**UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549**

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**FORM 10-K**

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**[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934**

**For the fiscal year ended December 31, 1999**

**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 Incorporation or Organization) | (IRS Employer Identification Number)

**1855 South Grant StreetSan 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 Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K. [  ]

The aggregate market value of the voting stock held by non-affiliates
of the registrant, based on the closing sale price of the Common Stock on
February 10, 2000 as reported on the Nasdaq National Market was
approximately $13,578,741,895. Shares of Common Stock held by each current
executive officer and director and by each person who is known by the
registrant to own 5% or more of the outstanding Common Stock have been
excluded from this computation in that such persons may be deemed to be
affiliates of the Company. Share ownership information of certain persons
known by the Company to own greater than 5% of the outstanding common
stock for purposes of the preceding calculation is based solely on
information on Schedule 13G filed with the Commission and is as of
December 31, 1999. This determination of affiliate status is not a
conclusive determination for other purposes.

The number of shares outstanding of the registrant's Common Stock, par
value $.001 per share, as of  February 10, 2000, was 195,969,654.







**SIEBEL SYSTEMS, INC.**
                     FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

**TABLE OF CONTENTS**

**PART I**

Item 1.   Business

Item 2.   Properties

Item 3.   Legal Proceedings

Item 4.   Submission of Matters to a Vote of Security Holders

**PART II**

Item 5.   Market for Registrant's Common Stock and Related Stockholder Matters

Item 6.   Selected Financial Data

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations

Item 7A.      Quantitative and Qualitative Disclosure About Market Risks

Item 8.   Financial Statements and Supplementary Data

Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure

**PART III**

Item 10.  Directors and Executive  Officers of the  Registrant

Item 11.  Executive  Compensation

Item 12.  Security Ownership of Certain Beneficial Owners and Management

Item 13.  Certain  Relationships and Related  Transactions

**PART IV**

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K**SIGNATURE**

**Documents Incorporated By Reference**
Portions of the registrant's Proxy Statement for its 2000 Annual
Stockholders Meeting are incorporated by reference in Part III hereof.**PART I**


The statements contained in this annual report on
Form 10-K that are not historical are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended,  including statements
regarding our  expectations, beliefs, intentions or strategies regarding the
future. Forward-looking statements include statements regarding the extent and
timing of future revenues and expenses and customer demand, statements regarding
the deployment of our products, and statements regarding reliance on third
parties. All forward-looking statements included in this document are based on
information available to us as of the date hereof, and we assume no obligation
to update any forward-looking statement. It is important to note that our actual
results could differ materially from those in forward-looking statements as a
result of many factors, including those discussed under the heading "Risk
Factors" and elsewhere  in this report.

Item 1.   Business

Overview

Siebel
Systems is the world's leading provider of eBusiness applications. Siebel
eBusiness Applications enable organizations to sell to, market to, and service
their customers across multiple channels, including the Web, call centers,
field, resellers, retail, and dealer networks.  By employing comprehensive
eBusiness applications to better manage their customer relationships, our
customers continue to be leaders in their markets.



Siebel eBusiness Applications are available in industry-specific
versions designed for the pharmaceutical, healthcare, consumer goods,
telecommunications, insurance, energy, apparel and footwear, automotive,
technology, public sector, and finance markets. With best-of-class functionality
of eBusiness software, Siebel eBusiness Applications enable organizations to
create a single source of customer information that sales, service, and
marketing professionals can use to tailor product and service offerings to meet
each of their customer's unique needs. By using Siebel eBusiness Applications,
organizations can develop new customer relationships, profitably serve existing
customers, and integrate their systems with those of their partners, suppliers,
and customers, regardless of location.



Our customers are known for delivering the highest levels of
quality in their products and services and for their commitment to maintaining
the highest levels of customer satisfaction. Spanning diverse industries and
locations, Siebel eBusiness Applications customers represent organizations of
all sizes.



Through global strategic alliances with industry-leading
organizations, we continue to enhance Siebel eBusiness Applications, ensuring
that we continue to fully support our customers' rapidly evolving technology
requirements and industry best practices today and in the future.



Products

Siebel eBusiness 99.6, released in September 1999, is the
industry's most  comprehensive suite of Web-based eBusiness application
software.  Siebel eBusiness provides organizations with one view of the customer
across multiple distribution channels including the Web, call center, field
sales and service, resellers, partners, and dealer channels.  Our Web-based
architecture and diverse product offerings are designed to provide support for
sales, marketing and customer service organizations and seamlessly unites the
organization's partners, resellers and customers in one global information
system.

Siebel Sales

Siebel Sales 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, Message Broadcasting, Siebel
Search, Quotas and Incentives modules.

Siebel Sales options, as of December 31, 1999, include Siebel
Quotes, Siebel Revenue Forecasting, Siebel Product Forecasting, Siebel Proposal,
Siebel Presentations, Siebel Campaigns, Siebel Sales Assistant, Siebel Target
Account Selling, Siebel Customer Service Integration, Siebel Configurator,
Siebel Product Configuration Integration Object and Siebel Sales
Handheld.

Siebel Service

Siebel Service enables teams of customer service, sales and
marketing professionals to help ensure complete  customer satisfaction by using
closed-loop, service request management capabilities. The base application
includes the Service Request Management, Account Management, Asset Tracking,
Contact Management, Activity Tracking, Message Broadcasting, Solution Management
and Siebel Search modules.

Siebel Service options, as of  December 31, 1999, include
Siebel Service Assistant, Siebel Quality Management and Siebel eMail Response.

Siebel Field Service

Siebel Field Service extends upon Siebel's customer service
solution and provides field engineers with service functionality for
entitlement/contracts management, integration with other customer facing
departments, dispatch and scheduling, parts management and repair center
operations. Siebel Field Service provides a complete solution for the mobile
technician as well as the connected service agent.

Siebel Field Service options, as of December 31, 1999,
include Siebel Service Inventory, Siebel Shipping/Receiving, Siebel Logistics
Manager, Siebel Repair, Siebel Service Assistant, Siebel Quality Management and
Siebel eMail Response.

Siebel Call Center

Siebel Call Center provides blended Sales and Service
functionality that enables call center agents to provide both sales and customer
service assistance to customers. It accesses the power of Siebel Sales and
Service Enterprise to integrate all available customer information. This allows
each service request to result in additional sales opportunities and provides
integrated sales and service histories for each opportunity. This base
application includes the Opportunity Management, Service Request Management,
Account Management, Asset Tracking, Contact Management, Activity Tracking,
Message Broadcasting, Solution Management and Siebel Search modules.

Siebel Call Center options, as of  December 31, 1999, include
all of the options available for both Siebel Sales and Siebel Service.

Siebel Marketing

The Siebel Marketing is designed to allow marketing
professionals, sales and service managers and business analysts to monitor
overall company performance and the effectiveness of company programs and
activities. Siebel Marketing is designed to extract information from Siebel
Sales Enterprise, Siebel Service Enterprise and Siebel Call Center into a
customer data mart, designed for fast data analysis. Siebel Marketing is
designed to include a broad range of pre-built analyses about customers, sales
pipeline, customer service, competitors, campaigns and products, allowing
managers and analysts to drill down into key operational details. Siebel
Marketing also includes powerful database marketing capabilities that allow
marketing professionals to immediately develop multi-level campaigns that are
tailored to target specific market segments.

General Product

General product options are typically available on any of
the Siebel eBusiness base applications and as of December 31, 1999, include
Siebel Thin Client, Siebel Encyclopedia, Siebel Office, Siebel Calendar, Siebel
Reports, Siebel Expense Reporting, Siebel Executive Information System, Siebel
Incentive Compensation, Siebel Order Entry, Siebel Contracts, Siebel Campaigns,
Siebel SmartScript, Siebel CTI, Siebel CTI Connect, Siebel Remote, Siebel
Anywhere, Siebel Workflow Manager, Siebel Assignment Manager, Siebel Data
Quality, Siebel Professional Services, Siebel Resource Assignment, Siebel Time
Management and Reporting, Siebel Agreements, Siebel Distance Learning and Siebel
Advanced Search.

Siebel .COM Applications

Siebel .COM Applications allows organizations to interact
directly with prospects, customers and partners over the Internet. Using Siebel
 .COM Applications, organizations can rapidly deploy scalable, secure and Web-based
applications for acquiring, growing and retaining customers. Siebel .COM
Applications include Siebel eSales, Siebel eMarketing, Siebel eService, Siebel
eChannel, Siebel eBriefings, and Siebel eMail Response.

Siebel eSales.Siebel eSales is a Web-based
application which  supports unassisted business-to-business and business-to-consumer
selling over the Web.  Siebel eSales includes a visual product catalog,
Web-based quote generation, self-service solution configuration and on-line
ordering. Siebel eSales options, as of December 31, 1999, include Siebel
eShopping Basket, Siebel eCatalog, Siebel eConfigurator and Siebel eOrders.

Siebel eMarketing. Siebel eMarketing enables
enterprises to create, execute and assess Web-based marketing campaigns. With
Siebel eMarketing, enterprises segment their customers and prospects; target
them with a personalized, automatically generated Web- or email-based
promotions; and create graphical reports to assess the effectiveness and return-
on-investment of the campaign.

Siebel eService and Siebel eMail Response.Through
Web- and email-based service automation, Siebel eService and Siebel eMail
Response allow organizations to manage the entire service process and to provide
world-class customer service and support via the Internet.

Siebel eChannel. Siebel eChannel allows organizations
to turn their partners, distributors, resellers, and dealers into a virtual
sales and service network.  By using Siebel eChannel, organizations can be
linked to their business partners over the Internet, allowing business partners
to better communicate with the parent organization, sell more, and increase
customer satisfaction.

Siebel eBriefings.Siebel eBriefings allows
organizations to provide customized Web-based personalized briefings to sales
professionals, partners and resellers over the Web. Briefings include key
customer information including opportunities, accounts and contacts and on-line
content such as news and company profiles.

Siebel Industry Applications

Our products are available in industry-specific versions,
all with similar functionality, but each specifically designed for a particular
industry. Examples of our industry applications include:

- Siebel eFinance
- Siebel eInsurance
- Siebel eCommunications
- Siebel ePharma
- Siebel eConsumer Goods
- Siebel eEnergy

Product Development Expense

During 1999, 1998 and 1997, the
Company had product development expenses of approximately $72.9 million, $44.0
million, and $26.7 million, respectively.

Professional Services

We
provide implementation consulting and other technical services to license
customers through our worldwide professional services organization. We provide
these services in connection with similar services provided by certain global
alliance partners to provide the customer with the full array of services
necessary to install, integrate, customize and deploy Siebel eBusiness
Applications.

Customer Support and Training

We offer
a comprehensive, multi-tiered, integrated family of global support programs
designed to ensure successful implementation and customer satisfaction. These
programs include maintenance, technical support, professional services and
customer communications, as well as extensive educational offerings.  Our
educational offerings include technical training, end user training, and
advanced sales training.

Marketing and Sales

In the
United States, we market and sell our products and services through our direct
sales and services organization, and through channel partners including Great
Plains, J.D.Edwards and others.  Our sales and service professionals are located
in 44 offices throughout the United States.  In addition, we employ sales and
service professionals in 37offices
outside of the United States, selling our products primarily through direct
sales and services organization in the countries where we have an office.  We
also market and sell our products through distributors, primarily in Japan,
Latin America, South Africa and Asia.

Our ability to achieve significant revenue growth in the
future will depend in large part on how successfully we recruit, train and
retain sufficient direct sales, technical and customer support personnel, and
how well we continue to establish and maintain relationships with our strategic
partners. We believe that the complexity of our products and the large scale
deployments anticipated by our customers will require a number of highly trained
customer support personnel.

The following key elements comprise our marketing and sales
strategy:

Target Large Multinational Customers in a Broad Range
of Industries

Our customer base consists of
a significant number of large multinational companies.  Siebel eBusiness
Applications' Web-based architecture supports the complex needs of even the
largest global organizations.  We intend to leverage our experience and continue
to target sales and marketing activities through our direct sales force and
channel partners to expand worldwide market acceptance of Siebel eBusiness
Applications.



Maintain and Extend Advanced Technology Position

We provide what we believe to
be the industry's most comprehensive family of multichannel eBusiness
applications, enabling organizations to sell to, market to, and service
customers across multiple channels, including the Web, call centers, field,
resellers, retail, and dealer networks.  Siebel eBusiness Applications enable
organizations to manage, synchronize, and coordinate their customer touchpoints.
Utilizing advanced information technology, Siebel eBusiness Applications are
built on a component-based architecture that provides a broad range of
functionality for eBusiness applications deployments.



We intend to continue investing substantial resources in
technological research and developments, such as:



Proven, Component-based Architecture: The Siebel
eBusiness architecture includes Siebel Remote, one of the industry's most
scalable data synchronization technologies for mobile clients and server-to-server
replication; Siebel Workflow Manager, which allows organizations to
visually model business processes and apply workflow automation rules across all
channels of distribution; Siebel Tools, a visual development toolset that allows
organizations to customize their user interface, business rules, and data; and
Siebel EAI, which provides pre-built integration with leading middleware
products and industry-specific back office products.

Support for Multiple Computing Platforms:  To enable
immediate access to key customer information, Siebel eBusiness Applications can
operate on  multiple computing platforms used by organizations, including mobile
clients, connected clients, thin clients, and handheld clients.

Web-based Architecture:

Full Life Cycle Management:

The Siebel eBusiness Applications product
architecture enables organizations to configure their Siebel eBusiness
Applications once and then deploy that same configuration to all their users.
Once an organization makes customizations to the underlying objects, the
customizations can operate automatically across nearly all types of client
computing devices. This technology is designed to provide significant cost
savings in deployment and implementation costs, and assures consistency across
customer-facing channels.



Global Market Support:  We designed and built Siebel eBusiness
Applications to support global deployments, including most major European and
Asian languages. Siebel eBusiness Applications support both single and double
byte characters, multiple currencies, automatic currency conversions including
the ENU standards for supporting the euro and real-time interfaces to accept new
exchange rates from leading online services.

Siebel eBusiness Applications provide
support for multiple organizations, allowing companies to define different
organizational structures to manage data visibility, security, and business
processes across both centralized and decentralized deployment topologies.

Global
Strategic Alliances

Having long recognized the
power and value of strategic partnerships, one of our key strengths is
our ability to develop and maintain long-term global strategic partnerships with
the largest and most influential corporations in the technology marketplace,
including IBM, Microsoft and Sun.



We have partnered with best-of-class business and system
integrators, hardware, software, support, and training partners to help ensure
the successful deployment of Siebel eBusiness Applications. These strategic
global partnerships with industry leaders help ensure that we deliver solutions
that meet our global customers' sales, marketing, and customer service
requirements. We believe these partnerships enable us to  deliver the
comprehensive  suite of eBusiness solutions to our customers.



Siebel Systems' partners include the following industry
leaders:





|**System Integrator**     | **Software**     | **Platform**    
|------------------------- | ---------------- | ----------------
|Andersen Consulting       | Ariba            | Compaq          
|Cap Gemini                | BroadVision      | IBM             
|Deloitte & Touche         | IBM              | Lucent          
|Ernst & Young             | Lucent           | Sun Microsystems
|IBM                       | Microsoft        | Unisys          
|ICL                       | Sun Microsystems | USi             
|PricewaterhouseCoopers    |                  |                 
|Siemens Business Services |                  |                 

Successful Customer
Implementations

Our success depends on our customers'
successful implementations of Siebel eBusiness Applications.  As a result, we
actively support the customer's deployment efforts by providing Internet and
telephone technical support, and  comprehensive instructor-led training, and
assigning an account management team to each customer that consists of a sales
representative, a technical account manager, and an executive sponsor.



Expand Global Sales
Capabilities

We currently have operations in
Australia, Austria, Belgium, Brazil, Canada, Colombia, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan, Mexico, the Netherlands, Norway,
Portugal, Scotland, Singapore, Spain, Sweden, Switzerland, the United Kingdom,
and the United States, and have introduced localized versions of Siebel
eBusiness Applications for major European and Asian markets. We intend to
further expand our global sales and marketing capabilities by increasing the
size of our direct sales and marketing organizations in major markets, and by
continuing to develop our channel partner relationships. As market conditions
warrant, we intend to increase our direct sales and marketing activities
worldwide.

During each of 1999, 1998,
and 1997, no individual customer accounted for more than 10% of revenues. Export
sales for 1999, 1998, and 1997 were $157.3 million, $88.2 million and $41.8
million, respectively. This represented 31%, 30%, and 27% of total license
revenues in 1999, 1998 and 1997, respectively.

Acquisitions



Competition

The
market for our products is intensely competitive, subject to rapid change and
significantly affected by new product introductions and other market activities
of industry participants. Our products are targeted at the emerging market for
sales, marketing and customer information systems. We face 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. We believe that the market for
global eBusiness information systems has historically not been well served by
the application software industry. We believe 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.  Please see "Risk Factors - To
be successful, we must effectively compete in the eBusiness systems
market."

Internal Development

Many of our 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. 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. The
competitive factors in this area require that we 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. We cannot assure you that we will be able to
compete effectively against such internal development efforts.

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. The competitive factors in this area require that we demonstrate to
the customer the cost savings and advantages of a configurable, upgradeable and
commercially supported product developed by a dedicated professional software
organization.

We frequently rely on system consulting and system
integration firms for implementation and other customer support services, as
well as recommendations of our products during the evaluation stage of the
purchase process. Although we seek to maintain close relationships with these
service providers, many of these third parties have similar and often more
established relationships with our competitors. We cannot assure you that these
third parties, many of which have significantly greater resources than us, will
not market software products in competition with us in the future or will not
otherwise reduce or discontinue their relationships with or support of us and
our products.

