<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission File Number: 0-20725
SIEBEL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3187233
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1855 SOUTH GRANT STREET
SAN MATEO, CA 94402
(Address of principal executive offices, including zip code)
(650) 295-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock, par value
$.001 per share, as of November 3, 1997, was 34,580,137.
<PAGE>
SIEBEL SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information Page
----
Item 1. Financial Statements
a) Consolidated Balance Sheets
as of September 30, 1997 and December 31, 1996.................................... 3
b) Consolidated Statements of Operations
for the three and nine months ended September 30, 1997 and 1996................... 4
c) Consolidated Statements of Cash Flows
for the nine months ended September 30, 1997 and 1996............................. 5
d) Notes to Consolidated Financial Statements........................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................... 8
Part II. Other Information
Item 1. Legal Proceedings................................................................. 15
Item 2. Changes in Securities and Use of Proceeds......................................... 15
Item 6. Exhibits and Reports on Form 8-K.................................................. 16
Signature......................................................................................... 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
SIEBEL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
September 30, December 31,
1997 1996
---- ----
Assets
------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,631 $22,671
Short-term investments 53,362 49,716
Accounts receivable, net 31,330 12,855
Deferred income taxes 1,067 1,067
Prepaids and other 5,676 4,258
-------- -------
Total current assets 114,066 90,567
Property and equipment, net 10,701 8,310
Other assets 1,103 624
-------- -------
Total assets $125,870 $99,501
======== =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 1,638 $ 3,107
Accrued expenses 17,831 6,768
Income taxes payable 1,050 2,018
Deferred revenue 8,200 6,212
-------- -------
Total current liabilit1es 28,719 18,105
Deferred income taxes 205 205
-------- -------
Total liabilities 28,924 18,310
Stockholders' equity:
Common stock; $.001 par value; 100,000 shares authorized;
34,502 and 33,604 shares issued and outstanding, respectively 35 34
Additional paid-in-capital 80,081 77,359
Notes receivable from stockholders (406) (508)
Deferred compensation (625) (1,035)
Retained earnings 17,861 5,341
-------- -------
Total stockholders' equity 96,946 81,191
-------- -------
Total liabilities and stockholders' equity $125,870 $99,501
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
SIEBEL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data; unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Software $27,969 $10,235 $65,365 $21,373
Maintenance, consulting and other 4,648 936 11,251 2,053
------- ------- ------- -------
Total revenues 32,617 11,171 76,616 23,426
Cost of revenues:
Software 723 20 1,166 56
Maintenance, consulting and other 1,666 525 4,877 1,290
------- ------- ------- -------
Total cost of revenues 2,389 545 6,043 1,346
------- ------- ------- -------
Gross margin 30,228 10,626 70,573 22,080
Operating expenses:
Product development 3,352 1,685 8,774 3,836
Sales and marketing 15,950 5,443 36,778 12,049
General and administrative 2,456 1,395 6,930 2,823
------- ------- ------- -------
Total operating expenses 21,758 8,523 52,482 18,708
------- ------- ------- -------
Operating income 8,470 2,103 18,091 3,372
Other income, net 726 442 2,103 671
------- ------- ------- -------
Income before income taxes 9,196 2,545 20,194 4,043
Income tax expense 3,494 952 7,674 1,551
------- ------- ------- -------
Net income $ 5,702 $ 1,593 $12,520 $ 2,492
======= ======= ======= =======
Net income per share $ 0.14 $ 0.04 $ 0.31 $ 0.06
======= ======= ======= =======
Shares used in net income per share computation 40,702 39,982 39,820 38,920
======= ======= ======= =======
</TABLE>
Note: All share and per share amounts for the periods ended September 30, 1996
have been restated to reflect a two-for-one stock split (effected in the
form of a stock dividend) which was effective December 19, 1996.
See accompanying notes to consolidated financial statements
4
<PAGE>
<TABLE>
<CAPTION>
SIEBEL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
September 30,
------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,520 $ 2,492
Adjustments to reconcile net income to net cash provided by
operating activities:
Compensation related to stock options 155 171
Depreciation and amortization 2,733 624
Loss on disposal of property and equipment 297 155
Provision for doubtful accounts 383 112
Software licenses exchanged for equipment and prepaid assets - (1,156)
Changes in operating assets and liabilities:
Accounts receivable (18,858) (1,551)
Prepaids and other (1,418) (3,194)
Accounts payable (1,469) 1,591
Accrued expenses 11,063 4,862
Income taxes payable (193) 222
Deferred revenue 1,988 1,499
--------- ---------
Net cash provided by operating activities 7,201 5,827
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (5,421) (4,638)
Purchases of short-term investments (27,989) (25,210)
Maturities of short-term investments 24,343 -
Other assets (479) (363)
--------- ---------
Net cash used in investing activities (9,546) (30,211)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 2,203 63,212
Proceeds from issuance of preferred stock - 1,532
Issuance of stockholder notes - (507)
Repayment of stockholder notes 102 12
--------- ---------
Net cash provided by financing activities 2,305 64,249
--------- ---------
Change in cash and cash equivalents (40) 39,865
Cash and cash equivalents, beginning of period 22,671 11,391
--------- ---------
Cash and cash equivalents, end of period $ 22,631 $ 51,256
========= =========
Supplemental disclosure of cash flows information:
Cash paid for income taxes $ 7,867 $ 1,280
========= =========
Noncash investing and financing activities:
Conversion of preferred stock into common stock $ - $ 10
========= =========
Tax benefit from exercise of stock options $ 775 $ -
========= =========
Exercise of common stock options in exchange for
stockholder notes receivable $ - $ 507
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
SIEBEL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
on substantially the same basis as the audited consolidated financial
statements, and in the opinion of management include all adjustments, consisting
only of normal recurring adjustments, necessary for their fair presentation.
