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

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**FORM 10-Q**

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

**For the quarterly period ended June 30, 2000**

**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)

**(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 [  ]

The number of shares outstanding of the registrant's common stock, par value
      $.001 per share, as of August 1, 2000, was 208,309,145.







**SIEBEL SYSTEMS, INC.
                                    FORM 10-Q
                 For the Quarterly Period Ended June 30, 2000
                               Table of Contents**

**Part I.  Financial Information**



|ITEM 1.   Financial Statements                                                                                                          | Page
|--------------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                                        |     
|Consolidated Balance Sheets as of
          
June 30, 2000 and December 31, 1999                                                        | 3   
|                                                                                                                                        |     
|Consolidated Statements of Operations and Comprehensive Income
          
    for the three and six months ended June 30, 2000 and 1999 | 4   
|                                                                                                                                        |     
|Consolidated Statements of Cash Flows
          
    for the six months ended June 30, 2000 and 1999                                    | 5   
|                                                                                                                                        |     
|Notes to Consolidated Financial Statements                                                                                              | 6   
|                                                                                                                                        |     
|ITEM 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                   | 15  
|                                                                                                                                        |     
|ITEM 3.   Quantitative and Qualitative Disclosures About Market Risk                                                                    | 28  
|                                                                                                                                        |     

**Part II.  Other Information**



|ITEM 1.   Legal Proceedings                                   | 30
|------------------------------------------------------------- | --
|                                                              |   
|ITEM 2.   Changes in Securities and Use of Proceeds           | 30
|                                                              |   
|ITEM 4.   Submission of Matters to a Vote of Security Holders | 30
|                                                              |   
|ITEM 6.   Exhibits and Reports on Form 8-K                    | 31
|                                                              |   
|**Signatures**                                                | 33

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**Part I.  Financial Information**

**Item 1.  Financial Statements.**

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**SIEBEL SYSTEMS, INC.****Consolidated Balance Sheets
                     (in thousands, except per share data; unaudited)**

`June 30,     December 31,
                                                            2000          1999
                                                       ------------  ------------
Assets

Current assets:
   Cash and cash equivalents.........................     $701,457      $476,409
   Short-term investments............................      249,866       197,565
   Marketable equity securities......................       47,075       141,939
   Accounts receivable, net..........................      317,922       295,396
   Deferred income taxes.............................       70,222           --
   Prepaids and other................................       58,495        31,050
                                                       ------------  ------------
     Total current assets............................    1,445,037     1,142,359

Property and equipment, net..........................      104,578        57,939
Other assets.........................................       71,318        41,612
                                                       ------------  ------------
     Total assets....................................   $1,620,933    $1,241,910
                                                       ============  ============

Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable..................................      $23,216       $12,049
   Accrued expenses..................................      245,025       128,119
   Deferred revenue..................................      159,021        87,933
   Deferred income taxes.............................          --         22,240
                                                       ------------  ------------
     Total current liabilities.......................      427,262       250,341

Convertible subordinated debentures..................      300,000       300,000
Deferred income taxes................................        1,429         1,439
                                                       ------------  ------------
     Total liabilities...............................      728,691       551,780
                                                       ------------  ------------

Mandatorily redeemable convertible preferred stock...          --         80,459

Commitments and contingencies

Stockholders' equity:
  Common stock; $0.001 par value; 800,000
   shares authorized; 205,824 and 195,582 shares
   issued and outstanding, respectively..............          206           196
  Additional paid-in capital.........................      765,701       413,156
  Notes receivable from stockholders.................         (406)         (484)
  Deferred compensation..............................       (1,335)       (1,297)
  Accumulated other comprehensive income.............       25,450        83,611
  Retained earnings..................................      102,626       114,489
                                                       ------------  ------------
     Total stockholders' equity......................      892,242       609,671
                                                       ------------  ------------
     Total liabilities and stockholders' equity......   $1,620,933    $1,241,910
                                                       ============  ============`

See accompanying notes to consolidated financial statements.

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**SIEBEL SYSTEMS, INC.****Consolidated Statements of Operations and Comprehensive Income
               (in thousands, except per share data; unaudited)**

`Three Months Ended     Six Months Ended
                                                    June 30,             June 30,
                                             -------------------- ---------------------
                                                2000      1999       2000        1999
                                             --------- ---------- ----------- ---------
Revenues:
  Software.................................. $242,404   $111,318    $435,387  $205,671
  Professional services, maintenance
   and other................................  144,996     65,338     264,518   113,506
                                             --------- ---------- ----------- ---------
      Total revenues........................  387,400    176,656     699,905   319,177
                                             --------- ---------- ----------- ---------
Cost of revenues:
  Software..................................    3,743      2,344       9,076     3,683
  Professional services, maintenance
   and other................................   95,267     36,949     165,824    62,911
                                             --------- ---------- ----------- ---------
      Total cost of revenues................   99,010     39,293     174,900    66,594
                                             --------- ---------- ----------- ---------
      Gross margin..........................  288,390    137,363     525,005   252,583
                                             --------- ---------- ----------- ---------
Operating expenses:
  Product development.......................   30,564     18,463      53,979    36,029
  Sales and marketing.......................  153,354     67,247     287,443   123,092
  General and administrative................   32,275     15,369      57,386    26,487
  Merger-related expenses...................   10,002       --        10,002       --
                                             --------- ---------- ----------- ---------
      Total operating expenses..............  226,195    101,079     408,810   185,608
                                             --------- ---------- ----------- ---------
      Operating income......................   62,195     36,284     116,195    66,975
Other income, net...........................   16,179      2,011      29,198     4,359
                                             --------- ---------- ----------- ---------
      Income before income taxes............   78,374     38,295     145,393    71,334
Income taxes................................   33,031     14,134      58,501    26,125
                                             --------- ---------- ----------- ---------
      Net income ...........................  $45,343    $24,161     $86,892   $45,209
                                             ========= ========== =========== =========
Accretion on preferred stock................  (21,707)   (32,985)    (98,755)  (41,909)

      Net income (loss) available to
         common stockholders................  $23,636    ($8,824)   ($11,863)   $3,300
                                             ========= ========== =========== =========

Diluted net income (loss) per share.........    $0.10     ($0.05)     ($0.06)    $0.02
                                             ========= ========== =========== =========

Basic net income (loss) per share...........    $0.12     ($0.05)     ($0.06)    $0.02
                                             ========= ========== =========== =========

Shares used in diluted net income (loss)
 per share computation......................  246,920    187,283     200,443   218,664
                                             ========= ========== =========== =========

Shares used in basic net income (loss)
 per share computation......................  202,693    187,283     200,443   186,075
                                             ========= ========== =========== =========

Comprehensive income:
      Net income ...........................  $45,343    $24,161     $86,892   $45,209
Other comprehensive income (loss), net
  of tax:
      Foreign currency translation
          adjustments.......................      998        221         247       261
      Increase (decrease) in unrealized
          gains on securities................ (18,773)    35,481     (58,408)   35,364
                                             --------- ---------- ----------- ---------
Other comprehensive income (loss)...........  (17,775)    35,702     (58,161)   35,625
                                             --------- ---------- ----------- ---------
      Total comprehensive income............  $27,568    $59,863     $28,731   $80,834
                                             ========= ========== =========== =========`

See accompanying notes to consolidated financial statements.

