content: <PAGE>
  
                        SECURITIES AND EXCHANGE COMMISSION
  
                              WASHINGTON, D.C. 20549
  
                                     FORM 8-K
  
                                  CURRENT REPORT
  
  
                        Pursuant to Section 13 or 15(d) of
                        The Securities Exchange Act of 1934
  
                                  January 7, 2000
  
                               --------------------
  
                 Date of Report (Date of earliest event reported)
  
                               SIEBEL SYSTEMS, INC.
  
                               --------------------
  
              (Exact name of registrant as specified in its charter)
  
            Delaware                      0-20725                 94-3187233
         ---------------              ---------------           ---------------
  
   (State or other jurisdiction of      (Commission             (I.R.S. Employer
            incorporation               File Number)           Identification No.)
  
  
                              1855 South Grant Street
                                San Mateo, CA 94402
  
                               --------------------
  
                     (Address of principal executive offices)
  
                                  (650) 295-5000
  
                               --------------------
  
               (Registrant's telephone number, including area code)
  
                                         1
  <PAGE>
  
  Item 5.     Other Events
  
            Attached as Appendix A to this current report on Form 8-K are the
  Registrant's audited supplemental consolidated financial statements as of
  December 31, 1997 and 1998, for each of the years in the three-year period ended
  December 31, 1998, and the unaudited supplemental consolidated financial
  statements as of September 30, 1999 and for the nine-month periods ended
  September 30, 1998 and 1999 and the related supplemental consolidated financial
  statement schedule, supplemental selected financial data and management's
  discussion and analysis of financial condition and results of operations.
  
  Item 7.    Financial Statements, Pro Forma Financial Information and Exhibits.
  
             (c)   Exhibits
  
             The following Exhibits are filed as part of this report:
  
             23.1     Consent of KPMG LLP
  
             27.1     Financial Data Schedule
  
                                         2
  <PAGE>
  
                                     SIGNATURE
  
           Pursuant to the requirements of the Securities Exchange Act of 1934,
  the registrant has duly caused this report to be signed on its behalf by the
  undersigned hereunto duly authorized.
  
                                                SIEBEL SYSTEMS, INC.
  Date:  January 7, 2000
  
                                                By:  /s/ Howard H. Graham
                                                   -----------------------------
                                                     Howard H. Graham
                                                     Senior Vice President,
                                                     Finance and Administration
                                                     and Chief Financial Officer
  
                                         3
  <PAGE>
  
                       SELECTED CONSOLIDATED FINANCIAL DATA
                 (in thousands, except per share data and ratios)
  
       The following selected consolidated financial data should be read in
  conjunction with our Supplemental Consolidated Financial Statements and Notes
  thereto and "Management's Discussion and Analysis of Financial Condition and
  Results of Operations" included elsewhere in the Form 8-K. The selected
  consolidated financial data for each of the years in the three-year period ended
  December 31, 1998, and as of December 31, 1997 and 1998 is derived from our
  consolidated financial statements that have been audited by KPMG LLP,
  independent auditors. The selected consolidated financial data for the year
  ended December 31, 1996, and as of December 31, 1996, is derived from audited
  consolidated financial statements that have not been included in this Form 8-K.
  The selected financial data as of, and for the nine months ended, September 30,
  1998 and 1999 have been derived from unaudited supplemental consolidated
  financial statements included elsewhere in this Form 8-K.
  
       The unaudited supplemental consolidated financial statements have been
  prepared on the same basis as the audited supplemental consolidated financial
  statements and include all adjustments, consisting of normal, recurring
  adjustments, that in the opinion of management are necessary for a fair
  presentation of the information set forth therein. Historical results are not
  necessarily indicative of the results to be expected in the future.
  
  <TABLE>
  <CAPTION>
                                                                            Nine Months Ended
                                            Year Ended December 31,           September 30,
                                        ------------------------------     -----------------
                                          1996       1997       1998         1998     1999
                                        --------   --------   --------     --------  -------
  <S>                                   <C>        <C>        <C>          <C>       <C>
  Total revenues....................... $111,980   $222,071   $409,886     $281,787   $522,935
  Operating income (loss)..............   18,162      8,518     68,019       38,365    117,729
  Net income (loss)....................   13,750        643     44,265       24,405     77,115
  Proforma net income..................   13,313         55     43,460       23,691     77,144
  Pro Forma diluted net
   income (loss) per share(1)..........     0.08       0.00       0.21         0.12       0.35
  Pro Forma basic net
   income (loss) per share(1)..........     0.09       0.00       0.24         0.13       0.41
  Total assets.........................  209,602    210,950    447,596      391,121  1,004,444
  Total equity.........................  173,157    210,950    291,120      258,212    475,913
  </TABLE>
  
  ________________________
    (1) See Note 1 of Notes to Supplemental Consolidated Financial Statements for
    an explanation of the determination of the number of shares used in computing
    per share data.
  
  
  
  
  
  
  
  
  
  
  
  
  <PAGE>
  
                                    APPENDIX A
  
     AUDITED SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31,
   1997 AND 1998, FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED DECEMBER
  31, 1998 AND THE UNAUDITED SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS AS OF
    SEPTEMBER 30, 1999 AND FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998
   AND SEPTEMBER 30, 1999, AND THE RELATED SUPPLEMENTAL CONSOLIDATED FINANCIAL
    STATEMENT SCHEDULE, SUPPLEMENTAL SELECTED FINANCIAL DATA AND MANAGEMENT'S
     DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
  ===============================================================================
  
                                                                       APPENDIX A
  
                           INDEPENDENT AUDITORS' REPORT
  
  The Board of Directors and Stockholders of
  Siebel Systems, Inc.:
  
       We have audited the accompanying supplemental consolidated balance sheets
  of Siebel Systems, Inc. and subsidiaries as of December 31, 1997 and 1998, and
  the related supplemental consolidated statements of operations and comprehensive
  income, stockholders' equity, and cash flows for each of the years in the three-
  year period ended December 31, 1998. These supplemental consolidated financial
  statements are the responsibility of the Company's management. Our
  responsibility is to express an opinion on these supplemental consolidated
  financial statements based on our audits.
  
       We conducted our audits in accordance with generally accepted auditing
  standards. Those standards require that we plan and perform the audit to obtain
  reasonable assurance about whether the financial statements are free of material
  misstatement. An audit includes examining, on a test basis, evidence supporting
  the amounts and disclosures in the financial statements. An audit also includes
  assessing the accounting principles used and significant estimates made by
  management, as well as evaluating the overall financial statement presentation.
  We believe that our audits provide a reasonable basis for our opinion.
  
       The supplemental consolidated financial statements give retroactive effect
  to the merger of Siebel Systems, Inc. and OnTarget, Inc. on December 1, 1999,
  which has been accounted for as a pooling of interests as described in Note 9 to
  the supplemental consolidated financial statements. Generally accepted
  accounting principles prescribe giving effect to a consummated business
  combination accounted for by the pooling-of-interests method in financial
  statements that do not include the date of consummation. These financials
  statements do not extend through the date of consummation. However, they will
  become the historical consolidated financial statements of Siebel Systems, Inc.
  and subsidiaries after financial statements covering the date of consummation of
  the business combination are issued.
  
       In our opinion, the supplemental consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of
  Siebel Systems, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
  results of their operations and their cash flows for each of the years in the
  three-year period ended December 31, 1998, in conformity with generally accepted
  accounting principles applicable after financial statements are issued for a
  period which includes the date of consummation of the business combination.
  
  
  /s/KPMG LLP
  
  Mountain View, California
  December 1, 1999
  
                                         5
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
  
                     Supplemental Consolidated Balance Sheets
                       (In thousands, except per share data)
  
  <TABLE>
  <CAPTION>
  
                                                                                 December 31,         September 30,
                                                                             1997           1998           1999
                                                                      ---------------- -------------- -------------
                                                Assets                                                 (Unaudited)
                                                ------
  <S>                                                                 <C>              <C>            <C>
  Current assets:
      Cash and cash equivalents                                       $     70,336     $   80,741     $   466,198
      Short-term investments                                                91,999        151,888         158,593
      Marketable equity securities                                               -              -          46,503
      Accounts receivable, net                                              65,238        126,081         223,750
      Deferred income taxes                                                  4,824         13,270          13,120
      Prepaids and other                                                     6,967         14,402          20,987
                                                                      ---------------- -------------- -------------
  
                Total current assets                                       239,364        386,382         929,151
  Property and equipment, net                                               25,564         46,384          46,418
  Other assets                                                               6,607         14,830          28,875
                                                                      ---------------- -------------- -------------
  
                Total assets                                          $    271,535     $  447,596     $ 1,004,444
                                                                      ================ ============== =============
  
                           Liabilities and Stockholders' Equity
                           ------------------------------------
  Current liabilities:
      Accounts payable                                                $      5,938     $    4,558     $    17,914
      Accrued expenses                                                      29,117         88,185         109,244
      Income taxes payable                                                   2,345         10,917          10,285
      Deferred revenue                                                      23,007         52,033          63,247
      Deferred income taxes                                                      -              -          15,356
                                                                      ---------------- -------------- -------------
  
                Total current liabilities                                   60,407        155,693         216,046
  
      Convertible subordinated debentures                                        -              -         300,000
      Other noncurrent liabilities                                               -              -          12,242
      Deferred income taxes                                                    178            783             243
                                                                      ---------------- -------------- -------------
  
                Total liabilities                                           60,585        156,476         528,531
                                                                      ---------------- -------------- -------------
  
  Commitments and contingencies
  
  Stockholders' equity:
      Common stock; $.001 par value; 600,000 shares authorized;
      174,037, 181,569 and 189,447 shares issued and outstanding,
      respectively                                                             174            182             189
      Additional paid-in capital                                           194,903        235,400         318,136
      Notes receivable from stockholders                                      (406)          (406)           (406)
      Deferred compensation                                                   (639)          (360)           (748)
      Accumulated other comprehensive gains (losses)                          (365)          (669)         25,208
      Retained earnings                                                     17,283         56,973         133,534
                                                                      ---------------- -------------- -------------
  
                Total stockholders' equity                                 210,950        291,120         475,913
                                                                      ---------------- -------------- -------------
  
                Total liabilities and stockholders' equity            $    271,535     $  447,596     $ 1,004,444
                                                                      ================ ============== =============
  </TABLE>
  
  
     See accompanying notes to supplemental consolidated financial statements.
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
    Supplemental Consolidated Statements of Operations and Comprehensive Income
                       (In thousands, except per share data)
  
  <TABLE>
  <CAPTION>
                                                                                              Nine Months Ended
                                                        Year Ended December 31,                 September 30,
                                                --------------------------------------    --------------------------
                                                    1996            1997        1998           1998         1999
                                                ------------    ----------- ----------    ------------- ------------
  Revenues:                                                                                (unaudited)   (unaudited)
  <S>                                           <C>             <C>         <C>           <C>           <C>
         Software                               $    80,413     $  156,971  $  290,890    $    200,567  $   329,388
         Maintenance, consulting and other           31,567         65,100     118,996          81,220      193,547
                                                -----------     ----------  ----------    ------------  -----------
                   Total revenues                   111,980        222,071     409,886         281,787      522,935
                                                -----------     ----------  ----------    ------------  -----------
  Cost of revenues:
         Software                                     2,197          4,393       5,600           4,295        5,111
         Maintenance, consulting and other           15,979         31,646      65,387          45,643      112,223
                                                -----------     ----------  ----------    ------------  -----------
                   Total cost of revenues            18,176         36,039      70,987          49,938      117,334
                                                -----------     ----------  ----------    ------------  -----------
                   Gross margin                      93,804        186,032     338,899         231,849      405,601
                                                -----------     ----------  ----------    ------------  -----------
  Operating expenses:
         Product development                         14,775         26,650      43,950          34,909       58,324
         Sales and marketing                         46,549        103,551     178,957         126,482      194,874
         General and administrative                  14,318         21,275      34,473          18,593       34,674
         Merger termination costs                         -          3,298           -               -            -
         Merger-related expenses                          -         22,740      13,500          13,500            -
                                                -----------     ----------  ----------    ------------  -----------
                   Total operating expenses          75,642        177,514     270,880         193,484      287,872
                                                -----------     ----------  ----------    ------------  -----------
  
                   Operating income                  18,162          8,518      68,019          38,365      117,729
  Other income, net                                   3,134          5,385       6,258           4,466        6,697
                                                -----------     ----------  ----------    ------------  -----------
  
                   Income before income taxes        21,296         13,903      74,277          42,831      124,426
  Income taxes                                        7,546         13,260      30,012          18,426       47,311
                                                -----------     ----------  ----------    ------------  -----------
                   Net income                   $    13,750     $      643  $   44,265    $     24,405  $    77,115
                                                ===========     ==========  ==========    ============  ===========
  Unaudited pro forma net income and
   per share data:
        Income before taxes as reported         $    21,296     $   13,903  $   74,277    $     42,831  $   124,426
        Pro forma income taxes                        7,983         13,848      30,817          19,140       47,282
                                                -----------     ----------  ----------    ------------  -----------
        Pro forma net income                    $    13,313     $       55  $   43,460    $     23,691  $    77,144
                                                ===========     ==========  ==========    ============  ===========
  Pro forma diluted net income per share        $      0.08     $     0.00  $     0.21    $       0.12  $      0.35
                                                ===========     ==========  ==========    ============  ===========
  Pro forma basic net income per share          $      0.09     $     0.00  $     0.24    $       0.13  $      0.41
                                                ===========     ==========  ==========    ============  ===========
  Shares used in diluted pro forma net income
  per share computation                             158,704        191,338     202,204         201,838      220,719
                                                ===========     ==========  ==========    ============  ===========
  Shares used in basic pro forma net income
  per share computation                             141,780        169,904     177,446         176,458      185,929
                                                ===========     ==========  ==========    ============  ===========
  Comprehensive income
         Net income                             $    13,750     $      643  $   44,265    $     24,405  $    77,115
  Other comprehensive income (loss), net
   of tax:
         Foreign currency translation
          adjustments                                     -           (365)       (505)           (138)         726
         Unrealized gains on securities                   -              -         201               -       25,151
                                                -----------     ----------  ----------    ------------  -----------
              Total comprehensive income        $    13,750     $      278  $   43,961    $     24,267  $   102,992
                                                ===========     ==========  ==========    ============  ===========
  </TABLE>
  
     See accompanying notes to supplemental consolidated financial statements.
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
           Supplemental Consolidated Statements of Stockholders' Equity
                                  (in thousands)
  
  <TABLE>
  <CAPTION>
  
  
                                                                                                       Accumu-
                                                                                                        lated
                             Convertible                          Addit-         Notes      Deferred    other                  Total
                           Preferred stock       Common stock      ional       receivable     stock    compre-                stock-
                          ------------------  -----------------   paid-in        from       compen-     hensive  Retained    holders'
                           Shares    Amount    Shares    Amount   Capital     stockholders   sation     losses   earnings     equity
                          --------  --------  --------   ------  ---------    ------------  --------   --------  --------   ---------
  <S>                     <C>       <C>       <C>        <C>     <C>          <C>           <C>        <C>       <C>        <C>
  Balances, December 31,
  1995...................   39,244     $  39    93,869    $  94  $  39,390       $     (13)   $ (652)    $   --  $  4,685   $  43,543
  Issuance of common
  stock under Employee
  Stock Option Plans.....       --        --     5,350        5      2,016              --        --         --        --       2,021
  Issuance of common
  stock under Employee
  Stock Purchase Plans...       --        --       590       --      1,641              --        --         --        --       1,641
  Issuance of common
  stock, net of issuance
  costs of $1,849........       --        --    25,782       26    109,464            (507)       --         --        --     108,983
  Repayment of note
  receivable.............       --        --        --       --         --              12        --         --        --          12
  Issuance of convertible
  preferred stock........      988         1        --       --      1,093              --        --         --        --       1,094
  Convertible preferred
  stock issued for
  exercise of warrant....      600         1        --       --        436              --        --         --        --         437
  Tax benefit from stock
  options................       --        --        --       --      2,173              --        --         --        --       2,173
  Compensation related
  to stock options.......       --        --        --       --        893              --      (893)        --        --          --
  Cancellation of
  stock options issued
  below fair value.......       --        --        --       --        (48)             --        48         --        --          --
  Conversion of
  convertible preferred
  stock into common
  stock..................  (40,832)      (41)   40,832       41         --              --        --         --        --          --
  Repurchase and
  retirement of common
  stock..................       --        --      (176)      --         --              --        --         --        --          --
  Amortization of
  deferred compensation
  related to stock
  options................       --        --        --       --         --              --       324         --        --         324
  Subchapter S
  distributions..........       --        --        --       --         --              --        --         --      (822)       (822)
  Net income.............       --        --        --       --         --              --        --         --    13,750      13,750
                          --------  --------  --------   ------  ---------    ------------  --------   --------  --------   ---------
  Balances, December 31,
  1996...................       --        --   166,247      166    157,058            (508)   (1,173)        --    17,613     173,156
  Issuance of common
  stock under Employee
  Stock Option Plans.....       --        --     4,134        5      4,785              --        --         --        --       4,790
  Issuance of common
  stock under Employee
  Stock Purchase Plans...       --        --     1,252        1      4,299              --        --         --        --       4,300
  Issuance of common
  stock related to
  InterActive
  acquisition............       --        --     1,204        1     14,580              --        --         --        --      14,581
  Issuance of common
  stock related to
  Nomadic acquisition....       --        --     1,200        1     10,392              --        --         --        --      10,393
  Repayment of note
  receivable.............       --        --        --       --         --             102        --         --        --         102
  Compensation related to
  stock options..........       --        --        --       --       (256)             --       256         --        --          --
  Cancellation of stock
  options issued below
  fair value.............       --        --        --       --         (1)             --         1         --        --          --
  Tax benefit from stock
  options................       --        --        --       --      4,046              --        --         --        --       4,046
  </TABLE>
  <PAGE>
  
  <TABLE>
  <CAPTION>
  
  
                                                                                                   Accumu-
                                                                                                    lated
                             Convertible                        Addit-     Notes       Deferred     other                 Total
                           Preferred stock     Common stock     tional   receivable      stock     compre-                stock
                         -----------------  -----------------   paid-in    from         compen-    hensive     Retained   holders'
                         Shares     Amount   Shares    Amount   Capital  stockholders   sations    losses      earnings   equity
                         ------     ------  -------    ------  --------  ------------  --------   ----------   --------   --------
  <S>                    <C>        <C>     <C>        <C>     <C>       <C>           <C>        <C>          <C>        <C>
  Amortization of
  deferred compensation
  related to stock
  options...............     --         --       --        --        --            --       277           --         --        277
  Currency translation
  adjustment (net of
  taxes of $214)........     --         --       --        --        --            --        --         (365)        --       (365)
  Subchapter S
  distributions.........     --         --       --        --        --            --        --           --       (973)      (973)
  Net income............     --                  --        --        --            --        --           --        643        643
                         ------     ------  -------    ------  --------  ------------  --------   ----------   --------   --------
  Balances, December
  31, 1997..............     --         --  174,037       174   194,903          (406)     (639)        (365)    17,283    210,950
  Issuance of common
  stock under Employee
  Stock Option Plans....     --         --    6,270         7    17,855            --        --           --         --     17,862
  Issuance of common
  stock under Employee
  Stock Purchase Plans..     --         --    1,262         1     8,534            --        --           --         --      8,535
  Adjustment to
  conform acquired
  company's year-end....     --         --       --        --        --            --        --           --     (1,464)    (1,464)
  Cancellation of
  stock options issued
  below fair value......     --         --       --        --       (39)           --        39           --         --         --
  Tax benefit from
  stock options.........     --         --       --        --    13,516            --        --           --         --     13,516
  Amortization of
  deferred
  compensation related
  to stock options......     --         --       --        --        --            --       240           --         --        240
  Unrealized gain on
  short-term
  investments (net of
  taxes of $118)........     --         --       --        --        --            --        --          201         --        201
  Currency translation
  adjustment (net of
  taxes of $297)........     --         --       --        --        --            --        --         (505)        --       (505)
  Transfer of common
  stock to employees....     --         --       --        --       631            --        --           --         --        631
  Subchapter S
  distributions.........     --         --       --        --        --            --        --           --     (3,111)    (3,111)
  
  Net income............     --         --       --        --        --            --        --           --     44,265     44,265
                         ------     ------  -------    ------  --------  ------------  --------  -----------   --------   --------
  Balances, December
  31, 1998..............     --         --  181,569       182   235,400          (406)     (360)        (669)    56,973    291,120
  Issuance of common
  stock under Employee
  Stock Option Plans
  (unaudited)...........     --         --    6,620         7    35,727            --        --           --         --     35,734
  Issuance of common
  stock under Employee
  Stock Purchase Plans
  (unaudited)...........     --         --      523        --     7,537            --        --           --         --      7,537
  Issuance of common
  stock under stock
  award plan
  (unaudited)...........     --         --       --        --       198            --        --           --         --        198
  Tax benefit from
  stock options
  (unaudited)...........     --         --       --        --    33,575            --        --           --         --     33,575
  Compensation related
  to stock options
  (unaudited) ..........     --         --       --        --       538            --      (538)          --         --         --
  Amortization of
  deferred compensation
  related to stock
  options (unaudited)...     --         --       --        --        --            --       150           --         --        150
  Unrealized gain on
  short-term
  investments (net of
  taxes of $20,769)
  (unaudited)...........     --         --       --        --        --            --        --       25,151         --     25,151
  Currency translation
  adjustment (net of
  taxes of $426)
  (unaudited)...........     --         --       --        --        --            --        --          726         --        726
  Subchapter S
  distributions
  (unaudited)...........     --         --       --        --        --            --        --           --       (554)      (554)
  </TABLE>
  <PAGE>
  
  <TABLE>
  <S>                       <C>      <C>      <C>         <C>     <C>        <C>       <C>     <C>      <C>       <C>
  Issuance of common
  stock related to
  Target Marketing
  Systems Worldwide and
  Target Marketing
  Systems S.A. acquisitions
  (unaudited)..............     --        --       735        --     5,161       --        --       --        --     5,161
  Net income (unaudited)...     --        --        --        --        --       --        --       --    77,115    77,115
                            ------   -------  --------    ------  --------   ------    ------  -------  --------  --------
  Balances, September
  30, 1999 (unaudited).....     --        --   189,447    $  189  $318,136   $ (406)   $ (748) $25,208  $ 33,534  $475,913
                            ======   =======  ========    ======  ========   ======    ======  =======  ========  ========
  </TABLE>
  
         See accompanying notes to supplemental consolidated financial statements.
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
                Supplemental Consolidated Statements of Cash Flows
                                  (In thousands)
  