The interim results presented are not necessarily indicative of results for any
subsequent quarter or for the year ending December 31, 1997.
For information as to the significant accounting policies followed by the
Company and other financial and operating information, see the Company's Annual
Report on Form 10-K, filed with the Securities and Exchange Commission on March
7, 1997 (the "Form 10-K"). These consolidated financial statements should be
read in conjunction with the consolidated financial statements included in that
Annual Report.
The Financial Accounting Standards Board recently issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." These new accounting standards are
not expected to have a material effect on the Company's consolidated financial
statements.
2. NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of common
and preferred (on an "as if converted" basis) shares outstanding and is adjusted
for shares issuable upon the exercise of stock options (unless antidilutive)
using the treasury stock method.
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No.
128 requires the presentation of basic earnings per share ("EPS") and, for
companies with potentially dilutive securities, such as options, diluted EPS.
SFAS No. 128 is effective for annual and interim periods ending after December
15, 1997. Had SFAS No. 128 been effective for the quarter ended September 30,
1997, basic EPS and diluted EPS would have been $0.17 and $0.14 per share,
respectively.
3. CASH AND CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with an original maturity of
90 days or less to be cash equivalents. Short-term investments generally
consist of highly liquid municipal securities with original maturities in excess
of 90 days.
The Company has classified its investments in certain debt and equity securities
as "available for sale." Such investments are carried at fair value, with gross
unrealized gains and losses reported as a separate component of stockholders'
equity. As of September 30, 1997, gross unrealized gains and losses have not
been material.
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1997 1996
- -----------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Certificates of deposit $ - $ 1,325
Municipal securities 53,362 48,391
- ------------------------------------------------------------------------------
$53,362 $49,716
- ------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
4. SUBSEQUENT EVENTS
In October 1997, the Company purchased privately held InterActive WorkPlace,
Inc. ("Interactive"), a developer of intranet-based business intelligence
software technology. The transaction is valued at approximately $15 million and
will be accounted for as a purchase. The Company expects to record a substantial
portion of the purchase price as a charge for acquired in-process technology in
the fourth quarter of 1997. Under the terms of the agreement, InterActive's
securityholders received or will receive up to approximately 428,000 shares of
the Company's common stock in exchange for all outstanding shares in
Interactive. Additionally, Interactive optionees will receive options to
purchase an aggregate of approximately 32,000 shares of common stock in exchange
for their options to purchase Interactive common stock.
In November 1997, the Company purchased privately held Nomadic Systems, Inc.
("Nomadic"), a provider of innovative business solutions to pharmaceutical sales
forces. The transaction is valued at approximately $11 million and will be
accounted for as a purchase. The Company expects to record a substantial
portion of the purchase price as a charge for acquired in-process technology in
the fourth quarter of 1997. Under the terms of the agreement, Nomadic's
securityholders received approximately 300,000 shares of the Company's common
stock in exchange for all outstanding shares of Nomadic.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED HEREIN AND
UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--RISK FACTORS" IN THE COMPANY'S ANNUAL REPORT ON FORM
10-K. ANY SUCH FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE SUCH
STATEMENTS ARE MADE AND THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE
THE RESULTS OF ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS.
OVERVIEW
Siebel Systems, Inc. ("Siebel" or the "Company") is the global market leader in
enterprise-class sales, marketing, and customer service information systems for
global organizations focused on increasing sales and service effectiveness in
field sales, service organizations, telesales, telemarketing, call centers, and
third-party resellers. The Company designs, develops, markets, and supports
Siebel Enterprise Applications, a leading Internet-enabled, object oriented
client/server application software product family designed to meet the sales,
marketing and customer service information system requirements of even the
largest multi-national organizations.
The Company currently expects that license revenues from Siebel Enterprise
Applications will continue to account for a substantial majority of the
Company's revenues for the remainder of 1997 and for the foreseeable future. As
a result, factors adversely affecting the pricing of or demand for Siebel
Enterprise Applications 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's
remaining revenues are primarily attributable to lower margin maintenance and
other revenues, including consulting and training revenues.
A relatively small number of customers account for a significant percentage of
the Company's license revenues. For the fiscal year ended 1996 and the first
nine months of 1997, sales to the Company's ten largest customers accounted for
59% and 51% 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, marketing and customer service information system. For
these and other reasons, the sales and implementation cycles associated with the
license of the Company's products is often lengthy (ranging to date from between
two and twenty-four months from initial contact to product implementation) and
is subject to a number of significant delays over which the Company has little
or no control. Given these factors and the expected customer concentration, the
loss of a major customer or any reduction or delay in sales to or
implementations by such customers could have a material adverse effect on the
Company's business, operating results, and financial condition.
As of September 30, 1997, many of the Company's customers were in the pilot
phase of implementation of Siebel Enterprise Applications. Several of the
Company's customers have completed a significant portion of their enterprise-
wide development and deployment of Siebel Enterprise Applications, however, many
have only recently commenced such development and deployment. As a result, the
Company's products are currently being used by only a limited number of sales,
marketing and customer service professionals. If any of the Company's customers
are not able to customize and deploy Siebel Enterprise Applications 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.
8
<PAGE>
The Company markets its products in the United States through its direct sales
force and internationally through its sales force and distributors in Japan.