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**SIEBEL SYSTEMS, INC.****Consolidated Statements of Cash Flows
                           (in thousands; unaudited)**

`Six Months Ended
                                                                  June 30,
                                                          ----------------------
                                                              2000        1999
                                                          ----------  ----------
Cash flows from operating activities:
   Net income............................................   $86,892     $45,209
   Adjustments to reconcile net income to net cash
    provided by operating activities:
      Compensation related to stock options..............       493         365
      Depreciation and amortization......................    18,173      10,897
      Exchange of software for cost-method investments...    (4,196)       --
      Loss from equity method investee...................     5,408        --
      Deferred income taxes..............................   (56,599)     (1,600)
      Write-down of assets acquired in the OpenSite
         Merger..........................................       622        --
      Tax benefit from exercise of stock options.........    97,854      18,200
      Loss on disposal of property and equipment.........      --           688
      Gain on sale of marketable equity securities.......   (50,112)       --
      Charitable contribution of marketable equity
        securities.......................................    28,700        --
      Provision for doubtful accounts and returns, net...    10,386       3,178
      Changes in operating assets and liabilities:
         Accounts receivable.............................   (31,520)    (55,909)
         Prepaids and other..............................   (27,139)     (3,217)
         Accounts payable and accrued expenses...........   123,458       7,540
         Income tax payable..............................      --        (2,347)
         Deferred revenue................................    69,677       6,830
                                                          ----------  ----------
           Net cash provided by operating activities.....   272,097      29,834
                                                          ----------  ----------
Cash flows from investing activities:
   Proceeds from sale of marketable equity securities....    23,876        --
   Purchases of property and equipment...................   (58,011)    (15,878)
   Purchases, sales and maturities of
     short-term investments, net.........................   (52,182)     (6,197)
   Proceeds from disposal of property and equipment......      --        13,203
   Cash acquired in acquisitions.........................      --           772
   Purchase of Paragren Technologies, Inc................   (18,050)       --
   Purchase of MOHR, net of acquired cash................    (7,734)       --
   Other non-operating assets............................     1,429      (3,842)
   Other non-marketable investments......................    (3,473)       --
   Advance to affiliate, net.............................    (7,922)       --
                                                          ----------  ----------
           Net cash used by investing activities.........  (122,067)    (11,942)
                                                          ----------  ----------
Cash flows from financing activities:
   Proceeds from issuance of common stock................    74,692      30,856
   Proceeds from issuance of mandatorily
      redeemable preferred stock.........................      --        23,875
   Borrowings on line of credit..........................      --         3,231
   Repayments of line of credit and capital lease
      obligations........................................      --          (670)
   Subchapter S distributions............................      --          (745)
   Repurchase of common stock............................      --        (2,795)
   Repurchase of preferred stock.........................      --        (1,398)
   Repayments of stockholder notes.......................        78        --
                                                          ----------  ----------
           Net cash provided by financing activities.....    74,770      52,354
                                                          ----------  ----------
Effect of exchange rate changes in cash..................       248        --
                                                          ----------  ----------
Change in cash and cash equivalents......................   225,048      70,246
Cash and cash equivalents, beginning of period...........   476,409      83,017
                                                          ----------  ----------
Cash and cash equivalents, end of period.................  $701,457    $153,263
                                                          ==========  ==========
Supplemental disclosures of cash flows information:
 Cash paid for interest..................................    $7,989          --
                                                          ==========  ==========
 Cash paid for income taxes..............................    $9,503     $11,988
                                                          ==========  ==========
Supplemental disclosures of non cash activities:
 Purchase price payable-Mohr.............................    $3,000        --
                                                          ==========  ==========
 Conversion of preferred stock into common stock.........  $179,214        --
                                                          ==========  ==========
 Convertible notes issued for acquisitions...............        --      $4,358
                                                          ==========  ==========`

See accompanying notes to consolidated financial statements.

---

**SIEBEL SYSTEMS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)**

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 May 2000 and December 1999, the Company acquired OpenSite Technologies,
Inc. ("OpenSite") and OnTarget, Inc. ("OnTarget"), respectively, in business combinations accounted
for as pooling of interests. Accordingly, all financial information has been restated to reflect the
combined operations of Siebel and these two companies. See Note 2.

Basis of Presentation

The accompanying unaudited consolidated financial statements have
been prepared on substantially the same basis as the audited consolidated financial statements, and
in the opinion of management include all adjustments, consisting only of normal recurring
adjustments, necessary for their fair presentation. The interim results presented are not
necessarily indicative of results for any subsequent quarter or for the year ending December 31,
2000.

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

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.

On January 1, 2000, the Company adopted the provisions of Statement of
Position No. 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 believes the adoption of SOP 98-9 will not have a
material effect on the Company's consolidated financial position and results of operations.

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, Cisco Systems, Inc., Compaq Computer Corporation, Dell
Computer Corporation, Lucent Technologies, Inc., MCI WorldCom Inc., Microsoft Corporation,
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

Cost of software consists primarily of media, product packaging,
documentation and other production costs, and third-party royalties. Cost of professional services,
maintenance and other consists primarily of salaries, benefits and allocated overhead costs related
to consulting, training and customer support personnel, including cost of services provided by third
party consultants engaged by the Company.

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 the Company's investment in two publicly traded companies. 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 (loss). 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 $47,201,000 and $17,421,000 at
June 30, 2000 and December 31, 1999, respectively, and the related accumulated amortization was
$8,432,000 and $4,459,000 at June 30, 2000 and December 31, 1999, respectively.

Advertising

Advertising costs are expensed as incurred. Advertising expense is
included in sales and marketing expense and amounted to $23,073,000 and $33,259,000 for the three
and six months ended June 30,2000 and $4,783,000 and $12,455,000 for the three and six months ended
June 30, 1999, 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 would not have been materially
different from the income tax provision as presented if OnTarget (an S corporation for income-tax
reporting purposes prior to acquisition in December 1999) had been a C corporation for all periods
presented.

