<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1996
REGISTRATION NO. 333-03751
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
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>
------------------------
4005 BOHANNON DRIVE
MENLO PARK, CALIFORNIA 94025
(415) 329-6500
(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.
4005 BOHANNON DRIVE
MENLO PARK, CALIFORNIA 94025
(415) 329-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JAMES C. GAITHER, ESQ. WILLIAM D. SHERMAN, ESQ.
ERIC C. JENSEN, ESQ. C. PATRICK MACHADO, ESQ.
COOLEY GODWARD CASTRO C. JEFFREY CHAR, ESQ.
HUDDLESON & TATUM MORRISON & FOERSTER LLP
3000 SAND HILL ROAD, BLDG. 3, SUITE 230 755 PAGE MILL ROAD
MENLO PARK, CA 94025-7116 PALO ALTO, CA 94304
(415) 843-5000 (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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<S> <C> <C> <C> <C>
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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.......... 2,300,000 $15.00 $34,500,000 $11,897 (3)
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</TABLE>
(1) Includes 300,000 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.
(3) Previously paid.
------------------------
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
SIEBEL SYSTEMS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
----------------------------------------------- -----------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus....... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front Cover Page and Outside Back Cover
Page
3. Summary Information, Risk Factors, and Ratio of
Earnings to Fixed Charges.................... Prospectus Summary; Risk Factors
4. Use of Proceeds................................ Use of Proceeds
5. Determination of Offering Price................ Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution....................................... Dilution
7. Selling Security Holders....................... Principal and Selling Stockholders
8. Plan of Distribution........................... Outside Front Cover Page and Inside Front Cover
Page; Underwriting
9. Description of Securities to be Registered..... Prospectus Summary; Capitalization; Description
of Capital Stock
10. Interests of Named Experts and Counsel......... Legal Matters; Experts
11. Information with Respect to
the Registration............................. Outside Front and Inside Front Cover Pages;
Prospectus Summary; Risk Factors; Dividend
Policy; Capitalization; Selected Financial
Data; Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal and Selling
Stockholders; Description of Capital Stock;
Shares Eligible for Future Sale; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
</TABLE>
<PAGE> 3
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 JUNE 21, 1996
PROSPECTUS
1,963,000 SHARES
LOGO
COMMON STOCK
Of the 1,963,000 shares of Common Stock offered hereby, 1,800,000 shares
are being sold by the Company and 163,000 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."
At the request of the Company, the number of shares of Common Stock
purchasable at the Per Share Price to Public for an aggregate purchase price of
$2,000,000 has been reserved for sale to The Dow Chemical Company (the "Dow
Shares"). The sale of such shares will reduce the number of shares offered
hereby. See "Underwriting."
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $13.00 and $15.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for listing on the Nasdaq
National Market under the symbol SEBL. Upon completion of this offering, the
directors and officers of the Company and affiliated entities will exercise
voting control over approximately 67% 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>
<S> <C> <C> <C> <C>
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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) Includes the Dow Shares, as to which the underwriting discount will be
$ per share. See "Underwriting" for indemnification arrangements with
the several Underwriters.
(2) Before deducting expenses payable by the Company estimated at $950,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 294,450 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, and Proceeds to Company 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> 4
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.
------------------------
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 STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
[GATEFOLD]
<PAGE> 6
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.
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. 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, Europe, and Asia. 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 May 31, 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, 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 4005 Bohannon
Drive, Menlo Park, CA 94025. Its telephone number is (415) 329-6500. Its e-mail
address is [email protected]. The Company maintains an Internet home page.
3
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................... 1,800,000 shares
Common Stock offered by the Selling Stockholders...... 163,000 shares
Common Stock to be outstanding after the offering..... 15,530,770 shares(1)
Use of proceeds....................................... For general corporate purposes,
including working capital
Proposed Nasdaq National Market symbol................ SEBL
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
SEPTEMBER 13, 1993 DECEMBER 31,
(INCEPTION) TO -------------------
DECEMBER 31, 1993 1994 1995
------------------ ------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................................... $ -- $ 50 $ 8,038
Operating income (loss)...................................... (114) (1,779) 372
Net income (loss)............................................ (114) (1,766) 317
Pro forma net income per share(2)............................ $ .02
Shares used in pro forma per share computation(2)............ 16,340
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996
-------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues......................................... $ 30 $ 1,284 $ 2,564 $ 4,160 $ 4,709
Operating income (loss)................................ (1,208 ) 25 422 1,133 211
Net income (loss)...................................... (720 ) 42 287 708 198
Pro forma net income (loss) per share(2)............... $ (.05 ) $ -- $ .02 $ .04 $ .01
Shares used in pro forma per share computation(2)...... 14,642 16,777 16,856 16,803 16,859
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ 9,757 $ 11,094 $ 33,580
Total assets.................................................... 15,609 16,946 39,432
Total stockholders' equity...................................... 10,314 11,651 34,137
</TABLE>
- ---------------
(1) Based on shares outstanding as of April 30, 1996. Excludes 3,760,450 shares
of Common Stock issuable upon exercise of stock options outstanding as of
April 30, 1996 at a weighted average exercise price of $3.35 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 (i) the sale of 90,000 shares of Series D Preferred Stock
at $10.00 per share on April 30, 1996, (ii) the issuance of 75,000 shares of
Series C Preferred Stock upon the exercise of a warrant at $5.82 per share
in June 1996, and (iii) the conversion of all outstanding shares of
Preferred Stock into shares of Common Stock upon the closing of this
offering.
(4) Adjusted to reflect the sale of 1,800,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $14.00 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 (i) no exercise of the Underwriters' over-allotment option and (ii) the
conversion of all outstanding shares of Preferred Stock into shares of Common
Stock upon the closing of this offering. See "Description of Capital Stock" and
"Underwriting."
4
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this Prospectus.
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 May 31, 1996, only 21 entities have
licensed Siebel Sales Enterprise and each 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 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
5
<PAGE> 9
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 quarter of 1996, approximately
46% and 49%, 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 Wilson Learning Corporation, 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
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
governmen-
6
<PAGE> 10
tal 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 March 31, 1996, many of the Company's customers
were in the pilot phase of implementing the Company's software. None of the
Company's customers has completed the enterprise-wide development and deployment
of Siebel Sales Enterprise, and many have not yet commenced such 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 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."
7
<PAGE> 11
Reliance on Single Product Family. Approximately 94% 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 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
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<PAGE> 12
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 quarter of 1996, sales to the
Company's 10 largest customers accounted for 93% and 98% 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. 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 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
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<PAGE> 13
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!), 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), 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."
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
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<PAGE> 14
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
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
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<PAGE> 15
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 intends to expand its existing
international operations and enter additional international markets, which will
require significant management attention and financial resources and could
adversely affect the Company's operating margins and earnings, if any. Revenues
from export sales accounted for approximately 12% and 11% of the Company's total
revenues in 1995 and the first quarter 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
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<PAGE> 16
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. The Company and Thomas M. Siebel have been 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 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, 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 intend to vigorously defend the complaint filed by Ms. Christoffers
and any action that Mr. Lenaghan may bring. 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 67% of the outstanding shares of Common Stock (66% 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 42% of the outstanding shares of
Common Stock (41% 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."
No Prior Public Market for Common Stock; Possible Volatility of Stock
Price. Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after the offering. The initial public
offering price will be determined by negotiations between the Company, the
representatives of the Selling Stockholders and the representatives of the
Underwriters. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The trading price
of the
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<PAGE> 17
Company's Common Stock could be 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 may 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. Following the completion of this
offering, the Company's Board of Directors will have 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 15,530,770
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 April 30, 1996. Of these shares, all of the shares sold
in this offering will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (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
the shares of Common Stock to be purchased by The Dow Chemical Company will be
subject to an agreement not to sell any of such shares until 180 days from the
date of this Prospectus without the consent of Hambrecht & Quist LLC. The
remaining 13,567,770 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 204,775 shares of Common Stock issuable to employees and
consultants pursuant to stock options that are then vested, as well as the
shares purchased by The Dow Chemical Company in this offering) will be eligible
for sale upon expiration of the lock-up agreements 180 days after the date of
this Prospectus; and (iii) 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 commencing on January 3, 1997, subject 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 180 days after the date
of this Prospectus. 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
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<PAGE> 18
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 create a public market for the Company's Common Stock, to facilitate
future access to public markets and 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."
Immediate and Substantial Dilution. Investors participating in this
offering will incur immediate and substantial dilution of $11.79 per share. To
the extent outstanding options to purchase the Company's Common Stock are
exercised, there will be further dilution. If the net proceeds of this offering,
together with available funds and cash generated from operations, are
insufficient to satisfy the Company's cash needs, the Company may be required to
sell additional equity or convertible debt securities. The sale of additional
equity or convertible debt securities could result in additional dilution to the
Company's stockholders. See "Dilution" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
THE COMPANY
The Company was incorporated under the laws of California in 1993 and
intends to reincorporate in Delaware prior to the completion of this offering.
The Company's principal executive offices are located at 4005 Bohannon Drive,
Menlo Park, CA 94025. Its telephone number is (415) 329-6500. 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.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,800,000 shares of
Common Stock offered by the Company hereby, at an assumed initial public
offering price of $14.00 per share, are estimated to be $22,486,000 ($26,320,000
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 principal purposes of this offering are to increase the Company's
equity capital and to create a public market for the Company's Common Stock,
which the Company believes will facilitate future access by the Company to
public equity markets and enhance the ability of the Company to use its Common
Stock as consideration for acquisitions and as a means for attracting and
retaining key employees.
The Company intends to use the net proceeds of this offering primarily for
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.
DIVIDEND POLICY
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> 20
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
March 31, 1996 after giving effect to the reincorporation of the Company in
Delaware, (ii) the pro forma capitalization of the Company after giving effect
to the sale of 90,000 shares of Series D Preferred Stock at $10.00 per share on
April 30, 1996, the issuance of 75,000 shares of Series C Preferred Stock upon
the exercise of a warrant at $5.82 per share in June 1996 and the conversion of
all outstanding shares of Preferred Stock into Common Stock upon the closing of
this offering and (iii) the capitalization as adjusted to reflect the sale by
the Company of 1,800,000 shares of the Common Stock offered hereby at an assumed
initial offering price of $14.00, the application of the net proceeds therefrom
and the subsequent restatement of the Company's Certificate of Incorporation.
<TABLE>
<CAPTION>
MARCH 31, 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, 4,907,655 shares issued
and outstanding; pro forma -- 10,000,000 shares
authorized, none issued and outstanding; as
adjusted -- 2,000,000 shares authorized, none issued
and outstanding........................................ $ 5 $ -- $ --
Common stock; $.001 par value; actual -- 35,000,000 shares
authorized, 8,572,760 shares issued and outstanding;
pro forma -- 35,000,000 shares authorized, 13,645,415
shares issued and outstanding; as
adjusted -- 40,000,000 shares authorized, 15,445,415
shares issued and outstanding(1)....................... 9 14 15
Additional paid-in capital................................ 11,063 12,400 34,885
Notes receivable from stockholders........................ (57) (57) (57)
Deferred compensation..................................... (1,220) (1,220) (1,220)
Retained earnings......................................... 514 514 514
------- ------- -------
Total stockholders' equity and capitalization..... $10,314 $ 11,651 $34,137
======= ======= =======
</TABLE>
- ---------------
(1) Excludes (i) 2,367,750 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 March 31, 1996 at a weighted average
exercise price of $1.84 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 April 30, 1996, there were
outstanding options to purchase a total of 3,760,450 shares of Common Stock
under the Equity Incentive Plan at a weighted average exercise price of
$3.35 per share and an additional 1,533,340 shares of Common Stock reserved
for grant thereunder. See "Management -- Equity Incentive Plans."
17
<PAGE> 21
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1996,
was approximately $11.7 million or $0.85 per share. Pro forma net tangible book
value per share is equal to the Company's total tangible assets less its total
liabilities, divided by the number of pro forma outstanding shares of Common
Stock, after giving effect to the issuance of 90,000 shares of Series D
Preferred Stock at $10.00 per share on April 30, 1996, the issuance of 75,000
shares of Series C Preferred Stock upon exercise of a warrant at $5.82 per share
in June 1996 and the conversion of all outstanding shares of Preferred Stock
into Common Stock upon the closing of this offering. After giving effect to the
sale of the 1,800,000 shares of Common Stock offered by the Company hereby (at
an assumed initial public offering price of $14.00 per share), the pro forma net
tangible book value of the Company at March 31, 1996 would have been
approximately $34.1 million or $2.21 per share. This represents an immediate
increase in such net tangible book value of $1.36 per share to existing
stockholders and an immediate dilution of $11.79 per share to new investors
purchasing shares in this offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......................... $14.00
Pro forma net tangible book value per share as of March 31, 1996...... $0.85
Increase per share attributable to new investors...................... 1.36
-----
Pro forma net tangible book value per share after this offering......... 2.21
-----
Dilution per share of Common Stock to new investors..................... $11.79
=====
</TABLE>
The following table summarizes on a pro forma basis, as of March 31, 1996,
the differences between the number of shares purchased from the Company, after
giving effect to the issuance of 90,000 shares of Series D Preferred Stock at
$10.00 per share on April 30, 1996, the issuance of 75,000 shares of Series C
Preferred Stock upon exercise of a warrant at $5.82 per share in June 1996 and
the conversion of all outstanding shares of Preferred Stock into Common Stock
upon the closing of this offering, the total consideration paid and the average
price paid per share by the existing holders of Common Stock and by the new
investors at an assumed initial public offering price of $14.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1)........... 13,645,415 88.3% $11,636,000 31.6% $ 0.85
New Investors(1)................... 1,800,000 11.7 25,200,000 68.4 14.00
---------- --- ----------- ---
Total.................... 15,445,415 100.0% $36,836,000 100.0%
========== === =========== ===
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to 13,482,415 shares or approximately
87.3% of the total shares of Common Stock outstanding after this offering
and will increase the number of shares held by new investors to 1,963,000
shares or approximately 12.7% of the total shares of Common Stock
outstanding after this offering.
The foregoing tables exclude 2,367,750 shares of Common Stock issuable upon
the exercise of options outstanding as of March 31, 1996 at a weighted average
exercise price of $1.84 per share. In addition, 350,000 shares of Common Stock
have been reserved for issuance under the Purchase Plan, none of which has been
issued. To the extent that options are exercised in the future, there will be
further dilution to new stockholders. As of April 30, 1996, there were
outstanding options to purchase a total of 3,760,450 shares of Common Stock
under the Equity Incentive Plan at a weighted average exercise price of $3.35
per share and an additional 1,533,340 shares of Common Stock reserved for grant
thereunder. See "Management -- Equity Incentive Plans."
18
<PAGE> 22
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
March 31, 1996, and the statement of operations data for the three month periods
ended March 31, 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
three months ended March 31, 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 THREE MONTHS ENDED
(INCEPTION) YEAR ENDED
TO DECEMBER 31, MARCH 31,
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 $ -- $ 4,402
Maintenance and other............................ -- -- 402 30 307
------ ------- ------- ------- ---------
Total revenues.............................. -- 50 8,038 30 4,709
Cost of revenues:
Software......................................... -- -- 41 -- 26
Maintenance and other............................ -- -- 385 9 343
------ ------- ------- ------- ---------
Total cost of revenues...................... -- -- 426 9 369
------ ------- ------- ------- ---------
Gross margin................................ -- 50 7,612 21 4,340
Operating expenses:
Product development.............................. 64 868 2,816 616 986
Sales and marketing.............................. 28 718 3,232 456 2,553
General and administrative....................... 22 243 1,192 157 590
------ ------- ------- ------- ---------
Total operating expenses.................... 114 1,829 7,240 1,229 4,129
------ ------- ------- ------- ---------
Operating income (loss)..................... (114) (1,779) 372 (1,208) 211
Other income, net.................................. -- 13 156 8 119
------ ------- ------- ------- ---------
Income (loss) before income taxes........... (114) (1,766) 528 (1,200) 330
Income tax expense (benefit)..................... -- -- 211 (480) 132
------ ------- ------- ------- ---------
Net income (loss)........................... $(114) $(1,766) $ 317 $ (720) $ 198
============= ======== ======== ======== =========
Pro forma net income (loss) per share(1)........... $ .02 $ (.05) $ .01
======== ======== =========
Shares used in pro forma per share
computation(1)................................... 16,340 14,642 16,859
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ MARCH 31,
1993 1994 1995 1996
------- ------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET:
Cash and cash equivalents.......................... $ 703 $ 1,017 $11,391 $ 9,757
Total assets....................................... 750 1,203 16,091 15,609
Retained earnings (accumulated deficit)............ -- (1) 316 514
Stockholders' equity............................... 746 1,189 9,934 10,314
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for a description of the
calculation of pro forma net income (loss) per share.
19
<PAGE> 23
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 94% 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. The Company intends to also offer its customers the
ability to license its products on a monthly or other short-term basis. The
Company expects that these shorter term license fees could, in the future,
constitute an increasing portion of its software revenues. If these shorter term
fee payments increase as a percentage of total revenues, the Company believes it
will be able to alleviate somewhat the periodic revenue concentration from
one-time non-recurring licenses.
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 quarter of 1996, sales
to the Company's ten largest customers accounted for 93% and 98% 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. 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
20
<PAGE> 24
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 implementations by such customers could have a
material adverse effect on the Company's business, operating results, and
financial condition.
As of March 31, 1996, many of the Company's customers were in the pilot
phase of implementation of Siebel Sales Enterprise. None of the Company's
customers has completed the enterprise-wide development and deployment of Siebel
Sales Enterprise, and many have not yet commenced such 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 11% of total revenues in
1995 and the first quarter 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 five quarters,
and the Company had net income in each of the last four 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
21
<PAGE> 25
upon as indications of future performance. It is likely that in some future
quarter the Company's 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.
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 five
quarters ended March 31, 1996.
22
<PAGE> 26
The following tables set forth the quarterly statement of operations for
the five quarters ended March 31, 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,
1995(1) 1995 1995 1995 1996
---------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Software............................................... $ -- $1,186 $ 2,400 $4,050 $4,402
Maintenance and other.................................. 30 98 164 110 307
------- ------ ------ ------ ------
Total revenues.................................... 30 1,284 2,564 4,160 4,709
Cost of revenues:
Software............................................... -- 4 8 29 26
Maintenance and other.................................. 9 47 117 212 343
------- ------ ------ ------ ------
Total cost of revenues............................ 9 51 125 241 369
------- ------ ------ ------ ------
Gross margin...................................... 21 1,233 2,439 3,919 4,340
Operating expenses:
Product development.................................... 616 621 822 757 986
Sales and marketing.................................... 456 406 903 1,467 2,553
General and administrative............................. 157 181 292 562 590
------- ------ ------ ------ ------
Total operating expenses.......................... 1,229 1,208 2,017 2,786 4,129
------- ------ ------ ------ ------
Operating income (loss)........................... (1,208) 25 422 1,133 211
Other income, net........................................ 8 45 56 47 119
------- ------ ------ ------ ------
Income (loss) before income taxes................. (1,200) 70 478 1,180 330
Income tax expense (benefit)........................... (480) 28 191 472 132
------- ------ ------ ------ ------
Net income (loss)................................. $ (720) $ 42 $ 287 $ 708 $ 198
======= ====== ====== ====== ======
Pro forma net income (loss) per share.................... $ (.05) $ -- $ .02 $ .04 $ .01
======= ====== ====== ====== ======
Shares used in pro forma per share computation........... 14,642 16,777 16,856 16,803 16,859
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Software................................................. 92.4% 93.6% 97.4% 93.5%
Maintenance and other.................................... 7.6 6.4 2.6 6.5
----- ----- ----- -----
Total revenues...................................... 100.0 100.0 100.0 100.0
Cost of revenues:
Software................................................. 0.3 0.3 0.7 0.6
Maintenance and other.................................... 3.7 4.6 5.1 7.2
----- ----- ----- -----
Total cost of revenues.............................. 4.0 4.9 5.8 7.8
----- ----- ----- -----
Gross margin........................................ 96.0 95.1 94.2 92.2
Operating expenses:
Product development...................................... 48.4 32.1 18.2 21.0
Sales and marketing...................................... 31.6 35.2 35.3 54.2
General and administrative............................... 14.1 11.4 13.5 12.5
----- ----- ----- -----
Total operating expenses............................ 94.1 78.7 67.0 87.7
----- ----- ----- -----
Operating income.................................... 1.9 16.4 27.2 4.5
Other income, net.......................................... 3.5 2.2 1.1 2.5
----- ----- ----- -----
Income before income taxes.......................... 5.4 18.6 28.3 7.0
Income tax expense....................................... 2.2 7.4 11.3 2.8
----- ----- ----- -----
Net income.......................................... 3.2% 11.2% 17.0% 4.2%
===== ===== ===== =====
</TABLE>
- ---------------
(1) Due to insignificant revenues, presentation as a percentage of revenues is
not meaningful.
23
<PAGE> 27
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 second quarter of
1995 to $4.4 million in the first quarter 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 the
first quarter of 1996 was due to an increase in the number of licenses of
version 2.0 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 less
than $100,000 in each of the first two quarters of 1995 to $307,000 in the first
quarter 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 March 31, 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 $343,000 in the first quarter of 1996. These costs increased
significantly in the last two quarters of 1995 and the first quarter 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 quarter 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 $1.0 million for the first quarter of 1996. These expenses
generally decreased, as a percentage of total revenues, from approximately 48%
in the second quarter of 1995 to approximately 21% for the first 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 and that product development
expenses will increase in absolute dollar amount but are expected to decline
somewhat as a percentage of total revenues from the level of the first 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 $2.6 million for the first quarter 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 first
24
<PAGE> 28
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 first 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 $590,000 for the first quarter of 1996. These expenses
generally decreased as a percentage of total revenues from approximately 14% in
the second quarter of 1995 to approximately 13% in the first 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 anticipated expansion of
the Company's administrative staff 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
decrease somewhat in the future from the level of the first 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 quarter 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 1993 and 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 quarter 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 March 31, 1996, the Company funded its operations
primarily through cash flows from operations, the private sale of equity
securities totaling $11.6 million and, to a limited extent, bank indebtedness.
As of March 31, 1996, the Company had $9.8 million in cash and cash equivalents,
and no outstanding bank indebtedness.