International revenues accounted for 11% and 31% of total revenues in the fiscal
year ended 1996 and the first nine months of 1997, respectively. The Company is
increasing its international sales force and is seeking to establish
distribution relationships with appropriate strategic partners and expects
international revenues will continue to account for a substantial 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 limited operating history 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 costs of establishing and maintaining international
operations, 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 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 revenue per
order. The loss or delay of individual orders, therefore, can have a
significant impact on the revenues and quarterly results of the Company. The
timing of license revenue is difficult to predict because of the length of the
Company's sales cycle, which to date has ranged from two to eighteen months from
initial contact to the execution of a license agreement. Because the Company's
operating expenses are based on anticipated revenue trends and because a high
percentage of the Company's expenses are relatively fixed, a delay in the
recognition of revenue from a limited number of license transactions could cause
significant variations in operating results from quarter to quarter and could
result in losses. To the extent such expenses precede, or are not subsequently
followed by, increased revenues, the Company's operating results would be
materially adversely affected. As a result of these and other factors, revenues
for any quarter are subject to significant variation, and the Company believes
that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. It is likely that in some future quarter the Company's 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.
RECENT DEVELOPMENTS
In October 1997, the Company purchased privately-held InterActive WorkPlace,
Inc. ("Interactive"), a developer of intranet-based business intelligence
software technology. The transaction is valued at approximately $15 million and
will be accounted for as a purchase. The Company expects to record a substantial
portion of the purchase price as a charge for acquired in-process technology in
the fourth quarter of 1997. Under the terms of the agreement, InterActive's
securityholders received or will receive up to approximately 428,000 shares of
the Company's common stock in exchange for all outstanding shares in
Interactive. Additionally, Interactive optionees will receive options to
purchase an aggregate of approximately 32,000 shares of common stock in exchange
for their options to purchase Interactive common stock.
In November 1997, the Company purchased privately held Nomadic Systems, Inc.
("Nomadic"), a provider of innovative business solutions to pharmaceutical sales
forces. The transaction is valued at approximately $11 million and will be
accounted for as a purchase. The Company expects to record a substantial portion
of the purchase price as a charge for acquired in-process technology in the
fourth quarter of 1997. Under the terms of the agreement, Nomadic's
securityholders received approximately 300,000 shares of the Company's common
stock in exchange for all outstanding shares of Nomadic.
9
<PAGE>
RESULTS OF OPERATIONS
REVENUES
Software. License revenues increased to $27,969,000 for the three months ended
September 30, 1997 from $10,235,000 for the three months ended September 30,
1996 and decreased as a percentage of total revenues to 86% in the fiscal 1997
period from 92% in the fiscal 1996 period. For the nine months ended September
30, 1997, license revenues increased to $65,365,000 from $21,373,000 for the
nine months ended September 30, 1996 and decreased as a percentage of total
revenues to 85% in the fiscal 1997 period from 91% in the fiscal 1996 period.
License revenues increased in absolute dollar amount during these periods from
the respective prior year periods due to an increase in the number of licenses
of Siebel Enterprise Applications to new and existing customers. This increase
in the number of licenses was primarily due to continued demand by new and
existing customers for products in the Siebel Enterprise Applications family
both in the United States and internationally. In December 1996, the Company
introduced Siebel Service Enterprise, its customer service applications suite.
Increases in revenues during the 1997 periods were due in part to new and
existing customers licensing Siebel Service Enterprise to manage their customer
service functions. The decrease in license revenues as a percentage of total
revenues was primarily due to increased levels of maintenance, consulting and
other revenues as discussed below.
Maintenance, Consulting and Other. Maintenance, consulting and other revenues
increased to $4,648,000 for the three months ended September 30, 1997 from
$936,000 for the three months ended September 30, 1996 and increased as a
percentage of total revenues to 14% in the fiscal 1997 period from 8% in the
fiscal 1996 period. For the nine months ended September 30, 1997, maintenance,
consulting and other revenues increased to $11,251,000 from $2,053,000 for the
nine months ended September 30, 1996 and increased as a percentage of total
revenues to 15% in the fiscal 1997 period from 9% in the fiscal 1996 period.
These increases in absolute dollar amount and as a percentage of total revenues
were due to the widespread licensing of products to customers pursuant to
agreements with a maintenance component, maintenance renewals from products
licensed in prior periods and one customer obtaining implementation services for
the Siebel Enterprise Application through the Company. The Company expects that
maintenance, consulting and other revenues will remain the same or increase as a
percentage of total revenues due to maintenance components of new and existing
license agreements.
COST OF REVENUES
Software. Cost of software license revenues includes product packaging,
documentation and production. Cost of license revenues through September 30,
1997 have averaged less than 2% 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. These costs are expected to remain the same or increase as a percentage
of total revenues.
Maintenance, Consulting and Other. Cost of maintenance, consulting and other
revenues consists primarily of personnel, facility and systems costs incurred in
providing customer support. Cost of maintenance, consulting and other revenues
increased to $1,666,000 for the three months ended September 30, 1997 from
$525,000 for the three months ended September 30, 1996 and remained constant as
a percentage of total revenues at 5% in both the fiscal 1997 and the fiscal 1996
periods. For the nine months ended September 30, 1997, cost of maintenance,
consulting and other revenues increased to $4,877,000 from $1,290,000 for the
nine months ended September 30, 1996 and remained constant as a percentage of
total revenues at 6% in both the fiscal 1997 and the fiscal 1996 periods. The
increases in the absolute dollar amount reflect the effect of fixed costs
resulting from the Company's expansion of its maintenance and support
organization and the costs of one customer obtaining implementation services for
the Siebel Enterprise Application through the Company. The Company expects that
maintenance, consulting and other costs will continue to increase in absolute
dollar amount as the Company expands its customer support organization to meet
anticipated customer demands in connection with product implementation. These
costs are expected to remain the same or increase as a percentage of total
revenues.