Net Income Available Per Common Share

Basic net income per share is computed using the weighted average
number of shares of common stock outstanding. Diluted net income 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
net income per share also gives effect, when dilutive, to the conversion of the convertible notes,
subordinated debentures, and mandatorily redeemable convertible preferred stock using the if-
converted method.

For both basic and diluted net income available per common share, the Company
has reduced net income by the accretion of mandatorily redeemable convertible preferred stock to
arrive at the net income available to common stockholders. See Note 7.

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 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 total revenues; and the Company's largest customer base, high
technology, which accounted for approximately 26% of total license revenues during the six months
ended June 30, 2000, 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 June 30, 2000
was approximately $719,000.



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. In connection with the acquisition of OpenSite, the Company reviewed the
carrying value of OpenSite's fixed assets and certain long-term assets and as a result recorded a
charge to earnings of $622,000 for assets that the Company plans on abandoning or disposing of at
less than their carrying value. This provision has been reflected in merger-related expenses in both
the three and six months ended June 30, 2000. The Company does not have any additional 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, as amended by SFAS No. 137
"Accounting for Derivative Instruments and Hedging Activities-Deferral of Effective Date of SFAS No.
133" and SFAS No.138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities,
amendment of SFAS No. 133." Management does not believe the adoption of this pronouncement will have
a material effect on the Company's consolidated financial position or results of operations.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements."  SAB
101 summarizes certain of the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. In June 2000, the SEC issued SAB No. 101B to defer the
effective date of implementation of SAB 101 until the fourth quarter of fiscal 2000. The SEC has
recently indicated it intends to issue further guidance with respect to adoption of specific issues
addressed by SAB No. 101. Until such time as this additional guidance is issued, the Company is
unable to assess the impact, if any, it may have on its financial position or results of
operations.

2. Acquisitions

OpenSite Technologies, Inc.

On May 17, 2000, the Company acquired OpenSite,
which develops and markets Internet auction and dynamic pricing technology that enables companies to
create branded, interactive, real-time Internet auctions. OpenSite's products and services automates
the client's process of of installing, running and maintaining its dynamic commerce applications.
Primary customers of OpenSite include a full range of small, medium and large businesses that are
focusing on expanding their sales focus to include dynamic commerce.

Under the terms of the agreement, each outstanding share of OpenSite common
stock was exchanged for approximately 0.131478 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 OpenSite 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 transaction was accounted for as a pooling of interests and, accordingly, the
financial position, results of operations and cash flows of OpenSite 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. During the second quarter
of 2000, the Company expensed approximately $10,002,000 of direct merger-related expenses in
connection with the Company's acquisition of OpenSite. These costs primarily consisted of investment
banker fees, along with attorneys, accountants and other professional fees. As of June 30, 2000, the
Company had settled approximately $2,200,000 of these merger-related costs and, accordingly, has
reflected the remaining $7,800,000 of these merger-related costs in accrued liabilities. The
remaining liabilities consist of approximately $7,500,000 of investment banker and other
professional fees and $300,000 of severance-related costs. The Company expects to settle these
liabilities by December 31, 2000.

OnTarget, Inc.

On December 1, 1999, the Company acquired OnTarget, which 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.

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.



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
and, accordingly, the financial position, results of operations and cash flows 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.



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

`Three Months Ended    Six Months Ended
                                    June 30,              June 30,
                             --------------------- ---------------------
                                2000       1999       2000       1999
                             ---------- ---------- ---------- ----------
   Total revenues:
       Siebel...............  $386,757   $164,416   $696,196   $298,466
       OnTarget.............         --    10,704       --       18,125
       OpenSite.............       643      1,536      3,709      2,586
                             ---------- ---------- ---------- ----------
                              $387,400   $176,656   $699,905   $319,177
                             ========== ========== ========== ==========

   Net income:
       Siebel...............   $46,944    $25,752    $93,202    $47,092
       OnTarget.............         --       101       --          761
       OpenSite.............    (1,601)    (1,692)    (6,310)    (2,644)
                             ---------- ---------- ---------- ----------
                               $45,343    $24,161    $86,892    $45,209
                             ========== ========== ========== ==========`

The results of operations of the Company in the above schedule includes the
operations of the acquired companies from the date of acquisition for all periods presented. For
both the three and six months ended June 30, 2000, the Company's net income in the above schedule
has been reduced by $10,002,000 related to merger-related expenses.

MOHR Development, Inc.

On June 26, 2000, the Company acquired all of the outstanding
securities of MOHR Development, Inc. ("MOHR"), a privately held provider of sales training solutions
and consulting services. MOHR focuses on customers in the financial services, manufacturing and
technology business sectors. The Company acquired MOHR for net cash consideration of $7,734,000 and
a commitment to pay an additional $3,000,000. This transaction was accounted for by the purchase
method of accounting and, accordingly, the operating results of MOHR 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 of $799,000, current
liabilities of $4,847,000 and property and equipment of $115,000. The excess of the purchase price
over the fair value of the tangible net assets acquired, $11,667,000 was allocated to goodwill. This
amount is being amortized over three years.

The results of operations of MOHR 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.

Paragren Technologies, Inc.

On January 14, 2000, the Company acquired all of the outstanding
securities of Paragren Technologies, Inc. ("Paragren"), a leading provider of high-performance
marketing automation software based in Reston, Virginia. Paragren was previously a wholly owned
subsidiary of APAC Customer Services, Inc. The Company acquired Paragren for cash consideration of
$18,050,000. This transaction was accounted for by the purchase method of accounting. The purchase
price was allocated to tangible net assets, including current assets of $942,000, current
liabilities of $1,442,000 and property and equipment of $976,000. An independent appraiser was
engaged to perform a valuation on Paragren and it was determined that there was no purchased in-
process research and development. As a result, the excess of the purchase price over the fair value
of the tangible net assets acquired of $17,574,000 was allocated to intangible assets and will be
amortized over three years. Pro forma information giving effect to this
acquisition has not been presented since it would not differ materially from the historical results
of the Company.