Net cash used in operating activities was $119,000, $1.7 million and
$505,000 in 1993, 1994 and for the first quarter of 1996, respectively, and net
cash provided by operating activities was $2.8 million in 1995. 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 quarter of 1996, net cash used by
operating activities of $505,000 was primarily attributable to net income of
$198,000 and increases in accounts payable of $313,000, offset by a decrease in
deferred revenue of $692,000.
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
25
<PAGE> 29
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 $1.3 million
in 1993, 1994, 1995 and the first quarter of 1996, respectively. This increase
in capital expenditures during 1995 and the first quarter 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 March 31, 1996, the Company did not
have any material commitments for capital expenditures.
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.
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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 and GartnerGroup, 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, and for synchronizing and replicating data for
remote computing.
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 Sales Enterprise using a standard
CGI (Common Gateway Interface) interface to the Siebel Open
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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
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. Virtually all 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 North America,
Europe, Asia, and Latin America. The Company has operations in North America,
the United Kingdom, and Japan 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:
Siebel Sales Enterprise Product Options
Siebel Encyclopedia
Siebel Encyclopedia provides sales professionals with access to a
repository of their organization's sales-related information, including complete
product information, competitive information,
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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.
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
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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.
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.
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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
French and Spanish language versions which it currently expects to release in
Europe in 1996. Other localized versions 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 May 31, 1996.
<TABLE>
<S> <C>
FINANCIAL SERVICES
- Charles Schwab & Co., Inc.
- Frank Russell Company
- Montgomery Securities
- 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.
Manufacturing
Unisys Corporation has adopted Siebel Sales Enterprise for use in selling
complex high-technology products and services. After a multi-year internal
development effort and many millions of dollars in expense, they canceled their
project and selected Siebel as their sales and marketing information solution.
They have employed a multi-tiered distribution strategy and plan to use Siebel
to manage many elements of the sales process. The customer intends to use Siebel
to help consolidate formerly
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disparate customer databases and prospect lists. Operating over a worldwide WAN,
telesales representatives are expected to be able to access sales history,
product information, create quotations, take orders, share information and route
leads to field representatives.
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 Bill Gates, Chairman of Microsoft, 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.
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SALES
Siebel sells its software primarily through its direct sales organization.
As of April 30, 1996 the Company's direct sales force consisted of 18 sales
professionals located in eight domestic offices (Boston, New York, McLean,
Atlanta, Chicago, Dallas, Los Angeles, and Menlo Park) and two international
offices (London and Tokyo). The field sales force is complemented by two
telemarketing representatives situated in the Company's Menlo Park, California
headquarters. Technical sales support is provided by 11 sales consultants
co-located in the field offices. Sales in the Asia/Pacific market are leveraged
through a co-exclusive distribution agreement with Itochu. The Company currently
intends to add sales representatives and sales consultants in the United States,
Germany, France, the United Kingdom, Spain, Japan, Australia and Singapore.
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
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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 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 Menlo Park, 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 and
Deloitte & Touche LLP 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.
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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.
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 Bill Gates, Chairman of Microsoft, 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.
Educational Service Provider -- Wilson Learning Corporation
Siebel Systems has a relationship with Wilson Learning Corporation, a
worldwide sales training company. As part of the relationship, Wilson Learning
has agreed to develop and deliver a wide range
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of end-user training courses for Siebel end-users. Wilson Learning will offer
instructor-led classroom training and self-paced computer-based training
modules. As a part of the Siebel implementation project team, Wilson Learning's
professional course developers and sales training experts will design training
that reflects the customer's unique Siebel configuration and specific business
processes.
This strategic relationship is designed to address end-user training, the
last critical step that an organization must take to successfully deploy its
Siebel-based sales and marketing information system.
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 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 800 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 Wilson Learning 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
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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.
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.
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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 and the engineering work load. Enhancement requests, user
misunderstandings and customer requests are also entered into this system as
well.
As of March 31, 1996, there were 27 employees on the Company's product
development staff. The Company's product development expenditures in 1994, 1995
and the first quarter of 1996 were $868,000, $2.8 million and $1.0 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
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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 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.
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<PAGE> 53
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.
Other Competitors
A large number of personal, departmental and other products exist in the
sales automation market. Companies (Products) such as Symantec (ACT!), 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), 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."
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<PAGE> 54
EMPLOYEES
As of April 30, 1996, the Company had a total of 103 employees, of which 98
were based in the United States, 4 in the United Kingdom and 1 in Japan. Of the
total, 41 were engaged in sales and marketing, 27 were in product development,
21 were in customer support and 14 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 two sites of approximately
7,200 square feet and 12,000 square feet of space in Menlo Park, California. The
leases on these office spaces expire in July 1997 and December 1996,
respectively. In June 1996, the Company entered into a lease for approximately
66,000 square feet of space in San Mateo, California which expires in June 2006.
The Company intends to move all of its Menlo Park operations to such facility
prior to the end of 1996. The Company currently leases other domestic sales and
support offices in Georgia, Illinois, New York, Texas, and Virginia. The Company
also maintains international offices in the United Kingdom and Japan.
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, 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 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 Chief Financial Officer of the
Company for approximately five weeks, ending in March 1996. On June 5, 1996, 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 and Mr. Siebel
strongly believe 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.
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> 55
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
April 30, 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.................. 40 Vice President Legal Affairs
Craig D. Ramsey................... 49 Senior Vice President Worldwide Operations
William B. Edwards................ 41 Vice President Engineering
Bruce A. Cleveland................ 37 Vice President Marketing
Pehong Chen, Ph.D. ............... 38 Director
James C. Gaither(1)............... 58 Director
Eric E. Schmidt, Ph.D. ........... 41 Director
Charles R. Schwab(1).............. 58 Director
George T. Shaheen(2).............. 51 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 of Urbana-Champaign and an M.B.A. from the Graduate
School of Business at Stanford University.
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<PAGE> 56
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 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.
PEHONG CHEN, PH.D. has served as a Director of the Company since February
1994. From May 1993 to the present, Dr. Chen has served as President, Chairman
and Chief Executive Officer of BroadVision, Inc., an electronic commerce
software developer. From October 1992 to May 1993, Dr. Chen served as Vice
President of Multimedia Technology at Sybase, Inc., a software company. From
June 1989 to September 1992, he served as President of Gain Technology, a
multimedia software company. Dr. Chen received a B.S. from National Taiwan
University, an M.S. from Indiana University and a Ph.D. from the University of
California at Berkeley, all in Computer Science.
JAMES C. GAITHER has served as a Director of the Company since February
1994. From 1971 to the present, Mr. Gaither has been a Partner of the law firm
of Cooley Godward Castro Huddleson & Tatum 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
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<PAGE> 57
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 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. In May 1996, the
Board of Directors approved, subject to stockholder approval, the Company's
Certificate of Incorporation in connection with the Company's reincorporation in
Delaware. The 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.
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<PAGE> 58
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, Drs. Chen and Spence and Messrs. Gaither, Shaheen and Schwab each received
an option to purchase 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
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<PAGE> 59
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 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 April 30, 1996, 706,210 shares of Common Stock have been issued upon
the exercise of options granted under the Equity Incentive Plan, options to
purchase 3,760,450 shares of Common Stock at a weighted average exercise price
of $3.35 per share were outstanding and 1,533,340 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
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<PAGE> 60
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.
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 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 14.00 10/02/2005 2,430,000 4,015,000 6,446,000
</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 an assumed initial public offering price of $14.00 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
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<PAGE> 61
does not represent the Company's prediction of its stock price performance.
The potential realizable value is calculated by assuming that the assumed
initial public offering price of $14.00 per share appreciates at the
indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price.
AGGREGATED OPTIONS EXERCISED IN 1995 AND YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options during
the year ended December 31, 1995 and the number and value of securities
underlying unexercised options held by the Named Executive Officers at December
31, 1995:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1995(#) DECEMBER 31, 1995($)(2)
ON VALUE ------------------------------ ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE(1) EXERCISABLE UNEXERCISABLE
- ------------------------- ----------- ----------- ----------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel A. Turano......... -- -- 180,000 0 2,430,000 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 an assumed initial public offering price of
$14.00 per share and the exercise price.
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
58
<PAGE> 62
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.
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.
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 director and
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
Castro Huddleson & Tatum, which has provided legal services to the Company since
its inception.
59
<PAGE> 63
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.
60
<PAGE> 64
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 April 30,
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) other
principal stockholders who are known by the Company to own beneficially more
than 2% of the Common Stock, (iii) each of the Company's directors, (iv) each of
the Named Executive Officers, (v) all directors and executive officers of the
Company as a group, and (vi) the Selling Stockholders. The table assumes the
conversion of all outstanding Preferred Stock into Common Stock upon the
completion of this offering. Unless otherwise specified, the address of
stockholders owning more than 5% of the Company's Common Stock is the address of
the Company set forth herein.
<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)............... 6,580,000 47.9% 50,000 6,530,000 42.0%
Andersen Consulting LLP(4)........ 1,388,000 10.0 -- 1,388,000 8.9
1661 Page Mill Road
Palo Alto, CA 94304
Pehong Chen and Adele Chi,
Trustees of the Chen Family
Trust(5)........................ 810,000 5.9 -- 810,000 5.2
Patricia A. House(6).............. 600,000 4.4 -- 600,000 3.9
Adobe Ventures L.P.(7)............ 588,488 4.3 -- 588,488 3.8
Itochu Corporation(8)............. 343,642 2.5 92,783 250,859 1.6
William B. Edwards(9)............. 295,000 2.1 10,217 284,783 1.8
Daniel A. Turano(10).............. 180,000 1.3 -- 180,000 1.1
James C. Gaither(11).............. 116,000 * -- 116,000 *
Pehong Chen, Ph.D.(12)............ 810,000 5.9 -- 810,000 5.2
Eric E. Schmidt, Ph.D. ........... 0 -- -- 0 --
A. Michael Spence, Ph.D.(13)...... 88,000 * -- 88,000 *
George T. Shaheen(14)............. 1,388,000 10.0 -- 1,388,000 8.9
Charles R. Schwab(15)............. 414,000 3.0 -- 414,000 2.7
All directors and executive
officers as a group (14
persons)(16).................... 10,956,000 75.7 60,217 10,895,783 67.0
OTHER SELLING STOCKHOLDERS
LSI Logic Corporation............. 75,000 * 10,000 65,000 *
</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 13,730,770 shares of Common
Stock outstanding as of April 30, 1996 and 15,530,770 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 294,450 shares of Common Stock from the Company.
(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.
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<PAGE> 65
(5) Dr. Chen, a director of the Company, is the co-trustee of the Chen Family
Trust. 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) Adobe Ventures, L.P. is a venture fund managed by Hambrecht & Quist LLC
which is one of the Representatives. See "Underwriting."
(8) Includes 171,821 shares held by Itochu Techno-Science Corporation and
34,364 shares held by Itochu Technology, Inc., affiliates of Itochu
Corporation. 51,546 of the shares are being offered by Itochu Techno-
Science Corporation and 41,237 of the shares are being offered by Itochu
Corporation.
(9) Includes 240,000 shares which are subject to a right of repurchase in favor
of the Company which expires ratably through March 1998.
(10) Includes 180,000 shares issuable upon exercise of options subject to
vesting through March 2001.
(11) 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.
(12) Includes shares held by the Chen Family Trust, of which Dr. Chen is a
co-trustee. Also includes 50,000 shares which are subject to a right of
repurchase in favor of the Company which expires ratably through March
1998.
(13) Includes 88,000 shares which are subject to a right of repurchase in favor
of the Company which expires ratably through October 2000.
(14) 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.
(15) 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.
(16) Includes 1,300,000 shares held by Andersen Consulting LLP. See footnote (4)
above. Also includes 733,000 shares issuable upon exercise of options held
by all officers and directors subject to vesting on various dates through
March 2002. See footnotes (3), (6) and (9) through (15) above.
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<PAGE> 66
DESCRIPTION OF CAPITAL STOCK
Following the closing of this offering, the authorized capital stock of the
Company, after giving effect to the conversion of all outstanding Preferred
Stock into Common Stock, will consist of 40,000,000 shares of Common Stock,
$.001 par value and 2,000,000 shares of Preferred Stock, $.001 par value. As of
April 30, 1996 there were approximately 100 holders of record of the Company's
Common and Preferred 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
Upon the closing of this offering, all outstanding shares of Preferred
Stock (including 31,430 shares of Series B Preferred Stock issued in April 1996)
will be converted into 5,104,085 shares of Common Stock. See Note 4 of Notes to
Financial Statements for a description of the currently outstanding Preferred
Stock. Following the closing of this offering, the Company's Certificate of
Incorporation will be restated to delete all references to the prior series of
Preferred Stock, and the Board of Directors will have 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 11,047,090 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
63
<PAGE> 67
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 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, effective
upon the closing of this offering, (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. has been appointed as the transfer
agent and registrar for the Company's Common Stock. Its telephone number is
(415) 954-9512.
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<PAGE> 68
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of
the Company. 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 this offering, the Company will have outstanding an
aggregate of 15,530,770 shares of Common Stock, assuming no exercise of
outstanding options and based upon the number of shares outstanding as of April
30, 1996. Of these shares, the 1,963,000 shares sold in this offering will be
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
the shares to be sold to The Dow Chemical Company will be subject to an
agreement not to sell any of such shares for a period of 180 days from the date
of this Prospectus without the consent of Hambrecht & Quist LLC. The remaining
13,567,770 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, which rules are
summarized below. 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 212,875 shares of Common Stock 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 180 days after the date of this
Prospectus (plus the shares to be purchased by The Dow Chemical Company in this
offering); and (iii) 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 beginning January 3, 1997, subject to restrictions on such sales
by Affiliates and certain vesting provisions on certain units. See "Certain
Transactions."
Upon completion of this offering, the holders of 11,047,090 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 13,364,663 shares of Common Stock after this offering
have agreed 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 during the 180-day period commencing on the date of this
Prospectus. The Dow Chemical Company has entered into a similar agreement with
respect to the shares it is purchasing in this offering.
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> 69
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 180 days after the date of this Prospectus.
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 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 each case commencing 90 days after the
date of this Prospectus. In addition, non-Affiliates may sell Rule 701 shares
without complying with the public information, volume and notice provisions of
Rule 144.
The Company intends to file a registration statement under the Securities
Act covering shares of Common Stock reserved for issuance under the Company's
Equity Incentive Plan and Purchase Plan. Based on the number of options
outstanding and options and shares reserved for issuance at April 30, 1996, such
registration statement would cover approximately 5,643,790 shares. Such
registration statement is expected to be filed and to become effective as soon
as practicable after the date hereof. Shares registered under such registration
statement will, subject to Rule 144 volume limitations applicable to Affiliates,
be 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> 70
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC,
Montgomery Securities, and Robertson, Stephens & Company LLC, 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......................................................... 1,963,000
========
</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 initial 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 initial public offering of the shares, the offering price and other
selling terms may be changed by the Representatives of the Underwriters.
The Company has 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 294,450 additional shares of Common Stock at the initial 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.
At the request of the Company, the number of shares of Common Stock
purchasable at the per share price to the public set forth on the cover of this
Prospectus for an aggregate purchase price of $2,000,000 has been reserved for
sale to The Dow Chemical Company. The sale of such shares shall reduce the
number of shares offered hereby. The underwriting discount on the shares to be
purchased by The Dow Chemical Company will be $ per share. The Dow Chemical
Company is a customer of the Company. See "Business -- Customers and Markets."
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.
67
<PAGE> 71
The Selling Stockholders, and certain other stockholders of the Company,
including the officers and directors, who will own in the aggregate
approximately 13,278,000 shares of Common Stock after this offering, have agreed
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 during the 180-day
period following the date of this Prospectus. The Company has agreed, subject to
certain exceptions, that it will not, without the prior written consent of H&Q,
offer, sell or otherwise dispose of any share of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock during the 180-day period following the
date of this Prospectus.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales of Common Stock offered hereby to any accounts over
which they exercise discretionary authority.
In March 1995 and December 1995, Adobe Ventures L.P., a venture capital
fund managed by H&Q, Hambrecht & Quist L.P., an affiliate of H&Q, and certain
employees and directors of H&Q and of entities affiliated with H&Q purchased
from the Company an aggregate of 525,002 shares of Series B Preferred Stock and
an aggregate of 205,878 shares of Series C Preferred Stock for aggregate cash
purchase prices of approximately $1,260,000 and $1,198,000, respectively. On the
closing of this offering, the Series B and Series C Preferred Stock will be
converted into an aggregate of 730,880 shares of Common Stock, representing
approximately 4.7% of the outstanding Common Stock, assuming no exercise of the
Underwriters' over-allotment option.
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 this offering.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price are prevailing
market conditions, revenues and earnings of the Company, market valuations of
other companies engaged in activities similar to those of the Company, estimates
of the business potential and prospects of the Company, the present state of the
Company's business operations, the Company's management and other factors deemed
relevant. The estimated initial public offering price range set forth on the
cover of this preliminary prospectus is subject to change as a result of market
conditions and other factors.
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 Castro
Huddleson & Tatum, Menlo Park, California ("Cooley Godward"). As of the date of
this Prospectus, certain members of Cooley Godward own through an investment
partnership an aggregate of 28,000 shares of Common Stock and James C. Gaither,
a director 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.
Certain legal matters will be passed upon for the Underwriters by Morrison &
Foerster LLP, Palo Alto, California.
68
<PAGE> 72
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.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission, Washington, D.C. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to such Registration Statement, exhibits and
schedules. A copy of the Registration Statement may be inspected by anyone
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and copies
of all or any part thereof may be obtained from the Commission upon the payment
of certain fees prescribed by the Commission.
69
<PAGE> 73
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> 74
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 reason-
able 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 May 14, 1996
F-2
<PAGE> 75
SIEBEL SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 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 9,757 11,094
Accounts receivable.................................. -- 3,066 3,112 3,112
Deferred income taxes................................ -- 314 314 314
Prepaids and other................................... 29 440 398 398
------ ------ ----- ------
Total current assets......................... 1,046 15,211 13,581 14,918
Property and equipment, net............................ 133 863 2,006 2,006
Other assets........................................... 24 17 22 22
------ ------ ----- ------
Total assets................................. $1,203 16,091 15,609 16,946
====== ====== ===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 14 493 806 806
Accrued expenses..................................... -- 1,075 895 895
Income taxes payable................................. -- 395 92 92
Deferred revenue..................................... -- 4,166 3,474 3,474
------ ------ ----- ------
Total current liabilities.................... 14 6,129 5,267 5,267
Deferred income taxes.................................. -- 28 28 28
------ ------ ----- ------
Total liabilities............................ 14 6,157 5,295 5,295
Commitments and contingencies
Stockholders' equity:
Partners' capital.................................... 1,153 -- -- --
Convertible preferred stock; $.001 par value; 10,000
shares authorized; actual -- no shares issued and
outstanding in 1994, 4,906 and 4,908 shares issued
and outstanding in 1995 and 1996, respectively;
pro forma -- no shares issued and outstanding..... -- 5 5 --
Common stock; $.001 par value; 35,000 shares
authorized; actual -- 50, 8,249, and 8,573 shares
issued and outstanding in 1994, 1995, and 1996,
respectively; pro forma -- 13,646 shares issued
and outstanding................................... 1 8 9 14
Additional paid-in capital........................... 49 9,999 11,063 12,400
Notes receivable from stockholders................... (13) (13) (57) (57)
Deferred compensation................................ -- (381) (1,220) (1,220)
Retained earnings (accumulated deficit).............. (1) 316 514 514
------ ------ ----- ------
Total stockholders' equity................... 1,189 9,934 10,314 11,651
------ ------ ----- ------
Total liabilities and stockholders' equity... $1,203 16,091 15,609 16,946
====== ====== ===== ======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 76
SIEBEL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 13, 1993 YEAR ENDED THREE MONTHS
(INCEPTION) DECEMBER 31, ENDED MARCH 31,
TO DECEMBER 31, ----------------- ----------------
1993 1994 1995 1995 1996
------------------ ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software................................. $ -- 50 7,636 -- 4,402
Maintenance and other.................... -- -- 402 30 307
----- ------- ------ ------- -------
Total revenues................... -- 50 8,038 30 4,709
Cost of revenues:
Software................................. -- -- 41 -- 26
Maintenance and other.................... -- -- 385 9 343
----- ------- ------ ------- -------
Total cost of revenues........... -- -- 426 9 369
----- ------- ------ ------- -------
Gross margin..................... -- 50 7,612 21 4,340
Operating expenses:
Product development...................... 64 868 2,816 616 986
Sales and marketing...................... 28 718 3,232 456 2,553
General and administrative............... 22 243 1,192 157 590
----- ------- ------ ------- -------
Total operating expenses......... 114 1,829 7,240 1,229 4,129
----- ------- ------ ------- -------
Operating income (loss).......... (114) (1,779) 372 (1,208) 211
Other income, net.......................... -- 13 156 8 119
----- ------- ------ ------- -------
Income (loss) before income
taxes.......................... (114) (1,766) 528 (1,200) 330
Income tax expense (benefit)............... -- -- 211 (480) 132
----- ------- ------ ------- -------
Net income (loss)................ $ (114) (1,766) 317 (720) 198
===== ======= ====== ======= =======
Pro forma net income (loss) per share...... $ 0.02 (0.05) 0.01
====== ======= =======
Shares used in pro forma net income (loss)
per share computation.................... 16,340 14,642 16,859
====== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 77
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)... -- -- -- 324 1 170 (44) -- -- 127
Issuance
of Series
B
preferred
stock
(unaudited)... -- 2 -- -- -- 12 -- -- -- 12
Compensation
related to
stock
options
(unaudited)... -- -- -- -- -- 882 -- (882) -- --
Amortization
of deferred
stock
compensation
(unaudited)... -- -- -- -- -- -- -- 43 -- 43
Net income
(unaudited)... -- -- -- -- -- -- -- -- 198 198
--
------- ----- ------ ----- --- --- ----- --- ------
Balances,
March 31,
1996
(unaudited)... $ -- 4,908 $ 5 8,573 $9 11,063 (57) (1,220) 514 10,314
======= ===== ====== ===== == === === ===== === ======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 78
SIEBEL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 13, 1993 YEAR ENDED THREE MONTHS
(INCEPTION) DECEMBER 31, ENDED MARCH 31,
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 (720) 198
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Compensation related to stock options.......... -- -- -- -- 43
Depreciation and amortization.................. 6 75 142 28 125
Deferred income taxes.......................... -- -- (286) -- --
Changes in operating assets and liabilities:
Accounts receivable.......................... -- -- (3,066) (392) (46)
Prepaids and other........................... (6) (23) (411) (651) 42
Other assets................................. (9) (15) 7 (10) (5)
Accounts payable............................. 4 10 479 209 313
Accrued expenses............................. -- -- 1,075 103 (180)
Income taxes payable......................... -- -- 395 -- (303)
Deferred revenue............................. -- -- 4,166 787 (692)
----- ------- ------- ------ -------
Net cash provided by (used in) operating
activities.............................. (119) (1,719) 2,818 (646) (505)
----- ------- ------- ------ -------
Cash used in investing activities -- purchases of
property and equipment............................ (38) (176) (872) (147) (1,268)
----- ------- ------- ------ -------
Cash flows from financing activities:
Partners' capital contributions................... 810 2,209 -- -- --
Proceeds from issuance of common stock............ 50 -- 83 -- 127
Repurchases of common stock....................... -- -- (9) -- --
Proceeds from issuance of preferred stock......... -- -- 8,354 4,482 12
----- ------- ------- ------ -------
Net cash provided by financing
activities.............................. 860 2,209 8,428 4,482 139
----- ------- ------- ------ -------
Change in cash and cash equivalents................. 703 314 10,374 3,689 (1,634)
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 4,706 9,757
===== ======= ======= ====== =======
Supplemental disclosures of cash flows information:
Cash paid:
Taxes.......................................... $ -- -- 100 -- 385
===== ======= ======= ====== =======
Noncash investing and financing activities:
Conversion of partnership units into common
stock and Series A preferred stock........... $ -- -- 1,153 1,153 --
===== ======= ======= ====== =======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 79
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> 80
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 exchange rate 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> 81
SIEBEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, (CONTINUED)
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of March 31, 1996, and
for the three months ended March 31, 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,
--------------- MARCH 31,
1994 1995 1996
----- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment.................................... $183 666 1,353
Furniture and fixtures................................ 31 46 113
Computer software..................................... -- 374 888
---- --- -----
214 1,086 2,354
Less accumulated depreciation......................... 81 223 348
---- --- -----
$133 863 2,006
==== === =====
</TABLE>
ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1994 1995 1996
---- ------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Bonuses................................................ $-- 133 167
Commissions............................................ -- 152 238
Vacation............................................... -- 79 125
Sales tax.............................................. -- 486 118
Other.................................................. -- 225 247
--- ----- ---
$-- 1,075 895
=== ===== ===
</TABLE>
OTHER INCOME, NET
Other income, net consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 31,
1994 1995 1996
---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C>
Interest income......................................... $15 163 124
Interest expense........................................ (2 ) (7 ) (5)
--- --- ---
$13 156 119
=== === ===
</TABLE>
F-9
<PAGE> 82
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> 83
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> 84
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)....................... (1,784,750) 1,784,750 1.75 -- 2.90
Options exercised (unaudited)..................... -- (324,000) .05 -- 2.90
Options canceled (unaudited)...................... 52,000 (52,000) .10 -- 1.75
---------- ----------
Balances, March 31, 1996 (unaudited)................ 2,979,965 2,367,750 .10 -- 2.90
========== ==========
</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 $0.50 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 $882,000 deferred compensation expense (unaudited) for the three
months ended March 31, 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> 85
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> 86
SIEBEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, (CONTINUED)
(7) SUBSEQUENT EVENTS AND PRO FORMA INFORMATION
REINCORPORATION
In May 1996, the Board of Directors approved the reincorporation of the
Company as a Delaware corporation. The Certificate of Incorporation provides for
35,000,000 authorized shares of common stock with a $.001 par value per share
and 10,000,000 authorized shares of preferred stock with a $.001 par value per
share. The financial statements have been retroactively restated to give effect
to the reincorporation.