Other Competitors

A large number of personal, departmental and other
products exist in the Siebel eBusiness applications market. Companies (products)
such as Allegis (Allegis Sales Partner), Annuncio (Annuncio Live), Ariba (Ariba
ORMS Application, Ariba Internet Business Exchange Service, Ariba Market Suite),
Baan Co. (BaanFrontOffice, Baan E-Enterprise), Blue Martini (Blue Martini
Customer Interaction), Brightware (Web Assistance, Email Assistance),
BroadVision (One-to-One Enterprise, One-to-One), Broadbase Info. (CRMPerform),
Calico Commerce (Calico eSales Configurator, Calico eSales Engine), Callidus
Software, Inc. (TrueComp), CAS GmbH (Mapware, Groupware, Referenzen), Chordiant
Software (Enterprise Business Center, Chordiant CCS), Clarify (ClearCallCenter,
Clear Quality, Clear Telebusiness), Dendrite International (Dendrite Series 6,
AIMS, Strategic Selling Guide), Epicor (Epicor eFrontOffice, Epicor
eCommerce Suite, Epicor eIntelligence), E.piphany (E.4 System), FirePond
(FirePond Application Suite), Firstwave Technologies (Firstwave eRM, eMarketing,
eSales, eSupport), GoldMine Software (GoldMine), I2 Technologies (RYTHM), Kana
Communications (Kana Connect, Kana Notify, Kana Realtime, Kana Response, Kana
Classify, Kana Assist, Kana Forms), MarketFirst (MarketFirst 2.0), MarketSoft
(eLeads), Niku (iNiku), Octane Software (Octane 2000), ONYX Software
(Customer Center), Oracle (Oracle iMarketing, Oracle iStore, OracleiPayment,
Oracle Telephony Manager, Oracle Customer Care. Oracle OpenTel), Pegasystems,
Inc. (Pegasystems), Pivotal Software, Inc. (eRelationship 2000), Prime Resposne
(Prime@Vantage.com), Quintus Corp. (eContact), Relavis Corp. (Remedy@work), RTS,
SalesLogix (CommerceLogix, SupportLogix, ACT!), SAP AG (mySAP.comTM),
Saratoga Systems, ServiceSoft (Web Advisor®, eCenterTM, Knowledge
Builder®, LiveContactTM, E-mailContactTM), Silknet Software Inc.
(Silknet)(To be acquired by Kana Communications, Inc.), Trilogy
(MultiChannel Commerce 2.0), Update Marketing (Marketing Manager®), Vantive
Corp. (Vantive)(Acquired by PeopleSoft), Vignette (StoryServer, Syndication
Server, Multi-Channel Server, Tools, Professional Services) are among the many
firms in this market segment. 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 us. In addition, many competitors have well-established
relationships with current and potential customers of ours. 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 we can. We believe that
we compete favorably in this marketplace based on the following competitive
advantages: a breadth and depth of functionality, a modern and enduring Web-based product
architecture, an ability to manage all customer interactions
support across multiple channels, configurable business objects, support for the
global enterprise, scalability allowing support for large user communities and
strategic alignments with industry leaders. In general, we have priced our
products at or above those of our competitors, which pricing we believe is
justified by the scope of functionality delivered and the performance
characteristics afforded by our products.

It is also
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. We also expect 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 and adversely affect our business,
operating results and financial condition.  We cannot assure you that we will be
able to compete successfully against current and future competitors or that
competitive pressures faced by us will not materially and adversely affect our
business, operating results and financial condition.

Employees

As of December 31, 1999, we had a total of 3,203
employees, of which 1,200 were engaged in sales and marketing, 473 were in
product development, 1,279 were in customer support and 251 were in finance,
administration and operations. Our future performance depends in significant
part upon the continued service of our key technical, sales and senior
management personnel, particularly Thomas M. Siebel, our Chairman and Chief
Executive Officer, none of whom is bound by an employment agreement. The loss of
the services of one or more of our key employees could have a material adverse
effect on our business, operating results and financial condition. Our future
success also depends on our 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 we can retain our key
technical, sales and managerial personnel in the future. None of our employees
are represented by a labor union.  We have not experienced any work stoppages
and we consider our relations with our employees to be good.

Item 2.   Properties

Our principal administration, sales, marketing,
support and research and development facilities are located in San Mateo,
California, pursuant to a lease which expires in August 2008, and Emeryville,
California, pursuant to a lease which expires in March, 2001.  We have entered
into three leases to relocate our principal facilities to another location in
San Mateo in the summer of 2000.   These three leases expire on July 31, 2012.
We will continue to occupy the existing spaces at the current principal
facilities in San Mateo and Emeryville.  We currently also occupy a number of
domestic and international sales and support offices.

Item 3.   Legal Proceedings



In October 1999, SAP America, Inc.
filed a complaint against the Company in the Court of Common Pleas of Delaware
County, Pennsylvania. The Complaint alleges tortious interference with
contractual relations, predatory hiring, misappropriation of trade secrets, and
unfair competition in connection with the Company's employment of 27 individuals
formerly employed by SAP America or its affiliated companies.  In October 1999,
the Company filed a complaint against SAP America, Inc. and SAP Labs, Inc. in
the Superior Court of California for the County of Santa Clara, alleging unfair
competition, violations of Business and Professions Code section 17200, and
seeking declaratory relief.  In March 2000, the Company and SAP agreed to settle
the litigation and dismissed both actions with prejudice.

We are engaged in other legal actions arising in the
ordinary course of business.   We believe we have adequate legal defenses and
that the ultimate outcome of these actions will not have a material effect on
our financial position or results of operations.

Item 4.   Submission of Matters to a Vote of Security Holders

At a special stockholders' meeting on October 20, 1999, our
stockholders approved (i) an amendment to our certificate of incorporation to
increase our authorized number of shares of common stock from 300,000,000 to
800,000,000 shares and (ii) an amendment to our 1996 Equity Incentive Plan to
increase the number of shares of common stock authorized for issuance under such
plan by 15,000,000 shares,  from 40,000,000 shares to 55,000,000 shares.  The
vote regarding the amendment of our certificate of incorporation, as amended, to
increase the authorized number of shares of common stock from 300,000,000 shares
to 800,000,000 shares was 76,786,323 votes for, 4,939,828 votes against and
89,127 votes abstaining; on that, the proposal was approved. The vote regarding
the amendment of our Equity Incentive Plan to increase the number of shares of
common stock authorized for issuance under the plan by 15,000,000 shares, from
40,000,000 shares to 55,000,000, was 40,740,919 votes for, 24,744,860 votes
against and 183,839 votes abstaining; on that, the proposal was approved.

On November 12, 1999, we effected a two-for-one stock split
by way of a stock dividend of one share of common stock for each share of common
stock held by each stockholder. All share data contained in this report is
adjusted to reflect the stock split.





PART II

Item 5.    Market for Registrant's Common Stock and Related Stockholder
Matters

(a) Our common stock is traded on the Nasdaq
National Market under the symbol "SEBL." The following high and low
sales prices were reported by Nasdaq in each quarter during the last two years.
All amounts give retroactive effect to the Company's stock split which was
effective November 12, 1999.

`High       Low
                                                  --------- ---------
Quarter Ended March 31, 1998....................    $15.88     $9.19
Quarter Ended June 30, 1998.....................     16.22     10.69
Quarter Ended September 30, 1998................     18.50      9.00
Quarter Ended December 31, 1998.................     17.06      7.56
Quarter Ended March 31, 1999....................     27.25     15.88
Quarter Ended June 30, 1999.....................     33.69     16.44
Quarter Ended September 30, 1999................     38.88     24.19
Quarter Ended December 31, 1999.................     92.00     31.84`

As of December 31, 1999, we had
approximately 711 holders of record of our  common stock. We have never paid any
cash dividends on our capital stock and do not expect to pay any such dividends
in the foreseeable future.

(b) The effective date of our first registration
statement, filed on Form S-1 under the Securities Act of 1933 (No. 333-12061)
relating to our initial public offering of our Common Stock, was June 27, 1996.
There has been no change to the disclosure contained in our report on Form 10-Q
for the quarter ended March 31, 1998, regarding the use of proceeds generated by
our initial public offering.

Item 6.   Selected Financial Data

The acquisitions of OnTarget, Inc.
("OnTarget") in 1999 and Scopus Technology, Inc. ("Scopus")
in 1998 have been accounted for as poolings of interests. Accordingly, the
financial statements of Siebel have been restated to include the financial
position and results of operations of OnTarget and Scopus for all periods
presented.

`Year Ended December 31,
                               ---------------------------------------------------
                                  1999       1998      1997      1996      1995
                               ----------- --------- --------- --------- ---------
                              (in thousands, except per share data and employees)
    Operating Data
   Net revenues...............   $790,920  $409,886  $222,071  $111,980   $45,010
   Operating income...........   $182,954   $68,019    $8,518   $18,162    $3,797
   Net income.................   $122,092   $44,265      $643   $13,750    $3,122
   Pro forma net income(1)....   $121,727   $43,460       $55   $13,313    $2,764
   Pro forma diluted net
    income per share(1).......      $0.54     $0.21     $0.00     $0.08     $0.02
   Pro forma basic net
    income per share(1).......      $0.65     $0.24     $0.00     $0.09     $0.02
   Total assets............... $1,226,962  $447,596  $271,535  $209,602   $60,003
   Total equity...............   $674,591  $291,120  $210,950  $173,157   $43,542
   Employees..................      3,203     1,483       955       506       246`

> (1) Includes pro
> forma provision for income taxes to reflect income tax expense that would have
> been reported if OnTarget Inc. (an S corporation for income tax reporting
> purposes) had been a C corporation.

Item 7.   Management's Discussion and Analysis of Financial
Condition and Results of Operations

Overview

Siebel
Systems, Inc. ("Siebel" or the "Company") is the world's
leading provider of eBusiness applications. Siebel eBusiness Applications enable
organizations to sell to, market to, and service their customers across multiple
channels, including the Web, call centers, field, resellers, retail, and dealer
networks.  By employing comprehensive eBusiness applications to better manage
their customer relationships, the Company's customers continue to be leaders in
their markets.

Siebel eBusiness Applications are available in industry-specific
versions designed for the pharmaceutical, healthcare, consumer goods,
telecommunications, insurance, energy, apparel and footwear, automotive,
technology, public sector, and finance markets. With best-of-class functionality
of eBusiness software, Siebel eBusiness Applications enable organizations to
create a single source of customer information that sales, service, and
marketing professionals can use to tailor product and service offerings to meet
each of their customer's unique needs. By using Siebel eBusiness Applications,
organizations can develop new customer relationships, profitably serve existing
customers, and integrate their systems with those of their partners, suppliers,
and customers, regardless of location.

In December 1999, the Company acquired OnTarget, Inc.
("OnTarget").  OnTarget develops and implements advanced sales and
marketing training and consulting programs for sales organizations competing in
complex, multilevel sales campaigns.  OnTarget's goal is to provide its clients
with a pragmatic, repeatable and implementable process that will create lasting
change within sales organizations, and which will enable Siebel's clients to
effectively respond to today's market challenges.  Primary customers include
corporate clients and business owners who wish to provide for the development
and training of their sales and marketing personnel.

Under the terms of the agreement, each outstanding share
of OnTarget common stock was exchanged for 0.3077516 newly issued shares of
common stock of  the Company.  This resulted in the issuance of approximately
3.7 million additional shares of the Company's common stock.  In addition, all
outstanding stock options of  OnTarget were converted into the right to acquire
the Company's common stock at the same exchange ratio with a corresponding
adjustment to the exercise price.

The acquisition of OnTarget has been accounted for as a
pooling of interests. Accordingly, the financial statements of the Company have
been restated to include the financial position and results of operations of
OnTarget for all periods presented.

This Report contains forward looking
statements that involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Some of these factors are discussed in "Risk Factors"
below.

Results of Operations

The following table sets forth statement of
operations data for the three years ended December 31, 1999 expressed as a
percentage of total revenues:

`Year Ended December 31,
                                                --------------------------------
                                                   1999       1998       1997
                                                ---------- ---------- ----------
Revenues:
  Software.....................................      63.1%      71.0%      70.7%
  Professional services, maintenance and other.      36.9%      29.0%      29.3%
                                                ---------- ---------- ----------
    Total revenues.............................     100.0%     100.0%     100.0%
                                                ---------- ---------- ----------
Cost of revenues:
  Software.....................................       1.0%       1.4%       1.9%
  Professional services, maintenance and other.      21.9%      15.9%      14.3%
                                                ---------- ---------- ----------
    Total cost of revenues.....................      22.9%      17.3%      16.2%
                                                ---------- ---------- ----------
    Gross margin...............................      77.1%      82.7%      83.8%
                                                ---------- ---------- ----------
Operating expenses:
  Product development..........................       9.2%      10.7%      12.0%
  Sales and marketing..........................      36.8%      43.7%      46.6%
  General and administrative...................       8.0%       8.4%       9.6%
  Merger-related expenses......................       --         3.3%      11.7%
                                                ---------- ---------- ----------
    Total operating expenses...................      54.0%      66.1%      79.9%
                                                ---------- ---------- ----------
    Operating income...........................      23.1%      16.6%       3.9%
Other income, net..............................       1.8%       1.5%       2.4%
                                                ---------- ---------- ----------
    Income before income taxes.................      24.9%      18.1%       6.3%
Income taxes...................................       9.5%       7.3%       5.9%
                                                ---------- ---------- ----------
    Net income.................................      15.4%      10.8%       0.4%
                                                ========== ========== ==========`

Revenues

Software.License revenues increased to
$499,398,000 for the year ended December 31, 1999 from $290,890,000 and
$156,971,000 for the years ended December 31, 1998 and 1997, respectively.
License revenues as a percentage of total revenues were 63% in the fiscal 1999
period as compared to 71% both in the fiscal 1998 and 1997 periods,
respectively.  License revenues increased in absolute dollars during these
periods from the respective prior year periods due to an increase in the number
of licenses of Siebel applications sold to new and existing customers and also
due to licenses of new modules, released with the latest version of Siebel
applications, to existing users of Siebel base applications. This increase in
the number of licenses was primarily due to continued demand by new and existing
customers for products in the Siebel applications family both in the United
States and internationally.  The Company expects that license revenues will
continue to increase in absolute dollars, but will remain the same or decrease
as a percentage of total revenues as the Company's maintenance and other
services revenues continue to grow as a result of increases in the installed
base of customers purchasing such services.

Professional Services, Maintenance and Other.Professional services, maintenance and other revenues increased to
$291,522,000 for the year ended December 31, 1999 from $118,996,000 and
$65,100,000 for the years ended December 31, 1998 and 1997, respectively, and as
a percentage of total revenues were 37% in the fiscal 1999 period as compared to
29% both in the fiscal 1998 and 1997 periods, respectively. These increases in
absolute dollars were due to growth in the Company's sales and marketing
training businesses, consulting business and in the installed base of customers
on maintenance. First-year maintenance is typically sold with the related
software license. Revenue related to such maintenance is deferred based on
vendor-specific objective evidence of fair value and amortized over the term of
the maintenance contract, typically twelve months. The Company expects that
professional services, maintenance and other revenues will remain the same or
increase as a percentage of total revenues due to increased maintenance revenues
derived from the Company's growing installed base and due to the Company's
expansion of its consulting and training organization to meet anticipated
customer demands in connection with product implementation and sales
training.

A relatively small number of customers account for a
significant percentage of the Company's license revenues. For 1999, 1998 and
1997, sales to the Company's ten largest customers accounted for 10%, 19% and
24% 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 Company markets its products in the United States
through its direct sales force and internationally through its sales force and
distributors, primarily in Japan, Latin America, South Africa and Asia.
International revenues accounted for 31%, 30% and 27% of license revenues in
1999, 1998 and 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.

Cost of Revenues

Software.Cost of software license revenues
includes third-party software royalties, product packaging, documentation and
production. Cost of license revenues through December 31, 1999 has 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.

Professional Services, Maintenance and Other.Cost of professional services, maintenance and other revenues consist
primarily of personnel, facilities and systems costs incurred in providing
consulting, customer support, and training. Cost of professional services,
maintenance and other revenues increased to $173,278,000 for the year ended
December 31, 1999 from $65,387,000 and $31,646,000 for the years ended December
31, 1998 and 1997, respectively, and as a percentage of professional services,
maintenance and other revenues were 59% for the year ended December 31, 1999 as
compared to 55% in fiscal 1998 and 49% in fiscal 1997. 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 growth in
the Company's consulting and training businesses. The Company expects that
professional services, maintenance and other costs will continue to increase in
absolute dollar amount as the Company expands both its customer support
organization to support a growing installed base and its consulting organization
to meet anticipated customer demands in connection with product implementation
and the training organization to support the growing needs of its customers.
These costs are expected to remain the same or increase as a percentage of total
revenues.

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
$72,853,000 for the year ended December 31, 1999 from $43,950,000 and
$26,650,000 for the years ended December 31, 1998 and 1997, respectively, and
decreased as a percentage of total revenues to 9% in the fiscal 1999 period from
11% and 12% in the fiscal 1998 and 1997 periods, respectively. 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 in 1999. The Company considers technological feasibility of its
software products to have been reached upon completion of a working model that
has met certain performance criteria. The period between achievement of
technological feasibility and general release of a software product is typically
very short, and development costs incurred during that period have not been
material. Accordingly, the Company has not capitalized any software development
costs to date.

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 $290,687,000 for
the year ended December 31, 1999 from $178,957,000 and $103,551,000 for the
years ended December 31, 1998 and 1997, respectively, and as a percentage of
total revenues, sales and marketing expenses decreased to 37% in 1999, from 44%
and 47% in the fiscal 1998 and 1997 periods, respectively. The increases in the
dollar amount of sales and marketing expenses reflect primarily the hiring of
additional sales and marketing personnel, costs associated with expanded
promotional activities, and indirect merger-related costs, such as corporate
sales training and marketing programs. 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 in 1999.

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 $63,508,000 for the year ended December 31, 1999 from
$34,473,000 and $21,275,000 for the years ended December 31, 1998 and 1997,
respectively, and as a percentage of total revenues were 8% in the fiscal 1999
period as compared to 8% and 10% in the fiscal 1998 and 1997 periods,
respectively. 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. The Company anticipates that its general and administrative
expenses as a percentage of total revenues should remain at a similar percentage
as in 1999.

Merger-Related Expenses.The
Company did not incur any significant merger-related costs in connection with
the merger with OnTarget.