3. Net Income Per Share

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

`Three Months Ended     Six Months Ended
                                                    June 30,             June 30,
                                             -------------------- ---------------------
                                                2000      1999       2000        1999
                                             --------- ---------- ----------- ---------
Shares used in basic net income
  per share computation.....................  202,693    187,283     200,443   186,075
Effect of dilutive potential
  common shares.............................   44,227         --         --     32,589
                                             --------- ---------- ----------- ---------
Shares used in diluted net income
  per share computation.....................  246,920    187,283     200,443   218,664
                                             ========= ========== =========== =========`

The Company excludes potentially dilutive securities from its diluted net
income 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. The following common stock equivalents were excluded from the earnings per
share computation as their inclusion would have been anti-dilutive (in thousands):

`Three Months Ended     Six Months Ended
                                                    June 30,             June 30,
                                             -------------------- ---------------------
                                                2000      1999       2000        1999
                                             --------- ---------- ----------- ---------
Options excluded due to the exercise
  price exceeding the average fair value
  of the Company's common stock during
  the period................................    3,383      3,862       4,342     4,423

Weighted average options, calculated
  using the treasury stock method, that
  were excluded due to the Company
  reporting a net loss available to
  common stockholders during the period.....      --      32,556      44,836       --

Convertible subordinated debentures.........    6,433       --         6,433       --

Weighted average mandatorily redeemable
  convertible preferred stock...............    1,375      2,658       2,018     1,943
                                             --------- ---------- ----------- ---------
Total common stock equivalents excluded.....   11,191     39,076      57,629     6,366
                                             ========= ========== =========== =========`

The shares excluded from the earnings per share computation due to the
exercise prices exceeding the average fair value of the Company's common stock during the three and
six months ended June 30, 2000 and the three and six months ended June 30, 1999 had a weighted
average exercise price of $146.48, $142.04, $23.83 and $23.63 per share, respectively. Prior to
September 1999, the convertible subordinated debentures were not outstanding and, accordingly, were
not included in the earnings per share computation for the three and six months ended June 30,
1999.



4. 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 industry-specific
eBusiness 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.

5. Commitments and Contingencies

Letters of credit

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.

Professional Service Arrangements

In March 1999, the Company, through OpenSite, entered into an agreement
with Protégé Software Limited ("Protégé"), whereby Protégé
managed OpenSite's European subsidiary, OpenSite Europe Ltd. The initial term of the agreement was
for a period of eighteen months beginning April 1, 1999; however, the agreement was terminated by
the Company effective June 30, 2000.

Under the original terms of the agreement, Protégé earned a cash
bonus (the "Cash Bonus") based on a percentage of sales within Protégé's territory, as
defined in the agreement. At the option of Protégé, the Cash Bonus for the period
ending March 30, 2000 could be converted into shares of the Company's common stock at a price of
approximately $15 per share. During the three months ended March 31, 2000 OpenSite recorded a one-
time non-cash expense of approximately $1,800,000 related to OpenSite's commitment to issue shares
of common stock to Protégé. In May 2000, Protégé elected to convert its
Cash Bonus for the twelve-month period ended March 30, 2000 into shares of OpenSite common stock and
subsequently OpenSite issued an aggregate of 17,345 shares of equivalent Siebel common stock as full
satisfaction of such election. Neither OpenSite nor the Company is obligated to issue
Protégé any shares of its common stock for periods subsequent to March 31,
2000.

6.	Convertible Subordinated Debentures

The Company's convertible subordinated debentures are seven-year term
notes, bear interest at a rate of 5.50% and are convertible into approximately 6,433,000 shares of
the Company's common stock at any time prior to maturity, at a conversion price of approximately
$46.63 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 at $300,000,000. In
addition, accrued interest to the redemption date will be paid by the Company in each
redemption.

The fair value of the Company's convertible subordinated debentures was
$1,081,140,000at June 30, 2000, based on quoted market price.

7. Mandatorily Redeemable Convertible Preferred Stock

In January 1998, OpenSite sold 548,978 shares of Series A mandatorily
redeemable convertible preferred stock in a private placement transaction in exchange for proceeds
of $555,171, net of issuance costs of $44,829. In August and September 1998, OpenSite sold 657,392
shares of Series B mandatorily redeemable convertible preferred stock in a private placement
transaction in exchange for proceeds of $3,938,060, net of issuance costs of $61,940. In March and
April 1999, OpenSite sold 1,577,735 shares of Series C mandatorily redeemable convertible preferred
stock in a private placement transaction for proceeds of $23,875,000, net of issuance costs of
$125,000. In conjunction with the sale of the Series C mandatorily redeemable convertible preferred
stock, OpenSite repurchased 245,011 shares of common stock, 122,505 shares of Series A mandatorily
redeemable convertible preferred stock, and 7,412 warrants for an aggregate purchase price of
$4,265,635.

As of December 31, 1999, the Series A, Series B, and Series C mandatorily
redeemable convertible preferred stock (collectively, the "Preferred Stock") had an aggregate
liquidation preference of $600,000, $4,000,000, and $48,000,000, respectively. As of December 31,
1999, there were 426,473 shares of Series A preferred stock outstanding; 657,392 shares of Series B
preferred stock outstanding; and 1,577,735 shares of Series C preferred stock outstanding.

In connection with the Company's acquisition of OpenSite, on May 17, 2000 the
holders of the Preferred Stock converted their shares on a one-for-one basis into shares of
OpenSite's common stock. Prior to the conversion of the Preferred Stock, the holders of the
Preferred Stock had certain preferences over the holders of the common stock, including liquidation
preferences, dividend rights and redemption rights.

In accordance with the redemption rights of the Preferred Stock, the holders
of the Preferred Stock could require OpenSite to repurchase the Preferred Stock at the then current
fair value of OpenSite's common stock, subject to certain restrictions as defined in the purchase
agreements regarding the Preferred Stock. Accordingly, the Company recorded a non-cash charge to
stockholders' equity of $21,707,000 and $32,985,000 during the three months ended June 30, 2000 and
1999, respectively, and $98,755,000 and $41,909,000 during the six months ended June 30, 2000 and
1999, respectively, to reflect the Preferred Stock at its fair value. These charges to equity have
been deducted from the Company's net income in calculating both basic and diluted earnings per
share. As a result of the conversion of the Preferred Stock, the Company stopped recording the
accretion on the Preferred Stock on May 17, 2000.

8.	Subsequent Events

OnLink Technologies, Inc.

On August 7, 2000, the Company announced an agreement to acquire
OnLink Technologies, Inc. ("OnLink"), a provider of ecommerce software. OnLink's technology is designed to provide
companies with guided, interactive online communication with customers to find out what they
need and automatically match them to product and service configurations. Under the terms of the
agreement, each outstanding share of OnLink common stock will be exchanged for approximately .1648
newly issued shares of common stock of the Company. All outstanding stock options of OnLink will
also be exchanged for the Company's stock options at the same exchange ratio. This will result in
the issuance of approximately 3,700,000 additional shares of the Company, representing a current
market value of approximately $609 million based on the closing price of the Company's stock on
August 7, 2000.

The transaction is expected to be accounted for as a pooling of
interests. The acquisition is subject to the approval of OnLink's shareholders and appropriate
government agencies, as well as the satisfaction of certain customary closing conditions. The
transaction is expected to close in the third calendar quarter of 2000.

