San Mateo, CA 94402. Its telephone
number is (415) 295-5000. Its e-mail address is [email protected]. The Company
maintains an Internet home page. Siebel and Siebel Sales Enterprise are
trademarks of the Company. All other trade names or trademarks appearing in this
Prospectus are the property of their respective holders.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 750,000 shares of
Common Stock offered by the Company hereby, at an assumed public offering price
of $43.75 per share, are estimated to be $30,871,875 ($31,400,176 if the
Underwriters' over-allotment option is exercised in full), after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses. The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders."
The Company intends to use the net proceeds of this offering primarily for
additional working capital and other general corporate purposes, including
expansion of general sales and marketing and customer support activities to
accommodate anticipated growth in the Company's business and customer base. The
amounts actually expended by the Company for working capital purposes will vary
significantly depending upon a number of factors, including future revenue
growth, if any, the amount of cash generated by the Company's operations and the
progress of the Company's product development efforts and hence the Company's
management will retain broad discretion in the allocation of the net proceeds
from this offering. In addition, the Company may make one or more acquisitions
of complementary technologies, products or businesses which broaden or enhance
the Company's current product offerings. However, the Company has no specific
plans, agreements or commitments, oral or written, and is not currently engaged
in any negotiations for any such acquisition. Pending the uses described above,
the net proceeds will be invested in short-term, interest-bearing, investment-
grade securities.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock has traded publicly on the Nasdaq National
Market under the trading symbol SEBL since June 28, 1996. The Company's initial
public offering price was $17.00 per share. The table below sets forth the high
and low sale prices for the Company's Common Stock for the periods indicated as
reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
----- ------
<S> <C> <C>
FISCAL 1996
Third Quarter (through September 12, 1996)....................... $47 7/8 $22 1/4
Second Quarter (from June 28, 1996).............................. 35 1/8 24 47/64
</TABLE>
On September 12, 1996, the last sale price reported on the Nasdaq National
Market for the Common Stock was $43.75 per share. On the same date, there were
approximately 131 holders of record of the Common Stock.
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings to finance
the growth and development of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
June 30, 1996, (ii) the pro forma capitalization of the Company after giving
effect to the closing of the Company's initial public offering on July 3, 1996
and the application of the net proceeds therefrom, the conversion of all
outstanding shares of Preferred Stock into Common Stock upon such closing and
the subsequent restatement of the Company's Certificate of Incorporation and
(iii) the capitalization as adjusted to reflect the sale by the Company of
750,000 shares of the Common Stock offered hereby at an assumed public offering
price of $43.75 and the application of the net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity:
Convertible preferred stock; $.001 par value; actual --
10,000,000 shares authorized, 5,104,085 shares issued
and outstanding; pro forma and as adjusted -- 2,000,000
shares authorized, none issued and outstanding......... $ 5 $ -- $ --
Common stock; $.001 par value; actual -- 35,000,000 shares
authorized, 8,786,685 shares issued and outstanding;
pro forma -- 40,000,000 shares authorized, 15,985,220
shares issued and outstanding; as
adjusted -- 40,000,000 shares authorized, 16,735,220
shares issued and outstanding(1)....................... 9 16 17
Additional paid-in capital................................ 13,135 45,121 75,992
Notes receivable from stockholders........................ (520) (520) (520)
Deferred compensation..................................... (1,212) (1,212) (1,212)
Retained earnings......................................... 1,215 1,215 1,215
------- ------- -------
Total stockholders' equity and capitalization..... $12,632 $ 44,620 $75,492
======= ======= =======
</TABLE>
- ---------------
(1) Excludes (i) 4,300,450 shares of Common Stock issuable upon the exercise of
options outstanding under the Company's 1996 Equity Incentive Plan (the
"Equity Incentive Plan") as of June 30, 1996 at a weighted average exercise
price of $4.91 per share and (ii) 350,000 shares of Common Stock reserved
for issuance under the Employee Stock Purchase Plan (the "Purchase Plan"),
none of which has been issued. As of September 15, 1996, there were
outstanding options to purchase a total of 4,203,450 shares of Common Stock
under the Equity Incentive Plan at a weighted average exercise price of
$4.95 per share and an additional 930,340 shares of Common Stock reserved
for grant thereunder. See "Management -- Equity Incentive Plans."
17
<PAGE> 20
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and the Notes related thereto included
elsewhere in this Prospectus. The statement of operations data from September
13, 1993 (inception) to December 31, 1993 and the years ended December 31, 1994
and 1995 and the balance sheet data at December 31, 1994 and 1995 are derived
from the financial statements of the Company included elsewhere in this
Prospectus which have been audited by KPMG Peat Marwick LLP, independent
auditors. The balance sheet data at December 31, 1993 are derived from audited
financial statements not included in this Prospectus. The balance sheet data at
June 30, 1996, and the statement of operations data for the six month periods
ended June 30, 1995 and 1996 are derived from unaudited financial statements
included elsewhere in this Prospectus. The unaudited financial statements
include all adjustments, consisting only of normal recurring adjustments, that
the Company considers necessary for a fair presentation of the financial
position and results of operations for these periods. Operating results for the
six months ended June 30, 1996 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1996. See "Risk
Factors -- Uncertainty of Future Operating Results; Fluctuations in Quarterly
Operating Results."
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 13,
1993
(INCEPTION) YEAR ENDED SIX MONTHS ENDED
TO DECEMBER 31, JUNE 30,
DECEMBER 31, ----------------- ------------------
1993 1994 1995 1995 1996
------------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Software.......................................... $ -- $ 50 $ 7,636 $ 1,186 $11,138
Maintenance and other............................. -- -- 402 128 1,117
------ ------- ------- ------- --------
Total revenues............................... -- 50 8,038 1,314 12,255
Cost of revenues:
Software.......................................... -- -- 41 4 36
Maintenance and other............................. -- -- 385 56 766
------ ------- ------- ------- --------
Total cost of revenues....................... -- -- 426 60 802
------ ------- ------- ------- --------
Gross margin................................. -- 50 7,612 1,254 11,453
Operating expenses:
Product development............................... 64 868 2,816 1,237 2,150
Sales and marketing............................... 28 718 3,232 862 6,606
General and administrative........................ 22 243 1,192 338 1,428
------ ------- ------- ------- --------
Total operating expenses..................... 114 1,829 7,240 2,437 10,184
------ ------- ------- ------- --------
Operating income (loss)...................... (114) (1,779) 372 (1,183) 1,269
Other income, net................................... -- 13 156 53 229
------ ------- ------- ------- --------
Income (loss) before income taxes............ (114) (1,766) 528 (1,130) 1,498
Income tax expense (benefit)...................... -- -- 211 (452) 599
------ ------- ------- ------- --------
Net income (loss)............................ $(114) $(1,766) $ 317 $ (678) $ 899
============= ======== ======== ======== ========
Pro forma net income (loss) per share(1)............ $ .02 $ (.04) $ .05
======== ======== ========
Shares used in pro forma per share computation(1)... 16,340 15,379 16,955
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ JUNE 30,
1993 1994 1995 1996
------- ------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET:
Cash and cash equivalents......................... $ 703 $ 1,017 $11,391 $13,870
Total assets...................................... 750 1,203 16,091 24,722
Retained earnings (accumulated deficit)........... -- (1) 316 1,215
Stockholders' equity.............................. 746 1,189 9,934 12,632
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for a description of the
calculation of pro forma net income (loss) per share.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was engaged principally in product and market research and
development from commencement of operations (July 1993) through March 1995. The
Company shipped version 1.0 of Siebel Sales Enterprise in April 1995 and shipped
version 2.0 in November 1995. The Company did not record material license
revenues until the second quarter of 1995. License fees for Siebel Sales
Enterprise are generally based on the specific products licensed and are
determined on either a per site or per user basis. Approximately 93% of the
Company's revenues to date have been derived from non-recurring license fees of
the Siebel Sales Enterprise product family. The remaining revenues are primarily
attributable to lower margin maintenance and other revenues, including training
revenues. The Company does not intend to provide a material amount of
integration and other services related to its products. Accordingly, the Company
currently expects that license revenues from Siebel Sales Enterprise will
continue to account for a substantial majority of the Company's revenues for the
remainder of 1996 and for the foreseeable future. As a result, factors adversely
affecting the pricing of or demand for Siebel Sales Enterprise could have a
material adverse effect on the Company's business, operating results and
financial condition. Most of the Company's revenues to date have been derived
from one-time license fees from customers who have received a perpetual license
to the Company's products.
License revenues are recognized upon execution of a license agreement by
the parties and shipment of the product if no significant obligations remain and
collection of the resulting receivable is probable. Maintenance revenues
primarily consist of fees for ongoing support and product updates, generally
determined as a percentage of the initial license fees, and are recognized
ratably over the term of the contract, which to date have typically ranged from
12 to 36 months. For all periods presented, the Company has recognized revenues
in accordance with Statement of Position 91-1, "Software Revenue Recognition."
See Note 1 of Notes to Financial Statements.
A relatively small number of customers account for a significant percentage
of the Company's license revenues. For 1995 and the first half of 1996, sales to
the Company's ten largest customers accounted for 93% and 82% of total revenues,
respectively. For 1995, Charles Schwab & Co., Inc., Informix Software, Inc.,
Itochu and Unisys Corporation accounted for 23%, 20%, 12% and 10% of total
revenues, respectively. For the first half of 1996, The Dow Chemical Company and
LSI Logic Corporation accounted for 28% and 14% of total revenues, respectively.
The Company expects that licenses of its products to a limited number of
customers will continue to account for a large percentage of revenue for the
foreseeable future. The license of the Company's software products is often an
enterprise-wide decision by prospective customers and generally requires the
Company to provide a significant level of education to prospective customers
regarding the use and benefits of the Company's products. In addition, the
implementation of the Company's products involves a significant commitment of
resources by prospective customers and is commonly associated with substantial
reengineering efforts which may be performed by the customer or third-party
system integrators. The cost to the customer of the Company's product is
typically only a portion of the related hardware, software, development,
training and integration costs of implementing a large-scale sales and marketing
information system. For these and other reasons, the sales and implementation
cycles associated with the license of the Company's products is often lengthy
(ranging to date from between two and twenty-four months from initial contact to
product implementation) and is subject to a number of significant delays over
which the Company has little or no control. Given these factors and the expected
customer concentration, the loss of a major customer or any reduction or delay
in sales to or
19
<PAGE> 22
implementations by such customers could have a material adverse effect on the
Company's business, operating results, and financial condition.
As of September 15, 1996, many of the Company's customers were in the pilot
phase of implementation of Siebel Sales Enterprise. Only a few of the Company's
customers have completed a significant portion of their enterprise-wide
development and deployment of Siebel Sales Enterprise, while most have recently
commenced such development and deployment. As a result, the Company's products
are currently being used by only a limited number of sales professionals. If any
of the Company's customers are not able to customize and deploy Siebel Sales
Enterprise successfully and on a timely basis to the number of anticipated
users, the Company's reputation could be significantly damaged, which could have
a material adverse effect on the Company's business, operating results and
financial condition.
The Company markets its products in the United States through its direct
sales force and internationally through its sales force and a distributor in
Japan. International revenues accounted for 12% and 10% of total revenues in
1995 and the first half of 1996, respectively. The Company is increasing its
international sales force and seeking to establish distribution relationships
with appropriate strategic partners and expects international revenues will
account for an increasing portion of total revenues in the future. As a result,
failure to cost-effectively maintain or increase international sales could have
a material adverse effect on the Company's business, operating results and
financial condition.
The Company's revenues have increased in each of the last six quarters, and
the Company had net income in each of the last five quarters. The Company's
limited operating history, however, makes the prediction of future operating
results difficult. Prior growth rates in the Company's revenue and net income
should not be considered indicative of future operating results. Future
operating results will depend upon many factors, including the demand for the
Company's products, the level of product and price competition, the length of
the Company's sales cycle, the size and timing of individual license
transactions, the delay or deferral of customer implementations, the Company's
relationships with systems integrators, the Company's success in expanding its
direct sales force, indirect distribution channels and customer support
organization, the timing of new product introductions and product enhancements,
the mix of products and services sold, levels of international sales, activities
of and acquisitions by competitors, the timing of new hires, changes in foreign
currency exchange rates, the ability of the Company to develop and market new
products and control costs and the ability to attract and retain key personnel.
There can be no assurance that any of the Company's business or strategies will
be successful or that the Company will be able to sustain profitability on a
quarterly or annual basis.
The Company's sales generally reflect a relatively high amount of revenues
per order. The loss or delay of individual orders, therefore, can have a
significant impact on the revenues and quarterly results of the Company. The
timing of license revenue is difficult to predict because of the length of the
Company's sales cycle, which to date has ranged from two to eighteen months from
initial contact to the execution of a license agreement. Because the Company's
operating expenses are based on anticipated revenue trends and because a high
percentage of the Company's expenses are relatively fixed, a delay in the
recognition of revenue from a limited number of license transactions could cause
significant variations in operating results from quarter to quarter and could
result in losses. To the extent such expenses precede, or are not subsequently
followed by, increased revenues, the Company's operating results would be
materially adversely affected. As a result of these and other factors, revenues
for any quarter are subject to significant variation, and the Company believes
that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. It is likely that in some future quarter the Company's
20
<PAGE> 23
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be adversely affected.
To date, the Company has not experienced significant seasonality of
operating results. The Company expects that future revenues for any period may
be affected by the fiscal or quarterly budget cycles of its customers.
Certain of the statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations may be forward-looking
statements regarding the Company's business, operations and prospects. The
Company's actual results could differ materially from those in such
forward-looking statements. See "Risk Factors."
RESULTS OF OPERATIONS
The Company first generated significant software license revenues in the
second quarter of 1995 when the Company shipped version 1.0 of Siebel Sales
Enterprise. As a result, the Company believes that period-to-period comparisons
solely of annual operating results are less meaningful than an analysis of
recent quarterly operations. Accordingly, the Company is providing a discussion
and analysis of the Company's operating results primarily focused upon the six
quarters ended June 30, 1996.
21
<PAGE> 24
The following tables set forth quarterly statement of operations data for
the six quarters ended June 30, 1996, including such amounts expressed as a
percentage of total revenues. This quarterly information is unaudited, but has
been prepared on the same basis as the annual financial statements and, in the
opinion of the Company's management, reflects all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
information for the periods presented. Such statement of operations should be
read in conjunction with the Company's audited financial statements and notes
thereto included elsewhere herein. Operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995(1) 1995 1995 1995 1996 1996
---------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Software..................................... $ -- $1,186 $ 2,400 $4,050 $4,402 $ 6,736
Maintenance and other........................ 30 98 164 110 307 810
------- ------ ------ ------ ------ -------
Total revenues.......................... 30 1,284 2,564 4,160 4,709 7,546
Cost of revenues:
Software..................................... -- 4 8 29 26 10
Maintenance and other........................ 9 47 117 212 343 423
------- ------ ------ ------ ------ -------
Total cost of revenues.................. 9 51 125 241 369 433
------- ------ ------ ------ ------ -------
Gross margin............................ 21 1,233 2,439 3,919 4,340 7,113
Operating expenses:
Product development.......................... 616 621 822 757 986 1,164
Sales and marketing.......................... 456 406 903 1,467 2,553 4,053
General and administrative................... 157 181 292 562 590 838
------- ------ ------ ------ ------ -------
Total operating expenses................ 1,229 1,208 2,017 2,786 4,129 6,055
------- ------ ------ ------ ------ -------
Operating income (loss)................. (1,208) 25 422 1,133 211 1,058
Other income, net.............................. 8 45 56 47 119 110
------- ------ ------ ------ ------ -------
Income (loss) before income taxes....... (1,200) 70 478 1,180 330 1,168
Income tax expense (benefit)................. (480) 28 191 472 132 467
------- ------ ------ ------ ------ -------
Net income (loss)....................... $ (720) $ 42 $ 287 $ 708 $ 198 $ 701
======= ====== ====== ====== ====== =======
Pro forma net income (loss) per share.......... $ (.05) $ -- $ .02 $ .04 $ .01 $ .04
======= ====== ====== ====== ====== =======
Shares used in pro forma per share
computation.................................. 14,642 16,777 16,856 16,803 16,859 17,081
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software....................................... 92.4% 93.6% 97.4% 93.5% 89.3%
Maintenance and other.......................... 7.6 6.4 2.6 6.5 10.7
----- ----- ----- ----- -----
Total revenues............................ 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Software....................................... 0.3 0.3 0.7 0.6 0.1
Maintenance and other.......................... 3.7 4.6 5.1 7.2 5.6
----- ----- ----- ----- -----
Total cost of revenues.................... 4.0 4.9 5.8 7.8 5.7
----- ----- ----- ----- -----
Gross margin.............................. 96.0 95.1 94.2 92.2 94.3
Operating expenses:
Product development............................ 48.4 32.1 18.2 21.0 15.4
Sales and marketing............................ 31.6 35.2 35.3 54.2 53.7
General and administrative..................... 14.1 11.4 13.5 12.5 11.1
----- ----- ----- ----- -----
Total operating expenses.................. 94.1 78.7 67.0 87.7 80.2
----- ----- ----- ----- -----
Operating income.......................... 1.9 16.4 27.2 4.5 14.0
Other income, net................................ 3.5 2.2 1.1 2.5 1.5
----- ----- ----- ----- -----
Income before income taxes................ 5.4 18.6 28.3 7.0 15.5
Income tax expense............................. 2.2 7.4 11.3 2.8 6.2
----- ----- ----- ----- -----
Net income................................ 3.2% 11.2% 17.0% 4.2% 9.3%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Due to insignificant revenues, presentation as a percentage of revenues is
not meaningful.
22
<PAGE> 25
REVENUES
Software. License revenues increased from $50,000 in 1994 to $7.6 million
in 1995. License revenues increased from $1.2 million in the first half of 1995
to $11.1 million in the first half of 1996. License revenues increased during
each quarter of 1995 due to an increase in the number of licenses of version 1.0
of Siebel Sales Enterprise, commencing in April 1995, and of version 2.0,
commencing in November 1995. The increase in license revenues during each of the
first two quarters of 1996 was due to an increase in the number of licenses of
Siebel Sales Enterprise. This increase in the number of licenses was primarily
due to increased market and customer awareness of Siebel Sales Enterprise
product family, and, to a lesser degree, an expansion of the Company's direct
sales organization over the past five quarters.
Maintenance and Other. Maintenance and other revenues increased from
$128,000 in the first half of 1995 to $1.1 million in the first half of 1996.
Such increase was due to the more widespread licensing of products to customers
pursuant to agreements with a maintenance component. Earlier licenses typically
involved pilot installations which did not include maintenance.
COST OF REVENUES
Software. Cost of software license revenues includes product packaging,
documentation and production. Cost of license revenues through June 30, 1996
have averaged less than 1% of software license revenues. All costs incurred in
the research and development of software products and enhancements to existing
products have been expensed as incurred, and, as a result, cost of license
revenues includes no amortization of capitalized software development costs. See
Note 1 of Notes to Financial Statements.
Maintenance and Other. Cost of maintenance and other revenues consists
primarily of personnel, facility and systems costs incurred in providing
customer support. Cost of maintenance and other revenues aggregated $385,000 in
1995 and $765,000 in the first half of 1996. These costs increased significantly
in the last half of 1995 and the first half of 1996, and exceeded maintenance
and other revenues in the fourth quarter of 1995 and the first quarter of 1996.
Such increases reflect the effect of fixed costs resulting from the Company's
investment during 1995 and the first half of 1996 in a larger maintenance and
support organization in anticipation of entering into an increasing number of
licenses with a maintenance component. The Company expects that maintenance and
other costs will continue to increase in absolute dollar amounts as the Company
expands its customer support organization to meet anticipated customer demands
in connection with product implementation.
OPERATING EXPENSES
Product Development. Product development expenses include expenses
associated with the development of new products, enhancements of existing
products and quality assurance activities, and consist primarily of employee
salaries, benefits, consulting costs and the cost of software development tools.
Product development expenses increased from $64,000 in 1993 to $2.8 million in
1995 and were $2.2 million for the first half of 1996. These expenses generally
decreased, as a percentage of total revenues, from approximately 48% in the
second quarter of 1995 to approximately 15% in the second quarter of 1996. The
increases in the dollar amount of product development expenses were primarily
attributable to costs of additional personnel in the Company's product
development operations. The Company anticipates that it will continue to devote
substantial resources to product development. The Company expects product
development expenses to increase in absolute dollar amount but to remain at
approximately the same percentage of total revenues as the second quarter of
1996.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel, field
office expenses, travel and entertainment and promotional expenses. Sales and
marketing expenses increased from $28,000 in 1993 to $3.2 million in 1995 and
were $6.6 million for the first half of 1996. These expenses increased as a
percentage of total revenues from approximately 32% in the second quarter of
1995 to approximately 54% in the second
23
<PAGE> 26
quarter of 1996. The increases in the dollar amount of expenditures on sales and
marketing and the increase in these expenses as a percentage of total revenues
reflects primarily the hiring of additional sales and marketing personnel and,
to a lesser degree, costs associated with expanded promotional activities. The
Company expects that sales and marketing expenses will continue to increase in
absolute dollar amount as the Company continues to expand its sales and
marketing efforts, establishes additional sales offices and increases
promotional activities. These expenses are expected to remain at approximately
the same percentage of total revenues as the second quarter of 1996.
General and Administrative. General and administrative expenses consist
primarily of salaries and occupancy costs for administrative, executive and
finance personnel. These expenses increased from $22,000 in 1993 to $1.2 million
in 1995 and were $1.4 million for the first half of 1996. These expenses
generally decreased as a percentage of total revenues from approximately 14% in
the second quarter of 1995 to approximately 11% in the second quarter of 1996.
The increases in the absolute dollar amount of general and administrative
expenses were primarily due to increased staffing and associated expenses
necessary to manage and support the Company's increased scale of operations. The
Company believes that its general and administrative expenses will continue to
increase in absolute dollar amount as a result of the continued expansion of the
Company's administrative staff and facilities to support growing operations and
the expenses associated with being a public company. The Company anticipates
that its general and administrative expenses as a percentage of total revenues
should remain at approximately the same percentage as the second quarter of
1996.
OTHER INCOME, NET
Other income, net is primarily comprised of interest income earned on the
Company's cash and cash equivalents and reflects earnings on increasing cash
balances during 1995 and the first half of 1996.
PROVISION FOR INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
Company elected to be treated as an S corporation for 1994. As an S corporation,
any loss allocated to the Company passed through to its shareholder.
Accordingly, the Company is not entitled to utilize the net operating losses of
the business incurred prior to that date. The Company terminated the S
corporation election effective January 1, 1995. Income taxes for 1995 and the
first half of 1995 and 1996 have been provided at an effective rate of 40%,
which is comprised primarily of federal and state taxes.
LIQUIDITY AND CAPITAL RESOURCES
From inception through June 30, 1996, the Company funded its operations
primarily through cash flows from operations, the private sale of equity
securities totaling $13.7 million and, to a limited extent, bank indebtedness.
As of June 30, 1996, the Company had $13.9 million in cash and cash equivalents,
and no outstanding bank indebtedness. On July 3, 1996, the Company closed its
initial public offering of 2,257,450 shares of its Common Stock, which was
comprised of 2,094,450 shares sold by the Company and 163,000 shares sold by
selling stockholders. The net proceeds to the Company of $33.1 million from such
offering (prior to expenses) were received on July 3, 1996, and therefore are
not reflected in the balance sheet as of June 30, 1996.
Net cash used in operating activities was $119,000 and $1.7 million in 1993
and 1994, respectively, and net cash provided by operating activities was $2.8
million in 1995 and $2.8 million in the first half of 1996. In 1995, the $2.8
million of net cash provided by operating activities was primarily attributable
to net income of $317,000 and increases in accounts payable of $479,000, accrued
expenses of $1.1 million and deferred revenue of $4.2 million, offset by an
increase in accounts receivable of $3.1 million and prepaid and other assets of
$411,000. For the first half of 1996, net cash provided by operating activities
24
<PAGE> 27
of $2.8 million was primarily attributable to net income of $899,000, increases
in accounts payable of $280,000, accrued expenses of $1.9 million and deferred
revenue of $3.9 million, offset by an increase in accounts receivable of $3.9
million and prepaid and other assets of $620,000.
Deferred revenues consist primarily of the unrecognized portion of revenues
under maintenance and support contracts (which revenues are deferred and
recognized ratably over the term of such contracts) and advance payment of
software license fees. Capital expenditures were primarily for computer
workstations used for product development, product demonstrations, customer
benchmarks and customer support. See Notes 2 and 3 of Notes to Financial
Statements.
To date, the Company's investing activities have consisted primarily of
purchases of property and equipment, primarily for computer workstations used
for product development, product demonstrations and customer support. The
Company's capital expenditures were $38,000, $176,000, $872,000 and $2.0 million
in 1993, 1994, 1995 and the first half of 1996, respectively. This increase in
capital expenditures during 1995 and the first half of 1996 was primarily due to
additional purchases of computer equipment including workstations and servers to
support larger product development, sales and marketing and customer support
groups. The Company expects that its capital expenditures will increase as the
Company's employee base grows. As of June 30, 1996, the Company had commitments
for capital expenditures of $1.5 million related to the relocation of the
Company's principal facilities. See "Business -- Facilities."
The Company believes that the net proceeds from the offering, together with
the anticipated cash flows from operations, cash, cash equivalents and
short-term investments, will be adequate to meet its cash needs for working
capital and capital expenditures for at least the next twelve months.
Thereafter, the Company may require additional funds to support its working
capital requirements or for other purposes and may seek to raise such additional
funds through public or private equity financings or from other sources. There
can be no assurance that such additional financing will be available at all, or
that such financing, if available, will be obtainable on terms favorable to the
Company and will not be dilutive to the Company's then current stockholders.
25
<PAGE> 28
BUSINESS
Siebel Systems, Inc. ("Siebel," or "Siebel Systems" or the "Company") is an
industry leading provider of enterprise-class sales and marketing information
software systems. The Company designs, develops, markets, and supports Siebel
Sales Enterprise, a leading Internet-enabled, object oriented client/server
application software product family designed to meet the sales and marketing
information system requirements of even the largest multi-national
organizations.
In today's increasingly competitive global markets, businesses must
continuously improve their operations. Having spent considerable effort and
resources in previous years automating finance, manufacturing, distribution,
human resources management, and general office operations, many businesses are
now looking to apply the leverage of information technology to their sales and
marketing processes. Unlike previous automation efforts which have focused on
decreasing expenses, sales and marketing information systems focus primarily on
increasing revenues.
The Siebel Sales Enterprise is comprised of a broad range of advanced
client/server application products designed to allow corporations to deploy
comprehensive customer information systems, product information systems,
competitive information systems, and decision support systems on a global basis.
The Company's products provide support for multiple languages and multiple
currencies with support for a number of frequently interdependent distribution
channels, including direct field sales, telesales, telemarketing, distribution,
retail and Internet-based selling.
INDUSTRY BACKGROUND
Business Need for Sales and Marketing Information Systems
While the automation of finance, manufacturing, distribution, human
resources management, and general office operations has brought significant
improvements in efficiency and cost control to most large organizations, sales
and marketing remain largely unautomated. The Company believes that the need to
deploy closed-loop sales and marketing information systems is growing as
organizations expand their distribution channels and increasingly face stronger
competitive market pressures. The business demand to deploy sales and marketing
information systems is driven typically both by the goal of increasing sales
productivity as well as the concern that unless the organization applies
information technology to this largely unautomated process, it will rapidly
become uncompetitive.
Closed-Loop Sales and Marketing
LOGO
A closed-loop sales and marketing information system allows organizations to
share and manage sales
opportunities and information from a marketing encyclopedia across multiple
distribution channels.
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The market for sales and marketing information systems is large and rapidly
growing. META Group, Inc., an independent market research firm, estimates the
market size as $750 million in 1995, growing to more than a $3 billion market in
the 1998 timeframe.