In connection with the merger with Scopus, the Company
incurred direct merger-related expenses of approximately $13,500,000, comprised
primarily of investment bankers, attorneys, accountants and other professional
fees of $9,100,000, duplicate facilities and equipment of $3,100,000 and other
miscellaneous expenses of $1,300,000.

The Company incurred costs of approximately $3,300,000 in
1997 in connection with Scopus' planned merger with Clear With Computers, Inc.
The merger plan was terminated early in the fourth quarter of 1997.

On October 1, 1997, the Company completed its
purchase of InterActive, a developer of intranet-based business intelligence
software technology that has been incorporated into the Siebel eBriefings
product. The acquisition was accounted for by the purchase method of accounting.
The Company recorded a charge to income of $14,017,000, or $0.09 per diluted
share, pursuant to an allocation of the purchase price by an independent
appraiser, as a write-off of acquired research and development. Purchased in-process
research and development is related to the completion of InterActive's
data integration, filtering and formatting technology and its integration into
the Company's products. At the time of acquisition, a prototype of InterActive's
product existed and was in limited trials, however, the prototype was not stable
or sufficiently developed to be scalable on an enterprise-wide basis.
InterActive's technology was completed, at a cost of approximately $400,000, and
incorporated as a separate module into the Siebel 98 product suite, which was
released in June 1998. The Company estimated that technology was approximately
75% complete as of the acquisition date. At that date, the only identifiable
asset acquired was the technology under development. Accordingly, essentially
all of the excess purchase price over net assets acquired, except for amounts
assigned to net current assets, fixed assets and workforce-in-place, was
assigned to in-process research and development.

The valuation of acquired research and development was
prepared using the income approach and contemplated that sales of products
incorporating InterActive's technology would be $11,500,000 in 1998, increasing
to $35,000,000 in 2000, and declining significantly thereafter. Revenue
increases were based upon the historical growth rate of software sales for the
customer relationship managment market and the Company. Operating costs as a
percentage of revenue ranged from 56% in 1998 to 47% in 2000 based upon the
Company's normal operating margin. Operating cash flows were reduced by an
expected effective tax rate of 38% consistent with the Company's effective tax
rate. Net cash flows were discounted to their present value at the acquisition
date using an after-tax risk-adjusted discount rate of 30%. The Company believes
this discount rate is consistent with that required by venture capitalists for
investments in unproven but partially developed software products. Through the
end of 1999, total revenues from Siebel eBriefings were approximately
$11,000,000; however, the Company is unable to quantify the effect of Siebel
eBriefings as a competitive differentiator. The Company does not track selling,
general and administrative costs by product but believes the incremental costs
associated with selling and distributing Siebel eBriefings were substantially
lower than those used in the valuation due to synergies associated with selling
the product as a separate component of the Siebel 98 product suite and subsequent
versions. If the Company is unable to continuously upgrade the Siebel
eBriefings product or existing and future customers do not elect to purchase
this module, the Company's ability to recover the value assigned to the acquired
research and development will be impaired and revenue and profitability will be
adversely affected.

On November 1, 1997, the Company completed its purchase
of Nomadic, a provider of innovative business solutions to pharmaceutical sales
forces. The acquisition was accounted for by the purchase method of accounting.
Technology acquired from Nomadic has been incorporated into the Siebel ePharma
product. The Company recorded a charge to income of $8,723,000 or $0.05 per
diluted share, pursuant to an allocation of the purchase price by an independent
appraiser, as a write-off of acquired research and development. The appraisal of
the acquired research and development was based upon the present value of
forecasted operating cash flows from the technology acquired, giving effect to
the stage of completion at the acquisition date. These forecasted cash flows
were then discounted at a rate commensurate with the risk involved in completing
the acquired technology. The forecasted cash flows assumed inclusion of the
product developed from acquired technology into the existing Siebel product
suite. The purchased in-process research and development expense related to
completion of Nomadic's second generation pharmaceutical sales force automation
product. This product was completed and enterprise-wide deployment to end-user
customers commenced in March 1998. Much of the functionality was incorporated
into the Company's ePharma product, which was released in June 1998. At the time
of the acquisition, Nomadic had a first-generation product at a limited number
of customers, with a very small user base. There were a considerable number of
uncertainties as to increasing the product's scalability for deployment on an
enterprise-wide basis, improving the stability of the application and
identifying and fixing bugs. The Company allocated limited excess purchase price
over net assets acquired to net current assets, fixed assets and workforce-in-place. The
majority of the excess purchase price was allocated to in-process
research and development and other intangible assets (goodwill) based upon the
expected cash flows from Nomadic's existing product and the product under
development, giving consideration to the stage of completion of the technology
under development at the acquisition date. This technology was completed, at a
cost of approximately $1,300,000, for enterprise-wide release in March 1998.

The valuation of acquired research and development was
prepared using the income approach and contemplated that sales of products
incorporating Nomadic's technology would be $11,500,000 in 1998, increasing to
$35,000,000 in 2000, and declining significantly thereafter. Revenue increases
were based upon the historical growth rate of software sales for the customer
relationship managment market and the Company. Operating costs as a percentage
of revenue were estimated at 70%, based upon the Company's normal operating
margin. Operating cash flows were reduced by an expected effective tax rate of
39% consistent with the Company's effective tax rate. Net cash flows were
discounted to their present value at the acquisition date using an after-tax
risk-adjusted discount rate of 25%. The Company believes this discount rate is
consistent with that required by venture capitalists for investments in unproven
but partially developed software products. Through the end of 1999, total
revenues from products incorporating the Nomadic technology under development at
the acquisition date were approximately $35,000,000. Although the Company does
not track selling, general and administrative costs by product, because these
products are sold as vertical eBusiness solutions for the
pharmaceutical industry, the Company believes the operating margin is similar to
the Company's consolidated operating margin. If the Company is unable to
continuously upgrade the Siebel ePharma product or superior products are released by
competitors, the Company's ability to recover the value assigned to the acquired
research and development will be impaired and revenue and profitability will be
adversely affected.

Operating Income and Operating Margin

Operating income increased to $182,954,000 for the
year ended December 31, 1999 from $68,019,000 for the year ended December 31,
1998 and $8,518,000 for the year ended December 31, 1997 and operating margin
was 23% in the fiscal 1999 period, as compared with 17% and 4% in the fiscal
1998 and 1997 periods, respectively. Excluding merger-related expenses,
operating income increased to $182,954,000 for the year ended December 31, 1999
from $83,303,000 and $34,556,000 for the years ended December 31, 1998 and 1997,
respectively, and operating margin was 23% in the fiscal 1999 period as compared
to 20% and 16% in the fiscal 1998 and 1997 periods, respectively. These
increases in operating income and margin, excluding merger-related expenses,
were due to increases in license revenues without a proportional increase in
cost, particularly costs associated with the hiring of new personnel.  We
believe it is likely that operating margins in future periods will be less than
the 23% achieved in 1999.

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.

Pro forma Provision for Income Taxes



Income taxes are comprised primarily of federal and state taxes.  The pro
forma provision for income taxes reflects income tax expense that would have
been reported if OnTarget (an S Corporation for income tax reporting purposes)
had been a C Corporation for each of the periods presented.   The pro forma
provision for income taxes was $75,195,000, $30,817,000, and $13,848,000 in
1999, 1998, and 1997, respectively. The pro forma provision for income taxes as
a percentage of pretax income was 38%, 41%, and 100%, respectively.  The pro
forma tax rate in 1997 was higher than the rates in 1998 and 1999 primarily due
to non-deductible items related to acquisitions. The Company expects its
effective tax rate in 2000 to be approximately 38%, excluding the effect of non-deductible costs
such as merger-related expenses.

As a result of deductions relating to stock options, the
Company paid no federal income taxes during 1999.

Pro forma Net Income

The Company had pro forma net income of $121,727,000
for the year ended December 31, 1999 and pro forma net income of $43,460,000 and
$55,000 for the years ended December 31, 1998 and 1997, respectively. Pro forma
net income per diluted share was $0.54 in fiscal 1999, compared with $0.21 in
the fiscal 1998, and $0.00 in  fiscal 1997, respectively.

Liquidity and Capital Resources

The Company's cash, cash equivalents,
short-term investments and marketable equity securities increased to
$805,314,000 as of December 31, 1999 from $232,629,000 as of December 31, 1998,
representing approximately 66% and 52% of total assets, respectively. This
increase was primarily attributable to issuance of convertible subordinated
debentures, net income, sale of certain property and equipment, increases in
accounts payable, accrued expenses, income taxes payable and deferred revenue,
issuance of common stock under the Company's stock option plans, and the initial
public offering and subsequent increase in market value of an equity investment,
partially offset by increases in accounts receivable,  purchases of property and
equipment and charitable contribution of a portion of the Company's marketable
equity securities.   The Company's days sales outstanding (DSO) in accounts
receivable was 98 as of December 31, 1999, as compared with 88 as of December
31, 1998.

The
Company completed a private placement of $300,000,000 of convertible
subordinated debentures in September 1999.  The seven-year term notes bear
interest at a rate of 5.50% and are convertible into approximately 6,432,000
shares of the Company's common stock at any time prior to maturity, at a
conversion price of approximately $46.64 per share, subject to adjustment under
certain conditions.  The Company may redeem the notes, in whole or in part, at
any time on or after September 15, 2002.  The redemption price will range from
$309,420,000 to $302,370,000 if the notes are redeemed between September 15,
2002 through September 14, 2006.  Any redemption made on or after September 15,
2006 will be redeemed at $300,000,000.  In addition, accrued interest to the
redemption date will be paid by the Company in each redemption.

As of  February 10, 2000, the fair market value of the
Company's marketable equity securities was $90,340,000.

The Company recently entered into a lease agreement for a
new headquarters facility in San Mateo, California.  The Company expects
significant capital expenditures in connection with tenant improvements and
furniture and fixtures for this facility.  These expenditures are expected to be
incurred through the end of 2000.  In addition, the Company expects to continue
to incur capital expenditures associated with tenant improvements, furniture and
fixtures for newly-leased offices.

The Company has used full-serviced office suites on a
month-to-month rental basis to establish its presence in new locations.  As
these locations expand, the Company expects to transition more of the office
suites to leased space.  This transition will involve build-out of tenant
improvements, acquisition of furniture and fixtures, and other capital costs,
which were not incurred in connection with the use of fully serviced office
suites.  The Company has already built out a number of leased facilities, both
domestically and internationally, and expects this trend to continue.

Capital expenditures of the nature described above are
expected to increase during 2000 and 2001.



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.

Risk Factors

Our net
revenue and operating results may fluctuate.

We may experience a shortfall in revenue or earnings
or otherwise fail to meet public market expectations, which could materially
adversely affect our business and the market price of our common stock. Our net
revenue and operating results may fluctuate significantly because of a number of
factors, many of which are outside of our control. These factors include:

- Level of product and price competition;
- Length of our sales cycle and customer purchasing
patterns;
- The size and timing of individual license
transactions;
- Delay or deferral of customer implementations of our
products;
- Success in expanding our customer support organization,
direct sales force and indirect distribution channels;
- Timing of new product introductions and product
enhancements;
- Appropriate mix of products and services sold;
- Levels of international sales;
- Activities of and acquisitions by competitors;
- Timing of new hires and the allocation of our
resources;
- Changes in the economy and foreign currency exchange
rates; and
- Our ability to develop and market new products and
control costs.

One or more of the foregoing factors may cause our operating
expenses to be disproportionately high during any given period or may cause our
net revenue and operating results to fluctuate significantly. Based upon the
preceding factors, we may experience a shortfall in revenue or earnings or
otherwise fail to meet public market expectations, which could materially
adversely affect our business, financial condition and the market price of our
common stock.

Our quarterly operating results may fluctuate.

Our net revenue and operating results may vary
drastically from quarter to quarter. The main factors that may affect these
fluctuations are:

- The discretionary nature of our customer's purchase and
budget cycles;
- The size and complexity of our license
transactions;
- The potential delays in recognizing revenue from license
transactions;
- The timing of new product releases;
- Seasonal variations in operating results; and
- Variations in the fiscal or quarterly cycles of our
customers.

Each customer's decision to implement our products and
services is discretionary, involves a significant commitment of resources and is
subject to their budget cycles. In addition, the timing of license revenue is
difficult to predict because of the length of our sales cycle, which has ranged
to date from one to twenty four months. We base our operating expenses on
anticipated revenue trends. Because a high percentage of these expenses are
relatively fixed, a delay in recognizing revenue from license transactions could
cause significant variations in operating results from quarter to quarter and
could result in operating losses. If these expenses precede, or are not
subsequently followed by, increased revenues, our operating results could be
materially and adversely affected. Although we have not experienced significant
seasonal variations in operating results, such variations could develop in the
future.

As a result of these and other factors, revenues for any
quarter are subject to significant variation and we believe that period-to-period
comparisons of our results of operations are not necessarily useful. You
should not rely on these comparisons as indications of future performance. It is
likely that our 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 our common stock.

We need to successfully integrate acquisitions and
manage growth.

Our business strategy includes pursuing opportunities
to grow our business, both internally and through selective acquisitions,
investments, joint ventures and strategic alliances. Our ability to implement
this strategy depends, in part, on our success in making such acquisitions,
investments, joint ventures and strategic alliances on satisfactory terms and
successfully integrating them into our operations. Implementation of our growth
strategy may impose significant strains on our management, operating systems and
financial resources. Failure to manage this growth, or unexpected difficulties
encountered during expansion, could have an adverse effect on our business,
operating results and financial condition.

We rely on strategic relationships with systems
integrators.

Failure to maintain existing strategic relationships
with systems integrators, or to establish new relationships in the future, could
have a material adverse effect on our business. We have established strategic
relationships with a number of organizations that we believe are important to
our sales, marketing and support activities, and the implementation of our
products. We believe that our relationships with these organizations provide
marketing and sales opportunities for our direct sales force and expand the
distribution of our products. These relationships allow us to keep pace with the
technological and marketing developments of major software vendors and provide
us with technical assistance for our product development efforts.

In particular, we have established a non-exclusive strategic
relationship with Andersen Consulting, one of our largest stockholders. We have
also entered into significant relationships with other third-party systems
integrators such as IBM Global Services, PricewaterhouseCoopers and Deloitte
Consulting. A significant portion of our revenues have historically been derived
from customers for whom Andersen Consulting, or another systems integrator with
which we have a significant relationship, have been engaged to provide system
integration services. Any deterioration of our relationship with these
significant third-party systems integrators could have a material adverse effect
on our business, financial condition and results of operations. We also have
relationships with IBM Corporation, Compaq Computer Corporation, Microsoft
Corporation and Sun Microsystems, among others. Failure to maintain existing
relationships, or to establish new relationships in the future, could have a
material adverse effect on our business, results of operations and financial
condition.

Our current and potential customers may also rely
on third-party systems integrators to develop, deploy or manage Siebel eBusiness
Applications.  If we do not adequately train a sufficient number of system
integrators, or if these integrators do not have, or do not devote, the
resources necessary to implement our products, our business, operating results
and financial condition could be materially and adversely affected.

The Internet presents unique risks.

We may not be able to compete effectively in the
Internet-related products and services market. Siebel eBusiness Applications
communicate through public and private networks over the Internet. The success
of our products may depend, in part, on our ability to continue developing
products that are compatible with the Internet. We cannot predict with any
assurance whether the Internet will 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 our products and the
introduction of new products.

Critical issues concerning the commercial use of the
Internet, including security, demand, reliability, cost, ease of use,
accessibility, quality of service and potential tax or other government
regulation, remain unresolved and may affect the use of the Internet as a medium
to support the functionality of our products and distribution of our software.
If these critical issues are not favorably resolved, our business, operating
results and financial condition could be materially and adversely affected.

We operate in a competitive and rapidly changing
market.

If the Web-based applications market fails to grow or
grows more slowly than we currently anticipate, our business, operating results
and financial condition could be materially and adversely affected. The market
for Web-based application software is relatively new, highly competitive and
rapidly changing. We market our products only to customers who have migrated or
are in the process of migrating their enterprise computing systems to Web-based
computing environments. Our future financial performance will partly depend on
the continued growth of organizations successfully adopting Web-based computing
environments.

Our customers may not successfully implement our
products.

If existing customers have difficulty further
deploying Siebel eBusiness Applications or for any other reason are not
satisfied with Siebel eBusiness Applications, our business, operating results
and financial condition could be materially and adversely affected. Many of our
customers purchase and implement our products in phases. Our customers
frequently deploy our products to large numbers of sales, marketing and customer
service personnel. These end-users may not accept our products. Our products are
also being deployed on a variety of computer hardware platforms and used with a
number of third-party software applications and programming tools. This use may
present significant technical challenges, particularly as large numbers of
personnel attempt to use our product concurrently.

A limited number of products provides a substantial
part of our license revenues.

A substantial majority of our license revenues are
attributable to sales of Siebel Sales Enterprise, Siebel Service Enterprise,
Siebel Call Center and related products. We expect that such products and
related consulting, maintenance and training services will continue to account
for a majority of our future revenues. As a result, factors adversely affecting
the pricing of or demand for such products, such as competition or technological
change, could have a material adverse effect on our business, operating results
and financial condition.

The length of time required to engage a client and to
implement our products may be lengthy and unpredictable.

The timing of the sales and implementation of our
products and services is lengthy and not predictable with any degree of
accuracy.  You should not rely on prior sales and implementation cycles as any
indication of future cycles.

The license of our software products is often an
enterprise-wide decision by prospective customers and generally requires us to provide a
significant level of education to prospective customers regarding the use and
benefits of our products. In addition, the implementation of our products
involves a significant commitment of resources by prospective customers and is
commonly associated with substantial reengineering efforts that may be performed
by the customer or third-party systems integrators. The cost to the customer of
our product is typically only a portion of the related hardware, software,
development, training and integration costs of implementing a large-scale
eBusiness software system. For these and other reasons, the period between
initial contact and the implementation of our products is often lengthy and is
subject to a number of factors that may cause significant delays, over many of
which we have little or no control. These factors include (i) the size and
complexity of the overall project and (ii) delays in our customers'
implementation of Web-based computing environments. A delay in the sale or
implementation of even a limited number of license transactions could have a
material adverse effect on our business and operations and cause our operating
results to vary significantly from quarter to quarter.