Stock Split

On August 7, 2000, the Company announced a 2-for-1 stock split for
shareholders of record on August 18, 2000. The stock split will be affected though a stock dividend
that is payable on September 8, 2000. The Company has not reflected the effects of this split in the
accompanying financial statements.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.

The statements contained in this Quarterly Report on Form 10-Q (the
"Report") that are not historical are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. Forward-looking statements
include, without limitation, statements regarding the extent and timing of future revenues and
expenses and customer demand, statements regarding the deployment of the Company's products, and
statements regarding reliance on third parties. All forward-looking statements included in this
document are based on information available to the Company as of the date hereof, and the Company
assumes no obligation to update any such forward-looking statement. It is important to note that the
Company's actual results could differ materially from those in such forward-looking statements.

Overview

Siebel Systems, Inc. ("Siebel" or "the Company") is the market leader in
eBusiness application software. 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.

In May 2000 and December 1999, the Company acquired OpenSite Technologies,
Inc. ("OpenSite") and OnTarget, Inc. ("OnTarget"), respectively. OpenSite develops and markets
Internet auction and dynamic pricing technology that enables companies to create branded,
interactive, real-time Internet auctions. OpenSite's products and services automates the client's
process of installing, running and maintaining its dynamic commerce applications. 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 of OpenSite include a full range of small, medium and large businesses
that are focusing on expanding their sales focus to include dynamic commerce. Primary customers of
OnTarget 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 each of the agreements, each outstanding share of OpenSite
and OnTarget common stock was exchanged for approximately 0.131478 and 0.3077516, respectively,
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 each transaction to the former
shareholders of OpenSite and OnTarget. In addition, all outstanding stock options of both OpenSite
and 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 acquisitions of OpenSite and OnTarget have been accounted for as poolings
of interests. Accordingly, the financial statements of the Company have been restated to include the
financial position and results of operations of OpenSite and OnTarget for all periods presented.



Results of Operations for the Three and Six Months Ended June 30, 2000 and
1999

Revenues

Software. License revenues increased to $242,404,000 for the three
months ended June 30, 2000 from $111,318,000 for the three months ended June 30, 1999. License
revenues as a percentage of total revenue were 63% in both the second quarter of 2000 and 1999.
License revenue increased to $435,387,000 for the six months ended June 30, 2000 from $205,671,000
for the six months ended June 30, 1999 and decreased as a percentage of total revenues to 62% in the
fiscal 2000 period from 64% in the fiscal 1999 period. License revenues increased in absolute
dollars during this period as compared to the respective prior period 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, sold to existing
users of Siebel base applications. The 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
grow 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 $144,996,000 for the three months ended June 30, 2000
from $65,338,000 for the three months ended June 30, 1999 and the percentage of total revenues were
37% in both the second quarter 2000 and 1999. Professional services, maintenance and other revenues
increased to $264,518,000 for the six months ended June 30, 2000 from $113,506,000 for the six
months ended June 30, 1999 and increased as a percentage of total revenue to 38% in the fiscal 2000
period from 36% in the fiscal 1999 period. The increase in the absolute dollar amount was due to
growth in the Company's sales and marketing training business, consulting business and growth in the
installed base of customers receiving 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
12 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 the six months ended June 30, 2000, sales to the Company's
ten largest customers accounted for 44% of total license revenues. For 1999, 1998 and 1997, sales to
the Company's ten largest customers accounted for 16%, 27% and 33% of total license 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 Europe,
Japan, Latin America, South Africa and Asia. International licenses revenues accounted for 40% and
35% of total license revenues for the three months ended June 30, 2000 and 1999, respectively.
International license revenues accounted for 38% and 32% of license revenues for the six months
ended June 30, 2000 and 1999, 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.

On January 6, 2000, the Company acquired Paragren Technologies, Inc.
("Paragren") in a purchase transaction for cash consideration of $18,050,000 (see Note 2).
Concurrently, the Company licensed software to APAC Customer Services, Inc. ("APAC"), the former
parent of Paragren. The Company recognized $540,000 of license revenue from the APAC transaction in
the quarter ended June 30, 2000 and $1,080,000 of license revenue in the six months ended June 30,
2000.

During the first quarter of 2000, the Company established a program whereby
qualified startup companies can obtain Siebel eBusiness software in exchange for shares of their
equity securities. The Company recognized $1,766,000 and $4,196,000 of license revenues related to
this program during the three and six months ended June 30, 2000, respectively.

Cost of Revenues

Software. Cost of license revenues includes third party software
royalties, product packaging, documentation and production. Cost of license revenues increased to
$3,743,000 for the three months ended June 30, 2000 from $2,344,000 for the three months ended June
30, 1999 and as a percentage of total revenues were 1% for each of the three months ended June 30,
2000 and June 30, 1999. Cost of license revenues increased to $9,076,000 for the six months ended
June 30, 2000 from $3,683,000 for the six month ended June 30, 1999 and as a percentage of total
revenues were 1% for each of the six-month periods ended June 30, 2000 and 1999. 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. Cost of license revenues are expected to remain the same as
the first six months of 2000 or increase as a percentage of total revenues.

Professional Services, Maintenance and Other. Cost of professional
services, maintenance and other revenues consists primarily of personnel, facilities and systems
costs incurred in providing sales and marketing training, consulting, and customer support. Cost of
professional services, maintenance and other revenues increased to $95,267,000 for the three months
ended June 30, 2000 from $36,949,000 for the three months ended June 30, 1999 and increased as a
percentage of total revenues to 25% in the second quarter 2000 from 21% in the second quarter 1999.
Cost of professional services, maintenance and other revenues increased to $165,824,000 for the six
months ended June 30, 2000 from $62,911,000 for the six months ended June 30, 1999 and increased as
a percentage of total revenues to 24% in the fiscal 2000 period from 20% in the fiscal 1999 period.
The increase in the absolute dollar amount reflects the effect of fixed costs resulting from the
Company's expansion of its maintenance and support organization and growth in the Company's
consulting business. The Company expects that professional services, maintenance and other costs
will continue to increase in absolute dollar amount as the Company expands its customer support
organization to support a growing installed base; 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 as the first six
months of 2000 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 $30,564,000 for the
three months ended June 30, 2000 from $18,463,000 for the three months ended June 30, 1999 and as a
percentage of total revenues were 8% and 10% for the three months ended June 30, 2000 and 1999,
respectively. Product development expenses increased to $53,979,000 for the six months ended June
30, 2000 from $36,029,000 for the six months ended June 30, 1999 and decreased as a percentage of
total revenues to 8% in the fiscal 2000 period from 11% in the fiscal 1999 period. The increase in
the absolute dollar amount of product development expenses was 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 the first six months of 2000. 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 to
date 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
$153,354,000 for the three months ended June 30, 2000 from $67,247,000 for the three months ended
June 30, 1999 and increased as a percentage of total revenues to 40% in the second quarter 2000 from
38% in the second quarter 1999. Sales and marketing expenses increased to $287,443,000 for the six
months ended June 30, 2000 from $123,092,000 for the six months ended June 30, 1999 and increased as
a percentage of total revenues to 41% in the fiscal 2000 period from 39% in the fiscal 1999 period.
The increase in the dollar amount of sales and marketing expenses reflects primarily the hiring of
additional sales and marketing personnel and costs associated with expanded promotional activities.
The Company expects that sales and marketing expenses will continue to increase in absolute dollars
as the Company continues to expand its sales and marketing efforts, establishes additional sales
offices in the United States and internationally and increases its promotional activities. These
expenses are expected to remain at a similar percentage of total revenues as the first six months of
2000.