Availability of Enabling Technologies
The Company believes the adoption of sales and marketing information
systems is being further fueled by the recent availability of enabling
technologies which allow, perhaps for the first time, the successful deployment
of highly distributed, mobile sales and marketing applications. Some of these
enabling technologies include: object oriented programming technologies
including Visual C++ and ActiveX from Microsoft, 32-bit PC operating systems
offering exceptionally accessible user-interface technologies like Windows 95
and Windows NT, rapid acceptance of intranets and the Internet, high bandwidth
communications capability, rich data manipulation technologies such as Adobe
Acrobat, SQL data replication services from Oracle, Sybase and Informix, as well
as continued advances in microprocessor central processing unit (CPU) capacity
from companies such as Intel.
The Challenges of Developing Sales and Marketing Information Systems
Enterprise-class application software includes categories such as financial
information systems, manufacturing systems, human resource management systems
and sales and marketing information systems. From a software engineering
perspective, these applications are considered to be quite complex, requiring
very large resource requirements and posing significant technical barriers.
Some organizations have succeeded in internally developing enterprise-class
applications on a timely and cost-effective basis. However, in other cases,
completion of such projects has required resources substantially in excess of
those originally budgeted or the project has been terminated due to lack of
success. In some instances, companies undertaking such custom development have
encountered delays in implementation of and, in certain cases, have canceled
such projects prior to reaching production.
To overcome the costs and risks associated with internally developed
enterprise-class applications software, many organizations are seeking to
purchase commercially designed, developed, tested, and supported application
software solutions.
Market Opportunity
The Company believes that the commercial availability of a high-end,
enterprise-class sales and marketing information software system will enable
companies to be successful in automating their sales processes. The Company
believes such an application should include the following characteristics:
- Complete Functionality -- Comprehensive customer information
systems, product information systems, competitive information systems and
decision support.
- Modern Technology Foundation -- Internet and intranet enabled,
client/server, object oriented, 32-bit, Windows 95 and Windows NT,
distributed relational database support, and OLE 2 automation support.
- Scalability -- Support for thousands of concurrent users deployed
globally, in multiple languages and multiple currencies with very large
relational datastores.
- Configurability -- Configurable business objects providing a high
level of application customization and modification.
The Company believes that an enterprise-class application which exhibits
these characteristics will enable organizations to deploy sales and marketing
information systems at lower cost, with lower risk, and more rapidly than
internally developed, custom project developments.
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THE SIEBEL SOLUTION
The Company is a leading provider of Internet-enabled, object oriented,
enterprise-class sales and marketing information systems designed to meet the
needs of the largest and often multi-national corporations. Siebel's position as
a market leader has been acknowledged by recognized industry experts, including
AberdeenGroup, GartnerGroup and Ovum Ltd., each an independent research
organization.
The Siebel Sales Enterprise is designed to offer users a sales information
solution that is functionally comprehensive, is built upon a modern technology
foundation, and scales to meet the requirements of global organizations with
thousands of concurrent users and very large data stores. The Siebel solution is
designed to be easily and extensively configured to meet industry-specific and
company-specific data processing and data presentation requirements.
Functionally Complete
The Siebel Sales Enterprise is designed to provide comprehensive
functionality for sales and marketing information systems. The product is
intended to enable the organization to deploy enterprise-wide customer
information systems, product information systems, competitive information
systems, and decision support systems. Specific functionality includes
opportunity and account management, product and revenue forecasting, quote
generation, on-line sales tools, contact and activity management,
correspondence, and fulfillment. The Siebel Sales Enterprise fully supports team
selling across multiple distribution channels, including field sales, telesales,
telemarketing, and resellers. The Siebel products are designed to improve
internal and external communications by integrating with e-mail, Intranet, and
Internet services.
Modern Technology Foundation
The Siebel solution takes advantage of advanced developments in technology
and computing trends, including Internet and intranet interoperability,
client/server architecture, configurable business object technology
(BusObjects), 32-bit processing capability, modern client operating systems
(Microsoft Windows 95 and Windows NT), relational database servers, modern
development environments (Microsoft Visual C++ and Microsoft Foundation Class
Libraries (MFC)), inter-application communications technologies (Microsoft OLE 2
automation), and database synchronization and replication.
The Company believes that the use of these modern and industry-standard
development tools and technologies has allowed Siebel Systems to rapidly develop
a comprehensive, configurable, scalable, enterprise-wide sales and marketing
information solution. The Company has found that sales of the Siebel Sales
Enterprise have been facilitated by the fact that its customers and prospects
have often adopted as their MIS standards these same technologies used by the
Company to build its products.
The Company believes that the technologies utilized to build Siebel Sales
Enterprise -- many of which became commercially available in the
mid-1990s -- are required to build an application of this nature and scope.
Prior to the advent of these technologies, it was technically difficult to build
an application robust enough to solve the information requirements of global
sales and marketing organizations. The Company believes that its use of these
technologies provides the Company with a significant market advantage.
Internet-Enabled
The Siebel Sales Enterprise is designed to allow organizations to harness
the power of the Internet to facilitate the sales and marketing process. The
Siebel Sales Enterprise enables organizations to use the Internet today for
collecting leads, for accessing product, company, and competitive information
through the World Wide Web, for communicating with prospects and customers via
Internet-based electronic mail.
Many companies are using their home page to collect sales leads. The
information that prospects enter on these web-based forms, (e.g., name, address,
etc.) can be automatically loaded into Siebel
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Sales Enterprise using a standard CGI (Common Gateway Interface) interface to
the Siebel Open Interface product. These leads can then be automatically
processed by the Siebel Sales Enterprise Territory Manager, assigned, and
distributed to the appropriate sales representatives for follow up.
Siebel customers can also integrate Siebel Sales Enterprise and the Siebel
Marketing Encyclopedia with a web browser, such as Netscape Navigator, to allow
their sales and marketing professionals to automatically access remotely stored
and managed sales and marketing information using the World Wide Web. In this
fashion, sales and marketing personnel can readily gain remote access to a broad
range of product marketing materials including product catalogues, data sheets,
and annual reports.
Using Siebel Sales Enterprise, sales professionals can send correspondence
and quotes to their prospects and customers via Internet-based electronic mail.
Siebel Remote offers support for sales representatives using the Internet
to synchronize their remote laptop computers with the corporate databases. Users
can employ a local Internet access point to communicate "directly" with the
corporate headquarters to exchange account information, access new leads, and
transfer new orders. The Company believes the ability to use the Internet for
data synchronization or "docking" offers significant communications cost savings
to Siebel users and allows easy, local, and lower cost computer access globally.
Enterprise Scalability
The Siebel solution is designed to scale to meet the needs of organizations
whose sales forces range in size from fifty to thousands, including even the
largest global organizations. Many of the Company's customers have purchased
Siebel Sales Enterprise with the goal of automating thousands of sales
professionals, accessing multiple gigabyte data repositories. Most of the
Company's customers are currently in the early stages of enterprise-wide
deployment. The largest production deployments of Siebel Sales Enterprise to
date are measured in hundreds of sales professionals. See "Risk Factors --
Limited Deployment."
BusObject Configurability
Siebel Systems employs the use of BusObjects, highly configurable object
oriented business objects, as the basic building blocks of Siebel Sales
Enterprise. Included in the family of Siebel BusObjects are Opportunity,
Account, Customer, Product, Competitor, and Campaign. The BusObjects contain
semantic information about the sales and marketing entities as well as
presentation and navigation logic. BusObjects control the physical access of
information from data sources, organize and inter-relate that information, and
present the information to the user. The Siebel Sales Enterprise is comprised of
a collection of these BusObjects. Highly configurable at the object code level,
Siebel BusObjects are designed to allow organizations to rapidly configure the
application to meet their business requirements while ensuring a clear and
consistent upgrade path for future releases. This flexibility is expected to
substantially reduce the long term maintenance costs associated with deploying a
highly configured application.
STRATEGY
The Company's objective is to establish and maintain a clear market
leadership position in the sales and marketing information systems market. The
Company's strategy incorporates the following key elements:
Target Large Multi-National Customers in a Broad Range of Industries
The Company has designed Siebel Sales Enterprise to satisfy the most
rigorous sales and marketing information requirements of multi-national
corporations that frequently employ multi-tiered distribution strategies. Siebel
Sales Enterprise is intended to be deployed on a global basis, and provide
shared, up-to-date information for field sales, telemarketing, telesales,
marketing, as well as
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third party reseller sales organizations. The Company intends to leverage its
experience and continue to target product development, sales and marketing
activities to expand worldwide market acceptance of Siebel Sales Enterprise.
Maintain and Extend Advanced Technology Position
The Siebel Sales Enterprise utilizes advanced information technology. The
Company employs the use of configurable business objects (BusObjects) designed
to allow organizations to configure the Siebel application to fit their unique
needs while ensuring a clear and consistent upgrade path for future releases.
The Company has developed sophisticated database synchronization capabilities
intended to allow large numbers of mobile users to intermittently connect and
synchronize their local database with a server database. The Company has made
extensive use of object oriented technology to develop a multi-tiered
architecture that supports Internet-enabled client/server, three-tiered, and
N-tiered deployment strategies. The Company intends to continue to commit
substantial resources to maintain and extend its advanced technology position.
Global Strategic Alignment
The Company seeks to promote widespread adoption of Siebel Sales Enterprise
through the establishment of strategic relationships with leading systems
integrators, technology providers, and distributors.
Siebel Systems has formalized a global strategic business alliance with
Andersen Consulting to maximize the growth and establish the market leadership
position of both companies in the sales and marketing information systems
marketplace. Under this worldwide alliance agreement, Andersen Consulting
provides Siebel-related professional services including sales force
reengineering, change management, systems integration, configuration,
installation, project management, and training. This relationship provides
Siebel and Siebel's customers immediate access to a highly trained global
professional service organization to customize, integrate and deploy medium- and
large-scale Siebel implementations.
The Company has technology and marketing relationships with other leading
companies such as Itochu, Microsoft Corporation, and Adobe Systems, Inc. and
intends to establish additional relationships.
These relationships allow the Company to focus on its core areas of
expertise of developing and marketing sales and marketing information systems
software, while leveraging the strength and influence of complementary
information technology leaders in their respective domains.
Fully Exploit Intranets and the Internet
The Siebel Sales Enterprise has been designed to expand the accessibility
of comprehensive sales and marketing information to sales representatives
through the use of intranets and the Internet as a global, low-cost, virtual
private network. The Company believes that the Internet will enable the entire
corporate sales and marketing information base, currently only available to
users connected over a LAN (local area network) or WAN (wide area network), to
be available without geographic limitation for the low cost of a local Internet
connection. This capability will allow organizations to deploy targeted,
fully-informed sales professionals wherever needed without the expense and
overhead of physical offices or private leased lines. The Company plans to
continue to exploit the Internet and believes that in the future it will allow
customers to access comprehensive information systems which recommend and
deliver customized products, goods, and services directly to customers
worldwide.
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Promote Successful Customer Implementations
The Company's success is dependent upon its customers' successful
implementation of Siebel Sales Enterprise. As a result, the Company actively
supports the customer's deployment efforts by providing Internet and telephone
technical support, providing comprehensive instructor-led training, and
assigning an account management team that consists of a sales representative,
technical account manager, and an executive sponsor. To objectively measure
customer satisfaction, Siebel Systems employs an independent third-party
organization to perform periodic customer satisfaction audits.
Expand Global Sales Capabilities
The Company intends to expand its global sales capabilities by increasing
the size of its direct sales organization in major markets and continuing to
leverage distributors in other selected markets. In particular, the Company
plans to expand its direct sales and marketing activities in Asia, Australia,
Europe, Latin America and North America. The Company has operations in
Australia, France, Germany, Japan, the Netherlands, the United Kingdom and the
United States, and has recently introduced with Itochu localized versions of the
Siebel Sales Enterprise for the Japanese market. The Company is developing
localized versions for major European markets.
PRODUCTS
The Siebel Sales Enterprise is a client/server application software product
family designed to meet the sales and marketing information system requirements
of large, frequently multi-national, organizations. The Siebel Sales Enterprise
is comprised of a broad range of advanced client/server application products
designed to allow corporations to deploy comprehensive customer information
systems, product information systems, competitive information systems and
decision support systems on a global basis. The Company shipped Siebel Sales
Enterprise version 1.0 in April 1995 and subsequently shipped version 2.0 in
November 1995.
The Siebel Sales Enterprise supports Windows for Workgroups, Windows 95 and
Windows NT Workstation clients. The Siebel application server operates on
Windows NT and can work with Oracle, Sybase and Informix relational databases
operating on a variety of leading UNIX servers and Windows NT database server
platforms.
The Company generally licenses its software based on the number of users.
The core system, Siebel Sales Enterprise, has a U.S. list price of $1,750 per
user. Additional product options range from $250 to $500 per module, resulting
in a total list price of $5,500 per user for an end-user system that includes
all software options. The Siebel application server products are priced and
licensed separately. Initial direct sales to an end-user customer have typically
ranged from $500,000 to $2,000,000, with certain transactions that have been
considerably greater than $2,000,000. The Company also provides software
maintenance service, training, and associated professional services. The Siebel
Sales Enterprise is usually licensed to customers who intend to automate the
sales organization of an entire corporation or of a large division. Licenses to
date of the Company's products range from 50 to 5,000 users.
Siebel Sales Enterprise
The Siebel Sales Enterprise is designed to allow teams of sales and
marketing professionals to manage sales information throughout the entire sales
cycle. This core application includes the Opportunity Management, Account
Management, Contact Management, Activity Tracking, and Calendar Systems. The
Siebel Sales Enterprise product family includes the following products:
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Siebel Sales Enterprise Product Options
Siebel Marketing Encyclopedia
Siebel Marketing Encyclopedia provides sales professionals with access
to a repository of their organization's sales-related information, including
complete product information, competitive information, decision support, and
on-line literature. This information is published by marketing and made
available to all end users of the system. Built-in communications capabilities
are designed to allow users to immediately send information to prospects,
customers, and other sales team members via intranet, Internet, electronic mail,
fax, or automated correspondence and fulfillment.
Siebel Office
Siebel Office automates the process of sending sales-related letters to
customers. Correspondence includes integration with Microsoft Word, pre-built
correspondence templates, and automatic mail-merge capabilities. Fulfillment
center support is provided for internal and third-party fulfillment centers to
ensure timely completion of fulfillment requests.
Siebel Quotes
Siebel Quotes allows sales professionals to develop, verify, submit and
revise quotes tailored to meet customer requirements. Siebel Quotes is designed
to permit the generation of quotes from the opportunity information, verify that
quotes are complete and accurate, print quotes using a variety of formats, or
use electronic mail integration to send quotes to customers over the Internet.
Siebel Revenue Forecasting
Siebel Revenue Forecasting allows sales professionals to estimate and
submit forecasts based on opportunity revenues over time. Revenue Forecasting
includes opportunity-driven forecasts, forecast revisions, forecast histories,
forecast roll-up capabilities, and forecast reports. Forecasting for managers
based on direct report forecasts is included.
Siebel Product Forecasting
Siebel Product Forecasting allows sales professionals to estimate and
submit forecasts based on unit volume and price estimates over time. Siebel
Product Forecasting includes opportunity product-driven forecasts, forecast
revisions, forecast histories, forecast roll-up capabilities, and forecast
reports. Forecasting for managers based on direct report forecasts is included.
Siebel Reports
With Siebel Reports, users have access to the full power of Query by
Example to generate ad-hoc reports on-line, or view reports in graphical format.
Siebel Reports integrates with multiple report writers and delivers more than
forty-five pre-built reports.
Siebel EIS
Siebel EIS (Executive Information System) allows sales and marketing
professionals and executives to dynamically visualize information in a variety
of on-line graphical formats. The Siebel EIS system comes with more than
thirty-five pre-defined graphical charts, as well as the ability to configure
new graphics that are uniquely tailored to user requirements.
Siebel Tele-Business
Siebel Tele-Business enables lead generation and lead qualification by
equipping Telesales and Telemarketing professionals with powerful Campaign, Call
Scripting, and Campaign Administrator functionality, as well as automated call
distributor (ACD) integration.
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Siebel Remote
Siebel Remote enables mobile computing by allowing the exchange and
synchronization of information between the sales professional's mobile computer
and the corporate server. Mobile users can access the full functionality of
Siebel Sales Enterprise on a laptop, and later "dock" to upload local changes to
the server, initiate requests for information, and download any new information
from the corporate server. Siebel Remote is Internet-enabled to support database
synchronization and replication over the Internet.
Siebel Anywhere
LOGO
Organizations can unite their connected Siebel users and their mobile Siebel
users in a common sales information system. Siebel provides two-way data
synchronization between mobile users and the central database
repository, using LAN, WAN, dial-up, as well as intranet and
Internet connections.
Siebel Systems Administration and Management Software
Siebel Systems Administration and Management Software is separately priced
and licensed and includes the following components:
Siebel BusObject Configurator
For application configuration, Siebel Sales Enterprise provides business
object definitions to allow systems administrators, systems integrators, and
application developers to configure the look, feel, data content, and layout of
Siebel business objects without changing source code.
Siebel Marketing Manager
The Siebel Sales Enterprise provides a suite of marketing administration
screens to define and manage marketing information such as product information,
product lines, price lists, competitive information, and decision issues.
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Siebel Sales Manager
The Siebel Sales Enterprise provides a suite of systems administration
screens to define and manage key system information such as employees, sales
territories, available views, user responsibility profiles, and system
preferences.
Siebel Anywhere
The Siebel Sales Enterprise provides a server component of Siebel Remote
to manage all information exchanges with mobile users. Siebel Anywhere monitors
this two-way exchange, and provides comprehensive conflict detection and
resolution facilities designed to ensure the integrity and synchronization of
both server and client databases.
Siebel Enterprise Integration Manager
The Siebel Enterprise Integration Manager allows Siebel customers to
exchange information with other enterprise applications such as manufacturing,
accounting, human resource, and customer service applications.
Siebel Database Extension Manager
For application configuration, the Siebel Database Extension Manager is
designed to allow Siebel customers to capture the information most appropriate
for their business. Siebel Database Extension Manager provides an intuitive
graphical user interface for systems administrators to extend the Siebel Sales
Enterprise database schema while maintaining a clear and consistent upgrade path
to future releases.
Siebel Product Advantages
Application Configuration
The Company's customers each have unique business needs requiring
varying levels of application configuration. For instance, different
organizations may use a combination of direct sales, field sales, telesales or
third-party sales. The Company believes it has anticipated these needs and
provides configurable business objects to allow organizations to configure the
application to fit their unique requirements. Each business object defines the
look and feel, the information displayed, and the workflow of the application to
address major areas of business functionality. For example, a business object
may contain the business logic and rules that describe how leads and prospects
are shared across multiple sales channels. The Company provides a range of
business objects that address the sales and marketing process.
The Siebel Sales Enterprise is designed to allow organizations to
configure and modify the properties and attributes of the business objects
without needing to change application source code. The Company believes this
approach to configuration provides several key benefits:
- Reduces cost of configuration and maintenance,
- Permits a clear and consistent upgrade path for future releases of
Siebel software, and
- Allows the Company to maintain and support a single source code base
that addresses the varied needs of its customers.
Application configuration is typically performed by a Siebel systems
integration partner or the customer's MIS department. The software may be
configured in a number of manners including:
- User Preferences
- System Administration Preferences
- Server Preferences
- Database Extensibility
- Object Definitions
This combination of configuration options offers customers extensive
configurability without having to write or modify source code.
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Data Synchronization and Replication
Typically, field sales, telesales, and order administration personnel
all have contact with the same customers. Sharing information about customers
across often geographically dispersed sales teams can be difficult. The
challenge is to provide every member of the sales team with up-to-date
information on the account or prospect. Siebel Remote, the Company's
asynchronous replication technology, addresses the data synchronization and
distribution needs of these sales teams. Siebel has applied for a patent on its
proprietary data synchronization and replication technology. See
"-- Intellectual Property and Other Proprietary Rights." Siebel considers this
technology a major source of competitive market advantage.
Siebel Global Processing Architecture
LOGO
The Siebel global processing architecture supports a multi-tiered sales
organization with stationary Siebel users who are permanently connected to the
central database server and mobile Siebel users who are intermittently connected
to the central database server.
Mobile users can utilize Siebel Remote to synchronize their laptop or
hand-held computer with the central data repository. Adhering to preestablished
visibility rules, Siebel users can share overlapping subsets of data to support
team selling. Traditional data synchronization approaches are typically limited,
allowing only the primary user to update shared data. With such limited
approaches, other synchronized users only have read access to information
entered by the primary owner. Siebel Remote is designed to allow any designated
member of the sales team to update records, and to automatically synchronize the
updates with all other users.
Giving multiple users update rights can create conflicts, particularly when
some users operate in a mobile environment and are not permanently connected to
the central data repository. The Siebel application supports an extensive set of
configurable business rules that detect and resolve conflicts at the database
field level.
Siebel uses a sophisticated "net change" architecture with highly
compressed transaction instructions designed to minimize network traffic, reduce
data synchronization time, and limit network expense. Siebel's architecture is
network independent, allowing data synchronization to occur over LAN, WAN,
dial-up, as well as intranet and Internet connections.
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Siebel Global Distributed Architecture
LOGO
The Siebel de-centralized data distribution architecture is designed to support
multiple, de-centralized data
servers which can be geographically located in the sales region they support.
User Interface
The Siebel Sales Enterprise has been ergonomically designed by human
factors experts to be easy to use and easy to learn. The use of Microsoft
Windows and Microsoft Office compliant user interface technology is intended to
ensure that users are immediately familiar with buttons, menus, and
industry-standard commands. A tab metaphor allows users to click a mouse and
view the key components of their sales and marketing information system.
Siebel's patent-pending Thread Manager technology displays, records, and
restores the user's screen-by-screen navigation. System-wide, context sensitive
help provides immediate answers to questions.
Scalability and Performance
Scalability and performance are key considerations in enterprise-wide
deployments of sales information systems. For large deployments, thousands of
users need to access a common data repository that may contain tens of gigabytes
of information. Scalability and performance are impacted by design and
implementation of both the client and server side of the application. The Siebel
Sales Enterprise is designed to address the performance and usability issues
that arise in large-scale deployments.
Efficient Use of Network Bandwidth to Optimize Performance
The Siebel client/server architecture is designed to minimize network
traffic to optimize performance. The client is designed to intelligently cache
data and group database queries and updates, thereby minimizing the number of
transactions over the network. This feature is intended to allow large numbers
of users to be simultaneously connected over a LAN or WAN to a single
centralized database while exhibiting acceptable performance characteristics.
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High Performance Application Server
The Siebel Application Server has been designed to permit high throughput.
Multiple application servers can run in parallel with a single database server.
The number of users each Siebel Application Server can support varies depending
on the type and frequency of data updates, as well as the particular server
hardware.
High Performance Computer Hardware and Database Support
The Siebel products are designed to support scalability for large user
communities by taking advantage of leading, high-performance databases and
computer hardware. The Company supports industry-standard approaches to
high-performance such as symmetric multi-processing hardware which allows
multiple processors within one server machine.
Support for Global Enterprises
Built for multi-national customers, Siebel software supports international
standards in several ways, including support for:
- Local language support for non-English application deployment
- Multiple currencies, exchange rates and automatic currency conversions
- International time, date, and phone number conventions
- Double-byte Asian character sets
The Company recently introduced with Itochu a localized version of Siebel
Sales Enterprise for the Japanese market. The Company is currently developing
other localized versions, which will be developed and released as market
conditions warrant.
TECHNOLOGY
The Siebel Sales Enterprise exploits an advanced information technology
platform. The Siebel products embrace and incorporate the utility and power of
the Internet. The application is built on a multi-tiered client/server
architecture supporting Microsoft Windows clients and a variety of Windows NT
and UNIX servers running Informix, Oracle, and Sybase relational databases. The
technology foundation includes object oriented application development,
Microsoft Visual C++, MFC Libraries, OLE 2 automation, 32- or 16-bit processing,
and Microsoft Windows and Microsoft Office user interface compliance. The Siebel
application is a modern, scalable and customizable enterprise-wide client/server
sales and marketing information system. The application uses a multi-tiered
architecture with separate client, application server and database server layers
connected together over a LAN or a WAN.
The Siebel N-Tiered Architecture
The Company has developed an advanced, N-tiered object oriented software
architecture. The software architecture is designed to provide Siebel customers
with robust flexibility in application deployment to meet the unique needs of
the organization. Using Siebel's N-tiered architecture, customers have the
flexibility of deploying their applications on remote pen-based and laptop
computers, on standalone desktop workstations, on client/server systems, on
highly distributed replicated "mainframe" server environments, and in the
future, on the Internet, or any combination thereof.
The Company believes that the utility offered by this flexible architecture
provides a major source of competitive market advantage.
Siebel's N-tiered architecture separates the information presentation,
application logic, database access, and interprocess communications layers into
separate tiers in order to partition and distribute the application components
to run where necessary.
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Siebel's N-tiered architecture currently supports the following application
deployments: Personal Computing for mobile sales professionals and Client/Server
for connected sales professionals. The Company expects that this architecture
can be further exploited to support additional Internet-enabled application
deployment configurations in future Siebel product releases, including the
Virtual Computing for Internet-connected sales professionals, resellers,
partners, and individual buyers.
Siebel N-Tiered Architecture
LOGO
The Siebel N-tiered architecture separates the information presentation,
application logic, database access, and interprocess communications
layers into separate tiers in order to partition and
distribute the application components to
run where necessary.
Personal Computing
Siebel Personal Computing supports mobile sales professionals who typically
use either laptop or hand-held portable computers. These users are not
permanently connected to their organization's network and usually run the client
disconnected from the central database. Mobile clients have a local SQL database
that contains a subset of the information in the server database. While the
field sales representative is disconnected from the LAN or WAN, the local
database is used for information access and updates. This gives mobile users the
complete range of functionality available to connected users anywhere their
business takes them. The Company's patent-pending technology allows for exchange
and synchronization of information between the mobile and server databases,
using LANs, WANs, dial-up, or the Internet.
Client/Server
The Siebel Client/Server software connects the client to the server
database via a LAN or WAN. Connected clients access and update information
directly against the server database. A typical use for a connected client is a
telesales representative based in the headquarters office, or possibly in a
regional office connected to headquarters through a WAN.
Virtual Computing
Siebel Virtual Computing is being designed to expand the accessibility of
comprehensive sales and marketing information to sales representatives through
use of the Internet as a global, low-cost, virtual private network. The Company
believes that the Internet will enable the entire corporate sales and marketing
information base, previously available only to users connected over a LAN or
WAN, to be available without geographic limitation for the cost of a local
Internet connection. The Company
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believes that this capability will allow organizations to deploy targeted,
fully-informed sales professionals wherever needed without the expense and
overhead of private leased lines or physical offices.
Siebel Virtual Computing is being designed to deliver one-to-one sales and
marketing on a global basis. The Company believes this may well re-define the
concept of "selling on the Internet." Today, buyers can order anything from
consumer goods to automobiles using the Internet to browse home pages and tour
virtual shopping malls. This passive approach to selling can be characterized as
using the Internet simply as an inexpensive way to deliver an electronic
catalog. Electronic catalogs do not currently lead customers through the product
evaluation and selection phase, do not up-sell or cross-sell, only offer limited
customized alternatives, and add no incremental value to the selling process.
The Company believes that such electronic catalogs are not a replacement for a
true sales professional who can identify the specific product configuration that
best suits the customers' needs and requirements.
The Company believes that its N-tiered architecture will, in the future, be
able to provide organizations with the technology foundation to deliver a
powerful new generation of selling applications over the Internet. For example,
through a web page, buyers may have access to a virtual sales consultant, fully
knowledgeable about the buyer's demographics, interests, and buying patterns.
The Company believes that this virtual sales approach will allow organizations
to dynamically target marketing programs, tailor solutions, and deliver
customized products, goods and services worldwide, directly to customers based
on their needs. The Company believes that this use of the Internet may
fundamentally change the economics of selling by permitting organizations to
reduce distribution and selling costs, while simultaneously increasing revenues,
and growing new markets through disintermediation. See "Risk Factors -- Risk
Associated with New Versions and New Products; Rapid Technological Change."