Our success will require us to continue to expand our
direct sales force and technical support staff.

Failure to expand our direct sales force or technical
and customer support staff or to expand our distribution channels could
materially and adversely affect our business, operating results and financial
condition. We have expanded the distribution of our products in recent years.
This expansion has placed new and increased demands on our direct sales force
and technical and sales support staff. Our ability to achieve revenue growth in
the future will depend, in part, on our success in recruiting and training
sufficient direct sales, technical and customer support personnel. Although we
invest significant resources to expand our direct sales force and our technical
and customer support staff, there is only a limited number of qualified
personnel in these areas. Therefore, we may not be able to expand our direct
sales force and technical support staff as necessary to support our growing
operations. In addition, such expansion may not result in increased
revenues.

Our expanding distribution channels  may create
additional risks.

Failure to minimize channel conflicts could
materially and adversely affect our business, operating results and financial
condition. We have recently entered into a number of relationships with
resellers in order to obtain broad market coverage. We have generally avoided
exclusive relationships with resellers of our products. Discount policies and
reseller licensing programs are intended to support each distribution channel
with a minimum level of channel conflicts.

Our revenue is concentrated in a relatively small
number of customers.

Our success depends on maintaining relationships with
our existing customers. A relatively small number of customers have accounted
for a significant percentage of our revenues. For 1999, license revenues from
our ten largest customers accounted for 10% of total revenues. We expect that
licenses of our products to a limited number of customers will continue to
account for a significant percentage of revenue for the foreseeable future. The
loss of a small number of customers or any reduction or delay in orders by any
such customer, or failure to successfully market our products to new customers,
could have a material adverse effect on our business, financial condition and
results of operations.

Our continued success will require us to keep pace with
technological developments, evolving industry standards and changing customer
needs.

The software market in which we compete is
characterized by (i) rapid technological change, (ii) frequent introductions of
new products, (iii) changing customer needs and (iv) evolving industry
standards. To keep pace with technological developments, evolving industry
standards and changing customer needs, we must support existing products and
develop new products. We may not be successful in developing, marketing and
releasing new products or new versions of the Siebel eBusiness Applications that
respond to technological developments, evolving industry standards or changing
customer requirements. We may also experience difficulties that could delay or
prevent the successful development, introduction and sale of these enhancements.
In addition, these enhancements may not adequately meet the requirements of the
marketplace and may not achieve any significant degree of market acceptance. If
release dates of any future products or enhancements to the Siebel eBusiness
Applications are delayed, or if these products or enhancements fail to achieve
market acceptance when released, our business, operating results and financial
condition could be materially and adversely affected. In addition, new products
or enhancements by our competitors may cause customers to defer or forego
purchases of our products, which could have a material adverse effect on our
business, financial condition and results of operations.

To be successful, we must effectively compete in the
eBusiness systems market.

Our products target the eBusiness systems market.
This market is highly competitive, rapidly changing and significantly affected
by new product introductions. We face competition primarily from our 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 our customers and potential customers
have attempted to develop eBusiness systems in-house, either alone or with the
help of systems integrators. We may not be able to compete successfully against
such internal development efforts.

We rely on a number of systems consulting and systems
integration firms for a substantial portion of implementation and other customer
support services, as well as for recommendations of our products during the
evaluation stage of the purchase process. Although we seek to maintain close
relationships with these service providers, many of them have similar and often
more established, relationships with our competitors. If we are unable to
develop and retain effective, long-term relationships with these third parties,
our competitive position could be materially and adversely affected. Further,
many of these third parties have significantly greater resources than we do and
may market software products that compete with us.

A large number of personal,
departmental and other products exist in the Siebel eBusiness applications
market. Companies (products) such as Allegis (Allegis Sales Partner), Annuncio
(Annuncio Live), Ariba (Ariba ORMS Application, Ariba Internet Business Exchange
Service, Ariba Market Suite), Baan Co. (BaanFrontOffice, Baan E-Enterprise),
Blue Martini (Blue Martini Customer Interaction), Brightware (Web Assistance,
Email Assistance), BroadVision (One-to-One Enterprise, One-to-One), Broadbase
Info. (CRMPerform), Calico Commerce (Calico eSales Configurator, Calico eSales
Engine), Callidus Software, Inc. (TrueComp), CAS GmbH (Mapware, Groupware,
Referenzen), Chordiant Software (Enterprise Business Center, Chordiant CCS),
Clarify (ClearCallCenter, Clear Quality, Clear Telebusiness), Dendrite
International (Dendrite Series 6, AIMS, Strategic Selling Guide), Epicor
(Epicor eFrontOffice, Epicor eCommerce Suite, Epicor eIntelligence), E.piphany
(E.4 System), FirePond (FirePond Application Suite), Firstwave Technologies
(Firstwave eRM, eMarketing, eSales, eSupport), GoldMine Software (GoldMine), I2
Technologies (RYTHM), Kana Communications (Kana Connect, Kana Notify, Kana
Realtime, Kana Response, Kana Classify, Kana Assist, Kana Forms), MarketFirst
(MarketFirst 2.0), MarketSoft (eLeads), Niku (iNiku), Octane Software
(Octane 2000), ONYX Software (Customer Center), Oracle (Oracle iMarketing,
Oracle iStore, OracleiPayment, Oracle Telephony Manager, Oracle Customer Care.
Oracle OpenTel), Pegasystems, Inc. (Pegasystems), Pivotal Software, Inc.
(eRelationship 2000), Prime Resposne (Prime@Vantage.com), Quintus Corp.
(eContact), Relavis Corp. (Remedy@work), RTS, SalesLogix (CommerceLogix,
SupportLogix, ACT!), SAP AG (mySAP.comTM), Saratoga Systems, ServiceSoft
(Web Advisor®, eCenterTM, Knowledge Builder®, LiveContactTM,
E-mailContactTM), Silknet Software Inc. (Silknet)(To be acquired by Kana
Communications, Inc.), Trilogy (MultiChannel Commerce 2.0), Update
Marketing (Marketing Manager®), Vantive Corp. (Vantive)(Acquired by
PeopleSoft), Vignette (StoryServer, Syndication Server, Multi-Channel Server,
Tools, Professional Services) are among the many firms in this market segment.
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 we do. In addition,
many competitors have well-established relationships with our current and
potential customers. 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 we can.

There are many factors that may increase competition in the
eBusiness systems market, including (i) entry of new competitors, (ii) alliances
among existing competitors, (iii) consolidation in the software industry and
(iv) technological changes or changes in the use of the Internet.  Increased
competition may result in price reductions, reduced gross margins or loss of
market share, any of which could materially and adversely affect our business,
operating results and financial condition. If we cannot compete successfully
against current and future competitors or overcome competitive pressures, our
business, operating results and financial condition may be adversely affected.

If we do not maintain our relationships with third-party
vendors, interruptions in the supply of our products may result.

We may not be able to replace the functionality
provided by the third-party software currently offered with our products if that
software becomes obsolete or incompatible with future versions of our products
or is not adequately maintained or updated. Portions of our products incorporate
software that was developed and is maintained by third-party software
developers. Although we believe there are other sources for these products, any
significant interruption in the supply of these products could adversely impact
our sales unless and until we can secure another source. We depend in part on
these 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. The absence of or any
significant delay in the replacement of functionality provided by third-party
software in our products could materially and adversely affect our sales.

Software errors or defects in our products could reduce
revenues.

Software products frequently contain errors or
failures, especially when first introduced or when new versions are released.
Although we conduct extensive product testing during product development, we
have, in the past, been forced to delay the commercial release of products until
the correction of software problems. We could lose revenues as a result of
software errors or defects. Our products are intended for use in sales
applications that may be critical to a customer's business. As a result, we
expect that our customers and potential customers will have a greater
sensitivity to product defects than the market for software products generally.
Testing errors may also be found in new products or releases after commencement
of commercial shipments, resulting in loss of revenue or delay in market
acceptance, damage to our reputation, or increased service and warranty costs,
any of which could have a material adverse effect upon our business, operating
results and financial condition.

If we do not successfully manage our growth, our
business may be negatively impacted.

If we fail to manage our growth effectively, our
business, financial condition and results of operations could be materially and
adversely affected. Our business has grown rapidly in recent years. This growth
has placed a significant strain on our management systems and resources. To
manage future growth, we must continue to (i) improve our financial and
management controls, reporting systems and procedures on a timely basis and (ii)
expand, train and manage our employee work force.

The loss of key personnel could negatively affect our
performance.

Our performance depends on the continued service of
our key technical, sales and senior management personnel, particularly Thomas M.
Siebel, our Chairman and Chief Executive Officer. None of our key employees has
entered into an employment agreement with us. The loss of the services of one or
more of our executive officers could have a material adverse effect on our
business, operating results and financial condition.

Substantial leverage and debt service obligations may
adversely affect our cash flow.

We have substantial amounts of outstanding
indebtedness, primarily consisting of our 5-1/2% convertible subordinated notes
due September 15, 2006.  As a result of this indebtedness, our principal and
interest payment obligations are substantial.  We may be unable to generate cash
sufficient to pay the principal of, interest on and other amounts due in respect
of our indebtedness when due. We also expect to add additional equipment loans
and lease lines to finance capital expenditures and may obtain additional long-term
debt, working capital lines of credit and lease lines. There can be no
assurance that any financing arrangements will be available.

Our substantial leverage could have significant negative
consequences, including:

- Increasing our vulnerability to general adverse economic
and industry conditions;
- Limiting our ability to obtain additional
financing;
- Requiring the dedication of a substantial portion of our
expected cash flow from operations to service our indebtedness, thereby reducing
the amount of our expected cash flow available for other purposes, including
capital expenditures;
- Limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we compete; and
- Placing us at a competitive disadvantage compared to less
leveraged competitors and competitors that have better access to capital
resources.

The protection of our proprietary information is
limited.

We rely primarily on a combination of patent,
copyright, trade secret and trademark laws, confidentiality procedures and
contractual provisions to protect our proprietary rights. We also believe that
the technological and creative skills of our personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are essential to establishing and maintaining a technology
leadership position. We seek to protect our software, documentation and other
written materials under patent, trade secret and copyright laws, which afford
only limited protection. Any patents issued to us may be invalidated,
circumvented or challenged. Any of our pending or future patent applications,
whether or not being currently challenged, may not be issued with the scope of
the claims we seek, if at all. Furthermore, others may develop technologies that
are similar or superior to our technology or design around our patents. Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy aspects of our products or to obtain and use information that we regard
as proprietary. Policing unauthorized use of our products is difficult. In
addition, the laws of some foreign countries do not protect our proprietary
rights as fully as do the laws of the United States. Our means of protecting our
proprietary rights in the United States or abroad may not be adequate. We have
entered into agreements with substantially all of our customers that require us
to place Siebel eBusiness Applications source code into escrow. Such agreements
generally provide that such parties will have a limited, non-exclusive right to
use such code if (i) there is a bankruptcy proceeding by or against us, (ii) we
cease to do business, or (iii) we fail to meet our support obligations.

Although we do not believe that we are infringing any
proprietary rights of others, third parties may claim that we have infringed
their intellectual property rights. Furthermore, former employers of our former,
current or future employees may assert claims that such employees have
improperly disclosed to us the confidential or proprietary information of such
former employers. Any such claims, with or without merit, could (i) be time
consuming to defend, (ii) result in costly litigation, (iii) divert management's
attention and resources, (iv) cause product shipment delays and (v) require us
to pay money damages or enter into royalty or licensing agreements. A successful
claim of product infringement against us and our failure or inability to license
or create a workaround for such infringed or similar technology may materially
and adversely affect our business, operating results and financial
condition.

We license certain software from third parties.
These third-party software licenses may not continue to be available to us on acceptable
terms. The loss of, or inability to maintain, any of these software licenses
could result in shipment delays or reductions. This could materially and
adversely affect our business, operating results and financial condition.

International operations involve unique risks.

Our revenues are primarily derived from large
multi-national companies.  To service the needs of these companies, we must provide
worldwide product support services. We have expanded and intend to continue
expanding, our international operations and enter additional international
markets. This will require significant management attention and financial
resources that could adversely affect our operating margins and earnings. We may
not be able to maintain or increase international market demand for Siebel
eBusiness Applications. If we do not, our international sales will be limited
and our business, operating results and financial condition could be materially
and adversely affected.

Our international operations are subject to a variety of
risks, including (i) foreign currency fluctuations, (ii) economic or political
instability, (iii) shipping delays and (iv) various trade restrictions. Any of
these risks could have a significant impact on our ability to deliver products
on a competitive and timely basis. Significant increases in the level of customs
duties, export quotas or other trade restrictions could also have an adverse
effect on our business, financial condition and results of operations. In
situations where direct sales are denominated in foreign currency, any
fluctuation in foreign currency or the exchange rate may adversely affect our
business, financial condition and results of operations. We manage our foreign
currency exchange rate risk by entering into contracts to sell foreign currency
at the time a foreign currency receivable is generated. When the foreign
currency receivable is collected, the contract is liquidated, thereby converting
the foreign currency to US dollars and mitigating the exchange rate risk. In
certain instances, we have not hedged foreign currency receivables when the
forward contracts in the relevant currency were not readily available or were
not cost effective.

Certain stockholders may be able to exercise control
over matters requiring stockholder approval.

Our current officers, directors and entities
affiliated with us together beneficially owned a significant portion of the
outstanding shares of common stock as of December 31, 1999. While these
stockholders do not hold a majority of our outstanding common stock, they will
be able to exercise significant influence over matters requiring stockholder
approval, including the election of directors and the approval of mergers,
consolidations and sales of our assets. This may prevent or discourage tender
offers for our common stock.

Our stock price may continue to be volatile.

Our stock price has fluctuated substantially since
our initial public offering in June 1996. The trading price of our common stock
is subject to significant fluctuations in response to variations in quarterly
operating results, the gain or loss of significant orders, changes in earning
estimates by analysts, announcements of technological innovations or new
products by us or our 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 that have
affected the market price for many companies in industries similar or related to
ours and that have been unrelated to the operating performance of these
companies. These market fluctuations have adversely affected and may continue to
adversely affect the market price of our common stock.

Certain provisions in our charter documents may prevent
certain corporate actions.

Our Board of Directors is authorized 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 approval by our 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 make it more difficult for a
third party to acquire a majority of our outstanding voting stock. We have a
classified Board of Directors. This and certain other provisions of our
certificate of incorporation and certain provisions of our Bylaws and of
Delaware law, could delay or make more difficult a merger, tender offer or proxy
contest.

Audit Committee

The Company has established an Audit Committee of the
Board of Directors, the charter of which is to oversee the activities of
management and the Company's external auditors as they relate to the financial
reporting process. In 1999, the Audit Committee was comprised of James C.
Gaither, Charles R. Schwab and George T. Shaheen. In particular, the Audit
Committee's role includes ensuring that management properly develops and adheres
to a sound system of internal controls, and that the Company's auditors, through
their own review, assess the effectiveness of those controls and management's
adherence to them.



In fulfilling their responsibilities, the Audit Committee
conducted regular, quarterly meetings with the Company's outside auditors. In
each of these meetings, the Audit Committee met with the Company's outside
auditors, independent of management, to assure the Audit Committee an
independent and confidential view of the Company's management and internal
controls as they relate to the quality and reliability of the Company's
financial statements.



The Company is committed to supporting this process and
the Audit Committee in fulfilling their role of ensuring the integrity of the
Company's internal controls and financial reporting.



Item 7a.   Quantitative and Qualitative Disclosures About Market
Risk

The tables below provide information about the Company's
derivative financial instruments and financial instruments that are subject to
market risk. These include foreign currency forward contracts used to hedge
foreign currency receivables and intercompany balances, which are subject to
exchange rate risk, cash equivalents and available-for-sale short-term
investments, which are subject to interest rate risk.



The Company manages its foreign currency exchange rate
risk by entering into contracts to sell foreign currency at the time a foreign
currency receivable is generated. When the foreign currency receivable is
collected, the contract is liquidated, thereby converting the foreign currency
to US dollars and mitigating the exchange rate risk.

The Company manages its interest rate risk by maintaining
an investment portfolio with debt instruments of high credit quality and
relatively short average maturities. The Company also manages interest rate risk
by maintaining sufficient cash and cash equivalent balances such that it is
typically able to hold its investments to maturity.

The Company is exposed  to equity price risks on
marketable equity securities.  This investment is in a publicly-trade company in
the high-technology industry sector.  The Company typically does not attempt to
reduce or eliminate its market exposure on these securities.  A 10% adverse
change in the equity price would result in an approximate $14,200,000 decrease
in the fair value of the Company's marketable equity securities as of December
31, 1999.

The fair value of the Company's convertible subordinated
debenture fluctuates based upon changes in the price of the Company's common
stock, changes in
interest rates and changes in the creditworthiness of the Company.  The fair
market value of the convertible subordinated debenture as of December 31, 1999
was $580,140,000.