SERIES B PREFERRED STOCK
In April 1996, the Company closed the sale of 31,430 shares of Series B
preferred stock for proceeds of $183,000.
SERIES D PREFERRED STOCK
On April 30, 1996, the Company closed the sale of 90,000 shares of Series D
preferred stock for proceeds of $900,000. The rights, preferences, and
privileges of the Series D preferred stock are similar to those of the Series A,
B and C preferred stock.
REGISTRATION STATEMENT
In May 1996, the Board of Directors approved a proposed filing of a
registration statement with the SEC to sell up to 2,000,000 shares of the
Company's common stock to the public, plus any over-allotment option. If the
offering is consummated under the proposed terms, the Company's outstanding
shares of A, B, C, and D convertible preferred stock will automatically convert
into shares of its common stock upon the closing of the offering. The issuance
of the Series D preferred stock, the exercise of the Series C preferred stock
warrant described in Note 4, and this conversion have been reflected in the
accompanying pro forma balance sheet as of March 31, 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 will become effective upon the completion of the Company's proposed 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.
F-14
<PAGE> 87
- ------------------------------------------------------------
- ------------------------------------------------------------
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............................... 15
Use of Proceeds........................... 16
Dividend Policy........................... 16
Capitalization............................ 17
Dilution.................................. 18
Selected Financial Data................... 19
Management's Discussion And Analysis
of Financial Condition And Results
of Operations........................... 20
Business.................................. 27
Management................................ 52
Certain Transactions...................... 59
Principal and Selling Stockholders........ 61
Description Of Capital Stock.............. 63
Shares Eligible For Future Sale........... 65
Underwriting.............................. 67
Legal Matters............................. 68
Experts................................... 69
Additional Information.................... 69
Index To Financial Statements............. F-1
</TABLE>
------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER AS PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
1,963,000 SHARES
LOGO
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
HAMBRECHT & QUIST
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY
, 1996
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 88
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 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 27
[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 34
[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 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 36
[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: 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.
<PAGE> 89
PAGE 37
[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: 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.
PAGE 39
[Graphic: Siebel 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: 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.
PAGE 39
[Graphic: Siebel Virtual Computing. This graphic depicts how Siebel's N-tiered
architecture can support the Personal Computer, Client/Server, and the Virtual
Computer.]
Graphic Caption: 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.
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> 90
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.......................................................... $ 11,897
NASD filing fee........................................................... 3,950
Nasdaq application fee.................................................... 50,000
Blue sky qualification fee and expenses................................... 20,000
Printing and engraving expenses........................................... 100,000
Directors and officers insurance.......................................... 150,000
Legal fees and expenses................................................... 350,000
Accounting fees and expenses.............................................. 225,000
Transfer agent and registrar fees......................................... 30,000
Miscellaneous............................................................. 9,153
--------
Total................................................................ $950,000
========
</TABLE>
- ---------------
* To be supplied by amendment.
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> 91
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 2,623,535 shares of the
Company's Common Stock, at an average exercise price of $1.64. Options to
purchase 304,375 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.
II-2
<PAGE> 92
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------ --------------------------------------------------------------------------------
<C> <C> <S>
(1) 1.1 Form of Underwriting Agreement.
(1) 2.1 Form of Agreement and Plan of Merger between the Registrant and Siebel Systems,
Inc., a California corporation.
(1) 3.1 Amended and Restated Articles of Incorporation of Siebel Systems, Inc., a
California corporation.
(1) 3.2 Bylaws of Siebel Systems, Inc., a California corporation.
(1) 3.3 Restated Certificate of Incorporation of the Registrant, to be effective upon
the completion of this offering.
(1) 3.4 Bylaws of the Registrant, to be effective upon the completion of this offering.
(1) 4.1 Reference is made to Exhibits 3.1 through 3.4.
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.
4.4 Amendment Number 2 to the Amended and Restated Investor Rights Agreement dated
June 14, 1996.
(1) 5.1 Opinion of Cooley Godward Castro Huddleson & Tatum.
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) 10.4 Industrial Real Estate Lease, dated November 10, 1994, between the Registrant
and WVP Income Plus, III, as amended March 15, 1996.
(1) 10.5 Lease Agreement, dated December 8, 1995, between the Registrant and Bohannon
Trust Partnership, as amended December 13, 1995.
(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.
10.10 Lease Agreement, dated June 4, 1996, by and between the Registrant and Crossroad
Associates and Clocktower Associates.
(1) 11.1 Statement Regarding Computation of Pro Forma Net Income (Loss) Per Share.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
(1) 23.2 Consent of Cooley Godward Castro Huddleson & Tatum. Reference is made to Exhibit
5.1.
(1) 24.1 Power of Attorney. Reference is made to the Signature page.
(1) 27.1 Financial Data Schedule.
</TABLE>
- ---------------
(1) Previously filed with the Commission.
(2) Confidential treatment requested.
II-3
<PAGE> 93
(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.
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
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 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> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Amendment to the Registration Statement (No. 333-03751) to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Menlo Park, State of California, on the 21st day of June, 1996.
SIEBEL SYSTEMS, INC.
By: /s/ THOMAS M. SIEBEL
------------------------------------
Thomas M. Siebel
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the 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. President, Chief Executive Officer June 21, 1996
SIEBEL and Chairman of the Board
- ------------------------------------------ (Principal Executive Officer)
Thomas M. Siebel
* Vice President Finance and June 21, 1996
- ------------------------------------------ Administration
Justin R. Dooley (Principal Financial
and Accounting Officer)
* Director June 21, 1996
- ------------------------------------------
Pehong Chen
* Director June 21, 1996
- ------------------------------------------
James C. Gaither
* Director June 21, 1996
- ------------------------------------------
George T. Shaheen
* Director June 21, 1996
- ------------------------------------------
Charles R. Schwab
* Director June 21, 1996
- ------------------------------------------
A. Michael Spence
* Director June 21, 1996
- ------------------------------------------
Eric E. Schmidt
*By: /s/ THOMAS M. June 21, 1996
SIEBEL
- ------------------------------------------
Thomas M. Siebel
Attorney-in-fact
</TABLE>
II-5
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------------ -----------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
(1)2.1 Form of Agreement and Plan of Merger between the Registrant and Siebel
Systems, Inc., a California corporation.
(1)3.1 Amended and Restated Articles of Incorporation of Siebel Systems, Inc., a
California corporation.
(1)3.2 Bylaws of Siebel Systems, Inc., a California corporation.
(1)3.3 Restated Certificate of Incorporation of the Registrant, to be effective upon
the completion of this offering.
(1)3.4 Bylaws of the Registrant, to be effective upon the completion of this
offering.
4.1 Reference is made to Exhibits 3.1 through 3.4.
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.
4.4 Amendment Number 2 to the Amended and Restated Investor Rights Agreement
dated June 14, 1996.
(1)5.1 Opinion of Cooley Godward Castro Huddleson & Tatum.
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)10.4 Industrial Real Estate Lease, dated November 10, 1994, between the Registrant
and WVP Income Plus, III, as amended March 15, 1996.
(1)10.5 Lease Agreement, dated December 8, 1995, between the Registrant and Bohannon
Trust Partnership, as amended December 13, 1995.
(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.
10.10 Lease Agreement, dated June 4, 1996, by and between the Registrant and
Crossroad Associates and Clocktower Associates.
(1)11.1 Statement Regarding Computation of Pro Forma Net Income (Loss) Per Share.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
(1)23.2 Consent of Cooley Godward Castro Huddleson & Tatum. Reference is made to
Exhibit 5.1.
(1)24.1 Power of Attorney. Reference is made to the Signature page.
(1)27.1 Financial Data Schedule.
</TABLE>
- ---------------
(1) Previously filed with the Commission.
(2) Confidential treatment requested.
<PAGE> 1
Exhibit 4.2
SIEBEL SYSTEMS, INC.
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR STATEMENTS RELATING
THE STATE OF DELAWARE TO RIGHTS, PREFERENCES,
PRIVILEGES AND INSTRUCTIONS, IF ANY
This Certifies that CUSIP 826170 10 2
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $0.001 PER SHARE, OF
SIEBEL SYSTEMS, INC.
transferable only on the books of the Corporation by the holder hereof in
person or by duly authorized Attorney upon surrender of this certificate
properly endorsed. This certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY:
AUTHORIZED SIGNATURE
___________________________________________________
AMERICAN BANK NOTE COMPANY JUNE 13, 1996
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 044584bk
(310) 989-2333
(FAX) (310) 426-7450 NEW
___________________________________________________
<PAGE> 2
SIEBEL SYSTEMS, INC.
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights as established, from time to time, by the Certificate
of Incorporation of the Corporation and by any certificate of determination,
the number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
the certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT--_______Custodian_________
(Cust) (Minor)
under Uniform Gifts to Minors
Act__________________________
(State)
UNIF TRF MIN ACT--_______Custodian (until age____)
(Cust)
_____________under Uniform Transfers to
(Minor)
Minors Act___________________
(State)
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE ABOVE LIST.
FOR VALUE RECEIVED,________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
_______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated____________________________
X_________________________________________
X_________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
NOTICE: CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR, INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT LENDERS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.
___________________________________________________
AMERICAN BANK NOTE COMPANY JUNE 13, 1996
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 044584bk
(310) 989-2333
(FAX) (310) 426-7450 NEW
___________________________________________________
<PAGE> 1
Exhibit 4.4
AMENDMENT NO. 2
TO THE
SIEBEL SYSTEMS, INC.
RESTATED INVESTOR RIGHTS AGREEMENT
This Amendment No. 2 dated June 14, 1996 (the "Amendment") to the
Restated Investor Rights Agreement, as amended April 30, 1996 (the "Investor
Rights Agreement") is entered into by and among Siebel Systems, Inc. (the
"Company"), certain Holders (as defined in the Investor Rights Agreement) and
LSI Logic Corporation ("LSI Logic").
W I T N E S S E T H
WHEREAS, LSI Logic Corporation ("LSI Logic") and the Company entered
into a Warrant Agreement dated December 22, 1995, pursuant to which the Company
granted the Company a warrant to purchase 75,000 shares of Series C Preferred
Stock (the "Warrant").
NOW, THEREFORE, in consideration of LSI Logic agreeing to be bound by
the restrictions on transfers and other limitations set forth in the Investor
Rights Agreement, the parties hereby agree as follows:
1. The Company and the holders of a majority of the Registrable
Securities agree that LSI Logic shall become a Holder as defined in the Investor
Rights Agreement.
2. Pursuant to section 4.6.1 of the Investor Rights Agreement, the
definition of the word "Shares" under section 1.1 of the Investor Rights
Agreement to read as follows:
"`Shares' shall mean the Company's Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock originally issued to the Purchasers and the
shares issued to LSI Logic Corporation pursuant to the Warrant
Agreement, dated December 22, 1995, entered into by and
between the Company and LSI Logic Corporation."
3. LSI Logic hereby agrees to be bound by the restrictions on transfers
and other limitations as set forth in the Investor Rights Agreement.
<PAGE> 2
IN WITNESS WHEREOF, the parties have duly authorized and caused this
Amendment to be executed as follows:
SIEBEL SYSTEMS, INC.
-----------------------
Andersen Consulting LLP
By:
-------------------------------
Thomas M. Siebel, President
By:
--------------------------------
Title:
-----------------------------
LSI LOGIC CORPORATION
By:
------------------------------- -----------------------------------
Thomas M. Siebel
-----------------------------------
Dr. Pehong Chen
-----------------------------------
Charles Schwab
-----------------------------------
Adobe Ventures, L.P.
By:
--------------------------------
Title:
-----------------------------
<PAGE> 3
EXHIBIT A
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 1
Exhibit 10.1
SIEBEL SYSTEMS, INC.
1996 EQUITY INCENTIVE PLAN
ADOPTED MAY 14, 1996
APPROVED BY SHAREHOLDERS MAY 14, 1996
INTRODUCTION.
In December 1994, the Board of Directors adopted the Siebel Systems,
Inc. 1994 Stock Option Plan, which was later amended in February 1996. In
February 1996, the Board of Directors adopted the Siebel Systems, Inc. 1996
Supplemental Stock Option Plan. On May 14, 1996, the Board of Directors amended
and restated both of the above plans in the form of this 1996 Equity Incentive
Plan.
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the stock of the
Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) stock bonuses, (iv) rights to purchase restricted stock,
and (v) stock appreciation rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock
appreciation rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
1.
<PAGE> 2
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "COMPANY" means Siebel Systems, a California corporation.
(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT"
means a right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged
by the Company or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who are
not compensated by the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT"
means the employment or relationship as a Director or Consultant is not
interrupted or terminated. The Board, in its sole discretion, may determine
whether Continuous Status as an Employee, Director or Consultant shall be
considered interrupted in the case of: (i) any leave of absence approved by the
Board, including sick leave, military leave, or any other personal leave; or
(ii) transfers between locations of the Company or between the Company,
Affiliates or their successors.
(i) "COVERED EMPLOYEE" means the chief executive officer and the
four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to shareholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board.
(k) "DISINTERESTED PERSON" means a Director who either: (i) was
not during the one year prior to service as an administrator of the Plan granted
or awarded equity securities pursuant to the Plan or any other plan of the
Company or any Affiliate entitling the participants therein to acquire equity
securities of the Company or any Affiliate except as permitted by Rule
16b-3(c)(2)(i); or (ii) is otherwise considered to be a "disinterested person"
in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules,
regulations or interpretations of the Securities and Exchange Commission.
(l) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
2.
<PAGE> 3
(n) "FAIR MARKET VALUE" means, as of any date, the value of the
common stock of the Company determined as follows:
(1) If the common stock is listed on any established
stock exchange or a national market system, including without limitation the
National Market of The Nasdaq Stock Market, the Fair Market Value of a share of
common stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in common stock) on the last market
trading day prior to the day of determination, as reported in the Wall Street
Journal or such other source as the Board deems reliable;
(2) If the common stock is quoted on The Nasdaq Stock
Market (but not on the National Market thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of common stock shall be the mean between the bid and
asked prices for the common stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(3) In the absence of an established market for the
common stock, the Fair Market Value shall be determined in good faith by the
Board.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(p) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT"
means a right granted pursuant to subsection 8(b)(3) of the Plan.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and conditions
of the Plan.
(u) "OPTIONEE" means an Employee, Director or Consultant who holds
an outstanding Option.
(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury regulations
3.
<PAGE> 4
promulgated under Section 162(m) of the Code), is not a former employee of the
Company or an "affiliated corporation" receiving compensation for prior services
(other than benefits under a tax qualified pension plan), was not an officer of
the Company or an "affiliated corporation" at any time, and is not currently
receiving direct or indirect remuneration from the Company or an "affiliated
corporation" for services in any capacity other than as a Director, or (ii) is
otherwise considered an "outside director" for purposes of Section 162(m) of the
Code.
(w) "PLAN" means this Siebel Systems, Inc. 1996 Equity Incentive
Plan.
(x) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(y) "STOCK APPRECIATION RIGHT" means any of the various types of
rights which may be granted under Section 8 of the Plan.
(z) "STOCK AWARD" means any right granted under the Plan,
including any Option, any stock bonus, any right to purchase restricted stock,
and any Stock Appreciation Right.
(aa) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(ab) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a
right granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until
the Board delegates administration to a Committee, as provided in subsection
3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; whether a Stock Award will be an Incentive Stock Option,
a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted
stock, a Stock Appreciation Right, or a combination of the foregoing; the
provisions of each Stock Award granted (which need not be identical), including
the time or times when a person shall be permitted to receive stock pursuant to
a Stock Award; whether a person shall be permitted to receive stock upon
exercise of an Independent Stock Appreciation Right; and the number of shares
with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the
4.
<PAGE> 5
exercise of this power, may correct any defect, omission or inconsistency in the
Plan or in any Stock Award Agreement, in a manner and to the extent it shall
deem necessary or expedient to make the Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in
Section 14.
(4) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the provisions of the
Plan.
(c) The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee shall be Disinterested Persons and may also be,
in the discretion of the Board, Outside Directors. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan. Notwithstanding anything in this Section 3 to the contrary, at any
time the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons who
(1) are not then subject to Section 16 of the Exchange Act and/or (2) are either
(i) not then Covered Employees and are not expected to be Covered Employees at
the time of recognition of income resulting from such Stock Award, or (ii) not
persons with respect to whom the Company wishes to avoid the application of
Section 162(m) of the Code.
(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply if the Board or the Committee expressly
declares that such requirement shall not apply. Any Disinterested Person shall
otherwise comply with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate six million (6,000,000) shares of
the Company's common stock. If any Stock Award shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full,
the stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan. Shares subject to Stock Appreciation
Rights exercised in accordance with Section 8 of the Plan shall not be available
for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5.
<PAGE> 6
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights
appurtenant thereto may be granted only to Employees. Stock Awards other than
Incentive Stock Options and Stock Appreciation Rights appurtenant thereto may be
granted only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive
Stock Option if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates unless the exercise price of such Option is at least
one hundred ten percent (110%) of the Fair Market Value of such stock at the
date of grant and the Option is not exercisable after the expiration of five (5)
years from the date of grant, or in the case of a restricted stock purchase
award, the purchase price is at least one hundred percent (100%) of the Fair
Market Value of such stock at the date of grant.
(c) Subject to the provisions of Section 13 relating to
adjustments upon changes in stock, following the expiration of the extended
reliance period for compliance with the requirements of Code Section 162(m) set
forth in Treasury Regulations Section 1.162-27(f)(2), no person shall be
eligible to be granted Options covering more than five hundred thousand
(500,000) shares of the Company's common stock in any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall
be not less than one hundred percent (100%) of the Fair Market Value of the
stock subject to the Option on the date the Option is granted. Notwithstanding
the foregoing, an Incentive Stock Option may be granted with an exercise price
lower than that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company)
6.
<PAGE> 7
with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option shall
not be transferable except by will, by the laws of descent and distribution or
pursuant to a qualified domestic relations order satisfying the requirements of
Rule 16b-3 and any administrative interpretations or pronouncements thereunder
(a "QDRO"), and shall be exercisable during the lifetime of the person to whom
the Option is granted only by such person or any transferee pursuant to a QDRO.
Notwithstanding the foregoing, the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionee, shall
thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period, and
may be exercised with respect to some or all of the shares allotted to such
period and/or any prior period as to which the Option became vested but was not
fully exercised. The Option may be subject to such other terms and conditions on
the time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
7.
<PAGE> 8
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such registration
requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and again become available for issuance under the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date twelve (12)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
8.