Siebel Virtual Computing
LOGO
The Siebel N-tiered architecture is designed to allow organizations to flexibly
deploy their Siebel applications in multiple configurations, including
Siebel Personal Computing, Siebel Client/Server
Computing, and in the future, Siebel
Virtual Computing.
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CUSTOMERS AND MARKETS
Siebel has targeted large organizations operating globally and conducting
business through multiple sales channels. The Company believes this market has
been underserved by existing vendors and offers substantial opportunities to the
Company. The following were the customers of the Company as of June 30, 1996.
<TABLE>
<S> <C>
FINANCIAL SERVICES
- Charles Schwab & Co., Inc.
- Frank Russell Company
- Montgomery Securities
- Nationwide Mutual Insurance Company
- Texas Commerce Bank National
Association
SERVICE
- Andersen Consulting LLP
SOFTWARE
- BMC Software, Inc.
- Informix Software, Inc.
- Platinum Technology, Inc.
- Pure Software, Inc.
TRANSPORTATION
- American President Companies Ltd.
- Viking Freight System, Inc.
CONSUMER PACKAGED GOODS
- The Dial Corp
- The Quaker Oats Company
MANUFACTURING
- Cisco Systems, Inc.
- Newbridge Networks, Inc.
- The Dow Chemical Company
- AMP Incorporated
- LSI Logic Corporation
- Hewlett-Packard Japan, Ltd.
- Digital Equipment Corporation
- Unisys Corporation
</TABLE>
The Siebel Sales Enterprise has been selected for use by a wide variety of
industries as illustrated by the following customer examples:
Financial Services
In December 1995, Charles Schwab & Co., Inc. licensed the Siebel Sales
Enterprise software as an important sales system to be used by more than 4,000
brokers. After reviewing multiple products in the areas of configurability,
scalability, and functionality, the firm chose the Siebel Sales Enterprise. The
Siebel Sales Enterprise is designed to allow shared access to updated customer
profiles and histories to improve the organization's responsiveness to its
nearly 3.5 million active customer accounts and prospects.
Transportation
American President Companies Ltd. was challenged with providing their sales
representatives with the tools necessary to compete in a global marketplace.
After conducting an extensive review of sales and marketing information systems,
they selected Siebel Sales Enterprise. This implementation is being designed to
integrate internal customer information and government trade data, to optimize
work loads and to provide increased customer service. Utilizing Siebel's work
flow capabilities, these sales representatives are expected to be able to
balance multiple customer inquiries and increase their revenue generating
capacity.
Networking
After an extensive review of the sales information systems software
marketplace, Cisco Systems, Inc. selected Siebel as its global sales information
solution based on Siebel's comprehensive, integrated functionality and its
advanced technology platform. This implementation was designed to equip the
Cisco sales force with complete, accurate, and up-to-date information about
accounts, opportunities,
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products, and prices, so they can quickly respond to their customers'
requirements and maximize time spent selling.
MARKETING
The Company's marketing efforts are directed at establishing a market
leadership position for Siebel Systems. Targeted at sales, marketing and
information technology executives within large, multi-national organizations,
Siebel's marketing programs are focused on creating awareness and generating
interest in the Siebel solution.
Siebel Systems is an active participant in the Digital Consulting Inc.
(DCI) Field and Sales Automation and Internet EXPO, a leading international
conference and trade show in the sales and marketing information systems
marketplace. In 1996, the DCI Field and Sales Automation/Internet Conferences
are being held in San Jose, Chicago, Toronto, Boston and Atlanta. These
week-long conferences will feature Thomas M. Siebel, Chairman and Chief
Executive Officer of the Company, delivering the plenary Keynote Address. In
addition, Siebel Systems will demonstrate its products and showcase its
partners' solutions.
Thomas Siebel is a frequent speaker at many software industry events,
including the Sales Automation Association and Insight Technology Group's Chief
Sales Officer Conferences, as well as the Andersen Global Consulting Seminar.
Mr. Siebel joined others in the delivery of the Keynote Address at WindowsWorld
95 in Atlanta, showcasing the Siebel Sales Enterprise.
Supporting its worldwide direct and indirect sales channels, the Company's
co-marketing efforts include conducting global Sales and Marketing Executive
Briefings including the following:
<TABLE>
<S> <C> <C> <C> <C> <C>
- Sales Automation Executive Briefings with Microsoft and Andersen Consulting
Chicago Los Angeles New York Irvine Philadelphia
Toronto Detroit Hartford Houston Boston
- Mobile Computing for Sales Executives with Hewlett-Packard
Tampa St. Louis Ft. Lauderdale Atlanta
Dallas Minneapolis New York Houston
Fullerton Denver Seattle San Francisco
Cincinnati Van Nuys Boston Chicago
- Increasing Revenue for Sales Executives with Informix
Phoenix Boston Chicago New York
Denver San Francisco Irvine Dallas
Atlanta Detroit Minneapolis
- The Impact of Sales and Marketing Information Systems in Japan with Itochu
Tokyo Osaka
</TABLE>
Thomas Siebel and Michael Malone, co-author of The Virtual Corporation,
have written Virtual Selling, Going Beyond the Automated Sales Force to Achieve
Total Sales Quality ("Virtual Selling"). Published by The Free Press, a division
of Simon & Schuster, in February 1996, Virtual Selling describes the business
benefits of applying information technology to the sales and marketing process.
Siebel's marketing personnel engage in a variety of marketing activities,
including managing and maintaining the Siebel web site, issuing newsletters,
making direct mailings, placing advertisements, conducting public relations and
establishing and maintaining close relationships with recognized industry
analysts.
Siebel has introduced an industry-specific version of its sales and
marketing information system solution designed to address the specific needs of
the consumer packaged goods (CPG) marketplace. This version of the Siebel Sales
Enterprise, called Siebel for CPG, has been selected by The Dial Corp and The
Quaker Oats Company.
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SALES
As of September 15, 1996 the Company's sales force consisted of 59
employees located in 13 domestic offices (Atlanta, Austin, Boston, Chicago,
Cincinnati, Dallas, Denver, Houston, Los Angeles, Maple Valley, McLean, New York
and San Mateo) and six international offices (Amsterdam, Munich, Paris, Sydney,
Tokyo and Windsor). The field sales force is complemented by four telemarketing
representatives situated in the Company's San Mateo, California headquarters.
Sales in the Asia/Pacific market are leveraged through a co-exclusive
distribution agreement with Itochu. The Company intends to continue to add sales
representatives and sales consultants worldwide.
The Company deploys sales teams consisting of both sales and technical
professionals who work with strategic systems integration partners to create
industry specific proposals, presentations and demonstrations which address the
exact requirements of the customer. The decision makers within Siebel's
prospective customers for the Siebel products are their executive management
teams, frequently consisting of the Chief Information Officer, VP Sales, VP
Marketing, the Chief Financial Officer and the Chief Executive Officer.
The Company manages its business using Siebel Sales Enterprise, running on
the Company's intranet. The Siebel product is used to manage all aspects of the
sales process and to share information among members of the sales team and
Siebel management.
The Company believes that the deployment of an integrated sales and
marketing information system offers a distinct competitive advantage, and that
focusing corporate resources on revenue generating systems offers greater return
than automation efforts focused on cost reduction in areas such as human
resources and accounting. The Company believes its customers' understanding of
this fact establishes the value of the Siebel Sales Enterprise and shortens the
sales cycle.
The Company's sales process consists of several phases: lead generation,
initial contact, lead qualification, needs assessment, company overview, product
demonstration, proposal generation and contract negotiations. In a number of
instances the Company believes that its relationships with strategic partners,
including systems integrators, has substantially shortened the Company's sales
cycle. Partners have generated and qualified sales leads, made initial customer
contacts and assessed needs prior to Siebel's introduction. Additionally,
systems integration partners have assisted the Company in the creation of
customized presentations and demonstrations which the Company believes enhance
the competitive position. While the sales cycle varies substantially from
customer to customer, for initial sales it has ranged to date from two to
eighteen months. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
GLOBAL STRATEGIC ALIGNMENT
An important element of the Company's sales and marketing strategy is to
continue to enhance and expand its strategic partnerships with key industry
leaders in order to increase market awareness and acceptance of Siebel Systems.
The Company believes these relationships with industry leaders help to ensure
that Siebel Systems delivers a comprehensive solution to its customers for their
sales and marketing information system needs. The Company has established
relationships with organizations in three general categories: systems
integrators, development and distribution partners and educational services
providers.
System Integrators
Andersen Consulting -- Strategic Business Alliance
Siebel Systems and Andersen Consulting have formalized a strategic business
alliance designed to maximize the growth and establish the market leadership
position of both organizations in the sales and marketing information systems
marketplace. Worldwide in scope, the parties' agreement includes cooperative
specification and development of products and solutions, technology transfer and
training, and joint marketing and sales programs. Under this agreement, Siebel
promotes Andersen as its preferred systems integration partner, and Andersen
promotes Siebel as its preferred software solution for sales and marketing
information systems. In connection with the strategic alignment, Andersen
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Consulting has made an equity investment in Siebel Systems and George Shaheen,
the Managing Partner of Andersen Consulting, serves on the Company's Board of
Directors. See "Management" and "Principal and Selling Stockholders."
Andersen Consulting provides Siebel-related professional services including
sales force reengineering, change management, system integration, configuration,
installation, project management and training. Andersen Consulting operates
Siebel Configuration Centers in San Mateo, London and Tokyo. Siebel believes
that this relationship provides Siebel and Siebel's customers immediate access
to a highly trained global professional service organization to customize,
integrate and deploy medium-and large-scale Siebel deployments. Andersen
Consulting has provided system integration services in connection with a
majority of the Company's customers to date. See "Risk Factors -- Reliance on
Andersen Consulting and Other Relationships; Dependence on Other Relationships."
Siebel Systems and Andersen Consulting conduct joint market development and
promotional activities, including joint advertising, joint public relations,
jointly developed brochures and market-specific product demonstrations, and
collateral. The two companies jointly participate in industry events and conduct
Executive Briefings both in worldwide seminar programs as well as in DCI Field
and Sales Automation tradeshows. Siebel and Andersen Consulting have created a
global joint selling model targeted at specific vertical markets and major
accounts.
Other Systems Integrators
The relationship between Siebel Systems and Andersen Consulting is
non-exclusive. As requested by its customers, Siebel Systems frequently
collaborates with other systems integrators, including KPMG Peat Marwick LLP,
Deloitte & Touche LLP, Price Waterhouse LLP and Cambridge Technology Partners
(Massachusetts), Inc. to provide Siebel-related professional services.
Technology and Distribution Partners
Itochu Techno-Science Corporation -- Strategic Business Alliance
Siebel and Itochu Techno-Science Corporation have entered into a strategic
alliance agreement under which the two companies have agreed to jointly develop,
promote, market, sell and support the Company's products in Japan. The companies
are working together to localize the Siebel products for the Japanese market and
jointly promote and support these products in Japan. In connection with the
alliance, Itochu Techno-Science Corporation and related entities made an equity
investment in the Company. See "Principal and Selling Stockholders." Itochu
Techno-Science Corporation is a large technology provider to the Japanese
market, representing many leading companies including Sun Microsystems, Inc.,
Compaq Computer Corporation and Sybase, Inc. Itochu Techno-Science Corporation
is a subsidiary of Itochu Corporation, which is one of the largest companies in
the world with revenues in excess of $140 billion per annum.
Under the agreement, Itochu Techno-Science Corporation has agreed to
prepare Japanese localized versions of the Company's products, including the
software, on-line help and training materials. Acting as the co-exclusive
distributor of the Siebel products in Japan, Itochu Techno-Science Corporation
promotes and markets the Siebel software to Japanese end-user organizations. A
dedicated, full-time marketing team within Itochu Techno-Science Corporation
coordinates the marketing, promotion and distribution efforts for the Siebel
products. This marketing team promotes the Siebel products through marketing
programs including seminars, trade shows and conferences. In addition, Itochu
Techno-Science Corporation produces Japanese versions of Siebel sales tools and
collateral.
Itochu Techno-Science Corporation provides the installation, training,
technical support and maintenance to Siebel end-users. To promote customer
satisfaction in the Japanese market, Itochu provides technical support and
administers maintenance and software upgrade programs.
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Other Strategic Relationships
Microsoft Corporation
The Company and Microsoft have a strategic technology and marketing
relationship. As a member of the Microsoft Developer Network and Microsoft
Solution Provider programs, the Company receives frequent briefings on
Microsoft's strategic and technical product direction, as well as early access
to new software releases.
The Company uses Microsoft development tools extensively, including
Microsoft Visual C++, MFC, and OLE 2. The Siebel applications run under Windows
for Workgroups in 16-bit, and Windows 95 and Windows NT in a native 32-bit
environment. Microsoft has promoted Siebel's extensive use of its technology in
a Siebel Systems Solutions Datasheet, a Siebel Systems focus brochure, and has
featured the Siebel Sales Enterprise in multiple Microsoft product launches.
Siebel and Microsoft have collaborated in numerous joint marketing programs
targeted at Microsoft's key customers and prospects. The two companies have
conducted a nationwide series of Executive Sales Information Systems Briefings
and jointly participated with each other in trade shows and industry events.
Thomas Siebel joined others in the delivery of the keynote address at
WindowsWorld 95 in Atlanta to more than 5,000 conference attendees, and
demonstrated Siebel Sales Enterprise as a Windows 95-compliant client/server
application that takes advantage of the Microsoft application development and
enterprise software.
Adobe Systems, Inc.
Siebel Systems and Adobe have a joint technology and marketing
relationship. The Siebel Sales Enterprise utilizes Adobe Acrobat technology
which is designed to allow sales people to more quickly access sales information
and enable sales professionals to have immediate, on-line access to all of their
sales tools including annual reports, brochures, customer stories and
presentations.
The companies have jointly promoted the integrated solution through a
number of joint marketing programs, including collaboration in product
announcements, tradeshows and joint sales collateral.
In connection with the strategic relationship, Adobe Ventures L.P., a
venture partnership associated with Adobe, has made an equity investment in the
Company. See "Principal and Selling Stockholders."
Mobile and Hand-Held Computer Providers
Siebel Systems has relationships with Norand and Telxon Corporation,
leading providers of mobile hand-held devices used by field sales personnel.
Telxon and Norand's line of hand-held information workstations integrate
point-and-touch pen-based computing devices with barcode data capture and
wireless communications. Siebel's products will run on these hand-held devices
for use in industries such as consumer packaged goods where hand-held devices
enable sales representatives to implement more effective in-store promotions.
Siebel collaborates with Norand and Telxon in numerous marketing
activities, including joint trade shows and industry events, joint participation
in user groups, and targeted joint customer calls.
CUSTOMER SUPPORT AND TRAINING
The Company has implemented a multi-tiered strategy designed to provide
comprehensive customer support programs to ensure successful implementation and
customer satisfaction. This multi-tiered approach includes on-line support via
the Internet, toll-free telephone technical support and direct support from a
customer satisfaction team.
Through on-line support, a suite of Internet-based User Groups for specific
topics is available to Siebel customers. Internet support also includes a
knowledge repository to address customers' questions. The Company's Internet
service programs provide links to selective Siebel product
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documentation, technical notes and frequently asked questions (FAQs). Customers
can directly check the status of their technical support requests over the
Internet. Separately, a toll-free phone number provides customers with direct
access to technical service professionals.
Another facet of Siebel's customer support is provided by the customer
satisfaction team. Each Siebel customer is assigned a team which consists of a
sales representative, a technical account manager and an executive sponsor. The
goal of this team is to ensure the success and satisfaction of the customer by
facilitating open communications to quickly identify, analyze and solve
problems. Through a combination of regularly scheduled conference calls, on-site
visits, and project team planning meetings, Siebel personnel participate in
every phase of the customer implementation from planning to project management
to system test and organizational design. Customer satisfaction is tracked on an
account-by-account basis and reported weekly to the Company's executive
management. Customer satisfaction is also audited periodically by an
independent, objective third-party organization.
The Company and independent third-party training organizations offer a wide
range of training courses in the configuration, administration and use of the
Siebel products. Training is available at the Company's Learning Center or at
the customer site. Andersen Consulting also offers training services in
connection with implementation of Siebel Sales Enterprise.
DEVELOPMENT METHODOLOGY
The Company's success is dependent in part upon its ability to continually
release robust, reliable products with functionality that meets customers' needs
in a timely manner. To achieve this goal, the Company's software engineering
organization utilizes a number of advanced, proven methodologies in the
development of its products. The Company believes that it has developed a robust
product specification, development and quality assurance process which
facilitates the delivery of high quality, high performance production software
that has been demonstrated to meet both the product specification and the
customer expectations. The Company intends to continue to invest in development
to respond to customer requirements, extend its current product functionality,
and introduce new products.
Release Content Definition
Each product development cycle begins with a formal process of determining
the feature content of the upcoming release after extensive consultation with
customers and analysis of industry trends. The product marketing group produces
for the engineering group formal Marketing Requirements Documents and Feature
Specifications. All engineering development requires input from the product
marketing group. During the development process, the product marketing group
continues to test its decisions by reviewing early prototypes with customers and
third-party human factors experts, modifying specifications as appropriate.
Formalized Data Modeling
Recognizing the importance of building a sound data representation
foundation, the Company employs a formalized data modeling process which
consists of a dedicated group using data modeling CASE tools. The data modeling
process begins as soon as input is received from Product Marketing, before code
development begins, as the Company believes that the data modeling process is a
critical, central part of the development process.
Project Planning
After receiving input from the product marketing, the Company's development
methodology requires clear assignment and ownership of each development task, an
analysis of each task, a breakdown of each task into manageable subtasks, entry
of all tasks into centralized project tracking software and continual monitoring
of development progress against plan with load balancing as necessary.
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Development Tools
The Company utilizes advanced object-oriented development tools and
technologies in the development of its products, including Microsoft Visual C++
(to create 16-bit and native 32-bit Windows client software), Microsoft App
Studio, Microsoft Foundation Classes, Microsoft OLE 2 automation, Microsoft
Project, Pure Software Purify, Nu-Mega Bounds Checker, and Oracle Designer 2000
CASE tools.
Coding Standards
In order to ensure maintainability and readability of source code, all
Siebel engineers follow formal, written coding standards that cover coding style
issues such as naming conventions, indentation, common utilization of standard
utility functions and consistent use of operating system calls. In order to
minimize the effort involved in localizing the product to other languages,
formal, written coding standards are followed to help ensure that the base
product is built in a language-neutral way. This language-neutral approach has
been adopted so that as the product is localized (translated) into other
languages, the effort can be focused on the translation itself, rather that the
difficult and time consuming process of finding and correcting code constructs
which assume an English user interface. This approach aids in issues such as
alternate character sets, double-byte character encoding, sort order, multiple
currency support, and date/number formatting.
Source Code Control
Source code for every release (as well as for development in progress) is
formally checked into a central source code control system (Microsoft Source
Safe), which is regularly backed up. This system is designed to help ensure that
code is not lost, avoid confusion over identifying the latest version of a
software module, and help ensure that only one engineer is editing a piece of
code at any given time. All releases of software to customers are made through a
formal, repeatable build process on dedicated central machines.
Code Ownership
The Company employs a code "ownership" policy to ensure that every piece of
code in a product is assigned to a specific engineer. The Company believes this
contributes to efficient task distribution as well as to ensuring that all code
is reviewed and integrated.
Quality Assurance
The Quality Assurance department creates test plans for each of the product
features. These test plans, driven directly from the same Marketing Requirements
Documents used by Engineering to develop features, drive the testing efforts of
the Quality Assurance department. The test plans are designed to ensure a
repeatable, understandable and measurable method of testing the software. Also
included in the test suites are a number of methods to measure the performance
and scalability of the product. The Company has developed a set of Key
Performance Indicators (KPI's) which it believes are a collection of
representative user activities whose performance is key to ensuring customer
satisfaction. The quality assurance tests include timing each of these KPI's for
compliance with stated performance goals. These KPI's are generally run
simulating a single user on a small database as well as simulating multiple,
simultaneous users on a large database. A number of technologies are employed to
execute the test plans, including automated testing software, system load
simulation tools, and performance monitoring software.
Error Tracking
The Company maintains a central tracking system into which software errors
are entered and tracked. The system allows the status of such errors to be
maintained as they are routed through the organization to their eventual
resolution. Management reports can be generated on demand that indicate the rate
of error discovery, the rate of error correction, the areas of instability in
the product
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and the engineering work load. Enhancement requests, user misunderstandings and
customer requests are also entered into this system as well.
As of September 15, 1996, there were 44 employees on the Company's product
development staff. The Company's product development expenditures in 1994, 1995
and the first half of 1996 were $868,000, $2.8 million and $2.2 million,
respectively. The Company expects that it will continue to commit substantial
resources to product development in the future.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies primarily on a combination of patent, copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company also believes that
factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are essential to establishing and maintaining a
technology leadership position. The Company seeks to protect its software,
documentation and other written materials under patent, trade secret, and
copyright laws, which afford only limited protection. The Company currently has
two patent applications pending in the United States. There can be no assurance
that any patents issued to the Company will not subsequently be invalidated,
circumvented or challenged, that the rights granted thereunder will provide
competitive advantages to the Company or that any of the Company's pending or
future patent applications, whether or not being currently challenged by
applicable governmental patent examiners, will be issued with the scope of the
claims sought by the Company, if at all. Furthermore, there can be no assurance
that others will not develop technologies that are similar or superior to the
Company's technology or design around any patents owned by the Company. Despite
the Company's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's products is difficult, and while the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights as fully as do
the laws of the United States. There can be no assurance that the Company's
means of protecting its proprietary rights in the United States or abroad will
be adequate or that competition will not independently develop similar
technology. The Company has entered into agreements with substantially all of
its customers which require the Company to place Siebel Sales Enterprise source
code into escrow. Such agreements generally provide that such parties will have
a limited, non-exclusive right to use such code in the event that there is a
bankruptcy proceeding by or against the Company, if the Company ceases to do
business or if the Company fails to meet its support obligations. Entering into
such agreements may increase the likelihood of misappropriation by third
parties.
The Company is not aware that it is infringing any proprietary rights of
third parties. There can be no assurance, however, that third parties will not
claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Furthermore, there can be no assurance that former employers
of the Company's present and future employees will not assert claims that such
employees have improperly disclosed confidential or proprietary information to
the Company. Any such claims, with or without merit, could be time consuming to
defend, result in costly litigation, divert management's attention and
resources, cause product shipment delays or require the Company to pay money
damages or enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, if at all. In the event of a successful claim of product infringement
against the Company and failure or inability of the Company to license the
infringed or similar technology, the Company's business, operating results and
financial condition would be materially and adversely affected.
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The Company relies upon certain software that it licenses from third
parties, including software that is integrated with the Company's internally
developed software and used in Siebel Sales Enterprise to perform key functions.
There can be no assurance that these third-party software licenses will continue
to be available to the Company on commercially reasonable terms. The loss of, or
inability to maintain, any such software licenses could result in shipment
delays or reductions until equivalent software could be developed, identified,
licensed and integrated which could materially and adversely affect the
Company's business, operating results and financial condition.
COMPETITION
The market for the Company's products is intensely competitive, subject to
rapid change and significantly affected by new product introductions and other
market activities of industry participants. The Company's products are targeted
at the emerging market for sales and marketing information systems, and the
Company faces competition from customers' internal development efforts, custom
system integration products, as well as other application software providers
that offer a variety of products and services designed to address this market.
The Company believes that the market for global sales and marketing information
systems has historically not been well served by the application software
industry. The Company believes that most customer deployments have been the
result of large internal development projects, custom solutions from systems
integrators or the application of personal and departmental productivity tools
to the global enterprise.
Internal Development
The Company's major competition continues to come from its customers' and
potential customers' internal development efforts. Internal Information
Technology departments have staffed projects to build their own systems
utilizing a variety of tools. In some cases, such internal development projects
have been successful in satisfying the needs of an organization. However, since
software development, support and maintenance are not core competencies of these
organizations in some cases such projects are unsuccessful. The competitive
factors in this area require that the Company produce a product that conforms to
the customer's information technology standards, scales to meet the needs of
large enterprises, operates globally and costs less than the result of an
internal development effort.
Custom System Integration Projects
A second source of competition results from system integrators engaged to
build a custom development application. The introduction of a system integrator
typically increases the likelihood of success for the customer. However, this
approach can be expensive as compared to the purchase of third party products
and typically results in a product that has not been designed to be supported,
maintained and enhanced by a focused software development company. Maintenance
and support for the custom code can become burdensome in future years, with
enhancements and modifications being cost-prohibitive. The competitive factors
in this area require that the Company demonstrate to the customer the cost
savings and advantages of a configurable, upgradeable and commercially-supported
product developed by a dedicated professional software organization.
The Company relies on Andersen Consulting and other system consulting and
system integration firms for implementation and other customer support services,
as well as recommendations of its products during the evaluation stage of the
purchase process. Although the Company seeks to maintain close relationships
with these service providers, many of these third parties have similar, and
often more established, relationships with the Company's competitors. If the
Company is unable to develop and retain effective, long-term relationships with
Andersen Consulting or other such third parties, the Company's competitive
position would be materially and adversely effected. Further, there can be no
assurance that these third parties, many of which have significantly greater
resources than the Company, will not market software products in competition
with the Company in the future or will not otherwise reduce or discontinue their
relationships with or support of the Company and its products.
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Other Competitors
A large number of personal, departmental and other products exist in the
sales automation market. Companies (Products) such as Symantec (ACT!), Borealis
Corporation (Arsenal), Brock International (Brock Activity Manager), Early Cloud
& Co. (CallFlow), IMA (EDGE), Marketrieve Company (Marketrieve PLUS), Clarify
Inc. (ClearSales), Oracle Corporation (Oracle Sales Manager), SaleSoft
(PROCEED), Pivotal Software, Inc. (Relationship), SalesBook Systems (SalesBook),
SalesKit Software Corporation (SalesKit), Aurum (SalesTrak), Sales Technologies
(SNAP for Windows), and Saratoga Systems (SPS for Windows) and Vantive
Corporation (Vantive Sales) are among the many firms in this market segment.
Many of these competitors have longer operating histories, significantly greater
financial, technical, marketing and other resources, significantly greater name
recognition and a larger installed base of customers than the Company. In
addition, many competitors have well-established relationships with current and
potential customers of the Company. As a result, these competitors may be able
to respond more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale or their products, than can the Company. The Company believes it competes
favorably in this marketplace based on the following competitive advantages:
breadth and depth of functionality, configurable business objects, Internet and
intranet enablement, strategic alignments with industry leaders, support for the
global enterprise, scalability allowing support for large user communities and a
modern and enduring product architecture. In general, the Company has priced its
products at or above those of its competitors, which pricing the Company
believes is justified by the scope of functionality delivered and the
performance characteristics afforded by the Company's products.
It is also possible that new competitors or alliances among competitors may
emerge and rapidly acquire significant market share. The Company also expects
that competition will increase as a result of consolidation in the software
industry. Increased competition may result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely affect
the Company's business, operating results and financial condition. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially and adversely affect its business, operating results
and financial condition. See "Risk Factors -- Competition."
EMPLOYEES
As of September 15, 1996, the Company had a total of 154 employees, of
which 139 were based in the United States, one in Australia, one in France, two
in Germany, two in Japan, two in the Netherlands and seven in the United
Kingdom. Of the total, 69 were engaged in sales and marketing, 44 were in
product development, 26 were in customer support and 15 were in finance,
administration and operations. The Company's future performance depends in
significant part upon the continued service of its key technical, sales and
senior management personnel, particularly Thomas M. Siebel, the Company's
Chairman and Chief Executive Officer, none of whom is bound by an employment
agreement. The loss of the services of one or more of the Company's key
employees could have a material adverse effect on the Company's business,
operating results and financial condition. The Company's future success also
depends on its continuing ability to attract, train and retain highly qualified
technical, sales and managerial personnel. Competition for such personnel is
intense, and there can be no assurance that the Company can retain its key
technical, sales and managerial personnel in the future. None of the Company's
employees is represented by a labor union. The Company has not experienced any
work stoppages and considers its relations with its employees to be good. See
"Risk Factors -- Management of Growth; Dependence upon Key Personnel."