The following summarizes the Company's foreign currency
forward contracts, all of which mature in 2000, by currency, as of December 31,
1999. Contract amounts are representative of the expected payments to be made
under these instruments (in thousands):

`Fair Value
                                          Contract      Contract        at
                                        Amount (Local     Amount   December 31,
                                          Currency)       (US$)     1999 (US$)
                                       --------------- ----------- ------------
  German marks (contracts to pay
   DM/receive US$).....................     DM  5,930      $3,081          $36
  British pounds (contracts to pay
   Pounds/receive US$)................. (Pounds)4,211      $6,779         ($42)
  Japanese yen (contracts to pay
   Yen/receive US$)....................(Yen)2,008,000     $19,663           $8
  Euro (contracts to pay
   EUR/receive US$)....................    (EUR)7,664      $7,499         $133
  British pounds (contracts to pay
   Pounds/receive EUR).................   (Pounds)970   (EUR)1,402       ($164)`





`Expected maturity date
                          -----------------------------------------------------
                                                                        There-
                            2000     2001     2002     2003     2004    after
                          -------- -------- -------- -------- -------- --------
US treasury securities.    $9,752  $10,974   $4,945   $1,953   $6,262       --
Wtd. Avg. Yld..........      5.24%    6.27%    6.42%    6.36%    7.16%

Municipal securities...   $52,116  $37,942  $36,395   $5,305       --       --
Wtd. Avg. Yld..........      3.98%    3.86%    4.50%    4.73%

Corporate bonds........    $6,124   $5,430  $20,367       --       --       --
Wtd. Avg. Yld..........      6.05%    6.97%    6.80%`



On December 31, 1999, the Company had an investment
portfolio of fixed income securities, excluding those classified as cash and
cash equivalents, of $197,565,000.  These securities, like all fixed income
instruments, are subject to interest rate risk and will fall in value if market
interest rates increase.  If market interest rates were to increase immediately
and uniformly by 100 basis points from levels as of December 31, 1999, the fair
value of the portfolio would decline by approximately $2,834,000.



Item 8.   Financial Statements and Supplementary
Data

The Company's consolidated financial statements,
together with related notes and the report of  KPMG LLP, the Company's
independent auditors, are set forth on the pages indicated in Item 14.





Item 9.   Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure

Not Applicable.

PART III



Certain information required by Part III is omitted
from this Report on Form 10-K since the Company will file a definitive Proxy
Statement for its Annual Meeting of Stockholders to be held on May 9, 2000,
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended
(the "Proxy Statement"), not later than 120
days after the end of the fiscal year covered by this Report,
and certain information included in the Proxy Statement is incorporated herein
by reference.

Item 10.   Directors and Executive Officers of the Registrant

(a)	Executive Officers

The executive officers of the Company as of February
1, 2000, and their ages as of such date, are as follows:

`Name              Age                    Position
----------------------------- ------ ---------------------------------------------
   Thomas M. Siebel...........   47  Chairman, Chief Executive Officer and
                                      President
   Paul Wahl..................   47  President & Chief Operating Officer
   Pat House..................   45  Executive Vice President and Co-Founder
   Howard H. Graham...........   52  Senior Vice President, Finance and
                                      Administration and Chief Financial Officer
   Craig D. Ramsey............   53  Senior Vice President, Worldwide Operations
   R. David Schmaier..........   36  Senior Vice President, Products
   Mike Saranga...............   62  Senior Vice President, Engineering
   Karen M. Riley.............   46  Vice President, Global Services`



Thomas M. Siebelhas served as Chairman, Chief
Executive Officer of the Company since its inception in July 1993.

Paul Wahl has served as President and Chief
Operating Officer of the Company since April 1999.  From November 1998 to April
1999, he served as Chief Executive Officer and President of TriStrata, an
internet security company.  From June 1991 to September 1998, Mr. Wahl served as
Chief Executive Officer of SAP America, Inc., a software company, and was an
Executive Board  Member of  SAP AG.

Pat Househas 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 Co-Founder, and from July 1993 to
February 1996, she served as Senior Vice President, Marketing.

Howard H. Grahamhas served as the Company's Senior
Vice President, Finance and Administration and Chief Financial Officer since
January 1997. From February 1990 to December 1996, Mr. Graham served as Senior
Vice President and Chief Financial Officer of Informix, Inc.

Craig D. Ramseyhas 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.

R. David Schmaierhas served as Senior Vice
President, Products since March 1994.

Mike Saranga has served as Senior Vice President,
Engineering since October 1998.  From 1993 to 1998, Mr. Saranga served as Senior
Vice President of Research and Development for Informix, Inc.

Karen M. Rileyhas served as Vice President, Global Services since May
1999.   From May 1979 to April 1999,  Ms. Riley served in a variety of software
development, product management, and services executive positions and as General
Manger of Global CRM and business process outsourcing services practices at IBM.

The Company's current officers, directors and affiliated
entities together beneficially owned approximately 14.58% of the outstanding
shares of Common Stock as of December 31, 1999. In particular, Thomas M. Siebel,
the Company's Chairman and Chief Executive Officer, owned approximately 11.78%
of the outstanding shares of Common Stock as of December 31, 1999. 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.

The Company's Board of Directors has the authority to
issue up to 2,000,000 shares of Preferred Stock and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without any further vote or action by the stockholders. The
Preferred Stock could be issued with voting, liquidation, dividend and other
rights superior to those of the Common Stock. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. Pursuant to the Company's Certificate
of Incorporation, the Company has instituted a classified Board of Directors.
This and certain other provisions of the Company's Certificate of Incorporation
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.

(b) 	Directors

The information required by this Item is incorporated by
reference to the section entitled "Election of Directors" in the Proxy
Statement.



Item 11.   Executive Compensation

The information required by this Item is incorporated
by reference to the section entitled "Executive Compensation" in the
Proxy Statement.

Item 12.   Security Ownership of Certain Beneficial Owners and
Management

The information required by this Item is incorporated
by reference to the section entitled "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement.

Item 13.   Certain Relationships and Related Transactions

The information required by this Item is incorporated
by reference to the section entitled "Certain Transactions" in the
Proxy Statement.

PART IV



**Item 14.   Exhibits, Financial Statements and Reports on Form 8-K**

(a) The following documents are filed as part of this Report:

> 1. Financial StatementsIndependent Auditors' ReportConsolidated Financial Statements:Balance SheetsStatements of Operations and Comprehensive IncomeStatements of Stockholders' EquityStatements of Cash Flows
> Notes to Consolidated Financial Statements
> 
> 2. Financial Statement ScheduleSchedule II--Valuation and Qualifying Accounts
> 
> 3. Exhibits

`Exhibit
Number   Description of Document
-------- ---------------------------------------------------------------
 2.1     Agreement and Plan of Merger and Reorganization, dated March 1,
         1998, among the Registrant, Syracuse Acquisition Sub, Inc. and
         Scopus Technology, Inc.(4)
 2.2     Agreement and Plan of Merger and Reorganization dated November
         17, 1999, among the Registrant, SE Acquisition Corp. and
         OnTarget, Inc. (8)
 3.1     Amended and Restated Certificate of Incorporation of the
         Registrant.(3)
 3.2     Certificate of Amendment of the Amended and Restated
         Certificiate of Incorporation of the Registrant (9)
 3.3     Bylaws of the Registrant.(1)
 4.1     Reference is made to Exhibits 3.1 and 3.2.
 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.(1)
10.1     Registrant's 1996 Equity Incentive Plan, as amended.(3)
10.2     Registrant's Employee Stock Purchase Plan, as amended.(3)
10.3     Form of Indemnity Agreement entered into between the Registrant
         and its officers and directors.(1)
10.4     Registrant's Deferred Compensation Plan, dated January 10,
         1997.(5)
10.5     Master Alliance Agreement, dated March 17, 1995, between the
         Registrant and Andersen Consulting LLP.(1)(2)
10.6     Assignment Agreement, dated September 20, 1995, by and between
         the Registrant and Thomas M. Siebel.(1)
10.7     Lease Agreement, dated June 4, 1996, by and between the
         Registrant and Crossroad Associates and Clocktower
         Associates.(1)
10.8     Lease Agreement, dated March 11, 1999, by and between the
         Registrant and Sobrato Interests III.(9)
10.9     Lease Agreement, dated March 11, 1999, by and between the
         Registrant and Sobrato Interests III.(9)
10.10    Lease Agreement, dated June 11, 1999, by and between the
         Registrant and Sobrato Interests III.(9)
10.11    Lease Agreement, dated August 24, 1994, by and between the
         Registrant and Watergate Tower Associates.(9)
10.12    Lease Agreement, dated August 16, 1999, by and between the
         Registrant and Spieker Properties, L.P..(9)
10.13    Lease Amendment 10, dated April 8, 1999, by and between the
         Registrant and Spieker Properties, L.P..(9)
10.14    Lease Amendment 11, dated August 13, 1999, by and between the
         Registrant and Spieker Properties, L.P..(9)
10.15    Lease Amendment 12, dated October 28, 1999, by and between
         the Registrant and Spieker Properties, L.P..(9)
23.1     Consent of KPMG LLP, Independent Auditors.(9)
27.1     Financial Data Schedule.(9)

 ---------`

(1) Incorporated by reference to the Registrant'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 Registrant's Registration Statement on
    Form S-8 (No. 333-07983), as amended.
(4) Incorporated by reference to exhibit 99.1 of the Registrant's Current
    Report on Form 8-K filed by the Registrant on March 16, 1998.
(5) Incorporated by reference to the Registrant's Annual Report on Form 10-K
    for the fiscal year ended December 31, 1996.
(6) Incorporated by reference to exhibit 99.3 of the Registrant's Current
    Report on Form 8-K filed by the Registrant on March 16, 1998.
(7) Incorporated by reference to exhibit 99.5 of the Registrant's Current
    Report on Form 8-K filed by the Registrant on March 16, 1998.
(8) Incorporated by reference the Registrant's Current Report on Form 8-K
    filed by the Registrant on January 7, 2000. 
(9) Filed herewith.

(b) Reports on Form 8-K

On January 7, 2000, the Registrant filed a report on Form 8-K relating to the Registrant's restated audited
consolidated financial statements, giving effect to the merger with OnTarget, Inc. for the three years ended
December 31, 1998, and the related consolidated financial statement schedule, selected financial data and
management's discussion and analysis of financial condition and results of operations.

---



INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Siebel Systems, Inc.:



We have audited the accompanying consolidated balance
sheets of Siebel Systems, Inc. and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations and comprehensive
income, stockholders' equity, and cash flows for each of the years in the three-
year period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.



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



In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Siebel Systems, Inc. and subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999, in conformity with
generally accepted accounting principles.



/s/ KPMG LLP

Mountain View, California
January 24, 2000

---

**SIEBEL SYSTEMS, INC.****Consolidated Balance Sheets**

                     (in thousands, except per share data)

`December 31,
                                                        ----------------------
                                                           1999        1998
                                                        ----------- ----------
                          Assets 
Current assets:
  Cash and cash equivalents............................   $465,810    $80,741
  Short-term investments...............................    197,565    151,888
  Marketable equity securities..........................   141,939         --
  Accounts receivable, net.............................    293,010    126,081
  Deferred income taxes................................        --      13,270
  Prepaids and other...................................     30,711     14,402
                                                        ----------- ----------
    Total current assets...............................  1,129,035    386,382
  Property and equipment, net..........................     56,875     46,384
  Other assets.........................................     41,052     14,830
                                                        ----------- ----------
    Total assets....................................... $1,226,962   $447,596
                                                        =========== ==========
         Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable.....................................    $11,845     $4,558
  Accrued expenses.....................................    125,085     88,185
  Income taxes payable.................................        --      10,917
  Deferred revenue.....................................     86,170     52,033
  Deferred income taxes................................     27,832         --
                                                        ----------- ----------
    Total current liabilities..........................    250,932    155,693

Convertible subordinated debentures.....................   300,000         --
Deferred income taxes..................................      1,439        783
                                                        ----------- ----------
    Total liabilities..................................    552,371    156,476
                                                        ----------- ----------

Commitments and contingencies

Stockholders' equity:
  Common stock; $0.001 par value; 800,000 shares
   authorized; 194,597 and 182,036 shares issued and
   outstanding, respectively...........................        195        182
  Additional paid-in capital...........................    415,408    235,400
  Notes receivable from stockholders...................       (406)      (406)
  Deferred stock compensation..........................     (1,203)      (360)
  Accumulated other comprehensive income (losses)......     83,612       (669)
  Retained earnings....................................    176,985     56,973
                                                        ----------- ----------
    Total stockholders' equity.........................    674,591    291,120
                                                        ----------- ----------
    Total liabilities and stockholders' equity......... $1,226,962   $447,596
                                                        =========== ==========`

See accompanying notes to consolidated financial statements.

---

**SIEBEL SYSTEMS, INC.****Consolidated Statements of Operations and Comprehensive Income**

                     (in thousands, except per share data)

`Year Ended December 31,
                                                --------------------------------
                                                   1999       1998       1997
                                                ---------- ---------- ----------
Revenues:
  Software.....................................  $499,398   $290,890   $156,971
  Professional services, maintenance and other.   291,522    118,996     65,100
                                                ---------- ---------- ----------
    Total revenues.............................   790,920    409,886    222,071
                                                ---------- ---------- ----------
Cost of revenues:
  Software.....................................     7,640      5,600      4,393
  Professional services, maintenance and other.   173,278     65,387     31,646
                                                ---------- ---------- ----------
    Total cost of revenues.....................   180,918     70,987     36,039
                                                ---------- ---------- ----------
    Gross margin...............................   610,002    338,899    186,032
                                                ---------- ---------- ----------
Operating expenses:
  Product development..........................    72,853     43,950     26,650
  Sales and marketing..........................   290,687    178,957    103,551
  General and administrative...................    63,508     34,473     21,275
  Merger-related expenses......................       --      13,500     26,038
                                                ---------- ---------- ----------
    Total operating expenses...................   427,048    270,880    177,514
                                                ---------- ---------- ----------
    Operating income...........................   182,954     68,019      8,518
Other income, net..............................    13,968      6,258      5,385
                                                ---------- ---------- ----------
    Income before income taxes.................   196,922     74,277     13,903
Income taxes...................................    74,830     30,012     13,260
                                                ---------- ---------- ----------
    Net income.................................  $122,092    $44,265       $643
                                                ========== ========== ==========

Pro forma net income and per share data:
    Income before taxes as reported............. $196,922    $74,277    $13,903
    Pro forma income taxes......................   75,195     30,817     13,848
                                                ---------- ---------- ----------
    Pro forma net income........................ $121,727    $43,460        $55
                                                ========== ========== ==========

Pro forma diluted net income  per share.........    $0.54      $0.21      $0.00
                                                ========== ========== ==========

Pro forma basic net income  per share...........    $0.65      $0.24      $0.00
                                                ========== ========== ==========

Shares used in diluted pro forma net income
  per share computation.........................  226,279    202,204    191,338
                                                ========== ========== ==========
Shares used in basic pro forma net income
  per share computation.........................  188,088    177,446    169,904
                                                ========== ========== ==========

Comprehensive income:
  Net income...................................  $122,092    $44,265       $643

Other comprehensive income (loss), net of tax:
  Foreign currency translation adjustments.....       615       (505)      (365)
  Unrealized gains on securities...............    83,666        201         --
                                                ---------- ---------- ----------
Other comprehensive income (loss)..............    84,281       (304)      (365)
                                                ---------- ---------- ----------
    Total comprehensive income.................  $206,373    $43,961       $278
                                                ========== ========== ==========`

See accompanying notes to consolidated financial statements.

---

**SIEBEL SYSTEMS, INC.****Consolidated Statements of Stockholders' Equity**

                                (in thousands)

`Notes            Accumu-
                                                     Receiv-            lated
                                                       able   Deferred  Other               Total
                           Common stock    Additional  from    Stock   Compre-             Stock-
                          ----------------  Paid-in   Stock-  Compen-  hensive  Retained  holders'
                           Shares  Amount   Capital  holders   sation   Losses  Earnings   Equity
                          -------- ------- --------- -------- -------- -------- --------- ---------
Balances, December 31,
 1996.................... 166,247    $166  $157,058    ($508) ($1,173)      --   $17,613  $173,156
Issuance of common
 stock under Employee
 Stock Option Plans......   4,134       5     4,785      --        --       --       --      4,790
Issuance of common
 stock under Employee
 Stock Purchase Plans....   1,252       1     4,299      --        --       --       --      4,300
Issuance of common
 stock related to
 InterActive acquisition.   1,204       1    14,580      --        --       --       --     14,581
Issuance of common
 stock related to
 Nomadic acquisition.....   1,200       1    10,392      --        --       --       --     10,393
Repayment of note
 receivable..............     --      --         --      102       --       --       --        102
Compensation related
 to stock options........     --      --       (256)     --       256       --       --        --
Cancellation of stock
 options issued below
 fair value..............     --      --         (1)     --         1       --       --        --
Tax benefit from
 stock options...........     --      --      4,046      --        --       --       --      4,046
Amortization of
 deferred compensation
 related to stock
 options.................     --      --         --      --       277       --       --        277
Currency translation
 adjustment (net of
 taxes of $214)..........     --      --         --      --        --     (365)      --       (365)
Subchapter S
 distributions by
 On Target...............     --      --         --      --        --       --      (973)     (973)
Net income...............     --      --         --      --        --       --       643       643
                          -------- ------- --------- -------- -------- -------- --------- ---------
Balances, December 31,
 1997.................... 174,037     174   194,903     (406)    (639)    (365)   17,283   210,950
Issuance of common stock
 under Employee Stock
 Option Plans............   6,767       7    17,855      --        --       --       --     17,862
Issuance of common stock
 under Employee Stock
 Purchase Plans..........   1,232       1     8,534      --        --       --       --      8,535
Adjustment to conform
 acquired company's
 year-end................     --      --         --      --        --       --    (1,464)   (1,464)
Cancellation of stock
 options issued below
 fair value..............     --      --        (39)     --        39       --       --        --
Tax benefit from
 stock options...........     --      --     13,516      --        --       --       --     13,516
Amortization of deferred
 compensation related
 to stock options........     --      --         --      --       240       --       --        240
Unrealized gain on
 short-term investments
 (net of taxes of $118)..     --      --         --      --        --      201       --        201
Currency translation
 adjustment (net of
 taxes of $297)..........     --      --         --      --        --     (505)      --       (505)
Transfer of common
 stock to employees.......    --      --        631      --        --       --       --        631
Subchapter S
 distributions by
 On Target...............     --      --         --      --        --       --    (3,111)   (3,111)
Net income......              --      --         --      --        --       --    44,265    44,265
                          -------- ------- --------- -------- -------- -------- --------- ---------
Balances, December 31,
 1998.................... 182,036     182   235,400     (406)    (360)    (669)   56,973   291,120
Issuance of common stock
 under Employee Stock
 Option Plans............  10,354      10    58,818      --        --       --       --     58,828
Issuance of common stock
 under Employee Stock
 Purchase Plans..........     827       1    15,736      --        --       --       --     15,737
Issuance of common stock
 under stock award
 plan....................     --      --        198      --        --       --       --        198
Tax benefit from
 stock options...........     --      --     91,679      --        --       --       --     91,679
Compensation related
 to stock options........     --      --      1,498      --    (1,498)      --       --        --
Amortization of deferred
 compensation related
 to stock options........     --      --         --      --       655       --       --        655
Unrealized gain on
 short-term investments
 (net of taxes
  of $51,279)............     --      --         --      --        --   83,666       --     83,666
Currency translation
 adjustment (net of
 taxes of $361)..........     --      --         --      --        --      615       --        615
Subchapter S
 distributions by
 On Target...............     --      --         --      --        --       --    (2,080)   (2,080)
Conversion of
convertible notes to
common stock.............     645       1     6,918      --        --       --       --      6,919
Issuance of common stock
related to Target
Marketing Systems
Worldwide and Target
Marketing Systems S.A.
acquisitions.............     735       1     5,161      --        --       --       --      5,162
Net income...............     --      --         --      --        --       --   122,092   122,092
                          -------- ------- --------- -------- -------- -------- --------- ---------
Balances, December 31,
 1999.................... 194,597    $195  $415,408    ($406) ($1,203) $83,612  $176,985  $674,591
                          ======== ======= ========= ======== ======== ======== ========= =========`

See accompanying notes to consolidated financial statements.