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 $32,275,000 for the three months ended
June 30, 2000 from $15,369,000 for the three months ended June 30, 1999 and as a percentage of total
revenues were 8% and 9% for the three months ended June 30, 2000 and 1999, respectively. General and
administrative expenses increased to $57,386,000 for the six months ended June 2000 from $26,487,000
for the six months ended June 30, 1999 and the percentage of total revenues were 8% in both the
fiscal 2000 and fiscal 1999 periods. The increase in the absolute dollar amount of general and
administrative expenses was 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 dollars 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 the first half of 2000.

Merger-Related Expenses. During the second quarter of 2000, the
Company expensed $10,002,000 of direct merger-related expenses in connection with the Company's
acquisition of OpenSite. These costs primarily consisted of investment banker fees, along with
attorneys, accountants and other professional fees. As of June 30, 2000, the Company had settled
approximately $2,200,000 of these merger-related costs and, accordingly, has reflected the remaining
$7,800,000 of these merger-related costs in accrued liabilities. The remaining liabilities consist
of approximately $7,500,000 of investment banker and other professional fees and $300,000 of
severance-related costs. The Company expects to settle these liabilities by December 31, 2000. The
Company did not incur any significant merger-related costs during the first six months of 1999.

Operating Income and Operating Margin.

Operating income increased to $62,195,000 for the three months ended June 30,
2000 from $36,284,000 for the three months ended June 30, 1999 and operating margin decreased to 16%
in the second quarter 2000 from 21% in the second quarter 1999. Excluding merger-related expenses,
operating income increased to $72,197,000 for the three months ended June 30, 2000 from $36,284,000
for the three months ended June 30, 1999 and operating margin decreased to 19% in the second quarter
of 2000 from 21% in the second quarter of 1999. Operating income increased to $116,195,000 for the
six months ended June 2000 from $66,975,000 for the six months ended June 30, 1999 and operating
margin decreased to 17% in the fiscal 2000 period from 21% in the fiscal 1999 period. Excluding
merger-related expenses, operating income increased to $126,197,000 for the six months ended June
30, 2000 from $66,975,000 for the six months ended June 30, 1999 and operating margin decreased to
18% in the first six months of 2000 from 21% in the first six months of 1999. This decrease in the
operating margin, excluding merger related expenses, was mainly due to personnel and hiring costs
associated with increased hiring, primarily in the professional services, sales, and product
development organizations in the first half of 2000.

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 for the three and six months
ended June 30, 1999. For the three and six months ended June 30, 2000, other income, net also
included interest expense on the convertible subordinated debentures, losses of an equity method
investee, charitable contribution of marketable equity securities, and gain on sale of marketable
equity securities.



For the three and six months ended June 30, 2000, Other income, net was comprised
of the following:

`Three          Six
                                                      Months         Months
                                                       Ended         Ended
                                                     June 30,       June 30,
                                                       2000           2000
                                                    -----------   ------------
    Interest income............................... $12,124,000   $ 22,228,000
    Interest expense..............................  (4,439,000)    (8,878,000)
    Losses of an equity method investee...........  (2,877,000)    (5,408,000)
    Contribution of marketable equity securities..         --     (28,700,000)
    Gain on sale of marketable equity securities..  11,193,000     50,112,000
    Other, net....................................     178,000       (156,000)
                                                    -----------  -------------
                                                   $16,179,000   $ 29,198,000
                                                   ============  =============`

Provision for Income Taxes

Income taxes are comprised primarily of federal and state taxes. The
pro forma provision of income tax would not have been materially different from the income tax
provision as presented if OnTarget (an S corporation for income tax reporting purposes) had been a C
corporation for all periods presented. The provision for income taxes was $33,031,000 and
$14,134,000 for the three months ended June 30, 2000 and June 30, 1999, respectively. The provision
for income taxes as a percentage of pretax income increased to 42% during the three months ended
June 30, 2000 from 37% during the three months ended June 30, 1999. The provision for income taxes
increased to $58,501,000 for the six months ended June 2000 from $26,125,000 for the six months
ended June 1999 and as a percentage of pretax income increased to 40% in the fiscal 2000 period from
37% in the fiscal 1999 period. The increase in the provision for income taxes as a percentage of
pretax income for the three and six months ended June 30, 2000 compared to the three and six months
ended June 30, 1999 was primarily due to non-deductible merger related expenses. The Company expects
its effective tax rate for the remainder of 2000 to be approximately 38%, excluding the effect of
non-deductible costs such as merger-related expenses.

Net Income and Net Income (Loss) Available to Common Stockholders

The Company had net income of $45,343,000 for the three months ended
June 30, 2000 compared to $24,161,000 for the three months ended June 30, 1999. Net income as a
percentage of total revenues was 12% and 14% for the three months ended June 30, 2000 and June 30,
1999, respectively. Net income increased to $86,892,000 for the six months ended June 30, 2000 from
$45,209,000 for the six months ended June 30, 1999. Net income as a percentage of total revenues was
12% and 14% for the six months ended June 30, 2000 and June 30, 1999, respectively.

Net income available to common stockholders was $23,636,000 for the three
months ended June 30, 2000 compared to a net loss available to common stockholders of $8,824,000 for
the three months ended June 30, 1999. Net loss available to common stockholders was $11,863,000 for
the six months ended June 30, 2000 compared to net income available to common stockholders of
$3,300,000 for the comparable period in 1999. Net income has been reduced by accretion on OpenSite's
mandatorily redeemable preferred stock to arrive at net income available to common stockholders. The
accounting for mandatorily redeemable preferred stock requires non-cash accretion to the then
current fair value of the common stock into which the mandatorily redeemable convertible preferred
stock is convertible. This resulted in a non-cash charge to accretion and offsetting credit to
mandatorily redeemable convertible preferred stock for each period presented. The amount of
accretion for an income statement period was dependent upon how much the fair value of OpenSite's
common stock fluctuated during that period. In connection with the Company's acquisition of
OpenSite, the holders of the mandatorily redeemable convertible preferred stock converted their
shares on a one for one basis into shares of OpenSite's common stock. Accordingly, the Company
stopped recording accretion on the mandatorily redeemable convertible preferred stock on May 17,
2000.