FACILITIES
The Company's principal administrative, sales, marketing, support and
research and development facilities are located in approximately 66,000 square
feet of space in San Mateo, California, pursuant to a lease which expires in
July 2006. The Company currently leases other domestic sales and support offices
in Colorado, Georgia, Illinois, Massachusetts, New York, Ohio, Texas, Virginia
and Washington.
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<PAGE> 52
The Company also maintains international offices in Australia, France, Germany,
Japan, the Netherlands and the United Kingdom.
LEGAL PROCEEDINGS
The Company employed Debra Christoffers as a sales person for approximately
ten months, ending in December 1995. On April 30, 1996, the Company received a
letter from counsel for Ms. Christoffers asserting various claims against the
Company relating to the termination of her employment and offering to settle
such claims for a specified sum. The Company responded with a letter stating
that such claims were baseless and without merit. On June 10, 1996, while the
Company was in registration with the Securities and Exchange Commission in
connection with its initial public offering, Ms. Christoffers filed a complaint
for wrongful termination against the Company and Thomas Siebel, in the Superior
Court of California, County of San Mateo. The complaint alleges tortious and
contractual causes of action and seeks compensatory damages in excess of $1
million, punitive damages of an unspecified amount, unpaid wages and penalties
in the amount of approximately $9,000, unpaid commissions in an amount exceeding
$500,000, costs of suit and reasonable attorney's fees. The Company and Mr.
Siebel have responded to the complaint and the parties are currently in
discovery. The Company and Mr. Siebel strongly believe that the allegations in
the complaint are baseless and without merit and intend to vigorously defend the
action and pursue all applicable counterclaims. There can be no assurance,
however, as to the outcome of such litigation or that such outcome will not have
an adverse effect on the Company's operations or financial condition.
The Company employed Terence Lenaghan as Vice President Finance and
Administration of the Company for approximately five weeks, ending in March
1996. On June 5, 1996, while the Company was in registration with the Securities
and Exchange Commission in connection with its initial public offering, the
Company received a letter from counsel representing Mr. Lenaghan raising claims
against the Company and Mr. Siebel relating to the termination of Mr. Lenaghan's
employment and offering to settle such claims upon the receipt of $300,000 and
140,000 shares of the Company's Common Stock. The Company strongly believes that
the claims raised by Mr. Lenaghan are baseless and without merit. The Company
and Mr. Siebel intend to vigorously defend any action that Mr. Lenaghan may
bring and to pursue all applicable claims against Mr. Lenaghan. No
communications regarding the threatened action have been received from Mr.
Lenaghan or his counsel since July 1, 1996. There can be no assurance, however,
that legal action will not be commenced or that the outcome of any such action
will not have an adverse effect on the Company's operations or financial
condition.
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<PAGE> 53
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
September 15, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Thomas M. Siebel.................. 43 Chairman, Chief Executive Officer and President
Patricia A. House................. 42 Executive Vice President and Chief Operating Officer
Justin R. Dooley.................. 32 Vice President Finance and Administration
Ronald M. McElhaney, Ph.D. ....... 53 Vice President and Chief Technical Officer
Kevin A. Johnson.................. 41 Vice President Legal Affairs
Craig D. Ramsey................... 50 Senior Vice President Worldwide Operations
William B. Edwards................ 41 Vice President Engineering
Bruce A. Cleveland................ 37 Vice President Marketing
James C. Gaither(1)............... 59 Director and Secretary
Eric E. Schmidt, Ph.D. ........... 41 Director
Charles R. Schwab(1).............. 59 Director
George T. Shaheen(2).............. 52 Director
A. Michael Spence, Ph.D.(2)....... 52 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
THOMAS M. SIEBEL has served as Chairman, Chief Executive Officer, and
President of the Company since its inception in July 1993. From July 1991 until
December 1992, he served as Chief Executive Officer of Gain Technology, a
multimedia software company which merged with Sybase in December 1992. Mr.
Siebel served as President and Chief Operating Officer of Gain Technology from
May 1991 to July 1991. From January 1984 until September 1990, Mr. Siebel worked
at Oracle Corporation where he held a number of executive management positions
including Vice President Product Line Marketing, Group Vice President Industry
Marketing, Group Vice President and General Manager Direct Marketing Division,
and most recently Group Vice President Oracle USA. Mr. Siebel is a graduate of
the University of Illinois at Urbana-Champaign from which he holds a B.A. in
History, an M.B.A. and an M.S. in Computer Science.
PATRICIA A. HOUSE has been with the Company since its inception in July
1993. From February 1996 to the present, she has served as the Company's
Executive Vice President and Chief Operating Officer, and from July 1993 to
February 1996, she served as Senior Vice President of Marketing. From September
1989 to June 1993, Ms. House served in various senior management positions
including Executive Vice President of Frame Technology Corporation, a document
authoring software company. Ms. House received a B.A. in Education from Western
Michigan University.
JUSTIN R. DOOLEY has served as the Company's Vice President Finance and
Administration since March 1996. From October 1995 to March 1996, Mr. Dooley
served as Vice President Quality Programs at Siebel Systems. From May 1993 to
September 1995, Mr. Dooley served as Vice President and General Manager of the
Hayward Division of Davis Wire Corporation. From October 1989 to August 1991, he
served as Operating Department Manager, Tin Coating and Manager of the Acid
Regeneration Unit for USS/POSCO, a joint venture between US Steel and Pohang
Iron and Steel. Mr. Dooley received a B.S. in Chemical Engineering from the
University of Illinois at Urbana-Champaign and an M.B.A. from the Graduate
School of Business at Stanford University.
RONALD M. MCELHANEY, PH.D. has served as the Company's Vice President and
Chief Technical Officer since February 1996. From July 1995 to November 1995,
Dr. McElhaney served as Vice
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<PAGE> 54
President/General Manager of the Multimedia Business Unit for Asymetrix
Corporation, a multimedia software company. From July 1993 to September 1994,
Dr. McElhaney was Vice President/General Manager for the Advanced Products Group
for Computervision Corporation, a CAD/CAM/CAE software company. Dr. McElhaney
served from February 1990 to July 1992 as Vice President Core Technology at
PRIME Computer. From September 1988 to September 1989 Dr. McElhaney served as
Vice President, Engineering at Autodesk, a multimedia and design software
development company. Dr. McElhaney received a B.S. in Physics from San Jose
State University and a Ph.D. in Theoretical Physics from the University of
Hawaii.
KEVIN A. JOHNSON has served as the Company's Vice President Legal Affairs
since November 1995. From August 1993 to October 1995, Mr. Johnson served as
Assistant General Counsel to Gupta Corporation, a client/server software
company. From March 1989 to July 1993, Mr. Johnson served as Vice President,
Corporate Affairs, General Counsel and Assistant Secretary of NETG, a multimedia
training company. Mr. Johnson received a B.S. in Business Management from the
University of California at Davis and a J.D. from Santa Clara Law School.
CRAIG D. RAMSEY has served as the Company's Senior Vice President Worldwide
Operations since March 1996. From March 1994 to March 1996, Mr. Ramsey served as
Senior Vice President of Worldwide Sales, Marketing and Support for nCUBE, a
leader in distribution of digitized media. From February 1986 to March 1994, Mr.
Ramsey was employed by Oracle Corporation and held a variety of executive
positions, including Vice President of U.S. Commercial Sales and Vice President
of OEM Strategic Accounts. Mr. Ramsey received a B.A. in Economics from Denison
University.
WILLIAM B. EDWARDS has served as the Company's Vice President Engineering
since March 1994. From June 1993 to March 1994, Mr. Edwards served as Director
of Graphical Authoring Systems at Macromedia, Inc., a multimedia software
development company. From July 1989 to June 1993, Mr. Edwards served as Senior
Vice President, Engineering, Research and Development of Frame Technology, a
document authoring software company. Mr. Edwards received a B.S. in Computer
Science from Louisiana State University and an M.S. in Computer Science from
Rutgers University.
BRUCE A. CLEVELAND has served as the Company's Vice President Marketing
since May 1996. From January 1992 to April 1996, Mr. Cleveland served as a
Senior Director in the Object Technologies Business Unit at Apple Computer, a
computer company. From April 1990 to January 1992, Mr. Cleveland served as a
Vice President of Siren Software Corporation, a systems software company. From
August 1985 through April 1989, Mr. Cleveland was Senior Director, Unix Product
Line Division at Oracle Corporation, a relational database company. Mr.
Cleveland received a B.S. in Business Administration from California State
University at Sacramento.
JAMES C. GAITHER has served as a Director of the Company and its Secretary
since February 1994. From 1971 to the present, Mr. Gaither has been a Partner of
the law firm of Cooley Godward LLP and was the managing partner of the firm from
1984 to 1990. Prior to beginning his law practice with the firm, he served in a
variety of positions, including law clerk to The Honorable Earl Warren, Chief
Justice of the United States; Special Assistant to the Assistant Attorney
General in the U.S. Department of Justice; and Staff Assistant to the President
of the United States, Lyndon Johnson. Mr. Gaither is the former president of the
Board of Trustees at Stanford University and is a member of the Board of
Trustees of the Carnegie Endowment for International Peace, RAND, The William
and Flora Hewlett Foundation and The James Irvine Foundation. Mr. Gaither is
currently a Director of Amylin Pharmaceuticals, Inc., Basic American, Inc. and
Levi Strauss & Company. Mr. Gaither received a B.A. in Economics from Princeton
University and a J.D. from Stanford University.
ERIC E. SCHMIDT, PH.D. has served as a Director of the Company since May
1996. From 1994 to the present, Dr. Schmidt has been the Chief Technical Officer
of Sun Microsystems, Inc., a producer of workstations, servers, and computer
software. From 1983 to 1994, Dr. Schmidt held various other positions at Sun
Microsystems, Inc., including President, Sun Technology Enterprises; Vice
President, General Systems Group; and Vice President and General Manager,
Software Products division. Dr. Schmidt is currently a Director of Geoworks, a
developer of application software for consumer
52
<PAGE> 55
computing devices. Dr. Schmidt received a B.S. in Electrical Engineering from
Princeton University, an M.S. in Electrical Engineering and a Ph.D. in Computer
Science from the University of California at Berkeley.
CHARLES R. SCHWAB has served as a Director of the Company since October
1994. From 1987 to the present, he has been the Chairman and Chief Executive
Officer of The Charles Schwab Corporation, a discount brokerage firm founded in
1971 by Mr. Schwab. Mr. Schwab also serves as a director of The Gap, Inc.,
Transamerica Corporation and AirTouch Communications. Mr. Schwab is a member of
the Board of Trustees of Stanford University and a member of the Board of
Directors of the National Park Foundation. Mr. Schwab received a B.A. in
Economics from Stanford University, and an M.B.A. from the Graduate School of
Business at Stanford University.
GEORGE T. SHAHEEN has served as a Director of the Company since October
1995. From 1989 to the present, Mr. Shaheen has been the Managing Partner of
Andersen Consulting. Mr. Shaheen has been a partner at Andersen Consulting since
1977 and he held various other positions at Andersen Consulting from 1967 to
1977. Mr. Shaheen is on the Board of Trustees at Bradley University and is a
member of the Board of Advisors for the Northwestern University J.L. Kellogg
Graduate School of Business. Mr. Shaheen received a B.S. in Marketing and an
M.B.A. from Bradley University.
A. MICHAEL SPENCE, PH.D. has served as a Director of the Company since
October 1995. From 1990 to the present, Dr. Spence has served as Dean of the
Graduate School of Business at Stanford University. From 1984 to 1990, Dr.
Spence served as Dean of Faculty of Arts and Sciences at Harvard University. Dr.
Spence also serves as a director of BankAmerica Corporation, General Mills,
Inc., Nike, Inc., Sun Microsystems, Inc. and Verifone, Inc. Dr. Spence received
a B.A. in Philosophy from Princeton University, a B.A. and an M.A. in
Mathematics from Oxford University, and a Ph.D. in Economics from Harvard
University.
The Company currently has authorized seven directors. The Company's
Certificate of Incorporation provides, among other things, for a classified
Board of Directors. In accordance with the terms of such Certificate of
Incorporation the terms of office of the Board of Directors will be divided into
three classes: Class I will expire at the annual meeting of stockholders to be
held in 1997; Class II will expire at the annual meeting of stockholders to be
held in 1998; and Class III will expire at the annual meeting of stockholders to
be held in 1999. At each annual meeting of stockholders beginning with the 1997
annual meeting, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election and until their successors have been duly
elected and qualified.
COMMITTEES
The Audit Committee consists of A. Michael Spence, Ph.D. and George T.
Shaheen. The Audit Committee makes recommendations to the Board of Directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by the Company's independent auditors
and reviews and evaluates the Company's audit and control functions.
The Compensation Committee consists of James C. Gaither and Charles R.
Schwab. The Compensation Committee makes recommendations regarding the Company's
Equity Incentive Plan and the Purchase Plan and makes decisions concerning
salaries and incentive compensation for employees and consultants of the
Company.
DIRECTORS' COMPENSATION
The Company's directors do not currently receive any cash compensation for
service on the Board or any committee thereof, but directors may be reimbursed
for certain expenses in connection with attendance at Board and committee
meetings. In May 1996, Dr. Schmidt received an option to purchase 110,000 shares
of the Company's Common Stock at an exercise price per share of $11.50; in April
1996, Dr. Spence and Messrs. Gaither, Shaheen and Schwab each received an option
to purchase
53
<PAGE> 56
22,000 shares of the Company's Common Stock at an exercise price per share of
$6.50; in April 1996, Mr. Siebel received an option to purchase 1,000,000 shares
of the Company's Common Stock at an exercise price per share of $5.50; in
February 1996, Mr. Shaheen received an option to purchase 88,000 shares of the
Company's Common Stock at an exercise price per share of $1.75; in October 1995,
Dr. Spence received an option to purchase 88,000 shares of the Company's Common
Stock at an exercise price per share of $0.50; and, in January 1995, Mr. Schwab
received an option to purchase 90,000 shares of the Company's Common Stock at an
exercise price per share of $.05 per share. Each such grant was made pursuant to
the Equity Incentive Plan.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the three other most highly compensated executive
officers (collectively, the "Named Executive Officers") whose salary and bonus
for the fiscal year ended December 31, 1995 were in excess of $100,000 for
services rendered in all capacities to the Company for that fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
ANNUAL AWARDS
COMPENSATION ---------------------
------------------ SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS COMPENSATION($)(1)
- ------------------------------------------ ------- ------ --------------------- ------------------
<S> <C> <C> <C> <C>
Thomas M. Siebel.......................... 180,000 50,000 -- --
Chairman and Chief Executive Officer
Patricia A. House......................... 120,000 30,000 -- --
Executive Vice President and Chief
Operating
Officer
William B. Edwards........................ 100,833 20,000 -- --
Vice President Engineering
Daniel A. Turano(2)....................... 39,000 -- 180,000 71,196
Vice President Worldwide Sales
</TABLE>
- ---------------
(1) Includes commissions in the amount of $71,196 accrued in fiscal 1995 but
paid in fiscal 1996.
(2) In March 1996, Craig Ramsey joined the Company as Senior Vice President
Worldwide Operations. Since March 1996, Mr. Turano has served as Vice
President Eastern Americas.
EQUITY INCENTIVE PLANS
1996 Equity Incentive Plan. The Company's 1996 Equity Incentive Plan (the
"Equity Incentive Plan") is an amendment and restatement of the Company's 1994
Stock Option Plan and 1996 Supplemental Stock Option Plan. The Company has
reserved a total of 6,000,000 shares of Common Stock for issuance under the
Equity Incentive Plan. The Equity Incentive Plan provides for grants of
incentive stock options to employees (including officers and employee directors)
and nonstatutory stock options, restricted stock purchase awards, stock bonuses
and stock appreciation rights to employees (including officers and employee
directors), directors and consultants of the Company. The Equity Incentive Plan
is presently administered by the Board of Directors, which determines recipients
and types of awards to be granted and the terms of such grants, including the
exercise price, number of shares subject to the award and the exercisability
thereof.
The term of a stock option granted under the Equity Incentive Plan
generally may not exceed 10 years (5 years in the case of an incentive stock
option granted to a holder of more than 10% of the Company's capital stock). The
exercise price of options granted under the Equity Incentive Plan is determined
by the Board of Directors, but, in the case of an incentive stock option, cannot
be less than 100% of the fair market value of the Common Stock on the date of
grant or, in the case of holders of more than 10% of the Company's voting stock,
not less than 110% of the fair market value of the Common Stock on the date of
grant. Options granted under the Equity Incentive Plan to new employees and
consultants generally vest at the rate of 20% of the shares subject to option on
the first annual anniversary of the date of hire and 5% of such shares at the
end of each quarter thereafter. No
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<PAGE> 57
option may be transferred by the optionee other than by will or the laws of
descent or distribution or, in certain limited instances, pursuant to a
qualified domestic relations order. An optionee whose relationship with the
Company or any related corporation ceases for any reason (other than by death or
permanent and total disability) generally may exercise options in the three
month period following such cessation (unless such options terminate or expire
sooner by their terms) or in such longer period as may be determined by the
Board of Directors.
Shares subject to options which have lapsed or terminated may again be
subject to options granted under the Equity Incentive Plan. Furthermore, the
Board of Directors may offer to exchange new options for existing options, with
the shares subject to the existing options again becoming available for grant
under the Equity Incentive Plan. In the event of a decline in the value of the
Company's Common Stock, the Board of Directors has the authority to offer
optionees the opportunity to replace outstanding higher priced options with new
lower price options. Upon any merger or consolidation in which the Company is
not the surviving corporation, all outstanding awards under the Equity Incentive
Plan shall either be assumed or substituted by the surviving entity. If the
surviving entity determines not to assume or substitute such awards, the time
during which such awards may be exercised shall be accelerated and the awards
terminated if not exercised prior to the merger or consolidation.
Restricted stock purchase awards granted under the Equity Incentive Plan
may be granted pursuant to a repurchase option in favor of the Company in
accordance with a service vesting schedule determined by the Board. The purchase
price of such awards will be at least 85% of the fair market value of the Common
Stock on the date of grant. Stock bonuses may be awarded in consideration for
past services without a purchase payment. Stock appreciation rights authorized
for issuance under the Incentive Plan may be tandem stock appreciation rights,
concurrent stock appreciation rights or independent stock appreciation rights.
As of September 15, 1996, 866,210 shares of Common Stock have been issued
upon the exercise of options granted under the Equity Incentive Plan, options to
purchase 4,203,450 shares of Common Stock at a weighted average exercise price
of $4.95 per share were outstanding and 930,340 shares remained available for
future option grants. The Equity Incentive Plan will terminate in May 2006,
unless terminated sooner by the Board of Directors. See Notes 4 and 7 of Notes
to Financial Statements.
Employee Stock Purchase Plan. In May 1996, the Board adopted the Employee
Stock Purchase Plan (the "Purchase Plan") covering an aggregate of 350,000
shares of Common Stock. The Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Internal Revenue
Code. Under the Purchase Plan, the Board of Directors may authorize
participation by eligible employees, including officers, in periodic offerings
following the adoption of the Purchase Plan. The offering period for any
offering may be no more than 27 months. The initial offering period commenced on
June 27, 1996, the effective date of the Company's initial public offering, and
will terminate on June 30, 1998.
Employees are eligible to participate if they are employed by the Company,
or an affiliate of the Company designated by the Board of Directors, for at
least 20 hours per week and are employed by the Company or a subsidiary of the
Company designated by the Board for at least five months per calendar year.
Employees who participate in an offering can have up to 15% of their earnings
withheld pursuant to the Purchase Plan. The amount withheld will then be used to
purchase shares of the Common Stock on specified dates determined by the Board
of Directors. The price of Common Stock purchased under the Purchase Plan will
be equal to 85% of the lower of the fair market value of the Common Stock on the
commencement date of each offering period or the specified purchase date.
Employees may end their participation in the offering at any time during the
offering period. Participation ends automatically on termination of employment
with the Company.
In the event of a merger, reorganization, consolidation or liquidation to
involving the Company in which the Company is not a surviving corporation, the
Board of Directors has discretion to provide that each right to purchase Common
Stock will be assumed or an equivalent right substituted by the
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<PAGE> 58
successor corporation, or the Board may shorten the offering period and provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Purchase Plan will
terminate at the Board's direction. The Board has the authority to amend or
terminate the Purchase Plan, subject to the limitation that no such action may
adversely affect any outstanding rights to purchase Common Stock. See Note 7 of
Notes to Financial Statements.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
fiscal year ended December 31, 1995 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF
PERCENTAGE STOCK PRICE
NUMBER OF OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS OPTION TERM
UNDERLYING GRANTED IN EXERCISE MARKET ($)(5)
OPTIONS FISCAL PRICE PRICE EXPIRATION ---------------------------------
NAME(1) GRANTED(2) 1995(3) ($/SH) ($/SH)(4) DATE 0% 5% 10%
- ------------------------------- ----------- --------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas M. Siebel..... -- -- -- -- -- -- --
Patricia A. House.... -- -- -- -- -- -- --
William B. Edwards... -- -- -- -- -- -- --
Daniel A. Turano..... 180,000 13.5% 0.50 17.00 10/02/2005 2,970,000 4,894,418 7,846,852
</TABLE>
- ---------------
(1) Since the end of fiscal 1995, the Company has granted options to Ms. House
and Messrs. Siebel and Edwards. The grants were for the following number
shares and at the following exercise prices: Ms. House received options to
purchase an aggregate of 100,000 shares at an exercise price of $2.90 per
share in March 1996 and 100,000 shares at an exercise price of $5.50 in
April 1996, Mr. Siebel received an option to purchase 1,000,000 shares at an
exercise price of $5.50 per share in April 1996 and Mr. Edwards received an
option to purchase 50,000 shares at an exercise price of $5.50 per share in
April 1996.
(2) Options generally become exercisable at a rate of 20% on the first
anniversary of the vesting commencement date and 5% each quarter thereafter
and have a term of 10 years. Options may be exercised prior to vesting,
subject to the Company's right to repurchase in the event service is
terminated.
(3) Based on an aggregate of 1,331,885 shares subject to options granted to
employees of the Company in the fiscal year ended December 31, 1995,
including the Named Executive Officers.
(4) Based on the initial public offering price of $17.00 per share.
(5) The potential realizable value is calculated based on the term of the option
at the time of grant (10 years). Stock price appreciation of 0%, 5% and 10%
is assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent the Company's prediction of its stock
price performance. The potential realizable value is calculated by assuming
that the initial public offering price of $17.00 per share appreciates at
the indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price.
AGGREGATED OPTIONS EXERCISED IN 1995 AND YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options during
the year ended December 31, 1995 and the number and value of securities
underlying unexercised options held by the Named Executive Officers at December
31, 1995:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1995(#) DECEMBER 31, 1995($)(2)
ON VALUE ------------------------------ ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE(1) EXERCISABLE UNEXERCISABLE
- ------------------------- ----------- ----------- ----------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel A. Turano......... -- -- 180,000 0 2,970,000 0
</TABLE>
- ---------------
(1) Options are immediately exercisable; however, the shares purchasable under
such options are subject to repurchase by the Company at the original
exercise price paid per share upon the optionee's cessation of service prior
to the vesting of such shares.
(2) Based on the difference between the initial public offering price of $17.00
per share and the exercise price.
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<PAGE> 59
401(K) PLAN
In October 1995, the Board adopted an employee savings and retirement plan
(the "401(k) Plan") covering certain of the Company's employees who have at
least one month of service with the Company and have attained the age of 21.
Pursuant to the 401(k) Plan, eligible employees may elect to reduce their
current compensation by up to the lesser of 20% of such compensation or the
statutorily prescribed annual limit ($9,500 in 1996) and have the amount of such
reduction contributed to the 401(k) Plan. The Company may make contributions to
the 401(k) Plan on behalf of eligible employees. Employees become 20% vested in
these Company contributions after one year of service, and increase their vested
percentages by an additional 20% for each year of service thereafter. The 401(k)
Plan is intended to qualify under Section 401 of the Internal Revenue Code of
1986, as amended, so that contributions by employees or by the Company to the
401(k) Plan, and income earned on the 401(k) Plan contributions, are not taxable
to employees until withdrawn from the 401(k) Plan, and so that contributions by
the Company, if any, will be deductible by the Company when made. The trustee
under the 401(k) Plan, at the direction of each participant, invests the 401(k)
Plan employee salary deferrals in selected investment options. The Company made
no contributions to the 401(k) Plan in 1995, or in the first quarter of fiscal
1996. The Company does not presently expect to make any contributions to the
401(k) Plan during fiscal 1996.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person it is
required or permitted to indemnify. Pursuant to this provision, the Company has
entered into indemnity agreements with each of its directors and executive
officers.
In addition, the Company's Certificate of Incorporation provides that, to
the fullest extent permitted by Delaware law, the Company's directors will not
be liable for monetary damages for breach of the directors' fiduciary duty of
care to the Company and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for any transaction from
which the director derived an improper personal benefit, for improper
transactions between the director and the Company and for improper distributions
to stockholders and loans to directors and officers. This provision also does
not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.
Other than the matters discussed under "Business -- Legal Proceedings,"
there is no pending litigation or proceeding involving a director or officer of
the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
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<PAGE> 60
CERTAIN TRANSACTIONS
In September 1993, Siebel Systems, L.P., a California limited partnership
(the "Partnership") was formed and Siebel Systems, Inc., a California
corporation and the predecessor of the Company, became the general partner of
the Partnership. In September 1993, Mr. Siebel purchased an aggregate of 50,000
shares of Common Stock of the Company for an aggregate consideration of $50,000.
In January 1995, all limited partners of the Partnership voluntarily exchanged
their limited partnership units on a one-for-one basis for an aggregate of
8,080,683 shares of Common Stock and 2,344,500 shares of Series A Preferred
Stock (the "Series A Stock") of the Company. In connection with the exchange,
the Company issued (i) 6,250,000 shares of Common Stock and 280,000 shares of
Series A Stock to Thomas M. Siebel, an officer, director and principal
stockholder of the Company, (ii) 600,000 shares of Common Stock to Patricia A.
House, an officer of the Company, (iii) 295,000 shares of Common Stock to
William B. Edwards, an officer of the Company, (iv) 50,000 shares of Common
Stock and 740,000 shares of Series A Stock to Pehong Chen, a former director and
a principal stockholder of the Company, (v) 88,000 shares of Common Stock to
James C. Gaither, a director of the Company and (vi) 310,000 shares of Series A
Stock to Charles R. Schwab, a director of the Company. Mr. Siebel, Ms. House,
Mr. Edwards, Dr. Chen, Mr. Gaither, and Mr. Schwab purchased their partnership
units for an aggregate consideration of $602,500, $6,000, $14,750, $802,500,
$4,400, and $387,500, respectively.
In March and July 1995, the Company issued 1,900,000 shares of Series B
Preferred Stock (the "Series B Stock") for an aggregate consideration
$4,560,000. In connection with such financing, the Company issued 1,250,000
shares of Series B Stock to Andersen Consulting LLP, a principal stockholder of
the Company. In April 1996, the Company issued 90,000 shares of Series D
Preferred Stock (the "Series D Stock") for an aggregate consideration of
$900,000. In connection with such financing, the Company issued 50,000 shares of
Series D Stock to Andersen Consulting LLP, 20,000 shares of Series D Stock to
Charles R. Schwab and 20,000 shares of Series D Stock to Pehong Chen. The
Company and Andersen Consulting LLP have entered into a Master Alliance
Agreement, dated March 17, 1995, and a Software License and Services Agreement,
dated January 1, 1995. See "Business -- Global Strategic Alignment." George T.
Shaheen, the Managing Partner of Andersen Consulting, is a director of the
Company.
In September 1995, the Company and Thomas M. Siebel entered into an
assignment agreement pursuant to which Mr. Siebel assigned certain rights and
the Company assumed certain obligations under a publishing agreement between Mr.
Siebel, Michael S. Malone and Simon & Schuster, Inc., dated December 13, 1994,
relating to the publication of the book entitled Virtual Selling, Going Beyond
the Automated Sales Force to Achieve Total Sales Quality.