  
  <TABLE>
  <CAPTION>
                                                    Year Ended December 31,               Nine Months Ended September 30,
                                           ------------------------------------------     -------------------------------
                                              1996            1997            1998           1998                 1999
                                           ---------       ----------      ----------     ----------          -----------
  Cash flows from operating activities:                                                   (unaudited)         (unaudited)
  <S>                                      <C>             <C>             <C>            <C>                 <C>
     Net income                            $   13,750      $      643      $   44,265     $   24,405          $   77,115
     Adjustments to reconcile net
       income to net cash provided by
       operating activities:
       Compensation related to stock
         options                                  324             277             240            193                 150
       Depreciation and amortization            3,450           8,275          13,638          8,095              16,219
       Deferred income taxes                   (2,036)         (1,614)         (9,543)             -                   -
       Tax benefit from exercise of
         stock options                          2,173           4,046          13,516          8,061              33,575
       Loss on disposal of property
         and equipment                            155             307           4,557            252                 714
       Provision for doubtful accounts
         and returns, net                       1,275           2,348           6,613          3,964               4,938
       Write-off of acquired research
         and development                            -          22,740               -              -                   -
       Software licenses exchanged for
         equipment and prepaid assets          (3,408)              -               -              -                   -
       Changes in operating assets and
         liabilities:
         Accounts receivable                  (19,248)        (41,344)        (68,739)       (51,331)            (98,132)
         Prepaids and other                    (3,391)         (1,946)         (6,744)          (617)             (6,213)
         Accounts payable and accrued
           expenses                            13,442          14,130          49,802         43,912              33,301
         Income taxes payable                   2,963          (1,896)          9,228         (3,051)             (1,113)
         Deferred revenue                       3,949          15,744          30,286         22,984              11,046
                                           ----------      ----------      ----------     ----------          ----------
           Net cash provided by
             operating activities              13,398          21,710          87,119         56,867              71,600
                                           ----------      ----------      ----------     ----------          ----------
  Cash flows from investing activities:
     Purchases of property and
     equipment                                (14,107)        (18,013)        (39,581)       (16,096)            (26,883)
     Purchases of short-term
     investments, net                         (66,671)        (17,866)        (56,751)       (28,339)             (7,500)
     Proceeds from sale of property
     and equipment                                 16               -               -              -              13,225
     Cash acquired in acquisitions                  -             129             (31)             -                 993
     Other assets                                (947)         (1,764)         (2,641)         2,514              (3,739)
                                           ----------      ----------      ----------     ----------          ----------
           Net cash used in investing
             activities                       (81,709)        (37,514)        (99,004)       (41,921)            (23,904)
                                           ----------      ----------      ----------     ----------          ----------
  Cash flows from financing activities:
     Proceeds from issuance of common
     stock, net of purchases                  112,559           8,725          27,254         26,123              43,529
     Proceeds from issuance of
     preferred stock                            1,532               -               -              -                   -
     Proceeds from issuance of
       convertible debt                             -               -               -              -             300,000
     Borrowings on line of credit                 115             130           1,542              -               4,431
     Repayments of line of credit                   -               -               -                               (659)
     Subchapter S distributions                  (822)           (974)         (2,366)        (2,366)             (1,290)
     Repayment of stockholder notes              (169)            (43)              -              -                   -
     Payment of debt issuance costs                 -               -               -              -              (8,250)
                                           ----------      ----------      ----------     ----------          ----------
         Net cash provided by
             financing activities             113,215           7,838          26,430         23,757             337,761
                                           ----------      ----------      ----------     ----------          ----------
  
  Change in cash and cash equivalents          44,904          (7,966)         14,545         38,703             385,457
  Adjustment to conform acquired
     company's year end                             -               -          (4,140)        (4,140)                  -
  Cash and cash equivalents, beginning
     of period                                 33,398          78,302          70,336         70,336              80,741
                                           ----------      ----------      ----------     ----------          ----------
  Cash and cash equivalents, end of
     period                                $   78,302      $   70,336      $   80,741     $  104,899          $  466,198
                                           ==========      ==========      ==========     ==========          ==========
  </TABLE>
  <PAGE>
  
  <TABLE>
  <S>                                      <C>             <C>             <C>            <C>                 <C>
  Cash paid for interest                   $       16      $       22      $        -     $        -          $        -
                                           ==========      ==========      ==========     ==========          ==========
  Cash paid for income taxes               $    4,731      $   14,579      $   14,194     $    3,154          $   14,667
                                           ==========      ==========      ==========     ==========          ==========
  
  Supplemental disclosures of noncash
     financing and investing activities:
  Purchase price payable 20*20 Group,
     Ltd.                                  $        -      $        -      $    6,000     $        -          $        -
                                           ==========      ==========      ==========     ==========          ==========
  Common stock issued for acquisitions     $        -      $   24,974      $        -     $        -          $    4,934
                                           ==========      ==========      ==========     ==========          ==========
  Exercise of common stock options in
     exchange for stockholder note         $      507      $        -      $        -     $        -          $        -
                                           ==========      ==========      ==========     ==========          ==========
  Subchapter S distributions payable       $       16      $       22      $      745     $        -          $        -
                                           ==========      ==========      ==========     ==========          ==========
  Convertible notes issued for
     acquisitions                          $        -      $        -      $        -     $        -          $    6,685
                                           ==========      ==========      ==========     ==========          ==========
  </TABLE>
  
     See accompanying notes to supplemental consolidated financial statements
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  
  (1)  Summary of Significant Accounting Policies
  
       The accompanying unaudited supplemental consolidated financial statements
  as of September 30, 1999 and for the nine-month periods ended September 30, 1998
  and 1999 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, 1999.
  
       In May 1998, Siebel Systems, Inc. (the "Company") acquired Scopus
  Technology, Inc. ("Scopus") in a merger transaction accounted for as a pooling
  of interests. Accordingly, all financial information has been restated to
  reflect the combined operations of these companies. See Note 9.
  
       In December 1999, the Company acquired OnTarget, Inc. ("OnTarget") in a
  business combination transaction accounted for as a pooling of interests.
  Accordingly, all financial information has been restated to reflect the combined
  operations of the two companies. See Note 9.
  
  Principles of Consolidation
  
       The accompanying consolidated financial statements include the accounts of
  the Company and its wholly owned subsidiaries. All intercompany accounts and
  transactions have been eliminated.
  
  Revenue Recognition
  
       Prior to January 1, 1998, the Company recognized revenue in accordance with
  Statement of Position ("SOP") No. 91-1, "Software Revenue Recognition". Software
  license revenue was recognized when all of the following criteria had been met:
  there was an executed license agreement; software had been shipped to the
  customer; no significant vendor obligations remained; the license fee was fixed
  and payable within twelve months and collection was deemed probable.
  
       On January 1, 1998, the Company adopted the provisions of Statement of
  Position ("SOP") No. 97-2 "Software Revenue Recognition." Revenue from software
  licenses is recognized under SOP No. 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. Revenue on multiple element
  arrangements is allocated to the various elements based on fair values specific
  to the Company.
  
       Professional services, maintenance and other revenues relate primarily to
  consulting services, maintenance and training. Maintenance revenues are
  recognized ratably over the term of the maintenance contract, typically 12
  months. Consulting and training revenues are recognized as the services are
  performed and are usually on a time and materials basis. Such services primarily
  consist of implementation services related to the installation of the Company's
  products and do not include significant customization to, or development of, the
  underlying software code. Deferred revenue includes deposits on training
  programs billed and/or collected in advance. Income is then recognized in the
  period in which the related services are rendered.
  
       The Company's customer base includes a number of its suppliers (e.g. AT&T,
  BankBoston Robertson Stephens, Bank of America, Cabletron Systems, The Charles
  Schwab Corporation, Cigna Corporation, Cisco Systems, Inc., Compaq Computer
  Corporation, Dell Computer Corporation, Lucent Technologies, MCI
  Telecommunications Corporation, Microsoft Corporation, NationsBanc Montgomery
  Securities, Inc., PeopleSoft,
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
    (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  Inc., Sequent Computer Systems, 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. During 1998, the
  Company recognized approximately $16,500,000 of revenue in connection with such
  transactions.
  
  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 and Short-Term Investments
  
       The Company considers all highly liquid investments with a remaining
  maturity of 90 days or less at the date of purchase to be cash equivalents.
  Short-term investments generally consist of highly liquid debt securities with
  remaining maturities in excess of 90 days. Marketable equity securities include
  an investment in a publicly traded company. The Company has classified its
  short-term investments and marketable equity securities as "available-for-sale."
  Such investments are carried at fair value with unrealized gains and losses, net
  of related tax effects, reported within accumulated other comprehensive income.
  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 ten 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 income.
  
  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
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  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
  $2,085,000 and $9,627,000 at December 31, 1997 and 1998, respectively, and the
  related accumulated amortization was $285,000 and $2,503,000 at December 31,
  1997 and 1998, respectively.
  
  Advertising
  
       Advertising costs are expensed as incurred. Advertising expense is included
  in sales and marketing expense and amounted to $7,245,000, $12,126,000 in 1997
  and 1998, respectively, and was not significant in 1996.
  
  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 are 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 unaudited pro forma provision for income taxes reflects income tax
  expense that would have been reported if On Target Inc. (an S corporation for
  income-tax reporting purposes) had been a C corporation for each of the periods
  presented.
  
  Pro Forma Net Income Per Share
  
       Basic pro forma net income per share is computed using the pro forma net
  income and weighted average number of shares of common stock outstanding.
  Diluted pro forma net income per share is computed using pro forma net income
  and 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. Diluted pro forma net income per
  share also gives effect, when dilutive, to the conversion of the convertible
  notes and subordinated debentures, using the if-converted method.
  
  Employee Stock Option and Purchase Plans
  
       The Company accounts for its stock-based compensation plans using the
  intrinsic value method. As such, compensation expense is recorded on the date of
  grant if the current market price of the underlying stock exceeds the exercise
  price.
  
  Foreign Currency Translation
  
       The Company considers the functional currency of its foreign subsidiaries
  to be the local currency, and accordingly, the financial statements of the
  foreign subsidiaries 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
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  results of operations. Adjustments resulting from translation of foreign
  subsidiary financial statements are reported within accumulated other
  comprehensive income.
  
       The Company generally utilizes foreign currency forward contracts to hedge
  its exchange risk on foreign currency receivable and intercompany balances.
  While these forward contracts are subject to fluctuations in value, which are
  recorded in current results of operations, such fluctuations are generally
  offset by the changes in value of the underlying exposures being hedged. The
  Company does not hold or issue financial instruments for speculative or trading
  purposes.
  
  Concentrations of Credit Risk
  
       Financial instruments that potentially subject the Company to a
  concentration of credit risk principally consist of trade accounts receivable.
  The Company performs ongoing credit evaluations of its customers and generally
  does not require collateral on accounts receivable, as the majority of the
  Company's customers are large, well established companies. The Company maintains
  reserves for potential credit losses, but historically has not experienced any
  significant losses related to any particular industry or geographic area since
  the Company's business is not concentrated on any one particular customer or
  customer base. No single customer accounts for more than 10% of revenues; and
  the Company's largest customer base, high technology, which accounted for
  approximately 30% of revenues during the year ended December 31, 1998, is
  sufficiently broad that the Company does not consider itself significantly
  exposed to concentrations of credit risk.
  
  Fair Value of Financial Instruments
  
       The carrying amounts 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 fair value
  of the Company's derivative financial instruments at December 31, 1998 was a
  gain of approximately $128,000.
  
  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.
  The Company does not have any long-lived assets it considers to be impaired.
  
  Recent Accounting Pronouncements
  
       In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
  "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
  establishes accounting and reporting standards for derivative instruments,
  including certain derivative instruments embedded in other contracts; 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
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  June 15, 2000. Management does not believe the adoption of SFAS No. 133 will
  have a material effect on the Company's consolidated financial position or
  results of operations.
  
       In December 1998, the Accounting Standards Executive Committee (AcSEC) of
  the AICPA issued SOP 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 No. 97-2. Management does not
  believe the adoption of SOP No. 98-9 will have a material effect on the
  Company's consolidated financial position or results of operations. SOP 98-9
  will be effective for the Company for all annual and interim periods beginning
  on or after January 1, 2000.
  
  (2)  Financial Statement Details
  
  Cash, Cash Equivalents and Short-Term Investments
  
       Cash equivalents consist of securities with remaining maturities of 90 days
  or less at the date of purchase. Short-term investments as of December 31, 1997
  consisted of $55,697,000 of municipal securities which matured in less than one
  year, and $36,302,000 of municipal securities which matured in one to five
  years. As of December 31, 1997, cost approximated market for short-term
  investments; realized and unrealized gains and losses were not significant.
  
       Short-term investments as of December 31, 1998 consisted of $46,187,000 of
  securities which mature in less than one year, $94,980,000 of securities which
  mature in one to five years and $10,721,000 of securities which mature in over
  five years. Cash, cash equivalents and short-term investments consisted of the
  following as of December 31, 1998 (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                                Unrealized   Unrealized
                                                                      Cost         loss         gain        Market
                                                                  -----------  -----------  -----------   ----------
       <S>                                                        <C>          <C>          <C>           <C>
       Cash and cash equivalents:
             Cash...............................................  $    39,047  $        --  $        --   $   39,047
             Certificates of deposit............................        1,685           --           --        1,685
             Auction market preferreds..........................        4,350           --           --        4,350
             Money market funds.................................        6,199           --           --        6,199
             Municipal securities...............................       29,460           --           --       29,460
                                                                  -----------  -----------  -----------   ----------
                                                                  $    80,741           --           --   $   80,741
                                                                  ===========  ===========  ===========   ==========
       Short-term investments:
             US treasury securities.............................  $     5,181  $       (15) $        --   $    5,166
             Municipal securities...............................      146,506          (60)         276      146,722
                                                                  -----------  -----------  -----------   ----------
                                                                  $   151,687  $       (75) $       276   $  151,888
                                                                  ===========  ===========  ===========   ==========
  </TABLE>
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  Accounts Receivable, Net
  
       Accounts receivable, net, consisted of the following (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                                                   December 31,
                                                                                            -------------------------
                                                                                                1997         1998
                                                                                            -----------   -----------
        <S>                                                                                 <C>           <C>
        Trade accounts receivable.........................................................  $    69,526   $   136,411
        Less: allowances for doubtful accounts and returns................................        4,288        10,330
                                                                                            -----------   -----------
                                                                                            $    65,238   $   126,081
                                                                                            ===========   ===========
  </TABLE>
  
  Property and Equipment, Net
  
       Property and equipment, net, consisted of the following (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                                                   December 31,
                                                                                               ----------------------
                                                                                                 1997          1998
                                                                                               --------     ---------
        <S>                                                                                    <C>          <C>
        Computer equipment..................................................................   $ 20,321     $  38,965
        Furniture and fixtures..............................................................      6,500        10,513
        Computer software...................................................................      8,446         8,735
        Leasehold improvements..............................................................      3,409         9,058
                                                                                               --------     ---------
                                                                                                 38,676        67,271
        Less: accumulated depreciation......................................................     13,112        20,887
                                                                                               --------     ---------
                                                                                               $ 25,564     $  46,384
                                                                                               ========     =========
  </TABLE>
  
  Accrued Expenses
  
       Accrued expenses consisted of the following (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                                                     December 31,
                                                                                               ----------------------
                                                                                                 1997          1998
                                                                                               --------     ---------
        <S>                                                                                    <C>          <C>
        Bonuses.............................................................................   $  7,092     $  23,091
        Commissions.........................................................................      6,200        17,840
        Sales tax...........................................................................      3,026         9,345
        Vacation............................................................................      2,312         3,967
        Acquisition-related.................................................................        205         7,450
        Other...............................................................................     10,282        26,492
                                                                                               --------     ---------
                                                                                               $ 29,117     $  88,185
                                                                                               ========     =========
  </TABLE>
  
  Other Income, Net
  
       Other income, net, consisted of the following (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                                              December 31,
                                                                                  -----------------------------------
                                                                                    1996         1997         1998
                                                                                  --------     ---------    ---------
        <S>                                                                       <C>          <C>          <C>
        Interest income........................................................   $  3,324     $  6,055     $   7,605
        Interest expense.......................................................        (32)         (29)          (68)
        Other..................................................................       (158)        (641)       (1,279)
                                                                                  --------     ---------    ---------
                                                                                  $  3,134     $  5,385     $   6,258
                                                                                  ========     ========     =========
  </TABLE>
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  
  (3)  Convertible Subordinated Notes
  
       The Company completed a private placement of $300,000,000 of convertible
  subordinated notes in September 1999. The seven-year term notes bear interest at
  a rate of 5.50% and are convertible into shares of the Company's common stock at
  any time prior to maturity, at a conversion price of approximately $46.64 per
  share, subject to adjustment under certain conditions. The notes may be
  redeemed, in whole or in part, by the Company at any time on or after September
  15, 2002. The redemption price will range from $309,420,000 to $302,370,000 if
  the notes are redeemed between September 15, 2002 through September 14, 2006.
  Any redemption made on or after September 15, 2006 will be redeemed at
  $300,000,000. Accrued interest to the redemption date will be paid by the
  Company in each redemption.
  
       Other noncurrent liabilities includes $6,685,000 of convertible notes
  issued in connection with the OnTarget acquisitions in January and February,
  1999 (See Note 9). The notes bear interest at 5.5%, are convertible into
  approximately 760,000 shares of the Company's common stock, and are due on
  February 26, 2006.
  
  (4)  Commitments and Contingencies
  
  Letters of Credit
  
       In August 1996, the Company entered into a $1,325,000 secured letter of
  credit with a bank. This letter of credit, which expires July, 2006,
  collaterizes the Company's obligations to a third party for lease payments.
  
       In March 1999, the Company entered into an $8,400,000 secured letter of
  credit with a bank. This letter of credit, which expires November 2000,
  collateralizes the Company's obligations to a third party for tenant improvement
  costs.
  
       In October 1999, the Company entered into two $8,400,000 secured letters of
  credit with a bank. These letters of credit, which expire October 2000 and
  January 2001, collateralize the Company's obligations to a third party for
  tenant improvement costs. The Company also entered into a $3,000,000 secured
  letter of credit with a bank. This letter of credit, which expires August 2000,
  collateralizes the Company's obligation to a third party for lease payments.
  
       The letters of credit are secured by cash, cash  equivalents and short-term
  investments.
  
  Lease Obligations
  
       As of December 31, 1998, the Company leased facilities under noncancelable
  operating leases expiring between 1999 and 2008. Future minimum lease payments
  are as follows (in thousands):
  
  <TABLE>
  <CAPTION>
            Year Ending
            December 31,
            ------------
            <S>                                                                        <C>
            1999.....................................................................  $  15,415
            2000.....................................................................     12,853
            2001.....................................................................     11,892
            2002.....................................................................     10,126
            2003 and thereafter......................................................     38,183
                                                                                       ---------
                                                                                       $  88,469
                                                                                       =========
  </TABLE>
  <PAGE>
  
       Rent expense for the years ended December 31, 1996, 1997 and 1998, was
  $3,065,000, $6,469,000 and $11,904,000, respectively.
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  Employee Benefit Plan
  
       The Company has 401(k) plans that allows eligible employees to contribute
  up to 20% of their compensation, limited to $10,000 in 1998. Employee
  contributions and earnings thereon vest immediately. Although the Company may
  make discretionary contributions to the 401(k) plan, none have been made to
  date. A subsidiary made discretionary contributions of $154,000 and $244,000 to
  its 401(k) and profit-sharing plans in 1997 and 1998, respectively.
  
  Legal Actions
  
       The Company is engaged in certain legal actions arising in the ordinary
  course of business. The Company believes it has adequate legal defenses and
  believes that the ultimate outcome of these actions will not have a material
  effect on the Company's consolidated financial position or results of
  operations, although there can be no assurance as to the outcome of such
  litigation.
  
  (5)  Stockholders' Equity
  
  Stock Split
  
       On August 24, 1999 and October 20, 1999, respectively, the Company's Board
  of Directors and stockholders approved a two-for-one stock split (to be effected
  in the form of a stock dividend) to be paid on November 12, 1999. The
  accompanying consolidated financial statements have been restated to give effect
  to the stock split.
  
  Pro Forma Net Income per Share (Unaudited)
  
       The following is a reconciliation of the number of shares used in the basic
  and diluted pro forma net income per share computation for the periods presented
  (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                                                           Nine-months ended
                                                                               Year ended December 31,        September 30
                                                                            -----------------------------------------------------
                                                                                   1996       1997     1998      1998      1999
                                                                            -------------   -------   -------  --------  --------
                                                                                                              (unaudited)
      <S>                                                                   <C>             <C>       <C>     <C>        <C>
      Shares used in basic pro forma net income per share computation             141,780   169,904   177,446   176,458   185,929
      Effect of dilutive potential common shares..............                     16,924    21,434    24,758    25,380    34,372
      Dilutive effect of convertible notes....................                          -         -         -         -       418
                                                                            -------------   -------   -------  --------  --------
      Shares used in diluted pro forma net income
      per share computation...................................                    158,704   191,338   202,204   201,838   220,719
                                                                            =============   =======   =======  ========  ========
  </TABLE>
  
       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. During 1998,
  the Company excluded 6,619,882 employee stock options with a weighted average
  exercise price of $14.36 per share from the earnings per share computation as
  their exercise prices exceeded the fair value of the Company's common stock and,
  accordingly, their inclusion would have been anti-dilutive. For the nine months
  ended September 30, 1999, the Company excluded 3,246,009 employee stock options
  with a weighted average exercise price of $27.36 per share from the earnings per
  share computation as their exercise prices exceeded the average fair value of
  the Company's common stock during such period and, accordingly, their inclusion
  would have been anti-dilutive. For the nine months ended September 30, 1998, the
  Company excluded 5,281,082 employee stock options, respectively, with a weighted
  average exercise price of $14.68 per share, respectively, from the earnings per
  share computation. For the nine months ended September 30, 1999, the Company
  excluded the convertible subordinated debentures (See Note 3) from the earnings
  per share computation as the effect would be antidilutive.
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  
  Employee Stock Option and Purchase Plans
  
       The 1996 Equity Incentive Plan, which amended and restated the Company's
  1994 Stock Option Plan and 1996 Supplemental Stock Option Plan and the 1998 Non-
  Officer Equity Incentive Plan (collectively, the "Plan"), provides for the
  issuance of up to an aggregate of 100,000,000 shares of common stock to
  employees, directors and consultants. The Plan provides for the issuance of
  incentive and nonstatutory stock options, restricted stock purchase awards,
  stock bonuses and stock appreciation rights.
  
       Under the Plan, the exercise price for incentive stock options is at least
  100% of the fair market value on the date of the grant. Options generally expire
  in 10 years; however, incentive stock options may expire in 5 years if the
  optionee owns stock representing more than 10% of the voting power of all
  classes of stock. Vesting periods are determined by the Board of Directors and
  generally provide for shares to vest ratably over 5 years.
  
       The Plan also allows for the exercise of certain unvested options. Shares
  of common stock issued to employees upon exercise of unvested options are
  subject to repurchase by the Company at the original exercise price. The
  Company's ability to repurchase these shares expires at a rate equivalent to the
  current vesting schedule of each option. During the period from October 1995
  through April 1996, the Company granted options to purchase an aggregate of
  32,610,000 shares of common stock at exercise prices ranging from $0.07 to $0.82
  per share. Based in part on an independent appraisal obtained by the Company's
  Board of Directors, and other factors, the Company recorded $748,000 of deferred
  compensation expense in 1995 and an additional $893,000 of deferred compensation
  expense in 1996 relating to these options. These amounts are being amortized
  over the vesting period of the individual options, generally five years.
  