---

**SIEBEL SYSTEMS, INC.****Consolidated Statements of Cash Flows**

                                (in thousands)

`Year Ended December 31,
                                                  -----------------------------
                                                    1999      1998      1997
                                                  --------- --------- --------- 
Cash flows from operating activities:
  Net income .................................... $122,092   $44,265      $643
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Compensation related to stock options........      655       240       277
    Depreciation and amortization................   22,339    13,638     8,275
    Deferred income taxes........................  (10,450)   (9,543)   (1,614)
    Tax benefit from exercise of stock options...   91,679    13,516     4,046
    Loss on disposal of property and equipment...      714     4,557       307
    Provision for doubtful accounts and
     returns, net................................    7,478     6,613     2,348
    Write-off of acquired research and
     development.................................      --        --     22,740
    Changes in operating assets and liabilities:
      Accounts receivable........................ (170,766)  (68,739)  (41,344)
      Prepaids and other.........................  (15,721)   (6,744)   (1,946)
      Accounts payable and accrued expenses......   48,237    49,802    14,130
      Income taxes payable.......................  (10,803)    9,228    (1,896)
      Deferred revenue...........................   34,118    30,286    15,744
                                                  --------- --------- ---------
        Net cash provided by operating
         activities..............................  119,572    87,119    21,710
                                                  --------- --------- ---------
Cash flows from investing activities:
  Purchases of property and equipment............  (42,835)  (39,581)  (18,013)
  Purchases, sales and maturities of short-term
   investments, net..............................  (45,677)  (56,751)  (17,866)
  Proceeds from disposal of property and
   equipment.....................................   13,225       --        --
  Cash acquired in acquisitions..................      993       (31)      129
  Other assets...................................  (21,974)   (2,641)   (1,764)
                                                  --------- --------- ---------
        Net cash used in investing activities....  (96,268)  (99,004)  (37,514)
                                                  --------- --------- ---------
Cash flows from financing activities:
  Proceeds from issuance of common stock, net
   of repurchases................................   74,575    27,254     8,725
  Proceeds from issuance of convertible
   debt, net.....................................  291,316       --        --
  Borrowings on line of credit...................    5,874     1,542       130
  Repayments of line of credit...................   (7,659)      --        --
  Subchapter S distributions.....................   (2,080)   (2,366)     (974)
  Repayment of stockholder notes.................      --        --        (43)
                                                  --------- --------- ---------
        Net cash provided by financing
         activities..............................  362,026    26,430     7,838
                                                  --------- --------- ---------
Effect of exchange rate changes in cash..........     (261)      --        --
                                                  --------- --------- ---------
Change in cash and cash equivalents..............  385,069    14,545    (7,966)
Adjustment to conform acquired company's year end      --     (4,140)      --
Cash and cash equivalents, beginning of year.....   80,741    70,336    78,302
                                                  --------- --------- ---------
Cash and cash equivalents, end of year........... $465,810   $80,741   $70,336
                                                  ========= ========= =========

Cash paid for interest...........................       $3     $ --        $22
                                                  ========= ========= =========

Cash paid for income taxes.......................  $14,537   $14,194   $14,579
                                                  ========= ========= =========

Supplemental disclosures of noncash financing
 and investing activities:
  Purchase price payable 20*20 Group, Ltd........    $ --     $6,000     $ --
                                                  ========= ========= =========

  Common stock issued for acquisitions...........   $4,934     $ --    $24,974
                                                  ========= ========= =========

  Subchapter S distributions payable.............    $ --       $745       $22
                                                  ========= ========= =========

  Convertible notes issued for acquisitions......   $6,918     $ --      $ --
                                                  ========= ========= =========`

See accompanying notes to consolidated financial statements.

---

**SIEBEL SYSTEMS, INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**



(1)   Summary of Significant Accounting Policies

The Company

Siebel Systems, Inc. ("Siebel" or the
"Company") is the market leader in eBusiness application software
for organizations focused on increasing
sales, marketing and customer service effectiveness in field sales, customer
service, telesales, telemarketing, call centers, and third-party resellers. The
Company designs, develops, markets, and supports Siebel eBusiness Applications,
a leading Web-based application software product family designed to meet the
sales, marketing and customer service information system requirements of even
the largest multi-national organizations.

In December 1999, the Company acquired OnTarget, Inc.
("OnTarget") in a business combination accounted for as a pooling of
interests. Accordingly, all financial information has been restated to reflect
the combined operations of the two companies. See Note 9.

Principles of Consolidation

The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All intercompany accounts and transactions have been
eliminated.

Revenue Recognition

Prior to January 1, 1998, the Company recognized
revenue in accordance with Statement of Position ("SOP") No. 91-1,
"Software Revenue Recognition". Software license revenue was
recognized when all of the following criteria had been met: there was an
executed license agreement; software had been shipped to the customer; no
significant vendor obligations remained; the license fee was fixed and payable
within twelve months and collection was deemed probable.

On January 1, 1998, the Company adopted the provisions of
Statement of Position No. 97-2 "Software Revenue Recognition". Revenue
is recognized under SOP 97-2 when persuasive evidence of an arrangement exists
and delivery has occurred, provided the fee is fixed and determinable,
collectibility is probable and the arrangement does not require significant
customization of the software. Under SOP 97-2, revenue on multiple element
arrangements is allocated to the various elements based on fair values specific
to the Company.

Professional services, maintenance and other revenues
relate primarily to consulting services, maintenance and training. Maintenance
revenues are recognized ratably over the term of the maintenance contract,
typically 12 months. Consulting and training revenues are recognized as the
services are performed and are usually on a time and materials basis. Such
services primarily consist of implementation services related to the
installation of the Company's products and do not include significant
customization to or development of the underlying software code.

The Company's customer base includes a number of its
suppliers (e.g., AT&T Corporation, BankBoston Robertson Stephens, Bank of America Corporation,
Cabletron Systems, Inc., The Charles Schwab Corporation, Cigna Corporation, Cisco
Systems, Inc., Compaq Computer Corporation, Dell Computer Corporation, Lucent
Technologies, Inc., MCI WorldCom, Inc., Microsoft Corporation,
NationsBanc Montgomery Securities, Inc., PeopleSoft, Inc.,
Siemens Corporation and Sun Microsystems, Inc.). On occasion, the
Company has purchased goods or services for company operations from these
vendors at or about the same time Siebel has licensed its software to these
organizations. These transactions are separately negotiated and recorded at
terms the Company considers to be arm's-length.

Cost of Revenues



Use of Estimates

The preparation of consolidated 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 consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Cash, Cash Equivalents,  Short-Term Investments and Marketable Equity
Securities

The Company considers all highly liquid
investments with a remaining maturity of 90 days or less to be cash equivalents.
Short-term investments generally consist of highly liquid securities with
original maturities in excess of 90 days.  Marketable equity securities include an investment in a single
publicly traded company.The Company has classified its
short-term investments and marketable equity securities as "available for
sale." Such investments are carried at fair value with unrealized gains and
losses, net of related tax effects,  reported within accumulated other
comprehensive income (losses). Realized gains and losses on available for sale
securities are computed using the specific identification method.

Property and Equipment

Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is calculated using the
straight-line method over the estimated useful lives of the respective assets,
generally three to five years. Leasehold improvements are amortized over the
lesser of the lease term or the estimated useful lives of the improvements,
generally seven years.

Expenditures for maintenance and repairs are charged to
expense as incurred.  Costs and accumulated depreciation of assets sold or
retired are removed from the respective property accounts, and gain or loss is
reflected in the statement of operations.

Software Development Costs

Software development costs associated with new
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 time period between the establishment of technological
feasibility and completion of software development has been short, and no
significant development costs have been incurred during that period.
Accordingly, the Company has not capitalized any software development costs to
date.

Intangible Assets

Included in other assets are various intangible
assets, primarily goodwill related to acquisitions. These amounts are generally
being amortized over three to five years using the straight-line method. Gross
intangible assets were $14,135,000 and  $9,627,000 and related accumulated amortization was
$3,656,000 and $2,503,000 at  December 31, 1999 and 1998, respectively.

Other Assets

Included in other assets is the Company's
investment in Sales.com.  In December 1999, the Company sold a controlling
interest in Sales.com's voting equity  to various outside investors.  As a
result, Sales.com is no longer being consolidated in the Company's financial
statements, but is accounted for by the equity method.  At December 31, 1999,
the carrying value of the Company's investment in Sales.com was approximately
$5,000,000.

The Company had non-cash reductions in accounts
receivable, prepaids and other, property equipment, other assets, accounts
payable, accrued expenses and deferred revenue of $116,000, $602,000, $35,000,
$505,000, $4,398,000, $5,275,000 and $149,000, respectively, attributable to the
deconsolidation of Sales.com.

Advertising

Advertising costs are expensed as incurred.
Advertising expense is included in sales and marketing expense andamounted to $22,766,000, $12,126,000
and $7,245,000  in 1999, 1998 and 1997, respectively.

Income Taxes

The Company uses the asset and liability method
of accounting for income taxes. Deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the consolidated financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets are
recognized for deductible temporary differences, net operating loss
carryforwards and credit carryforwards if it is more likely than not that the
tax benefits will be realized. To the extent a deferred tax asset cannot be
recognized under the preceding criteria, allowances must be established.
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.

The pro forma provision for income taxes reflects income
tax expense that would have been reported if OnTarget, Inc. (an S corporation for
income-tax reporting purposes) had been a C corporation for each of the periods
presented.

Pro Forma Net Income Per Share

Basic pro forma net income per share is computed
using the weighted average number of shares of common stock outstanding. Diluted
pro forma earnings per share is computed using the weighted average number of
shares of common stock and, when dilutive, potential common shares from options
to purchase common stock and warrants outstanding using the treasury stock
method.  Dilutive pro forma net income per share also gives effect, when
dilutive, to the conversion of the convertible notes and subordinated debentures
using the if-converted method.

Employee Stock Option and Purchase Plans

The Company accounts for its stock-based
compensation plans using the intrinsic value method. As such, compensation
expense is recorded on the date of grant if the current market price of the
underlying stock exceeds the exercise price.  The Company records and measures
deferred compensation cost for options granted to non-employees at their fair
value.

Foreign Currency Translation

The Company considers the functional currency of
its foreign subsidiaries to be the local currency, and accordingly, they are
translated into U.S. dollars using exchange rates in effect at period end for
assets and liabilities and average exchange rates during each reporting period
for the results of operations. Adjustments resulting from translation of foreign
subsidiary financial statements are reported within accumulated other
comprehensive income (loss).

The Company generally utilizes foreign currency forward
contracts to hedge its exchange risk on foreign currency receivable and
intercompany balances. While these forward contracts are subject to fluctuations
in value, which are recorded in current results of operations, such fluctuations
are generally offset by the changes in value of the underlying exposures being
hedged. The Company does not hold or issue financial instruments for speculative
or trading purposes.

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 any particular industry or
geographic area since the Company's business is not concentrated on any one
particular customer or customer base. No single customer accounts for more than
10% of revenues, and the Company's largest customer base, high technology, which
accounted for approximately 24%of revenues during the year ended December 31, 1999, is sufficiently
broad that the Company does not consider itself significantly exposed to
concentrations of credit risk.

Fair Value of Financial Instruments

The carrying amount of the Company's cash and
cash equivalents, short-term investments, accounts receivable, and accounts
payable approximate their respective fair values. Changes in the fair value of
the Company's derivative financial instruments (foreign currency forward
contracts) are generally offset by changes in the value of the underlying
exposures being hedged. The unrealized loss of the Company's derivative
financial instruments at December 31, 1999 was approximately $29,000.

The fair value of the Company's convertible subordinated
debentures was $580,140,000 at December 31, 1999,  based on quoted market
price.

Impairment of Long-Lived Assets

The Company evaluates long-lived assets,
including goodwill, for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable based on
expected undiscounted cash
flows attributable to that asset. The amount of any
impairment is measured as the difference between the carrying value and the fair
value of the impaired asset. The Company does not have any long-lived assets it
considers to be impaired.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated and accounted for as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a foreign-currency-
denominated forecasted transaction. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. This statement will be effective for all
annual and interim periods beginning after June 15, 2000. Management does not
believe the adoption of SFAS No. 133 will have a material effect on the
Company's consolidated financial position or results of operations.

In
December 1998, the Accounting Standards Executive Committee (AcSEC) of the AICPA
issued SOP 98-9, "Software Revenue Recognition with Respect to Certain
Arrangements", which requires recognition of revenue using the
"residual method" in a multiple element arrangement when fair value
does not exist for one or more of the undelivered elements in the arrangement.
Under the "residual method", the total fair value of the undelivered
elements is deferred and subsequently recognized in accordance with SOP 97-2.
Management does not believe the adoption of SOP 98-9 will have a material effect
on the Company's consolidated financial position or results of operations.  SOP
98-9 will be effective for all annual and interim periods beginning on or after
January 1, 2000.

(2)   Financial Statement Details

Cash, Cash Equivalents,  Short-Term Investments and Marketable Equity
Securities

Cash equivalents consist of securities with remaining
maturities of 90 days or less at the date of purchase. Short-term investments as
of December 31, 1999 consisted of $58,481,000 of securities which mature in less
than one year, $139,084,000 of securities which mature in one to five years and
no securities which mature in over five years. Cash, cash equivalents and short-
term investments and marketable securities consisted of the following as of
December 31, 1999 (in thousands):

`Unrealized
                                                -------------------
                                        Cost      Loss      Gain     Market
                                      --------- --------- --------- ---------
   Cash and cash equivalents:
     Cash............................  $35,039       $--       $--   $35,039
     Certificates of deposit.........    1,685        --        --     1,685
     Money market funds..............  401,162        --        --   401,162
     US treasury & agency securities.    6,628        --        --     6,628
     Corporate notes.................   21,292        (1)        5    21,296
                                      --------- --------- --------- ---------
                                      $465,806       ($1)       $5  $465,810
                                      ========= ========= ========= =========
   Short-term investments:
     US treasury securities..........  $34,436     ($551)       $1   $33,886
     Corporate notes..................  32,182      (261)       --    31,921
     Municipal securities............  133,071    (1,315)        2   131,758
                                      --------- --------- --------- ---------
                                      $199,689   ($2,127)       $3  $197,565
                                      ========= ========= ========= =========

   Marketable equity securities.......  $4,550       $--  $137,389  $141,939
                                      --------- --------- --------- ---------
                                        $4,550       $--  $137,389  $141,939
                                      ========= ========= ========= =========`

Short-term investments as of December 31, 1998 consisted of $46,187,000
of municipal securities which mature in less then one year, and $94,980,000 of
municipal securities which mature in one to five years and $10,721,000 of
securities which mature in over five years.  As of December 31, 1998, cost
approximated market for short-term investments; realized and unrealized gains
and losses were not significant.

Accounts Receivable, Net

Accounts receivable, net, consisted of the following (in
thousands):

`December 31,
                                         -------------------
                                           1999      1998
                                         --------- --------- 
   Trade accounts receivable.........    $305,710  $136,411
   Less: allowances for doubtful
     accounts and returns............      12,700    10,330
                                         --------- ---------
                                         $293,010  $126,081
                                         ========= =========`

Property and Equipment, Net

Property and equipment, net, consisted of the
following (in thousands):

`December 31,
                                         -------------------
                                           1999      1998
                                         --------- --------- 
   Computer equipment................     $33,150   $38,965
   Furniture and fixtures............      18,526    10,513
   Computer software.................      12,310     8,735
   Corporate aircraft................       6,963        --
   Leasehold improvements............      19,531     9,058
                                         --------- ---------
                                           90,480    67,271
   Less: accumulated depreciation....      33,605    20,887
                                         --------- ---------
                                          $56,875   $46,384
                                         ========= =========`

Accrued Expenses

Accrued expenses consisted of the following (in
thousands):

`December 31,
                                         -------------------
                                           1999      1998
                                         --------- --------- 
   Bonuses...........................     $24,253   $23,091
   Commissions.......................      20,552    17,810
   Sales tax.........................       5,984     9,345
   Vacation..........................       8,306     3,967
   Acquisition-related...............       2,486     7,450
   Other.............................      63,504    26,522
                                         --------- ---------
                                         $125,085   $88,185
                                         ========= =========`

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss)
consisted of the following (in thousands):

`December 31,
                                                   -------------------
                                                     1999      1998
                                                   --------- ---------
   Foreign currency translation adjustments..         ($255)    ($870)
   Unrealized gains on securities............        83,867       201
                                                   --------- ---------
                                                    $83,612     ($669)
                                                   ========= =========`

Other Income, Net

Other income, net, consisted of the following (in
thousands):

`December 31,
                                         -----------------------------
                                           1999      1998      1997
                                         --------- --------- ---------
  Realized gains on disposition of
   marketable equity securities......     $12,343     $  --     $  --
  Charitable contributions...........      (6,000)       --        --
  Interest income....................      16,941     7,605     6,055
  Interest expense...................      (6,059)      (68)      (29)
  Other, net.........................      (3,257)   (1,279)     (641)
                                         --------- --------- ---------
                                          $13,968    $6,258    $5,385
                                         ========= ========= =========`

(3) 	Convertible Subordinated
Debentures





(4)	Commitments and Contingencies

Letters of Credit



In August 1996, the Company entered into a $1,325,000
secured letter of credit with a bank.  This letter of credit, which expires July
2006, collaterizes the Company's obligations to a third party for lease
payments.