In May 1996, Craig D. Ramsey, an officer of the Company, exercised an
option to purchase 160,000 shares of Common Stock and paid the exercise price by
issuing a promissory note to the Company in the amount of $464,000. The note is
secured by the shares of Common Stock issued upon exercise. The note accrues
interest at the rate of 7% per annum and is due in May 2000.
James C. Gaither, a director of the Company, is a partner of Cooley Godward
LLP, which has provided legal services to the Company since its inception.
The Company and Charles Schwab & Co., Inc. have entered into a Software
License and Services Agreement pursuant to which Charles Schwab & Co., Inc. made
payments to the Company of approximately $1,836,000 in fiscal 1995 in connection
with the license of Siebel Sales Enterprise. Charles R. Schwab, a director of
the Company, is the founder, Chairman and Chief Executive Officer of The Charles
Schwab Corporation, the parent of Charles Schwab & Co, Inc. Such transaction was
negotiated on an arms-length basis between the parties, with the agreement to
purchase the Company's products entered into in December 1995, subsequent to the
acquisition by Mr. Schwab of Series A Stock in January 1995 and his appointment
to the Company's Board of Directors in October 1994.
The Company believes that the foregoing transactions were on terms no less
favorable to the Company than could be obtained from unaffiliated third parties.
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<PAGE> 61
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's outstanding Common Stock as of September
15, 1996, and as adjusted to reflect the sale of the Common Stock being offered
hereby by (i) each person (or group of affiliated persons) who is known by the
Company to own beneficially more than 5% of the Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Executive Officers, (iv) all
directors and executive officers of the Company as a group, and (v) each of the
Selling Stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) NUMBER OF OFFERING(1)(2)
PRINCIPAL STOCKHOLDERS, DIRECTORS ------------------------ SHARES ----------------------
AND OFFICERS NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- --------------------------------- ---------- --------- ------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Thomas M. Siebel(3).............. 6,530,000 40.9% 174,523 6,355,477 38.0%
1855 S. Grant St.
San Mateo, CA 94402
Andersen Consulting LLP(4)....... 1,388,000 8.6 -- 1,388,000 8.2
1661 Page Mill Road
Palo Alto, CA 94304
Pehong Chen and Adele Chi,
Trustees of the Chen Family
Trust(5)....................... 810,000 5.1 -- 810,000 4.8
333 Distel Circle
Los Altos, CA 94022
Patricia A. House(6)............. 532,000 3.3 8,726 523,274 3.1
William B. Edwards(7)............ 284,783 1.8 26,178 258,605 1.5
Daniel A. Turano(8).............. 190,000 1.2 -- 190,000 1.1
James C. Gaither(9).............. 116,000 * -- 116,000 *
Eric E. Schmidt, Ph.D. .......... 11,000 * -- 11,000 *
A. Michael Spence, Ph.D.(10)..... 88,000 * -- 88,000 *
George T. Shaheen(11)............ 1,389,070 8.6 -- 1,389,070 8.2
Charles R. Schwab(12)............ 414,000 2.6 -- 414,000 2.5
All directors and executive
officers as a group (13
persons)(13)................... 9,849,853 60.1 209,427 9,650,426 56.3
OTHER SELLING STOCKHOLDERS
Adobe Ventures L.P.(14).......... 588,488 3.7 294,244 294,244 1.7
Albert G. Battle................. 33,331 * 2,618 30,713 *
Michael J. Corley and Lori B.
Corley, Trustees of the Corley
Living Trust dated November 13,
1990........................... 80,000 * 4,363 75,637 *
John Dawson...................... 80,000 * 8,726 71,274 *
Irwin Federman Trust............. 41,667 * 17,452 24,215 *
Andrew J. Filipowski............. 10,417 * 9,090 1,327 *
Mark D. Hanson................... 90,000 * 34,905 55,095 *
Itochu Corporation(15)........... 250,859 1.6 68,824 182,035 1.1
LSI Logic Corporation............ 65,000 * 56,720 8,280 *
Igor M. Sill..................... 59,788 * 34,905 24,883 *
Richard E. Steiny and Lisa
Steiny, Trustees of the Steiny
1993 Trust dated May 18,
1993........................... 40,000 * 8,726 31,274 *
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
Percentage of beneficial ownership is based on 15,985,220 shares of Common
Stock
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<PAGE> 62
outstanding as of September 15, 1996 and 16,735,220 shares of Common Stock
outstanding after completion of this offering.
(2) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to an aggregate of 225,000 shares of Common Stock from the Company and
the Selling Stockholders. If the Underwriters' over-allotment option is
exercised in full, 145,756 shares will be sold by Adobe Ventures, 12,711
shares will be sold by the Company and the remaining shares will be sold by
the other Selling Stockholders on a pro rata basis based on the number of
shares being sold by each such Selling Stockholder in this offering.
(3) Includes 120,000 shares held by Mr. Siebel's minor children, for which Mr.
Siebel has sole voting power.
(4) Mr. Shaheen, a director of the Company, is the Managing Partner of Andersen
Consulting. Mr. Shaheen disclaims beneficial ownership of such shares held
by Andersen Consulting LLP except to the extent of his partnership interest
therein. Also includes 88,000 shares issuable to Mr. Shaheen upon exercise
of options subject to vesting through February 2001.
(5) Includes 50,000 shares which are subject to a right of repurchase in favor
of the Company which expires ratably through March 1998.
(6) Includes 400,000 shares which are subject to a right of repurchase in favor
of the Company which expires ratably through February 1998.
(7) Includes 240,000 shares which are subject to a right of repurchase in favor
of the Company which expires ratably through March 1998.
(8) Includes 180,000 shares issuable upon exercise of options subject to
vesting through March 2001.
(9) Includes 28,000 shares held by GC&H Investments. Mr. Gaither, a partner of
GC&H Investments, disclaims beneficial ownership of such shares, except to
the extent of his partnership interest therein. Also includes 88,000 shares
which are subject to a right of repurchase in favor of the Company which
expires ratably through March 1998.
(10) Includes 88,000 shares which are subject to a right of repurchase in favor
of the Company which expires ratably through October 2000.
(11) Includes 1,300,000 shares held by Andersen Consulting LLP. Mr. Shaheen, the
Managing Partner of Andersen Consulting, disclaims beneficial ownership of
such shares, except to the extent of his pecuniary interest therein. Also
includes 88,000 shares issuable upon exercise of options subject to vesting
through February 2001 and 1,070 shares held by the Shaheen Revocable Trust.
(12) Includes 90,000 shares which are subject to a right of repurchase in favor
of the Company which expires ratably through October 1999. Also includes
4,000 shares held by Mr. Schwab's children.
(13) Includes 1,300,000 shares held by Andersen Consulting LLP. See footnote (4)
above. Also includes 393,000 shares issuable upon exercise of options held
by all officers and directors subject to vesting on various dates through
March 2002. See footnotes (8) and (11).
(14) Adobe Ventures L.P. is a venture fund managed by Hambrecht & Quist LLC
which is one of the Underwriters. See "Underwriting."
(15) Includes 120,275 shares held by Itochu Techno-Science Corporation and
34,364 shares held by Itochu Technology, Inc., affiliates of Itochu
Corporation. 31,414 of the shares are being offered by Itochu Techno-
Science Corporation, 31,414 of the shares are being offered by Itochu
Corporation and 5,996 of the shares are being offered by Itochu Technology,
Inc.
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<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares
of Common Stock, $.001 par value and 2,000,000 shares of Preferred Stock, $.001
par value. As of September 12, 1996 there were approximately 131 holders of
record of the Company's Common Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
Common Stock are not entitled to cumulative voting rights with respect to the
election of directors, and as a consequence, minority stockholders will not be
able to elect directors on the basis of their votes alone. Subject to
preferences that may be applicable to any then outstanding shares of Preferred
Stock, holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of the Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding Preferred Stock. Holders of Common Stock have
no preemptive rights and no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and all shares of
Common Stock to be outstanding upon completion of this offering will be, fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 2,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of Preferred Stock could adversely
affect the voting power of holders of Common Stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plan to issue any shares of Preferred Stock.
REGISTRATION RIGHTS
After this offering, the holders of 10,331,994 shares of Common Stock will
be entitled to certain rights with respect to the registration of such shares
under the Securities Act, pursuant to the Restated Investor Rights Agreement
among such holders and the Company, dated December 1, 1995, as amended through
June 14, 1996 (the "Investor Rights Agreement"). Under the terms of the Investor
Rights Agreement, if the Company proposes to register any of its securities
under the Securities Act, either for its own account or for the account of other
security holders exercising registration rights, such holders are entitled to
notice of such registration and are entitled, subject to certain limitations, to
include shares therein. The holders may also require the Company to file a
registration statement under the Securities Act with respect to their shares,
and the Company is required to use its best efforts to effect two such
registrations. Furthermore, the holders may require the Company to register
their shares on Form S-3 when such form becomes available to the Company.
Generally, the Company is required to bear all registration and selling expenses
incurred in connection with any such registrations. These rights are subject to
certain conditions and limitations, among them the right of the underwriters of
an offering to limit the number of shares included in such registration. Such
registration rights terminate five years from the date of this offering.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of
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<PAGE> 64
Section 203, a "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder, and
an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
The Company's Certificate of Incorporation also requires that (a) any
action required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of the stockholders and may
not be effected by a consent in writing and (b) the stockholders may amend the
Company's Bylaws or adopt new Bylaws, only by the affirmative vote of 2/3 of the
outstanding voting securities. In addition, special meetings of the stockholders
of the Company may be called only by the Board of Directors, the Chairman of the
Board or the Chief Executive Officer. These provisions may have the effect of
delaying, deferring or preventing a change in control of the Company.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services L.L.C. is the transfer agent and registrar
for the Company's Common Stock. Its telephone number is (415) 954-9512.
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<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could adversely affect market prices prevailing from time to time. Furthermore,
since only a limited number of shares will be available for sale shortly after
this offering because of certain contractual and legal restrictions on resale
described below, sales of substantial amounts of Common Stock of the Company in
the public market after the restrictions lapse could adversely affect the
prevailing market price and the ability of the Company to raise equity capital
in the future.
Upon completion of the offering, the Company will have outstanding an
aggregate of 16,735,220 shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options and
based upon the number of shares outstanding as of September 15, 1996. In
addition to the 1,500,000 shares sold in this offering, 2,257,450 of such shares
(which were sold in the Company's initial public offering) are freely tradable
without restriction or further registration under the Securities Act, unless
such shares are purchased by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act ("Affiliates"), except that 117,647
shares of Common Stock held by The Dow Chemical Company (the "Dow Shares") are
subject to an agreement not to sell any of such shares until December 24, 1996
without the consent of Hambrecht & Quist LLC. The remaining 12,977,770 shares of
Common Stock held by existing stockholders are "restricted securities" as that
term is defined in Rule 144 under the Securities Act (the "Restricted Shares").
Restricted Shares may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act. As a result of the contractual
restrictions described below and the provisions of Rules 144 and 701, additional
shares will be available for sale in the public market as follows: (i) no
Restricted Shares will be eligible for immediate sale on the date of this
Prospectus; (ii) 311,760 Restricted Shares (plus an aggregate of 328,522 shares
of Common Stock representing the Dow Shares and shares issuable to employees and
consultants pursuant to stock options that are then vested) will be eligible for
sale upon expiration of the lock-up agreements on December 24, 1996; (iii)
10,144,609 Restricted Shares will be eligible for sale beginning on January 3,
1997 (7,693,356 shares of which are held by Affiliates); and (iv) the remainder
of the Restricted Shares will be eligible for sale from time to time thereafter
upon expiration of their respective two-year holding periods, subject in each
case to the restrictions on such sales by Affiliates and certain vesting
provisions on certain units. See "Certain Transactions."
Upon completion of this offering, the holders of 10,331,994 shares of
Common Stock, or their transferees, will be entitled to certain rights with
respect to the registration of such shares under the Securities Act.
Registration of such shares under the Securities Act would result in such shares
becoming freely tradeable without restriction under the Securities Act (except
for shares purchased by Affiliates) immediately upon the effectiveness of such
registration. See "Description of Capital Stock -- Registration Rights."
The Company and its officers, directors and certain stockholders holding an
aggregate of approximately 12,614,663 shares of Common Stock have agreed in
connection with the Company's initial public offering that they will not,
without the prior written consent of Hambrecht & Quist LLC, directly or
indirectly, offer, sell, contract to sell, transfer the economic risk of
ownership in, make any short sale, pledge or otherwise dispose of any shares of
Common Stock or any securities convertible into or exchangeable or exercisable
for or any other right to purchase or acquire shares of Common Stock owned by
them until December 24, 1996. The Dow Chemical Company entered into a similar
agreement with respect to the Dow Shares.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an Affiliate of the Company, or person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of (i) one percent of the then
outstanding shares of the Company's Common Stock or (ii) the average weekly
trading volume of the Company's Common Stock in the Nasdaq National Market
during the four calendar weeks immediately preceding
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<PAGE> 66
the date on which notice of the sale is filed with the Securities and Exchange
Commission. Sales pursuant to Rule 144 are subject to certain requirements
relating to manner of sale, notice and availability of current public
information about the Company. A person (or person whose shares are aggregated)
who is not deemed to have been an Affiliate of the Company at any time during
the 90 days immediately preceding the sale and who has beneficially owned
Restricted Shares for at least three years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
The Securities and Exchange Commission has proposed revisions to Rule 144,
the effect of which would be to shorten the holding periods under Rule 144 from
two years to one year and to shorten the holding period under Rule 144(k) from
three years to two years. If enacted, these proposed revisions would increase
substantially the number of shares that would be available for sale in the
public market beginning on December 24, 1996.
An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract prior to the Company's initial public
offering is entitled to rely on the resale provisions of Rule 701 under the
Securities Act, which permits Affiliates and non-Affiliates to sell their Rule
701 shares without having to comply with Rule 144's holding period restrictions.
In addition, non-Affiliates may sell Rule 701 shares without complying with the
public information, volume and notice provisions of Rule 144.
The Company has filed a registration statement under the Securities Act
covering 5,483,790 shares of Common Stock reserved for issuance under the
Company's Equity Incentive Plan and Purchase Plan. Shares registered under such
registration statement are, subject to Rule 144 volume limitations applicable to
Affiliates, available for sale in the open market, unless such shares are
subject to vesting restrictions with the Company or the lock-up agreements
described above. See "Management."
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<PAGE> 67
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, have severally agreed to purchase from the Company and
the Selling Stockholders the following respective number of shares of Common
Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
------------------------------------------------------------------------ ---------
<S> <C>
Hambrecht & Quist LLC...................................................
Montgomery Securities...................................................
Robertson, Stephens & Company LLC.......................................
--------
Total......................................................... 1,500,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligations is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After the
public offering of the shares, the offering price and other selling terms may be
changed by the Underwriters.
The Company and the Selling Stockholders have granted to the Underwriters
an option, exercisable no later than 30 days after the date of this Prospectus,
to purchase up to an aggregate of 225,000 additional shares of Common Stock at
the public offering price, less the underwriting discount, set forth on the
cover page of this Prospectus. To the extent that the Underwriters exercise this
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof which the number of shares of Common
Stock to be purchased by it shown in the above table bears to the total number
of shares of Common Stock offered hereby. The Company will be obligated,
pursuant to the option, to sell shares to the Underwriters to the extent the
option is exercised. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of shares of Common Stock
offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The Selling Stockholders, and certain other stockholders of the Company,
including the officers and directors, who will own in the aggregate
approximately 12,614,663 shares of Common Stock after this offering, have agreed
in connection with the Company's initial public offering that they will not,
without the prior written consent of Hambrecht & Quist LLC ("H&Q"), offer, sell,
or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock owned by them until December 24, 1996. The Company
has agreed in connection with the Company's initial public offering, subject to
certain exceptions, that it will not, without the prior written consent of H&Q,
offer, sell or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock until December 24, 1996.
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<PAGE> 68
The Underwriters have informed the Company that they will not confirm sales
of Common Stock offered hereby to any accounts over which they exercise
discretionary authority.
Adobe Ventures L.P., a venture capital fund managed by H&Q and one of the
Selling Stockholders ("Adobe Ventures"), Hambrecht & Quist L.P., an affiliate of
H&Q, and certain employees and directors of H&Q and of entities affiliated with
H&Q owned approximately 4.5% of the Common Stock outstanding prior to the
offering made hereby. Adobe Ventures, which may be deemed to be an affiliate of
H&Q, one of the Underwriters and a member of the National Association of
Securities Dealers, Inc., (the "NASD"), owns an aggregate of 294,288 shares of
Common Stock which will be included in the offering being made hereby (440,000
shares if the Underwriters' over-allotment option is exercised in full). As a
result, a portion of the proceeds of the offering being made hereby will be paid
to an affiliate of a member of the NASD. Accordingly, subsection (c)(8) of Rule
2710 of the Conduct Rules of the NASD requires that the public offering price be
no higher than that recommended by a "qualified independent underwriter." In
accordance with such requirements, Robertson, Stephens & Company LLC will serve
as such a "qualified independent underwriter" for purposes of determining the
public offering price of the Common Stock. In connection with its
responsibilities as a "qualified independent underwriter," Robertson, Stephens &
Company LLC will exercise its usual standards of "due diligence" and will
participate in the preparation of any amendments to the Registration Statement
relating to the Common Stock. The price of the Common Stock will be no higher
than the price recommended by Robertson, Stephens & Company LLC.
Hambrecht & Quist LLC, Montgomery Securities and Robertson, Stephens &
Company LLC were the representatives of the several underwriters in the
Company's initial public offering of 2,257,450 shares of Common Stock in June
1996, for which they received customary underwriting discounts and commissions.
The Company and Montgomery Securities have entered into a Software License and
Services Agreement dated March 29, 1996, pursuant to which Montgomery Securities
received a license to use Siebel Sales Enterprise. The terms of such agreement
were negotiated by the parties at arms-length prior to the Company's selection
of Montgomery Securities as an underwriter of the Company's initial public
offering.
In connection with this offering, certain Underwriters and selling group
members (if any) who are qualifying registered market makers on Nasdaq may
engage in passive market making transactions in the Common Stock on the Nasdaq
Stock Market in accordance with Rule 10b-6A under the Exchange Act, during the
two business day period before commencement of sales in this offering. The
passive market making transactions must comply with applicable price and volume
limits and be identified as such. In general, a passive market maker may display
its bid at a price not in excess of the highest independent bid for the
security. If all independent bids are lowered below the passive market maker's
bid, however, such bid must then be lowered when certain purchase limits are
exceeded. Net purchases by a passive market maker on each day are generally
limited to a specified percentage of the passive market maker's average daily
trading volume in the Common Stock during a prior period and must be
discontinued when such limit is reached. Passive market making may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.
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<PAGE> 69
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Cooley Godward LLP, Menlo
Park, California ("Cooley Godward"). As of the date of this Prospectus, certain
members and associates of Cooley Godward own an aggregate of 46,453 shares of
Common Stock, including 28,000 shares owned through an investment partnership,
and James C. Gaither, a director and the Secretary of the Company and a partner
of Cooley Godward, owns 88,000 shares of Common Stock and has an option to
purchase 22,000 shares of Common Stock. Eric C. Jensen, a partner of Cooley
Godward, is an Assistant Secretary of the Company. Certain legal matters will be
passed upon for the Underwriters by Morrison & Foerster LLP, Palo Alto,
California.
EXPERTS
The financial statements of Siebel Systems, Inc. as of December 31, 1994
and 1995, for the period from September 13, 1993 (inception) to December 31,
1993, and for each of the years in the two-year period ended December 31, 1995
have been included in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facility maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621. Copies of such material can be obtained in person at
prescribed rates from the Public Reference Section of the Commission at its
principal office located at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Common Stock of the Company is quoted on the Nasdaq National Market. Reports and
other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc. located at 1735 K Street, N.W.,
Washington, D.C. 20006.
This Prospectus, which constitutes a part of a Registration Statement on
Form S-1 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"), omits certain of the
information set forth in the Registration Statement in accordance with the rules
and regulations of the Commission. Reference is hereby made to the Registration
Statement and to the exhibits thereto for further information with respect to
the Company and the securities offered hereby. Copies of the Registration
Statement and the exhibits thereto are on file at the offices of the Commission
and may be obtained upon payment of the prescribed fee or may be examined
without charge at the public reference facilities of the Commission described
above.
67
<PAGE> 70
SIEBEL SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors................................. F-2
Balance Sheets........................................................................ F-3
Statements of Operations.............................................................. F-4
Statements of Stockholders' Equity.................................................... F-5
Statements of Cash Flows.............................................................. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 71
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Siebel Systems, Inc.:
We have audited the accompanying balance sheets of Siebel Systems, Inc. as
of December 31, 1994 and 1995, and the related statements of operations,
stockholders' equity, and cash flows for the period from September 13, 1993
(inception) to December 31, 1993, and for the years ended December 31, 1994 and
1995. 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 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Siebel Systems, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the period from September 13, 1993 (inception) to December 31, 1993, and for
the years ended December 31, 1994 and 1995, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
San Jose, California
April 26, 1996, except as
to Note 7, which is as
of July 3, 1996
F-2
<PAGE> 72
SIEBEL SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
----------------- -------------------
1994 1995 ACTUAL PRO
------ ------ ------ FORMA
--------
(NOTE 7)
<S> <C> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................ $1,017 11,391 13,870 45,858
Accounts receivable.................................. -- 3,066 6,951 6,951
Deferred income taxes................................ -- 314 314 314
Prepaids and other................................... 29 440 721 721
------ ------ ----- ------
Total current assets......................... 1,046 15,211 21,856 53,844
Property and equipment, net............................ 133 863 2,510 2,510
Other assets........................................... 24 17 356 356
------ ------ ----- ------
Total assets................................. $1,203 16,091 24,722 56,710
====== ====== ===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 14 493 773 773
Accrued expenses..................................... -- 1,075 2,932 2,932
Income taxes payable................................. -- 395 333 333
Deferred revenue..................................... -- 4,166 8,024 8,024
------ ------ ----- ------
Total current liabilities.................... 14 6,129 12,062 12,062
Deferred income taxes.................................. -- 28 28 28
------ ------ ----- ------
Total liabilities............................ 14 6,157 12,090 12,090
Commitments and contingencies
Stockholders' equity:
Partners' capital.................................... 1,153 -- -- --
Convertible preferred stock; $.001 par value;
actual -- 10,000 shares authorized, no shares
issued and outstanding in 1994, 4,906 and 5,104
shares issued and outstanding in 1995 and 1996,
respectively; pro forma -- 2,000 shares
authorized, no shares issued and outstanding...... -- 5 5 --
Common stock; $.001 par value; actual -- 35,000
shares authorized, 50, 8,249, and 8,787 shares
issued and outstanding in 1994, 1995, and 1996,
respectively; pro forma -- 40,000 shares
authorized, 15,985 shares issued and
outstanding....................................... 1 8 9 16
Additional paid-in capital........................... 49 9,999 13,135 45,121
Notes receivable from stockholders................... (13) (13) (520) (520)
Deferred compensation................................ -- (381) (1,212) (1,212)
Retained earnings (accumulated deficit).............. (1) 316 1,215 1,215
------ ------ ----- ------
Total stockholders' equity................... 1,189 9,934 12,632 44,620
------ ------ ----- ------
Total liabilities and stockholders' equity... $1,203 16,091 24,722 56,710
====== ====== ===== ======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 73
SIEBEL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 13, 1993 YEAR ENDED SIX MONTHS
(INCEPTION) DECEMBER 31, ENDED JUNE 30,
TO DECEMBER 31, ----------------- ----------------
1993 1994 1995 1995 1996
------------------ ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software................................. $ -- 50 7,636 1,186 11,138
Maintenance and other.................... -- -- 402 128 1,117
----- ------- ------ ------- -------
Total revenues................... -- 50 8,038 1,314 12,255
Cost of revenues:
Software................................. -- -- 41 4 36
Maintenance and other.................... -- -- 385 56 766
----- ------- ------ ------- -------
Total cost of revenues........... -- -- 426 60 802
----- ------- ------ ------- -------
Gross margin..................... -- 50 7,612 1,254 11,453
Operating expenses:
Product development...................... 64 868 2,816 1,237 2,150
Sales and marketing...................... 28 718 3,232 862 6,606
General and administrative............... 22 243 1,192 338 1,428
----- ------- ------ ------- -------
Total operating expenses......... 114 1,829 7,240 2,437 10,184
----- ------- ------ ------- -------
Operating income (loss).......... (114) (1,779) 372 (1,183) 1,269
Other income, net.......................... -- 13 156 53 229
----- ------- ------ ------- -------
Income (loss) before income
taxes.......................... (114) (1,766) 528 (1,130) 1,498
Income tax expense (benefit)............... -- -- 211 (452) 599
----- ------- ------ ------- -------
Net income (loss)................ $ (114) (1,766) 317 (678) 899
===== ======= ====== ======= =======
Pro forma net income (loss) per share...... $ .02 (.04) .05
====== ======= =======
Shares used in pro forma net income (loss)
per share computation.................... 16,340 15,379 16,955
====== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 74
SIEBEL SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED EARNINGS TOTAL
PARTNERS' --------------- --------------- PAID-IN FROM STOCK (ACCUMULATED STOCKHOLDERS'
CAPITAL SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT) EQUITY
-------- ------ ------ ------ ------ ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Partners'
initial
capital
contribution... $ 810 -- $ -- -- $-- -- -- -- -- 810
Issuance
of common
stock.... -- -- -- 50 1 49 -- -- -- 50
Net
loss..... (114 ) -- -- -- -- -- -- -- -- (114)
--
------- ----- ------ ----- --- --- ----- --- ------
Balances,
December
31,
1993..... 696 -- -- 50 1 49 -- -- -- 746
Partners'
capital
contributions... 2,222 -- -- -- -- -- (13) -- -- 2,209
Net
loss..... (1,765 ) -- -- -- -- -- -- -- (1) (1,766)
--
------- ----- ------ ----- --- --- ----- --- ------
Balances,
December
31,
1994..... 1,153 -- -- 50 1 49 (13) -- (1) 1,189
Conversion
of
partners'
capital... (1,153 ) 2,344 2 8,081 7 1,144 -- -- -- --
Compensation
related to
stock
options... -- -- -- -- -- 381 -- (381) -- --
Issuance
of common
stock.... -- -- -- 328 -- 83 -- -- -- 83
Repurchase
of common
stock.... -- -- -- (210 ) -- (9) -- -- -- (9)
Issuance
of Series
B
preferred
stock.... -- 1,967 2 -- -- 4,892 -- -- -- 4,894
Issuance
of Series
C
preferred
stock.... -- 595 1 -- -- 3,459 -- -- -- 3,460
Net
income... -- -- -- -- -- -- -- -- 317 317
--
------- ----- ------ ----- --- --- ----- --- ------
Balances,
December
31,
1995..... -- 4,906 5 8,249 8 9,999 (13) (381) 316 9,934
Issuance
of common
stock
(unaudited)... -- -- -- 538 1 665 (507) -- -- 159
Issuance
of Series
B
preferred
stock
(unaudited)... -- 33 -- -- -- 195 -- -- -- 195
Exercise
of
warrant
for
Series C
preferred
stock
(unaudited)... -- 75 -- -- -- 437 -- -- -- 437
Issuance
of Series
D
preferred
stock
(unaudited)... -- 90 -- -- -- 900 -- -- -- 900
Compensation
related to
stock
options
(unaudited)... -- -- -- -- -- 939 -- (939) -- --
Amortization
of deferred
stock
compensation
(unaudited)... -- -- -- -- -- -- -- 108 -- 108
Net income
(unaudited)... -- -- -- -- -- -- -- -- 899 899
--
------- ----- ------ ----- --- --- ----- --- ------
Balances,
June 30,
1996
(unaudited)... $ -- 5,104 $ 5 8,787 $9 13,135 (520) (1,212) 1,215 12,632
======= ===== ====== ===== == === === ===== === ======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 75
SIEBEL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 13, 1993 YEAR ENDED SIX MONTHS
(INCEPTION) DECEMBER 31, ENDED JUNE 30,
TO DECEMBER 31, ----------------- ----------------
1993 1994 1995 1995 1996
------------------ ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ (114) (1,766) 317 (678) 899
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Compensation related to stock options.......... -- -- -- -- 108
Depreciation and amortization.................. 6 75 142 66 346
Deferred income taxes.......................... -- -- (286) -- --
Loss on disposal of property and equipment..... -- -- -- -- 40
Changes in operating assets and liabilities:
Accounts receivable.......................... -- -- (3,066) (463) (3,885)
Prepaids and other........................... (6) (23) (411) (604) (281)
Other assets................................. (9) (15) 7 -- (339)
Accounts payable............................. 4 10 479 65 280
Accrued expenses............................. -- -- 1,075 162 1,857
Income taxes payable......................... -- -- 395 -- (62)
Deferred revenue............................. -- -- 4,166 785 3,858
----- ------- ------- ------ -------
Net cash provided by (used in) operating
activities.............................. (119) (1,719) 2,818 (667) 2,821
----- ------- ------- ------ -------
Cash used in investing activities -- purchases of
property and equipment............................ (38) (176) (872) (182) (2,033)
----- ------- ------- ------ -------
Cash flows from financing activities:
Partners' capital contributions................... 810 2,209 -- -- --
Proceeds from issuance of common stock............ 50 -- 83 2 159
Repurchases of common stock....................... -- -- (9) (7) --
Proceeds from issuance of preferred stock......... -- -- 8,354 4,480 1,532
----- ------- ------- ------ -------
Net cash provided by financing
activities.............................. 860 2,209 8,428 4,475 1,691
----- ------- ------- ------ -------
Change in cash and cash equivalents................. 703 314 10,374 3,626 2,479
Cash and cash equivalents, beginning of period...... -- 703 1,017 1,017 11,391
----- ------- ------- ------ -------
Cash and cash equivalents, end of period............ $ 703 1,017 11,391 4,643 13,870
===== ======= ======= ====== =======
Supplemental disclosures of cash flows information:
Cash paid:
Taxes.......................................... $ -- -- 100 -- 612
===== ======= ======= ====== =======
Noncash investing and financing activities:
Conversion of partnership units into common
stock and Series A preferred stock........... $ -- -- 1,153 1,153 --
===== ======= ======= ====== =======
Exercise of common stock options in exchange
for stockholder notes receivable............. $ -- -- -- 12 507
===== ======= ======= ====== =======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 76
SIEBEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994, AND 1995
(1) SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Siebel Systems, Inc. (the "Company") is a provider of enterprise-class
sales and marketing information software systems. The Company designs, develops,
markets, and supports Siebel Sales Enterprise, an Internet-enabled, object
oriented client/server application software product family designed to meet the
sales and marketing information system requirements of large multi-national
organizations.