       As of December 31, 1998, 7,013,200 shares of common stock had been issued
  to employees upon the exercise of unvested options, which are subject to
  repurchase, at a weighted average repurchase price of $0.12 per share. No
  compensation expense has resulted from repurchases of restricted shares since
  the amount of cash paid by the Company did not differ from the proceeds received
  from the employee from the sale of the restricted shares. The Company has not
  issued any other restricted stock purchase awards, stock bonuses or stock
  appreciation rights.
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  
       The Company has assumed certain options granted to former employees of
  acquired companies (the "Acquired Options"). The Acquired Options were assumed
  by the Company outside of the Plan, but all are administered as if issued under
  the Plan. All of the Acquired Options have been adjusted to give effect to the
  conversion under the terms of the Agreements and Plans of Reorganization between
  the Company and the companies acquired. The Acquired Options generally become
  exercisable over a four year period and generally expire either five or ten
  years from the date of grant. No additional options will be granted under any of
  the acquired companies' plans.
  
       Combined plan activity is summarized as follows:
  
  <TABLE>
  <CAPTION>
                                                                                                    Weighted
                                                                  Shares                             average
                                                                 Available         Number of      exercise price
                                                                 for grant          shares          per share
                                                              -------------    -------------      --------------
        <S>                                                   <C>              <C>                <C>
        Balances, December 31, 1995.........................     17,250,934       10,575,632      $         0.43
               Additional shares authorized.................     29,400,000             --
               Options granted..............................    (39,857,888)      39,857,888      $         1.92
               Options exercised............................           --         (5,349,248)     $         0.23
               Options canceled.............................      2,711,684       (2,711,684)     $         1.10
                                                              -------------    -------------      --------------
        Balances, December 31, 1996.........................      9,504,730       42,372,588      $         1.81
               Additional shares authorized.................     32,000,000             --
               Options granted..............................    (26,660,548)      26,660,548      $         8.28
               Options exercised............................           --         (4,134,606)     $         1.13
               Options canceled.............................     10,819,662      (10,819,662)     $         8.35
                                                              -------------    -------------      --------------
        Balances, December 31, 1997.........................     25,663,844       54,078,868      $         3.74
               Additional shares authorized.................     20,000,000             --
               Options granted..............................    (37,462,444)      37,462,444      $        11.25
               Options exercised............................           --         (6,269,296)     $         2.93
               Options canceled.............................      7,158,508       (7,158,508)     $         7.92
                                                              -------------    -------------      --------------
        Balances, December 31, 1998.........................     15,359,908       78,113,508      $         7.04
                                                              =============    =============      ==============
  </TABLE>
  
       The following table summarized information about fixed stock options
  outstanding as of December 31, 1998:
  
  <TABLE>
  <CAPTION>
                                                Options outstanding                               Options exercisable
                                     -------------------------------------------------     ----------------------------------
                                                     Weighted
                                                      average
                                                     remaining         Weighted                                Weighted
                                     Number of      contractual         average             Number of           average
  Range of exercise prices            shares           life         exercise price           shares          exercise price
  ------------------------         -----------     -------------    ------------------     ----------       -----------------
  <S>                              <C>             <C>              <C>                    <C>              <C>
         $ 0.00                          1,456           0.2               $ 0.00               1,448            $ 0.00
         $0.015                        375,600           6.0               $ 0.02             375,600            $ 0.02
         $ 0.03                        336,000           6.3               $ 0.03             336,000            $ 0.03
         $0.065                        517,400           6.6               $ 0.07             517,400            $ 0.07
         $ 0.22                      1,945,300           7.1               $ 0.22           1,945,300            $ 0.22
         $ 0.33- 0.375               5,446,832           7.2               $ 0.36           2,392,316            $ 0.37
         $ 0.69- 0.915               9,882,014           7.3               $ 0.71           3,539,172            $ 0.70
         $ 1.44- 2.125               3,587,116           7.3               $ 1.53           1,130,740            $ 1.53
         $2.905-  4.22               2,227,506           7.0               $ 4.02             615,116            $ 3.91
         $5.495-  8.11              14,561,864           7.8               $ 6.20           4,013,156            $ 6.24
         $8.285- 12.39              30,773,748           9.4               $10.33           1,902,352            $10.52
         $12.44- 18.51               8,425,912           9.4               $13.83             172,552            $15.09
         $25.75                         32,760           9.1               $25.75              11,600            $25.75
                                   -----------         -----               ------         -----------            ------
         $ 0.00- 25.75              78,113,508           8.4               $ 7.04          16,952,752            $ 3.30
                                   ===========         =====               ======         ===========            ======
  </TABLE>
  <PAGE>
  
                                SIEBEL SYSTEMS, INC.
  
               NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
        (Unaudited as of September 30, 1999 and for the nine-month periods
                        ended September 30, 1998 and 1999)
  
       In May 1996, the Company adopted the 1996 Employee Stock Purchase Plan
  (the "Purchase Plan") and reserved 2,800,000 shares for issuance thereunder. The
  Purchase Plan became effective upon the completion of the Company's initial
  public offering. In January 1997, the Board of Directors of the Company adopted
  an amendment to the Purchase Plan to increase the number of shares authorized
  for issuance under the Purchase Plan to 6,800,000 shares. The Purchase Plan
  permits eligible employees to purchase common stock, through payroll deductions
  of up to 15% of the employee's compensation, at a price equal to 85% of the fair
  market value of the common stock at either the beginning or the end of each
  offering period, whichever is lower. As of December 31, 1998, 2,777,284 shares
  had been purchased under the Purchase Plan.
  
       In addition, Scopus had adopted the 1995 Employee Stock Purchase Plan (the
  "Acquired Purchase Plan"). All shares purchased under the Acquired Purchase Plan
  have been adjusted to give effect to the conversion under the terms of the
  Agreement and Plan of Merger and Reorganization between the Company and Scopus.
  Upon the closing of the Scopus merger, 330,932 shares had been purchased under
  the Acquired Purchase Plan. No additional shares will be issued under the
  Acquired Purchase Plan.
  
  Common Stock
  
       The Company has elected to continue to use the intrinsic value-based
  method to account for all of its employee stock-based compensation plans. The
  Company has recorded no compensation costs related to its stock option plans for
  the years ended December 31, 1996, 1997 and 1998, except for the options granted
  during the period from October 1995 through April 1996, because the exercise
  price of each option equals or exceeds the fair value of the underlying common
  stock as of the grant date for each stock option. The Company also recorded
  compensation expense for the estimated fair value of common stock transferred
  from the majority shareholder of On Target to two key employees in January 1998.
  
       Pursuant to SFAS No. 123, the Company is required to disclose the pro forma
  effects on net income (loss) and net income (loss) per share data as if the
  Company had elected to use the fair value approach to account for all its
  employee stock-based compensation plans. Had compensation cost for the Company's
  plans been determined consistent with the fair value approach enumerated in SFAS
  No. 123, the Company's net income (loss) and net income (loss) per share for the
  years ended December 31, 1996, 1997 and 1998 would have been as indicated below
  (in thousands, except per share data).
  
  <PAGE>
  
                                SIEBEL SYSTEMS, INC.
  
               NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
        (Unaudited as of September 30, 1999 and for the nine-month periods
                        ended September 30, 1998 and 1999)
  
  
  <TABLE>
  <CAPTION>
                                                                       1996         1997         1998
                                                                    ---------     --------     --------
        <S>                                                         <C>           <C>          <C>
        Pro forma net income (loss):
             As reported..........................................  $  13,313     $     55     $ 43,460
             Pro forma giving effect to SFAS No. 123..............  $  10,065     $(12,697)    $ 23,203
        Diluted pro forma net income (loss) per share:
             As reported..........................................  $    0.08     $   0.00     $   0.21
             Pro forma giving effect to SFAS No. 123..............  $    0.06     $  (0.07)    $   0.11
        Basic pro forma net income (loss) per share:
             As reported..........................................  $    0.09     $   0.00     $   0.24
             Pro forma giving effect to SFAS No. 123..............  $    0.07     $  (0.07)    $   0.13
  </TABLE>
  
       The fair value of options granted was estimated on the date of grant using
  the Black-Scholes option-pricing model with the following weighted-average
  assumptions used for grants:
  
  <TABLE>
  <CAPTION>
                                                                             1996      1997      1998
                                                                           ------     ------     ------
        <S>                                                                <C>        <C>        <C>
        Risk-free interest rate..........................................     6.0%       6.1%      4.85%
        Expected life (in years).........................................     3.5        3.5        3.4
        Expected volatility..............................................    69.2%      83.9%      70.5%
  </TABLE>
  
       The fair value of employees' stock purchase rights under the Purchase Plan
  was estimated using the Black-Scholes model with the following weighted average
  assumptions used for purchases:
  
  <TABLE>
  <CAPTION>
                                                                            1996       1997       1998
                                                                           ------     ------     ------
        <S>                                                                <C>        <C>        <C>
        Risk-free interest rate..........................................     5.5%       5.3%       5.3%
        Expected life (in years).........................................     0.5        0.7        0.6
        Expected volatility..............................................    68.5%      83.9%      70.5%
  </TABLE>
  
       Under SFAS No. 123, the weighted average estimated fair value of employee
  stock options granted at exercise prices equal to market price at grant date
  during 1996, 1997 and 1998 was $1.03, $4.30 and $5.94 per share, respectively.
  
       The Company determined the assumptions to be used in computing the fair
  value of stock options or stock purchase rights. The risk-free rate is the U.S.
  treasury bill rate for the relevant expected life. The expected useful lives
  were estimated giving consideration to vesting and purchase periods, contractual
  lives, expected employee turnover and underlying stock volatility.
  <PAGE>
  
                                SIEBEL SYSTEMS, INC.
  
               NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
        (Unaudited as of September 30, 1999 and for the nine-month periods
                        ended September 30, 1998 and 1999)
  
  (6)  Income Taxes
  
       Income before taxes includes income from foreign operations of
  approximately $127,000, $680,000 and $3,600,000 for the years ended December 31,
  1996, 1997 and 1998, respectively.
  
  Historical Information
  
       The components of income tax expense for the years ended December 31, 1996,
  1997 and 1998 are as follows (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                             1996       1997       1998
                                                                           ---------  ---------  ---------
       <S>                                                                 <C>        <C>        <C>
       Current:
           Federal.......................................................  $   5,156  $   7,694  $  18,488
           State  .......................................................      1,755      2,684      4,559
           Foreign.......................................................        410        400      1,289
                                                                           ---------  ---------  ---------
                Total current............................................      7,321     10,778     24,336
       Deferred:
           Federal.......................................................     (1,709)    (1,345)    (6,432)
           State  .......................................................       (239)      (219)    (1,409)
                                                                           ---------  ---------  ---------
                Total deferred...........................................     (1,948)    (1,564)    (7,841)
       Charge in lieu of taxes attributable to employer's stock
           option plans..................................................      2,173      4,046     13,517
                                                                           ---------  ---------  ---------
                Total income taxes.......................................  $   7,546  $  13,260  $  30,012
                                                                           =========  =========  =========
  </TABLE>
  
       The differences between the income tax expense computed at the federal
  statutory rate of 35% and the Company's actual income tax expense for the years
  ended December 31, 1996, 1997 and 1998 are as follows (in thousands):
  
  <TABLE>
  <CAPTION>
  
                                                                             1996       1997       1998
                                                                           ---------  ---------   --------
       <S>                                                                 <C>        <C>        <C>
       Expected income tax expense.......................................  $   7,454  $   4,866  $  25,997
       State income taxes, net of federal tax benefit....................      1,172      1,876      3,234
       In-process research and development...............................         --      7,959         --
       Non deductible merger costs.......................................         --         --      3,369
       Research and experimentation credit...............................       (537)      (543)      (838)
       Tax exempt interest...............................................       (204)      (995)    (1,740)
       Foreign sales corporation benefit.................................         --         --       (634)
       S corporation benefit ............................................       (437)      (588)      (805)
       Other, net........................................................         98        685      1,429
                                                                           ---------  ---------  ---------
           Total income taxes............................................  $   7,546  $  13,260  $  30,012
                                                                           =========  =========  =========
  </TABLE>
  
       The tax effects of temporary differences that give rise to significant
  portions of deferred tax assets and liabilities as of December 31, 1997 and 1998
  are as follows (in thousands):
  
  
  <TABLE>
  <CAPTION>
                                                                                        1997       1998
                                                                                      ---------   --------
       <S>                                                                            <C>         <C>
       Deferred tax assets:
           Deferred state taxes.....................................................  $     900   $    549
           Accruals and reserves, not currently taken for tax purposes..............      3,276     12,486
           Net operating loss carryforward..........................................        648        235
                                                                                      ---------   --------
                Deferred assets.....................................................      4,824     13,270
       Deferred tax liability--depreciation..........................................      (178)      (783)
                                                                                       --------   --------
                Net deferred assets.................................................  $   4,646     12,487
                                                                                      =========   ========
  </TABLE>
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
  
               NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
        (Unaudited as of September 30, 1999 and for the nine-month periods
                        ended September 30, 1998 and 1999)
  
       As of December 31, 1998, the Company had a net operating loss carryforward
  for federal and state income tax purposes of approximately $370,000. The federal
  net operating loss carryforward expires in 2012. The state net operating loss
  carryforward expires in 2002.
  
       As of December 31, 1998, Scopus Technology UK Ltd. ("Scopus UK"), a
  subsidiary of the Company, had a net operating loss carryforward of
  approximately $200,000, which can be carried forward indefinitely to offset
  future Scopus UK income.
  
       Management believes it is more likely than not that future operations will
  generate sufficient taxable income to realize the deferred tax assets.
  
  Unaudited Pro Forma Information
  
        The pro forma provision for income taxes reflects the income tax expense
  that would have been reported if OnTarget Inc. (an S corporation for income tax
  reporting purposes) had been a C corporation for each of the years in the three-
  year period ended December 31, 1998. The components of pro forma income tax
  expense are as follows (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                             1996       1997       1998
                                                                           ---------  ---------  ---------
       <S>                                                                 <C>        <C>        <C>
       Current:
           Federal.......................................................  $   5,541  $   8,211  $  19,192
           State  .......................................................      1,807      2,755      4,660
           Foreign.......................................................        410        400      1,289
                                                                           ---------  ---------  ---------
                Total current............................................      7,758     11,366     25,141
       Deferred:
           Federal.......................................................     (1,709)    (1,345)    (6,432)
           State  .......................................................       (239)      (219)    (1,409)
                                                                           ---------  ---------  ---------
                Total deferred...........................................     (1,948)    (1,564)    (7,841)
       Charge in lieu of taxes attributable to employer's stock
           option plans..................................................      2,173      4,046     13,517
                                                                           ---------  ---------  ---------
                Total income taxes.......................................  $   7,983  $  13,848  $  30,817
                                                                           =========  =========  =========
  </TABLE>
  
       The differences between the pro forma income tax expense computed at the
   federal statutory rate of 35% and the Company's actual pro forma income tax
   expense for the years ended December 31, 1996, 1997 and 1998 are as follows (in
   thousands):
  
  <TABLE>
  <CAPTION>
                                                                             1996       1997       1998
                                                                           ---------  ---------  --------
       <S>                                                                 <C>        <C>        <C>
       Expected income tax expense.......................................  $   7,454  $   4,866  $  25,997
       State income taxes, net of federal tax benefit....................      1,172      1,876      3,234
       In-process research and development...............................         --      7,959         --
       Non-deductible merger costs.......................................         --         --      3,369
       Research and experimentation credit...............................       (537)      (543)      (838)
       Tax exempt interest...............................................       (204)      (995)    (1,740)
       Foreign sales corporation benefit.................................         --         --       (634)
       Other, net........................................................         98        685      1,429
                                                                           ---------  ---------  ---------
           Total income taxes............................................  $   7,983  $  13,848  $  30,817
                                                                           =========  =========  =========
  </TABLE>
  
       Deferred tax assets and liabilities on a pro forma basis do not differ
  materially from the historical information presented above.
  <PAGE>
  
                                SIEBEL SYSTEMS, INC.
  
               NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  (7)  Related Party Transactions
  
       Certain members of the Company's Board of Directors serve as officers of
  customers of the Company. In 1997 aggregate license revenues associated with
  shipments to these customers were $1,598,000. Royalties revenues were $445,200
  and total accounts receivable from these customers was $875,000. In 1998,
  aggregate revenues associated with shipments to these customers were $2,592,200
  and accounts receivable from these customers was $1,488,000.
  
       During the years ended December 31, 1998 and 1997, OnTarget received
  royalties in the amount of $829,172 and $445,247, respectively, from a related
  entity. At December 31, 1998 and 1997, $92,322 and $133,816, respectively, is
  due from this related entity.
  
  (8)  Segment and Geographic Information
  
       The Company and its subsidiaries are principally engaged in the design,
  development, marketing and support of Siebel Front Office Applications, its
  family of proprietary software applications. Substantially all revenues result
  from the licensing of the Company's software products and related consulting and
  customer support (maintenance) services. The Company's chief operating decision
  maker reviews financial information presented on a consolidated basis,
  accompanied by disaggregated information about revenues by geographic region for
  purposes of making operating decisions and assessing financial performance.
  Accordingly, the Company considers itself to be in a single industry segment,
  specifically the license, implementation and support of its software
  applications.
  
       The Company evaluates the performance of its geographic regions based on
  revenues and gross margin only. The Company does not assess the performance of
  its geographic regions on other measures of income or expense, such as
  depreciation and amortization, operating income or net income. In addition, as
  the Company's assets are primarily located in its corporate office in the United
  States and not allocated to any specific region, the Company does not produce
  reports for, or measure the performance of, its geographic regions based on any
  asset-based metrics. Therefore, geographic information is presented only for
  revenues and gross margin.
  
       While a majority of the Company's revenues are derived from the United
  States, the Company's export sales have been growing. Export sales for the years
  ended December 31, 1996, 1997 and 1998 were $7,700,000, $41,800,000 and
  $88,200,000, respectively. This represented 10%, 27% and 30% of total license
  revenues, respectively. The Company's export sales are principally in Europe and
  Asia/Pacific.
  
       The following geographic information is presented for the years ended
  December 31, 1996, 1997 and 1998 (in thousands):
  
  <TABLE>
  <CAPTION>
                                          United                          Asia/
                               Year       States          Europe         Pacific         Other          Totals
                               ----     -----------    -----------     -----------    -----------    -----------
  <S>                          <C>      <C>            <C>             <C>            <C>            <C>
       Revenues:
                               1996     $   102,557    $     4,538     $     3,744    $     1,141    $   111,980
                               1997         171,491         35,052          10,115          5,413        222,071
                               1998         293,872         75,364          24,424         16,226        409,886
       Gross margin:
                               1996     $    85,386    $     3,796     $     3,513    $     1,109    $    93,804
                               1997         141,976         30,535           9,161          4,360        186,032
                               1998         241,529         62,699          20,824         13,847    $   338,899
  </TABLE>
  
       No single customer has accounted for 10% or more of total revenues in 1996,
  1997 or 1998.
  <PAGE>
  
                                SIEBEL SYSTEMS, INC.
  
               NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  (9)  Acquisitions
  
  OnTarget, Inc.
  
       On December 1, 1999, the Company acquired OnTarget, Inc. In January and
  February 1999, OnTarget acquired Target Marketing Systems Worldwide Limited,
  Target Marketing Systems S.A., and The Sales Consultancy Inc. in exchange for
  convertible notes and OnTarget stock. OnTarget recorded goodwill of $9,745,000
  in connection with these acquisitions. The goodwill is being amortized over a
  five-year period using the straight-line method. Pro forma information giving
  effect to these mergers has not been presented since it would not differ
  materially from the historical results of the Company.
  
       OnTarget develops and implements advanced sales and marketing training and
  consulting programs for sales organizations competing in complex, multilevel
  sales campaigns. Primary customers include corporate clients and business owners
  who wish to provide for the development and training of their sales and
  marketing personnel.
  
       Under the terms of the agreement, each outstanding share of OnTarget common
  stock was exchanged for 0.3077516 newly issued shares of common stock of the
  Company. This resulted in the issuance of approximately 3.7 million additional
  shares of the Company's Common Stock. In addition, all outstanding stock options
  of OnTarget were converted into the right to acquire the Company's Common Stock
  at the same exchange ratio with a corresponding adjustment to the exercise
  price.
  
       The acquisition of OnTarget will be accounted for as a pooling of
  interests. OnTarget had the same fiscal year-end as the Company, and its
  financial position, results of operations and cashflows have been combined with
  those of the Company's 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 or eliminate intercompany transactions. The Company
  expects to incur approximately $750,000 of merger-related professional services
  costs.
  
       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 will be reclassified to additional paid-in-
  capital. In addition, the Company will record an income tax benefit in the
  amount of OnTarget's net deferred tax assets at that date.
  
       The results of operations previously reported by the separate companies and
  the combined amounts presented in the accompanying consolidated financial
  statements are summarized as follows (in thousands, unaudited):
  
  <TABLE>
  <CAPTION>
                                                                          Year  Ended          Nine Months Ended
                                                                          December 31,            September 30,
                                                                   --------------------------------------------------
                                                                        1996        1997         1998         1999
                                                                   -----------   ----------   ----------  -----------
                                                                                                          (unaudited)
  <S>                                                              <C>           <C>          <C>         <C>
       Total revenues:
           Siebel...........................................       $   101,362   $  207,628   $  391,539  $   493,783
           OnTarget.........................................            10,618       14,443       18,347       29,152
                                                                   -----------   ----------   ----------  -----------
                                                                   $   111,980   $  222,071   $  409,886  $   522,935
                                                                   ===========   ==========   ==========  ===========
  
       Net income (loss):
           Siebel...........................................       $    12,861   $   (1,187)  $   42,875  $    77,195
           OnTarget.........................................               889        1,830        1,390          (80)
                                                                   -----------   ----------   ----------  -----------
                                                                   $    13,750   $      643   $   44,265  $    77,115
                                                                   ===========   ==========   ==========  ===========
  </TABLE>
  <PAGE>
  
  Scopus Technology, Inc.
  