Diluted net income (loss) per share was $0.10 in the second quarter of 2000
and $(0.05) in the comparable period in 1999. For the six months ended June 30, 2000 diluted net
income (loss) per share was $(0.06) compared to $0.02 in the fiscal 1999 period.



Liquidity and Capital Resources

The Company's cash, cash equivalents and short-term investments
increased to $951,323,000 as of June 30, 2000 from $673,974,000 as of December 31, 1999,
representing approximately 59% and 54% of total assets, respectively. This increase was primarily
attributable to net income, increases in accounts payable, accrued expenses and deferred revenue,
issuance of common stock under the Company's stock option plans, and the public offerings and
subsequent increase in market value of the Company's equity investments, partially offset by
decrease in deferred income taxes and increases in purchases of property and equipment. The
Company's days sales outstanding in accounts receivable was 74 as of June 30, 2000 compared with 98
as of December 31, 1999.

As of August 1, 2000, the fair market value of the Company's marketable
equity securities held as of June 30, 2000 was $41,509,000.

For the six months ended June 30, 2000, cash provided by operating activities
of $272,097,000 was primarily due to net income, the tax benefit from exercise of stock options,
increases in accounts payable and accrued expenses and in deferred revenue, partially offset by
deferred income taxes and gain on sale of marketable equity securities. For the six months ended
June 30, 1999, cash provided by operating activities of $29,834,000 was primarily due to net income,
the tax benefit from exercise of stock options, and increases in accounts payable and accrued
expenses, offset by an increase in accounts receivable.

Cash used in investing activities of $122,067,000 for the six months ended
June 30, 2000 was primarily the result of the Company's purchases of Paragren Technologies, Inc. and
MOHR Development, Inc., along with the purchases of property and equipment and net purchase of
short-term investments, partially offset by proceeds from sales of the Company's marketable equity
securities. For the six months ended June 30, 1999, cash used in investing activities of $11,642,000
was primarily due to purchases of property and equipment and net purchases of short-term
investments, partially offset by proceeds from disposals of property and equipment.

For the six months ended June 30, 2000, cash provided by financing activities
of $74,770,000 resulted primarily from the issuance of common stock pursuant to the exercise of
stock options. For the six months ended June 30, 1999, cash provided by financing activities of
$52,054,000 was primarily due to the issuance of common stock pursuant to the exercise of stock
options and the issuance by OpenSite of Series C mandatorily redeemable convertible preferred
stock.

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 has begun
to transition more of the office suites to leased space. This transition has involved 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 licensing 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 licensed and services sold;
- Levels of international transactions;
- 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, distributors,
resellers, and technology vendors.

Failure to maintain existing strategic relationships with systems
integrators, distributors, resellers, and technology vendors, 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 relationships with
Andersen Consulting, IBM Global Services, PricewaterhouseCoopers and Deloitte Consulting. A
significant portion of our revenues has 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 technology vendors
such as IBM Corporation, Compaq Computer Corporation, Microsoft Corporation and Sun Microsystems,
Inc., 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
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, privacy, 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 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 providea substantial part of our license revenues.

A substantial majority of our license revenues are attributable to sales
of Siebel Sales, Siebel Service, 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 the six months ended June 30, 2000 and year ended December 31, 1999, license revenues
from our ten largest customers accounted for 44% and 16% respectively, of total license 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 Corporation (Allegis
Sales Partner 4.0), Annuncio Software, Inc. (Annuncio Live, Annucio Bright), Ariba, Inc. (Ariba B2B
Commerce Platform), Blue Martini Software, Inc. (Blue Martini Customer Interaction System),
Brightware, Inc. (Brightware 2000), BroadVision, Inc. (One-to-One), Broadbase Software, Inc. (E-
Sales, E-Marketing, E-Service, E-Commerce, E-Personalize), Calico Commerce, Inc. (Calico
Configurator, Calico Advisor, Calico Quote, Calico Market Maker, Calico Loyalty Builder), Callidus
Software, Inc. (TrueComp), Chordiant Software, Inc. (Chordiant v. 2.0), Dendrite International
(Dendrite WebForce, ScripMax), Epicor Software Corporation (Epicor eFrontOffice, Epicor
eCommerce Suite, Epicor eIntelligence), E.piphany, Inc. (E.5 System), FirePond, Inc. (FirePond
Application Suite 2.0), Firstwave Technologies, Inc. (Firstwave eRM), GoldMine Software Corporation
(GoldMine Frontoffice 2000), I2 Technologies, Inc. (RYTHM), Kana Communications, Inc. (Kana Connect,
Kana Response, Kana Assist, Kana Advisor, Kana I-Mail, Kana Chat, Kana Voice, Kana Phone, Kana
Service, Kana Commerce, Kana eBusiness Platform, Kana Conduits), MarketFirst Software, Inc.
(MarketFirst 2.4), MarketSoft (eLeads), Niku Corporation (iNiku, eNiku4, xNiku), Nortel
Networks (Clarify eFrontOffice 9.0), ONYX Software Corporation (Onyx Front Office 2000), Oracle
Corporation (eBusiness Suite 11i), Pegasystems, Inc. (Pegasystems), PeopleSoft, Inc. (Vantive 8.5),
Pivotal Software, Inc. (eRelationship 2000, eSelling 2000), Prime Response, Inc.
(Prime@Vantage.com), Quintus Corp. (Quintus eContact Suite), SalesLogix, a division of Interact
Commerce Corporation (CommerceLogix, SupportLogix, ACT!), SAP AG (mySAP.comTM Customer
Relationship Management), Saratoga Systems, Inc. (Avenue®), ServiceSoft, Inc. (ServiceSoft
2001), Trilogy Software, Inc. (MultiChannel Commerce 2.0), update.com software (Marketing
Manager®) 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, including defects in third party products with which our products work. 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.

Integration of personnel and operations relating to our previous or future
acquisitions may disrupt our business and management

We have acquired several companies within the past year and we may not be
able to successfully assimilate the additional personnel, operations, acquired technology and
products into our business. In particular, we will need to assimilate and retain key professional
services, engineering and marketing personnel. Key personnel from the acquired companies have in
certain instances decided, and they may in the future decide, to pursue other opportunities. In
addition, it may be necessary to integrate products of these companies with our technology, and it
is uncertain whether we may accomplish this easily or at all. These integration difficulties could
disrupt our ongoing business, distract management and employees or increase expenses. Acquisitions
are inherently risky and we may also face unexpected costs, which may adversely affect operating
results in any quarter.