The Company was incorporated in the state of California on September 13,
1993 and elected to be treated as an S corporation effective on that date. Its
principal activity prior to January 1995 was serving as the general partner of
Siebel Systems, L.P. (the Partnership), a limited partnership. Accordingly, the
financial statements for the period from September 13, 1993 (inception) to
December 31, 1993, and as of and for the year ended December 31, 1994, reflect
the combined financial position and operating results of the Company and the
Partnership. The Company terminated its S corporation election on January 1,
1995. On January 3, 1995, under provisions of the Partnership agreement, all
partners elected to dissolve the Partnership and convert their partnership units
into common stock and preferred stock of the Company.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with Statement of Position No.
91-1, Software Revenue Recognition. Software license revenue is recognized when
all of the following criteria have been met: there is an executed license
agreement, software has been shipped to the customer, no significant vendor
obligations remain, and collection is deemed probable. Maintenance and other
revenues consist primarily of maintenance and are recognized ratably over the
term of the maintenance contract, typically 12 to 36 months.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents. Cash equivalents are
classified as "available-for-sale," and are carried at fair value with any
unrealized gains or losses reported as a separate component of stockholders'
equity. Gross unrealized gains and losses to date have not been material.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a
straight-line basis over their estimated useful lives, generally three to seven
years.
F-7
<PAGE> 77
SIEBEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, (CONTINUED)
CAPITALIZED SOFTWARE
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility in the form of a working model has been
established. To date, the Company's software development has been completed
concurrent with the establishment of technological feasibility, and,
accordingly, no costs have been capitalized.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled.
PRO FORMA NET INCOME (LOSS) PER SHARE
Pro forma net income (loss) per share is computed using net income (loss)
and is based on the weighted average number of shares of common stock
outstanding, convertible preferred stock, on an "as if converted" basis, using
the conversion ratio in effect at the initial public offering date, and dilutive
common equivalent shares from stock options and warrants outstanding using the
treasury stock method. In accordance with certain Securities and Exchange
Commission (SEC) Staff Accounting Bulletins, such computations include all
common and common equivalent shares issued within 12 months of the offering date
as if they were outstanding for all periods presented using the treasury stock
method and the anticipated initial public offering price.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 will be effective for fiscal years beginning after
December 15, 1995, and will require that the Company either recognize in its
financial statements costs related to its employee stock-based compensation
plans, such as stock option and stock purchase plans, or make pro forma
disclosures of such costs in a footnote to the financial statements.
The Company expects to continue to use the intrinsic value-based method of
Accounting Principles Board Opinion No. 25, as allowed under SFAS No. 123, to
account for all of its employee stock-based compensation plans. Therefore, in
its financial statements for fiscal 1996, the Company will make the required pro
forma disclosures in a footnote to the financial statements. SFAS No. 123 is not
expected to have a material effect on the Company's results of operations or
financial position.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk principally consist of trade accounts receivable.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral on accounts receivable, as the majority of the
Company's customers are large, well established companies. The Company maintains
reserves for potential credit losses, but historically has not experienced any
significant losses related to individual customers or groups of customers in any
particular industry or geographic area.
F-8
<PAGE> 78
SIEBEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, (CONTINUED)
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of June 30, 1996, and
for the six months ended June 30, 1995 and 1996, have been prepared on
substantially the same basis as the audited financial statements, and in the
opinion of management include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
information set forth therein.
(2) FINANCIAL STATEMENT DETAILS
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1994 1995 1996
----- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment.................................... $183 666 1,900
Furniture and fixtures................................ 31 46 113
Computer software..................................... -- 374 1,047
---- --- -----
214 1,086 3,060
Less accumulated depreciation......................... 81 223 550
---- --- -----
$133 863 2,510
==== === =====
</TABLE>
ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1994 1995 1996
---- ------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Bonuses................................................ $-- 133 570
Commissions............................................ -- 152 755
Vacation............................................... -- 79 180
Sales tax.............................................. -- 486 461
Accrued marketing...................................... -- 16 365
Other.................................................. -- 209 601
--- ----- ---
$-- 1,075 2,932
=== ===== ===
</TABLE>
OTHER INCOME, NET
Other income, net consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1994 1995 1996
---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C>
Interest income......................................... $15 163 275
Interest expense........................................ (2 ) (7 ) (6)
Loss on disposal of property and equipment.............. -- -- (40)
--- --- ---
$13 156 229
=== === ===
</TABLE>
F-9
<PAGE> 79
SIEBEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, (CONTINUED)
(3) COMMITMENTS AND CONTINGENCIES
BANK BORROWINGS
In October 1995, the Company entered into a $500,000 equipment line of
credit with a bank. Borrowings under the agreement bear interest at the bank's
prime rate plus 1% (9.75% as of December 31, 1995). In October 1995, the Company
borrowed $231,000 on the line of credit, which was subsequently repaid in
December 1995. The line of credit expired on April 15, 1996.
LEASE OBLIGATIONS
As of December 31, 1995, the Company leased facilities under noncancelable
leases expiring between 1996 and 2001. Future minimum lease payments are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
--------------------------------------------------------------------
<S> <C>
1996................................................................ $ 383
1997................................................................ 228
1998................................................................ 157
1999................................................................ 157
2000................................................................ 157
Thereafter.......................................................... 26
------
$ 1,108
======
</TABLE>
Rent expense for the period from September 13, 1993 (inception) to December
31, 1993, and for the years ended December 31, 1994 and 1995, was $18,000,
$86,000, and $191,000, respectively.
EMPLOYEE BENEFIT PLAN
During 1995, the Company adopted a 401(k) plan that allows eligible
employees to contribute up to 20% of their compensation, limited to $9,500 in
1995. Employee contributions and earnings thereon vest immediately. Although,
the Company may make discretionary contributions to the 401(k) plan, none have
been made to date.
LEGAL ACTIONS
The Company is engaged in certain legal actions arising in the ordinary
course of business. The Company believes it has adequate legal defenses and
believes that the ultimate outcome of these actions will not have a material
effect on the Company's financial position or results of operations.
(4) STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The rights, preferences, and privileges of the Series A, B, and C
convertible preferred stock are as follows:
- Each share of Series A, B, and C preferred stock may be converted into
common stock at the option of the holder on a one-for-one basis.
Automatic conversion will occur upon an affirmative vote of a majority of
the holders of preferred stock or upon the closing of an initial public
offering of common stock in which the per share price is at least $7.00,
and gross proceeds to the Company are at least $7,500,000. The conversion
rate is subject to certain antidilution provisions.
F-10
<PAGE> 80
SIEBEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, (CONTINUED)
- Holders of preferred stock are entitled to noncumulative annual
dividends, when and if declared by the Board of Directors, of $.08, $.19,
and $.47 per share for Series A, B, and C, respectively.
- Holders of Series A, B, and C preferred stock have the right to one vote
for each share of common stock into which such shares could be converted.
- Holders of Series A, B, and C preferred stock have a liquidation
preference of $1.00, $2.40, and $5.82 per share, respectively, plus all
declared but unpaid dividends.
In January 1995, the Company issued 2,344,000 shares of Series A preferred
stock in exchange for the Partnership's Class C and D partnership units, on a
one-for-one basis.
Convertible preferred stock issued and outstanding as of December 31, 1995,
is as follows (in thousands):
<TABLE>
<CAPTION>
ISSUED AND CARRYING LIQUIDATION
SERIES AUTHORIZED OUTSTANDING AMOUNT PREFERENCE
------------------------------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
A.............................. 2,400 2,344 $1,139 $ 2,344
B.............................. 2,500 1,967 4,894 4,721
C.............................. 601 595 3,460 3,463
----- ----- ------ -------
5,501 4,906 $9,493 $10,528
===== ===== ====== =======
</TABLE>
In December 1995, the Company issued to a customer a warrant to purchase
75,000 shares of Series C preferred stock at $5.82 per share. The warrant had
nominal value on the date of issuance. The warrant expires upon the earlier of
December 15, 1996, or the closing of an initial public offering of the Company's
common stock (see Note 7).
COMMON STOCK
In January 1995, the Company issued 8,081,000 shares of common stock in
exchange for the Partnership's Class A and B partnership units, on a one-for-one
basis.
During 1995, the Company repurchased approximately 210,000 shares of common
stock from employees who had terminated employment with the Company. These
repurchases were at each employee's original purchase price.
1994 STOCK OPTION PLAN
In December 1994, the Board of Directors approved the 1994 Stock Option
Plan (the Plan) which provides for the issuance of up to 3,000,000 shares of
common stock to employees, directors, and consultants. The Plan provides for the
issuance of incentive and nonstatutory stock options.
Under the Plan, the exercise price for incentive options is at least 100%
of the fair market value on the date of the grant. The exercise price for
nonstatutory stock options is at least 85% of the fair market value on the date
of grant. The exercise price for incentive stock options is at least 110% of the
fair market value on the date of the grant for persons with greater than 10% of
the voting power of all classes of stock.
Under the Plan, options generally expire in 10 years; however, incentive
stock options may expire in 5 years if the optionee owns stock representing more
than 10% of the voting power of all classes of stock. Vesting periods are
determined by the Board of Directors and generally provide for shares to vest
ratably over 5 years.
F-11
<PAGE> 81
SIEBEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, (CONTINUED)
Plan activity is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS
AVAILABLE NUMBER EXERCISE PRICE
FOR GRANT OF SHARES PER SHARE
---------- --------- --------------
<S> <C> <C> <C>
Authorized........................................ 3,000,000 -- $ --
Options granted................................... (92,000) 92,000 .05 -- .10
---------- ----------
Balances, December 31, 1994......................... 2,908,000 92,000 .05 -- .10
Options granted................................... (1,440,785) 1,440,785 .10 -- .50
Options exercised................................. -- (328,285) .10 -- .50
Options canceled.................................. 245,500 (245,500) .10 -- .50
---------- ----------
Balances, December 31, 1995......................... 1,712,715 959,000 .05 -- .50
Additional shares authorized (unaudited).......... 3,000,000 -- --
Options granted (unaudited)....................... (3,964,250) 3,964,250 1.75 -- 17.00
Options exercised (unaudited)..................... -- (537,925) .05 -- 2.90
Options canceled (unaudited)...................... 84,875 (84,875) .10 -- 2.90
---------- ----------
Balances, June 30, 1996 (unaudited)................. 833,340 4,300,450 .10 -- 17.00
========== ==========
</TABLE>
As of December 31, 1995, 41,900 options were vested.
The Plan also allows for the exercise of otherwise unvested options, which
are subject to repurchase by the Company, at a rate equivalent to the current
vesting schedule of each option. As of December 31, 1995, 252,500 unvested
options had been exercised which were subject to repurchase.
During the period from October 1995 through April 1996, the Company granted
options to purchase an aggregate of 4,076,250 shares of common stock at exercise
prices ranging from $.50 to $6.50 per share. Based in part on an independent
appraisal obtained by the Company's Board of Directors, and other factors, the
Company recorded $381,000 of deferred compensation expense in 1995 and an
additional $939,000 deferred compensation expense (unaudited) for the six months
ended June 30, 1996 relating to these options. These amounts are being amortized
over the vesting period of the individual options, generally five years.
(5) INCOME TAXES
As discussed in Note 1, the Company was an S corporation and the general
partner in the Partnership prior to January 3, 1995. For tax purposes, losses
incurred through December 31, 1994 were allocated to the Partners in accordance
with the Partnership loss sharing agreement. The portion of losses allocated to
the Company as general partner was passed through to its stockholder. Therefore,
the Company is not entitled to any net operating loss carryforwards from periods
prior to January 1995. The S corporation election was terminated on January 1,
1995. Accordingly, income tax expense has been provided only for operations
during the year ended December 31, 1995.
F-12
<PAGE> 82
SIEBEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, (CONTINUED)
The components of income tax expense for the year ended December 31, 1995
are as follows (in thousands):
<TABLE>
<S> <C>
Current:
Federal........................................................... $ 289
State............................................................. 108
Foreign........................................................... 100
-----
Total current............................................. 497
Deferred:
Federal........................................................... (228)
State............................................................. (58)
-----
Total deferred............................................ (286)
-----
Total income taxes........................................ $ 211
=====
</TABLE>
The difference between the "expected" income tax expense computed at the
federal statutory rate of 34% and the Company's actual income tax expense for
the year ended December 31, 1995, is as follows (in thousands):
<TABLE>
<S> <C>
Expected income tax expense......................................... $ 180
State income taxes, net of federal tax benefit...................... 33
Other, net.......................................................... (2)
----
Total income taxes........................................ $ 211
====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of December 31, 1995, are as
follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Deferred state taxes.............................................. $ 17
Accruals and reserves, not currently taken for tax purposes....... 297
----
Net deferred assets............................................ 314
Deferred tax liability:
Depreciation...................................................... (28)
----
Net deferred liability......................................... (28)
----
Net deferred assets............................................ $ 286
====
</TABLE>
(6) RELATED PARTIES, SIGNIFICANT CUSTOMERS, AND GEOGRAPHIC INFORMATION
In 1995, the Company had revenues of $1.0 million and $1.8 million (12% and
23% of total revenues, respectively) from each of two related parties, both of
which are holders of preferred stock. Accounts receivable from these parties at
December 31, 1995 were $900,000 and $200,000, respectively. The Company also had
revenues in 1995 of $1.6 million and $823,000, or approximately 20% and 10% of
total revenues, respectively, from each of two customers.
The Company has a royalty arrangement with a party affiliated with a holder
of preferred stock relating to the licensing of certain products. To date,
royalty obligations under this arrangement have not been material.
The Company's export sales in 1995 were comprised of the $1.0 million sale
to the related party, which is located in Japan.
F-13
<PAGE> 83
SIEBEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, (CONTINUED)
(7) SUBSEQUENT EVENTS
RESTATEMENT OF CERTIFICATE OF INCORPORATION
In July 1996, the Certificate of Incorporation was restated to provide for
40,000,000 authorized shares of common stock with a $.001 par value per share
and 2,000,000 authorized shares of preferred stock with a $.001 par value per
share.
REGISTRATION STATEMENT
On July 3, 1996 (the "Closing Date"), the Company closed an initial public
offering of 2,257,450 shares of its common stock, which were comprised of
2,094,450 shares sold by the Company (including 294,450 shares to cover
over-allotments) and 163,000 shares sold by selling stockholders. The net
proceeds to the Company of approximately $32.0 million from the initial public
offering, net of expenses, were received by the Company on the Closing Date,
and, therefore, are not reflected in the balance sheet as of June 30, 1996.
Simultaneous with the closing of the initial public offering, all outstanding
shares of Preferred Stock, including shares issued upon exercise of the Series C
warrant (see Note 4), were converted to Common Stock on a one-for-one basis. The
conversion of the Preferred Stock and the closing of the initial public offering
are reflected in the accompanying pro forma balance sheet as of June 30, 1996.
1996 EMPLOYEE STOCK PURCHASE PLAN
In May 1996, the Company adopted the 1996 Employee Stock Purchase Plan (the
"Purchase Plan") and reserved 350,000 shares for issuance thereunder. The
Purchase Plan became effective upon the completion of the Company's initial
public offering. The Purchase Plan permits eligible employees to purchase common
stock, through payroll deductions of up to 10% of the employee's compensation,
at a price equal to 85% of the fair market value of the common stock at either
the beginning or the end of each offering period, whichever is lower.
1996 EQUITY INCENTIVE PLAN
In May 1996, the Board of Directors approved the 1996 Equity Incentive Plan
(Equity Incentive Plan) which amended and restated the Plan (see Note 4) and
reserved a total of 6,000,000 shares of common stock for issuance under the
Equity Incentive Plan. The Equity Incentive Plan provides for the issuance of
incentive and nonstatutory stock options.
LEASE COMMITMENT
In June 1996, the Company entered into a ten-year noncancelable lease for
facilities at approximately $1.9 million per year.
F-14
<PAGE> 84
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 5
The Company............................... 16
Use of Proceeds........................... 16
Price Range of Common Stock and Dividend
Policy.................................. 16
Capitalization............................ 17
Selected Financial Data................... 18
Management's Discussion And Analysis
of Financial Condition And Results
of Operations........................... 19
Business.................................. 26
Management................................ 51
Certain Transactions...................... 58
Principal and Selling Stockholders........ 59
Description Of Capital Stock.............. 61
Shares Eligible For Future Sale........... 63
Underwriting.............................. 65
Legal Matters............................. 67
Experts................................... 67
Available Information..................... 67
Index To Financial Statements............. F-1
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
1,500,000 SHARES
LOGO
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
HAMBRECHT & QUIST
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY
, 1996
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 85
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registration in connection with the
sale of the Common Stock being registered. All the amounts shown are estimates
except for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee.......................................................... $ 25,466
NASD filing fee........................................................... 7,885
Nasdaq listing fee........................................................ 17,500
Blue sky qualification fee and expenses................................... 12,000
Printing and engraving expenses........................................... 90,000
Legal fees and expenses................................................... 90,000
Accounting fees and expenses.............................................. 50,000
Transfer agent and registrar fees......................................... 5,000
Miscellaneous............................................................. 2,149
--------
Total................................................................ $300,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such an injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.
II-1
<PAGE> 86
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since September 13, 1993, the Registrant has sold and issued the following
unregistered securities:
(1) In September 1993, the Registrant sold 50,000 shares of Common Stock to
its founder, Thomas M. Siebel, for cash in the aggregate amount of $50,000.
(2) In January 1995, the Registrant issued 8,080,683 shares of Common Stock
and 2,344,500 shares of Series A Preferred Stock in exchange for the limited
partnership units of Siebel Systems, L.P.
(3) In March and July 1995, the Registrant sold 1,900,000 shares of Series
B Preferred Stock to a group of accredited investors for cash in the aggregate
amount of $4,560,000.
(4) In November and December 1995 and February and April 1996, the
Registrant sold 100,000 shares of Series B Preferred Stock to accredited
investors for cash in the aggregate amount of $528,116.
(5) In December 1995, the Registrant sold 594,585 shares of Series C
Preferred Stock to a group of accredited investors for cash in the aggregate
amount of $3,460,484.70.
(6) In April 1996, the Registrant sold 90,000 shares of Series D Preferred
Stock to a group of accredited investors for cash in the aggregate amount of
$900,000.
(7) In April 1996, the Registrant issued a warrant to purchase 75,000
shares of its Series C Preferred Stock at an exercise price of $5.82 per share
to a customer. The warrant was exercised in full in June 1996.
(8) During the period, the Registrant granted incentive stock options and
supplemental stock options to employees, directors and consultants under its
1996 Equity Incentive Plan covering an aggregate of 2,336,000 shares of the
Company's Common Stock, at an average exercise price of $4.61.
(9) During the period, the Registrant granted incentive stock options and
supplemental stock options to employees, directors and consultants under its
1996 Equity Incentive Plan covering an aggregate of 3,202,535 shares of the
Company's Common Stock, at an average exercise price of $3.82.
Options to purchase 468,875 shares of Common Stock have been canceled and
none of these options have lapsed without being exercised. The Registrant sold
an aggregate of 866,210 shares of its Common Stock to employees, directors and
consultants of the Registrant for consideration in the aggregate amount of
$752,291 pursuant to the exercise of stock options granted under the Stock
Option Plan.
The sales and issuances of securities in the transactions described in
paragraphs (1) through (8) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) and/or Regulation D
promulgated under the Securities Act. The purchasers in each case represented
their intention to acquire the securities for investment only and not with a
view to the distribution thereof. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.
The sales and issuance of securities in the transaction described in
paragraph (9) above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701; provided that options to purchase 46,500 shares of Common Stock were
granted following the filing by the Company of a registration statement on Form
S-8 and such options may be exercised and the issued shares sold under the terms
thereof.
II-2
<PAGE> 87
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------ --------------------------------------------------------------------------------
<C> <C> <S>
1.1 Form of Underwriting Agreement.
(1) 3.3 Restated Certificate of Incorporation of the Registrant.
(1) 3.4 Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.3 and 3.4.
(1) 4.2 Specimen Stock Certificate.
(1) 4.3 Restated Investor Rights Agreement, dated December 1, 1995, between the
Registrant and certain investors, as amended April 30, 1996 and June 14, 1996.
5.1 Opinion of Cooley Godward LLP.
(1) 10.1 Registrant's 1996 Equity Incentive Plan, and forms of incentive and nonstatutory
stock options.
(1) 10.2 Registrant's Employee Stock Purchase Plan.
(1) 10.3 Form of Indemnity Agreement to be entered into between the Registrant and its
officers and directors.
(1)(2) 10.6 Master Alliance Agreement, dated March 17, 1995, between the Registrant and
Andersen Consulting LLP.
(1)(2) 10.7 Software License and Services Agreement, dated March 29, 1996, by and between
the Registrant and Montgomery Securities.
(1)(2) 10.8 Strategic Alliance and Software License Agreement, dated December 12, 1995, by
and among the Registrant, Itochu Techno-Science Corporation and Itochu
Corporation.
(1) 10.9 Assignment Agreement, dated September 20, 1995, by and between the Registrant
and Thomas M. Siebel.
(1) 10.10 Lease Agreement, dated June 4, 1996, by and between the Registrant and Crossroad
Associates and Clocktower Associates.
11.1 Statement Regarding Computation of Pro Forma Net Income (Loss) Per Share.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to the Signature page.
</TABLE>
- ---------------
(1) Incorporated by reference to an exhibit bearing the same number in the
Registrant's Registration Statement on Form S-1 (No. 333-03751).
(2) Confidential treatment has been granted on portions of this exhibit.
(b) Financial Statement Schedules.
All schedules are omitted because they are not required, are not
applicable, or the information is included in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
II-3
<PAGE> 88
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act of 1933, the information omitted from the
form of prospectus as filed as part of the registration statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective, and (2) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 89
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Mateo, State of
California, on the 16th day of September, 1996.
SIEBEL SYSTEMS, INC.
By: /s/ THOMAS M. SIEBEL
------------------------------------
Thomas M. Siebel
Chairman and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes Thomas M. Siebel and
Justin R. Dooley his true and lawful attorney-in-fact and agent, each acting
alone, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to the Registration Statement on Form S-1,
and to any registration statement filed under Securities and Exchange Commission
Rule 462, and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------------------------
<C> <S> <C>
/s/ THOMAS M. SIEBEL Chairman and September 16, 1996
- ------------------------------------------ Chief Executive Officer
Thomas M. Siebel (Principal Executive Officer)
/s/ JUSTIN R. DOOLEY Vice President Finance and September 16, 1996
- ------------------------------------------ Administration
Justin R. Dooley (Principal Financial
and Accounting Officer)
/s/ ERIC E. SCHMIDT Director September 16, 1996
- ------------------------------------------
Eric E. Schmidt
/s/ JAMES C. GAITHER Director September 16, 1996
- ------------------------------------------
James C. Gaither
/s/ GEORGE T. SHAHEEN Director September 16, 1996
- ------------------------------------------
George T. Shaheen
/s/ CHARLES R. SCHWAB Director September 16, 1996
- ------------------------------------------
Charles R. Schwab
/s/ A. MICHAEL SPENCE Director September 16, 1996
- ------------------------------------------
A. Michael Spence
</TABLE>
II-5
<PAGE> 90
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------------ -----------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
(1)3.3 Restated Certificate of Incorporation of the Registrant.
(1)3.4 Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.3 and 3.4.
(1)4.2 Specimen Stock Certificate.
(1)4.3 Restated Investor Rights Agreement, dated December 1, 1995, between the
Registrant and certain investors, as amended April 30, 1996 and June 14,
1996.
5.1 Opinion of Cooley Godward LLP.
(1)10.1 Registrant's 1996 Equity Incentive Plan, and forms of incentive and
nonstatutory stock options.
(1)10.2 Registrant's Employee Stock Purchase Plan.
(1)10.3 Form of Indemnity Agreement to be entered into between the Registrant and its
officers and directors.
(1)(2)10.6 Master Alliance Agreement, dated March 17, 1995, between the Registrant and
Andersen Consulting LLP.
(1)(2)10.7 Software License and Services Agreement, dated March 29, 1996, by and between
the Registrant and Montgomery Securities.
(1)(2)10.8 Strategic Alliance and Software License Agreement, dated December 12, 1995,
by and among the Registrant, Itochu Techno-Science Corporation and Itochu
Corporation.
(1)10.9 Assignment Agreement, dated September 20, 1995, by and between the Registrant
and Thomas M. Siebel.
(1)10.10 Lease Agreement, dated June 4, 1996, by and between the Registrant and
Crossroad Associates and Clocktower Associates.
11.1 Statement Regarding Computation of Pro Forma Net Income (Loss) Per Share.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to the Signature page.
</TABLE>
- ---------------
(1) Incorporated by reference to an exhibit bearing the same number in the
Registrant's Registration Statement on Form S-1 (No. 333-03751).
(2) Confidential treatment has been granted on portions of this exhibit.
<PAGE> 91
APPENDIX -- (DESCRIPTION OF GRAPHICS)
INSIDE FRONT COVER
[Graphic: Closed-Loop Sales and Marketing. This graphic depicts a closed-loop
sales and marketing information system in which sales opportunities and
information from a marketing encyclopedia are shared and managed across multiple
distribution channels.]
Graphic Caption: A closed-loop sales and marketing information system allows
organizations to share and manage sales opportunities and information from a
marketing encyclopedia across multiple distribution channels.