       On May 18, 1998, the Company completed the acquisition of Scopus
  Technology, Inc. ("Scopus") of Emeryville, California, a leading provider of
  customer service, field service, and call center software solutions. Under the
  terms of the agreement, each outstanding share of Scopus common stock was
  exchanged for newly issued shares of common stock of the Company. This resulted
  in the issuance of approximately 15.1 million additional shares of the Company's
  common stock. In addition, all outstanding stock options of Scopus were
  converted into the right to acquire the Company's common stock at the same
  exchange ratio, with a corresponding adjustment to the exercise price. In
  connection with the merger, the Company incurred direct merger-related expenses
  of approximately $13,500,000, including fees for investment bankers, attorneys,
  accountants and other professional fees of $9,100,000, integration charges
  related to duplicate facilities and equipment of $3,100,000 and other
  miscellaneous expenses of $1,300,000. The Company also incurred indirect merger-
  related expenses of approximately $1,800,000 for joint sales training and
  merger-related marketing costs, which are included within sales and marketing
  expenses. At December 31, 1998, accrued liabilities included approximately
  $1,450,000 of unpaid merger-related expenses.
  <PAGE>
  
                                SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
       The transaction has been accounted for as a pooling of interests.
  Accordingly, the financial statements of Siebel have been restated to include
  the financial position and results of operations of Scopus for all periods
  presented. Prior to the merger with Siebel, Scopus ended its fiscal year on
  March 31. The restated financial statements as of December 31, 1997 and for
  prior periods include Siebel's results of operations for the calendar periods
  noted and Scopus' results of operations for the fiscal periods ending three
  months later. Beginning January 1, 1998, the restated financial statements
  combine the operating results of Siebel and Scopus for the calendar periods
  noted. As a result of conforming the reporting periods of Siebel and Scopus, the
  operating results of Scopus for the three month period ended March 31, 1998 are
  included in the restated financial statements for both 1997 and 1998. Scopus
  revenues and net income for the three-month period ended March 31, 1998 were
  $27,100,000 and $1,500,000, respectively. Net income for this period of
  approximately $1,500,000 is reflected as a reduction of opening retained
  earnings in the restated 1998 financial statements.
  
        The results of operations for the separate companies and the combined
  amounts presented in the consolidated financial statements follow (in
  thousands).
  
  <TABLE>
  <CAPTION>
                                                                   Year ended          Quarter ended
                                                                   December 31,           March 31,
                                                              --------------------------------------
                                                                 1996         1997          1998
                                                              -----------  -----------  ------------
                                                                                         (unaudited)
  <S>                                                         <C>          <C>          <C>
       Total revenues:
           Siebel...........................................  $    39,152  $   118,775  $    47,100
           Scopus...........................................       62,210       88,853       27,072
                                                              -----------  -----------  -----------
                                                              $   101,362  $   207,628  $    74,172
                                                              ===========  ===========  ===========
       Net income (loss):
           Siebel...........................................  $     5,025  $    (2,427) $     8,284
           Scopus...........................................        7,836        1,240        1,464
                                                              -----------  -----------  -----------
                                                              $    12,861  $    (1,187) $     9,748
                                                              ===========  ===========  ===========
  </TABLE>
  
       In combining the financial statements of Siebel and Scopus, certain
  reclassifications, conforming changes and adjustments relating to revenue
  recognition were made to the historical financial statements of Scopus. These
  conforming changes and adjustments resulted in a reduction of previously
  reported net income of approximately $580,000 in fiscal 1996 and $2,930,000 in
  fiscal 1997. These adjustments will not reverse in future periods.
  
  20*20 Group, Ltd.
  
       On December 17, 1998, the Company acquired all of the outstanding
  securities of the privately-held 20*20 Group, Ltd. ("20*20"), a provider of end-
  user training for the enterprise relationship management software market. The
  transaction was valued at approximately $6,000,000 and was accounted for by the
  purchase method of accounting. Accordingly, the operating results of 20*20 have
  been included in the accompanying consolidated financial statements of the
  Company from the date of acquisition. The purchase price was allocated to
  tangible net assets, including current assets, current liabilities and property,
  plant and equipment. The excess of the purchase price over the fair value of the
  tangible net assets acquired, $5,500,000, was allocated to goodwill. This amount
  will be amortized over three years.
  
  The results of operations of 20*20 prior to the acquisition date are not
  considered material to the consolidated results of operations of the Company
  and, accordingly, pro forma financial statement information has not been
  presented.
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
  (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  InterActive WorkPlace, Inc
  
       On October 1, 1997, the Company issued shares of common stock in exchange
  for all outstanding securities of privately-held InterActive WorkPlace, Inc.
  ("InterActive"), a developer of intranet-based business intelligence software
  technology. The transaction was valued at approximately $15,000,000 and was
  accounted for by the purchase method of accounting. Accordingly, the operating
  results of InterActive have been included in the accompanying consolidated
  financial statements of the Company from the date of acquisition. Under the
  terms of the agreement, InterActive's securityholders received or will receive
  up to approximately 1,708,000 shares of the Company's common stock in exchange
  for all outstanding shares in InterActive. Additionally, InterActive optionees
  received options to purchase an aggregate of approximately 128,000 shares of the
  Company's common stock in exchange for their options to purchase InterActive
  common stock. The excess of the purchase price over the fair value of the net
  assets acquired was allocated to purchased in-process research and development
  and intangible assets of $14,017,000 and $104,000, respectively. The purchased
  in-process research and development was charged to operations in the fourth
  quarter of 1997. The amounts allocated to intangible assets will be amortized
  over three years.
  
       Purchased in-process research and development is related to the completion
  of InterActive's data integration, filtering and formatting technology and its
  integration into the Company's products. At the time of acquisition, a prototype
  of InterActive's product existed and was in limited trials, however, the
  prototype was not stable or sufficiently developed to be scalable on an
  enterprise-wide basis. InterActive's technology was completed, at a cost of
  approximately $400,000, and incorporated as a separate module into the Siebel 98
  product suite which was released in June 1998. The Company estimated that the
  technology was approximately 75% complete as of the acquisition date. At that
  date, the only identifiable asset acquired was the technology under development.
  Accordingly, essentially all of the excess purchase price over net assets
  acquired, except for amounts assigned to net current assets, fixed assets and
  workforce-in-place, was assigned to in-process research and development.
  
       The results of operations of InterActive prior to the acquisition date are
  not considered material to the consolidated results of operations of the Company
  and, accordingly, pro forma financial information has not been presented.
  
  Nomadic Systems, Inc
  
       On November 1, 1997, the Company issued shares of common stock in exchange
  for all outstanding securities of privately-held Nomadic Systems, Inc.
  ("Nomadic"), a provider of innovative business solutions to pharmaceutical sales
  forces. The transaction was valued at approximately $11,000,000 and was
  accounted for by the purchase method of accounting. Accordingly, the operating
  results of Nomadic have been included in the accompanying consolidated financial
  statements of the Company from the date of acquisition. Under the terms of the
  agreement, Nomadic's securityholders received approximately 1,200,000 shares of
  the Company's common stock in exchange for all outstanding shares of Nomadic.
  The purchase price was allocated to net current assets, fixed assets, purchased
  in-process research and development and intangible assets of $557,000, $186,000,
  $8,723,000 and $1,553,000, respectively. The purchased in-process research and
  development was charged to operations in the fourth quarter of 1997. The amounts
  allocated to intangible assets will be amortized over three years.
  
       The appraisal of the acquired research and development was based upon the
  present value of forecasted operating cash flows from the technology acquired,
  giving effect to the stage of completion at the acquisition date. These
  forecasted cash flows were then discounted at a rate which gave consideration to
  the risk involved in completing the acquired technology. The forecasted cash
  flows assumed inclusion of the product developed from acquired technology into
  the existing Siebel product suite.
  <PAGE>
  
                               SIEBEL SYSTEMS, INC.
  
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
       The purchased in-process research and development expense related to
  completion of Nomadic's second generation pharmaceutical sales force automation
  product. At the time of the acquisition, Nomadic had a first-generation product
  at a limited number of customers, with a very small user base. There were a
  considerable number of uncertainties as to increasing the product's scalability
  for deployment on an enterprise-wide basis, improving the stability of the
  application and identifying and fixing bugs. The Company allocated limited
  excess purchase price over net assets acquired to net current assets, fixed
  assets and workforce-in-place. The majority of the excess purchase price was
  allocated to in-process research and development and other intangible assets
  (goodwill) based upon the expected cash flows from Nomadic's existing product
  and the product under development, giving consideration to the stage of
  completion of the technology under development at the acquisition date. This
  technology was completed, at a cost of approximately $1,300,000, for enterprise-
  wide release in March 1998.
  
       The results of operations of Nomadic prior to the acquisition date are not
  considered material to the consolidated results of operations of the Company
  and, accordingly, pro forma financial statement information has not been
  presented.
  
  Clear With Computers, Inc.
  
       The Company incurred merger costs of approximately $3,300,000 in the third
  quarter of 1997 in connection with Scopus' planned merger with Clear With
  Computers, Inc. The merger plan was terminated early in the fourth quarter of
  1997.
  
  (10) Selected Quarterly Financial Data (unaudited)
  
       The following table presents selected consolidated quarterly information
  for fiscal 1998 and 1999 (in thousands, except share data):
  
  <TABLE>
  <CAPTION>
                                                               First         Second           Third         Fourth
                                                              quarter        quarter         quarter        quarter
                                                           ------------   ------------    ------------   ------------
       <S>                                                 <C>            <C>             <C>            <C>
       1998:
       Net revenues......................................   $    78,597    $    93,868    $   109,322     $   128,099
       Gross margin......................................        65,978         75,422         90,449         107,050
       Net income (loss).................................        10,057           (511)        14,859          19,860
       Pro forma net income (loss).......................         9,881           (729)        14,539          19,769
       Pro forma net income (loss) per diluted share.....          0.05          (0.00)          0.07            0.10
       Pro forma net income (loss) per basic share.......          0.06          (0.00)          0.08            0.11
  
       1999:
       Net revenues......................................   $   141,708    $   174,882    $   206,345
       Gross margin......................................       114,573        135,937        155,091
       Net income (loss).................................        22,000         25,853         29,262
       Pro forma net income (loss).......................        21,756         25,816         29,572
       Pro forma net income (loss) per diluted share.....          0.10           0.12           0.13
       Pro forma net income (loss) per basic share.......          0.12           0.14           0.16
  </TABLE>
  <PAGE>
  
                                                                       Schedule II
  
                         Valuation and Qualifying Accounts
  
  <TABLE>
  <CAPTION>
                                                            Balance at     Charged to                     Balance at
                                                             Beginning      Costs and                       End of
                                                              of Year       Expenses       Deductions        Year
                                                          -------------  -------------  ---------------  -------------
                                                                                 (in thousands)
  <S>                                                     <C>            <C>              <C>            <C>
  Allowance For Doubtful Accounts
         Year ended December 31, 1998....................     $ 4,288      $  6,230       $    188        $ 10,330
         Year ended December 31, 1997....................     $ 1,940      $  4,920       $  2,572        $  4,288
         Year ended December 31, 1996....................     $   665      $  2,636       $  1,361        $  1,940
  </TABLE>
  <PAGE>
  
  Management's Discussion and Analysis of Financial Condition and Results of
  --------------------------------------------------------------------------
  Operations
  ----------
  
  Overview
  
       Siebel Systems, Inc. ("Siebel" or the "Company") is the world's leading
  supplier of Web-based front office software systems. Siebel provides an
  integrated family of sales, marketing and customer service application software
  for field sales, customer service, telesales, telemarketing, field service,
  third-party resellers and Internet-based e-commerce and self service. Siebel
  Systems' products are designed to meet the needs of small, medium and large
  businesses.
  
       In today's increasingly competitive global markets, businesses must
  continuously improve their operations. Having spent considerable effort and
  resources in previous years automating finance, manufacturing, distribution,
  human resources management, and general office operations, many businesses are
  now looking to apply the leverage of information technology to their sales,
  marketing and customer service processes. Unlike previous automation efforts
  which have focused on decreasing expenses, sales, marketing and customer service
  information systems focus primarily on increasing revenues and customer
  satisfaction.
  
       The Siebel Front Office Applications are comprised of a broad range of
  advanced Web-based application software products designed to allow corporations
  to deploy comprehensive sales, marketing and customer service information
  systems on a global basis. The Company's products provide support for a number
  of frequently interdependent distribution channels, including direct field
  sales, telesales, telemarketing, retail, customer service, call centers, field
  service, resellers, business partners and Internet-based e-commerce, marketing
  and customer service. The Company's products provide support for a broad range
  of industries, business practices and multiple languages and currencies.
  
       In December 1999, the Company acquired OnTarget, Inc. (formerly Target
  Marketing Systems, Inc. "OnTarget"). OnTarget develops and implements advanced
  sales and marketing training and consulting programs for sales organizations
  competing in complex, multilevel sales campaigns. OnTarget's goal is to provide
  its clients with a pragmatic, repeatable and implementable process that will
  create lasting change within sales organizations, and which will enable Siebel's
  clients to effectively respond to today's market challenges. Primary customers
  include corporate clients and business owners who wish to provide for the
  development and training of their sales and marketing personnel.
  
       Under the terms of the agreement, each outstanding share of OnTarget common
  stock was exchanged for 0.3077516 newly issued shares of common stock of the
  Company. This resulted in the issuance of approximately 3.7 million additional
  shares of the Company's Common Stock. In addition, all outstanding stock options
  of OnTarget were converted into the right to acquire the Company's Common Stock
  at the same exchange ratio with a corresponding adjustment to the exercise
  price.
  
       The acquisition of OnTarget has been accounted for as a pooling of
  interests. Accordingly, the financial statements of the Company have been
  restated to include the financial position and results of operations of OnTarget
  for all periods presented.
  <PAGE>
  
  Results of Operations
  
       The following table sets forth statement of operations data for the three
  years ended December 31, 1998 and the nine-month periods ended September 30,
  1999, expressed as a percentage of total revenues:
  
  <TABLE>
  <CAPTION>
                                                                                                        Nine Months Ended
                                                                  Year Ended December 31,                 September 30,
                                                          --------------------------------------  -------------------------
                                                               1996          1997         1998          1998         1999
                                                          ------------    ---------    ---------    ----------    ---------
  <S>                                                     <C>             <C>          <C>          <C>           <C>
  Revenues:
       Software                                                   71.8         70.7         71.0          71.2         63.0
       Professional services, maintenance and other               28.2         29.3         29.0          28.8         37.0
                                                          ------------    ---------    ---------    ----------    ---------
           Total revenues                                        100.0        100.0        100.0         100.0        100.0
  Cost of revenues:
       Software                                                    1.9          1.9          1.4           1.5          1.0
       Professional services, maintenance and other               14.3         14.3         15.9          16.2         21.5
                                                          ------------    ---------    ---------    ----------    ---------
            Total cost of revenues                                16.2         16.2         17.3          17.7         22.5
            Gross margin                                          83.8         83.8         82.7          82.3         77.5
  Operating expenses:
       Product development                                        13.2         12.0         10.7          12.4         11.2
       Sales and marketing                                        41.6         46.6         43.7          44.9         37.3
       General and administrative                                 12.8          9.6          8.4           6.6          6.6
       Merger-related expenses                                       -         11.7          3.3           4.8            -
            Total operating expenses                      ------------    ---------    ---------    ----------    ---------
                                                                  67.6         79.9         66.1          68.7         55.1
                                                          ------------    ---------    ---------    ----------    ---------
            Operating income                                      16.2          3.9         16.6          13.6         22.4
  Other income, net                                                2.8          2.4          1.5           1.6          1.3
                                                          ------------    ---------    ---------    ----------    ---------
            Income before income taxes                            19.0          6.3         18.1          15.2         23.7
  Income taxes                                                     6.7          5.9          7.3           6.5          9.0
                                                          ------------    ---------    ---------    ----------    ---------
            Net income                                            12.3          0.4         10.8           8.7         14.7
                                                          ============    =========    =========    ==========    =========
  </TABLE>
  
  For Each of the Years Ended December 31, 1996, 1997 and 1998
  
  Revenues
  
       Software. License revenues increased from $80,413,000 and $156,971,000 for
  the years ended December 1996 and 1997, respectively, to $290,890,000 for the
  year ended December 31, 1998. License revenues as a percentage of total revenues
  decreased and remained flat from 72% and 71% in the fiscal 1996 period and the
  fiscal 1997 period, respectively, to 71% in the fiscal 1998 period. License
  revenues increased in absolute dollar amount during these periods from the
  respective prior year periods due to an increase in the number of licenses of
  Siebel applications sold to new and existing customers and also due to licenses
  of new modules, released with the latest version of Siebel applications, to
  existing users of Siebel base applications. This increase in the number of
  licenses was primarily due to continued demand by new and existing customers for
  products in the Siebel applications family both in the United States and
  internationally. During 1998, approximately $20,000,000 of license revenue was
  attributable to products developed from technology acquired from Nomadic
  Systems, Inc. ("Nomadic") and InterActive WorkPlace, Inc. ("InterActive"). The
  Company expects that license revenues will continue to increase in absolute
  dollars, but will remain the same or decrease as a percentage of total revenues
  as the Company's maintenance revenues continue to grow as a result of increases
  in the installed base of customers on maintenance.
  
       Professional Services, Maintenance and Other. Professional services,
  maintenance and other revenues increased from $31,567,000 and $65,100,000 for
  the years ended December 31, 1996 and 1997, respectively, to $118,996,000 for
  the year ended December 31, 1998, and as a percentage of total revenues
  increased from 28% and 29% in the fiscal 1996 and 1997 periods, respectively, to
  29% in the fiscal 1998 period. These increases in absolute dollar amount were
  primarily due to growth in the Company's sales and marketing training
  businesses, consulting business and in the installed base of customers on
  maintenance. First-year maintenance is typically sold with the related software
  license. Revenue related to such maintenance is deferred based on vendor-
  specific objective evidence of fair value and amortized over the term of the
  maintenance contract, typically twelve months. The Company expects that
  professional services, maintenance and other revenues will remain the same or
  increase as a percentage of total revenues due to increased maintenance revenues
  derived from the Company's growing installed base and due to the
  <PAGE>
  
  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 1996, 1997 and 1998, sales to the
  Company's ten largest customers accounted for 25%, 22% and 21% of total
  revenues, respectively. The Company expects that licenses of its products to a
  limited number of customers will continue to account for a large percentage of
  revenue for the foreseeable future.
  
       The Company markets its products in the United States through its direct
  sales force and internationally through its sales force and distributors
  primarily in Japan, Latin America, South Africa and Asia. International revenues
  accounted for 10%, 27% and 30% of license revenues in 1996, 1997 and 1998,
  respectively. The Company is increasing its international sales force and is
  seeking to establish distribution relationships with appropriate strategic
  partners and expects international revenues will continue to account for a
  substantial portion of total revenues in the future.
  
  Cost of Revenues
  
       Software.  Cost of software license revenues includes third-party software
  royalties, product packaging, documentation and production. Cost of license
  revenues through December 31, 1998 has averaged less than 3% of software license
  revenues. All costs incurred in the research and development of software
  products and enhancements to existing products have been expensed as incurred,
  and, as a result, cost of license revenues includes no amortization of
  capitalized software development costs. These costs are expected to remain the
  same or increase as a percentage of total revenues.
  
       Professional Services, Maintenance and Other.  Cost of professional
  services, maintenance and other revenues consist primarily of personnel,
  facilities, systems costs incurred in providing customer support and costs
  incurred in the providing and administering of training programs. Cost of
  professional services, maintenance and other revenues increased from $15,979,000
  and $31,646,000 for the years ended December 31, 1996 and 1997, respectively, to
  $65,387,000 for the year ended December 31, 1998, and as a percentage of
  professional services, maintenance and other revenues were 51% and 49% for the
  years ended 1996 and 1997, respectively, as compared to 55% in 1998. The
  increases in the absolute dollar amount reflect the effect of fixed costs
  resulting from the Company's expansion of its maintenance and support
  organization and growth in the Company's consulting and sales training
  businesses. 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 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 from $14,775,000 and $26,650,000 for the
  years ended December 31, 1996 and 1997, respectively, to $43,950,000 for the
  year ended December 31, 1998, and decreased as a percentage of total revenues
  from 13% and 12% in 1996 and 1997, respectively, to 11% in 1998. The increases
  in the dollar amount of product development expenses were primarily attributable
  to costs of additional personnel in the Company's product development
  operations. The Company anticipates that it will continue to devote substantial
  resources to product development. The Company expects product development
  expenses to increase in absolute dollar amount but remain at a similar
  percentage of total revenues as in 1998. The Company considers technological
  feasibility of its software products to have been reached upon completion of a
  working model that has met certain performance criteria. The period between
  achievement of technological feasibility and general release of a software
  product is typically very short, and development costs incurred during that
  period have not been material. Accordingly, the Company has not capitalized any
  software development costs to date.
  <PAGE>
  
       Sales and  Marketing.  Sales and marketing expenses consist primarily of
  salaries, commissions and bonuses earned by sales and marketing personnel, field
  office expenses, travel and entertainment and promotional expenses. Sales and
  marketing expenses increased from $46,549,000 and $103,551,000 in the years
  ended December 31, 1996 and 1997, respectively, to $178,957,000 for the year
  ended December 31, 1998, and as a percentage of total revenues, sales and
  marketing expenses decreased from 42% and 47% in 1996 and 1997, respectively, to
  44% in 1998. The increases in the dollar amount of sales and marketing expenses
  reflect primarily the hiring of additional sales and marketing personnel, costs
  associated with expanded promotional activities, and indirect merger-related
  costs, such as corporate sales training and marketing programs. The Company
  expects that sales and marketing expenses will continue to increase in absolute
  dollar amount as the Company continues to expand its sales and marketing
  efforts, establishes additional sales offices in the United States and
  internationally and increases promotional activities. These expenses are
  expected to remain at a similar percentage of total revenues as in 1998.
  
       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 from
  $14,318,000 and $21,275,000 for the years ended December 31, 1996 and 1997,
  respectively, to $34,473,000 for the year ended December 31, 1998, and decreased
  as a percentage of total revenues from 13% and 10% for 1996 and 1997,
  respectively, to 8% in 1998. The increases in the absolute dollar amount of
  general and administrative expenses were primarily due to increased staffing and
  associated expenses necessary to manage and support the Company's increased
  scale of operations. The Company believes that its general and administrative
  expenses will continue to increase in absolute dollar amount as a result of the
  continued expansion of the Company's administrative staff and facilities to
  support growing operations. The Company anticipates that its general and
  administrative expenses as a percentage of total revenues should remain at a
  similar percentage as in 1998.
  
       Merger-Related Expenses.  In connection with the Company's merger with
  Scopus Technology, Inc. ("Scopus"), the Company incurred direct merger-related
  expenses of approximately $13,500,000, comprised primarily of investment
  bankers, attorneys, accountants and other professional fees of $9,100,000,
  duplicate facilities and equipment of $3,100,000 and other miscellaneous
  expenses of $1,300,000. The Company also incurred indirect merger-related
  expenses of approximately $1,800,000 for joint sales training and merger-related
  marketing costs, which are included within sales and marketing expenses.
  
       The Company incurred merger costs of approximately $3,300,000 in the third
  quarter of 1997 in connection with Scopus' planned merger with Clear With
  Computers, Inc. The merger plan was terminated early in the fourth quarter of
  1997.
  
       On October 1, 1997, the Company completed its purchase of InterActive, a
  developer of intranet-based business intelligence software technology that has
  been incorporated into the Siebel InterActive product. The acquisition was
  accounted for by the purchase method of accounting. The Company recorded a
  charge to income of $14,017,000, or $0.17 per diluted share, pursuant to an
  allocation of the purchase price by an independent appraiser, as a write-off of
  acquired research and development. Purchased in-process research and development
  is related to the completion of InterActive's data integration, filtering and
  formatting technology and its integration into the Company's products. At the
  time of acquisition, a prototype of InterActive's product existed and was in
  limited trials, however, the prototype was not stable or sufficiently developed
  to be scalable on an enterprise-wide basis. InterActive's technology was
  completed, at a cost of approximately $400,000, and incorporated as a separate
  module into the Siebel 98 product suite, which was released in June 1998. The
  Company estimated that technology was approximately 75% complete as of the
  acquisition date. At that date, the only identifiable asset acquired was the
  technology under development. Accordingly, essentially all of the excess
  purchase price over net assets acquired, except for amounts assigned to net
  current assets, fixed assets and workforce-in-place, was assigned to in-process
  research and development.
  