<PAGE> 9
(i) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee, Director
or Consultant to exercise the Option as to any part or all of the shares subject
to the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(j) RE-LOAD OPTIONS. Without in any way limiting the authority of
the Board or Committee to make or not to make grants of Options hereunder, the
Board or Committee shall have the authority (but not an obligation) to include
as part of any Option Agreement a provision entitling the Optionee to a further
Option (a "Re-Load Option") in the event the Optionee exercises the Option
evidenced by the Option agreement, in whole or in part, by surrendering other
shares of common stock in accordance with this Plan and the terms and conditions
of the Option Agreement. Any such Re-Load Option (i) shall be for a number of
shares equal to the number of shares surrendered as part or all of the exercise
price of such Option; (ii) shall have an expiration date which is the same as
the expiration date of the Option the exercise of which gave rise to such
Re-Load Option; and (iii) shall have an exercise price which is equal to one
hundred percent (100%) of the Fair Market Value of the common stock subject to
the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option which is an Incentive Stock
Option and which is granted to a 10% shareholder (as described in subsection
5(c)), shall have an exercise price which is equal to one hundred ten percent
(110%) of the Fair Market Value of the stock subject to the Re-Load Option on
the date of exercise of the original Option and shall have a term which is no
longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 12(d) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option shall be subject to the availability of sufficient shares
under subsection 4(a) and shall be subject to such other terms and conditions as
the Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each stock
bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
9.
<PAGE> 10
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted
stock purchase agreement shall be transferable except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order
satisfying the requirements of Rule 16b-3 and any administrative interpretations
or pronouncements thereunder, so long as stock awarded under such agreement
remains subject to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant
to a stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may,
but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees, Directors of and Consultants to the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. If a Stock
Appreciation Right is granted to an individual who is at the time subject to
Section 16(b) of the Exchange Act (a "Section 16(b) Insider"), the Stock Award
Agreement of grant shall incorporate all the terms and conditions at the time
necessary to assure that the subsequent exercise of such right shall qualify for
the safe-harbor exemption from short-swing profit liability provided by Rule
16b-3 promulgated under the Exchange Act (or any successor rule or regulation).
Except
10.
<PAGE> 11
as provided in subsection 5(d), no limitation shall exist on the aggregate
amount of cash payments the Company may make under the Plan in connection with
the exercise of a Stock Appreciation Right.
(b) Three types of Stock Appreciation Rights shall be authorized
for issuance under the Plan:
(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock
Appreciation Rights will be granted appurtenant to an Option, and shall, except
as specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of stock based on Fair
Market Value on the date of the Option surrender) in an amount up to the excess
of (A) the Fair Market Value (on the date of the Option surrender) of the number
of shares of stock covered by that portion of the surrendered Option in which
the Optionee is vested over (B) the aggregate exercise price payable for such
vested shares.
(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent
Rights will be granted appurtenant to an Option and may apply to all or any
portion of the shares of stock subject to the underlying Option and shall,
except as specifically set forth in this Section 8, be subject to the same terms
and conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on an
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent
Rights will be granted independently of any Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to Nonstatutory Stock Options as set forth in Section 6.
They shall be denominated in share equivalents. The appreciation distribution
payable on the exercised Independent Right shall be not greater than an amount
equal to the excess of (A) the aggregate Fair Market Value (on the date of the
exercise of the Independent Right) of a number of shares of Company stock equal
to the number of share equivalents in which the holder is vested under such
Independent Right, and with respect to which the holder is exercising the
Independent Right on such date, over (B) the aggregate Fair Market Value (on the
date of the grant of the Independent Right) of such number of shares of Company
stock. The appreciation distribution payable on the exercised Independent Right
shall be in cash or, if
11.
<PAGE> 12
so provided, in an equivalent number of shares of stock based on Fair Market
Value on the date of the exercise of the Independent Right.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect,
at any time and from time to time, (i) the repricing of any outstanding Options
and/or any Stock Appreciation Rights under the Plan and/or (ii) with the consent
of any adversely affected holders of Options and/or Stock Appreciation Rights,
the cancellation of any outstanding Options and/or any Stock Appreciation Rights
under the Plan and the grant in substitution therefor of new Options and/or
Stock Appreciation Rights under the Plan covering the same or different numbers
of shares of stock, but having an exercise price per share not less than:
eighty-five percent (85%) of the Fair Market Value for a Nonstatutory Stock
Option, one hundred percent (100%) of the Fair Market Value in the case of an
Incentive Stock Option or, in the case of an Incentive Stock Option held by a
10% shareholder (as described in subsection 5(c)), not less than one hundred ten
percent (110%) of the Fair Market Value per share of stock on the new grant
date. Notwithstanding the foregoing, the Board or the Committee may grant an
Option and/or Stock Appreciation Right with an exercise price lower than that
set forth above if such Option and/or Stock Appreciation Right is granted as
part of a transaction to which section 424(a) of the Code applies.
(b) Shares subject to an Option or Stock Appreciation Right
canceled under this Section 9 shall continue to be counted against the maximum
award of Options and Stock Appreciation Rights permitted to be granted pursuant
to subsection 5(d) of the Plan. The repricing of an Option and/or Stock
Appreciation Right under this Section 9, resulting in a reduction of the
exercise price, shall be deemed to be a cancellation of the original Option
and/or Stock Appreciation Right and the grant of a substitute Option and/or
Stock Appreciation Right; in the event of such repricing, both the original and
the substituted Options and Stock Appreciation Rights shall be counted against
the maximum awards of Options and Stock Appreciation Rights permitted to be
granted pursuant to subsection 5(d) of the Plan. The provisions of this
subsection 9(b) shall be applicable only to the extent required by Section
162(m) of the Code.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the Stock Award;
provided, however, that this undertaking shall not require the Company to
register under the Securities Act of 1933, as amended (the "Securities Act")
either the Plan, any Stock Award or any stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any
12.
<PAGE> 13
liability for failure to issue and sell stock upon exercise of such Stock Awards
unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
12. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which
a Stock Award may first be exercised or the time during which a Stock Award or
any part thereof will vest pursuant to subsection 6(e), 7(d) or 8(b),
notwithstanding the provisions in the Stock Award stating the time at which it
may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant, nor any person to
whom a Stock Award is transferred in accordance with the Plan, shall be deemed
to be the holder of, or to have any of the rights of a holder with respect to,
any shares subject to such Stock Award unless and until such person has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director or Consultant
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate or to continue acting as a Director or Consultant, or
shall affect the right of the Company or any Affiliate to terminate the
employment of any Employee with or without notice and with or without cause, the
right of the Company's Board of Directors and/or the Company's shareholders to
remove any Director pursuant to the terms of the Company's Bylaws and the
provisions of the California Corporations Code, or the right to terminate the
relationship of any Consultant pursuant to the terms of such Consultant's
agreement with the Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred in accordance with
the Plan, as a condition of exercising or acquiring stock under any Stock Award,
(1) to give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of
13.
<PAGE> 14
exercising the Stock Award; and (2) to give written assurances satisfactory to
the Company stating that such person is acquiring the stock subject to the Stock
Award for such person's own account and not with any present intention of
selling or otherwise distributing the stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (i) the
issuance of the shares upon the exercise or acquisition of stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act, or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award
Agreement, the person to whom a Stock Award is granted may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under a Stock Award by any of the following means or by a
combination of such means: (1) tendering a cash payment; (2) authorizing the
Company to withhold shares from the shares of the common stock otherwise
issuable to the participant as a result of the exercise or acquisition of stock
under the Stock Award; or (3) delivering to the Company owned and unencumbered
shares of the common stock of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any Stock Award, without the receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a) and the maximum number of shares subject to award to any person
during any calendar year pursuant to subsection 5(d), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of shares and
price per share of stock subject to such outstanding Stock Awards. Such
adjustments shall be made by the Board or the Committee, the determination of
which shall be final, binding and conclusive. (The conversion of any convertible
securities of the Company shall not be treated as a "transaction not involving
the receipt of consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then to the extent permitted by applicable law: (i) any
surviving corporation or an Affiliate of such surviving corporation shall assume
any Stock Awards outstanding under the
14.
<PAGE> 15
Plan or shall substitute similar Stock Awards for those outstanding under the
Plan, or (ii) such Stock Awards shall continue in full force and effect. In the
event any surviving corporation and its Affiliates refuse to assume or continue
such Stock Awards, or to substitute similar options for those outstanding under
the Plan, then, with respect to Stock Awards held by persons then performing
services as Employees, Directors or Consultants, the time during which such
Stock Awards may be exercised shall be accelerated and the Stock Awards
terminated if not exercised prior to such event.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 13 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
shareholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock
Awards under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires shareholder
approval in order for the Plan to satisfy the requirements of Section 422 of the
Code); or
(iii) Modify the Plan in any other way if such modification
requires shareholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other
amendment to the Plan for shareholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m) of
the Code and the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the
terms of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award
15.
<PAGE> 16
shall not be impaired by any such amendment unless (i) the Company requests the
consent of the person to whom the Stock Award was granted and (ii) such person
consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate ten (10) years from the date
the Plan is adopted by the Board or approved by the shareholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was granted.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the effective date of the
registration statement with respect to the Company's initial public offering of
shares of common stock, but no Stock Awards granted under the Plan shall be
exercised unless and until the Plan has been approved by the shareholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.
16.
<PAGE> 17
SIEBEL SYSTEMS, INC.
1996 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
SIEBEL SYSTEMS, INC. (the "Company") is pleased to inform you that its
Board of Directors has granted you an option to purchase shares of the common
stock of the Company ("Common Stock") under the SIEBEL SYSTEMS, INC. 1996 Equity
Incentive Plan (the "Plan").
The details of your option are as follows:
Optionee Name:
------------------------
Number of Shares:
---------------------
Exercise Price: $ per share
----------------
Grant Date:
---------------------------
Expiration Date: , unless it ends sooner for the reasons
------------------
described in Section 5 of the Additional Terms and Conditions attached.
Vesting Commencement Date:
-----------
Vesting Schedule: % on anniversary of the Vesting
-------- --------------
Commencement Date and
% each anniversary thereafter until
-------- ------------
fully vested.
Vesting is subject to termination under the circumstances
set forth in the Supplemental Terms and Conditions
attached.
Tax Qualification: This option is is not intended to qualify for the
--- ---
federal income tax benefits available to an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
Additional Terms and Optionee's Acknowledgements: This option is also subject to
all the terms of the Additional Terms and Conditions attached to this Agreement.
The undersigned optionee acknowledges receipt of this option agreement, the
Additional Terms and Conditions with the exhibits referred to therein, and
understands and agrees to all their terms. Optionee further acknowledges that as
of the date of grant of this option, this option, the Additional Terms and
Conditions and its exhibits set forth the entire understanding between optionee
and the Company regarding the acquisition of stock in the Company and supersedes
all prior oral and written agreements on that subject with the exception of (i)
the option agreements previously granted and delivered to optionee under the
Plan (including its predecessors), and (ii) the following agreements only:
OTHER AGREEMENTS:
-------------------------------
-------------------------------
-------------------------------
SIEBEL SYSTEMS, INC. OPTIONEE:
----------------------------
By:
---------------------------------- -------------------------------------
Signature
Name:
--------------------------------
Date: Date:
-------------------------------- --------------------------------
1.
<PAGE> 1
Exhibit 10.10
LEASE AGREEMENT
THIS LEASE, made this 4th day of June, 1996, between CROSSROADS
ASSOCIATES AND CLOCKTOWER ASSOCIATES, hereinafter called "Landlord," and SIEBEL
SYSTEMS, INC. a California Corporation, hereinafter called "Tenant."
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit A1
through A4 attached hereto and incorporated herein by this reference thereto
more particularly described as follows: The entire five story Building located
at 1855 South Grant Street, San Mateo, San Mateo County, California. The total
rentable area of the five story Building is approximately 66,426 square feet.
As used herein the Complex shall mean and include all of the land outlined in
red and described in Exhibit A1 through A4 attached hereto, and all of the
buildings. improvements, fixtures and equipment now or hereafter situated on
said land.
Landlord agrees to construct such improvements as are set forth in
Exhibit "C" attached hereto, and upon such terms and conditions as set forth in
Exhibit "D" attached hereto and incorporated herein by this reference thereto.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of General
Office and for no other purpose. Tenant shall not do or permit to be done in or
about the Premises or the Complex nor bring or keep or permit to be brought or
kept in or about the Premises or the Complex anything which is prohibited by or
will in any way increase the existing rate of (or otherwise affect) fire or any
insurance covering the Complex or any part thereof, or any of its contents, or
will cause a cancellation of any insurance covering the Complex or any part
thereof, or any of its contents. Tenant shall not do or permit to be done
anything in, on or about the Premises or the Complex which will in any way
obstruct or interfere with the tights of other tenants or occupants of the
Complex or injure or annoy them, or use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause,
maintain or permit any nuisance in, on or about the Premises or the Complex. No
sale by auction shall be permitted on the Premises. Tenant shall not place any
loads upon the floors, walls, or ceiling, which endanger the structure, or place
any harmful fluids or other materials in the drainage system of the building, or
overload existing electrical or other mechanical systems. No waste materials or
refuse shall be dumped upon or permitted to remain upon any part of the Premises
or outside of the
<PAGE> 2
building in which the Premises are a part, except in trash containers placed
inside exterior enclosures designated by Landlord for that purpose or inside of
the building proper where designated by Landlord. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature shall be stored upon or permitted to remain outside the
Premises or on any portion of common area of the Complex. No loudspeaker or
other device, system or apparatus which can be heard outside the Premises shall
be used in or at the Premises without the prior written consent of Landlord.
Tenant shall not commit or suffer to be committed any waste in or upon the
Premises. Tenant shall indemnify, defend and hold Landlord harmless against any
loss, expense, damage, attorneys' fees, or liability arising out of failure of
Tenant to comply with any applicable law. Tenant shall comply with any covenant,
condition, or restriction ("CC&R's") affecting the Premises. The provisions of
this paragraph are for the benefit of Landlord only and shall not be construed
to be for the benefit of any tenant or occupant of the Complex.
2. TERM
A. The term of this Lease shall be for a period of Ten (10) years
(unless sooner terminated as hereinafter provided) and, subject to
Paragraphs 2(B) and 3, shall commence on the 1st day of August, 1996, and
end on the 31st day of July, 2006.
B. Possession of the Premises shall be deemed tendered and the term of
this Lease shall commence when the first of the following occurs:
(1) One day after a Certificate of Occupancy is granted by the
proper governmental agency, or, if the governmental agency having jurisdiction
over the area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed; or
(2) Upon the occupancy of the Premises by any of Tenant's
operating personnel; or
(3) N/A.
3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver
possession of said Premises to Tenant at the commencement of the said term, as
hereinbefore specified, this Lease shall not be void or voidable; no obligation
of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be
liable to Tenant for any loss or damage resulting therefrom; but in that event
the commencement and termination dates of the Lease, and all other dates
affected thereby shall be reissued to conform to the date of Landlord's delivery
of possession, as specified in Paragraph 2 (b), above. The above is, however,
subject to the provision that the period of delay of delivery of the Premises
shall not exceed 60 days from the commencement date herein (except those
delays caused by Acts of God, strikes, war, utilities, governmental bodies,
weather, unavailable materials, and delays beyond Landlord's control shall be
excluded in calculating such period) in which instance Tenant, at its option,
may, by written notice to Landlord, terminate this Lease.
4. RENT
A. Basic Rent. Tenant agrees to pay to Landlord at such place as
Landlord may designate without deduction, offset, prior notice, or demand, and
Landlord agrees to accept as Basic Rent for the leased Premises the total sum of
Fifteen million, Five Hundred Forty Three Thousand, Six Hundred Eighty Four
-2-
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($15,543,684.00) Dollars in lawful money of the United States of America,
payable as follows:
$129,530.70 (66,426 x $1.95) shall be due and payable upon execution of this
Lease and shall represent payment of the Basic Rent for the first month of the
Lease term. This amount shall be due and payable for the first twelve months of
the Lease term. The monthly Basic Rent shall be due and payable on or before
the first day of each month of the Lease term.
Monthly Basic Rent shall be adjusted according to paragraph 38.
This paragraph continues on page 10 below.
It is agreed that, as the Basic Rent provided for herein is adjusted according
to Paragraph 38, the total Basic Rent and schedule of payments described above
shall be adjusted accordingly.
B. Time for Payments. In the event that the term of this Lease
commences on a date other than the first day of a calendar month, on the date of
commencement of the term hereof Tenant shall pay to Landlord as rent for the
period from such date of commencement to the first day of the next succeeding
calendar month that proportion of the monthly rent hereunder which the number of
days between such date of commencement and the first day of the next succeeding
calendar month bears to thirty (30). In the event that the term of this Lease
for any reason ends on a date other than the last day of a calendar month, on
the first day of the last calendar month of the term hereof Tenant shall pay to
Landlord as rent for the period from said first day of said last calendar month
to and including the last day of the term hereof that proportion of the monthly
rent hereunder which the number of days between said first day of said last
calendar month and the last day of the term hereof bears to thirty (30).
C. Late Charge. Notwithstanding any other provision of this Lease, if
Tenant is in default in the payment of rent as set forth in this Paragraph 4
when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment in default ten (10)
days. Said late charge shall equal ten (10%) percent of each rental payment so
in default.
D. Additional Rent. Beginning with the commencement date of the term of
this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as
Additional Rent the following:
(1) Tenant's proportionate share of all utilities relating to the
Complex as set forth in Paragraph 11, and
(2) Tenant's Proportionate share of all Taxes relating to the
Complex as set forth in Paragraph 12, and
(3) Tenant's proportionate share of all insurance premiums
relating to the Complex, as set forth in Paragraph 15, and
(4) Tenant's proportionate share of expenses for the operation,
management, maintenance and repair of the Building (including
common areas of the Building) and Common Areas of the Complex
in which the Premises are located as set forth in Paragraph 7,
and
(5) All charges, costs and expenses, which Tenant is required to
pay hereunder, together with all interest and penalties, costs
and expenses including attorneys' fees and legal expenses,
that may accrue thereto in the event of Tenant's failure to
pay such amounts, and all damages, reasonable costs and
expenses which Landlord may incur by reason of default of
Tenant or failure on Tenant's part to comply with the terms of
this Lease. In the event of nonpayment by Tenant of Additional
Rent,
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Landlord shall have all the rights and remedies with respect
thereto as Landlord has for nonpayment of rent.
Tenant shall pay to Landlord monthly, in advance, Tenant's prorata share of an
amount estimated by Landlord to be Landlord's approximate average monthly
expenditure for such Additional Rent items, which estimated amount shall be
reconciled at the end of each calendar year as compared to Landlord's actual
expenditure for said Additional Rent items, with Tenant paying to Landlord, upon
demand, any amount of actual expenses expended by Landlord in excess of said
estimated amount, or Landlord refunding to Tenant (providing Tenant is not in
default in the performance of any of the terms, covenants and conditions of this
Lease) any amount of estimated payments made by Tenant in excess of Landlord's
actual expenditures for said Additional Rent items.
Tenant's payment for such Additional Rent as of the commencement of the
term of this lease shall be Twenty Seven Thousand Nine Hundred and 00/100
($27,900.00) Dollars per month. Any payments required to be made by Tenant for
Additional Rent shall be made by check or instrument separate from that check or
instrument used by Tenant to make any payments for Basic Rent, pursuant to
paragraph 4 A. This paragraph is continued below.
The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease, and
if the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall be
determined and settled on the basis of the statement of actual Additional Rent
for such calendar year and shall be prorated in the proportion which the number
of days in such calendar year preceding such expiration or termination bears to
365.
E. Place of Payment of Rent and Additional Rent. All Basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at 3201 Ash Street, Palo Alto, CA 94306
or to such other person or to such other place as Landlord may from time to
time designate in writing.
F. Security Deposit. Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord the sum of One Hundred Seventy Five
Thousand and 00/100 ($175,000.00) Dollars. Said sum shall be held by Landlord as
a Security Deposit for the faithful performance by Tenant of all of the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the term hereof. If Tenant defaults with respect to any provision of this
Lease, including, but not limited to, the provisions relating to the payment of
rent and any of the monetary sums due herewith, Landlord may (but shall not be
required to) use, apply or retain all or any part of this Security Deposit for
the payment of any other amount which Landlord may spend by reason of Tenant's
default or to compensate Landlord for any other loss or damage which Landlord
may suffer by reason of Tenant's default. If any portion of said Deposit is so
used or applied, Tenant shall, within ten (10) days after written demand
therefor, deposit cash with Landlord in the amount sufficient to restore the
Security Deposit to its original amount. Tenant's failure to do so shall be a
material breach of this Lease. Landlord shall not be required to keep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on such Deposit. If Tenant fully and faithfully performs
every provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant (or at
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Landlord's option, to the last assignee of Tenant's interest hereunder) at the
expiration of the Lease term and after Tenant has vacated the Premises. In the
event of termination of Landlord's interest in this Lease, Landlord shall
transfer said Deposit to Landlord's successor in interest whereupon Tenant
agrees to release Landlord from liability for the return of such Deposit or the
accounting therefor. This paragraph is continued below.
5. RULES AND REGULATIONS AND COMMON AREA Subject to the terms and conditions
of this Lease and such Rules and Regulations as Landlord may from time to time
prescribe, Tenant and Tenant's employees, invitees and customers shall, in
common with other occupants of the Complex in which the Premises are located,
and their respective employees, invitees and customers, and others entitled to
the use thereof, have the non-exclusive right to use the access roads, parking
areas, and facilities provided and designated by Landlord for the general use
and convenience of the occupants of the Complex in which the Premises are
located, which areas and facilities are referred to herein as "Common Area".
This right shall terminate upon the termination of this Lease. Landlord reserves
the right from time to time to make changes in the shape, size, location, amount
and extent of Common Area. Landlord further reserves the right to promulgate
such reasonable rules and regulations relating to the use of the Common Area,
and any part or parts thereof, as Landlord may deem appropriate for the best
interests of the occupants of the Complex. The Rules and Regulations shall be
binding upon Tenant upon delivery of a copy of them to Tenant, and Tenant shall
abide by them and cooperate in their observance. Such Rules and Regulations may
be amended by Landlord from time to time, with or without advance notice, and
all amendments shall be effective upon delivery of a copy to Tenant. Landlord
shall not be responsible to Tenant for the non-performance by any other tenant
or occupant of the Complex of any of said Rules and Regulations.
Landlord shall operate, manage and maintain the Common Area. The manner
in which the Common Area shall be maintained and the expenditures for such
maintenance shall be at the discretion of Landlord.