GATEFOLD FOLLOWING INSIDE FRONT COVER
[Graphic: Siebel's N-Tiered Architecture. This graphic depicts Siebel's N-tiered
architecture and illustrates several tiers including Siebel Applet Objects,
Siebel Universal Applet Manager, Siebel Business Object Manager, Siebel Data
Manager, Siebel Universal Data Exchange, and Siebel Data Repository.]
PAGE 26
[Graphic: Closed-Loop Sales and Marketing. This graphic depicts a closed-loop
sales and marketing information system in which sales opportunities and
information from a marketing encyclopedia are shared and managed across multiple
distribution channels.]
Graphic Caption: A closed-loop sales and marketing information system allows
organizations to share and manage sales opportunities and information from a
marketing encyclopedia across multiple distribution channels.
PAGE 33
[Graphic: Siebel Anywhere. This graphic depicts Siebel connected clients, Siebel
mobile clients, and the two-way database synchronization between mobile Siebel
users and the central database repository.]
Graphic Caption: Organizations can unite their connected Siebel users and their
mobile Siebel users in a common sales information system. Siebel Remote provides
two-way data synchronization between mobile users and the central database
repository, using LAN, WAN, dial-up, as well as intranet and Internet
connections.
PAGE 35
[Graphic: Siebel Global Processing Architecture. This graphic depicts a typical
configuration of a multi-channel sales organization with stationary Siebel users
who are permanently connected to the central database server and mobile Siebel
users who are intermittently connected to the central database server.]
Graphic Caption: Siebel's global processing architecture supports a multi-tiered
sales organization with stationary Siebel users who are permanently connected to
the central database server and mobile Siebel users who are intermittently
connected to the central database server.
<PAGE> 92
PAGE 36
[Graphic: Siebel Global Distributed Architecture. This graphic depicts the
Siebel application running in an environment in which multiple database servers
provide support for different connected and mobile subsets of the sales
organization.]
Graphic Caption: Siebel's de-centralized data distribution architecture is
designed to support multiple, de-centralized data servers which can be
geographically located in the sales region they support.
PAGE 38
[Graphic: N-Tiered Architecture. This graphic depicts Siebel's N-tiered
architecture, separating the information presentation, application logic,
database access, and interprocess communications layers into separate tiers.]
Graphic Caption: Siebel's N-tiered architecture separates the information
presentation, application logic, database access, and interprocess
communications layers into separate tiers in order to partition and distribute
the application components to run where necessary.
PAGE 39
[Graphic: Siebel Virtual Computing. This graphic depicts how Siebel's N-tiered
architecture can support the Personal Computing, Client/Server, and Virtual
Computing.]
Graphic Caption: Siebel's N-tiered architecture is designed to allow
organizations to flexibly deploy their Siebel applications to run on the
Personal Computing, Client/Server, and in the future, Virtual Computing.
INSIDE BACK COVER
[Graphic: Siebel Sales Enterprise. The Siebel Sales Enterprise provides a list
of all sales opportunities and allows users to graphically visualize a Pipeline
Analysis and a Pipeline Revenue Analysis.]
Graphic Caption: Opportunity and Account Management. Enables sales professionals
to track and manage an opportunity with shared information about accounts,
contracts, product interest, and historical activity
Graphic Caption: Siebel Encyclopedia. Provides a repository of the
organization's sales-related information, including Product Information,
Competitive Information, Decision Support, and On-Line Literature.
Graphic Caption: Siebel Forecasting. Allows sales professionals to estimate and
submit forecasts based on revenue or products.
Graphic Caption: Siebel EIS (Executive Information System). Allows sales and
marketing professionals and executives to dynamically visualize information in a
variety of graphical on-line formats.
Graphic Caption: Siebel Reports. Provides users with access to Query by Example
to generate ad-hoc reports on-line, or view reports in graphical format.
<PAGE> 1
EXHIBIT 1.1
SIEBEL SYSTEMS, INC.
1,500,000 SHARES(1)
COMMON STOCK
UNDERWRITING AGREEMENT
September __, 1996
HAMBRECHT & QUIST LLC
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY, LLC
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, California 94104
Ladies and Gentlemen:
Siebel Systems, Inc., a Delaware corporation (herein called the
Company), proposes to issue and sell 750,000 shares of its authorized but
unissued Common Stock, $.001 par value (herein called the Common Stock), and
the stockholders of the Company named in Schedule II hereto (herein
collectively called the Selling Securityholders) propose to sell an aggregate
of 750,000 shares of Common Stock of the Company (said 1,500,000 shares of
Common Stock being herein called the Underwritten Stock). The Company and
certain of the Selling Securityholders propose to grant to the Underwriters (as
hereinafter defined) an option to purchase up to an aggregate of 225,000
additional shares of Common Stock (herein called the Option Stock and with the
Underwritten Stock herein collectively called the Stock). The Common Stock is
more fully described in the Registration Statement and the Prospectus
hereinafter mentioned.
The Company and the Selling Securityholders severally hereby confirm
the agreements made with respect to the purchase of the Stock by you (herein
collectively called
____________
(1) Plus an option to purchase from the Company and certain of the Selling
Securityholders up to an aggregate 225,000 additional shares to cover
over-allotments.
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the Underwriters, which term shall also include any underwriter purchasing Stock
pursuant to Section 3(b) hereof).
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (No. 333-_____), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
(a) The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in the
Registration Statement) and, in the event of any supplement or amendment to such
prospectus after the Effective Date, shall also mean (from and after the filing
with the Commission of such supplement or the effectiveness of such amendment)
such prospectus as so supplemented or amended. The term Preliminary Prospectus
as used in this Agreement shall mean each preliminary prospectus included in
such registration statement prior to the time it becomes effective.
(b) The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SECURITYHOLDERS.
(a) The Company hereby represents and warrants as follows:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has full corporate power and
authority to own or lease its properties and conduct its business as
described in the Registration Statement and the Prospectus and as being
conducted, and is duly qualified as a foreign corporation and in good
standing in all jurisdictions in which
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the character of the property owned or leased or the nature of the
business transacted by it makes qualification necessary (except where
the failure to be so qualified would not have a material adverse effect
on the business, properties, financial condition or results of
operations of the Company). The Company does not own any capital stock
or other equity securities in any entity.
(ii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any materially adverse change in the business, properties,
financial condition or results of operations of the Company, whether or
not arising from transactions in the ordinary course of business, other
than as set forth in the Registration Statement and the Prospectus, and
since such dates, except in the ordinary course of business, the
Company has not entered into any material transaction not referred to
in the Registration Statement and the Prospectus.
(iii) The Registration Statement and the Prospectus comply,
and on the Closing Date (as hereinafter defined) and any later date on
which Option Stock is to be purchased, the Prospectus will comply, in
all material respects, with the provisions of the Securities Act and
the rules and regulations of the Commission thereunder; on the
Effective Date, the Registration Statement did not contain any untrue
statement of a material fact and did not omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading; and, on the Effective Date the
Prospectus did not and, on the Closing Date and any later date on which
Option Stock is to be purchased, will not contain any untrue statement
of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that
none of the representations and warranties in this subparagraph (iii)
shall apply to statements in, or omissions from, the Registration
Statement or the Prospectus made in reliance upon and in conformity
with information herein or otherwise furnished in writing to the
Company by or on behalf of the Underwriters for use in the Registration
Statement or the Prospectus.
(iv) The Stock is duly and validly authorized, is (or, in
the case of shares of the Stock to be sold by the Company, will be,
when issued and sold to the Underwriters as provided herein) duly and
validly issued, fully paid and nonassessable and conforms to the
description thereof in the Prospectus. No further approval or authority
of the stockholders or the Board of Directors of the Company will be
required for the transfer and sale of the Stock to be sold by the
Selling Securityholders or the issuance and sale of the Stock as
contemplated herein.
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(v) The Common Stock is listed and duly admitted to
trading on The Nasdaq National Market, and prior to the Closing Date,
the Stock to be issued and sold by the Company will be authorized for
inclusion in by The Nasdaq National Market upon official notice of
issuance.
(vi) Except as set forth in the Registration Statement, (a)
the Company has good and marketable title to all material properties
and assets described in the Prospectus as owned by it, free and clear
of any liens, charges, encumbrances or restrictions other than such as
are not materially significant or materially important in relation to
the business of the Company when taken in the aggregate, (b) the
agreements to which the Company is a party described in the Prospectus
are valid and enforceable by the Company, except as enforcement may be
limited by applicable bankruptcy, insolvency and other similar laws
affecting creditors' rights and rules of law governing specific
performance, injunctive relief and other equitable remedies and, to its
knowledge, the other contracting party or parties thereto are not in
breach or default under any of such agreements, and (c) the Company has
valid and enforceable leases for the properties described in the
Prospectus as leased by it, with such exceptions as are not material
and do not interfere with the use made by the Company thereof.
(vii) The Company has filed all necessary federal and state
income and franchise tax returns and has paid all taxes shown thereon
as due, and the Company has no tax deficiency that has been or, to its
knowledge, might be asserted against the Company which would materially
and adversely affect its business or properties; all tax liabilities
accrued through the date hereof have been adequately provided for on
the books of the Company.
(viii) The Company is covered by insurance underwritten by
insurers of recognized financial responsibility in the amounts and
covering such risks as is prudent and customary in the business in
which it is engaged.
(ix) No labor disturbance by the employees of the Company
exists or, to its knowledge, is imminent.
(x) The Company owns or possesses all rights to use all
patents, patent rights, inventions, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks, trade
names, copyrights and other intellectual property rights necessary for
the conduct of its business as described in the Prospectus. The Company
has not received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing that,
singly or in the aggregate, if the subject of any unfavorable decision,
ruling or finding, would materially adversely affect the business
operations, financial conditions or income of the Company as presently
being conducted or as proposed to be conducted.
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(xi) The Company has not been advised, and has no reason to
believe, that it is not conducting business in compliance with all
applicable laws, rules and regulations of the jurisdiction in which it
is conducting business except where failure to be so in compliance
would not materially and adversely affect the business or properties of
the Company.
(xii) Except as may be described in the Prospectus, there is
no action, proceeding or investigation pending or, to the knowledge of
the Company, threatened against the Company before any court or
administrative agency which could reasonably be expected to result in
any material adverse change in the business or condition of the
Company.
(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with
the execution and delivery by the Company of this Agreement and the
consummation of the transactions herein contemplated (except such
additional steps as may be required by the National Association of
Securities Dealers, Inc. (herein called the NASD) or may be necessary
to make the Registration Statement effective (and maintain it as
effective) and to qualify or exempt the Stock for public offering by
the Underwriters under state securities or Blue Sky laws) has been
obtained or made and is in full force and effect.
(xiv) The Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment of a
broker or finder in connection with the transactions contemplated by
this Agreement other than as contemplated hereby.
(xv) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the
Stock conforms to the description thereof contained in the Registration
Statement. The form of certificates for the Stock conforms to the
corporate law of the jurisdiction of the Company's incorporation.
(xvi) The financial statements of the Company, together with
related notes and schedules as set forth in the Registration Statement,
present fairly the financial position and the results of operations and
cash flows of the Company, at the indicated dates and for the indicated
periods. Such financial statements and related schedules have been
prepared in accordance with generally accepted principles of
accounting, consistently applied throughout the periods involved,
except as disclosed therein, and all adjustments necessary for a fair
presentation of results for such periods have been made; provided,
however, that the unaudited financial statements are subject to normal
year-end audit adjustments (which are not expected to be material) and
do not contain all footnotes required under generally
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accepted accounting principles. The summary and selected financial and
statistical data included in the Registration Statement present fairly
the information shown thereon and such data have been compiled on a
basis consistent with the financial statements presented therein and in
the books and records of the Company.
(xvii) KPMG Peat Marwick LLP, who have certified the
financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as required
by the Securities Act and the rules and regulations thereunder.
(xviii) The Company is not, nor with the giving of notice or
lapse of time or both, will it be, in violation of or in default under
any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its
properties, is bound and which default is of material significance in
respect of the condition, financial or otherwise of the Company or the
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company. The execution and
delivery of this Agreement, and the consummation of the transactions
herein contemplated and the fulfillment of the terms hereof, will not
conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, any material indenture, mortgage,
deed of trust or other material agreement or instrument to which the
Company is a party and which default is of material significance in
respect of the condition, financial or otherwise of the Company or the
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company, except for any
required consents in connection with the Company's reincorporation from
California to Delaware, all of which have been obtained and remain in
full force and effect.
(xix) Neither the Company, nor to the Company's best
knowledge, any of its affiliates, has taken or may take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common
Stock to facilitate the sale or resale of the Stock.
(xx) The Company is not, and after giving effect to the
issuance and sale of the Stock by the Company will not be an
"investment company" within the meaning of such term under the
Investment Company Act of 1940, as amended, and the rules and
regulations of the Commission thereunder.
(xxi) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management's general or
specific authorization; (b) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (c) access to assets is permitted only in accordance with
management's general or specific authorization; and (d) the recorded
accountability for assets is compared with existing
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assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xxii) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and
published interpretations thereunder (herein called ERISA); no
"reportable event" (as defined in ERISA) has occurred with respect to
any "pension plan" (as defined in ERISA) for which the Company would
have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination
of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971
of the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (herein called the
Code); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the
Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of
such qualification.
(xxiii) No relationship, direct or indirect, exists between
or among the Company, on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company, on the other hand,
which is required to be described in the Prospectus that is not so
described.
(xxiv) Neither the Company, nor any director, officer,
agent, employee or other person associated with or acting on behalf of
the Company, has used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating to
political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate
funds; violated or is in violation of any provisions of the Foreign
Corrupt Practices Act of 1972; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(xxv) The business, operations and facilities of the Company
have been and are being conducted in compliance with all applicable
laws, ordinances, rules, regulations, licenses, permits, approvals,
plans, authorizations or requirements relating to occupational safety
and health, pollution, protection of health or the environment
(including, without limitation, those relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants
or hazardous or toxic substances, materials or wastes into ambient air,
surface water, groundwater or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of chemical substances, pollutants, contaminants or
hazardous or toxic substances, materials
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or wastes, whether solid, gaseous or liquid in nature) or otherwise
relating to remediating real property in which the Company has or had
any interest, whether owned or leased, of any governmental department,
commission, board, bureau, agency or instrumentality of the United
States, any state or political subdivision thereof and all applicable
judicial or administrative agency or regulatory decrees, awards,
judgments and orders relating thereto, except for such failures to so
comply as would not, individually or in the aggregate, have a material
adverse effect on the Company's business; and the Company has not
received any notice from a governmental instrumentality or any third
party alleging any violation thereof or liability thereunder
(including, without limitation, liability for costs of investigating or
remediating sites containing hazardous substances or damage to natural
resources), except for such violations or liabilities which would not,
individually or in the aggregate, have a material adverse effect on the
Company's business.
(xxvi) Except as set forth in (A) Sections 1.3 and 2.5 of
the Strategic Alliance and Software License Agreement between the
Company, Itochu Corporation and Itochu Techno-Science Corporation and
(B) Section 2(b) of the Master Alliance Agreement between the Company
and Andersen Consulting LLP, which have been incorporated by reference
as exhibits to the Registration Statement, neither the Company nor Mr.
Thomas M. Siebel is a party to any contract or commitment that
restricts in any material respect the ability of the Company or Mr.
Siebel to engage in the Company's business as described in the
Registration Statement.
(b) Each of the Selling Securityholders hereby represents and warrants
as follows:
(i) Such Selling Securityholder has good and marketable
title to all the shares of Stock to be sold by such Selling
Securityholder hereunder, free and clear of all liens, encumbrances,
equities, security interests and claims whatsoever, with full right and
authority to deliver the same hereunder, subject, in the case of each
Selling Securityholder, to the rights of ChaseMellon Shareholder
Services LLC, as Custodian (herein called the Custodian), and that upon
the delivery of and payment for such shares of the Stock hereunder, the
Underwriters will receive good and marketable title thereto, free and
clear of all liens, encumbrances, equities, security interests and
claims whatsoever.
(ii) Certificates in negotiable form for the shares of the
Stock to be sold by such Selling Securityholder have been placed in
custody under a Custody Agreement for delivery under this Agreement
with the Custodian; such Selling Securityholder specifically agrees
that the shares of the Stock represented by the certificates so held in
custody for such Selling Securityholder are subject to the interests of
the Underwriters and the Company, that the arrangements made by such
Selling Securityholder for such custody, including the Power of
Attorney provided for in such Custody Agreement, are to that extent
irrevocable, and that the obligations of such Selling Securityholder
shall not be terminated by any act of such Selling Securityholder or by
operation of law, whether by the death or incapacity of such Selling
Securityholder (or, in the case of a Selling
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Securityholder that is not an individual, the dissolution or
liquidation of such Selling Securityholder) or the occurrence of any
other event; if any such death, incapacity, dissolution, liquidation or
other such event should occur before the delivery of such shares of the
Stock hereunder, certificates for such shares of the Stock shall be
delivered by the Custodian in accordance with the terms and conditions
of this Agreement as if such death, incapacity, dissolution,
liquidation or other event had not occurred, regardless of whether the
Custodian shall have received notice of such death, incapacity,
dissolution, liquidation or other event.
(iii) Such Selling Securityholder has reviewed the
Registration Statement and Prospectus and, although such Selling
Securityholder has not independently verified the accuracy or
completeness of all the information contained therein, nothing has come
to the attention of such Selling Securityholder that would lead such
Selling Securityholder to believe that on the Effective Date, the
Registration Statement contained any untrue statement of a material
fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date the Prospectus contained and, on
the Closing Date (and any later date on which Option Stock is to be
purchased for the account of the Underwriters, if applicable),
contains any untrue statement of a material fact or omitted or omits
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading.
(iv) Such Selling Securityholder has not taken, and will not
take, directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Common Stock of the Company to
facilitate the sale or resale of the Stock.
(v) Such Selling Securityholder has not distributed and will
not distribute any Prospectus or other offering material in connection
with the offering and sale of the Stock.
(vi) The execution, delivery and performance of this
Agreement by such Selling Securityholder, compliance by such Selling
Securityholder with all the provisions hereof and the consummation of
the transactions contemplated hereby will not require any consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except as such may be
required by the NASD, state securities laws or Blue Sky laws) and will
not conflict with or constitute a breach of any of the terms or
provisions of, or a default under, organizational documents of such
Selling Securityholder, if not an individual, or any agreement,
indenture or other instrument to which such Selling Securityholder is a
party or by which such Selling Securityholder or the shares of Stock of
such Selling Securityholder are bound or violate
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or conflict with any law, administrative regulation or ruling or court
decree applicable to such Selling Securityholder or the shares of Stock
of such Selling Securityholder.
(vii) Such parts of the Registration Statement, comprised of
the table and notes thereto under the caption "Principal and Selling
Stockholders" which specifically relate to such Selling Securityholder
do not, and will not on the Closing Date (and any later date which
Option Stock is purchased for the account of the Underwriters, if
applicable), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
750,000 shares of the Underwritten Stock to the several Underwriters, each
Selling Securityholder agrees to sell to each of the Underwriters the number of
shares of the Underwritten Stock set forth in Schedule II opposite the name of
such Selling Securityholder, and each of the Underwriters agrees to purchase
from the Company and the Selling Securityholders the respective aggregate number
of shares of Underwritten Stock set forth opposite its name in Schedule I. The
price at which such shares of Underwritten Stock shall be sold by the Company
and the Selling Securityholders and purchased by the Underwriters shall be
$_____ per share. The obligation of each Underwriter to the Company and each of
the Selling Securityholders shall be to purchase from the Company and the
Selling Securityholders that number of shares of the Underwritten Stock which
represents the same proportion of the total number of shares of the Underwritten
Stock to be sold by each of the Company and the Selling Securityholders pursuant
to this Agreement as the number of shares of the Underwritten Stock set forth
opposite the name of such Underwriter in Schedule I hereto represents of the
total number of shares of the Underwritten Stock to be purchased by all
Underwriters pursuant to this Agreement, as adjusted by you in such manner as
you deem advisable to avoid fractional shares. In making this Agreement, each
Underwriter is contracting severally and not jointly; except as provided in
paragraphs (b) and (c) of this Section 3, the agreement of each Underwriter is
to purchase only the respective number of shares of the Underwritten Stock
specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 or 9 hereof) to purchase and
pay for the number of shares of the Stock agreed to be purchased by such
Underwriter or Underwriters, the Company or the Selling Securityholders shall
immediately give notice thereof to you, and the non-defaulting Underwriters
shall have the right within 24 hours after the receipt by you of such notice to
purchase, or procure one or more other Underwriters to purchase, in such
proportions as may be agreed upon between you and such purchasing Underwriter or
Underwriters and upon the terms herein set forth, all or any part of the shares
of the Stock which such defaulting Underwriter or Underwriters agreed to
purchase. If the
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non-defaulting Underwriters fail so to make such arrangements with respect to
all such shares and portion, the number of shares of the Stock which each
non-defaulting Underwriter is otherwise obligated to purchase under this
Agreement shall be automatically increased on a pro rata basis to absorb the
remaining shares and portion which the defaulting Underwriter or Underwriters
agreed to purchase; provided, however, that the non-defaulting Underwriters
shall not be obligated to purchase the shares and portion which the defaulting
Underwriter or Underwriters agreed to purchase if the aggregate number of such
shares of the Stock exceeds 10% of the total number of shares of the Stock which
all Underwriters agreed to purchase hereunder. If the total number of shares of
the Stock which the defaulting Underwriter or Underwriters agreed to purchase
shall not be purchased or absorbed in accordance with the two preceding
sentences, the Company and the Selling Securityholders shall have the right,
within 24 hours next succeeding the 24-hour period above referred to, to make
arrangements with other underwriters or purchasers satisfactory to you for
purchase of such shares and portion on the terms herein set forth. In any such
case, either you or the Company and the Selling Securityholders shall have the
right to postpone the Closing Date determined as provided in Section 5 hereof
for not more than seven business days after the date originally fixed as the
Closing Date pursuant to said Section 5 in order that any necessary changes in
the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the non-defaulting Underwriters nor the
Company and the Selling Securityholders shall make arrangements within the
24-hour periods stated above for the purchase of all the shares of the Stock
which the defaulting Underwriter or Underwriters agreed to purchase hereunder,
this Agreement shall be terminated without further act or deed and without any
liability on the part of the Company or the Selling Securityholders to any
non-defaulting Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company or the Selling Securityholders.
Nothing in this paragraph (b), and no action taken hereunder, shall relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, (i)
the Company grants an option to the Underwriters to purchase, severally and not
jointly, up to 12,711 shares in the aggregate of the Option Stock from the
Company and (ii) those Selling Securityholders, to the extent set forth in
Schedule II hereto, severally but not jointly, grant an option to the
Underwriters to purchase severally and not jointly, up to 212,289 shares in the
aggregate of the Option Stock from such Selling Securityholders in each case,
at the same price per share as the Underwriters shall pay for the Underwritten
Stock. Said options may be exercised only to cover over-allotments in the sale
of the Underwritten Stock by the Underwriters and may be exercised in whole or
in part at any time (but not more than once) on or before the thirtieth day
after the date of this Agreement upon written or telegraphic notice by you to
the Company and Selling Securityholders setting forth the aggregate number of
shares of the Option Stock as to which the Underwriters are exercising the
option. Delivery of certificates for the shares of Option Stock, and payment
therefor, shall be made as provided in Section 5 hereof. The number of shares
of the Option Stock to be purchased by each Underwriter shall be the same
percentage of the total number of shares of the Option Stock to be
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purchased by the Underwriters as such Underwriter is purchasing of the
Underwritten Stock, as adjusted by you in such manner as you deem advisable to
avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of the
Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover
page and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock filed by the Company
(insofar as such information relates to the Underwriters or related persons)
constitutes the only information furnished by the Underwriters to the Company
for inclusion in the Registration Statement, any Preliminary Prospectus, and the
Prospectus, and you represent and warrant to the Company that the statements
made therein (insofar as they relate to the Underwriters or related persons) are
correct and do not omit any material fact required to be stated therein or
necessary to make the statements therein not misleading.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock
and the Option Stock (if the option granted by Section 3(c) hereof shall have
been exercised not later than 7:00 A.M., San Francisco time, on the date two
business days preceding the Closing Date), and payment therefor, shall be made
at the office of Cooley Godward LLP, 3000 Sand Hill Road, Building 3, Suite
230, Menlo Park, California 94025-7116, at 7:00 a.m., San Francisco time, on
the fourth business day after the date of this Agreement, or at such time on
such other day, not later than seven full business days after such fourth
business day, as shall be agreed upon in writing by the Company, the Selling
Securityholders and you. The date and hour of such delivery and payment (which
may be postponed as provided in Section 3(b) hereof) are herein called the
Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days preceding
the Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Cooley Godward LLP, 3000 Sand
Hill Road, Building 3, Suite 230, Menlo Park, California 94025-7116, at 7:00
a.m., San Francisco time, on the third business day after the exercise of such
option.
(c) Payment for the Stock purchased from the Company shall be made to
the Company or its order, and payment for the Stock purchased from the Selling
Securityholders shall be made to the Custodian, for the account of the Selling
Securityholders, in each case by one or more
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certified or official bank check or checks in next day funds (and the Company
and the Selling Securityholders agree not to deposit any such check in the bank
on which drawn until the day following the date of its delivery to the Company
or the Custodian, as the case may be). Such payment shall be made upon delivery
of certificates for the Stock to you against receipt therefor signed by you.
Certificates for the Stock to be delivered to you shall be registered in such
name or names and shall be in such denominations as you may request at least one
business day before the Closing Date (and any later date on which Option Stock
is to be purchased for the account of the Underwriters, if applicable), in the
case of Underwritten Stock, and at least one business day prior to the purchase
thereof, in the case of the Option Stock. Such certificates will be made
available to the Underwriters for inspection, checking and packaging at the
offices of Lewco Securities Corporation, 2 Broadway, New York, New York 10004 on
the business day prior to the Closing Date or, in the case of the Option Stock,
by 3:00 p.m., New York time, on the business day preceding the date of purchase.
It is understood that any one of you, individually, may (but shall not be
obligated to) make payment to the Company and the Selling Securityholders for
shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Option Stock is
purchased for the account of such Underwriter. Any such payment by any one of
you shall not relieve such Underwriter from any of its obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING SECURITYHOLDERS.
Each of the Company and, with respect to paragraphs (i), (k) and (l) only, the
Selling Securityholders respectively covenants and agrees as follows:
(a) The Company will (i) prepare and timely file with the
Commission under Rule 424(b) a Prospectus containing information
previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rule 430A and (ii) not file any amendment to
the Registration Statement or supplement to the Prospectus of which you
shall not previously have been advised and furnished with a copy or to
which you shall have reasonably objected in writing or which is not in
compliance with the Securities Act or the rules and regulations of the
Commission.
(b) The Company will promptly notify each of you in the event
of (i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, (iii) the
institution or notice of intended institution of any action or
proceeding for that purpose, (iv) the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Stock for sale in any jurisdiction, or (v) the receipt
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<PAGE> 14
by it of notice of the initiation or threatening of any proceeding for
such purpose. The Company will make every reasonable effort to prevent
the issuance of such a stop order and, if such an order shall at any
time be issued, to obtain the withdrawal thereof at the earliest
possible moment.
(c) The Company will (i) on or before the Closing Date,
deliver to you a signed copy of the Registration Statement as
originally filed and of each amendment thereto filed prior to the time
the Registration Statement becomes effective and, promptly upon the
filing thereof, a signed copy of each post-effective amendment, if any,
to the Registration Statement (together with, in each case, all
exhibits thereto unless previously furnished to you) and will also
deliver to you, for distribution to the Underwriters, a sufficient
number of additional conformed copies of each of the foregoing (but
without exhibits) so that one copy of each may be distributed to each
Underwriter, (ii) as promptly as possible deliver to you and send to
the Underwriters, at such office or offices as you may designate, as
many copies of the Prospectus as you may reasonably request, and (iii)
thereafter from time to time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, likewise
send to the Underwriters as many additional copies of the Prospectus
and as many copies of any supplement to the Prospectus and of any
amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities
Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event
relating to or affecting the Company, or of which the Company shall be
advised in writing by you, shall occur as a result of which it is
necessary, in the opinion of counsel for the Company or of counsel for
the Underwriters, to supplement or amend the Prospectus in order to
make the Prospectus not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser of the Stock, the
Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended prospectus so that the
Prospectus as so supplemented or amended will not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time such Prospectus is delivered to such
purchaser, not misleading. If, after the initial public offering of the
Stock by the Underwriters and during such period, the Underwriters
shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the
Company in writing of the proposed variation, and, if in the opinion
either of counsel for the Company or of counsel for the Underwriters
such proposed variation requires that the Prospectus be supplemented or
amended, the Company will forthwith prepare and file with the
Commission a supplement to the Prospectus or an amended prospectus
setting forth such variation. The Company authorizes the Underwriters
and all dealers to whom any of the Stock may be sold by the
Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance
with the
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<PAGE> 15
applicable provisions of the Securities Act and the applicable
rules and regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the
Company will submit to you, for your information, a copy of any
post-effective amendment to the Registration Statement and any
supplement to the Prospectus or any amended prospectus proposed to be
filed.