       The valuation of acquired research and development was prepared using the
  income approach and contemplated that sales of products incorporating
  InterActive's technology would be $11,500,000 in 1998, increasing to $35,000,000
  in 2000, and declining significantly thereafter. Revenue increases were based
  upon the historical growth rate of software sales for the customer relationship
  management market and the Company. Operating costs as a percentage of revenue
  ranged from 56% in 1998 to 47% in 2000 based upon the Company's normal operating
  margin. Operating cash flows were reduced by an expected effective tax rate of
  38% consistent with the Company's effective tax rate. Net cash flows were
  discounted to their present value at the acquisition date
  <PAGE>
  
  using an after-tax risk-adjusted discount rate of 30%. The Company believes this
  discount rate is consistent with that required by venture capitalists for
  investments in unproven but partially developed software products. Through the
  end of 1998, total revenues from Siebel Interactive were approximately
  $5,000,000; however, the Company is unable to quantify the effect of Siebel
  Interactive as a competitive differentiator. The Company does not track selling,
  general and administrative costs by product but believes the incremental costs
  associated with selling and distributing Siebel Interactive were substantially
  lower than those used in the valuation due to synergies associated with selling
  the product as a separate module in the Siebel 98 product suite. If the Company
  is unable to continuously upgrade the Siebel Interactive product or existing and
  future customers do not elect to purchase this module, the Company's ability to
  recover the value assigned to the acquired research and development will be
  impaired and revenue and profitability will be adversely affected.
  
       On November 1, 1997, the Company completed its purchase of Nomadic, a
  provider of innovative business solutions to pharmaceutical sales forces. The
  acquisition was accounted for by the purchase method of accounting. Technology
  acquired from Nomadic has been incorporated into the Siebel Pharma product. The
  Company recorded a charge to income of $8,723,000 or $0.10 per diluted share,
  pursuant to an allocation of the purchase price by an independent appraiser, as
  a write-off of acquired research and development. The appraisal of the acquired
  research and development was based upon the present value of forecasted
  operating cash flows from the technology acquired, giving effect to the stage of
  completion at the acquisition date. These forecasted cash flows were then
  discounted at a rate commensurate with the risk involved in completing the
  acquired technology. The forecasted cash flows assumed inclusion of the product
  developed from acquired technology into the existing Siebel product suite. The
  purchased in-process research and development expense related to completion of
  Nomadic's second generation pharmaceutical sales force automation product. This
  product was completed and enterprise-wide deployment to end-user customers
  commenced in March 1998. Much of the functionality was incorporated into the
  Company's Pharma product, which was released in June 1998. At the time of the
  acquisition, Nomadic had a first-generation product at a limited number of
  customers, with a very small user base. There were a considerable number of
  uncertainties as to increasing the product's scalability for deployment on an
  enterprise-wide basis, improving the stability of the application and
  identifying and fixing bugs. The Company allocated limited excess purchase price
  over net assets acquired to net current assets, fixed assets and workforce-in-
  place. The majority of the excess purchase price was allocated to in-process
  research and development and other intangible assets (goodwill) based upon the
  expected cash flows from Nomadic's existing product and the product under
  development, giving consideration to the stage of completion of the technology
  under development at the acquisition date. This technology was completed, at a
  cost of approximately $1,300,000, for enterprise-wide release in March 1998.
  
       The valuation of acquired research and development was prepared using the
  income approach and contemplated that sales of products incorporating Nomadic's
  technology would be $11,500,000 in 1998, increasing to $35,000,000 in 2000, and
  declining significantly thereafter. Revenue increases were based upon the
  historical growth rate of software sales for the customer resource management
  market and the Company. Operating costs as a percentage of revenue were
  estimated at 70%, based upon the Company's normal operating margin. Operating
  cash flows were reduced by an expected effective tax rate of 39% consistent with
  the Company's effective tax rate. Net cash flows were discounted to their
  present value at the acquisition date using an after-tax risk-adjusted discount
  rate of 25%. The Company believes this discount rate is consistent with that
  required by venture capitalists for investments in unproven but partially
  developed software products. Through the end of 1998, total revenues from
  products incorporating the Nomadic technology under development at the
  acquisition date were approximately $24,000,000. Although the Company does not
  track selling, general and administrative costs by product, because these
  products are sold as vertical customer resource management solutions for the
  pharmaceutical industry, the Company believes the operating margin is similar to
  the Company's consolidated operating margin. If the Company is unable to
  continuously upgrade the Pharma product or superior products are released by
  competitors, the Company's ability to recover the value assigned to the acquired
  research and development will be impaired and revenue and profitability will be
  adversely affected.
  <PAGE>
  
  Operating Income and Operating Margin
  
       Operating income increased from $18,162,000 and $8,518,000 for the years
  ended December 31, 1996 and December 31, 1997, respectively, to $68,019,000 for
  the year ended December 31, 1998. Operating margin was 16% and 4% in 1996 and
  1997, respectively, compared with 17% in 1998. Excluding merger-related
  expenses, operating income increased from $18,162,000 and $34,556,000 for the
  years ended December 31, 1996 and December 31, 1997, respectively, to
  $81,519,000 for the year ended December 31 1998, and operating margin increased
  from 16% and 16% in 1996 and 1997, respectively, to 20% in 1998. These increases
  in operating income and margin, excluding merger-related expenses, were due to
  increases in license revenues without a proportional increase in cost,
  particularly costs associated with the hiring of new personnel.
  
  Other Income, Net
  
       Other income, net, is primarily comprised of interest income earned on the
  Company's cash and cash equivalents and short-term investments and reflects
  earnings on increasing cash and cash equivalents and short-term investment
  balances.
  
  Pro forma Provision for Income Taxes
  
       Income taxes are comprised primarily of federal and state taxes. The pro
  forma provision for income taxes reflects income tax expense that would have
  been reported if OnTarget (an S Corporation for income tax reporting purposes)
  had been a C Corporation for each of the periods presented. The pro forma
  provision for income taxes was $7,983,000, $13,848,000 and $30,817,00 in 1996,
  1997, and 1998, respectively . The pro forma provision for income taxes as a
  percentage of pretax income was 37%, 100% and 41%, respectively. The pro forma
  tax rate in 1997 was higher than the rates in 1998 and 1996 primarily due to
  non- deductible items related to acquisitions. The Company expects its effective
  tax rate in 1999 to be approximately 38%, excluding the effect of non-deductible
  costs such as merger-related expenses.
  
  Pro forma Net Income
  
       The Company had pro forma net income of $13,313,000 and $55,000 in 1996 and
  1997 respectively and pro forma net income of $43,460,000 for 1998. Pro forma
  net income per share was $0.08 in 1996, and $0.00 in fiscal 1997, compared to
  pro forma net income of $0.21 per diluted share in 1998.
  
  Liquidity and Capital Resources
  
       The Company's cash, cash equivalents and short-term investments increased
  from $162,335,000 as of December 31, 1997 to $232,629,000 as of December 31,
  1998, representing approximately 60% and 52% of total assets, respectively. This
  increase was primarily attributable to cash flows from operations and, to a
  lesser extent, sale of common stock through the Company's stock option and stock
  purchase plans. The increase was partially offset by increases in accounts
  receivable, purchases of property and equipment and short-term investments. The
  Company has generated positive cash flow from operating activities in 1996, 1997
  and 1998.
  
       Of the approximately $39,581,000 of purchases of property and equipment
  during 1998, approximately $14,000,000 related to computer and networking
  equipment to support the Company's introduction of SiebelNet. SiebelNet is a
  family of application hosting, outsourcing and training services designed to
  help customers quickly deploy and easily manage their sales, marketing and
  customer service systems.
  
       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.
  
       Capital expenditures of the nature described above are expected to increase
  during 1999 and 2000.
  <PAGE>
  
       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.
  
  For Each of the Nine-Month Periods Ended September 30, 1998 and 1999
  
  Revenues
  
       Software. License revenues increased from $200,567,000 for the nine months
  ended September 30, 1998 to $329,388,000 for the nine months ended September 30,
  1999 and decreased as a percentage of total revenues from 71% in 1998 to 63% in
  1999. 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 revenues continue
  to grow as a result of increases in the installed base of customers on receiving
  maintenance and due to the Company's expansion of its consulting organization to
  meet anticipated customer demands in connection with product implementation.
  
       Professional Services, Maintenance and Other. Professional services,
  maintenance and other revenues increased from $81,220,000 for the nine months
  ended September 30, 1998 to $193,547,000 for the nine months ended September 30,
  1999 and increased as a percentage of total revenues from 29% in 1998 to 37% in
  1999. The increase in the absolute dollar amount were primarily due to growth in
  OnTarget sales and marketing training revenues, growth in the Company's
  consulting business and in the installed base of customers with a maintenance
  contract. 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 organization to meet anticipated customer demands in connection with
  product implementation and sales training.
  
       The Company markets its products in the United States through its direct
  sales force and internationally through its sales force and through distributors
  which are primarily in Japan, Latin America, South Africa and Asia.
  International revenues accounted for 29% and 31% of license revenues for the
  nine months ended September 30, 1998 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.
  
  Cost of Revenues
  
       Software. Cost of license revenues increased from $4,295,000 for the nine
  months ended September 30, 1998 to $5,111,000 for the nine months ended
  September 30, 1999 and as a percentage of total revenues was less than 3% for
  each of the nine month periods ended September 30, 1998 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. These costs are expected to remain the same or increase as a percentage
  of total revenues.
  
       Professional Services, Maintenance and Other. Cost of professional
  services, maintenance and other revenues consists primarily of personnel,
  facilities and systems costs incurred in providing consulting and customer
  support. Cost of professional services, maintenance and other revenues increased
  from $45,643,000 for the nine months ended September 30, 1998 to $112,223,000
  for the nine months ended September 30, 1999 and increased as a percentage of
  total revenues from 16% in 1998 to 21% in 1999. The increases in the absolute
  dollar amount reflect the effect of fixed costs resulting from the Company's
  expansion of its maintenance and support organization and growth in the
  Company's consulting and sales training businesses. The Company expects that
  professional services,
  <PAGE>
  
  maintenance and other costs will continue to increase in absolute dollar amount
  as the Company integrates OnTarget's training and consulting operations. The
  Company also expects to expand both its customer support organization to support
  a growing installed base and its consulting and training organizations to meet
  anticipated customer demands in connection with product implementation and sales
  training. These costs are expected to remain the same or increase as a
  percentage of total revenues.
  
  Operating Expenses
  
       Product Development. Product development expenses include expenses
  associated with the development of new products, enhancements of existing
  products and quality assurance activities, and consist primarily of employee
  salaries, benefits, consulting costs and the cost of software development tools.
  Product development expenses increased from $34,909,000 for the nine months
  ended September 30, 1998 to $58,324,000 for the nine months ended September 30,
  1999 and decreased as a percentage of total revenues from 12% in 1998 to 11% in
  1999. 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 nine months of 1999. The
  Company considers technological feasibility of its software products to have
  been reached upon completion of a working model that has met certain performance
  criteria. The period between achievement of technological feasibility and
  general release of a software product is typically very short, and development
  costs incurred during that period have not been material. Accordingly, the
  Company has not capitalized any software development costs to date.
  
       Sales and Marketing. Sales and marketing expenses consist primarily of
  salaries, commissions and bonuses earned by sales and marketing personnel, field
  office expenses, travel and entertainment and promotional expenses. Sales and
  marketing expenses increased from $126,482,000 for the nine months ended
  September 30, 1998 to $194,874,000 for the nine months ended September 30, 1999
  and decreased as a percentage of total revenues from 45% 1998 to 37% in 1999.
  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 in the first nine months of 1999.
  
       General and Administrative. General and administrative expenses consist
  primarily of salaries and occupancy costs for administrative, executive and
  finance personnel. General and administrative expenses increased from
  $18,593,000 for the nine months ended September 30, 1998 to $34,674,000 for the
  nine months ended September 30, 1999 and remained as a percentage of total
  revenues at 7% in each of 1998 and 1999. 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 nine months of 1999.
  <PAGE>
  
       Merger related expenses. In connection with the merger with Scopus, the
  Company incurred direct merger-related expenses of approximately $13,500,000
  consisting of direct transaction fees for investment bankers, attorneys,
  accountants and other professional fees of $9,100,000, integration charges
  related to duplicate facilities and equipment of $3,100,000 and other
  miscellaneous expenses of $1,300,000. The Company also incurred indirect
  merger-related expenses of approximately $1,800,000 for joint sales training
  and merger-related marketing costs, which are included within sales and
  marketing expenses.
  
       There were no merger-related expenses in the nine months ended
  September 30, 1999.
  
  Operating Income and Operating Margin
  
       For the nine months ended September 30, 1999 as compared with the nine
  months ended September 30, 1998, operating income increased from $38,365,000 to
  $117,729,000 and operating margin increased from 14% in 1998 to 23% in 1999.
  These increases in operating income and margin were primarily due to $13,500,000
  of merger-related expenses incurred in the three months ended September 30,
  1998, not recurring in 1999. Excluding the merger related expenses, operating
  income for the nine months ended September 30, 1999 increased from $51,865,000
  for the nine months ended September 30, 1998 to $117,729,000 for the nine months
  ended September 1999 and operating margin increased from 18% in 1998 to 23% in
  1999. This increase in operating income and margin was due to increases in
  license revenues without a proportional increase in cost, particularly costs
  associated with the hiring of new personnel. The Company expects operating
  margins, net of merger-related expenses, to decrease as compared to operating
  margin for the first nine months of 1999 as it continues to invest heavily in
  sales, marketing, development and support activities globally.
  
  Other Income, Net
  
       Other income, net is primarily comprised of interest income earned on the
  Company's cash and cash equivalents and short-term investments and reflects
  earnings on increasing cash and cash equivalents and short-term investment
  balances.
  
  Pro forma Provision for Income Taxes
  
       Pro forma income taxes are comprised primarily of federal and state taxes.
  The pro forma provision for income taxes reflects income tax expense that would
  have been reported if OnTarget (an S Corporation for income tax reporting
  purposes) had been a C Corporation for each of the periods presented. The pro
  forma provision for income taxes was $19,140,000 and $47,282,000 and
  approximately 45% and 38% of income before taxes, respectively, for the nine
  months ended September 30, 1998 and 1999 respectively. The pro forma effective
  tax rate in 1998 was affected by the non-deductibility of certain merger-related
  expenses. The Company expects its effective tax rate for the remainder of 1999
  to be approximately 38%.
  
  Pro forma Net Income
  
       The Company had pro forma net income of $23,691,000 for the nine months
  ended September 30, 1998 compared to net income of $77,144,000 for the nine
  months ended September 30, 1999. Pro forma net income increased as a percentage
  of total revenues from 8% in the nine months ended September 30, 1998 to 15% in
  the nine months ended September 30, 1999, due primarily to the effect of the
  merger-related expenses in 1998.
  
  Liquidity and Capital Resources
  
       The Company's cash, cash equivalents and short-term investments increased
  to $624,791,000 as of September 30, 1999 from $232,629,000 as of December 31,
  1998, representing approximately 62% and 52% of total assets, respectively. This
  increase was primarily attributable to issuance of convertible subordinated
  debentures, net income, sale of certain property and equipment, increases in
  accounts payable, accrued expenses, income taxes payable and deferred revenue,
  and issuance of common stock under the Company's stock option plans, partially
  offset by an increase in accounts receivable and purchases of property and
  equipment. The Company's days sales outstanding (DSO) in accounts receivable was
  98 as of September 30, 1999, as compared with 88 as of December 31, 1998. The
  Company expects DSO to fluctuate significantly in future quarters.
  <PAGE>
  
       As of December 21, 1999, the fair market value of the Company's marketable
  equity securities was $137,277,000.
  
       The Company has used fully serviced office suites on a month-to-month
  rental basis to establish its presence in new locations. As these locations
  expand, the Company expects to transition more of the office suites to leased
  space. This transition will involve build-out of tenant improvements,
  acquisition of furniture and fixtures, and other capital costs, which were not
  incurred in connection with the use of fully serviced office suites. The Company
  has already built-out a number of leased facilities, both domestically and
  internationally, and expects this trend to continue.
  
       Capital expenditures of the nature described above are expected to increase
  during the remainder of 1999 and 2000.
  
       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.
  
  Audit Committee
  
       The Company has established an Audit Committee of the Board of Directors,
  the charter of which is to oversee the activities of management and the
  Company's external auditors as they relate to the financial reporting process.
  The Audit Committee is comprised of James C. Gaither, Charles R. Schwab and
  George T. Shaheen. In particular, the Audit Committee's role includes ensuring
  that management properly develops and adheres to a sound system of internal
  controls, and that the Company's auditors, through their own review, assess the
  effectiveness of those controls and management's adherence to them.
  
       In fulfilling their responsibilities, the Audit Committee conducted
  regular, quarterly meetings with the Company's outside auditors. In each of
  these meetings, the Audit Committee met with the Company's outside auditors,
  independent of management, to assure the Audit Committee an independent and
  confidential view of the Company's management and internal controls as they
  relate to the quality and reliability of the Company's financial statements.
  <PAGE>
  
       The Company is committed to supporting this process and the Audit Committee
  in fulfilling their role of ensuring the integrity of the Company's internal
  controls and financial reporting.
  
  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,
  and available-for-sale short-term investments, which are subject to interest
  rate risk. The Company does not consider its cash equivalents to be subject to
  interest rate risk due to their short maturities.
  
       The Company generally manages its foreign currency exchange rate risk by
  entering into contracts to sell foreign currency at the time a foreign currency
  receivable is generated. When the foreign currency receivable is collected, the
  contract is liquidated, thereby converting the foreign currency to US dollars
  and mitigating the exchange rate risk.
  
       The Company manages its interest rate risk by maintaining an investment
  portfolio with debt instruments of high credit quality and relatively short
  average maturities. The Company also manages interest rate risk by maintaining
  sufficient cash and cash equivalent balances such that it is typically able to
  hold its investments to maturity.
  
       The Company is exposed to equity price risks on its marketable equity
  securities. This investment is in a publicly-traded company in the high-
  technology industry sector. The Company typically does not attempt to reduce or
  eliminate its market exposure on these securities. A 10% adverse change in the
  equity price would result in an approximate $4.7 million decrease in the fair
  value of the Company's marketable equity securities as of September 30, 1999.
  
       The following summarizes the Company's foreign currency forward contracts,
  all of which mature in 1999, by currency, as of September 30, 1999. Contract
  amounts are representative of the expected payments to be made under these
  instruments (unaudited, in thousands):
  
  <TABLE>
  <CAPTION>
                                                                  Contract                             Fair Value
                                                                   Amount                             at September
                                                                   (Local             Contract         30, 1999
                                                                  Currency)         Amount (US$)          (US$)
                                                               --------------       ------------      --------------
  <S>                                                          <C>                  <C>               <C>
  German marks (contracts to pay DM/receive US$)...........          DM 4,930           $  2,664              $  (20)
  
  British pounds (contracts to pay(pound)/receive US$).....     (pound) 4,741           $  7,628              $ (179)
  
  Japanese yen (contracts to pay(Yen)/receive US$).........    (Yen)1,543,100           $ 13,795              $ (714)
  
  Euro (contracts to pay EUR/receive US$)..................          EUR2,300           $  2,475              $   26
  
  British pounds (contracts to pay(pound)/receive EUR).....       (pound) 83O           EUR1,279              $    5
  </TABLE>
  
  <PAGE>
  
       The following summarizes the Company's short-term investments and the
  weighted average yields, as of September 30, 1999 (unaudited, in thousands):
  
  <TABLE>
  <CAPTION>
                                                       Expected maturity date
                          ---------------------------------------------------------------------------------------
                            1999            2000           2001           2002          2003          Thereafter
                          --------        --------       --------       --------      --------      -------------
  <S>                     <C>             <C>            <C>            <C>           <C>           <C>
  US treasury
       securities....           --              --        $ 1,986        $ 3,002        $1,984             $3,900
    Wtd. Avg. Yld.                                           5.88%          5.71%         5.73%              6.84%
  
  Municipal
       securities....      $ 8,701        $ 55,234        $37,226        $36,708        $5,347                 --
    Wtd. Avg. Yld.            3.86%           3.85%          3.78%          4.29%         4.39%
  
  Corporate bonds....           --              --             --        $ 4,505
  
    Wtd. Avg. Yld.                                                          5.93%           --                 --
  
  </TABLE>
  
       On September 30, 1999, the Company had an investment portfolio of fixed
  income securities, excluding those classified as cash and cash equivalents, of
  $158,600,000. 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 September 30, 1999, the fair value of the portfolio
  would decline by approximately $2,400,000.
  
  Year 2000 Preparedness
  
       Many existing computer programs and systems use only two-digit fields to
  identify the year, e.g. 85=1985, and they are unable to process date and time
  information between the twentieth and twenty-first centuries. Accordingly,
  computer programs and software may need to be modified prior to the year 2000
  ("Y2K") in order to remain functional. Failure to complete the necessary
  modifications could cause a disruption or failure of such program and system.
  
       The Company's Y2K initiative has been managed by a team of internal staff
  and third-party consultants specializing in Y2K issues. The team's activities
  are designed to identify potential Y2K problems and to ensure that there is no
  adverse effect on our core business operations and that transactions with
  clients, suppliers and financial institutions are fully supported. The Company's
  efforts have focused on three areas: (i) the Company's products, (ii) internal
  operating systems and (iii) interfaces with third-party systems.
  
       Products. The Company has put in place a certification program to verify
  the Y2K compliance of its products. Beginning with version 4.0 (Siebel 98), the
  Company's programs have been designed to be Y2K compliant. The Company has
  applied a number of test approaches and criteria to each of its products
  beginning with Siebel 98 and believes that all such products are Y2K compliant.
  While we believe that our currently developed and actively marketed products are
  Y2K compliant for significantly all functionality, our software products could
  contain errors or defects relating to Y2K. The Company has advised certain of
  its customers that internal testing of Y2K compliance should be conducted to
  ensure that the operations managed by Siebel products continue without
  disruption. If such modifications and conversions are not made, or are not
  completed in a timely manner, the Y2K issue could have a material adverse impact
  on our operations. The costs incurred to test the Company's products for Y2K
  compliance were incurred as normal product development expenses. Any additional
  expenses are expected to be minimal.
  
       Internal Operating Systems. The Company has implemented a plan to test all
  internal operating systems, such as computer hardware and software,
  telephone/PBX systems, fax machines, facilities systems such as building access
  and other miscellaneous systems on a worldwide basis. The Company has approached
  its Y2K internal readiness program in the following three phases: (i)
  assessment, (ii) planning and (iii) implementation. These phases included such
  individual steps as taking an inventory of the Company's operating systems
  prioritized by risk,
  <PAGE>
  
  identifying failure dates, defining a solution strategy, estimating repair
  costs, identifying specific tasks necessary to ensure readiness, determining
  resource requirements and allocations, and finally, testing and fixing the
  operating systems as well as putting in place contingency plans for operating
  systems that have a high impact on the Company's business. The plan has been
  executed and the Company does not believe that the Y2K issue will pose
  significant operational problems to our internal operating systems. Costs
  incurred to complete this process have not been material.
  