In March 1999, the Company entered into an $8,400,000
secured letter of credit with a bank.  This letter of credit, which expires
November 2000, collateralizes the Company's obligations to a third party for
tenant improvement costs.

In October 1999, the Company entered
into two $8,400,000 secured letters of credit with a bank.  These letters of
credit, which expire October 2000 and January 2001, collateralize the Company's
obligations to a third party for tenant improvement costs.  The Company also
entered into a $3,000,000 secured letter of credit with a bank. This letter of
credit, which expires August 2000, collateralizes the Company's obligation to a
third party for lease payments.

The letters of credit are secured by cash, cash equivalents and short-
term investments.



Lease Obligations

As of December 31, 1999, the Company leased
facilities under noncancelable operating leases expiring between 2000 and 2009.
Future minimum lease payments are as follows (in thousands):

`Year Ending December 31,
     ------------------------            
  2000......................................        $33,501
  2001......................................         43,029
  2002......................................         41,306
  2003......................................         41,542
  2004 and thereafter.......................        281,443
                                                   ---------
                                                   $440,821
                                                   =========`

Rent expense for the years ended December 31, 1999, 1998
and 1997, was $15,644,000, $11,904,000 and $6,469,000, respectively.

Employee Benefit Plan

The Company has a 401(k) plan that allows
eligible employees to contribute up to 20% of their compensation, limited to
$10,000 in 1999.  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.  A subsidiary made discretionary contributions of
$244,000 and $154,000 to its 401(k) and profit-sharing plans in 1998 and 1997,
respectively.

Legal Actions

In October 1999, SAP America, Inc. filed a complaint
against the Company in the Court of Common Pleas of Delaware County,
Pennsylvania.  The complaint alleges tortious interference with contractual
relations, predatory hiring, misappropriation of trade secrets, and unfair
competition in connection with its employment of  individuals formerly employed
by SAP America or its affiliated companies. The Company believes the claims are
without merit, and intends to defend them vigorously.  The Company believes that
the ultimate outcome of the action will not have a material effect on the
Company's financial position or results of operations, although there can be no
assurance as to the outcome of such litigation.

The Company is engaged in other 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 consolidated financial position or
results of operations, although there can be no assurance as to the outcome of
such litigation.

(5)   Stockholders' Equity

Stock Split

On August 24,
1999 and October 20, 1999, respectively, the Company's Board of Directors and
stockholders approved a two-for-one stock split (to be effected in the form of a
stock dividend) which was paid on November 12, 1999.   The accompanying
consolidated financial statements have been restated to give effect to the stock
split.

Pro Forma Net Income per Share

The following is a reconciliation of the number
of shares used in the pro forma basic and proforma diluted earnings per share
computations for the periods presented (in thousands):

`Year Ended December 31,
                                         -----------------------------
                                           1999      1998      1997
                                         --------- --------- ---------
 Shares used in basic pro forma net
   income per share computation.........  188,088   177,446   169,904
 Effect of dilutive potential common
   shares...............................   37,724    24,758    21,434
 Shares used in diluted pro forma net
   income...............................      467        --        --
                                         --------- --------- ---------
 Shares used in diluted pro forma net
   income per share computation.........  226,279   202,204   191,338
                                         ========= ========= =========`

The Company excludes potentially dilutive securities from
its diluted net income (loss) per share computation when either the exercise
price of the securities exceeds the average fair value of the Company's common
stock or the Company reported net losses, because their effect would be anti-dilutive.
For the year ended December 31, 1999, the Company excluded 2,108,370
employee stock options with a weighted average exercise price of $60.09 per
share from the earnings per share computation as their exercise prices exceeded
the average fair value of the Company's common stock during the year and,
accordingly, their inclusion would have been anti-dilutive. The Company also
excluded 6,432,000 shares relating to the convertible subordinated debentures
(see note 3) from the earnings per share computation as the effect would be
antidilutive.  During 1998, the Company excluded a total of 6,619,882 employee
stock options with a weighted average exercise price of $14.36 per share from
the earnings per share computation as their inclusion would have been anti-dilutive.

Employee Stock Option and Purchase Plans

The 1996 Equity Incentive Plan, which amended and
restated the Company's 1994 Stock Option Plan and 1996 Supplemental Stock Option
Plan and the 1998 Non-Officer Equity Incentive Plan (collectively, the
"Plan"), provides for the issuance of up to an aggregate of
100,000,000 shares of common stock to employees, directors and consultants. The
Plan provides for the issuance of incentive and nonstatutory stock options,
restricted stock purchase awards, stock bonuses and stock appreciation
rights.

Under the Plan, the exercise price for incentive stock
options is at least 100% of the fair market value on the date of the grant.
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.

The Plan also allows for the exercise of certain unvested
options. Shares of common stock issued to employees upon exercise of unvested
options are subject to repurchase by the Company at the original exercise price.
The Company's ability to repurchase these shares expires at a rate equivalent to
the current vesting schedule of each option. As of December 31, 1999, 7,177,200
shares of common stock had been issued to employees upon the exercise of
unvested options, which are subject to repurchase, at a weighted average
repurchase price of $0.12 per share. No compensation expense has resulted from
repurchases of restricted shares since the amount of cash paid by the Company
did not differ from the proceeds received from the employee from the sale of the
restricted shares. The Company has not issued any other restricted stock
purchase awards, stock bonuses or stock appreciation rights.

During the period from October 1995 through April 1996,
the Company granted options to purchase an aggregate of 32,610,000 shares of
common stock at exercise prices ranging from $0.07 to $0.82 per share. Based in
part on an independent appraisal obtained by the Company's Board of Directors,
and other factors, the Company recorded $748,000 of deferred compensation
expense in 1995 and an additional $893,000 of deferred compensation expense in
1996 relating to these options. These amounts are being amortized over the
vesting period of the individual options, generally five years.

During 1999, the Company granted options to a non-employee.
As of December 31, 1999, there were 20,000 options outstanding
pursuant to these grants which are included in the combined plan activity
summary below.  The Company records and measures deferred compensation cost for
options granted to non-employees at their fair value.

The Company has assumed certain options granted to former
employees of acquired companies (the "Acquired Options"). The Acquired
Options were assumed by the Company outside of the Plan, but all are
administered as if issued under the Plan. All of the Acquired Options have been
adjusted to give effect to the conversion under the terms of the Agreements and
Plans of Reorganization between the Company and the companies acquired. The
Acquired Options generally become exercisable over a four year period and
generally expire either five or ten years from the date of grant. No additional
options will be granted under any of the acquired companies' plans.

Combined plan activity is summarized as follows:

`Weighted
                                                                    average
                                            Shares                  exercise
                                          Available    Number of     price
                                          for grant      shares    per share
                                         ------------ ------------ ---------- 
   Balances, December 31, 1996..........   2,496,034   42,352,594      $1.81
     Additional shares authorized.......  32,000,000         --
     Options granted.................... (26,660,548)  26,660,548      $8.28
     Options exercised..................         --    (4,134,606)     $1.13
     Options canceled...................  10,763,214  (10,763,214)     $8.35
                                         ------------ ------------   -------
   Balances, December 31, 1997..........  18,598,700   54,115,322      $3.74
     Additional shares authorized.......  20,000,000         --
     Options granted.................... (37,472,444)  37,472,444     $11.25
     Options exercised..................         --    (6,767,242)     $2.93
     Options canceled...................   7,845,368   (7,845,368)     $7.92
                                         ------------ ------------   -------
   Balances, December 31, 1998..........   8,971,624   76,975,156      $7.04
     Additional shares authorized.......  22,500,000         --
     Options granted.................... (26,511,903)  26,511,903     $39.37
     Options exercised..................         --   (10,353,928)     $5.76
     Options canceled...................   5,428,205   (5,428,205)    $13.54
                                         ------------ ------------   -------
   Balances, December 31, 1999..........  10,387,926   87,704,926     $16.58
                                         ============ ============   =======`

The following table summarizes information about fixed
stock options outstanding as of December 31, 1999:

`Options outstanding          Options exercisable
                   ---------------------------------- ----------------------
                                Weighted
                                 average
                                remaining   Weighted               Weighted
                               contractual  average                average
     Range of        Number       life      exercise    Number     exercise
 exercise prices    of shares  (in years)    price     of shares    price
------------------ ----------- ----------- ---------- ----------- ----------
  $0.01               194,100         5.0      $0.01     194,100      $0.01
  $0.03               100,728         5.3      $0.03     100,728      $0.03
  $0.06               250,050         5.8      $0.06     250,050      $0.06
  $0.22             1,448,350         6.1      $0.22   1,448,350      $0.22
  $0.33 -    0.37   4,173,802         6.2      $0.36   2,000,455      $0.36
  $0.69 -    0.92   8,471,854         6.3      $0.71   4,307,367      $0.70
  $1.44 -    2.13   2,693,643         6.3      $1.52   1,188,390      $1.51
  $2.91 -    4.22   1,828,822         5.8      $4.08     695,420      $4.06
  $5.49 -    8.11  10,996,446         6.9      $6.07   3,994,269      $6.08
  $8.28 -   12.39  26,639,978         8.4     $10.34   6,779,622     $10.35
 $12.44 -   18.51   9,602,056         8.7     $14.92   1,220,346     $13.79
 $18.88 -   26.81   8,285,777         9.2     $21.43     268,192     $19.65
 $29.22 -   42.30   5,079,400         9.6     $31.73       1,424     $29.56
 $50.04 -   62.81   1,839,070         9.9     $62.70         262     $62.81
 $81.06             6,100,850        10.0     $81.06           0     $81.06
------------------ ----------- ----------- ---------- ----------- ----------
  $0.01 -   81.06  87,704,926        8.00     $16.58  22,448,975      $5.58
                   ===========                        ===========`

In May 1996, the Company adopted the 1996 Employee Stock
Purchase Plan (the "Purchase Plan") and reserved 2,800,000 shares for
issuance thereunder. The Purchase Plan became effective upon the completion of
the Company's initial public offering. In January 1997, the Board of Directors
of the Company adopted an amendment to the Purchase Plan to increase the number
of shares authorized for issuance under the Purchase Plan to 6,800,000 shares.
The Purchase Plan permits eligible employees to purchase common stock, through
payroll deductions of up
to 15% 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.  As of December 31, 1999, 3,901,000 shares
had been purchased under the Purchase Plan.

Common Stock

The Company has elected to continue to use the
intrinsic value-based method to account for all of its employee stock-based
compensation plans. The Company records deferred compensation costs related to
employee stock options  when the exercise price of each option equals or is less
than the fair value of the underlying common stock as of the grant date for each
stock option.  The Company also recorded compensation expense for the estimated
fair value of common stock transferred from the majority shareholders of
OnTarget to two key employees in January 1998 and for options granted to one
consultant in 1999.

Pursuant to SFAS No. 123, the Company is required to
disclose the pro forma effects on net income (loss) and net income (loss) per
share data as if the Company had elected to use the fair value approach to
account for all its employee stock-based compensation plans. Had compensation
cost for the Company's plans been determined consistent with the fair value
approach enumerated in SFAS No. 123, the Company's net income (loss) and net
income (loss) per share for the years ended December 31, 1999, 1998 and 1997
would have been as indicated below (in thousands, except per share data):

`1999      1998      1997
                                            --------- --------- ---------
 Pro forma net income (loss):
   As reported............................  $121,727   $43,460       $55
   Pro forma giving effect to SFAS No 123.   $94,998   $23,203  ($12,697)

 Diluted pro forma net income (loss)
 per share:
   As reported............................     $0.54     $0.21     $0.00
   Pro forma giving effect to SFAS No 123.     $0.42     $0.11    ($0.07)

 Basic pro forma net income (loss)
 per share:
   As reported............................     $0.65     $0.24     $0.00
   Pro forma giving effect to SFAS No 123.     $0.51     $0.13    ($0.07)`

The fair value of options was estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for option grants:

`1999      1998      1997
                                            --------- --------- ---------
 Risk-free interest rate...................     5.44%     4.85%      6.1%
 Expected life (in years)..................      3.4       3.4       3.5
 Expected volatility.......................     69.0%     70.5%     83.9%`

The fair value of employees' stock purchase rights
under the Purchase Plan was estimated using the Black-Scholes model with the
following weighted average assumptions used for purchases:

`1999      1998      1997
                                            --------- --------- ---------
 Risk-free interest rate...................     4.66%      5.3%      5.3%
 Expected life (in years)..................      0.5       0.6       0.7
 Expected volatility.......................     69.0%     70.5%     83.9%`

Under
SFAS No. 123, the weighted average estimated fair value of employee stock
options granted at exercise prices equal to market price at grant date during
1999, 1998 and 1997 was $20.86, $5.94 and  $4.30 per share, respectively.

The Company determined the assumptions to be used in
computing the fair value of stock options or stock purchase rights as follows.
The risk-free rate is the U.S. treasury bill rate for the relevant expected
life. The expected useful lives were estimated giving consideration to vesting
and purchase periods, contractual lives, expected employee turnover and
underlying stock volatility.

Income before taxes includes income from foreign
operations of approximately $5,413,000, $3,600,000 and $680,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.

Historical Information

The components of income tax expense (benefit) for the
years ended December 31, 1999, 1998 and 1997 are as follows (in thousands):

`1999      1998      1997
                                            --------- --------- ---------
 Current:
   Federal.................................  ($8,796)  $18,488    $7,694
   State...................................       --     4,559     2,684
   Foreign.................................    1,586     1,289       400
                                            --------- --------- ---------
     Total current.........................   (7,210)   24,336    10,778
 Deferred:
   Federal.................................   (5,359)   (6,432)   (1,345)
   State...................................   (4,280)   (1,409)     (219)
                                            --------- --------- ---------
     Total deferred........................   (9,639)   (7,841)   (1,564)

 Charge in lieu of taxes attributable
   to employer's stock option plans........   91,679    13,517     4,046
                                            --------- --------- ---------
     Total income taxes....................  $74,830   $30,012   $13,260
                                            ========= ========= =========`

The differences between the income tax expense
computed at the federal statutory rate of 35% and the Company's actual income
tax expense for the years ended December 31, 1999, 1998 and 1997 are as
follows:

`1999      1998      1997
                                            --------- --------- ---------
  Expected income tax expense..............     35.0%     35.0%     35.0%
  State income taxes, net of federal
    tax benefit............................      4.7%      4.4%     13.4%
  In-process research and development......       --        --      57.2%
  Non-deductible merger costs..............       --       4.5%       --
  Research and experimentation credit......     (0.7%)    (1.1%)    (3.9%)
  Tax exempt interest......................     (1.0%)    (2.4)     (7.0%)
  Foreign sales corporation benefit........       --      (0.8%)      --
  S corporation benefit....................       --      (1.1%)    (4.2%)
  Other, net...............................       --       1.9%      4.9%
                                            --------- --------- ---------
    Total income taxes.....................     38.0%     40.4%     95.4%
                                            ========= ========= =========`

The tax effects of temporary differences that give rise
to significant portions of deferred tax assets and liabilities as of December
31, 1999 and 1998 are as follows in thousands:

`1999      1998
                                                      --------- ---------
 Deferred tax assets:
  Deferred state taxes..............................     $  --      $549
  Accruals and reserves, not currently taken
   for tax purposes.................................     4,679     8,048
  Allowance for doubtful accounts and returns.......     4,901     4,438
  Charitable contribution carryforward..............     2,451        --
  Research and development credit carryforward......     2,800        --
  Net operating loss carryforward...................     1,326       235
  Gain on investment................................     5,183        --
  Other.............................................     2,225        --
                                                      --------- ---------
   Deferred assets..................................    23,565    13,270

 Deferred tax liabilities:
  Unrealized gain on marketable securities..........   (51,397)       --
  Depreciation......................................    (1,439)     (783)
                                                      --------- ---------
   Deferred liabilities.............................   (52,836)     (783)
                                                      --------- ---------
   Net deferred assets (liabilities)................  ($29,271)  $12,487
                                                      ========= =========`

As of December 31, 1999, the Company had state net
operating loss carryforwards of approximately $23,000,000 available to offset
future state taxable income.  In addition, the Company had federal and state
research and devlopment credit carryforwards of $1,600,000 and $1,200,000,
respectively available to offset future tax liabilities.  The Company's state
net operating loss carryforwards expire in 2004 if not utilized.  The Company's
federal research and development credit carryforward expires in 2019, if not
utilized.  The state research and development credit can be carried forward
indefinitely.

Management believes it is more likely than not that
future operations will generate sufficient taxable income to realize any
deferred tax assets.