(f) The Company will cooperate, when and as requested by you,
in the qualification of the Stock for offer and sale under the
securities or blue sky laws of such jurisdictions as you may designate
and, during the period in which a prospectus is required by law to be
delivered by an Underwriter or dealer, in keeping such qualifications
in good standing under said securities or blue sky laws; provided,
however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will,
from time to time, prepare and file such statements, reports, and other
documents as are or may be required to continue such qualifications in
effect for so long a period as you may reasonably request for
distribution of the Stock.
(g) During a period of five years commencing with the date
hereof, the Company will furnish to each of you copies of all periodic
and special reports furnished to stockholders of the Company and of all
information, documents and reports filed with the Commission.
(h) Not later than the 45th day following the end of the
fiscal quarter first occurring after the first anniversary of the
Effective Date, the Company will make generally available to its
security holders an earnings statement in accordance with Section 11(a)
of the Securities Act and Rule 158 thereunder.
(i) The Company agrees to pay all costs and expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses
incident to (i) the preparation, printing and filing with the
Commission and the NASD of the Registration Statement, any Preliminary
Prospectus and the Prospectus, (ii) the furnishing to the Underwriters
of copies of any Preliminary Prospectus and of the several documents
required by paragraph (c) of this Section 6 to be so furnished, (iii)
the printing of this Agreement and related documents delivered to the
Underwriters, (iv) the preparation, printing and filing of all
supplements and amendments to the Prospectus referred to in paragraph
(d) of this Section 6, (v) the furnishing to you of the reports and
information referred to in paragraph (g) of this Section 6 and (vi) the
printing and issuance of stock certificates, including the transfer
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<PAGE> 16
agent's fees. Each of the Selling Securityholders will pay any transfer
taxes incident to the transfer to the Underwriters of the shares the
Stock being sold by each such Selling Securityholder.
(j) The Company agrees to reimburse you for blue sky fees and
related disbursements (including counsel fees and disbursements and
cost of printing memoranda for the Underwriters) paid by or for the
account of the Underwriters or their counsel in qualifying the Stock
under state securities or blue sky laws and in the review of the
offering by the NASD.
(k) The provisions of paragraphs (i) and (j) of this Section
are intended to relieve the Underwriters from the payment of the
expenses and costs which the Company hereby agrees to pay and shall not
affect any agreement which the Company and the Selling Securityholders
may make, or may have made, for the sharing of any such expenses and
costs.
(l) The Company is familiar with the Investment Company Act
of 1940, as amended, and has in the past conducted its affairs, and
will in the future conduct its affairs, in such a manner to ensure that
the Company was not and will not be an "investment company" or a
company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
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<PAGE> 17
7 . INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section 7, the
Company and the Selling Securityholders jointly and severally agree to indemnify
and hold harmless each Underwriter and each person (including each partner or
officer thereof) who controls any Underwriter within the meaning of Section 15
of the Securities Act from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Securities Act, the Securities Exchange Act of
1934, as amended (herein called the Exchange Act), or the common law or
otherwise, and the Company and the Selling Securityholders jointly and severally
agree to reimburse each such Underwriter and controlling person for any legal or
other expenses (including, except as otherwise hereinafter provided, reasonable
fees and disbursements of counsel) incurred by the respective indemnified
parties in connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that (1) the indemnity agreements of the Company
and the Selling Securityholders contained in this paragraph (a) shall not apply
to any such losses, claims, damages, liabilities or expenses if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated or otherwise furnished in writing to the Company by
or on behalf of any Underwriter for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, (2) the indemnity agreement contained in this paragraph (a)
with respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Stock which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof, and (3) each Selling
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<PAGE> 18
Securityholder shall only be liable under this paragraph with respect
to (A) information pertaining to such Selling Securityholder furnished by or on
behalf of such Selling Securityholder expressly for use in any Preliminary
Prospectus or the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto or (B) facts that would constitute a
breach of any representation or warranty of such Selling Securityholder set
forth in Section 2(b) hereof. The indemnity agreements of the Company and the
Selling Securityholders contained in this paragraph (a) and the representations
and warranties of the Company and the Selling Securityholders contained in
Section 2 hereof shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any indemnified party and shall
survive the delivery of and payment for the Stock. The Company also agrees to
indemnify and hold harmless Robertson, Stephens & Company LLC ("Robertson") and
each person, if any, who controls Robertson within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments incurred
as a result of Robertson's participation as a "qualified independent
underwriter" within the meaning of Section (b)(15) of Rule 2720 of the Conduct
Rules of the NASD in connection with the offering of the shares, subject to the
limitations set forth in clauses (1) and (2) of the first sentence of this
paragraph (a).
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its officers who signs the Registration Statement on his
own behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, and the Selling Securityholders from and against any
and all losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise and to reimburse each of them
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished as herein stated or otherwise
furnished in writing to the Company by or on behalf of such indemnifying
Underwriter for use in the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement
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<PAGE> 19
of any investigation or inquiry of, or proceeding against, it in respect of
which indemnity may be sought on account of any indemnity agreement contained in
such paragraphs, it will promptly give written notice (herein called the Notice)
of such service or notification to the party or parties from whom
indemnification may be sought hereunder. No indemnification provided for in such
paragraphs shall be available to any party who shall fail so to give the Notice
if the party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement. Any indemnifying party shall be entitled at its own
expense to participate in the defense of any action, suit or proceeding against,
or investigation or inquiry of, an indemnified party. Any indemnifying party
shall be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (herein called the Notice of Defense) to the
indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct such defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
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(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Securityholders on the one hand and the Underwriters on
the other shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Stock received by the Company and the
Selling Securityholders and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the Stock. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by each indemnifying party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparing to defend or defending against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such Underwriter. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
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(e) Neither the Company nor the Selling Securityholders will, without
the prior written consent of each Underwriter, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not such Underwriter or any person who controls such Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
(f) The liability of each Selling Securityholder under such Selling
Securityholder's representations and warranties contained in paragraph (b) of
Section 2 hereof and under the indemnity, contribution and reimbursement
agreements contained in the provisions of this Section 7 and Section 11 hereof
shall be limited to an amount equal to the net proceeds received by such Selling
Securityholder from the sale of the Underwritten Stock. The Company and the
Selling Securityholders may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to the respective amounts of
such liability for which they each shall be responsible.
8. TERMINATION. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders if after the date of this Agreement trading in the
Common Stock shall have been suspended, or if there shall have occurred (i) the
engagement in hostilities or an escalation of major hostilities by the United
States or the declaration of war or a national emergency by the United States on
or after the date hereof, (ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, calamity, crisis or change in economic or
political conditions in the financial markets of the United States would, in the
Underwriters' reasonable judgment, make the offering or delivery of the Stock
impracticable, (iii) suspension of trading in securities generally or a material
adverse decline in value of securities generally on the New York Stock Exchange,
the American Stock Exchange, or The Nasdaq Stock Market, or limitations on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such exchange or system, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated
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pursuant to this Section 8, there shall be no liability of the Company or the
Selling Securityholders to the Underwriters and no liability of the Underwriters
to the Company or the Selling Securityholders; provided, however, that in the
event of any such termination the Company and the Selling Securityholders agree
to indemnify and hold harmless the Underwriters from all costs or expenses
incident to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
9 . CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company and by the Selling Securityholders of all their
respective obligations to be performed hereunder at or prior to the Closing Date
or any later date on which Option Stock is to be purchased, as the case may be,
and to the following further conditions:
(a) The Registration Statement shall have become effective;
and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings therefor shall be pending or threatened by
the Commission.
(b) The legality and sufficiency of the sale of the Stock
hereunder and the validity and form of the certificates representing
the Stock, all corporate proceedings and other legal matters incident
to the foregoing, and the form of the Registration Statement and of the
Prospectus (except as to the financial statements contained therein),
shall have been approved at or prior to the Closing Date by Morrison &
Foerster LLP, counsel for the Underwriters.
(c) You shall have received (i) from Cooley Godward LLP,
counsel for the Company and the Selling Securityholders listed in
Schedule II hereto under the subheading "Individual Selling
Securityholders" (the "Individual Selling Securityholders"), an
opinion, addressed to the Underwriters and dated the Closing Date,
covering the matters set forth in Annex A hereto, and if Option Stock
is purchased at any date after the Closing Date, additional opinions
from each such counsel, addressed to the Underwriters and dated such
later date, confirming that the statements expressed as of the Closing
Date in such opinions remain valid as of such later date, and (ii)
from counsel to each of the Selling Securityholders listed in Schedule
II hereto under the subheading "Corporate Selling Securityholders"
(the "Corporate Selling Securityholders"), an opinion or opinions,
addressed to the Underwriters and dated the Closing Date, covering the
matters set forth in Annex B hereto, and if Option Stock is purchased
at any date after the Closing Date, additional opinions from each such
counsel, addressed to the Underwriters and dated such later date,
confirming that the statements expressed as of the Closing Date in
such opinions remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date,
the statements made in the Registration Statement and the Prospectus
were true and correct and neither the Registration Statement nor the
Prospectus omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein,
respectively, not misleading, (ii) since the Effective Date, no event
has occurred which should have been
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set forth in a supplement or amendment to the Prospectus which has not
been set forth in such a supplement or amendment, (iii) since the
respective dates as of which information is given in the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein, there has not been any material adverse
change or any development involving a prospective material adverse
change in or affecting the business, properties, financial condition or
results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, and, since such dates,
except in the ordinary course of business, the Company has not entered
into any material transaction not referred to in the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein, (iv) the Company does not have any
material contingent obligations which are not disclosed in the
Registration Statement and the Prospectus, (v) there are not any
pending or known threatened legal proceedings to which the Company is a
party or of which property of the Company is the subject which are
material and which are not disclosed in the Registration Statement and
the Prospectus, (vi) there are not any franchises, contracts, leases or
other documents which are required to be filed as exhibits to the
Registration Statement which have not been filed as required, (vii) the
representations and warranties of the Company and the Selling
Securityholders herein are true and correct in all material respects as
of the Closing Date or any later date on which Option Stock is to be
purchased, as the case may be, and (viii) there has not been any
material change in the market for securities in general or in
political, financial or economic conditions from those reasonably
foreseeable as to render it impracticable in your reasonable judgment
to make a public offering of the Stock, or a material adverse change in
market levels for securities in general (or those of companies in
particular) or financial or economic conditions which render it
inadvisable to proceed.
(e) You shall have received on the Closing Date and on any
later date on which Option Stock is purchased a certificate, dated the
Closing Date or such later date, as the case may be, and signed by the
President and the Chief Financial Officer of the Company, stating that
the respective signers of said certificate have carefully examined the
Registration Statement in the form in which it originally became
effective and the Prospectus contained therein and any supplements or
amendments thereto, and that the statements included in clauses (i)
through (vii) of paragraph (d) of this Section 9 are true and correct.
(f) You shall have received from KPMG Peat Marwick LLP, a
letter or letters, addressed to the Underwriters and dated the Closing
Date and any later date on which Option Stock is purchased, confirming
that they are independent public accountants with respect to the
Company within the meaning of the Securities Act and the applicable
published rules and regulations thereunder and based upon the
procedures described in
23
<PAGE> 24
their letter delivered to you concurrently with the execution of this
Agreement (herein called the Original Letter), but carried out to a
date not more than three business days prior to the Closing Date or
such later date on which Option Stock is purchased (i) confirming, to
the extent true, that the statements and conclusions set forth in the
Original Letter are accurate as of the Closing Date or such later date,
as the case may be, and (ii) setting forth any revisions and additions
to the statements and conclusions set forth in the Original Letter
which are necessary to reflect any changes in the facts described in
the Original Letter since the date of the Original Letter or to reflect
the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any
development involving a prospective change, in or affecting the
business or properties of the Company which, in your sole judgment,
makes it impractical or inadvisable to proceed with the public offering
of the Stock or the purchase of the Option Stock as contemplated by the
Prospectus.
(g) You shall have received from KPMG Peat Marwick LLP a
letter stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's financial
statements as at December 31, 1995, did not disclose any weakness in
internal controls that they considered to be material weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the
qualification referred to in paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Stock to be issued and sold
by the Company shall have been duly authorized for inclusion in The
Nasdaq National Market upon official notice of issuance.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Morrison & Foerster LLP, counsel for the Underwriters,
shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that (i) in the event of such
termination, the Company and the Selling Securityholders agree to indemnify and
hold harmless the Underwriters from all costs
24
<PAGE> 25
or expenses incident to the performance of the obligations of the Company and
the Selling Securityholders under this Agreement, including all costs and
expenses referred to in paragraphs (i) and (j) of Section 6 hereof, and (ii) if
this Agreement is terminated by you because of any refusal, inability or failure
on the part of the Company or the Selling Securityholders to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with any
provision hereof other than by reason of a default by any of the Underwriters,
the Company will reimburse the Underwriters severally upon demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the transactions
contemplated hereby.
10 . CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. The obligation of the Company and the Selling Securityholders
to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
(a) In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Securityholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Securityholders; provided, however, that in the event of any such termination
the Company and the Selling Securityholders jointly and severally agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
11 . REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement (and subject, in the case of a
Selling Securityholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Securityholders hereby jointly and severally agree to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company and the
Selling Securityholders, upon request, reasonable assurances of their ability to
effect any refund, when and if due.
25
<PAGE> 26
12 . PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of the Company, the Selling Securityholders and the
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Securityholders and the
Underwriters) indemnified under the provisions of said Section 7, and their
respective personal representatives, successors and assigns. Nothing in this
Agreement is intended or shall be construed to give to any other person, firm or
corporation any legal or equitable remedy or claim under or in respect of this
Agreement or any provision herein contained. The term "successors and assigns"
as herein used shall not include any purchaser, as such purchaser, of any of the
Stock from any of the Underwriters.
13 . NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office, 1855 South Grant Street, San
Mateo, California 94402, Attention: Mr. Thomas M. Siebel; and if to the Selling
Securityholders, shall be mailed, telegraphed or delivered to such party in care
of the Company, Attention: Mr. Thomas M. Siebel. All notices given by telegraph
shall be promptly confirmed by letter.
14 . MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or the Selling Securityholders or their respective directors or
officers, and (c) delivery and payment for the Stock under this Agreement;
provided, however, that if this Agreement is terminated prior to the Closing
Date, the provisions of paragraphs (g) and (h) of Section 6 hereof shall be of
no further force or effect.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
26
<PAGE> 27
Please sign and return to the Company and to the Selling
Securityholders in care of the Company the enclosed duplicates of this letter,
whereupon this letter will become a binding agreement among the Company, the
Selling Securityholders and the Underwriters in accordance with its terms.
Very truly yours,
SIEBEL SYSTEMS, INC.
By________________________________
Thomas M. Siebel
Chairman and Chief Executive Officer
SELLING SECURITYHOLDERS:
(as named in Schedule II hereto)
By_________________________________
Thomas M. Siebel
Attorney-In-Fact
27
<PAGE> 28
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY LLC
By Hambrecht & Quist LLC
By_____________________________
Managing Director
28
<PAGE> 29
SCHEDULE I
UNDERWRITERS
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
------------ ---------
Hambrecht & Quist LLC........................
---------
Montgomery Securities........................
---------
Robertson, Stephens & Company LLC............
---------
Total............................... 1,500,000
=========
29
<PAGE> 30
SCHEDULE II
SELLING SECURITYHOLDERS
NUMBER OF SHARES
TO BE SOLD
NAME OF SELLING SECURITYHOLDERS (UNDERWRITTEN STOCK) OPTION STOCK
- ------------------------------- -------------------- ------------
Corporate Selling Securityholders
Adobe Ventures L.P. .............. 294,244 145,756
Itochu Corporation ............... 31,414 4,586
Itochu Techno-Science Corporation 31,414 4,586
Itochu Technology, Inc. .......... 5,996 876
LSI Logic Corporation ............ 56,720 8,280
Individual Selling Securityholders
Albert G. Battle ................. 2,618 382
Michael J. Corley and
Lori B. Corley, Trustees
of the Corley Living Trust
dated November 13, 1990 ........ 4,363 637
John Dawson ...................... 8,726 1,274
William B. Edwards ............... 26,178 3,822
Irwin Federman Trust ............. 17,452 2,548
Andrew J. Filipowski ............. 9,090 1,327
Mark D. Hanson ................... 34,905 5,095
Patricia A. House ................ 8,726 1,274
Thomas M. Siebel ................. 174,523 25,477
Igor M. Sill ..................... 34,905 5,095
Richard E. Steiny and
Lisa Steiny, Trustees of
the Steiny 1993 Trust
dated May 18, 1993 ............ 8,726 1,274
--------- -------
TOTAL......................
========= =======
30
<PAGE> 31
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF
COOLEY GODWARD CASTRO HUDDLESON & TATUM
COUNSEL FOR THE COMPANY
AND THE INDIVIDUAL SELLING SECURITYHOLDERS
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified as a foreign
corporation and in good standing in each state of the United States of
America in which its ownership or leasing of property requires such
qualification, except for such jurisdictions in which the failure to
qualify would not have a material adverse effect on the Company, and
has full corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement;
(ii) Upon the closing of the sale of the Underwritten Stock,
the authorized capital stock of the Company consists of 2,000,000
shares of Preferred Stock, $.001 par value, of which there are no
outstanding shares, and 40,000,000 shares of Common Stock, $.001 par
value, of which there are outstanding _________ shares (including the
Underwritten Stock [plus the number of shares of Option Stock issued on
the date hereof]); proper corporate proceedings have been taken validly
to authorize such authorized capital stock; all of the outstanding
shares of such capital stock (including the Underwritten Stock and the
shares of Option Stock issued, if any) have been duly and validly
issued and are fully paid and nonassessable; any Option Stock purchased
after the Closing Date, when issued and delivered to and paid for by
the Underwriters as provided in the Underwriting Agreement, will have
been duly and validly issued and be fully paid and nonassessable; and
no preemptive rights of, or rights of refusal in favor of, stockholders
exist with respect to the Stock, or the issue and sale thereof,
pursuant to the Certificate of Incorporation or Bylaws of the Company
and, to the knowledge of such counsel, there are no contractual
preemptive rights that have not been waived, rights of first refusal or
rights of co-sale which exist with respect to the Stock being sold by
the Selling Securityholders or the issue and sale of the Stock by the
Company;
(iii) the Registration Statement has become effective under
the Securities Act and, to the best of such counsel's knowledge, no
stop order suspending the effectiveness of the Registration Statement
or suspending or preventing the use of the Prospectus is in effect and
no proceedings for that purpose have been instituted or are pending or
threatened by the Commission;
31
<PAGE> 32
(iv) the Registration Statement and the Prospectus (except as
to the financial statements and schedules and other financial and
statistical data contained therein, as to which such counsel need
express no opinion) comply as to form in all material respects with the
requirements of the Securities Act and with the rules and regulations
of the Commission thereunder (the "Rules");
(v) the information required to be set forth in the
Registration Statement in answer to Items 9, 10 (insofar as it relates
to such counsel) and 11(c) of Form S-1 is to the best of such counsel's
knowledge accurately set forth therein in all material respects to the
extent required under the Securities Act and the Rules or no response
is required with respect to such Items, and the description of the
Company's stock option plans and the options granted and which may be
granted thereunder set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to said
plans and options to the extent required by the Securities Act and the
Rules;
(vi) such counsel does not know of any franchises, contracts,
leases or documents, or any threatened legal or governmental actions,
suits or proceedings which in the opinion of such counsel are of a
character required under the Securities Act and the Rules to be
described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement, which are not
described and filed as required;
(vii) the Underwriting Agreement has been duly authorized,
executed and delivered by the Company and constitutes the legal, valid
and binding obligation of the Company, except as rights to indemnity
under Section 7 of the Underwriting Agreement may be limited by
applicable laws and except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditors' rights, and subject to general
equity principles and to limitations on availability of equitable
relief, including specific performance;
(viii) the Company has full corporate right, power and
authority to enter into the Underwriting Agreement and to issue, sell
and deliver the portion of the Stock to be issued, sold and delivered
by it to the Underwriters;
(ix) the Underwriting Agreement has been duly executed and
delivered by and on behalf of the Selling Securityholders listed in
Schedule II to the Underwriting Agreement under the Subheading
"Individual Selling Securityholders" and the Custody Agreement between
such Selling Securityholders and ChaseMellon Shareholder Services LLC,
as Custodian, and the Power of Attorney referred to in such Custody
Agreement have been duly executed and delivered by the several Selling
Securityholders and each of the Underwriting Agreement, the Custody
Agreement and the Power of Attorney constitutes the legal, valid and
binding obligations of such persons, except as rights to indemnity
under Section 7 of the Underwriting Agreement may be limited by
applicable laws and except as enforcement may be limited by applicable
bankruptcy, insolvency,
32
<PAGE> 33
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to general equity principles and to
limitations on availability of equitable relief, including specific
performance;
(x) the issuance and sale by the Company of the shares of Stock
sold by the Company as contemplated by the Underwriting Agreement do
not conflict with, or result in a breach of, the Certificate of
Incorporation or Bylaws of the Company or any agreement or instrument
filed as an exhibit to the Registration Statement to which the Company
is a party or any applicable law or regulation (other than as may be
required under state securities or blue sky laws), or so far as is
known to such counsel, any order, writ, injunction or decree, of any
jurisdiction, court or governmental instrumentality binding upon the
Company;
(xi) to the best of such counsel's knowledge, the rights of all
holders of securities of the Company having rights to the registration
of shares of Common Stock, or other securities, because of the filing
of the Registration Statement by the Company have been waived, such
rights have expired by reason of lapse of time following notification
of the Company's intent to file the Registration Statement or such
holders have elected to include securities offered under the
Registration Statement;
(xii) good and marketable title to the shares of Stock sold by
the Company and the Selling Securityholders under the Underwriting
Agreement, free and clear of all liens, encumbrances, equities,
security interests and claims, has been transferred to the Underwriters
who have severally purchased such shares of Stock under the
Underwriting Agreement, assuming for the purpose of this opinion that
the Underwriters purchased the same in good faith without notice of any
liens, encumbrances, equities, security interests or adverse claims;
(xiii) no consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation
of the transactions contemplated in the Underwriting Agreement, except
such as have been obtained under the Securities Act and such as may be
required under state securities or blue sky laws in connection with the
purchase and distribution of the Stock by the Underwriters;
(xiv) the Stock sold by the Selling Securityholders and the
Stock issued and sold by the Company has been duly authorized for
inclusion in The Nasdaq National Market upon official notice of
issuance;
(xv) the Common Stock conforms in all material respects to the
description thereof contained under the caption "Description of Capital
Stock" in the Prospectus.
33
<PAGE> 34
------------------------------------
Also, such counsel shall each include a statement to the effect that
nothing has come to such counsel's attention that would lead such counsel to
believe that the Registration Statement at the Effective Date or the Prospectus
as of its date or at the Closing Date, or at any later date on which Option
Stock is purchased (except as to the financial statements and schedules and
other financial and statistical data contained therein), contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. In making such
statements, such counsel may state that their belief is based upon such
counsel's participation in the preparation of the Registration Statement and
Prospectus, and any amendments or supplements thereto and their review and
discussion of the contents thereof, but is without independent check or
verification.
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or of the State of California or the
General Corporation Law of the State of Delaware, upon opinions of local counsel
satisfactory in form and scope to counsel for the Underwriters. Copies of any
opinions so relied upon shall be delivered to the Representatives and to counsel
for the Underwriters and the foregoing opinion shall also state that counsel
knows of no reason the Underwriters are not entitled to rely upon the opinions
of such local counsel.
34
<PAGE> 35
ANNEX B
MATTERS TO BE COVERED IN THE OPINION OF
COUNSEL FOR EACH OF THE CORPORATE SELLING SECURITYHOLDERS
(i) the Underwriting Agreement has been duly authorized,
executed and delivered by and on behalf of [the Corporate Selling
Securityholder] and the Custody Agreement between [the Corporate
Selling Securityholder] and ChaseMellon Shareholder Services LLC, as
Custodian, and the Power of Attorney referred to in such Custody
Agreement have been duly executed and delivered by [the Corporate
Selling Securityholder] and each of the Underwriting Agreement, the
Custody Agreement and the Power of Attorney constitutes the legal,
valid and binding obligations of [the Corporate Selling
Securityholder], except as rights to indemnity under Section 7 of the
Underwriting Agreement may be limited by applicable laws and except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to general equity principles and to
limitations on availability of equitable relief, including specific
performance;
(ii) [the Corporate Selling Securityholder] has full right,
power and authority to enter into the Underwriting Agreement, the
Custody Agreement and the Power of Attorney, and to sell, transfer and
deliver the Stock to be sold by such Selling Securityholder under the
Underwriting Agreement; and
(iii) good and marketable title to the shares of Stock sold by
[the Corporate Selling Securityholder] under the Underwriting
Agreement, free and clear of all liens, encumbrances, equities,
security interests and claims, has been transferred to the Underwriters
who have severally purchased such shares of Stock under the
Underwriting Agreement, assuming for the purpose of this opinion that
the Underwriters purchased the same in good faith without notice of any
liens, encumbrances, equities, security interests or adverse claims.
35
<PAGE> 1
EXHIBIT 5.1
[COOLEY LETTERHEAD]
September 16, 1996
Siebel Systems, Inc.
1855 South Grant Street
San Mateo, CA 94402
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing on September 16, 1996 by Siebel Systems, Inc. (the "Company") of
a Registration Statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission"), including a prospectus to
be filed with the Commission pursuant to Rule 424(b) of Regulation C promulgated
under the Securities Act of 1933, as amended (the "Prospectus"), and the
underwritten public offering of up to 1,725,000 (including 225,000 shares of
Common Stock for which the underwriters have been granted an over allotment
option) shares of the Company's common stock (the "Common Stock").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Certificate of
Incorporation and Bylaws, as amended, and the originals or copies certified to
our satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable to render
the opinion expressed below and (ii) assumed that the shares of the Common Stock
will be sold by the underwriters at a price established by the Pricing Committee
of the Board of Directors of the Company.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid and
nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
By: /s/ ERIC C. JENSEN
--------------------------------
Eric C. Jensen
<PAGE> 1
EXHIBIT 11.1
SIEBEL SYSTEMS, INC.
STATEMENT REGARDING COMPUTATION OF PRO FORMA NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED -----------------
DECEMBER 31, 1995 1995 1996
----------------- ------- -------
<S> <C> <C> <C>
Net income (loss).......................................... $ 317 $ (678) $ 899
------- ------- -------
Weighted average number of shares of common stock
outstanding
Common stock............................................. 8,074 8,047 8,540
Preferred stock, as if converted......................... 3,858 3,427 4,959
Number of common stock equivalents as a result of stock
options outstanding using the treasury stock method...... 594 -- 534
Common stock issued and stock options granted in accordance
with SAB No. 83.......................................... 3,814 3,905 2,922
------- ------- -------
Total............................................ 16,340 15,379 16,955
======= ======= =======
Pro forma net income (loss) per share...................... $ .02 $ (.04) $ .05
======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Siebel Systems, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
KPMG PEAT MARWICK LLP
San Jose, California
September 13, 1996