       Third-Party Systems. The Company has developed a Y2K process for dealing
  with its key suppliers, distributors, vendors, system integrators and other
  partners. The Company has been in contact with its key third-party relationships
  regarding their Y2K compliance. The Company has received responses from its
  critical third-party relationships, who have stated that they expect to address
  all of their significant Y2K issues in a timely manner. The Company is working
  to identify and analyze the most reasonably likely worst case scenarios for key
  third party relationships affected by Y2K. These scenarios could include
  possible infrastructure collapse, the failure of water and power supplies, major
  transportation disruptions and failures of communications or financial systems -
  any of which could have a material adverse effect on the Company's ability to
  deliver its products and services to its customers. While the Company has
  contingency plans in place to address most issues under its control, an
  infrastructure problem outside of its control could result in a delay in product
  shipments, depending on the nature and severity of the problems. The Company has
  analyzed its key third-party systems and believes all of them to be largely Y2K
  compliant. Costs incurred to complete this process have not been material.
  
       Contingency plans. Our Y2K Program is designed to minimize the possibility
  of serious Year 2000 interruptions. However, since their possibility cannot be
  eliminated, we are developing contingency plans addressing Year 2000 concerns in
  high impact areas. These plans will continue to be reviewed and updated through
  out the end of the calendar year. Other contingency plans will be prepared,
  tested, and updated as deemed practicable and appropriate.
  
       The Company currently believes that the most reasonably likely worst-case
  scenario is that there will be some Year 2000 disruptions at individual
  locations that could affect individual business processes, facilities or third
  parties for a short time. The Company does not expect such disruptions to be
  long-term, or for the disruptions to affect the operations of the Company as a
  whole. Because of the uncertainty as to the exact nature or location of
  potential Year 2000-related problems that might arise, the business
  continuity/contingency planning has focused on development of flexible plans to
  minimize the scope, impact and duration of any Year 2000 problems that may
  occur. The Company expects to have personnel and resources available to deal
  with any Year 2000 problems that occur. Some of the currently planned
  contingency actions include designating emergency response teams, increasing
  staffing at critical times, in particular the Year 2000 weekend, and heightening
  proactive monitoring at likely dates of impact.
  
       Although the Company has spent a large amount of time and resource to
  address potential Y2K problems, there is no assurance that the Company will be
  successful in its efforts to identify and address all Y2K issues. Even though
  the Company has acted in a timely manner to complete all of its assessments and
  planned solutions, some problems may not have been identified or corrected in
  time to prevent material adverse consequences to the Company. The discussion
  above includes forward-looking statements regarding Y2K and is based on the
  Company's best estimates given information that is currently available and is
  subject to change. As the Company continues to progress with its Y2K
  initiatives, it may discover that actual results will differ materially from
  these estimates. See "Factors Affecting Operating Results -- Year 2000 Problems
  may cause an Interruption in our Business."
metadata_documents: [{"type": "8-K", "sequence": "1", "description": "FORM 8-K", "secsgml_size_bytes": 185625}]
metadata_filer: {"company-data": {"conformed-name": "SIEBEL SYSTEMS INC", "cik": "0001006835", "assigned-sic": "7372", "irs-number": "943187233", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-20725", "film-number": "503366"}, "business-address": {"street1": "1885 SOUTH GRANT STREET", "city": "SAN MATEO", "state": "CA", "zip": "94402", "phone": "6502955000"}, "mail-address": {"street1": "1885 SOUTH GRANT STREET", "city": "SAN MATEO", "state": "CA", "zip": "94402"}}
text: SECURITIES AND EXCHANGE COMMISSION
  
                              WASHINGTON, D.C. 20549
  
                                     FORM 8-K
  
                                  CURRENT REPORT
  
                        Pursuant to Section 13 or 15(d) of
                        The Securities Exchange Act of 1934
  
                                  January 7, 2000
  
                               --------------------
  
                 Date of Report (Date of earliest event reported)
  
                               SIEBEL SYSTEMS, INC.
  
                               --------------------
  
              (Exact name of registrant as specified in its charter)
  
            Delaware                      0-20725                 94-3187233
         ---------------              ---------------           ---------------
  
   (State or other jurisdiction of      (Commission             (I.R.S. Employer
            incorporation               File Number)           Identification No.)
  
                              1855 South Grant Street
                                San Mateo, CA 94402
  
                               --------------------
  
                     (Address of principal executive offices)
  
                                  (650) 295-5000
  
                               --------------------
  
               (Registrant's telephone number, including area code)
  
                                         1
  Item 5.     Other Events
  
            Attached as Appendix A to this current report on Form 8-K are the
  Registrant's audited supplemental consolidated financial statements as of
  December 31, 1997 and 1998, for each of the years in the three-year period ended
  December 31, 1998, and the unaudited supplemental consolidated financial
  statements as of September 30, 1999 and for the nine-month periods ended
  September 30, 1998 and 1999 and the related supplemental consolidated financial
  statement schedule, supplemental selected financial data and management's
  discussion and analysis of financial condition and results of operations.
  
  Item 7.    Financial Statements, Pro Forma Financial Information and Exhibits.
  
             (c)   Exhibits
  
             The following Exhibits are filed as part of this report:
  
             23.1     Consent of KPMG LLP
  
             27.1     Financial Data Schedule
  
                                         2
  SIGNATURE
  
           Pursuant to the requirements of the Securities Exchange Act of 1934,
  the registrant has duly caused this report to be signed on its behalf by the
  undersigned hereunto duly authorized.
  
                                                SIEBEL SYSTEMS, INC.
  Date:  January 7, 2000
  
                                                By:  /s/ Howard H. Graham
                                                   -----------------------------
                                                     Howard H. Graham
                                                     Senior Vice President,
                                                     Finance and Administration
                                                     and Chief Financial Officer
  
                                         3
  SELECTED CONSOLIDATED FINANCIAL DATA
                 (in thousands, except per share data and ratios)
  
       The following selected consolidated financial data should be read in
  conjunction with our Supplemental Consolidated Financial Statements and Notes
  thereto and "Management's Discussion and Analysis of Financial Condition and
  Results of Operations" included elsewhere in the Form 8-K. The selected
  consolidated financial data for each of the years in the three-year period ended
  December 31, 1998, and as of December 31, 1997 and 1998 is derived from our
  consolidated financial statements that have been audited by KPMG LLP,
  independent auditors. The selected consolidated financial data for the year
  ended December 31, 1996, and as of December 31, 1996, is derived from audited
  consolidated financial statements that have not been included in this Form 8-K.
  The selected financial data as of, and for the nine months ended, September 30,
  1998 and 1999 have been derived from unaudited supplemental consolidated
  financial statements included elsewhere in this Form 8-K.
  
       The unaudited supplemental consolidated financial statements have been
  prepared on the same basis as the audited supplemental consolidated financial
  statements and include all adjustments, consisting of normal, recurring
  adjustments, that in the opinion of management are necessary for a fair
  presentation of the information set forth therein. Historical results are not
  necessarily indicative of the results to be expected in the future.
  Nine Months Ended
                                            Year Ended December 31,           September 30,
                                        ------------------------------     -----------------
                                          1996       1997       1998         1998     1999
                                        --------   --------   --------     --------  -------
  Total revenues....................... $111,980   $222,071   $409,886     $281,787   $522,935
  Operating income (loss)..............   18,162      8,518     68,019       38,365    117,729
  Net income (loss)....................   13,750        643     44,265       24,405     77,115
  Proforma net income..................   13,313         55     43,460       23,691     77,144
  Pro Forma diluted net
   income (loss) per share(1)..........     0.08       0.00       0.21         0.12       0.35
  Pro Forma basic net
   income (loss) per share(1)..........     0.09       0.00       0.24         0.13       0.41
  Total assets.........................  209,602    210,950    447,596      391,121  1,004,444
  Total equity.........................  173,157    210,950    291,120      258,212    475,913
  ________________________
    (1) See Note 1 of Notes to Supplemental Consolidated Financial Statements for
    an explanation of the determination of the number of shares used in computing
    per share data.
  APPENDIX A
  
     AUDITED SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31,
   1997 AND 1998, FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED DECEMBER
  31, 1998 AND THE UNAUDITED SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS AS OF
    SEPTEMBER 30, 1999 AND FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998
   AND SEPTEMBER 30, 1999, AND THE RELATED SUPPLEMENTAL CONSOLIDATED FINANCIAL
    STATEMENT SCHEDULE, SUPPLEMENTAL SELECTED FINANCIAL DATA AND MANAGEMENT'S
     DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
  ===============================================================================
  
                                                                       APPENDIX A
  
                           INDEPENDENT AUDITORS' REPORT
  
  The Board of Directors and Stockholders of
  Siebel Systems, Inc.:
  
       We have audited the accompanying supplemental consolidated balance sheets
  of Siebel Systems, Inc. and subsidiaries as of December 31, 1997 and 1998, and
  the related supplemental consolidated statements of operations and comprehensive
  income, stockholders' equity, and cash flows for each of the years in the three-
  year period ended December 31, 1998. These supplemental consolidated financial
  statements are the responsibility of the Company's management. Our
  responsibility is to express an opinion on these supplemental consolidated
  financial statements based on our audits.
  
       We conducted our audits in accordance with generally accepted auditing
  standards. Those standards require that we plan and perform the audit to obtain
  reasonable assurance about whether the financial statements are free of material
  misstatement. An audit includes examining, on a test basis, evidence supporting
  the amounts and disclosures in the financial statements. An audit also includes
  assessing the accounting principles used and significant estimates made by
  management, as well as evaluating the overall financial statement presentation.
  We believe that our audits provide a reasonable basis for our opinion.
  
       The supplemental consolidated financial statements give retroactive effect
  to the merger of Siebel Systems, Inc. and OnTarget, Inc. on December 1, 1999,
  which has been accounted for as a pooling of interests as described in Note 9 to
  the supplemental consolidated financial statements. Generally accepted
  accounting principles prescribe giving effect to a consummated business
  combination accounted for by the pooling-of-interests method in financial
  statements that do not include the date of consummation. These financials
  statements do not extend through the date of consummation. However, they will
  become the historical consolidated financial statements of Siebel Systems, Inc.
  and subsidiaries after financial statements covering the date of consummation of
  the business combination are issued.
  
       In our opinion, the supplemental consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of
  Siebel Systems, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
  results of their operations and their cash flows for each of the years in the
  three-year period ended December 31, 1998, in conformity with generally accepted
  accounting principles applicable after financial statements are issued for a
  period which includes the date of consummation of the business combination.
  
  /s/KPMG LLP
  
  Mountain View, California
  December 1, 1999
  
                                         5
  SIEBEL SYSTEMS, INC.
  
                     Supplemental Consolidated Balance Sheets
                       (In thousands, except per share data)
  December 31,         September 30,
                                                                             1997           1998           1999
                                                                      ---------------- -------------- -------------
                                                Assets                                                 (Unaudited)
                                                ------
  Current assets:
      Cash and cash equivalents                                       $     70,336     $   80,741     $   466,198
      Short-term investments                                                91,999        151,888         158,593
      Marketable equity securities                                               -              -          46,503
      Accounts receivable, net                                              65,238        126,081         223,750
      Deferred income taxes                                                  4,824         13,270          13,120
      Prepaids and other                                                     6,967         14,402          20,987
                                                                      ---------------- -------------- -------------
  
                Total current assets                                       239,364        386,382         929,151
  Property and equipment, net                                               25,564         46,384          46,418
  Other assets                                                               6,607         14,830          28,875
                                                                      ---------------- -------------- -------------
  
                Total assets                                          $    271,535     $  447,596     $ 1,004,444
                                                                      ================ ============== =============
  
                           Liabilities and Stockholders' Equity
                           ------------------------------------
  Current liabilities:
      Accounts payable                                                $      5,938     $    4,558     $    17,914
      Accrued expenses                                                      29,117         88,185         109,244
      Income taxes payable                                                   2,345         10,917          10,285
      Deferred revenue                                                      23,007         52,033          63,247
      Deferred income taxes                                                      -              -          15,356
                                                                      ---------------- -------------- -------------
  
                Total current liabilities                                   60,407        155,693         216,046
  
      Convertible subordinated debentures                                        -              -         300,000
      Other noncurrent liabilities                                               -              -          12,242
      Deferred income taxes                                                    178            783             243
                                                                      ---------------- -------------- -------------
  
                Total liabilities                                           60,585        156,476         528,531
                                                                      ---------------- -------------- -------------
  
  Commitments and contingencies
  
  Stockholders' equity:
      Common stock; $.001 par value; 600,000 shares authorized;
      174,037, 181,569 and 189,447 shares issued and outstanding,
      respectively                                                             174            182             189
      Additional paid-in capital                                           194,903        235,400         318,136
      Notes receivable from stockholders                                      (406)          (406)           (406)
      Deferred compensation                                                   (639)          (360)           (748)
      Accumulated other comprehensive gains (losses)                          (365)          (669)         25,208
      Retained earnings                                                     17,283         56,973         133,534
                                                                      ---------------- -------------- -------------
  
                Total stockholders' equity                                 210,950        291,120         475,913
                                                                      ---------------- -------------- -------------
  
                Total liabilities and stockholders' equity            $    271,535     $  447,596     $ 1,004,444
                                                                      ================ ============== =============
  See accompanying notes to supplemental consolidated financial statements.
  SIEBEL SYSTEMS, INC.
    Supplemental Consolidated Statements of Operations and Comprehensive Income
                       (In thousands, except per share data)
  Nine Months Ended
                                                        Year Ended December 31,                 September 30,
                                                --------------------------------------    --------------------------
                                                    1996            1997        1998           1998         1999
                                                ------------    ----------- ----------    ------------- ------------
  Revenues:                                                                                (unaudited)   (unaudited)
  Software                               $    80,413     $  156,971  $  290,890    $    200,567  $   329,388
         Maintenance, consulting and other           31,567         65,100     118,996          81,220      193,547
                                                -----------     ----------  ----------    ------------  -----------
                   Total revenues                   111,980        222,071     409,886         281,787      522,935
                                                -----------     ----------  ----------    ------------  -----------
  Cost of revenues:
         Software                                     2,197          4,393       5,600           4,295        5,111
         Maintenance, consulting and other           15,979         31,646      65,387          45,643      112,223
                                                -----------     ----------  ----------    ------------  -----------
                   Total cost of revenues            18,176         36,039      70,987          49,938      117,334
                                                -----------     ----------  ----------    ------------  -----------
                   Gross margin                      93,804        186,032     338,899         231,849      405,601
                                                -----------     ----------  ----------    ------------  -----------
  Operating expenses:
         Product development                         14,775         26,650      43,950          34,909       58,324
         Sales and marketing                         46,549        103,551     178,957         126,482      194,874
         General and administrative                  14,318         21,275      34,473          18,593       34,674
         Merger termination costs                         -          3,298           -               -            -
         Merger-related expenses                          -         22,740      13,500          13,500            -
                                                -----------     ----------  ----------    ------------  -----------
                   Total operating expenses          75,642        177,514     270,880         193,484      287,872
                                                -----------     ----------  ----------    ------------  -----------
  
                   Operating income                  18,162          8,518      68,019          38,365      117,729
  Other income, net                                   3,134          5,385       6,258           4,466        6,697
                                                -----------     ----------  ----------    ------------  -----------
  
                   Income before income taxes        21,296         13,903      74,277          42,831      124,426
  Income taxes                                        7,546         13,260      30,012          18,426       47,311
                                                -----------     ----------  ----------    ------------  -----------
                   Net income                   $    13,750     $      643  $   44,265    $     24,405  $    77,115
                                                ===========     ==========  ==========    ============  ===========
  Unaudited pro forma net income and
   per share data:
        Income before taxes as reported         $    21,296     $   13,903  $   74,277    $     42,831  $   124,426
        Pro forma income taxes                        7,983         13,848      30,817          19,140       47,282
                                                -----------     ----------  ----------    ------------  -----------
        Pro forma net income                    $    13,313     $       55  $   43,460    $     23,691  $    77,144
                                                ===========     ==========  ==========    ============  ===========
  Pro forma diluted net income per share        $      0.08     $     0.00  $     0.21    $       0.12  $      0.35
                                                ===========     ==========  ==========    ============  ===========
  Pro forma basic net income per share          $      0.09     $     0.00  $     0.24    $       0.13  $      0.41
                                                ===========     ==========  ==========    ============  ===========
  Shares used in diluted pro forma net income
  per share computation                             158,704        191,338     202,204         201,838      220,719
                                                ===========     ==========  ==========    ============  ===========
  Shares used in basic pro forma net income
  per share computation                             141,780        169,904     177,446         176,458      185,929
                                                ===========     ==========  ==========    ============  ===========
  Comprehensive income
         Net income                             $    13,750     $      643  $   44,265    $     24,405  $    77,115
  Other comprehensive income (loss), net
   of tax:
         Foreign currency translation
          adjustments                                     -           (365)       (505)           (138)         726
         Unrealized gains on securities                   -              -         201               -       25,151
                                                -----------     ----------  ----------    ------------  -----------
              Total comprehensive income        $    13,750     $      278  $   43,961    $     24,267  $   102,992
                                                ===========     ==========  ==========    ============  ===========
  See accompanying notes to supplemental consolidated financial statements.
  SIEBEL SYSTEMS, INC.
           Supplemental Consolidated Statements of Stockholders' Equity
                                  (in thousands)
  Accumu-
                                                                                                        lated
                             Convertible                          Addit-         Notes      Deferred    other                  Total
                           Preferred stock       Common stock      ional       receivable     stock    compre-                stock-
                          ------------------  -----------------   paid-in        from       compen-     hensive  Retained    holders'
                           Shares    Amount    Shares    Amount   Capital     stockholders   sation     losses   earnings     equity
                          --------  --------  --------   ------  ---------    ------------  --------   --------  --------   ---------
  Balances, December 31,
  1995...................   39,244     $  39    93,869    $  94  $  39,390       $     (13)   $ (652)    $   --  $  4,685   $  43,543
  Issuance of common
  stock under Employee
  Stock Option Plans.....       --        --     5,350        5      2,016              --        --         --        --       2,021
  Issuance of common
  stock under Employee
  Stock Purchase Plans...       --        --       590       --      1,641              --        --         --        --       1,641
  Issuance of common
  stock, net of issuance
  costs of $1,849........       --        --    25,782       26    109,464            (507)       --         --        --     108,983
  Repayment of note
  receivable.............       --        --        --       --         --              12        --         --        --          12
  Issuance of convertible
  preferred stock........      988         1        --       --      1,093              --        --         --        --       1,094
  Convertible preferred
  stock issued for
  exercise of warrant....      600         1        --       --        436              --        --         --        --         437
  Tax benefit from stock
  options................       --        --        --       --      2,173              --        --         --        --       2,173
  Compensation related
  to stock options.......       --        --        --       --        893              --      (893)        --        --          --
  Cancellation of
  stock options issued
  below fair value.......       --        --        --       --        (48)             --        48         --        --          --
  Conversion of
  convertible preferred
  stock into common
  stock..................  (40,832)      (41)   40,832       41         --              --        --         --        --          --
  Repurchase and
  retirement of common
  stock..................       --        --      (176)      --         --              --        --         --        --          --
  Amortization of
  deferred compensation
  related to stock
  options................       --        --        --       --         --              --       324         --        --         324
  Subchapter S
  distributions..........       --        --        --       --         --              --        --         --      (822)       (822)
  Net income.............       --        --        --       --         --              --        --         --    13,750      13,750
                          --------  --------  --------   ------  ---------    ------------  --------   --------  --------   ---------
  Balances, December 31,
  1996...................       --        --   166,247      166    157,058            (508)   (1,173)        --    17,613     173,156
  Issuance of common
  stock under Employee
  Stock Option Plans.....       --        --     4,134        5      4,785              --        --         --        --       4,790
  Issuance of common
  stock under Employee
  Stock Purchase Plans...       --        --     1,252        1      4,299              --        --         --        --       4,300
  Issuance of common
  stock related to
  InterActive
  acquisition............       --        --     1,204        1     14,580              --        --         --        --      14,581
  Issuance of common
  stock related to
  Nomadic acquisition....       --        --     1,200        1     10,392              --        --         --        --      10,393
  Repayment of note
  receivable.............       --        --        --       --         --             102        --         --        --         102
  Compensation related to
  stock options..........       --        --        --       --       (256)             --       256         --        --          --
  Cancellation of stock
  options issued below
  fair value.............       --        --        --       --         (1)             --         1         --        --          --
  Tax benefit from stock
  options................       --        --        --       --      4,046              --        --         --        --       4,046
  Accumu-
                                                                                                    lated
                             Convertible                        Addit-     Notes       Deferred     other                 Total
                           Preferred stock     Common stock     tional   receivable      stock     compre-                stock
                         -----------------  -----------------   paid-in    from         compen-    hensive     Retained   holders'
                         Shares     Amount   Shares    Amount   Capital  stockholders   sations    losses      earnings   equity
                         ------     ------  -------    ------  --------  ------------  --------   ----------   --------   --------
  Amortization of
  deferred compensation
  related to stock
  options...............     --         --       --        --        --            --       277           --         --        277
  Currency translation
  adjustment (net of
  taxes of $214)........     --         --       --        --        --            --        --         (365)        --       (365)
  Subchapter S
  distributions.........     --         --       --        --        --            --        --           --       (973)      (973)
  Net income............     --                  --        --        --            --        --           --        643        643
                         ------     ------  -------    ------  --------  ------------  --------   ----------   --------   --------
  Balances, December
  31, 1997..............     --         --  174,037       174   194,903          (406)     (639)        (365)    17,283    210,950
  Issuance of common
  stock under Employee
  Stock Option Plans....     --         --    6,270         7    17,855            --        --           --         --     17,862
  Issuance of common
  stock under Employee
  Stock Purchase Plans..     --         --    1,262         1     8,534            --        --           --         --      8,535
  Adjustment to
  conform acquired
  company's year-end....     --         --       --        --        --            --        --           --     (1,464)    (1,464)
  Cancellation of
  stock options issued
  below fair value......     --         --       --        --       (39)           --        39           --         --         --
  Tax benefit from
  stock options.........     --         --       --        --    13,516            --        --           --         --     13,516
  Amortization of
  deferred
  compensation related
  to stock options......     --         --       --        --        --            --       240           --         --        240
  Unrealized gain on
  short-term
  investments (net of
  taxes of $118)........     --         --       --        --        --            --        --          201         --        201
  Currency translation
  adjustment (net of
  taxes of $297)........     --         --       --        --        --            --        --         (505)        --       (505)
  Transfer of common
  stock to employees....     --         --       --        --       631            --        --           --         --        631
  Subchapter S
  distributions.........     --         --       --        --        --            --        --           --     (3,111)    (3,111)
  