10
<PAGE>
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 to $3,352,000 for the three months ended
September 30, 1997 from $1,685,000 for the three months ended September 30, 1996
and decreased as a percentage of total revenues to 10% in the fiscal 1997 period
from 15% in the fiscal 1996 period. For the nine months ended September 30,
1997, product development expenses increased to $8,774,000 from $3,836,000 for
the nine months ended September 30, 1996 and decreased as a percentage of total
revenues to 11% in the fiscal 1997 period from 16% in the fiscal 1996 period.
The increases in the dollar amount of product development expenses were
primarily attributable to costs of additional personnel in the Company's product
development operations. The Company anticipates that it will continue to devote
substantial resources to product development. The Company expects product
development expenses to increase in absolute dollar amount but remain at a
similar percentage of total revenues as the first nine months of 1997.
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 to $15,950,000 for the three months ended September
30, 1997 from $5,443,000 for the three months ended September 30, 1996 and
remained constant as a percentage of total revenues at 49% in both the fiscal
1997 and the fiscal 1996 periods. For the nine months ended September 30, 1997,
sales and marketing expenses increased to $36,778,000 from $12,049,000 for the
nine months ended September 30, 1996 and decreased as a percentage of total
revenues to 48% in the fiscal 1997 period from 51% in the fiscal 1996 period.
The increases in the dollar amount of sales and marketing expenses reflect
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 in the United States and
internationally and increases promotional activities. These expenses are
expected to remain at a similar percentage of total revenues as the first nine
months of 1997.
General and Administrative. General and administrative expenses consist
primarily of salaries and occupancy costs for administrative, executive and
finance personnel. General and administrative expenses increased to $2,456,000
for the three months ended September 30, 1997 from $1,395,000 for the three
months ended September 30, 1996 and decreased as a percentage of total revenues
to 8% in the fiscal 1997 period from 12% in the fiscal 1996 period. For the nine
months ended September 30, 1997, general and administrative expenses increased
to $6,930,000 from $2,823,000 for the nine months ended September 30, 1996 and
decreased as a percentage of total revenues to 9% in the fiscal 1997 period from
12% in the fiscal 1996 period. The increases in the absolute dollar amount of
general and administrative expenses were primarily due to increased staffing and
associated expenses necessary to manage and support the Company's increased
scale of operations. The Company believes that its general and administrative
expenses will continue to increase in absolute dollar amount as a result of the
continued expansion of the Company's administrative staff and facilities to
support growing operations and the expenses associated with being a public
company. The Company anticipates that its general and administrative expenses as
a percentage of total revenues should remain at a similar percentage as the
first nine months of 1997.
OPERATING INCOME AND OPERATING MARGIN
Operating income increased to $8,470,000 for the three months ended September
30, 1997 from $2,103,000 for the three months ended September 30, 1996 and
operating margin increased to 26% in the fiscal 1997 period from 19% in the
fiscal 1996 period. For the nine months ended September 30, 1997, operating
income increased to $18,091,000 from $3,372,000 for the nine months ended
September 30, 1996 and operating margin increased to 24% in the fiscal 1997
period from 14% in the fiscal 1996 period. These increases in operating income
and margin were due to increases in license revenues without a proportional
increase in cost, particularly costs associated with the hiring of new
personnel. The Company does not expect operating margins to remain as high as
the level of the operating margin for the first nine months of 1997.
OTHER INCOME, NET
Other income, net is primarily comprised of interest income earned on the
Company's cash and cash equivalents and short-term investments and reflects
earnings on increasing cash and cash equivalents and short-term investment
balances.
PROVISION FOR INCOME TAXES
Income taxes have been provided at an effective rate of approximately 38%, which
is comprised primarily of federal and state taxes. The Company accounts for
income taxes in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes."
11
<PAGE>
NET INCOME
The Company had net income (after provision for income taxes) of $5,702,000 for
the three months ended September 30, 1997 compared to net income of $1,593,000
for the three months ended September 30, 1996. Net income per share increased
to $0.14 per share in the third quarter of 1997 from $0.04 in the comparable
period in 1996. Net income increased as a percentage of total revenues to 17%
in the three months ended September 30, 1997 from 14% in the three months ended
September 30, 1996. The Company had net income of $12,520,000 for the nine
months ended September 30, 1997, compared to net income of $2,492,000 for the
nine months ended September 30, 1996. Net income per share increased to $0.31
per share for the nine months ended September 30, 1997 from $0.06 in the
comparable period in 1996. Net income increased as a percentage of total
revenues to 16% in the nine months ended September 30, 1997 from 11% in the nine
months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments increased to
$75,993,000 as of September 30, 1997 from $72,387,000 as of December 31, 1996,
representing approximately 60% of total assets. This increase was primarily
attributable to net income and increases in accrued expenses and deferred
revenue and issuances of common stock, partially offset by increases in accounts
receivable and purchases of property and equipment.
The Company believes that 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.
FACTORS AFFECTING OPERATING RESULTS
Limited Operating History. The Company commenced operations in July 1993 and
shipped version 1.0 of Siebel Sales Enterprise in April 1995 and version 2.2 of
Siebel Service Enterprise in December 1996. 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 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 that the Company will be profitable in any
future quarter or period.
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 the
Company 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 1996 and the first nine months of 1997,
approximately 46% and 39%, respectively, of the revenues of the Company were
derived from customers for which Andersen Consulting had been engaged to provide
system integration services. Any deterioration of the Company's relationship
with Andersen Consulting could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company has relationships with Itochu Corporation and Itochu Techno-Science
Corporation, 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
12
<PAGE>
and/or manage Siebel Enterprise Applications. 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 Enterprise Applications, the Company's business,
operating results and financial condition could be materially and adversely
affected.