Pro
Forma Income Taxes

The pro forma provision for income
taxes reflects the income tax expense that would have been reported if OnTarget
Inc. (an S corporation for income tax reporting purposes) had been a C
corporation for each of the years in the three-year period ended December 31,
1999.  The components of pro forma income tax expense are as follows (in
thousands):

`1999      1998      1997
                                            --------- --------- ---------
 Current:
   Federal.................................  ($8,548)  $19,192    $8,211
   State...................................       --     4,660     2,755
   Foreign.................................    1,586     1,289       400
                                            --------- --------- ---------
     Total current.........................   (6,962)   25,141    11,366
 Deferred:
   Federal.................................   (5,288)   (6,432)   (1,345)
   State...................................   (4,234)   (1,409)     (219)
                                            --------- --------- ---------
     Total deferred........................   (9,522)   (7,841)   (1,564)

 Charge in lieu of taxes attributable
   to employer's stock option plans........   91,679    13,517     4,046
                                            --------- --------- ---------
     Total income taxes....................  $75,195   $30,817   $13,848
                                            ========= ========= =========`

The differences between the pro forma income tax
expense computed at the federal statutory rate of 35% and the Company's actual
pro forma income tax expense for the years ended December 31, 1997, 1998 and
1999 are as follows:

`1999      1998      1997
                                            --------- --------- ---------
  Expected income tax expense..............     35.0%     35.0%     35.0%
  State income taxes, net of federal
    tax benefit............................      4.7%      4.4%     13.4%
  In-process research and development......       --        --      57.2%
  Non-deductible merger costs..............       --       4.5%       --
  Research and experimentation credit......     (0.7%)    (1.1%)    (3.9%)
  Tax exempt interest......................     (1.0%)    (2.4%)    (7.0%)
  Foreign sales corporation benefit........       --      (0.8%)      --
  Other, net...............................       --       1.9%      4.9%
                                            --------- --------- ---------
    Total income taxes.....................     38.0%     41.5%     99.6%
                                            ========= ========= =========`

Deferred tax assets and liabilities on a pro forma basis do not differ
materially from the historical information presented above.

(7)   Related Party Transactions

Certain members of the Company's Board of Directors
serve as officers for customers of the Company. In 1999, aggregate license
revenues associated with shipments to these customers were $1,382,000 and
accounts receivable from these customers was $2,460,000. In 1998, aggregate
revenues associated with shipments to these customers were $1,763,000 and
accounts receivable from these customers was $1,335,000.

(8)   Segment and Geographic Information

The Company and its subsidiaries are principally
engaged in the design, development, marketing and support of Siebel eBusiness
Applications, its family of proprietary software applications. Substantially all
revenues result from the
licensing of the Company's software products and related
consulting and customer support (maintenance) services. The Company's chief
operating decision maker reviews financial information presented on a
consolidated basis, accompanied by disaggregated information about revenues by
geographic region for purposes of making operating decisions and assessing
financial performance. Accordingly, the Company considers itself to be in a
single industry segment, specifically the license, implementation and support of
its software applications.

The Company evaluates the performance of its geographic
regions based on revenues and gross margin only. The Company does not assess the
performance of its geographic regions on other measures of income or expense,
such as depreciation and amortization, operating income or net income. In
addition, as the Company's assets are primarily located in its corporate office
in the United States and not allocated to any specific region, the Company does
not produce reports for, or measure the performance of, its geographic regions
based on any asset-based metrics. Therefore, geographic information is presented
only for revenues and gross margin.

While a majority of the Company's revenues are derived
from the United States, the Company's export sales have been growing. Export
sales for the years ended December 31, 1999, 1998 and 1997 were $157,300,000,
$88,200,000 and $41,800,000, respectively. This represented 31%, 30% and 27% of
total license revenues, respectively. The Company's export sales are principally
in Europe and Asia/Pacific.

The following geographic information is presented for the
years ended December 31, 1999, 1998 and 1997 (in thousands):



`North               Asia
                    Year    America   Europe    Pacific    Other    Totals
                   ------- --------- --------- --------- --------- ---------
   Revenues:
                     1999  $597,034  $158,948   $11,331   $23,607  $790,920
                     1998   293,872    75,364    24,424    16,226   409,886
                     1997   171,491    35,052    10,115     5,413   222,071

   Gross margin:
                     1999  $428,768  $148,109   $28,077    $5,048  $610,002
                     1998   241,529    62,699    20,824    13,847   338,899
                     1997   141,976    30,535     9,161     4,360   186,032`

No single customer has accounted for 10% or more of total
revenues in 1999, 1998 or 1997.

(9)  Acquisitions

OnTarget, Inc.

In January and February 1999, OnTarget acquired
Target Marketing Systems Worldwide Limited, Target Marketing Systems S.A., and
The Sales Consultancy Inc. in exchange for convertible notes and OnTarget stock.
OnTarget recorded goodwill of $9,745,000 in connection with these acquisitions.
The goodwill is being amortized over a five-year period using the straight-line
method.  Pro forma information giving effect to these mergers has not been
presented since it would not differ materially from the historical results of
the Company.

On December 1, 1999, the Company acquired OnTarget,
Inc.  OnTarget develops and implements advanced sales and marketing training and
consulting programs for sales organizations competing in complex, multilevel
sales campaigns.  Primary customers include corporate clients and business
owners who wish to provide for the development and training of their sales and
marketing personnel.

Under the terms of the agreement, each outstanding share
of OnTarget common stock was exchanged for 0.3077516 newly issued shares of
common stock of  the Company.  This resulted in the issuance of approximately
3,700,000 additional shares of the Company's common stock.  In addition, all
outstanding stock options of  OnTarget were converted into the right to acquire
the Company's common stock at the same exchange ratio with a corresponding
adjustment to the exercise price.

The acquisition of OnTarget has been
accounted for as a pooling of interests.   Accordingly, the financial position,
results of operations and cashflows of OnTarget have been combined with those of
the Company for the same dates and periods as if the entities had been combined
from the earliest date presented.  There were no adjustments to conform
accounting methods.  The Company did not incur any significant merger-related
costs in connection with the acquisition of OnTarget.

As a result of OnTarget's conversion from a Subchapter S
Corporation to a Subchapter C subsidiary of the Company on December 1, 1999, all
of OnTarget's retained earnings at that date were reclassified to additional
paid-in-capital.  In addition, the Company recorded an income tax benefit in the
amount of OnTarget's net deferred tax assets at that date.

Scopus Technology, Inc.

On May 18, 1998, the Company completed the
acquisition of Scopus of Emeryville, California, a leading provider of customer
service, field service, and call center software solutions. Under the terms of
the agreement, each outstanding share of Scopus common stock was exchanged for
newly issued shares of common stock of the Company. This resulted in the
issuance of approximately 30,200,000 additional shares of the Company's common
stock. In addition, all outstanding stock options of Scopus were converted into
the right to acquire the Company's common stock at the same exchange ratio, with
a corresponding adjustment to the exercise price. In connection with the merger,
the Company incurred direct merger-related expenses of approximately
$13,500,000, including fees for investment bankers, attorneys, accountants and
other professional fees of $9,100,000, integration charges related to duplicate
facilities and equipment of $3,100,000 and other miscellaneous expenses of
$1,300,000.

The transaction has been accounted for as a pooling
of interests. Accordingly, the financial statements of Siebel have been restated
to include the financial position and results of operations of Scopus for all
periods presented. Prior to the merger with Siebel, Scopus ended its fiscal year
on March 31. The restated financial statements as of December 31, 1997 and for
prior periods include Siebel's results of operations for the calendar periods
noted and Scopus' results of operations for the fiscal periods ending three
months later. Beginning January 1, 1998, the restated financial statements
combine the operating results of Siebel and Scopus for the calendar periods
noted. As a result of conforming the reporting periods of Siebel and Scopus, the
operating results of Scopus for the three month period ended March 31, 1998 are
included in the restated financial statements for both 1997 and 1998. Scopus
revenues and net income for the three-month period ended March 31, 1998 were
$27,100,000 and $1,500,000, respectively. Net income for this period of
approximately $1,500,000 is reflected as a reduction of opening retained
earnings in the restated 1998 consolidated  financial statements.

The results of operations for the separate companies and
the combined amounts presented in the consolidated financial statements follow
(in thousands).

`Nine
                                        Months         Year         Year
                                         Ended        Ended        Ended
                                     September 30, December 31, December 31,
                                         1999          1998         1997
                                     ------------- ------------ ------------ 
                                      (unaudited)
 Total revenues:
   Siebel..........................      $493,783     $364,467     $118,775
   Scopus..........................          --         27,072       88,853
   On Target.......................        29,152       18,347       14,443
                                     ------------- ------------ ------------
                                         $522,935     $409,886     $222,071
                                     ============= ============ ============

 Net income (loss):
   Siebel..........................       $77,195      $41,411      ($2,427)
   Scopus..........................          --          1,464        1,240
   On Target.......................           (80)       1,390        1,830
                                     ------------- ------------ ------------
                                          $77,115      $44,265         $643
                                     ============= ============ ============`

In combining the financial statements of Siebel and
Scopus, certain reclassifications, conforming changes and adjustments relating
to revenue recognition were made to the historical financial statements of
Scopus. These conforming changes and adjustments resulted in a reduction of
previously reported net income of approximately $2,930,000 in fiscal 1997 and
$580,000 in fiscal 1996. These adjustments will not reverse in future
periods.

20*20 Group, Ltd.

On December 17, 1998, the Company acquired all of
the outstanding securities of the privately-held 20*20 Group, Ltd.
("20*20"), a provider of end-user training for the enterprise
relationship management software market. The transaction was valued at
approximately $6,000,000 and was accounted for by the purchase method of
accounting. Accordingly, the operating results of 20*20 have been included in
the accompanying consolidated financial statements of the Company from the date
of acquisition. The purchase price was allocated to tangible net assets,
including current assets, current liabilities and property, plant and equipment.
The excess of the purchase price over the fair value of the tangible net assets
acquired, $5,500,000, was allocated to goodwill. This amount is being amortized
over three years.

The results of operations of 20*20 prior to the
acquisition date are not considered material to the consolidated results of
operations of the Company and, accordingly, pro forma financial statement
information has not been presented.

InterActive WorkPlace, Inc

On October 1, 1997, the Company issued shares of
common stock in exchange for all outstanding securities of privately-held
InterActive WorkPlace, Inc. ("InterActive"), a developer of intranet-
based business intelligence software technology. The transaction was valued at
approximately $15,000,000 and was accounted for by the purchase method of
accounting. Accordingly, the operating results of InterActive
have been included in the accompanying consolidated financial statements of the
Company from the date of acquisition. Under the terms of the agreement,
InterActive's security holders received or will receive up to approximately
1,708,000 shares of the Company's common stock in exchange for all outstanding
shares in InterActive. Additionally, InterActive optionees received options to
purchase an
aggregate of approximately 128,000 shares of the Company's
common stock in exchange for their options to purchase InterActive common stock.
The excess of the purchase price over the fair value of the net assets acquired
was allocated
to purchased in-process research and development and
intangible assets of $14,017,000 and $104,000, respectively. The purchased in-process
research and development was charged to operations in the fourth quarter
of 1997. The amounts allocated to intangible assets are being amortized over
three years.

Purchased in-process research and development is related
to the completion of InterActive's data integration, filtering and formatting
technology and its integration into the Company's products. At the time of
acquisition, a prototype of InterActive's product existed and was in limited
trials, however, the prototype was not stable or sufficiently developed to be
scalable on an enterprise-wide basis. InterActive's technology was completed, at
a cost of approximately $400,000, and incorporated as a separate component of the
Siebel 98 product suite which was released in June 1998. The Company estimated
that the technology was approximately 75% complete as of the acquisition date.
At that date, the only identifiable asset acquired was the technology under
development. Accordingly, essentially all of the excess purchase price over net
assets acquired, except for amounts assigned to net current assets, fixed assets
and workforce-in-place, was assigned to in-process research and development.

The results of operations of InterActive prior to the
acquisition date are not considered material to the consolidated results of
operations of the Company and, accordingly, pro forma financial information has
not been presented.

Nomadic Systems, Inc

On November 1, 1997, the Company issued shares of
common stock in exchange for all outstanding securities of privately-held
Nomadic Systems, Inc. ("Nomadic"), a provider of innovative business
solutions to pharmaceutical sales forces. The transaction was valued at
approximately $11,000,000 and was accounted for by the purchase method of
accounting. Accordingly, the operating results of Nomadic have been included in
the accompanying consolidated financial statements of the Company from the date
of acquisition. Under the terms of the agreement, Nomadic's securityholders
received approximately 1,200,000 shares of the Company's common stock in
exchange for all outstanding shares of Nomadic. The purchase price was allocated
to net current assets, fixed assets, purchased in-process research and
development and intangible assets of $557,000, $186,000, $8,723,000 and
$1,553,000, respectively. The purchased in-process research and development was
charged to operations in the fourth quarter of 1997. The amounts allocated to
intangible assets are being amortized over three years.

The appraisal of the acquired research and development
was based upon the present value of forecasted operating cash flows from the
technology acquired, giving effect to the stage of completion at the acquisition
date. These forecasted cash flows were then discounted at a rate which gave
consideration to the risk involved in completing the acquired technology. The
forecasted cash flows assumed inclusion of the product developed from acquired
technology into the existing Siebel product suite.

The purchased in-process research and development
expense related to completion of Nomadic's second generation pharmaceutical
sales force automation product. At the time of the acquisition, Nomadic had a
first-generation product at a limited number of customers, with a very small
user base. There were a considerable number of uncertainties as to increasing
the product's scalability for deployment on an enterprise-wide basis, improving
the stability of the application and identifying and fixing bugs. The Company
allocated limited excess purchase price over net assets acquired to net current
assets, fixed assets and workforce-in-place. The majority of the excess purchase
price was allocated to in-process research and development and other intangible
assets (goodwill) based upon the expected cash flows from Nomadic's existing
product and the product under development, giving consideration to the stage of
completion of the technology under development at the acquisition date. This
technology was completed, at a cost of approximately $1,300,000, for enterprise-wide
release in March 1998.

The results of operations of Nomadic prior to the
acquisition date are not considered material to the consolidated results of
operations of the Company and, accordingly, pro forma financial statement
information has not been presented.

Clear With Computers, Inc.

The Company incurred merger costs of
approximately $3,300,000 in the third quarter of 1997 in connection with Scopus'
planned merger with Clear With Computers, Inc. The merger plan was terminated
early in the fourth quarter of 1997.

(10) Subsequent Events

On January 6, 2000, the Company acquired all of the outstanding
securitites of Paragren Technologies, Inc. ("Paragren") ,  a leading
provider of high-performance marketing automation software based in Reston,
Virginia.  Paragren was a previously wholly owned subsidiary of APAC Customer
Services, Inc.  The transaction was valued at approximately $18,000,000 and was
accounted for by the purchase method of accounting.  The purchase price was
allocated to tangible net assets, including current assets, current liabilities
and property, plant and equipment.  The excess of the purchase price over the
fair value of the tangible net assets acquired, $17,500,000, was allocated to
intangible assets and will be amortized over five years.

(11)	Selected Quarterly Financial Data (unaudited)

The following table presents selected quarterly
information for 1999 and 1998 (in thousands, except share data):

`First    Second     Third    Fourth
                                         quarter   quarter   quarter   quarter
                                        --------- --------- --------- --------- 
  1999:
  Net revenues......................... $141,708  $174,882  $206,345  $267,985
  Gross margin.........................  114,573   135,937   155,091   204,401
  Net income...........................   22,000    25,853    29,262    44,977
  Pro forma net income.................   21,756    25,816    29,572    44,583
  Pro forma net income per
    diluted share......................     0.10      0.12      0.13      0.19
  Pro forma net income per
    basic share........................     0.12      0.14      0.16      0.23


  1998:
  Net revenues.........................  $78,597   $93,868  $109,322  $128,099
  Gross margin.........................   65,978    75,422    90,449   107,050
  Net income (loss)....................   10,057      (511)   14,859    19,860
  Pro forma net income (loss)..........    9,881      (729)   14,539    19,769
  Pro forma net income (loss) per
    diluted share......................     0.05     (0.00)     0.07      0.10
  Pro forma net income (loss) per
    basic share........................     0.06     (0.00)     0.08      0.11`

---

**Schedule II**

**Valuation and Qualifying Accounts**

`Balance   Charged              Balance
                                       at        to                   at
                                    Beginning Costs and             End of
                                     of Year  Expenses  Deductions   Year
                                    --------- --------- ---------- ---------
                                              (in thousands)                
Allowance For Doubtful Accounts:
  Year ended December 31, 1999.....  $10,330    $7,478     $5,108   $12,700
  Year ended December 31, 1998.....   $4,288    $6,230       $188   $10,330
  Year ended December 31, 1997.....   $1,940    $4,920     $2,572    $4,288`

---

**SIEBEL SYSTEMS, INC.**

**SIGNATURE**

Pursuant to the requirements of Section 13 or 15(d) 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.

| |             
| | ------------
| | (Registrant)

Dated: March 28, 2000



| |     |                     
| | --- | --------------------
| | By: | /s/ Howard H. Graham

| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                     
| | Howard H. Graham                                                                                                                                    
| | Senior Vice President Finance and
                                    Administration and
                                    Chief Financial Officer
| | (Principal Financial Officer)                                                                                                                       

``

**POWER OF ATTORNEY**

KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose signature
appears below hereby constitutes and appoints Thomas M. Siebel and Howard H.
Graham, each of them acting individually, as his or her attorney-in-fact, each
with the full power of substitution, for him or her in any and all capacities,
to sign any and all amendments to this Annual Report on Form 10-K, and to file
the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming our signatures as they may
be signed by ours said attorney-in-fact and any and all amendments to this
Annual Report on Form 10-K.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed by the following persons in the
capacities and on the dates indicated.

`Signature                         Title                      Date
---------------------------  ----------------------------------  ---------------
/s/ Thomas M. Siebel         Chairman, Chief Executive           March 28, 2000
__________________________    Officer and Director
Thomas M. Siebel              (Principal Executive Officer)


/s/ Howard H. Graham         Senior Vice President Finance       March 28, 2000
__________________________    and Administration and Chief
Howard H. Graham              Financial Officer (Principal
                              Financial and Accounting
                              Officer)


/s/ James C. Gaither         Director                            March 28, 2000
__________________________
James C. Gaither


/s/ Eric E. Schmidt, Ph.D.   Director                            March 28, 2000
__________________________
Eric E. Schmidt, Ph.D.


/s/ Charles R. Schwab        Director                            March 28, 2000
__________________________
Charles R. Schwab


/s/ George T. Shaheen        Director                            March 28, 2000
__________________________
George T. Shaheen


/s/ A. Michael Spence, Ph.D. Director                            March 28, 2000
__________________________
A. Michael Spence, Ph.D.`

---