  Net income............     --         --       --        --        --            --        --           --     44,265     44,265
                         ------     ------  -------    ------  --------  ------------  --------  -----------   --------   --------
  Balances, December
  31, 1998..............     --         --  181,569       182   235,400          (406)     (360)        (669)    56,973    291,120
  Issuance of common
  stock under Employee
  Stock Option Plans
  (unaudited)...........     --         --    6,620         7    35,727            --        --           --         --     35,734
  Issuance of common
  stock under Employee
  Stock Purchase Plans
  (unaudited)...........     --         --      523        --     7,537            --        --           --         --      7,537
  Issuance of common
  stock under stock
  award plan
  (unaudited)...........     --         --       --        --       198            --        --           --         --        198
  Tax benefit from
  stock options
  (unaudited)...........     --         --       --        --    33,575            --        --           --         --     33,575
  Compensation related
  to stock options
  (unaudited) ..........     --         --       --        --       538            --      (538)          --         --         --
  Amortization of
  deferred compensation
  related to stock
  options (unaudited)...     --         --       --        --        --            --       150           --         --        150
  Unrealized gain on
  short-term
  investments (net of
  taxes of $20,769)
  (unaudited)...........     --         --       --        --        --            --        --       25,151         --     25,151
  Currency translation
  adjustment (net of
  taxes of $426)
  (unaudited)...........     --         --       --        --        --            --        --          726         --        726
  Subchapter S
  distributions
  (unaudited)...........     --         --       --        --        --            --        --           --       (554)      (554)
  Issuance of common
  stock related to
  Target Marketing
  Systems Worldwide and
  Target Marketing
  Systems S.A. acquisitions
  (unaudited)..............     --        --       735        --     5,161       --        --       --        --     5,161
  Net income (unaudited)...     --        --        --        --        --       --        --       --    77,115    77,115
                            ------   -------  --------    ------  --------   ------    ------  -------  --------  --------
  Balances, September
  30, 1999 (unaudited).....     --        --   189,447    $  189  $318,136   $ (406)   $ (748) $25,208  $ 33,534  $475,913
                            ======   =======  ========    ======  ========   ======    ======  =======  ========  ========
  See accompanying notes to supplemental consolidated financial statements.
  SIEBEL SYSTEMS, INC.
                Supplemental Consolidated Statements of Cash Flows
                                  (In thousands)
  Year Ended December 31,               Nine Months Ended September 30,
                                           ------------------------------------------     -------------------------------
                                              1996            1997            1998           1998                 1999
                                           ---------       ----------      ----------     ----------          -----------
  Cash flows from operating activities:                                                   (unaudited)         (unaudited)
  Net income                            $   13,750      $      643      $   44,265     $   24,405          $   77,115
     Adjustments to reconcile net
       income to net cash provided by
       operating activities:
       Compensation related to stock
         options                                  324             277             240            193                 150
       Depreciation and amortization            3,450           8,275          13,638          8,095              16,219
       Deferred income taxes                   (2,036)         (1,614)         (9,543)             -                   -
       Tax benefit from exercise of
         stock options                          2,173           4,046          13,516          8,061              33,575
       Loss on disposal of property
         and equipment                            155             307           4,557            252                 714
       Provision for doubtful accounts
         and returns, net                       1,275           2,348           6,613          3,964               4,938
       Write-off of acquired research
         and development                            -          22,740               -              -                   -
       Software licenses exchanged for
         equipment and prepaid assets          (3,408)              -               -              -                   -
       Changes in operating assets and
         liabilities:
         Accounts receivable                  (19,248)        (41,344)        (68,739)       (51,331)            (98,132)
         Prepaids and other                    (3,391)         (1,946)         (6,744)          (617)             (6,213)
         Accounts payable and accrued
           expenses                            13,442          14,130          49,802         43,912              33,301
         Income taxes payable                   2,963          (1,896)          9,228         (3,051)             (1,113)
         Deferred revenue                       3,949          15,744          30,286         22,984              11,046
                                           ----------      ----------      ----------     ----------          ----------
           Net cash provided by
             operating activities              13,398          21,710          87,119         56,867              71,600
                                           ----------      ----------      ----------     ----------          ----------
  Cash flows from investing activities:
     Purchases of property and
     equipment                                (14,107)        (18,013)        (39,581)       (16,096)            (26,883)
     Purchases of short-term
     investments, net                         (66,671)        (17,866)        (56,751)       (28,339)             (7,500)
     Proceeds from sale of property
     and equipment                                 16               -               -              -              13,225
     Cash acquired in acquisitions                  -             129             (31)             -                 993
     Other assets                                (947)         (1,764)         (2,641)         2,514              (3,739)
                                           ----------      ----------      ----------     ----------          ----------
           Net cash used in investing
             activities                       (81,709)        (37,514)        (99,004)       (41,921)            (23,904)
                                           ----------      ----------      ----------     ----------          ----------
  Cash flows from financing activities:
     Proceeds from issuance of common
     stock, net of purchases                  112,559           8,725          27,254         26,123              43,529
     Proceeds from issuance of
     preferred stock                            1,532               -               -              -                   -
     Proceeds from issuance of
       convertible debt                             -               -               -              -             300,000
     Borrowings on line of credit                 115             130           1,542              -               4,431
     Repayments of line of credit                   -               -               -                               (659)
     Subchapter S distributions                  (822)           (974)         (2,366)        (2,366)             (1,290)
     Repayment of stockholder notes              (169)            (43)              -              -                   -
     Payment of debt issuance costs                 -               -               -              -              (8,250)
                                           ----------      ----------      ----------     ----------          ----------
         Net cash provided by
             financing activities             113,215           7,838          26,430         23,757             337,761
                                           ----------      ----------      ----------     ----------          ----------
  
  Change in cash and cash equivalents          44,904          (7,966)         14,545         38,703             385,457
  Adjustment to conform acquired
     company's year end                             -               -          (4,140)        (4,140)                  -
  Cash and cash equivalents, beginning
     of period                                 33,398          78,302          70,336         70,336              80,741
                                           ----------      ----------      ----------     ----------          ----------
  Cash and cash equivalents, end of
     period                                $   78,302      $   70,336      $   80,741     $  104,899          $  466,198
                                           ==========      ==========      ==========     ==========          ==========
  Cash paid for interest                   $       16      $       22      $        -     $        -          $        -
                                           ==========      ==========      ==========     ==========          ==========
  Cash paid for income taxes               $    4,731      $   14,579      $   14,194     $    3,154          $   14,667
                                           ==========      ==========      ==========     ==========          ==========
  
  Supplemental disclosures of noncash
     financing and investing activities:
  Purchase price payable 20*20 Group,
     Ltd.                                  $        -      $        -      $    6,000     $        -          $        -
                                           ==========      ==========      ==========     ==========          ==========
  Common stock issued for acquisitions     $        -      $   24,974      $        -     $        -          $    4,934
                                           ==========      ==========      ==========     ==========          ==========
  Exercise of common stock options in
     exchange for stockholder note         $      507      $        -      $        -     $        -          $        -
                                           ==========      ==========      ==========     ==========          ==========
  Subchapter S distributions payable       $       16      $       22      $      745     $        -          $        -
                                           ==========      ==========      ==========     ==========          ==========
  Convertible notes issued for
     acquisitions                          $        -      $        -      $        -     $        -          $    6,685
                                           ==========      ==========      ==========     ==========          ==========
  See accompanying notes to supplemental consolidated financial statements
  SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  (1)  Summary of Significant Accounting Policies
  
       The accompanying unaudited supplemental consolidated financial statements
  as of September 30, 1999 and for the nine-month periods ended September 30, 1998
  and 1999 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, 1999.
  
       In May 1998, Siebel Systems, Inc. (the "Company") acquired Scopus
  Technology, Inc. ("Scopus") in a merger transaction accounted for as a pooling
  of interests. Accordingly, all financial information has been restated to
  reflect the combined operations of these companies. See Note 9.
  
       In December 1999, the Company acquired OnTarget, Inc. ("OnTarget") in a
  business combination transaction accounted for as a pooling of interests.
  Accordingly, all financial information has been restated to reflect the combined
  operations of the two companies. See Note 9.
  
  Principles of Consolidation
  
       The accompanying consolidated financial statements include the accounts of
  the Company and its wholly owned subsidiaries. All intercompany accounts and
  transactions have been eliminated.
  
  Revenue Recognition
  
       Prior to January 1, 1998, the Company recognized revenue in accordance with
  Statement of Position ("SOP") No. 91-1, "Software Revenue Recognition". Software
  license revenue was recognized when all of the following criteria had been met:
  there was an executed license agreement; software had been shipped to the
  customer; no significant vendor obligations remained; the license fee was fixed
  and payable within twelve months and collection was deemed probable.
  
       On January 1, 1998, the Company adopted the provisions of Statement of
  Position ("SOP") No. 97-2 "Software Revenue Recognition." Revenue from software
  licenses is recognized under SOP No. 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. Revenue on multiple element
  arrangements is allocated to the various elements based on fair values specific
  to the Company.
  
       Professional services, maintenance and other revenues relate primarily to
  consulting services, maintenance and training. Maintenance revenues are
  recognized ratably over the term of the maintenance contract, typically 12
  months. Consulting and training revenues are recognized as the services are
  performed and are usually on a time and materials basis. Such services primarily
  consist of implementation services related to the installation of the Company's
  products and do not include significant customization to, or development of, the
  underlying software code. Deferred revenue includes deposits on training
  programs billed and/or collected in advance. Income is then recognized in the
  period in which the related services are rendered.
  
       The Company's customer base includes a number of its suppliers (e.g. AT&T,
  BankBoston Robertson Stephens, Bank of America, Cabletron Systems, The Charles
  Schwab Corporation, Cigna Corporation, Cisco Systems, Inc., Compaq Computer
  Corporation, Dell Computer Corporation, Lucent Technologies, MCI
  Telecommunications Corporation, Microsoft Corporation, NationsBanc Montgomery
  Securities, Inc., PeopleSoft,
  SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
    (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  Inc., Sequent Computer Systems, 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. During 1998, the
  Company recognized approximately $16,500,000 of revenue in connection with such
  transactions.
  
  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 and Short-Term Investments
  
       The Company considers all highly liquid investments with a remaining
  maturity of 90 days or less at the date of purchase to be cash equivalents.
  Short-term investments generally consist of highly liquid debt securities with
  remaining maturities in excess of 90 days. Marketable equity securities include
  an investment in a publicly traded company. The Company has classified its
  short-term investments and marketable equity securities as "available-for-sale."
  Such investments are carried at fair value with unrealized gains and losses, net
  of related tax effects, reported within accumulated other comprehensive income.
  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 ten 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 income.
  
  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
  SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  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
  $2,085,000 and $9,627,000 at December 31, 1997 and 1998, respectively, and the
  related accumulated amortization was $285,000 and $2,503,000 at December 31,
  1997 and 1998, respectively.
  
  Advertising
  
       Advertising costs are expensed as incurred. Advertising expense is included
  in sales and marketing expense and amounted to $7,245,000, $12,126,000 in 1997
  and 1998, respectively, and was not significant in 1996.
  
  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 are 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 unaudited pro forma provision for income taxes reflects income tax
  expense that would have been reported if On Target Inc. (an S corporation for
  income-tax reporting purposes) had been a C corporation for each of the periods
  presented.
  
  Pro Forma Net Income Per Share
  
       Basic pro forma net income per share is computed using the pro forma net
  income and weighted average number of shares of common stock outstanding.
  Diluted pro forma net income per share is computed using pro forma net income
  and 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. Diluted pro forma net income per
  share also gives effect, when dilutive, to the conversion of the convertible
  notes and subordinated debentures, using the if-converted method.
  
  Employee Stock Option and Purchase Plans
  
       The Company accounts for its stock-based compensation plans using the
  intrinsic value method. As such, compensation expense is recorded on the date of
  grant if the current market price of the underlying stock exceeds the exercise
  price.
  
  Foreign Currency Translation
  
       The Company considers the functional currency of its foreign subsidiaries
  to be the local currency, and accordingly, the financial statements of the
  foreign subsidiaries 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
  SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  results of operations. Adjustments resulting from translation of foreign
  subsidiary financial statements are reported within accumulated other
  comprehensive income.
  
       The Company generally utilizes foreign currency forward contracts to hedge
  its exchange risk on foreign currency receivable and intercompany balances.
  While these forward contracts are subject to fluctuations in value, which are
  recorded in current results of operations, such fluctuations are generally
  offset by the changes in value of the underlying exposures being hedged. The
  Company does not hold or issue financial instruments for speculative or trading
  purposes.
  
  Concentrations of Credit Risk
  
       Financial instruments that potentially subject the Company to a
  concentration of credit risk principally consist of trade accounts receivable.
  The Company performs ongoing credit evaluations of its customers and generally
  does not require collateral on accounts receivable, as the majority of the
  Company's customers are large, well established companies. The Company maintains
  reserves for potential credit losses, but historically has not experienced any
  significant losses related to any particular industry or geographic area since
  the Company's business is not concentrated on any one particular customer or
  customer base. No single customer accounts for more than 10% of revenues; and
  the Company's largest customer base, high technology, which accounted for
  approximately 30% of revenues during the year ended December 31, 1998, is
  sufficiently broad that the Company does not consider itself significantly
  exposed to concentrations of credit risk.
  
  Fair Value of Financial Instruments
  
       The carrying amounts 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 fair value
  of the Company's derivative financial instruments at December 31, 1998 was a
  gain of approximately $128,000.
  
  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.
  The Company does not have any long-lived assets it considers to be impaired.
  
  Recent Accounting Pronouncements
  
       In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
  "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
  establishes accounting and reporting standards for derivative instruments,
  including certain derivative instruments embedded in other contracts; 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
  SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  June 15, 2000. Management does not believe the adoption of SFAS No. 133 will
  have a material effect on the Company's consolidated financial position or
  results of operations.
  
       In December 1998, the Accounting Standards Executive Committee (AcSEC) of
  the AICPA issued SOP 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 No. 97-2. Management does not
  believe the adoption of SOP No. 98-9 will have a material effect on the
  Company's consolidated financial position or results of operations. SOP 98-9
  will be effective for the Company for all annual and interim periods beginning
  on or after January 1, 2000.
  
  (2)  Financial Statement Details
  
  Cash, Cash Equivalents and Short-Term Investments
  
       Cash equivalents consist of securities with remaining maturities of 90 days
  or less at the date of purchase. Short-term investments as of December 31, 1997
  consisted of $55,697,000 of municipal securities which matured in less than one
  year, and $36,302,000 of municipal securities which matured in one to five
  years. As of December 31, 1997, cost approximated market for short-term
  investments; realized and unrealized gains and losses were not significant.
  
       Short-term investments as of December 31, 1998 consisted of $46,187,000 of
  securities which mature in less than one year, $94,980,000 of securities which
  mature in one to five years and $10,721,000 of securities which mature in over
  five years. Cash, cash equivalents and short-term investments consisted of the
  following as of December 31, 1998 (in thousands):
  Unrealized   Unrealized
                                                                      Cost         loss         gain        Market
                                                                  -----------  -----------  -----------   ----------
  Cash and cash equivalents:
             Cash...............................................  $    39,047  $        --  $        --   $   39,047
             Certificates of deposit............................        1,685           --           --        1,685
             Auction market preferreds..........................        4,350           --           --        4,350
             Money market funds.................................        6,199           --           --        6,199
             Municipal securities...............................       29,460           --           --       29,460
                                                                  -----------  -----------  -----------   ----------
                                                                  $    80,741           --           --   $   80,741
                                                                  ===========  ===========  ===========   ==========
       Short-term investments:
             US treasury securities.............................  $     5,181  $       (15) $        --   $    5,166
             Municipal securities...............................      146,506          (60)         276      146,722
                                                                  -----------  -----------  -----------   ----------
                                                                  $   151,687  $       (75) $       276   $  151,888
                                                                  ===========  ===========  ===========   ==========
  SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  Accounts Receivable, Net
  
       Accounts receivable, net, consisted of the following (in thousands):
  December 31,
                                                                                            -------------------------
                                                                                                1997         1998
                                                                                            -----------   -----------
  Trade accounts receivable.........................................................  $    69,526   $   136,411
        Less: allowances for doubtful accounts and returns................................        4,288        10,330
                                                                                            -----------   -----------
                                                                                            $    65,238   $   126,081
                                                                                            ===========   ===========
  Property and Equipment, Net
  
       Property and equipment, net, consisted of the following (in thousands):
  December 31,
                                                                                               ----------------------
                                                                                                 1997          1998
                                                                                               --------     ---------
  Computer equipment..................................................................   $ 20,321     $  38,965
        Furniture and fixtures..............................................................      6,500        10,513
        Computer software...................................................................      8,446         8,735
        Leasehold improvements..............................................................      3,409         9,058
                                                                                               --------     ---------
                                                                                                 38,676        67,271
        Less: accumulated depreciation......................................................     13,112        20,887
                                                                                               --------     ---------
                                                                                               $ 25,564     $  46,384
                                                                                               ========     =========
  Accrued Expenses
  
       Accrued expenses consisted of the following (in thousands):
  December 31,
                                                                                               ----------------------
                                                                                                 1997          1998
                                                                                               --------     ---------
  Bonuses.............................................................................   $  7,092     $  23,091
        Commissions.........................................................................      6,200        17,840
        Sales tax...........................................................................      3,026         9,345
        Vacation............................................................................      2,312         3,967
        Acquisition-related.................................................................        205         7,450
        Other...............................................................................     10,282        26,492
                                                                                               --------     ---------
                                                                                               $ 29,117     $  88,185
                                                                                               ========     =========
  Other Income, Net
  
       Other income, net, consisted of the following (in thousands):
  December 31,
                                                                                  -----------------------------------
                                                                                    1996         1997         1998
                                                                                  --------     ---------    ---------
  Interest income........................................................   $  3,324     $  6,055     $   7,605
        Interest expense.......................................................        (32)         (29)          (68)
        Other..................................................................       (158)        (641)       (1,279)
                                                                                  --------     ---------    ---------
                                                                                  $  3,134     $  5,385     $   6,258
                                                                                  ========     ========     =========
  SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  (3)  Convertible Subordinated Notes
  
       The Company completed a private placement of $300,000,000 of convertible
  subordinated notes in September 1999. The seven-year term notes bear interest at
  a rate of 5.50% and are convertible into shares of the Company's common stock at
  any time prior to maturity, at a conversion price of approximately $46.64 per
  share, subject to adjustment under certain conditions. The notes may be
  redeemed, in whole or in part, by the Company at any time on or after September
  15, 2002. The redemption price will range from $309,420,000 to $302,370,000 if
  the notes are redeemed between September 15, 2002 through September 14, 2006.
  Any redemption made on or after September 15, 2006 will be redeemed at
  $300,000,000. Accrued interest to the redemption date will be paid by the
  Company in each redemption.
  
       Other noncurrent liabilities includes $6,685,000 of convertible notes
  issued in connection with the OnTarget acquisitions in January and February,
  1999 (See Note 9). The notes bear interest at 5.5%, are convertible into
  approximately 760,000 shares of the Company's common stock, and are due on
  February 26, 2006.
  
  (4)  Commitments and Contingencies
  
  Letters of Credit
  
       In August 1996, the Company entered into a $1,325,000 secured letter of
  credit with a bank. This letter of credit, which expires July, 2006,
  collaterizes the Company's obligations to a third party for lease payments.
  
       In March 1999, the Company entered into an $8,400,000 secured letter of
  credit with a bank. This letter of credit, which expires November 2000,
  collateralizes the Company's obligations to a third party for tenant improvement
  costs.
  
       In October 1999, the Company entered into two $8,400,000 secured letters of
  credit with a bank. These letters of credit, which expire October 2000 and
  January 2001, collateralize the Company's obligations to a third party for
  tenant improvement costs. The Company also entered into a $3,000,000 secured
  letter of credit with a bank. This letter of credit, which expires August 2000,
  collateralizes the Company's obligation to a third party for lease payments.
  
       The letters of credit are secured by cash, cash  equivalents and short-term
  investments.
  
  Lease Obligations
  
       As of December 31, 1998, the Company leased facilities under noncancelable
  operating leases expiring between 1999 and 2008. Future minimum lease payments
  are as follows (in thousands):
  Year Ending
            December 31,
            ------------
  1999.....................................................................  $  15,415
            2000.....................................................................     12,853
            2001.....................................................................     11,892
            2002.....................................................................     10,126
            2003 and thereafter......................................................     38,183
                                                                                       ---------
                                                                                       $  88,469
                                                                                       =========
  Rent expense for the years ended December 31, 1996, 1997 and 1998, was
  $3,065,000, $6,469,000 and $11,904,000, respectively.
  SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  Employee Benefit Plan
  
       The Company has 401(k) plans that allows eligible employees to contribute
  up to 20% of their compensation, limited to $10,000 in 1998. Employee
  contributions and earnings thereon vest immediately. Although the Company may
  make discretionary contributions to the 401(k) plan, none have been made to
  date. A subsidiary made discretionary contributions of $154,000 and $244,000 to
  its 401(k) and profit-sharing plans in 1997 and 1998, respectively.
  
  Legal Actions
  
       The Company is engaged in certain legal actions arising in the ordinary
  course of business. The Company believes it has adequate legal defenses and
  believes that the ultimate outcome of these actions will not have a material
  effect on the Company's consolidated financial position or results of
  operations, although there can be no assurance as to the outcome of such
  litigation.
  
  (5)  Stockholders' Equity
  
  Stock Split
  
       On August 24, 1999 and October 20, 1999, respectively, the Company's Board
  of Directors and stockholders approved a two-for-one stock split (to be effected
  in the form of a stock dividend) to be paid on November 12, 1999. The
  accompanying consolidated financial statements have been restated to give effect
  to the stock split.
  
  Pro Forma Net Income per Share (Unaudited)
  
       The following is a reconciliation of the number of shares used in the basic
  and diluted pro forma net income per share computation for the periods presented
  (in thousands):
  Nine-months ended
                                                                               Year ended December 31,        September 30
                                                                            -----------------------------------------------------
                                                                                   1996       1997     1998      1998      1999
                                                                            -------------   -------   -------  --------  --------
                                                                                                              (unaudited)
  Shares used in basic pro forma net income per share computation             141,780   169,904   177,446   176,458   185,929
      Effect of dilutive potential common shares..............                     16,924    21,434    24,758    25,380    34,372
      Dilutive effect of convertible notes....................                          -         -         -         -       418
                                                                            -------------   -------   -------  --------  --------
      Shares used in diluted pro forma net income
      per share computation...................................                    158,704   191,338   202,204   201,838   220,719
                                                                            =============   =======   =======  ========  ========
  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. During 1998,
  the Company excluded 6,619,882 employee stock options with a weighted average
  exercise price of $14.36 per share from the earnings per share computation as
  their exercise prices exceeded the fair value of the Company's common stock and,
  accordingly, their inclusion would have been anti-dilutive. For the nine months
  ended September 30, 1999, the Company excluded 3,246,009 employee stock options
  with a weighted average exercise price of $27.36 per share from the earnings per
  share computation as their exercise prices exceeded the average fair value of
  the Company's common stock during such period and, accordingly, their inclusion
  would have been anti-dilutive. For the nine months ended September 30, 1998, the
  Company excluded 5,281,082 employee stock options, respectively, with a weighted
  average exercise price of $14.68 per share, respectively, from the earnings per
  share computation. For the nine months ended September 30, 1999, the Company
  excluded the convertible subordinated debentures (See Note 3) from the earnings
  per share computation as the effect would be antidilutive.
  SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  Employee Stock Option and Purchase Plans
  
       The 1996 Equity Incentive Plan, which amended and restated the Company's
  1994 Stock Option Plan and 1996 Supplemental Stock Option Plan and the 1998 Non-
  Officer Equity Incentive Plan (collectively, the "Plan"), provides for the
  issuance of up to an aggregate of 100,000,000 shares of common stock to
  employees, directors and consultants. The Plan provides for the issuance of
  incentive and nonstatutory stock options, restricted stock purchase awards,
  stock bonuses and stock appreciation rights.
  