Limited Deployment. Many of the Company's customers are in the pilot phase of
implementing the Company's software. There can be no assurance that enterprise-
wide deployments by such customers will be successful. The Company's customers
frequently contemplate the deployment of its products commercially to large
numbers of sales, marketing and customer service 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 products are being
deployed on a variety of computer hardware platforms and used in connection with
a number of third-party software applications and programming tools. Such
deployments present significant technical challenges, particularly as large
numbers of sales, marketing and customer service personnel attempt to use the
Company's product concurrently. If any of the Company's customers are not able
to customize and deploy Siebel Enterprise Applications 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 Enterprise Applications or for any other reason are not satisfied with
Siebel Enterprise Applications, the Company's business, operating results and
financial condition would be materially and adversely affected.
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, marketing and customer service
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, marketing and customer
service information systems, in-house either alone or with the help of systems
integrators and there can be no assurance that the Company will be able to
compete successfully against such internal development efforts.
The Company relies on a number of systems consulting and systems integration
firms, particularly Andersen Consulting, 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 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 affected. 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,
marketing and customer service information systems market. Some of the Company's
current and potential competitors and their products include Symantec (ACT!),
Borealis Corporation (Arsenal), Early Cloud & Co. (CallFlow), Clarify, Inc.
(ClearSales, ClearSupport), IMA (EDGE), Marketrieve Company (Marketrieve PLUS),
Oracle Corporation (Oracle Sales and Marketing), Pivotal Software, Inc.
(Relationship), SalesBook Systems (SalesBook), SalesKit Software Corporation
(SalesKit), Scopus Technology, Inc. (SalesTEAM, ServiceTEAM, Voyager), Aurum
Software, Inc. (SalesTrak) (recently acquired by Baan Company N.V.), Saratoga
Systems (SPS for Windows), Brock International (Take Control Sales), and The
Vantive Corporation (Vantive Enterprise). Some 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,
13
<PAGE>
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.
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.
International Operations. The Company's sales are primarily to large multi-
national companies. To service the needs of such companies, both domestically
and internationally, the Company must provide worldwide product support
services. As a result, the Company has expanded and intends to continue to
expand its international operations and enter additional international markets,
which will require significant management attention and financial resources and
could adversely affect the Company's operating margins and earnings, if any.
Revenues from international sales accounted for approximately 31% of the
Company's total revenues in the first nine months of 1997. 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 Enterprise Applications. 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.
The growth in the Company's revenues from international sales is expected to
continue to subject a portion of the Company's revenues to the risks associated
with international sales, including foreign currency fluctuations, economic or
political instability, shipping delays and various trade restrictions, any of
which could have a significant impact on the Company's ability to deliver
products on a competitive and timely basis. Future imposition of, or
significant increases in the level of, customs duties, export quotas or other
trade restrictions, could have an adverse effect on the Company's business,
financial condition and results of operations. As the Company develops an
international sales force, it expects to be more directly subject to foreign
currency fluctuations. To the extent such direct sales are denominated in
foreign currency, any such fluctuation may adversely affect the Company's
business, financial condition and results of operations. Finally, the laws of
certain foreign countries do not protect the Company's intellectual property
rights to the same extent as do the laws of the United States.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is engaged in certain legal proceedings as disclosed in the
Company's Annual Report on Form 10-K and in the Company's Form 10-Q for the
quarter ended June 30, 1997.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The effective date of the Company's first registration statement, filed on Form
S-1 filed under the Securities Act of 1933 (No. 333-12061), was June 27, 1996
(the "Registration Statement"). The class of securities registered was Common
Stock. The offering commenced on June 27, 1996 and all securities were sold in
the offering. The managing underwriters for the offering were Hambrecht & Quist
LLC, Montgomery Securities and Robertson, Stephens, & Company LLC.
Pursuant to the Registration Statement, the Company sold 2,094,450 shares of its
Common Stock for its own account, for an aggregate offering price of
$33,113,000, and 163,000 shares of its Common Stock for the account of certain
selling stockholders, for an aggregate offering price of $2,577,030.
The Company incurred expenses of approximately $1,125,000. All such expenses
were direct or indirect payments to others. The net offering proceeds to the
issuer after total expenses was $31,988,000.
The Company has not used any of the net proceeds from the offering. All net
proceeds have been invested in U.S. Government obligations and certificates of
deposit. The use of the proceeds from the offering does not represent a
material change in the use of the proceeds described in the prospectus.
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<C> <S>
(a) Exhibits
Exhibit
Number Description of Document
------ -----------------------
(3)3.3 Restated Certificate of Incorporation of the Registrant, as amended.
(1)3.4 Bylaws of the Registrant.
(1)(3)4.1 Reference is made to Exhibits 3.3 and 3.4.
(1)4.2 Specimen Stock Certificate.
(1)4.3 Restated Investor Rights Agreement, dated December 1, 1995, between the Registrant and
certain investors, as amended April 30, 1996 and June 14, 1996.
(5)4.4 Form of Registration Rights Agreement, dated October 1, 1997 between the Registrant
and certain stockholders.
(6)4.5 Form of Registration Rights Agreement, dated November 1, 1997 between the Registrant
and certain stockholders.
(3)10.1 Registrant's 1996 Equity Incentive Plan, as amended.
(3)10.2 Registrant's Employee Stock Purchase Plan, as amended.