6. PARKING Tenant shall have the right to use with other tenants or occupants
of the Complex 200 parking spaces in the common parking areas of the Complex.
Tenant agrees that Tenant, Tenant's employees, agents, representatives and/or
invitees shall not use parking spaces in excess of said 200 spaces allocated to
Tenant hereunder. Landlord shall have the right, at Landlord's sole discretion,
to specifically designate the location of Tenant's parking spaces within the
common parking areas of the Complex (and such designation shall be on a
non-discriminatory and equitable basis) in the event of a dispute among the
tenants occupying the building and/or Complex referred to herein, in which event
Tenant agrees that Tenant, Tenant's employees, agents, representatives and/or
invitees shall not use any parking spaces other than those parking spaces
specifically designated by Landlord for Tenant's use. Said parking spaces, if
specifically designated by Landlord to Tenant, may be relocated by Landlord at
any time, and from time to time. Landlord reserves the right, at Landlord's sole
discretion, to rescind any specific designation of parking spaces, thereby
returning Tenant's parking spaces to the common parking area. Landlord shall
give Tenant written notice of any change in Tenant's parking spaces. Tenant
shall not, at any time, park, or permit to be parked, any trucks or vehicles
adjacent to the loading areas so as to interfere in any way with the use of such
areas, nor shall Tenant at any time park, or permit the parking of Tenant's
trucks or other vehicles or the trucks and vehicles of Tenant's suppliers or
others, in any portion of the common area not designated by Landlord for such
use by Tenant. Tenant shall not park nor permit to be parked, any inoperative
vehicles or equipment on any portion of the common parking area or other common
areas of the Complex. Tenant agrees to assume responsibility for compliance by
its employees with the parking provision contained herein. If Tenant or its
employees park in other than such designated parking areas, then
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Landlord may charge Tenant, as an additional charge, and Tenant agrees to pay,
ten ($10.00) Dollars per day for each day or partial day each such vehicle is
parked in any area other than that designated. Tenant hereby authorizes Landlord
at Tenant's sole expense to tow away from the Complex any vehicle belonging to
Tenant or Tenant's employees parked in violation of these provisions, or to
attach violation stickers or notices to such vehicles. Tenant shall use the
parking areas for vehicle parking only, and shall not use the parking areas for
storage. Landlord hereby agrees to designate 4 parking spaces as "Reserved" as
indicated in blue on Exhibit A-1 and 4 parking spaces as "Visitor" as indicated
in green on Exhibit A-1.
7. EXPENSES OF OPERATION, MANAGEMENT AND MAINTENANCE OF THE COMMON AREAS OF THE
COMPLEX, PREMISES AND BUILDING IN WHICH THE PREMISES ARE LOCATED As Additional
Rent and in accordance with Paragraph 4 D of this Lease, Tenant shall pay to
Landlord Tenant's proportionate share (calculated on a square footage or other
equitable basis as calculated by Landlord) of all expenses of operation,
management, maintenance and repair of the Common Areas of the Complex including,
but not limited to, license, permit and inspection fees; security; utility
charges associated with exterior landscaping and lighting (including water and
sewer charges); all charges incurred in the maintenance of landscaped areas,
lakes, parking lots, sidewalks, driveways; maintenance, repair and replacement
of all fixtures and electrical, mechanical and plumbing systems; structural
elements and exterior surfaces of the buildings; salaries and employee benefits
of personnel and payroll taxes applicable thereto; supplies, materials,
equipment and tools; the cost of capital expenditures which have the effect of
reducing operating expenses, provided, however, that in the event Landlord makes
such capital improvements, Landlord may amortize its investment in said
improvements (together with interest at _____ prime rate ___ percent per
annum on the unamortized balance) as an operating expense in accordance with
standard accounting practices, provided, that such amortization is not at a rate
greater than the anticipated savings in the operating expenses.
As Additional Rent and in accordance with paragraph 4D of this Lease,
Tenant shall pay its proportionate share (calculated on a square footage or
other equitable basis as calculated by Landlord) of the cost of operation
(including common utilities), management, maintenance and repair of the Premises
and the building (including common areas such as lobbies, restrooms, janitor's
closets, hallways, elevators, mechanical and telephone rooms, stairwells,
entrances, spaces above the ceilings) in which the Premises are located. The
maintenance items herein referred to include, but are not limited to,
janitorization, electrical systems (such as outlets, lighting fixtures, lamps,
bulbs, tubes, ballasts), heating and air conditioning controls (such as mixing
boxes, thermostats, time clocks, supply and return grills), all interior
improvements within the Premises including but not limited to: wall coverings,
window coverings, acoustical ceilings, vinyl tile, carpeting, partitioning,
doors (both interior and exterior, including closing mechanisms, latches,
locks), and all other interior improvements of any nature whatsoever, all
windows, window frames, plate glass, glazing, truck doors, main plumbing systems
of the building (such as water and drain lines, sinks, toilets, faucets, drains,
showers and water fountains. main electrical systems (such as panels and
conduits), heating and air conditioning systems (such as compressors, fans, air
handlers, ducts, boilers, heaters), store fronts, roofs, downspouts, building
common area interiors (such as wall coverings, window coverings, floor coverings
and partitioning), ceilings, building exterior doors, skylights (if any),
automatic fire extinguishing systems and elevators; license, permit, and
inspection fees; security; salaries and employee benefits of personnel and
payroll taxes applicable thereto; supplies, materials, equipment and tools; the
cost of capital expenditures which have the effect of reducing operating
expenses, provided, however, that in the event Landlord makes such capital
improvements, Landlord may amortize its investment in said improvements
(together with interest at ___________ prime rate __________ per annum on the
unamortized balance) as an operating expense in accordance with standard
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accounting practices, provided, that such amortization is not at a rate greater
than the anticipated savings in the operating expenses. Tenant hereby waives all
rights under, and benefits of, subsection I of Section 1932 and Sections 1941
and 1942 of the California Civil Code and under any similar law, statute or
ordinance now or hereafter in effect. Tenant agrees to be responsible for wear
and tear of the carpet caused by rolling chairs if such wear and tear
exceeds that caused by normal foot traffic in surrounding areas. Areas of
excessive wear shall be replaced at Tenant's sole expense upon Lease
termination.
"Additional Rent" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
Landlord for the benefit of any other tenant; cost for the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.
Landlord agrees to provide five-day janitorial service for the leased
Premises and to maintain the Complex in a first-class manner.
8. ACCEPTANCE AND SURRENDER OF PREMISES By entry hereunder, Tenant accepts the
Premises as being in good and sanitary order, condition and repair and accepts
the building and improvements included in the Premises in their present
condition and without representation or warranty by Landlord as to the condition
of such building or as to the use or occupancy which may be made thereof. Any
exceptions to the foregoing must be by written agreement executed by Landlord
and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner
termination of this Lease, to surrender the Premises promptly and peaceably to
Landlord in good condition and repair (damage by Acts of God, fire or normal
wear and tear excepted), with all interior walls painted, or cleaned so that
they appear freshly painted, and repaired and replaced, if damaged; all floors
cleaned and waxed; all carpets cleaned and shampooed; the air conditioning and
heating equipment serviced by a reputable and licensed service firm and in good
operating condition (provided the maintenance of such equipment has been
Tenant's responsibility during the term of this Lease) together with all
alterations, additions and improvements which may have been made in, to, or on
the Premises (except movable trade fixtures installed at the expense of Tenant)
except that Tenant shall ascertain from Landlord within thirty (30) days before
the end of the term of this Lease whether Landlord desires to have the Premises
or any part or parts thereof restored to their condition and configuration as
when the Premises were delivered to Tenant and if Landlord shall so desire, then
Tenant shall restore said Premises or such part or parts thereof before the end
of this Lease at Tenant's sole cost and expense. Tenant, on or before the end of
the term or sooner termination of this Lease, shall remove all of Tenant's
personal property and trade fixtures from the Premises, and all property not so
removed on or before the end of the term or sooner termination of this Lease
shall be deemed abandoned by Tenant and title to same shall thereupon pass to
Landlord without compensation to Tenant. Landlord may, upon termination of this
Lease, remove all moveable furniture and equipment so abandoned by Tenant, at
Tenant's sole cost, and repair any damage caused by such removal at Tenant's
sole cost. If the Premises be not surrendered at the end of the term or sooner
termination of this Lease, Tenant shall indemnify Landlord against loss or
liability resulting from the delay by Tenant in so surrendering the Premises
including, without limitation, any claims made by any succeeding tenant founded
on such delay. Nothing contained herein shall be construed as an extension of
the term hereof or as a consent of Landlord to any holding over by Tenant. The
voluntary or other surrender of this Lease or the Premises by Tenant or a mutual
cancellation of this Lease shall not work as a merger and, at the option of
Landlord, shall either terminate all or any existing subleases or subtenancies
or operate as an assignment to Landlord of all or any such subleases or
subtenancies.
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9. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises, or any part thereof, without the written
consent of Landlord first had and obtained by Tenant, but at the cost of Tenant,
and any addition to, or alteration of, the Premises, except moveable furniture
and trade fixtures, shall at once become a part of the Premises and belong to
Landlord. If Landlord consents to the making of any alteration, addition, or
improvement to or of the Premises by Tenant, the same shall be made by Landlord
at Tenant's sole cost and expense. At the time such modifications are requested,
Landlord shall identify which items, if any, shall be subject to the restoration
provision of paragraph 8. Any modifications to the building or building systems
required by governmental code or otherwise as a result of Tenant's alterations,
additions or improvements shall be made at Tenant's sole cost and expense.
Tenant shall retain title to all moveable furniture and trade fixtures placed in
the Premises. All heating, lighting, electrical, air conditioning, partitioning,
drapery, carpeting and floor installations made by Tenant, together with all
property that has become an integral part of the Premises, shall not be deemed
trade fixtures. Tenant agrees that it will not proceed to make any alterations
or additions, without having obtained consent from Landlord to do so, and until
five (5) days from the receipt of such consent, in order that Landlord may post
appropriate notices to avoid any liability to contractors or material suppliers
for payment for Tenant's improvements. Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work. Tenant
shall, if required by Landlord, secure at Tenant's own cost and expense, a
completion and lien indemnity bond, satisfactory to Landlord, for such work.
Tenant further covenants and agrees that any mechanic's lien filed against the
Premises or against the Complex for work claimed to have been done for, or
materials claimed to have been furnished to Tenant, will be discharged by
Tenant, by bond or otherwise, within ten (10) days after the fling thereof, at
the cost and expense of Tenant. Any exceptions to the foregoing must be made in
writing and executed by both Landlord and Tenant. This paragraph continues
below.
11. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED As Additional
Rent and in accordance with paragraph 4D of this Lease, Tenant shall pay its
proportionate share (calculated on a square footage or other equitable basis as
calculated by Landlord) or the cost of all utility charges such as water, gas,
electricity, telephone, telex and other electronic communications service, sewer
service, waste pick-up and any other utilities, materials or services furnished
directly to the building in which the Premises are located, including, without
limitation, any temporary or permanent utility surcharge or other exactions
whether or not hereinafter imposed.
Landlord shall not be liable for and Tenant shall not be entitled to
any abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts or other labor disputes of any
nature, or by any other cause, similar or dissimilar, beyond the reasonable
control of Landlord.
Provided that Tenant is not in default in the performance or observance
of any of the terms, covenants or conditions of this Lease to be performed or
observed by it, Landlord shall furnish to
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the Premises between the hours of 8:00AM and 6:00PM, Mondays through Fridays
(holidays excepted) and subject to the rules and regulations of the Complex
hereinbefore referred to, reasonable quantities of water, gas and electricity
suitable for the intended use of the Premises and heat and air conditioning
required in Landlord's judgment for the comfortable use and occupation of the
Premises for such purposes. Tenant agrees that at all times it will cooperate
fully with Landlord and abide by all regulations and requirements that Landlord
may prescribe for the proper functioning and protection of the building heating,
ventilating and air conditioning systems. Whenever heat generating machines,
equipment, or any other devices (including exhaust fans) are used in the
Premises by Tenant which affect the temperature or otherwise maintained by the
air conditioning system, Landlord shall have the right to install supplementary
air conditioning units on the Premises and the costs thereof, including the cost
of installation and the cost of operation and maintenance thereof, shall be paid
by Tenant to Landlord upon demand by Landlord. If Tenant shall require water,
gas or electric current in excess of that usually furnished or supplied to
premises being used as general office space, Tenant shall first obtain the
written consent of Landlord, which consent shall not be unreasonably withheld
and Landlord may cause an electric current, gas, or water meter to be installed
in the Premises in order to measure the amount of electric current, gas or water
consumed for any such excess use. The cost of any such meter and of the
installation, maintenance and repair thereof, all charges for such excess water,
gas and electric current consumed (as shown by such meters and at the rates then
charged by the furnishing public utility); and any additional expense incurred
by Landlord in keeping account of electric current, gas, or water so consumed
shall be paid by Tenant, and Tenant agrees to pay Landlord therefor promptly
upon demand by Landlord. The gas and electric meters directly servicing the
Building at 1855 South Grant Street shall be placed in Tenant's own name and
account, and Tenant shall pay directly to the providing public utilities the
cost of the gas and electric associated solely with the Building at 1855 South
Grant Street. This paragraph continues below.
12. TAXES
A. As Additional Rent and in accordance with Paragraph 4 D of this
Lease, Tenant shall pay to Landlord Tenant's proportionate share of all Real
Property Taxes, which prorata share shall be allocated to the leased Premises by
square footage or other equitable basis, as calculated by Landlord. The term
"Real Property Taxes," as used herein, shall mean (i) all taxes, assessments,
levies and other charges of any kind or nature whatsoever, general and special,
foreseen and unforeseen (including all installments of principal and interest
required to pay any general or special assessments for public improvements and
any increases resulting from reassessments caused by any change in ownership of
the Complex) now or hereafter imposed by any governmental or quasi-governmental
authority or special district having the direct or indirect power to tax or levy
assessments, which are levied or assessed against, or with respect to the value,
occupancy or use of, all or any portion of the Complex (as now constructed or as
may at any time hereafter be constructed, altered, or otherwise changed) or
Landlord's interest therein: any improvements located within the Complex
(regardless of ownership); the fixtures, equipment and other property of
Landlord, real or personal, that are an integral part of and located in the
Complex; or parking areas, public utilities, or energy within the Complex; (ii)
all charges, levies or fees imposed by reason of environmental regulation or
other governmental control of the Complex; and (iii) all costs and fees
(including attorneys' fees) incurred by Landlord in contesting any Real Property
Tax and in negotiating with public authorities as to any Real Property Tax. If
at any time during the term of this Lease the taxation or assessment of the
Complex prevailing as of the
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commencement date of this Lease shall be altered so that in lieu of or in
addition to any Real Property Tax described above there shall be levied,
assessed or imposed (whether by reason of a change in the method of taxation or
assessment, creation of a new tax or charge, or any other cause) an alternate or
additional tax or charge (i) on the value, use or occupancy of the Complex or
Landlord's interest therein or (ii) on or measured by the gross receipts, income
or rentals from the Complex, on Landlord's business of leasing the Complex, or
computed in any manner with respect to the operation of the Complex, then any
such tax or charge, however designated, shall be included within the meaning of
the term "Real Property Taxes" for purposes of this Lease. If any Real Property
Tax is based upon property or rents unrelated to the Complex, then only that
part of such Real Property Tax that is fairly allocable to the Complex shall be
included within the meaning of the term "Real Property Taxes". Notwithstanding
the foregoing, the term "Real Property Taxes" shall not include estate,
inheritance, gift or franchise taxes of Landlord or the federal or state net
income tax imposed on Landlord's income from all sources.
B. Taxes on Tenant's Property
(1) Tenant shall be liable for and shall pay ten days before
delinquency, taxes levied against any personal property or trade fixtures placed
by Tenant in or about the Premises. If any such taxes on Tenant's personal
property or trade fixtures are levied against Landlord or Landlord's property or
if the assessed value of the Premises is increased by the inclusion therein of a
value placed upon such personal property or trade fixtures of Tenant and if
Landlord, after written notice to Tenant, pays the taxes based on such increased
assessment, which Landlord shall have the right to do regardless of the validity
thereof, but only under proper protest if requested by Tenant, Tenant shall upon
demand, as the case may be, repay to Landlord the taxes so levied against
Landlord, or the proportion of such taxes resulting from such increase in the
assessment; provided that in any such event Tenant shall have the right, in the
name of Landlord and with Landlord's full cooperation, to bring suit in any
court of competent jurisdiction to recover the amount of any such taxes so paid
under protest, and any amount so recovered shall belong to Tenant.
(2) If the Tenant improvements in the Premises, whether installed,
and/or paid for by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for Real Property Tax
purposes at a valuation higher than the valuation at which standard office
improvements in other space in the Complex are assessed, then the Real Property
Taxes and assessments levied against Landlord or the Complex by reason of such
excess assessed valuation shall be deemed to be taxes levied against personal
property of Tenant and shall be governed by the provisions of 12A(i), above. If
the records of the County Assessor are available and sufficiently detailed to
serve as a basis for determining whether said Tenant improvements are assessed
at a higher valuation than standard office improvements in other space in the
Complex, such records shall be binding on both the Landlord and the Tenant. If
the records of the County Assessor are not available or sufficiently detailed to
serve as a basis for making said determination, the actual cost of construction
shall be used.
13. LIABILITY INSURANCE Tenant, at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of comprehensive public liability
insurance with limits in the amount of $1,000,000/$1,000,000 for injuries to or
death of persons occurring in, on or about the Premises or the Complex, and
property damage insurance with limits of $500,000. The policy or policies
affecting such insurance, certificates of which shall be furnished to Landlord,
shall name Landlord as additional insureds, and shall insure any liability of
Landlord, contingent or otherwise, as respects acts or omissions of Tenant, its
agents, employees or invitees or otherwise by any conduct or transactions of any
of said persons in or about or concerning the Premises, including
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any failure of Tenant to observe or perform any of its obligations hereunder;
shall be issued by an insurance company admitted to transact business in the
State of California; and shall provide that the insurance effected thereby shall
not be canceled, except upon thirty (30) days' prior written notice to Landlord.
If, during the term of this Lease, in the considered opinion of Landlord's
Lender, insurance advisor or counsel, the amount of insurance described in this
paragraph 13 is not adequate, Tenant agrees to increase said coverage to such
reasonable amount as Landlord's Lender, insurance advisor or counsel shall deem
adequate.
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKER'S COMPENSATION INSURANCE
Tenant shall maintain a policy or policies of fire and property damage insurance
in "all risk" form with a sprinkler leakage endorsement ensuring the personal
property, inventory, trade fixtures and leasehold improvements within the leased
Premises for the full replacement value thereof. The proceeds from any of such
policies shall be used for the repair or replacement of such items so insured.
Tenant shall also maintain a policy or policies of worker's
compensation insurance and any other employee benefit insurance sufficient to
comply with all laws.
15. PROPERTY INSURANCE Landlord shall purchase and keep in force and, as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord Tenant's proportionate share (calculated on a square footage or
other equitable basis as calculated by Landlord) of the cost of policy or
policies of insurance covering loss or damage to the Premises and Complex in the
amount of the full replacement value thereof, providing protection against those
perils included within the classification of "all risks" insurance and flood
and/or earthquake insurance, if available, plus a policy of rental income
insurance in the amount of one hundred (100%) percent of twelve (12) months
Basic Rent, plus sums paid as Additional Rent. If such insurance cost is
increased due to Tenant's use of the Premises or the Complex, Tenant agrees to
pay to Landlord the full cost of such increase. Tenant shall have no interest in
nor any right to the proceeds of any insurance procured by Landlord for the
Complex.
Landlord and Tenant do each hereby respectively release the other, to
the extent of insurance coverage of the releasing party, from any liability for
loss or damage caused by fire or any of the extended coverage casualties
included in the releasing party's insurance policies, irrespective of the cause
of such fire or casualty; provided, however, that if the insurance policy of
either releasing party prohibits such waiver, then this waiver shall not take
effect until consent to such waiver is obtained. If such waiver is so
prohibited, the insured party affected shall promptly notify the other party
thereof.
16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises or the Complex by
or from any cause whatsoever, including, without limitation, gas, fire, oil,
electricity or leakage of any character from the roof, walls, basement or other
portion of the Premises or the Complex but excluding, however, the negligence of
Landlord, its agents, servants, employees, invitees, or contractors of which
negligence Landlord has knowledge and reasonable time to correct. Except as to
injury to persons or damage to property the principal cause of which is the
negligence of Landlord, Tenant shall hold Landlord harmless from and defend
Landlord against any and all expenses, including reasonable attorneys' fees, in
connection therewith, arising out of any injury to or death of any person or
damage to or destruction of property occurring, in, on or about the Premises, or
any part thereof, from any cause whatsoever.
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17. COMPLIANCE Except as may be limited per paragraph 43 (as amended)
Tenant, at its sole cost and expense, shall promptly comply with all laws,
statutes, ordinances and governmental rules, regulations or requirements now or
hereafter in effect; with the requirements of any board of fire underwriters or
other similar body now or hereafter constituted; and with any direction or
occupancy certificate issued pursuant to law by any public officer; provided,
however, that no such failure shall be deemed a breach of the provisions if
Tenant, immediately upon notification, commences to remedy or rectify said
failure. The judgment of any court of competent jurisdiction or the admission of
Tenant in any action against Tenant, whether Landlord be a party thereto or not,
that Tenant has violated any such law, statute, ordinance or governmental rule,
regulation. requirement, direction or provision, shall be conclusive of that
fact as between Landlord and Tenant. This paragraph shall not be interpreted as
requiring Tenant to make structural changes or improvements, except to the
extent such changes or improvements are required as a result of Tenant's use of
the Premises. Tenant shall, at its sole cost and expense, comply with any and
all requirements pertaining to said Premises, of any insurance organization or
company, necessary for the maintenance of reasonable fire and public liability
insurance covering the Premises. This paragraph is continued below.
18. LIENS Tenant shall keep the Premises and the Complex free from any liens
arising out of any work performed, materials furnished or obligation incurred by
Tenant. In the event that Tenant shall not, within ten (10) days following the
imposition of such lien, cause the same to be released of record, Landlord shall
have, in addition to all other remedies provided herein and by law, the right,
but no obligation, to cause the same to be released by such means as it shall
deem proper, including payment of the claim giving rise to such lien. All sums
paid by Landlord for such purpose, and all expenses incurred by it in connection
therewith, shall be payable to Landlord by Tenant on demand with interest at the
prime rate of interest as quoted by the Bank of America.
19. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer or hypothecate
the leasehold estate under this Lease, or any interest therein. and shall not
sublet the Premises, or any part thereof, or any right or privilege appurtenant
thereto, or suffer any other person or entity to occupy or use the Premises, or
any portion thereof, without, in each case, the prior written consent of
Landlord which consent will not be unreasonably withheld or delayed. Tenant
agrees to pay to Landlord, as additional rent, 50% of all rents or additional
consideration excluding any consideration for use of Tenant's personal property
such as furniture, telephones, etc. received by Tenant from its assignees,
transferees or subtenants in excess of the rent payable by Tenant to Landlord
hereunder. Tenant shall, by one hundred twenty (120) days' written notice,
advise Landlord of its intent to assign or transfer Tenant's interest in the
Lease or sublet the Premises or any portion thereof for any part of the term
hereof. In the event Tenant is allowed to assign, transfer or sublet the whole
or any part of the Premises, with the prior written consent of Landlord, no
assignee, transferee or subtenant shall assign or transfer this Lease, either in
whole or in part, or sublet the whole or any part of the Premises, without also
having obtained the prior written consent of Landlord. A consent of Landlord to
one assignment, transfer, hypothecation, subletting, occupation or use by any
other person shall not release Tenant from any of Tenant's obligations hereunder
or be deemed to be a consent to any subsequent similar or dissimilar assignment,
transfer, hypothecation, subletting, occupation or use by any other person. Any
such assignment, transfer, hypothecation, subletting, occupation or use without
such consent shall be void and shall constitute a breach of this Lease by Tenant
and shall, at the option of Landlord exercised by written notice to Tenant,
terminate this Lease. The leasehold estate under this Lease shall not, nor shall
any interest therein, be assignable for any purpose by operation of law without
the written consent of Landlord. As a condition to its consent, Landlord may
require Tenant to pay all expenses in connection with the assignment and
Landlord may require Tenant's assignee or transferee (or other assignees or
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transferees) to assume in writing all of the obligations under this Lease and
for Tenant to remain liable to Landlord under the Lease. This paragraph is
continued below.
20. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest of
Landlord in the land and buildings in which the demised Premises are located, to
secure a loan from a lender (hereinafter referred to as "Lender") to Landlord,
Tenant shall, at the request of Landlord or Lender, execute in writing an
agreement subordinating its rights under this Lease to the lien of such deed of
trust, or, if so requested, agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease. Tenant hereby irrevocably appoints Landlord the attorney in fact of
Tenant to execute, deliver and record any such instrument or instruments for
and in the name and on behalf of Tenant. Notwithstanding any such subordination,
Tenant's possession under this Lease shall not be disturbed if Tenant is not in
default and so long as Tenant shall pay all rent and observe and perform all of
the provisions set forth in this Lease. Tenant agrees to send to any mortgagees
and/or deed of trust holders, by registered mail, a copy of any notice of
default served by Tenant upon the Landlord, provided that prior to such notice,
Tenant has been notified, in writing (by way of notice of assignment of rents or
otherwise) of the addresses of such mortgagees and/or deed of trust holders.
Tenant further agrees that if Landlord shall have failed to cure such default
within the time provided for in this Lease, any such mortgagees and/or deed of
trust holders shall have an additional thirty (30) days within which to cure
such default, or if such default is not reasonably susceptible of cure within
that time, then such additional time as may be reasonably necessary if within
such (30) days, any mortgagee and/or deed of trust holder has commenced and is
diligently pursuing the remedies necessary to cure such default, (including but
not limited to commencement of foreclosure proceedings), in which event this
Lease shall not be terminated when such remedies are being diligently pursued.
This paragraph is continued below.
21. ENTRY BY LANDLORD Except in the case of an emergency, upon 2 hours
advanced notice Landlord reserves, and shall at all reasonable times have, the
right to enter the Premises to inspect them; to perform any services to be
provided by Landlord hereunder; to submit the Premises to prospective
purchasers, mortgagers or tenants; to post notices of nonresponsibility; and to
alter, improve or repair the Premises and any portion of the Complex, all
without abatement of rent; and may erect scaffolding and other necessary
structures in or through the Premises where reasonably required by the character
of the work to be performed; provided, however, that the business of Tenant
shall be interfered with to the least extent that is reasonably practical. For
each of the foregoing purposes, Landlord shall at all times have and retain a
key with which to unlock all of the doors in an emergency in order to obtain
entry to the Premises, and any entry to the Premises obtained by Landlord by any
of said means, or otherwise, shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into or a detainer of the Premises or
an eviction, actual or constructive, of Tenant from the Premises or any portion
thereof. Landlord shall also have the right at any time to change the
arrangement or location of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets or other public parts of the Complex and
to change the name, number or designation by which the Complex is commonly
known. and none of the foregoing shall be deemed an actual or constructive
eviction of Tenant, or shall entitle Tenant to any reduction of rent hereunder.
22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or
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receiver appointed to serve during a bankruptcy, liquidation, reorganization,
insolvency or similar action elects to reject Tenant's unexpired Lease, the
trustee or receiver shall notify Landlord in writing of its election within
thirty (30) days after an order for relief in a liquidation action or within
thirty (30) days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of the
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance, as used herein, includes, but shall
not be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of this Lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold estate
under this Lease, or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of Landlord.
In no event shall this Lease or any rights or privileges hereunder be an asset
of Tenant under any bankruptcy, insolvency or reorganization proceedings.
The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute a default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of five (5) days from the date of written notice from
Landlord within which to cure any default in the payment of rental or adjustment
thereto. Tenant shall have a period of ten (10) days from the date of written
notice from Landlord within which to cure or commence to cure any other default
under this Lease and shall not be in default as long as Tenant diligently
proceeds to cure the non-monetary default. Upon an uncured default of this Lease
by Tenant, Landlord shall have the following rights and remedies in addition to
any other rights or remedies available to Landlord at law or in equity:
(a) The rights and remedies provided for by California Civil Code
Section 1951.2, including but not limited to, recovery of the worth at the time
of award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of rental loss for the same period
that Tenant proves could be reasonably avoided, as computed pursuant to
subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraphs
(2) and (3) of Section 1951.2 of the California Civil Code of the amount of
rental loss that could be reasonably avoided shall be made in the following
manner: Landlord and Tenant shall each select a licensed real estate broker in
the business of renting property of the same type and use as the Premises and in
the same geographic vicinity. Such two real estate brokers shall select a third
licensed real estate broker, and three licensed real estate brokers so selected
shall determine the amount of the rental loss that could be reasonably avoided
from the balance of the term of this Lease after the time of award. The decision
of the majority of said licensed real estate brokers shall be final and binding
upon the parties hereto.
(b) The rights and remedies provided by California Civil Code which
allows Landlord to continue the Lease in effect and to enforce all of its rights
and remedies under this Lease, including the right to recover rent as it becomes
due, for so long as Landlord does not terminate Tenant's right to possession;
acts of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver upon Landlord's initiative to protect its interest
under this Lease shall not constitute a termination of Tenant's right to
possession.
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(c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d) The right and power, as attorney-in-fact for Tenant, to enter the
Premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the cost of and for the account of Tenant
and to sell such property and apply such proceeds therefrom pursuant to
applicable California law. Landlord, as attorney-in-fact for Tenant, may from
time to time sublet the Premises or any part thereof for such term or terms
(which may extend beyond the term of this Lease) and at such rent and such other
terms as Landlord in its sole discretion may deem advisable, with the right to
make alteration and repairs to the Premises. Upon each subletting, (i) Tenant
shall be immediately liable to pay Landlord, in addition to indebtedness other
than rent due hereunder, the cost of such subletting, including, but not limited
to, reasonable attorneys' fees, and any real estate commissions actually paid,
and the cost of such alterations and repairs incurred by Landlord and the
amount, if any, by which the rent hereunder for the period of such subletting
(to the extent such period does not exceed the term hereof, exceeds the amount
to be paid as rent for the Premises for such period or (ii) at the option of
Landlord, rents received from such subletting shall be applied first to payment
of indebtedness other than rent due hereunder from Tenant to Landlord; second,
to the payment of any costs of such subletting and of such alterations and
repairs; third to payment of rent due to unpaid hereunder; and the residue, if
any, shall be held by Landlord and applied in payment of future rent as the same
becomes due hereunder. If Tenant has been credited with any rent to be received
by such subletting under option (i) and such rent shall not be promptly paid to
Landlord by the subtenant(s), or if such rentals received from such subletting
under option (ii) during any month be less than that to be paid during that
month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord.
Such deficiency shall be calculated and paid monthly. For all purposes set forth
in this subparagraph (d), Landlord is hereby irrevocably appointed
attorney-in-fact for Tenant, with power of substitution. No taking possession of
the Premises by Landlord, as attorney-in-fact for Tenant, shall be construed as
an election on its part to terminate this Lease unless a written notice of such
intention be given to Tenant. Notwithstanding any such subletting without
termination, Landlord may at any time hereafter elect to terminate this Lease
for such previous breach.
(e) The right to have a receiver appointed for Tenant upon application
by Landlord, to take possession of the Premises and to apply any rental
collected from the Premises and to exercise all other rights and remedies
granted to Landlord as attorney-in-fact for Tenant pursuant to subparagraph (d)
above.
23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease; and if Tenant shall abandon, vacate or surrender
said Premises, or be dispossessed by the process of law, or otherwise, any
personal property belonging to Tenant and left on the Premises shall be deemed
to be abandoned, at the option of Landlord, except such property as may be
mortgaged to Landlord.
24. DESTRUCTION In the event the Premises are destroyed in whole or in part
from any cause, Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior to the
damage or destruction, or
(b) Terminate this Lease.
If Landlord does not give Tenant notice in writing within thirty (30)
days from the destruction of the Premises of its election to either rebuild and
restore them, or to terminate this Lease, Landlord shall be deemed to have
elected to rebuild or restore them, in which event
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Landlord agrees, at its expense, promptly to rebuild or restore the Premises to
their condition prior to the damage or destruction. Tenant shall be entitled to
a reduction in rent while such repair is being made in the proportion that the
area of the Premises rendered untenantable by such damage bears to the total
area of the Premises. If Landlord does not complete the rebuilding or
restoration within one hundred eighty (180) days following the date of
destruction (such period of time to be extended for delays caused by the fault
or neglect of Tenant or because of Acts of God, acts of public agencies, labor
disputes, strikes, fires, freight embargoes, rainy or stormy weather, inability
to obtain materials, supplies or fuels, acts of contractors or subcontractors,
or delay of the contractors or subcontractors due to such causes or other
contingencies beyond the control of Landlord), then Tenant shall have the right
to terminate this Lease by giving fifteen (15) days prior written notice to
Landlord. Notwithstanding anything herein to the contrary, Landlord's obligation
to rebuild or restore shall be limited to the building and interior improvements
constructed by Landlord as they existed as of the commencement date of the Lease
and shall not include restoration of Tenant's trade fixtures, equipment,
merchandise or any improvements, alterations or additions made by Tenant to the
Premises, which Tenant shall forthwith replace or fully repair at Tenant's sole
cost and expense provided this Lease is not cancelled according to the
provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Tenant hereby expressly waives
the provisions of Section 1932, Subdivision 2, and Section 1933, Subdivision 4
of the California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33 1/3% of the replacement
cost thereof, Landlord may elect to terminate this Lease, whether the Premises
be injured or not. In the event the destruction of the Premises is caused by
Tenant, Tenant shall pay the deductible portion of Landlord's insurance
proceeds.
25. EMINENT DOMAIN If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
shall be entitled to any and all payment, income, rent, award or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business,
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any entity
or body having the right or power of condemnation of its intention to condemn
the Premises or any portion thereof, or (ii) any of the foregoing events occur
with respect to the taking of any space in the Complex not leased hereby, or if
any such spaces so taken or conveyed in lieu of such taking and Landlord shall
decide to discontinue the use and operation of the Complex, or decide to
demolish, alter or rebuild the Complex, then, in any of such events Landlord
shall have the right to terminate this Lease by giving Tenant written notice
thereof within sixty (60) days of the date of receipt of said written advice, or
commencement of said action or proceeding, or taking conveyance, which
termination shall take place as of the first to occur of the last day of the
calendar month next following the month in which such notice is given or the
date on which title to the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if
the portion of the Premises taken or conveyed is so substantial that the Tenant
can no longer reasonably conduct its
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business. Tenant shall have the privilege of terminating this Lease within sixty
(60) days from the date of such taking or conveyance, upon written notice to
Landlord of its intention so to do, and upon giving of such notice this Lease
shall terminate on the last day of the calendar month next following the month
in which such notice is given, upon payment by Tenant of the rent from the date
of such taking or conveyance to the date of termination.
If a portion of the Premises be taken by condemnation or conveyance in
lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter the
rent to be paid by Tenant shall be in the ratio that the area of the portion of
the Premises not so taken or conveyed bears to the total area of the Premises
prior to such taking.
26. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the
Complex or any interest therein, by any owner of the reversion then constituting
Landlord, the transferor shall thereby be released from any further liability
upon any of the terms, covenants or conditions (express or implied) herein
contained in favor of Tenant, and in such event, insofar as such transfer is
concerned, Tenant agrees to look solely to the responsibility of the successor
in interest of such transferor in and to the Complex and this Lease. This Lease
shall not be affected by any such sale or conveyance, and Tenant agrees to
attorn to the successor in interest of such transferor.
27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale, Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
28. HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease Any holding over after the expiration or other termination of the
term of this lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein specified
insofar as applicable except that the monthly Basic Rent shall be increased to
an amount equal to two hundred (150%) percent of the monthly Basic Rent required
during the last month of the Lease term.
29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten
(10) days' prior written notice from Landlord execute, acknowledge and deliver
to Landlord a statement in writing (i) certifying that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults, if any, are claimed. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Premises.
Tenant's
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failure to deliver such statement within such time shall be conclusive upon
Tenant that this Lease is in full force and effect, without modification except
as may be represented by Landlord; that there are no uncured defaults in
Landlord's performance, and that not more than one month's rent has been paid in
advance.
30. CONSTRUCTION CHANGES It is understood that the description of the Premises
and the location of ductwork, plumbing and other facilities therein are subject
to such minor changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises, and no such changes, or
any changes in plans for any other portion of the Complex shall affect this
Lease or entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any
drawings supplied to Tenant and verification of the accuracy of such drawings
rests with Tenant.
31. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid by
it hereunder or shall fail to perform any other term or covenant hereunder on
its part to be performed, and such failure shall continue for five (5) days
after written notice thereof by Landlord, Landlord, without waiving or releasing
Tenant from any obligation of Tenant hereunder, may, but shall not be obligated
to, make any such payment or perform any such other term or covenant on Tenant's
part to be performed. All sums so paid by Landlord and all necessary costs of
such performance by Landlord together with interest thereon at the rate of the
prime rate of interest per annum as quoted by the Bank of America from the date
of such payment of performance by Landlord, shall be paid (and Tenant covenants
to make such payment) to Landlord on demand by Landlord, and Landlord shall have
(in addition to any other right or remedy of Landlord) the same rights and
remedies in the event of nonpayment by Tenant as in the case of failure by
Tenant in the payment of rent hereunder.
32. ATTORNEYS' FEES
(A) In the event that Landlord should bring suit for the possession of
the Premises, for the recovery of any sum due under this Lease, or because of
the breach of any provision of this Lease, or for any other relief against
Tenant hereunder, then all costs and expenses, including reasonable attorneys'
fees, incurred by the prevailing party therein shall be paid by the other party,
which obligation on the part of the other party shall be deemed to have accrued
on the date of the commencement of such action and shall be enforceable whether
or not the action is prosecuted to judgement.
(B) Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including a
reasonable attorney's fee.
33. WAIVER The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any way
affect, the right of either party to insist upon performance and observance by
the other party in strict accordance with the terms hereof.
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34. NOTICES All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served on
Tenant by leaving the same at the Premises or if sent by United States certified
or registered mail, postage prepaid, addressed to Tenant at the Premises:
Attention: Chief Financial Officer with a copy to V.P. Legal Affairs. All
notices, demands, requests, advices or designations by Tenant to Landlord shall
be sent by United States certified or registered mail, postage prepaid.
addressed to Landlord at its offices at 3201 Ash Street, Palo Alto, CA 94306.
Each notice, request, demand, advice or designation referred to in this
paragraph shall be deemed received on the date of the personal service or
mailing thereof in the manner herein provided, as the case may be.
35. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant. Landlord and Tenant mutually intend
that neither shall have any binding contractual obligations to the other with
respect to the matters referred to herein unless and until this instrument has
been fully executed by both parties.
36. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event earlier than thirty (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have heretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.
37. CORPORATE AUTHORITY If Tenant is a corporation (or a partnership) each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the
by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or partnership)
in accordance with its terms. If Tenant is a corporation, Tenant shall, within
thirty (30) days after execution of this Lease, deliver to Landlord a certified
copy of the resolution of the Board of Directors of said corporation authorizing
or ratifying the execution of this Lease.
38. BASIC RENT ADJUSTMENT It is understood that on each and every anniversary
of the date Tenant takes possession, the Basic Rent provided for in Paragraph 4
A of the Lease shall be adjusted in accordance with the following formula based
on the Consumer Price Index ("CPI") for all urban Consumers, subgroup "All
Items," San Francisco-Oakland, California Metropolitan Area (1967 = 100)
published by the Bureau of Labor Statistics, U.S. Department of Labor (the
"Index") published nearest the date Tenant taken possession of the Premises (the
"Beginning Index") and the Index which is published nearest but prior to each
and every anniversary of the date on which Tenant takes possession of the
Premises (the "Adjustment Index"). The "CPI" adjusted Basic Rent shall be
calculated by multiplying the Basic Rent provided for in Paragraph 4 A of the
Lease by a fraction, the numerator of which is the Adjustment Index and the
denominator of which is the Beginning Index. In no event, however, shall the
"CPI" adjusted Basic Rent
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<PAGE> 20
decrease below the Basic Rent provided for in Paragraph 4A of the Lease or any
subsequent adjustment thereof. If the Index is changed so that the Base Year of
the Index differs from that used as of the month immediately preceding the month
in which the term commences, the Index shall be convened in accordance with the
conversion factor published by the United States Department of Labor, Bureau of
Labor Statistics. If the Index is discontinued or revised during the term, such
other government index or other computation with which it is replaced shall be
used in order to obtain substantially the same result as would be obtained if
the Index had not been discontinued or revised. In no event shall the annual
adjustment exceed 6% for any given year to year adjustment. If the CPI exceeds
6% for any given annual period, the increase for the subsequent 12 month period
shall be 6%.
39. LIMITATION OF LIABILITY In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach or default hereunder by Landlord:
(i) the sole and exclusive remedy shall be against Landlord and Landlord's
assets;
(ii) no partner of Landlord shall be sued or named as a party in any suit or
action (except as may be necessary to secure jurisdiction of the
partnership);
(iii) no service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the partnership);
(iv) no partner of Landlord shall be required to answer or otherwise plead to
any service of process;
(v) no judgment shall be taken against any partner of Landlord;
(vi) any judgment taken against any partner of Landlord may be vacated and
set aside at any time without hearing;
(vii) no writ of execution will ever be levied against the assets of any
partner of Landlord;
(viii) these covenants and agreements are enforceable both by Landlord and also
by any partner of Landlord.
(ix) The term "Landlord," as used in this section, shall mean only the owner
or owners from time to time of the fee title or the tenant's interest
under a ground lease of the land described in Exhibit "B," and in the
event of any transfer of such title or interest, Landlord herein named
(and in case of any subsequent transfers the then grantor) shall be
relieved from and after the date of such transfer of all liability as
respects Landlord's obligations thereafter to be performed, provided
that any funds in the hands of Landlord or the then grantor at the time
of such transfer in which Tenant has an interest shall be delivered to
the grantee. Similarly, the obligations contained in this Lease to be
performed by Landlord shall be binding on Landlord's successors and
assigns only during their respective periods of ownership. Tenant agrees
that each of the foregoing covenants and agreements shall be applicable
to any covenant or agreement either expressly contained in this Lease or
imposed by statute or at common law.
40. BROKERS Tenant warrants that it had dealing with only the following real
estate brokers or agents in connection with the negotiation of this Lease:
CB Commercial Real Estate Group and Cornish & Carey and that it knows of no
other real estate broker or agent who is entitled to a commission in
connection with this Lease.
41. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, printed or affixed on or to any part of the outside of the
Premises or any exterior windows of the Premises without the written consent of
Landlord first had and obtained and Landlord shall have the right to remove any
such sign, placard, picture, advertisement, name or notice without notice to and
at the expense of Tenant. If Tenant is allowed to print or affix or in
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<PAGE> 21
any way place a sign in, on, or about the Premises, then upon expiration or
other sooner termination of this Lease, Tenant at Tenant's sole cost and expense
shall both remove such sign and repair all damage in such a manner as to restore
all aspects of the appearance of the Premises to the condition prior to the
placement of said sign.
All approved signs or lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved of
by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises. This Paragraph 41 continues below.
42. FINANCIAL STATEMENTS In the event Tenant tenders to Landlord any
information on the financial stability, creditworthiness or ability of the
Tenant to pay the rent due and owing under the Lease, then Landlord shall be
entitled to rely upon the information provided in determining whether or not to
enter into this Lease Agreement with Tenant and Tenant hereby represents and
warrants to Landlord the following: (i) That all documents provided by Tenant to
Landlord are true and correct copies of the original; and (ii) Tenant has not
withheld any information from Landlord which is material to Tenant's
creditworthiness, financial condition or ability to pay the rent; and (iii) all
information supplied by Tenant to Landlord is true, correct and accurate; and
(iv) no part of the information supplied by Tenant to Landlord contains
misleading or fraudulent statements.
A default under this paragraph shall be a non curable default on behalf
of Tenant and Landlord shall be entitled to pursue any right or remedy available
to Landlord under the terms of this Lease or available to Landlord under the
laws of the State of California.