Due to these and other factors, we may not meet expectations of securities
analysts or investors with respect to revenues or other operating results of the combined company,
which could adversely affect our stock price.

If we acquire additional companies, products or technologies, we may face
risks similar to those faced in our other acquisitions.

We may continue to make other investments in complementary companies,
products or technologies. We may not realize the anticipated benefits of any other acquisition or
investment. If we acquire another company, we will likely face the same risks, uncertainties and
disruptions as discussed above with respect to our other acquisitions. In addition, our
profitability may suffer because of acquisition-related costs or amortization costs for acquired
goodwill and other intangible assets.

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.
During the second quarter of 2000, our Senior Vice President, Engineering announced his
intention to retire at the end of 2000.  An internal replacement was appointed during the
quarter.  Our Senior Vice President, Finance and Administration and Chief Financial Officer had
previously announced his intention to retire. During the third quarter of 2000, we hired his
replacement. To integrate into our company, these individuals must spend a significant amount
of time learning our business model and management system, in addition to performing their
regular duties. Accordingly, until these individuals have become familiar with our business
model and systems, their integration may result in some disruption to our ongoing operations.
In addition, during the second quarter of 2000, our Senior Vice President, Worldwide
Operations announced his intention to take a six-month sabbatical, which commenced during such
quarter.  A temporary internal replacement has been appointed.  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 U.S. 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 June 30,
2000. 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.

Item 3. 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 domestic currency and mitigating the exchange rate risk.

The following summarizes the Company's foreign currency forward contracts,
all of which mature in 2000, by currency, as of June 30, 2000. Contract amounts are representative
of the expected payments to be made under these instruments (in thousands):

`Fair
                                         Contract      Contract   Value at
                                          Amount        Amount    June 30,
                                     (Local Currency)             2000 (US$)
                                     ----------------  ---------  ---------
German marks (contracts to pay
  DM/receive US$)...................        DM  6,600    US$3,031    ($153)

 British pounds (contracts to pay
 Pounds/receive US$)................  (Pounds)  4,511    US$6,824      ($8)

Japanese yen (contracts to pay
 Yen/receive US$)...................  (Yen) 3,718,000   US$35,268      ($7)

Euro (contracts to receive
  EUR/pay US$)......................      EUR  28,583  US$(27,456)   ($490)

Bristish pounds (contracts to
 receive Pounds/pay EUR)............     (Pounds) 475    EUR (828)    ($61)`

The following summarizes the Company's short-term investments and the
weighted average yields, as of June 30, 2000 (in thousands):

`Expected maturity date
                         -----------------------------------------------------
                                                                       There-
                           2000     2001     2002     2003     2004    after
                         -------- -------- -------- -------- -------- --------
US Treasury and Agency
securities...............$10,844   $9,405  $18,405  $13,553   $6,291       --
Wtd. Avg. Yld...........    6.51%    6.70%    6.57%    6.37%    7.13%

Municipal securities.... $17,838  $38,164  $28,006   $5,256       --       --
Wtd. Avg. Yld...........    4.41%    4.68%    4.82%    5.04%

Corporate bonds.........  $2,989  $54,579  $32,535   $5,304   $5,400   $1,297
Wtd. Avg. Yld...........    6.77%    7.23%    7.31%    7.51%    7.15%    7.46%`

On June 30, 2000, the Company had an investment portfolio
of fixed income securities, excluding those classified as cash and cash equivalents, of
$249,866,000. 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 June 30, 2000, the fair value of the
portfolio would decline by approximately $3,436,000.

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.
These investments are in publicly-traded companies 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 prices would result in an approximate $4,708,000 decrease in the
fair value of the Company's marketable equity securities as of June 30, 2000.

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 credit worthiness of the Company.
The fair market value of the convertible subordinated debentures as of June 30, 2000 was
$1,081,140,000.



Part II.	Other Information

Item 1.	Legal Proceedings.

The Company is subject to legal proceedings and claims, either asserted
or unasserted, which arise in the ordinary course of business. While the outcome of these
proceedings and claims cannot be predicted with certainty, management does not believe that the
outcome of any of these legal matters will have a material adverse effect on the Company's
consolidated results of operations or consolidated financial position.



Item 2.	Changes in Securities and Use of Proceeds.

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

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

The Company's annual meeting of stockholders was held on June 7, 2000
(the "Annual Meeting"). The following matters were considered and voted upon at the Annual
Meeting:

The first matter related to the election of two director nominees. Eric E.
Schmidt and A. Michael Spence as Directors to serve until the 2003 annual meeting of stockholders.
The votes cast and withheld for such nominees were as follows:



|**Name** | **For** | **Withheld**
|-------- | ------- | ------------

The second matter related to the ratification of the appointment of KPMG LLP
as independent auditors of the Company for its fiscal year ending December 31, 2000, 174,203,611
votes were cast for ratification and 47,706 votes were cast against ratification. There were 56,147
abstentions and no broker non-votes.

Based on these voting results, each of the directors nominated was elected
and the second matter was approved.



Item 6.	Exhibits and Reports on Form 8-K.



|**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)                                               
|2.3                | Agreement and Plan of Merger and Reorganization dated April 5, 2000, among the
Registrant, OS Acquisition Corp., OpenSite Technologies, Inc. and Alan Taetle as Stockholders'
Agent. (10)
|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)                                                                                
|10.16              | Registrant's 1998 Equity Incentive Plan, as amended.(11)                                                                                                                                 
|23.1               | Consent of KPMG LLP, Independent Auditors.(9)                                                                                                                                            
|27.1               | Financial Data Schedule.(12)                                                                                                                                                             

________

(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 to the Registrant's Current Report on Form 8-K
filed by the Registrant on January 7, 2000.

(9)	Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1999.

(10)	Incorporated by reference to the Registrant's Current Report on Form 8-K
filed by the Registrant on June 1, 2000.

(11)	Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (No. 333-72969), as amended.

(12) Filed herewith.



(b)	Reports on Form 8-K.

On June 1, 2000, the Registrant filed a Special Report on Form 8-K relating to the
Registrant's acquisition of OpenSite Technologies, Inc.

---

**SIEBEL SYSTEMS, INC.**

**SIGNATURES**

Pursuant to the requirement of the Security 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)

Date: August 14, 2000



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

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



| |     |                    
| | --- | -------------------
| | By: | /s/ Paul J. Gifford

| |                               
| | ------------------------------
| |                               
| | Paul J. Gifford               
| | Vice President, Controller    
| | (Principal Accounting Officer)

---