(1)10.3 Form of Indemnity Agreement entered into between the Registrant and its officers and
directors.
(4)10.4 Registrant's Deferred Compensation Plan, dated January 10, 1997.
(1)(2)10.6 Master Alliance Agreement, dated March 17, 1995, between the Registrant and Andersen
Consulting LLP.
(1)10.9 Assignment Agreement, dated September 20, 1995, by and between the Registrant and
Thomas M. Siebel.
(1)10.10 Lease Agreement, dated June 4, 1996, by and between the Registrant and Crossroad
Associates and Clocktower Associates.
(5)10.11 InterActive Workplace, Inc. 1996 Stock Option Plan.
(6)11.1 Statement Regarding Computation of Net Income Per Share.
(6)27.1 Financial Data Schedule.
(1) Incorporated by reference to the Company's Registration Statement on Form S-1 (No. 333-03751),
as amended.
(2) Confidential treatment has been granted with respect to portions of this exhibit.
(3) Incorporated by reference to the Company's Registration Statement on Form S-8 (No. 333-07983),
as amended.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
(5) Incorporated by reference to the Company's Registration Statement on Form S-3 (No. 333-36967), as amended.
(6) Filed herewith.
(b) Reports on Form 8-K
None.
</TABLE>
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIEBEL SYSTEMS, INC.
Date: November 12, 1997 By: /s/ Howard H. Graham
-----------------------------
Howard H. Graham
Senior Vice President Finance and
Administration and Chief Financial Officer
<PAGE>
EXHIBIT 4.5
SIEBEL SYSTEMS, INC.
Registration Rights Agreement
November 1, 1997
<PAGE>
Article 1. General................................. 1
1.1 Definitions............................. 1
Article 2. Registration; Restrictions on Transfer.. 2
2.1 Restrictions on Transfer................ 2
2.2 Automatic S-3 Registration.............. 3
2.3 Expenses of Registration................ 4
2.4 Obligations of the Company.............. 4
2.5 Termination of Registration Rights...... 5
2.6 Delay of Registration................... 5
2.7 Indemnification......................... 5
2.8 No Assignment of Registration Rights.... 7
Article 3. Miscellaneous........................... 7
3.1 Governing Law........................... 7
3.2 Successors and Assigns.................. 7
3.3 Separability............................ 7
3.4 Amendment and Waiver.................... 7
3.5 Delays or Omissions..................... 7
3.6 Notices................................. 7
3.7 Titles and Subtitles.................... 8
3.8 Counterparts............................ 8
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of the
1st day of November 1997, by and among SIEBEL SYSTEMS, INC., a Delaware
corporation (the "Company"), and the persons and entities set forth on Exhibit A
attached hereto. Such persons and entities shall be referred to hereinafter as
the "Purchasers" and each individually as a "Purchaser."
RECITALS
WHEREAS, the Company has entered into an Agreement and Plan of Merger and
Reorganization with Nomadic Systems, Inc. ("Nomadic") and certain stockholders
of Nomadic, dated as of October 13, 1997 (the "Acquisition Agreement"), pursuant
to which the Company will issue shares (the "Shares") of the Company's Common
Stock, par value of $.001 per share ("Common Stock"), to the stockholders of
Nomadic (the "Stockholders") in connection with the merger of a subsidiary of
the Company with and into Nomadic; and
WHEREAS, the Acquisition Agreement provides that the Stockholders be granted
certain registration rights with respect to the Shares as set forth in the
Agreement;
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement and in the
Acquisition Agreement, the parties mutually agree as follows:
ARTICLE 1
General
1.1 DEFINITIONS. As used in this Agreement the following terms shall have
the following respective meanings:
"FORM S-3" means such form under the Securities Act as in effect on the date
hereof or any successor registration form under the Securities Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
"HOLDER" means any person owning of record Registrable Securities.
"REGISTER," "REGISTERED," AND "REGISTRATION" refer to a registration effected
by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"REGISTRABLE SECURITIES" means (i) the Shares and (ii) any Common Stock issued
as (or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, the Shares. Notwithstanding the
foregoing, Registrable Securities shall not include (i) any securities sold by a
person to the public either pursuant to a registration statement or Rule 144 or
sold in a private transaction (other than as a result of any transfer pursuant
to Section 2.1(iii) hereof) or (ii) any securities which may be sold by a Holder
under Rule 144 during any ninety (90) day period.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in
complying with Section 2.2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees
1.
<PAGE>
and disbursements of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"SEC" OR "COMMISSION" means the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale.
ARTICLE 2
REGISTRATION; RESTRICTIONS ON TRANSFER
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or any
portion of the Registrable Securities unless and until the transferee has agreed
in writing for the benefit of the Company to be bound by this Section 2.1,
provided and to the extent such Section is then applicable. This Section shall
not be applicable if:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (A) Such Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (B) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such Shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144; or
(iii) There is a transfer by a Holder which is (A) a partnership
to its partners in accordance with partnership interests, or (B) to the Holder's
family member or trust for the benefit of an individual Holder, provided the
transferee will be subject to the terms of this Section 2.1 to the same extent
as if he were an original Holder hereunder (it being agreed that the Company
will not require opinions of counsel for such transfers).
(b) Each certificate representing the Shares shall (unless otherwise
permitted by the provisions of the Agreement) be stamped or otherwise imprinted
with legends substantially similar to the following (in addition to any legend
required under applicable state securities laws or as provided elsewhere in the
Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE
2.
<PAGE>
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any Holder thereof if the Holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 AUTOMATIC S-3 REGISTRATION.