43. HAZARDOUS MATERIALS
A. As used herein, the term "Hazardous Material" shall mean any
substance or material which has been determined by any state, federal or local
governmental authority to be capable of posing a risk of injury to health,
safety or property including all of those materials and substances designated or
defined as "hazardous" or toxic by (i) the Environmental Protection Agency, the
California Water Quality Control Board, the Department of Labor, the California
Department of Industrial Relations, the Department of Transportation, the
Department of Agriculture, the Consumer Product Safety Commission, the
Department of Health and Human Services, the Food and Drug Agency or any other
governmental agency now or hereafter authorized to regulate materials and
substances in the environment, or by (ii) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. 9601 et seq., as
amended; the Hazardous Materials Transportation Act, 49 U.S.C. 1801, et seq., as
amended; the Resource Conservation and Recovery Act, 42 U.S.C. 6901, et seq., as
amended; the Hazardous Waste Control Law, California Health & Safety Code 25100
et seq., as amended; Sections 66680 through 66685 of Title 22 of the California
Administration Code, Division 4, Chapter 30, as amended; and in the regulations
adopted and publications promulgated pursuant to said laws.
B. Tenant shall not cause or permit any Hazardous Material to be
improperly or illegally used, stored, discharged, released or disposed of in,
from, under or about the Premises or the Complex, or any other land or
improvements in the vicinity of the Premises or the Complex. Without limiting
the generality of the foregoing, Tenant, at its sole cost, shall comply with all
laws relating to Hazardous Materials. If the presence of Hazardous Materials on
the Premises or the Complex caused or permitted by Tenant results in
contamination of the Premises or the Complex or any soil in or about the
Premises or the Complex, Tenant, at its expense shall promptly take all actions
necessary to return the Premises or the Complex to the condition existing prior
to the appearance of such Hazardous Material. The termination of this Lease
shall not terminate or
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<PAGE> 22
reduce the liability or obligations of Tenant under this Section, or as may be
required by law, to clean up, monitor or remove any Hazardous Materials from the
Premises or the Complex.
Tenant shall defend, hold harmless and indemnify Landlord and its
agents and employees with respect to all claims, damages and liabilities arising
out of or in connection with any Hazardous Material used, stored, discharged,
released or disposed of in, from, under or about the Premises or the Complex,
where said Hazardous Material is or was attributable to the activities of
Tenant, its agents or contractors during the Lease term and whether or not
Tenant had knowledge of such Hazardous Material, including, without limitation,
any cost of monitoring or removal, any reduction in the fair market value or
fair rental value of the Premises or the Complex and any loss, claim or demand
by any third person or entity relating to bodily injury or damage to real or
personal property.
Tenant shall not suffer any lien to be recorded against the
Premises or the Complex as a consequence of a Hazardous Material, including any
so called state, federal or local "super fund" lien related to the "clean up" of
a Hazardous Material in or about the Premises, where said Hazardous Material is
or was attributable to the activities of Tenant.
C. In the event Hazardous Materials are discovered in or about the
Premises or the Complex, and Landlord has substantial reason to believe that
Tenant was responsible for the presence of the Hazardous Material, then Landlord
shall have the right to appoint a consultant, at Tenant's expense, to conduct an
investigation to determine whether Hazardous Materials are located in or about
the Premises or the Complex and to determine the corrective measures, if any,
required to remove such Hazardous Materials. Tenant, at its expense, shall
comply with all recommendations of the consultant, as required by law. To the
extent it is determined that Tenant was not responsible for the presence of the
Hazardous Materials, then Landlord shall reimburse Tenant for any costs incurred
by Landlord and paid by Tenant under the terms of this paragraph 45.C.
Tenant shall immediately notify Landlord of any inquiry, test,
investigation or enforcement proceeding by or against Tenant or the Premises or
the Complex concerning a Hazardous Material. Tenant acknowledges that Landlord,
as the owner of the Property, at its election, shall have the sole right, at
Tenant's expense, to negotiate, defend, approve and appeal any action taken or
order issued with regard to a Hazardous Material by an applicable governmental
authority. Provided Tenant is not in default under the terms of this Lease,
Tenant shall likewise have the right to participate in any negotiations,
approvals or appeals of any actions taken or orders issued with regard to the
Hazardous Material and Landlord shall not have the right to bind Tenant in said
actions or orders.
D. It shall not be unreasonable for Landlord to withhold its consent to
any proposed assignment or subletting if (i) the proposed assignee's or
subtenant's anticipated use of the Premises involves the storage, use or
disposal of Hazardous Material; (ii) if the proposed assignee or subtenant has
been required by any prior landlord, lender or governmental authority to "clean
up" Hazardous Material; (iii) if the proposed assignee or subtenant is subject
to investigation or enforcement order or proceeding by any governmental
authority in connection with the use, disposal or storage of a Hazardous
Material.
E. Tenant shall surrender the Premises to Landlord, upon the expiration
or earlier termination of the Lease, free of Hazardous Materials which are or
were attributable to Tenant. If Tenant fails to so surrender the Premises,
Tenant shall indemnify and hold Landlord harmless from all damages resulting
from Tenant's failure to surrender the Premises as required by this paragraph,
including, without limitation, any claims or damages in connection with the
condition of the Premises including, without limitation, damages occasioned by
the inability to relet the
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<PAGE> 23
Premises or a reduction in the fair market and/or rental value of the Premises
or the Complex by reason of the existence of any Hazardous Materials, which are
or were attributable to the activities of Tenant, in or around the Premises or
the Complex.
Notwithstanding any provision to the contrary in this Lease, if any
action is required to be taken by a governmental authority to clean-up, monitor
or remove any Hazardous Materials, which are or were attributable to the
activities of Tenant, from the Premises or the Complex and such action is not
completed prior to the expiration or earlier termination of the Lease, then at
Landlord's election (i) this Lease shall be deemed renewed for a term commencing
on the expiration date of this Lease and ending on the date the clean-up,
monitoring or removal procedure is completed (provided, however, that the total
term of this Lease shall not be longer than 34 years and 11 months); or (ii)
Tenant shall be deemed to have impermissibly held over and Landlord shall be
entitled to all damages directly or indirectly incurred in connection with such
holding over, including without limitation damages occasioned by the inability
to relet the Premises or a reduction in the fair market and/or fair rental value
of the Premises or the Complex by reason of the existence of the Hazardous
Material.
F. Upon the Lease Commencement Date, Tenant shall provide to Landlord a
complete list of all chemicals, toxic waste or Hazardous Materials employed by
Tenant within the Premises. Throughout the term of the Lease, Tenant shall
continue to update this list of chemicals, contaminants and Hazardous Materials.
This paragraph is continued below.
44. MISCELLANEOUS AND GENERAL PROVISIONS
a. Tenant shall not, without the written consent of Landlord, use the
name of the building for any purpose other than as the address of the business
conducted by Tenant in the Premises.
b. This Lease shall in all respects be governed by and construed in
accordance with the laws of the State of California. If any provision of this
Lease shall be invalid, unenforceable or ineffective for any reason whatsoever,
all other provisions hereof shall be and remain in full force and effect.
c. The term "Premises" includes the space leased hereby and any
improvements now or hereafter installed therein or attached thereto. The term
"Landlord" or any pronoun used in place thereof includes the plural as well as
the singular and the successors and assigns of Landlord. The term "Tenant" or
any pronoun used in place thereof includes the plural as well as the singular
and individuals, firms, associations, partnerships and corporations, and their
and each of their respective heirs, executors, administrators, successors and
permitted assigns, according to the context hereof, and the provisions of this
Lease shall inure to the benefit of and bind such heirs, executors,
administrators, successors and permitted assigns.
The term "person" includes the plural as well as the singular and individuals,
firms, associations, partnerships and corporations. Words used in any gender
include other genders. If there be more than one Tenant the obligations of
Tenant hereunder are joint and several. The paragraph headings of this Lease are
for convenience of reference only and shall have no effect upon the construction
or interpretation of any provision hereof.
d. Time is of the essence of this Lease and of each and all of its
provisions.
e. At the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge and deliver to Landlord, within ten (10) days after written
demand from Landlord to
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<PAGE> 24
Tenant, any quitclaim deed or other document required by any reputable title
company, licensed to operate in the State of California, to remove the cloud or
encumbrance created by this Lease from the real property of which Tenant's
Premises are a part.
f. This instrument along with any exhibits and attachments hereto
constitutes the entire agreement between Landlord and Tenant relative to the
Premises and this agreement and the exhibits and attachments may be altered,
amended or revoked only by an instrument in writing signed by both Landlord and
Tenant. Landlord and Tenant hereby agree that all prior or contemporaneous oral
agreements between and among themselves and their agents or representatives
relative to the leasing of the Premises are merged in or revoked by this
agreement.
g. Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the consent of the other.
h. Tenant further agrees to execute any amendments required by a lender
to enable Landlord to obtain financing, so long as Tenant's rights hereunder are
not substantially affected.
i. Paragraph(s) 45 through 49 are/is added hereto and are/is included
as a part of this Lease.
j. Clauses, plats and riders, if any, signed by Landlord and Tenant and
endorsed on or affixed to this Lease are a part hereof.
k. Tenant covenants and agrees that no diminution or shutting off of
light, air or view by any structure which may be hereafter erected (whether or
not by Landlord) shall in any way affect this Lease, entitle Tenant to any
reduction of rent hereunder or result in any liability of Landlord to Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered
this Lease as of the day and year first above written.
LANDLORD: TENANT:
CROSSROADS ASSOCIATES AND SIEBEL SYSTEMS, INC., a
CLOCKTOWER ASSOCIATES California Corporation
By ________________________________ By __________________________________
Title ______________________________ Title ________________________________
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<PAGE> 25
Paragraph 4.A. BASIC RENT (continued)
As of the execution date of this Lease, Landlord and Tenant hereby
acknowledge that it is Tenant's intention to sublease the second and third
floors of the Premises. The agreed upon rentable square footage for the second
and third floors (which square footage indicated for each floor includes that
particular floor's proportionate share of Building common areas such as the
first floor Lobby, elevators, restrooms, stairwells and exit corridors) is
hereby agreed to be 13,961 rentable square feet per floor. The monthly Basic
Rent for each of the second and third floors as of the commencement of the Lease
is hereby agreed to be $27,223.95 per month (13,961 s.f. x $1.95).
Notwithstanding anything herein to the contrary, Landlord agrees to postpone the
commencement of Basic Rent on the second floor to September 1st, 1996 and on the
third floor to October 15th, 1996 for the purpose of phasing in Tenant's
subtenants. In the event that a subtenant occupies and commences payment of
Basic Rent prior to September 1st, 1996 for the second floor and October 15,
1996 for the third floor, then Tenant's Basic Rent obligations shall commence
upon the same day as the commencement of the subtenants obligations. Any credits
due Tenant under this "phase-in" arrangement shall be credited against the
November Basic Rent payment.
Paragraph 4D. ADDITIONAL RENT (continued)
Tenant hereby acknowledges that the Additional Rent estimated per
paragraph 4D of the Lease has been prepared by Landlord. The actual cost
incurred is directly related to the manner in which Tenant uses and occupies the
Premises. Landlord's estimate is based on the following per square foot per
month estimate of expenses:
<TABLE>
<S> <C>
Management .058
Insurance .045
Taxes .119
Exterior Maintenance .015
Building Utilities Direct by Tenant
Other Utilities .020
Maintenance (Bldg.) .075
Security .018
Janitorial .070
----
Total .420
</TABLE>
The above estimate is for calendar year 1996, and shall be adjusted per
paragraph 4D of the Lease.
The following squire footages are stated for reference:
<TABLE>
<S> <C>
1825 South Grant Street (Building I) 155,489 s.f.
1875 South Grant Street (Building II) 170,922 s.f.
1855 South Grant Street (Building III) 66,426 s.f.
------------
Total square footage 392,837 s.f.
</TABLE>
Tenant's percentage occupancy is therefore as follows:
Percent of Building = 100%
Percent of Complex 66,426 divided by 392,387 = 16.9%
The following shall be exclusions to any operating expenses as defined
under this Lease.
a) Costs incurred to provide services to other tenants which are
not furnished to Tenant.
b) Expenses for which the Landlord is reimbursed or indemnified
either by an insured, condemnor, tenant or otherwise.
c) Any Ground Lease rental expenses.
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<PAGE> 26
d) The cost of correcting defects in the construction of the
Building or defects in the Building equipment (excluding
normal maintenance.)
Within 90 days after receipt of Landlord's Statement (the "Statement")
setting forth Tenant' share of actual expenses of operation, management and
maintenance of the Complex, Premises and Building and any other items of
Additional Rent (the "Operating Expenses and Real Property Taxes"), Tenant shall
have the right to audit at Landlord's local offices, at Tenant's expense,
Landlord's accounts and records relating thereto. Such audit shall be conducted
by a certified public accountant approved by Landlord, which approval shall not
be unreasonably withheld. If such audit reveals that Landlord has overcharged
Tenant, the amount overcharged shall be paid to Tenant within 30 days after the
audit is concluded, together with interest thereon at the rate of 10% per annum,
from the date the Statement was delivered to Tenant until payment of the
overcharge is made to Tenant. In addition, if the Statement exceeds the actual
Operating Expenses and Real Property Taxes which should have been charged to
Tenant by more than 5%, the cost of the audit shall be paid by Landlord.
Paragraph 4F. SECURITY DEPOSIT (continued)
In addition to the cash security deposit as defined in paragraph 4.F.,
Tenant agrees to tender to Landlord, within 20 days of execution of this Lease
and irrevocable standby Letter of Credit in the amount of $1,325,000. The form
of the irrevocable standby Letter of Credit must be acceptable to Landlord. The
Letter of Credit must provide that Landlord have the ability to cash or draw the
entire amount solely upon Landlord's representing to the issuing Bank that
Tenant is in uncured monetary default of the Lease. The Letter of Credit
required hereunder shall remain in full force and effect until August 1, 2001.
At such time after August 1st, 2001 as the value of Tenant's shareholder equity
becomes $70,000,000, then Landlord hereby agrees to cancel the requirement for
the additional security provided by this Letter of Credit and to return the
Letter of Credit to Tenant. The expiration date of the Letter of Credit shall be
the expiration date of this Lease. In the event Tenant has not provided Landlord
the Letter of Credit as required, Landlord may prohibit Tenant from occupying
the Premises until such time as the Letter of Credit is received by Landlord,
and Tenant agrees that Tenant's Basic and Additional Rent obligations shall
nevertheless commence without offset or delay even if Tenant is prohibited from
occupying the Premises because of Tenant's failure to deliver the Letter of
Credit.
Paragraph 9. ALTERATIONS AND ADDITIONS (continued)
Any alteration or addition to the Premises made by Landlord (or
Landlord's contractors) shall be on a "open book" basis. Landlord shall obtain a
minimum of three bids on any major cost items involved in any tenant
improvements. Tenant may request Landlord bid subcontractors of Tenant's
choosing, and subcontractors must be licensed to do business in the State of
California. Landlord (or Landlord's contractors) shall receive a 10% fee, which
10% is based on the actual direct cost of construction. The 10% fee shall
include general conditions, overhead, and profit.
Paragraph 11. UTILITIES (continued)
As stated above the gas and electric meters shall be placed in Tenant's
own name and account and the cost of these utilities shall be paid directly by
Tenant. Tenant shall have access to the Premises (and notwithstanding paragraph
11 access to all utilities) 24 hours a day, seven days a week. Landlord's
standard operating times are 8am to 6pm, five days a week for a total of 50
hours per week x 52 weeks = 2600 hours per year. In the event Tenant uses
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<PAGE> 27
the main HVAC Systems more than 2600 hours per year, for each hour in excessive
2600 hours Tenant agrees to pay the amount of $3.33 per hour as the cost of
accelerated wear and tear on the main HVAC System. This amount is calculated as
follows:
<TABLE>
<S> <C>
Replacement cost of main System and components $ 125,000
Average Life expectancy of
main System and components divided by 37,500 hours
Dollars per hour (A divided by B) $ 3.33 per hour
</TABLE>
Paragraph 17. COMPLIANCE (continued)
Landlord and Tenant each hereby agree that the City of San Mateo
issuance of an occupancy permit for the Premises represents that as of the date
of the occupancy permit the Premises and Common Areas of the Complex are in full
compliance with all applicable building codes, ADA laws, and all other
regulations and statutes affecting the Building. If a violation in compliance
with the above referenced building codes, etc., is discovered within 180 days of
the commencement of this Lease and such violation was caused by Landlord or
Landlord's contractors, or agents, Landlord shall correct such violation at
Landlord's sole cost and expense.
Paragraph 19. ASSIGNMENT/SUBLETTING (continued)
Notwithstanding anything to the contrary herein, Landlord's consent
shall be deemed given for Tenant to assign or sublet to an affiliate,
subsidiary, parent company or successor to the corporate business of Tenant (a
"Permitted Assignee") and Tenant agrees to remain liable for the full
performance of all lease obligations.
Paragraph 20. SUBORDINATION AND MORTGAGES (continued)
Notwithstanding anything to the contrary herein, the provisions of any
mortgages or the underlying groundlease concerning the Premises shall not
increase the financial obligations of Tenant hereunder or adversely affect the
leasehold interest of Tenant created hereunder including Tenant's rights and
Landlord's obligations.
Paragraph 41. SIGNS (continued)
Notwithstanding anything herein to the contrary, Landlord agrees to
allow Tenant at no additional charge to place one exterior sign on the Building,
which sign must be approved by Landlord, and which approval will not be
unreasonably withheld. Tenant may also "silkscreen" signage on the exterior
lobby entry doors. Tenant shall pay for the cost of said signage. Exhibit "E" is
an example of such signage. Exhibit "E" is used for representative purposes only
and is not intended to be to scale. Any exterior sign placed on the Building by
Tenant must be in complete compliance with the City of San Mateo sign
ordinances. Landlord has not received specific approval from the City of San
Mateo to place a lighted sign on the Premises. Landlord and Landlord's architect
shall use its best efforts to obtain such approval. Two lighted signs have been
approved for the Complex and one lighted sign exists on each of the two high
rise buildings. In the event the City of San Mateo allows only two lighted signs
at the Complex, Landlord agrees to offer to the City of San Mateo to remove the
west facing lighted sign on the Building at 1875 South Grant Street and use that
approved signage as a trade for Tenant's Premises, or denies Landlord's trade of
the lighted sign on 1875 South Grant for a sign on Tenant's Premises, an the
result is Tenant does not have signage on the Premises, this shall in no way
effect the obligations between Landlord and Tenant hereunder and the Lease shall
remain in full force and effect without any diminution of rent or other offset
against Landlord. In the event that Tenant occupies more
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<PAGE> 28
than 200,000 square feet in the Complex, Landlord agrees to substitute Tenant's
name for the "Crossroads" west facing sign on the Building at 1875 South Grant
Street. The cost of substitution shall be borne by Tenant. Notwithstanding
anything herein to the contrary, Landlord hereby approves an internally
illuminated sign with the "SIEBEL" logo in PMS-541 blue as shown by the drawing
represented by Exhibit E-2.
Paragraph 43. HAZARDOUS MATERIALS (continued)
Landlord, to the best of Landlord's knowledge without a duty to
inspect, has no knowledge of the presence of any hazardous materials in the
Building, in the soil upon which the Building is located, or in the groundwater
under the Complex. Landlord shall defend, hold harmless and indemnify Tenant
with respect to all claims, damages and liabilities arising out of or in
connection with any Hazardous Material used, stored, discharged, released or
disposed of in, from, under or about the Premises or the Complex, where said
Hazardous Material is or was not attributable to the activities of Tenant during
the Lease term and whether or not Tenant had knowledge of such Hazardous
Material, including, without limitation, any cost of monitoring or removal.
Paragraph 45. TENANT'S OPTION TO EXPAND
<TABLE>
<CAPTION>
Date of
Floor Rentable Square Exercise Date of Floor Plan
Footage of Option Availability
<S> <C> <C> <C> <C>
10 17,702 12/31/96 2/15/98 F-2
9 17,702 5/30/97 7/31/98* F-3
8 17,702 7/30/97 9/30/98 F-4
4 17,702 10/30/96 11/15/97 F-5
</TABLE>
* Subject to existing tenant's option to extend.
The ten story Building located at 1875 South Grant Street, as outlined
in green on Exhibit F1, has the following full floors coming available on the
dates as indicated above. Floor plans of each of the floors becoming available
are shown as Exhibits F-2, 3, 4, 5. The existing tenant on the Ninth Floor has a
preexisting option to extend its lease. In the even said Tenant exercises its
option to extend, the Ninth Floor will not be available and is not subject to
this paragraph 45.
Landlord hereby grants to Tenant the Option (Subject to the Ninth floor
Tenant's option to extend on the 9th floor only) to lease the 10th, 9th, 8th and
4th floors at 1875 South Grant Street. Tenant shall have the Option to lease any
or all of the floors subject to this Option. For each floor for which Tenant has
this Option, Tenant must exercise its Option to Lease by delivering an Exercise
of Option to Landlord in writing on or before the "Date of Exercise of Option"
as indicated in the above table. Each floor will become available on the date of
availability as indicated. The Lease commencement date for each floor shall be
30 days after the date of availability or upon occupancy of all or a portion of
the floor by Tenant's operating personnel, whichever occurs sooner. Tenant shall
lease each floor in an as-is condition, with Landlord granting Tenant an
improvement allowance of $77,000 per floor towards standard office improvements
requested by Tenant. This $77,000 shall be adjusted by the CPI (said CPI as
defined in paragraph 38) for the adjustment period beginning August 1st, 1996 to
the date of availability for each particular floor represented by this option.
The improvement allowance granted Tenant hereunder shall be in form of Basic
Rent abatement. For example, if a particular floor leased by Tenant used $77,000
of Landlord's improvement allowance, then for the month immediately succeeding
the commencement of Lease for that particular floor, the Basic Rent due and
payable due under this Lease shall be reduced by the amount of allowance used.
The Termination Date of Lease for each of the
13
<PAGE> 29
floors leased under this paragraph shall be co-terminus with the Lease for the
Building at 1855 South Grant Street. Each Floor leased under this paragraph 45
shall also be subject to Tenant's Option to Extend as described below. The Basic
Rent for each floor leased under this paragraph 45 shall be at the same Basic
Rent per square foot per month as is described in paragraph 4A of the Lease. For
example, if Tenant leased the Fourth Floor with a commencement date of 12/15/97,
and at that time Tenant's Basic Rent was $2.00 per square foot per month,
Tenant's monthly Basic Rent would be 17,702 x $2.00 = $35,404. The Basic Rent
per square foot per month will be increased at the same rate per square foot and
upon the same dates and in the same manner as is provided for in paragraphs 4.A.
and 38 of the Lease. Tenant's Additional Rent shall be at the same rate per
square foot per month as is then applicable at the time of occupancy of the
floors leased hereunder. For each floor so leased by Tenant, Tenant's parking
shall be increased by 52 spaces. Any modifications to the Floors leased by
Tenant under this Option shall be made in accordance with Paragraphs 8 to 9 of
this Lease, with Tenant paying (subject to Landlord's $77,000 per Floor
allowance as indicated above) all costs and expenses associated with any
remodel. Upon the date of availability', Tenant shall be granted access to each
floor leased by Tenant for the installation of telephone and other
communications. Tenant's installation shall not interfere with any of Tenant's
requested Improvements to be made by Landlord, and the installation by Tenant of
telephone, communication, furniture, and fixtures shall not constitute actual
occupancy, but only occupancy with Tenant's operating personnel prior to the 30
day period indicated above shall commence the payment of Basic and Additional
Rent.