2.2.1 The Company will file a Form S-3 registration statement
covering Registrable Securities as provided in the Acquisition Agreement. In
accordance with the Acquisition Agreement, the Company has agreed to use its
best efforts to cause such registration statement to become effective as soon as
practicable after the release of the Company's financial results for the quarter
ending September 30, 1997, and, in any event, not later than November 15, 1997.
Subject to Section 2.2.2, the Company agrees to keep such registration statement
effective until the earlier of: (i) one (1) year (or such longer period in the
event of a blackout period as described in Section 2.2.2) or (ii) such time as
all shares of Common Stock covered by such Registration Statement are no longer
Registrable Securities. Except as otherwise provided in this Section 2.2, the
registration statement covered by this Section 2.2 shall be subject to the
provisions of this Agreement.
2.2.2 Notwithstanding any other provision of this Agreement, the
Holders understand that there may be periods during which the Company's Board of
Directors may determine, in good faith, that it is in the best interest of the
Company and its stockholders to defer disclosure of non-public information until
such information has reached a more advanced stage and that during such periods
sales of Registrable Securities and the effectiveness of any registration
statement covering Registrable Securities may be suspended or delayed. Each
Holder agrees by acquisition of such Registrable Securities that upon receipt of
any notice from the Company of the development of any non-public information,
such Holder will forthwith discontinue such Holder's disposition of Registrable
Securities pursuant to the registration statement relating to such Registrable
Securities until such Holder's receipt of copies of an appropriately
supplemented or amended prospectus and, if so directed by the Company, such
Holder will use its best efforts to deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in such Holder's
possession, of the prospectus relating to such Registrable Securities current at
the time of receipt of such notice. In the event the Company shall give any
such notice, the applicable time period during which a Registration Statement is
to remain effective shall be extended by the number of days during the period
from and including the date of the giving of such notice to and including the
date when each seller of a Registrable Security covered by such registration
statement shall have received the copies of the appropriate supplemented or
amended prospectus.
2.2.3 A registration filed pursuant to this Section 2.2 will not be
deemed to have been effected unless it has become effective; provided that if,
after it has become effective, the offering of Registrable Securities pursuant
to such registration is interfered with by any stop order, injunction or other
order or requirement of the SEC or other governmental agency or court which
prevents the
3.
<PAGE>
successful completion of such offering and which was not caused by the actions
of any Holder, such registration will be deemed not to have been effected.
2.3 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration pursuant to Section 2.2 shall be borne by the
Company. All Selling Expenses incurred in connection with any registrations
hereunder, shall be borne by the holders of the securities so registered pro
rata on the basis of the number of shares so registered. The Company shall not,
however, be required to pay for expenses of any registration proceeding begun
pursuant to Section 2.2, which has been subsequently withdrawn at the request of
the Holders unless (a) the withdrawal is based upon material adverse information
concerning the Company of which the Holders were not aware at the time of such
request or (b) the Holders of a majority of Registrable Securities agree to
forfeit their right to registration pursuant to Section 2.2 in which event such
right shall be forfeited by all Holders. If the Holders are required to pay the
Registration Expenses, such expenses shall be borne by the holders of securities
(including Registrable Securities) subject to such registration in proportion to
the number of shares for which registration was sought. If the Company is
required to pay the Registration Expenses of a withdrawn, then the Holders shall
not forfeit their rights to a registration pursuant to Section 2.2.
2.4 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
2.4.1 Prepare (and provide the Holders an opportunity to review) and
file with the SEC a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration statement
effective for up to the earlier of: (i) one (1) year (or such longer period in
the event of a blackout period as described in Section 2.2.2) or (ii) such time
as all shares of Common Stock covered by such registration statement are no
longer Registrable Securities.
2.4.2 Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
2.4.3 Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
2.4.4 Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
2.4.5 Notify each Holder covered by such registration statement at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
4.
<PAGE>
2.5 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Article II shall terminate and be of no further force and effect at
such time as the obligations of the Company under Section 2.2 have been
satisfied.
2.6 DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Article II.
2.7 INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under Section 2.2:
2.7.1 To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers and directors of each Holder,
and each person, if any, who controls such Holder within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended, (the "1934
Act"), against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation") by the Company:
(i) any untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
(ii) the omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the 1934 Act or any state securities law
in connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or director, or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided however, that the indemnity agreement contained in
this Section 2.7.1 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is based upon
a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
such Holder, partner, officer, director, underwriter or controlling person of
such Holder.
2.7.2 To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers, each person, if any, who controls the Company within the meaning of
the Securities Act, and any other Holder selling securities under such
registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, or other such Holder, or partner,
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder under an instrument
duly executed by such Holder and stated to be specifically for use in connection
with such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, or partner, officer, director
or controlling person of such other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action if it is judicially
determined that there was such a Violation;
5.
<PAGE>
provided, however, that the indemnity agreement contained in this Section 2.7.2
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld; provided further, that
in no event shall any indemnity under this Section 2.7 exceed the net proceeds
from the offering received by such Holder.
2.7.3 Promptly after receipt by an indemnified party under this
Section 2.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.7, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.7.
2.7.4 If the indemnification provided for in this Section 2.7 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to herein,
the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
2.7.5 The foregoing indemnity agreements of the Company and Holders
are subject to the condition that, insofar as they relate to any Violation made
in a preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the SEC at the time the registration statement in question becomes
effective or the amended prospectus filed with the SEC pursuant to SEC Rule
424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the
benefit of any indemnified party if a copy of the Final Prospectus was furnished
to the indemnified party, the indemnified party had an obligation to furnish
such Final Prospectus to the person asserting the loss, liability, claim or
damage and the indemnified party did not so furnish the Final Prospectus to the
person asserting the loss, liability, claim or damage at or prior to the time
such action is required by the Securities Act.
2.7.6 The obligations of the Company and Holders under this Section
2.7 shall survive the completion of any offering of Registrable Securities in a
registration statement, and otherwise.
6.
<PAGE>
2.8 NO ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Article II may not be
assigned by a Holder to any transferee of Registrable Securities (other than a
transferee under a transfer made pursuant to Section 2.1(iii) hereof).
ARTICLE 3
MISCELLANEOUS
3.1 GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of Delaware as applied to agreements among Delaware
residents entered into and to be performed entirely within Delaware.
3.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto.
3.3 SEPARABILITY. In case any provision of the Agreement shall be invalid,
illegal, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
3.4 AMENDMENT AND WAIVER.
3.4.1 Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the holders
of at a majority of the then outstanding Registrable Securities.
3.4.2 Except as otherwise expressly provided, the obligations of the
Company and the rights of the Holders under this Agreement may be waived only
with the written consent of the holders of at least a majority of the
Registrable Securities.
3.5 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
3.6 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
party to be notified at the address as set forth on the signature page or at
such other address as such party may designate by ten (10) days advance written
notice to the other parties hereto.
7.
<PAGE>
3.7 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
3.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights
Agreement as of the date set forth in the first paragraph hereof.
SIEBEL SYSTEMS, INC. PURCHASERS:
<TABLE>
<S> <C>
By: /s/ Howard H. Graham /s/ Young A. Sohn
---------------------------------- -------------------------------------
YOUNG A. SOHN
Title: Senior Vice President, Finance and Address: 2 Orchard Ct.
---------------------------------- --------------------------
Administration and Chief Financial Montclair, NJ 07042
---------------------------------- --------------------------
Officer Facsimile:
---------------------------------- --------------------------
/s/ Woon Chul Bak
--------------------------------------
Address: WOON CHUL BAK
1855 South Grant Street Address: 16 Angela Ct.
San Mateo, CA 94402 --------------------------
East Hanover, NJ 07936
--------------------------
Facsimile:
---------------------------
/s/ Jin Soo Chang
--------------------------------------
JIN SOO CHANG
Address: 193 Waterside Dr.
---------------------------
Little Ferry, NJ 07643
---------------------------
Facsimile:
---------------------------
/s/ Jae Joon Ahn
--------------------------------------
JAE JOON AHN
Address: 31 Ridge Road
---------------------------
Norwood, NJ 07648
---------------------------
Facsimile:
---------------------------
/s/ Mark Armenante
--------------------------------------
MARK ARMENANTE
Address: 27450 Edgerton Road
---------------------------
Los Altos Hills, CA 94022
---------------------------
Facsimile:
---------------------------
/s/ Raymond Li
--------------------------------------
RAYMOND LI
Address: 707 Palmer Ave.
---------------------------
Holmdel, NJ 07733
---------------------------
Facsimile:
---------------------------
/s/ Jack Boyle
--------------------------------------
JACK BOYLE
Address: 22 Marlo Road
---------------------------
Wayne, NJ 07470
---------------------------
Facsimile:
---------------------------
</TABLE>
9.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Name of Purchaser NUMBER OF SHARES
- ---------------------------------------------------------------
<S> <C>
Young Sohn 85,811
- ---------------------------------------------------------------
Woon Chul Bak 63,564
- ---------------------------------------------------------------
Jin Soo Chang 63,564
- ---------------------------------------------------------------
Jae Joon Ahn 63,564
- ---------------------------------------------------------------
Mark Armenante 12,712
- ---------------------------------------------------------------
Raymond Li 7,945
- ---------------------------------------------------------------
Jack Boyle 3,178
- ---------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 11.1
SIEBEL SYSTEMS, INC.
STATEMENTS REGARDING COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- --------------------
1997 1996 1997 1996
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 5,702 $ 1,593 $ 12,520 $ 2,492
======== ======== ======== ========
Weighted average number of shares outstanding
Common stock 34,457 31,582 34,215 21,913
Preferred stock, as if converted - 334 - 6,724
Number of common stock equivalents as a result of stock options
outstanding using the treasury stock method 6,245 8,066 5,605 6,368
Number of common stock issued and stock options granted in
accordance with SAB No. 83 - - - 3,915
-------- -------- -------- --------
Shares used in net income per share computation 40,702 39,982 39,820 38,920
======== ======== ======== ========
Net income per share $ 0.14 $ 0.04 $ 0.31 $ 0.06
======== ======== ======== ========
</TABLE>
Note: All share and per share amounts for the periods ended September 30, 1996
have been restated to reflect a two-for-one stock split (effected in the
form of a stock dividend) which was effective December 19, 1996.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 22,631 22,671
<SECURITIES> 53,362 49,716
<RECEIVABLES> 31,330 12,855
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 114,066 90,567
<PP&E> 10,701 8,310
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 125,870 99,501
<CURRENT-LIABILITIES> 28,719 18,105
<BONDS> 0 0
0 0
0 0
<COMMON> 35 34
<OTHER-SE> 96,911 81,157
<TOTAL-LIABILITY-AND-EQUITY> 125,870 99,501
<SALES> 27,969 10,235
<TOTAL-REVENUES> 32,617 11,171
<CGS> 2,389 545
<TOTAL-COSTS> 21,758 8,523
<OTHER-EXPENSES> 726 442
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 9,196 2,545
<INCOME-TAX> 3,494 952
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,702 1,593
<EPS-PRIMARY> 0.14 0.04
<EPS-DILUTED> 0.14 0.04
</TABLE>