Paragraph 46. SECURITY SYSTEMS
Tenant shall have the right to establish its own procedures so as to
maintain and protect the internal security of the Premises in accordance with
Tenant's needs. Tenant shall have the right to install additional security
devices for the Premises, including, without limitation, Security Card Systems
for control of access to the Premises. Landlord shall have the reasonable right
to review and approve these systems. Tenant acknowledges that Landlord's
approval shall be subject to Tenant's agreement to repair any damage to any
portion of the Premises resulting from Tenant's installation of any security
system, and Tenant agrees to completely restore the Premises to the condition
prior to the installation of any security system. Tenant acknowledges that this
restoration potentially require replacement of doors, window mullions, door
frames and the like. All restoration shall be in accordance with the terms of
the Lease.
Paragraphs 47. RIGHT OF FIRST OFFER.
Exhibits G1 and G2 each show an additional floor: the ninth floor and
eighth floor of the Building located at 1825 South Grant Street, California.
These two floors are subject to this paragraph 47 whereby Landlord grants to
Tenant a Right of First Offer to lease these two floors. The two floors are
currently leased to VISA U.S.A. and VISA INTERNATIONAL (hereinafter referred to
as VISA) with a Lease expiration date of April 30th, 2001. Provided Tenant is
not in default under any terms, covenants and conditions of this Lease,
commencing August 1st, 1996 and ending on the Lease Termination (as it may be
extended pursuant to paragraph 48), Landlord hereby grants to Tenant the right
of First Offer to Lease the Eighth and Ninth Floor of the Building at 1825 South
Grant Street, San Mateo, San Mateo County, California as shown on Exhibits G1
and G2. Tenant's Right of First Offer shall be upon and subject to the following
terms and conditions:
a) Tenant's right to lease the two floors shall be the right to accept
a proposal by Landlord to lease such space that becomes available during the
time period referenced above. It is specifically agreed that Landlord shall have
the right to extend
14
<PAGE> 30
the term of Lease for VISA for any time period that Landlord and VISA may so
agree. In the event that VISA's lease expires and the space becomes available
Landlord shall notify Tenant in writing of the availability of the space and
shall tender to Tenant the terms under which Landlord will lease the space to
Tenant. The terms shall include the rent, increases in rent, the term, the size
of the space, the Tenant improvement allowances, if any, and the like. Tenant
shall have 10 business days within which to accept the proposal made by
Landlord.
b) In the event Tenant does not accept the proposal by Landlord, then
Landlord agrees that it will not lease that same space to another tenant on
terms that are more favorable than those proposed to Tenant without first
offering the more favorable terms to Tenant and allowing Tenant three business
days within which to accept the more favorable terms.
c) In the event Tenant fails to accept the proposal from Landlord to
lease the floors described on Exhibits G1 and G2 which become available for
lease, then Landlord shall have no further obligations to Tenant with respect to
these two floors.
Paragraph 48. OPTIONS TO EXTEND
Provided Tenant is not in default under any of the terms, covenants or
conditions of this Lease, and subject to the terms and conditions set forth
hereafter, Tenant is granted two options to extend this Lease for two successive
five year periods. In the event Tenant does not extend the initial term of Lease
for five years per this paragraph 47 then Tenant's Option to Extend for a second
five year period shall be null and void.
(a) Tenant shall notify Landlord in writing of Tenant's exercise of
its first Option to Extend this Lease on or before August 1,
2005. Tenant shall notify Landlord in writing of Tenant's
exercise of its Second Option to Extend on or before August 1,
2010.
(b) The Fist Extended Term of this Lease shall commence on August
1st, 2006 and shall terminate upon July 31st, 2011. The Second
Extended Term of this Lease shall commence August 1, 2011 and
shall terminate July 31st, 2016.
(c) The monthly Basic Rent as of the commencement date of each
extended term of Lease shall be the then prevailing market rate
with interim adjustments (if any) then being charged for
comparable space of comparable quality in the immediate
geographical area, but in no event shall the monthly Basic Rent
be less than the monthly Basic Rent for the last month of the
initial term of the Lease (in the case of the First Extended
Term) or less than the monthly Basic Rent for the last month of
the First Extended Term (in the case of the Second Extended
Term).
(d) The then current payment for Additional Rent described in 4D of
the Lease shall continue to be adjusted according to paragraphs
4D of this Lease.
(e) This option to extend can be exercised only by Sibel Systems,
Inc. or any Permitted Assignee for use of the Premises by
Siebel or a Permitted Assignee and may not be transferred or
assigned to any other sublessee or other party, nor may this
option be exercised by Siebel Systems, Inc. for the use of the
Premises by any sublessee or party other than Siebel Systems,
Inc.
(f) The Options to Extend described herein shall apply to all the
space then leased by Tenant as of the date of exercise of each
option.
15
<PAGE> 31
Paragraphs 49. INCORPORATION
Tenant was incorporated under the laws of California in 1993, and it is
anticipated that Tenant will reincorporate in Delaware prior to the completion
of a public offering. At such time as Tenant reincorporates in Delaware, the
reincorporated Delaware Corporation shall be defined as Tenant hereunder, and
shall have all the rights and obligations as Tenant hereunder.
16
<PAGE> 32
EXHIBITS
LEASE AGREEMENT
BETWEEN
CROSSROADS ASSOCIATES AND CLOCKTOWER ASSOCIATES
AND
SIEBEL SYSTEMS, INC.
1. EXHIBIT A-1: Site Plan - Final, including proposed YMCA Building and proposed
Building 3, of 1825 South Grant Street, Building 1 and 1875 South Grant Street,
Building 2 and surrounding parking area.
2. EXHIBIT A2: Plan of Floor 1 of Crossroads Building Three, 1855 South Grant
Street, San Mateo, CA.
3. EXHIBIT A3: Plan of Floor 2 of Crossroads Building Three, 1855 South Grant
Street, San Mateo, CA.
4. EXHIBIT A4: Plan of Floor 3 of Crossroads Building Three, 1855 South Grant
Street, San Mateo, CA.
5. EXHIBIT A5: Plan of Floor 4 of Crossroads Building Three, 1855 South Grant
Street, San Mateo, CA.
6. EXHIBIT A6: Plan of Floor 5 of Crossroads Building Three, 1855 South Grant
Street, San Mateo, CA.
7. EXHIBIT B: Site Plan - Final, including proposed YMCA Building and proposed
Building 3, of 1825 South Grant Street, Building 1 and 1875 South Grant Street,
Building 2 and surrounding parking area.
8. EXHIBIT E: Diagram of Building with Proposed "Siebel" sign (wide-angle view).
9. EXHIBIT E-2: Close-up view of "Siebel" sign on Building.
10. EXHIBIT F-1: Site Plan - final, including proposed YMCA Building and
proposed Building 3, of 1825 South Grant Street, Building 1 and 1875 South Grant
Street, Building 2 and surrounding parking area.
11. EXHIBIT F-2: Plan of Floor 10 of Crossroads Building Two, 1875 South Grant
Street, San Mateo, CA.
12. EXHIBIT F-3: Plan of Floor 9 of Crossroads Building Two, 1875 South Grant
Street, San Mateo, CA.
<PAGE> 33
13. EXHIBIT F-4: Plan of Floor 8 of Crossroads Building Two, 1875 South Grant
Street, San Mateo, CA.
14. EXHIBIT F-5: Plan of Floor 4 of Crossroads Building Two, 1875 South Grant
Street, San Mateo, CA.
15. EXHIBIT G1: Plan of Floor 9 of Crossroads Building One, 1825 South Grant
Street, San Mateo, CA.
16. EXHIBIT G2: Plan of Floor 8 of Crossroads Building One, 1825 South Grant
Street, San Mateo, CA.
<PAGE> 34
EXHIBIT "C"
CROSSROADS III STANDARD TENANT IMPROVEMENTS AND ALLOWANCES
(Based on Net Usable Area of 58,795 sq. ft.)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
PARTITIONING Standard Drywall Construction
at 9' 0" high with a smooth painted
finish. Tenant partitions to extend
to the bottom face of the suspended
ceiling except as otherwise required by code. as indicated
DOORS 3' 0" x 9' 0" (full height)( solid core doors
"natural oak" finish. as indicated.
HARDWARE All door frames to be anodize bronze and
hardware a "polish chrome" finish.
Locksets provided at entry doors. Passage set
hardware on all other doors.
LIGHT FIXTURES 2 x 4 drop-in fluorescent light fixtures with
white trim Parabolume chrome finish diffusers. 1 ea. per 85 SqFt.
SWITCHES Double light switches mounted on interior
partitions at 48" high. Color to be white. 1 ea. per 250 SqFt.
ELECTRICAL (See Below)
Floor 1
(10) dedicated 110V outlets
( 5) duplex outlets
(20) fourplex outlets
(30) data location drops
J Box power in ceilings for 2 screens and (1) VCR
( 3) screens in ceilings with electrical adjustment
Floors 2 & 3
( 6) dedicated 110V outlets
(20) duplex outlets
(20) fourplex outlets
(20) data locations
Power/Data for 51 furniture cubicles, maximum
3 cubicles per circuit
( 4) core drills for power/data
Floor 4
( 2) Isolated ground outlets for telephone/Server
( 8) Dedicated 110V outlets
(20) Duplex 100V
(20) Fourplex outlets 110V
(20) Data Locations
Power/Data for 51 furniture cubicles, maximum
3 cubicles per circuit
( 4) Core drill locations for power/data
Floor 5
( 6) Dedicated 110V outlets
</TABLE>
1
<PAGE> 35
<TABLE>
<S> <C> <C>
(25) Fourplex 110V outlets
(25) Duplex outlets
(25) Data Locations
Power/Data for 30 furniture cubicles, maximum
3 cubicles per circuit
( 3) Core drill locations
TELEPHONE
OUTLETS Junction boxes, plaster rings and pull wires
for telephone outlets mounted on interior
partitions. Telephone and data cabling
supplied by Tenant must be rated to meet
Building code requirements.
HVAC SYSTEM Return and supply air diffusers will be
perforated drop-in grills that fit into the grid
ceiling system. Color off white.
Zones 1 ea. per 850 SqFt.
Outlets 1 ea. per 180 SqFt.
Returns 1 ea. per 275 SqFt.
Landlord to provide one 24 hour HVAC System to
1 Server Room
FIRE SPRINKLER Building standard semi-recessed chrome pendant
heads with escutcheon. Designed for normal
office use (light hazard). 1 ea. per 135 SqFt.
CEILING 2 x 2 drop-in tegular acoustical tile with
white fissured pattern. Ceiling grid is
exposed tee bar with a white finish. All areas.
CARPET 32 oz. dense plush cut pile nylon or level
loop of equal value. Carpet to be direct glued
for maximum durability. Color selection
available. All areas.
WINDOW
COVERINGS 1" horizontal off white window blinds. All Exterior Windows
</TABLE>
The scope of Landlord's tenant improvement work is indicated Exhibits
A-2, A-3, A-4, A-5 & A-6, each page representing a schematic floor plan layout.
Landlord and Tenant acknowledge that this is the approved layout which Landlord
is to include at Landlord's sole cost and expense. Landlord agrees to install
all partitioning as indicated on the floor plan together with all doors,
hardware and glass sidelights as indicated. The millwork to be included at
Landlord's cost is shown in yellow and includes:
Floor 1
* Kitchen cabinet, upper and lower as indicated.
* Long shelf with partitions in the telephone area as indicated.
Floors 2, 3, 4
* Upper and lower cabinets in coffee/copy area as indicated and
lower cabinets where the sink is located.
2
<PAGE> 36
Floor 5
* Upper and lower cabinets in coffee/copy area and lower
cabinets and sink unit as indicated and lower cabinets in
coffee area and sink as indicated. Landlord's cabinet work
will be plastic laminate with color selection be made by
Tenant.
* Lower cabinets adjacent to contract room.
PLUMBING
Landlord's plumbing (outside of finished bathrooms in the core) in one
sink in the kitchen area and on floors 2, 3, 4 & 5 sink in coffee/copy
area. Fifth floor, second sink outside of Board Room.
GLASS
Landlord will provide glass sidelights adjacent to the doors as
indicated and glass adjacent to the wooden doors on the fifth floor
Board Room as indicated. The glass of the fifth floor Board Room will
be frameless and but must contain wire in order to obtain fire rating.
Specifically excluded from Landlord's scope of work is the following,
which items if installed at the request of Tenant, shall be paid for by
Tenant per paragraph 3.2 of Exhibit "D". Some of these items are shown
in orange on Exhibit A-2 through A-6.
First Floor
* Any kitchen equipment such as serving counter, freezers,
dishwashing equipment, walk-in coolers, vending machines,
cooktops, any special ventilation or any other items
associated with the "Cafe".
* The main reception desk, the visitors center desk.
* Any and all audio visual equipment in the training rooms
(excluding the 3 screens as described under Landlord's
electrical above).
* Any "whiteboards" that Tenant may choose to install. Tenant
shall also pay for any and all millwork and plumbing not
described as by Landlord including a separate bathroom that
Tenant may wish to install in the fifth floor.
* Any computer/communications wiring, electronic security
systems, any custom lighting that will substitute for
Landlord's standard lighting fixtures, special lock-off
mechanisms in elevators.
* Any special sound attenuation or other specialized
construction in the training and multimedia areas or any other
custom built-in furniture or millwork associated in the Board
Room, the president's office or the multimedia rooms and any
additional offices that Tenant may choose to install over and
above those indicated on Exhibits A2 through A6 shall be
installed at Tenant's sole cost and expense.
* All furniture, modular partitions, furniture systems.
3
<PAGE> 37
EXHIBIT D
CONSTRUCTION OF IMPROVEMENTS
It is hereby agreed:
1. PLANS AND SPECIFICATIONS. Landlord shall prepared at
Landlord's sole cost in accordance with Exhibit "C" complete plans and
specifications covering all tenant improvement work to be done in order to
prepare the Leased Premises for occupancy. Such plans and specifications shall
include the following:
a. A fully dimensioned partition layout.
b. An electrical plan showing all electrical, computer
and telephone outlets.
c. A reflected ceiling plan showing all light fixtures
and light switches.
d. Specifications for all materials, equipment, finishes
and colors.
e. Specification of any special electrical, plumbing, or
HVAC requirements.
f. Construction details for all cabinetry, millwork,
glass installation, sound control and other special
construction details as required.
Landlord shall construct the tenant improvements in substantial
compliance with the plans and specifications to be supplied by Tenant, which
said plans and specifications shall be included with and become part of Exhibit
"C". It is further agreed that in the event the tenant improvements do not
conform exactly to the plans and specifications, but nevertheless the general
appearance, structural integrity, tenant improvements and Tenant's use and
occupancy of the leased Premises are not, in Landlord's reasonable discretion,
materially or unreasonably affected by such deviation, then Tenant's obligation
to pay rent shall not be affected and Tenant hereby agrees to accept the leased
Premises and tenant improvements as constructed by Landlord.
2. AUTHORIZATION TO PROCEED. Tenant shall make all decisions
necessary in order for Landlord to prepare working drawings, and Tenant shall
make said decisions (including finish schedules) by June 7th, 1996. Landlord
shall determine Tenant's share, if any, of the cost of the tenant improvements
requested and shall submit a statement which sets forth Tenant's share of the
cost of the requested improvements to Tenant on or before June 14th, 1996.
Tenant shall authorize Landlord to proceed with construction of the tenant
improvements on or before June 18th, 1996 and shall submit payment to Landlord
as required by paragraph 3 below.
3. ALLOWANCES AND PAYMENT. Should the Tenant Improvements required by
Tenant exceed the quantities set forth in Exhibit "C", or require the
installation of any non-standard items, then Landlord and Tenant agree that said
over-standard and non-standard items shall be paid for as follows:
Tenant's shall pay Tenant's portion of excess Tenant Improvements (if
any) as follows: 50% of July 1st, 1996, 40% on August 1st, 1996, and 10% upon
completion of any punch list items.
4. COMMENCEMENT OF RENT. The commencement date of the Lease and Tenant's
obligation to pay rent under the terms and conditions of the Lease shall not be
delayed, affected, or changed as a result of the happening of any of the
following:
a) Delays in completion of tenant improvement work, if Tenant
fails to deliver complete plans and specifications as required
in paragraph 2 above.
<PAGE> 38
Exhibit D
Page 2
b) Delays in completion of tenant improvement work, if Tenant
fails to authorize Landlord to proceed with construction as
required by paragraph 2 above.
c) Delays in completion of tenant improvement work, if Tenant
fails to make the timely payment to Landlord for such work, as
required in paragraph 3 above.
d) Delays in completion of tenant improvement work, if Tenant
fails to make the timely payment to Landlord for such work, as
required in paragraph 3 above.
e) Delays in completion of tenant improvement work, caused by
work to be done by Tenant's subcontractors or delays caused by
Tenant changing, amending or modifying Tenant's plans and
specifications, amending or modifying Tenant's plans and
specifications.
f) Delays in completion of tenant improvement work experience by
Landlord in the installation of Tenant's non-standard
improvements.
5. PUNCH LIST. Landlord shall have a reasonable time, after
completion by Landlord of the standard and non-standard tenant improvements as
set forth in Exhibit "C", to complete the "punch list" items which pertain to
the newly constructed tenant improvements without affecting Tenant's obligation
to pay rent under the terms of the Lease to which this Exhibit is attached.
6. RESTORATION. Non-standard items shall be installed on behalf
of Tenant by Landlord at Tenant's sole cost and expense. It is specifically
agreed that upon expiration of the term of this Lease or upon any sooner
termination, Tenant, at Tenant's sole cost and expense, shall remove such
non-standard items as may be required by Landlord, repair any and all damage
caused by such removal and restore the Premises to a condition whereby standard
administrative offices may be readily installed. Notwithstanding anything herein
to the contrary, any non-standard items subject to the restoration provisions of
paragraph 8, including such items in Tenant's initial build-out, will be so
identified within three days of receipt of Tenant's plans.
7. ADDITIONAL OBLIGATIONS. The obligations to be performed under
the terms of this Exhibit "D" are intended to be obligations in addition to
those required by paragraphs 8 and 9 of the Lease to which this Exhibit is
attached and it is not the intent of the parties hereto that this Exhibit "D"
shall alter or supersede those paragraphs 8 and 9.
<PAGE> 39
RULES AND REGULATIONS OF THE BUILDING
1
No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any party of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, advertisement, name or notice without notice to and at
the expense of Tenant.
All approved signs or lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved by
Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises.
2
Tenant shall not occupy or permit any portion of the Premises to be
occupied for the manufacture or sale of liquor, narcotics or tobacco in any form
3
The bulletin board or directory of the Premises will be provided for
the display of the number and location of Tenant, and Landlord will provide
directory service to a reasonable extent for Tenant at initial occupancy.
Changes thereafter shall be at Tenant's expense.
4
The sidewalks, passages, exits, entrances, elevators and stairways
shall not be obstructed by Tenant or used by it for any purpose other than
ingress to and egress from its Premises. The passages, exits, entrances,
stairways, balconies and roof are not for the use of the general public and
Landlord shall in all cases retain the right to control and prevent access
thereto by all persons whose presence in the judgment of Landlord shall be
prejudicial to the safety, character, reputation and interests of the Premises
and its tenants, provided that nothing herein contained shall be construed to
prevent such access to persons with whom Tenant normally deals in the ordinary
course of Tenant's business unless such persons are engaged in illegal
activities. Tenant, employees or invites of Tenant shall not go upon the roof of
the Premises.
5
The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they are constructed and no
foreign substance of any kinds whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of the
rule shall be borne by Tenant who, or whose employees or invitees shall have
caused.
6
Tenant shall not overload the floor of the Premises or in any way
deface the Premises or any part thereof.
7
Landlord shall have the right to prescribe the weight, size and
pollution of all safes and other heavy equipment brought into the Premises and
also the times and manner of moving the same in and out of the Premises. Safes
or other heavy objects shall, if considered necessary by Landlord, stand on wood
strips of such thickness as is necessary to properly distribute the weight.
Landlord shall not be responsible for loss of or damage to any such safe or
property from any cause and all damage done to the Premises by moving or
maintaining any such safe or other property shall be repaired at the expense of
Tenant.
8
Tenant shall not employ any person or persons other than the Janitor of
Landlord or Tenant's personnel for the purpose of cleaning the Premises unless
otherwise agreed to by Landlord. Tenant shall not cause any unnecessary labor by
reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness.
9
Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Premises by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds with the exception of Dog Guides for the blind, be
brought in or kept about the Premises.
10
11
Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of Landlord. The location of telephones, call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
<PAGE> 40
12
Tenant upon the termination of the tenancy, shall deliver to Landlord
the keys of offices, rooms and toilet rooms which have been furnished the Tenant
or which Tenant shall have had made, and in the event of loss of any keys so
furnished, shall pay Landlord therefor.
13
Tenant shall see the doors of the Premises are closed and securely
locked before leaving the Premises and must observe strict care and caution that
all water faucets or water apparatus within the Premises are entirely shut off
before Tenant or Tenant's employees leave the Premises, and that all electricity
shall likewise be carefully cut off, so as to prevent waste or damage.
14
Landlord reserves the right to exclude or expel from the Premises any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
the rules and regulations of the Premises.
15
The requirements of Tenant will be attended to only upon application to
Landlord at 755 Page Mill Road, Palo Alto, California 94304. Employees of
Landlord shall not perform any work or do anything outside of the regular duties
under special instructions from Landlord.
16
17
Tenant shall not disturb, solicit, or canvass any occupant of the
Premises and shall cooperate to prevent same.
18
Landlord's initials Tenant's initials
<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
June 21, 1996