       Under the Plan, the exercise price for incentive stock options is at least
  100% of the fair market value on the date of the grant. Options generally expire
  in 10 years; however, incentive stock options may expire in 5 years if the
  optionee owns stock representing more than 10% of the voting power of all
  classes of stock. Vesting periods are determined by the Board of Directors and
  generally provide for shares to vest ratably over 5 years.
  
       The Plan also allows for the exercise of certain unvested options. Shares
  of common stock issued to employees upon exercise of unvested options are
  subject to repurchase by the Company at the original exercise price. The
  Company's ability to repurchase these shares expires at a rate equivalent to the
  current vesting schedule of each option. During the period from October 1995
  through April 1996, the Company granted options to purchase an aggregate of
  32,610,000 shares of common stock at exercise prices ranging from $0.07 to $0.82
  per share. Based in part on an independent appraisal obtained by the Company's
  Board of Directors, and other factors, the Company recorded $748,000 of deferred
  compensation expense in 1995 and an additional $893,000 of deferred compensation
  expense in 1996 relating to these options. These amounts are being amortized
  over the vesting period of the individual options, generally five years.
  
       As of December 31, 1998, 7,013,200 shares of common stock had been issued
  to employees upon the exercise of unvested options, which are subject to
  repurchase, at a weighted average repurchase price of $0.12 per share. No
  compensation expense has resulted from repurchases of restricted shares since
  the amount of cash paid by the Company did not differ from the proceeds received
  from the employee from the sale of the restricted shares. The Company has not
  issued any other restricted stock purchase awards, stock bonuses or stock
  appreciation rights.
  SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
       The Company has assumed certain options granted to former employees of
  acquired companies (the "Acquired Options"). The Acquired Options were assumed
  by the Company outside of the Plan, but all are administered as if issued under
  the Plan. All of the Acquired Options have been adjusted to give effect to the
  conversion under the terms of the Agreements and Plans of Reorganization between
  the Company and the companies acquired. The Acquired Options generally become
  exercisable over a four year period and generally expire either five or ten
  years from the date of grant. No additional options will be granted under any of
  the acquired companies' plans.
  
       Combined plan activity is summarized as follows:
  Weighted
                                                                  Shares                             average
                                                                 Available         Number of      exercise price
                                                                 for grant          shares          per share
                                                              -------------    -------------      --------------
  Balances, December 31, 1995.........................     17,250,934       10,575,632      $         0.43
               Additional shares authorized.................     29,400,000             --
               Options granted..............................    (39,857,888)      39,857,888      $         1.92
               Options exercised............................           --         (5,349,248)     $         0.23
               Options canceled.............................      2,711,684       (2,711,684)     $         1.10
                                                              -------------    -------------      --------------
        Balances, December 31, 1996.........................      9,504,730       42,372,588      $         1.81
               Additional shares authorized.................     32,000,000             --
               Options granted..............................    (26,660,548)      26,660,548      $         8.28
               Options exercised............................           --         (4,134,606)     $         1.13
               Options canceled.............................     10,819,662      (10,819,662)     $         8.35
                                                              -------------    -------------      --------------
        Balances, December 31, 1997.........................     25,663,844       54,078,868      $         3.74
               Additional shares authorized.................     20,000,000             --
               Options granted..............................    (37,462,444)      37,462,444      $        11.25
               Options exercised............................           --         (6,269,296)     $         2.93
               Options canceled.............................      7,158,508       (7,158,508)     $         7.92
                                                              -------------    -------------      --------------
        Balances, December 31, 1998.........................     15,359,908       78,113,508      $         7.04
                                                              =============    =============      ==============
  The following table summarized information about fixed stock options
  outstanding as of December 31, 1998:
  Options outstanding                               Options exercisable
                                     -------------------------------------------------     ----------------------------------
                                                     Weighted
                                                      average
                                                     remaining         Weighted                                Weighted
                                     Number of      contractual         average             Number of           average
  Range of exercise prices            shares           life         exercise price           shares          exercise price
  ------------------------         -----------     -------------    ------------------     ----------       -----------------
  $ 0.00                          1,456           0.2               $ 0.00               1,448            $ 0.00
         $0.015                        375,600           6.0               $ 0.02             375,600            $ 0.02
         $ 0.03                        336,000           6.3               $ 0.03             336,000            $ 0.03
         $0.065                        517,400           6.6               $ 0.07             517,400            $ 0.07
         $ 0.22                      1,945,300           7.1               $ 0.22           1,945,300            $ 0.22
         $ 0.33- 0.375               5,446,832           7.2               $ 0.36           2,392,316            $ 0.37
         $ 0.69- 0.915               9,882,014           7.3               $ 0.71           3,539,172            $ 0.70
         $ 1.44- 2.125               3,587,116           7.3               $ 1.53           1,130,740            $ 1.53
         $2.905-  4.22               2,227,506           7.0               $ 4.02             615,116            $ 3.91
         $5.495-  8.11              14,561,864           7.8               $ 6.20           4,013,156            $ 6.24
         $8.285- 12.39              30,773,748           9.4               $10.33           1,902,352            $10.52
         $12.44- 18.51               8,425,912           9.4               $13.83             172,552            $15.09
         $25.75                         32,760           9.1               $25.75              11,600            $25.75
                                   -----------         -----               ------         -----------            ------
         $ 0.00- 25.75              78,113,508           8.4               $ 7.04          16,952,752            $ 3.30
                                   ===========         =====               ======         ===========            ======
  SIEBEL SYSTEMS, INC.
  
               NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
        (Unaudited as of September 30, 1999 and for the nine-month periods
                        ended September 30, 1998 and 1999)
  
       In May 1996, the Company adopted the 1996 Employee Stock Purchase Plan
  (the "Purchase Plan") and reserved 2,800,000 shares for issuance thereunder. The
  Purchase Plan became effective upon the completion of the Company's initial
  public offering. In January 1997, the Board of Directors of the Company adopted
  an amendment to the Purchase Plan to increase the number of shares authorized
  for issuance under the Purchase Plan to 6,800,000 shares. The Purchase Plan
  permits eligible employees to purchase common stock, through payroll deductions
  of up to 15% of the employee's compensation, at a price equal to 85% of the fair
  market value of the common stock at either the beginning or the end of each
  offering period, whichever is lower. As of December 31, 1998, 2,777,284 shares
  had been purchased under the Purchase Plan.
  
       In addition, Scopus had adopted the 1995 Employee Stock Purchase Plan (the
  "Acquired Purchase Plan"). All shares purchased under the Acquired Purchase Plan
  have been adjusted to give effect to the conversion under the terms of the
  Agreement and Plan of Merger and Reorganization between the Company and Scopus.
  Upon the closing of the Scopus merger, 330,932 shares had been purchased under
  the Acquired Purchase Plan. No additional shares will be issued under the
  Acquired Purchase Plan.
  
  Common Stock
  
       The Company has elected to continue to use the intrinsic value-based
  method to account for all of its employee stock-based compensation plans. The
  Company has recorded no compensation costs related to its stock option plans for
  the years ended December 31, 1996, 1997 and 1998, except for the options granted
  during the period from October 1995 through April 1996, because the exercise
  price of each option equals or exceeds the fair value of the underlying common
  stock as of the grant date for each stock option. The Company also recorded
  compensation expense for the estimated fair value of common stock transferred
  from the majority shareholder of On Target to two key employees in January 1998.
  
       Pursuant to SFAS No. 123, the Company is required to disclose the pro forma
  effects on net income (loss) and net income (loss) per share data as if the
  Company had elected to use the fair value approach to account for all its
  employee stock-based compensation plans. Had compensation cost for the Company's
  plans been determined consistent with the fair value approach enumerated in SFAS
  No. 123, the Company's net income (loss) and net income (loss) per share for the
  years ended December 31, 1996, 1997 and 1998 would have been as indicated below
  (in thousands, except per share data).
  SIEBEL SYSTEMS, INC.
  
               NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
        (Unaudited as of September 30, 1999 and for the nine-month periods
                        ended September 30, 1998 and 1999)
  1996         1997         1998
                                                                    ---------     --------     --------
  Pro forma net income (loss):
             As reported..........................................  $  13,313     $     55     $ 43,460
             Pro forma giving effect to SFAS No. 123..............  $  10,065     $(12,697)    $ 23,203
        Diluted pro forma net income (loss) per share:
             As reported..........................................  $    0.08     $   0.00     $   0.21
             Pro forma giving effect to SFAS No. 123..............  $    0.06     $  (0.07)    $   0.11
        Basic pro forma net income (loss) per share:
             As reported..........................................  $    0.09     $   0.00     $   0.24
             Pro forma giving effect to SFAS No. 123..............  $    0.07     $  (0.07)    $   0.13
  The fair value of options granted was estimated on the date of grant using
  the Black-Scholes option-pricing model with the following weighted-average
  assumptions used for grants:
  1996      1997      1998
                                                                           ------     ------     ------
  Risk-free interest rate..........................................     6.0%       6.1%      4.85%
        Expected life (in years).........................................     3.5        3.5        3.4
        Expected volatility..............................................    69.2%      83.9%      70.5%
  The fair value of employees' stock purchase rights under the Purchase Plan
  was estimated using the Black-Scholes model with the following weighted average
  assumptions used for purchases:
  1996       1997       1998
                                                                           ------     ------     ------
  Risk-free interest rate..........................................     5.5%       5.3%       5.3%
        Expected life (in years).........................................     0.5        0.7        0.6
        Expected volatility..............................................    68.5%      83.9%      70.5%
  Under SFAS No. 123, the weighted average estimated fair value of employee
  stock options granted at exercise prices equal to market price at grant date
  during 1996, 1997 and 1998 was $1.03, $4.30 and $5.94 per share, respectively.
  
       The Company determined the assumptions to be used in computing the fair
  value of stock options or stock purchase rights. The risk-free rate is the U.S.
  treasury bill rate for the relevant expected life. The expected useful lives
  were estimated giving consideration to vesting and purchase periods, contractual
  lives, expected employee turnover and underlying stock volatility.
  SIEBEL SYSTEMS, INC.
  
               NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
        (Unaudited as of September 30, 1999 and for the nine-month periods
                        ended September 30, 1998 and 1999)
  
  (6)  Income Taxes
  
       Income before taxes includes income from foreign operations of
  approximately $127,000, $680,000 and $3,600,000 for the years ended December 31,
  1996, 1997 and 1998, respectively.
  
  Historical Information
  
       The components of income tax expense for the years ended December 31, 1996,
  1997 and 1998 are as follows (in thousands):
  1996       1997       1998
                                                                           ---------  ---------  ---------
  Current:
           Federal.......................................................  $   5,156  $   7,694  $  18,488
           State  .......................................................      1,755      2,684      4,559
           Foreign.......................................................        410        400      1,289
                                                                           ---------  ---------  ---------
                Total current............................................      7,321     10,778     24,336
       Deferred:
           Federal.......................................................     (1,709)    (1,345)    (6,432)
           State  .......................................................       (239)      (219)    (1,409)
                                                                           ---------  ---------  ---------
                Total deferred...........................................     (1,948)    (1,564)    (7,841)
       Charge in lieu of taxes attributable to employer's stock
           option plans..................................................      2,173      4,046     13,517
                                                                           ---------  ---------  ---------
                Total income taxes.......................................  $   7,546  $  13,260  $  30,012
                                                                           =========  =========  =========
  The differences between the income tax expense computed at the federal
  statutory rate of 35% and the Company's actual income tax expense for the years
  ended December 31, 1996, 1997 and 1998 are as follows (in thousands):
  1996       1997       1998
                                                                           ---------  ---------   --------
  Expected income tax expense.......................................  $   7,454  $   4,866  $  25,997
       State income taxes, net of federal tax benefit....................      1,172      1,876      3,234
       In-process research and development...............................         --      7,959         --
       Non deductible merger costs.......................................         --         --      3,369
       Research and experimentation credit...............................       (537)      (543)      (838)
       Tax exempt interest...............................................       (204)      (995)    (1,740)
       Foreign sales corporation benefit.................................         --         --       (634)
       S corporation benefit ............................................       (437)      (588)      (805)
       Other, net........................................................         98        685      1,429
                                                                           ---------  ---------  ---------
           Total income taxes............................................  $   7,546  $  13,260  $  30,012
                                                                           =========  =========  =========
  The tax effects of temporary differences that give rise to significant
  portions of deferred tax assets and liabilities as of December 31, 1997 and 1998
  are as follows (in thousands):
  1997       1998
                                                                                      ---------   --------
  Deferred tax assets:
           Deferred state taxes.....................................................  $     900   $    549
           Accruals and reserves, not currently taken for tax purposes..............      3,276     12,486
           Net operating loss carryforward..........................................        648        235
                                                                                      ---------   --------
                Deferred assets.....................................................      4,824     13,270
       Deferred tax liability--depreciation..........................................      (178)      (783)
                                                                                       --------   --------
                Net deferred assets.................................................  $   4,646     12,487
                                                                                      =========   ========
  SIEBEL SYSTEMS, INC.
  
               NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
        (Unaudited as of September 30, 1999 and for the nine-month periods
                        ended September 30, 1998 and 1999)
  
       As of December 31, 1998, the Company had a net operating loss carryforward
  for federal and state income tax purposes of approximately $370,000. The federal
  net operating loss carryforward expires in 2012. The state net operating loss
  carryforward expires in 2002.
  
       As of December 31, 1998, Scopus Technology UK Ltd. ("Scopus UK"), a
  subsidiary of the Company, had a net operating loss carryforward of
  approximately $200,000, which can be carried forward indefinitely to offset
  future Scopus UK income.
  
       Management believes it is more likely than not that future operations will
  generate sufficient taxable income to realize the deferred tax assets.
  
  Unaudited Pro Forma Information
  
        The pro forma provision for income taxes reflects the income tax expense
  that would have been reported if OnTarget Inc. (an S corporation for income tax
  reporting purposes) had been a C corporation for each of the years in the three-
  year period ended December 31, 1998. The components of pro forma income tax
  expense are as follows (in thousands):
  1996       1997       1998
                                                                           ---------  ---------  ---------
  Current:
           Federal.......................................................  $   5,541  $   8,211  $  19,192
           State  .......................................................      1,807      2,755      4,660
           Foreign.......................................................        410        400      1,289
                                                                           ---------  ---------  ---------
                Total current............................................      7,758     11,366     25,141
       Deferred:
           Federal.......................................................     (1,709)    (1,345)    (6,432)
           State  .......................................................       (239)      (219)    (1,409)
                                                                           ---------  ---------  ---------
                Total deferred...........................................     (1,948)    (1,564)    (7,841)
       Charge in lieu of taxes attributable to employer's stock
           option plans..................................................      2,173      4,046     13,517
                                                                           ---------  ---------  ---------
                Total income taxes.......................................  $   7,983  $  13,848  $  30,817
                                                                           =========  =========  =========
  The differences between the pro forma income tax expense computed at the
   federal statutory rate of 35% and the Company's actual pro forma income tax
   expense for the years ended December 31, 1996, 1997 and 1998 are as follows (in
   thousands):
  1996       1997       1998
                                                                           ---------  ---------  --------
  Expected income tax expense.......................................  $   7,454  $   4,866  $  25,997
       State income taxes, net of federal tax benefit....................      1,172      1,876      3,234
       In-process research and development...............................         --      7,959         --
       Non-deductible merger costs.......................................         --         --      3,369
       Research and experimentation credit...............................       (537)      (543)      (838)
       Tax exempt interest...............................................       (204)      (995)    (1,740)
       Foreign sales corporation benefit.................................         --         --       (634)
       Other, net........................................................         98        685      1,429
                                                                           ---------  ---------  ---------
           Total income taxes............................................  $   7,983  $  13,848  $  30,817
                                                                           =========  =========  =========
  Deferred tax assets and liabilities on a pro forma basis do not differ
  materially from the historical information presented above.
  SIEBEL SYSTEMS, INC.
  
               NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  (7)  Related Party Transactions
  
       Certain members of the Company's Board of Directors serve as officers of
  customers of the Company. In 1997 aggregate license revenues associated with
  shipments to these customers were $1,598,000. Royalties revenues were $445,200
  and total accounts receivable from these customers was $875,000. In 1998,
  aggregate revenues associated with shipments to these customers were $2,592,200
  and accounts receivable from these customers was $1,488,000.
  
       During the years ended December 31, 1998 and 1997, OnTarget received
  royalties in the amount of $829,172 and $445,247, respectively, from a related
  entity. At December 31, 1998 and 1997, $92,322 and $133,816, respectively, is
  due from this related entity.
  
  (8)  Segment and Geographic Information
  
       The Company and its subsidiaries are principally engaged in the design,
  development, marketing and support of Siebel Front Office Applications, its
  family of proprietary software applications. Substantially all revenues result
  from the licensing of the Company's software products and related consulting and
  customer support (maintenance) services. The Company's chief operating decision
  maker reviews financial information presented on a consolidated basis,
  accompanied by disaggregated information about revenues by geographic region for
  purposes of making operating decisions and assessing financial performance.
  Accordingly, the Company considers itself to be in a single industry segment,
  specifically the license, implementation and support of its software
  applications.
  
       The Company evaluates the performance of its geographic regions based on
  revenues and gross margin only. The Company does not assess the performance of
  its geographic regions on other measures of income or expense, such as
  depreciation and amortization, operating income or net income. In addition, as
  the Company's assets are primarily located in its corporate office in the United
  States and not allocated to any specific region, the Company does not produce
  reports for, or measure the performance of, its geographic regions based on any
  asset-based metrics. Therefore, geographic information is presented only for
  revenues and gross margin.
  
       While a majority of the Company's revenues are derived from the United
  States, the Company's export sales have been growing. Export sales for the years
  ended December 31, 1996, 1997 and 1998 were $7,700,000, $41,800,000 and
  $88,200,000, respectively. This represented 10%, 27% and 30% of total license
  revenues, respectively. The Company's export sales are principally in Europe and
  Asia/Pacific.
  
       The following geographic information is presented for the years ended
  December 31, 1996, 1997 and 1998 (in thousands):
  United                          Asia/
                               Year       States          Europe         Pacific         Other          Totals
                               ----     -----------    -----------     -----------    -----------    -----------
  Revenues:
                               1996     $   102,557    $     4,538     $     3,744    $     1,141    $   111,980
                               1997         171,491         35,052          10,115          5,413        222,071
                               1998         293,872         75,364          24,424         16,226        409,886
       Gross margin:
                               1996     $    85,386    $     3,796     $     3,513    $     1,109    $    93,804
                               1997         141,976         30,535           9,161          4,360        186,032
                               1998         241,529         62,699          20,824         13,847    $   338,899
  No single customer has accounted for 10% or more of total revenues in 1996,
  1997 or 1998.
  SIEBEL SYSTEMS, INC.
  
               NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  (9)  Acquisitions
  
  OnTarget, Inc.
  
       On December 1, 1999, the Company acquired OnTarget, Inc. In January and
  February 1999, OnTarget acquired Target Marketing Systems Worldwide Limited,
  Target Marketing Systems S.A., and The Sales Consultancy Inc. in exchange for
  convertible notes and OnTarget stock. OnTarget recorded goodwill of $9,745,000
  in connection with these acquisitions. The goodwill is being amortized over a
  five-year period using the straight-line method. Pro forma information giving
  effect to these mergers has not been presented since it would not differ
  materially from the historical results of the Company.
  
       OnTarget develops and implements advanced sales and marketing training and
  consulting programs for sales organizations competing in complex, multilevel
  sales campaigns. Primary customers include corporate clients and business owners
  who wish to provide for the development and training of their sales and
  marketing personnel.
  
       Under the terms of the agreement, each outstanding share of OnTarget common
  stock was exchanged for 0.3077516 newly issued shares of common stock of the
  Company. This resulted in the issuance of approximately 3.7 million additional
  shares of the Company's Common Stock. In addition, all outstanding stock options
  of OnTarget were converted into the right to acquire the Company's Common Stock
  at the same exchange ratio with a corresponding adjustment to the exercise
  price.
  
       The acquisition of OnTarget will be accounted for as a pooling of
  interests. OnTarget had the same fiscal year-end as the Company, and its
  financial position, results of operations and cashflows have been combined with
  those of the Company's 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 or eliminate intercompany transactions. The Company
  expects to incur approximately $750,000 of merger-related professional services
  costs.
  
       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 will be reclassified to additional paid-in-
  capital. In addition, the Company will record an income tax benefit in the
  amount of OnTarget's net deferred tax assets at that date.
  
       The results of operations previously reported by the separate companies and
  the combined amounts presented in the accompanying consolidated financial
  statements are summarized as follows (in thousands, unaudited):
  Year  Ended          Nine Months Ended
                                                                          December 31,            September 30,
                                                                   --------------------------------------------------
                                                                        1996        1997         1998         1999
                                                                   -----------   ----------   ----------  -----------
                                                                                                          (unaudited)
  Total revenues:
           Siebel...........................................       $   101,362   $  207,628   $  391,539  $   493,783
           OnTarget.........................................            10,618       14,443       18,347       29,152
                                                                   -----------   ----------   ----------  -----------
                                                                   $   111,980   $  222,071   $  409,886  $   522,935
                                                                   ===========   ==========   ==========  ===========
  
       Net income (loss):
           Siebel...........................................       $    12,861   $   (1,187)  $   42,875  $    77,195
           OnTarget.........................................               889        1,830        1,390          (80)
                                                                   -----------   ----------   ----------  -----------
                                                                   $    13,750   $      643   $   44,265  $    77,115
                                                                   ===========   ==========   ==========  ===========
  Scopus Technology, Inc.
  
       On May 18, 1998, the Company completed the acquisition of Scopus
  Technology, Inc. ("Scopus") of Emeryville, California, a leading provider of
  customer service, field service, and call center software solutions. Under the
  terms of the agreement, each outstanding share of Scopus common stock was
  exchanged for newly issued shares of common stock of the Company. This resulted
  in the issuance of approximately 15.1 million additional shares of the Company's
  common stock. In addition, all outstanding stock options of Scopus were
  converted into the right to acquire the Company's common stock at the same
  exchange ratio, with a corresponding adjustment to the exercise price. In
  connection with the merger, the Company incurred direct merger-related expenses
  of approximately $13,500,000, including fees for investment bankers, attorneys,
  accountants and other professional fees of $9,100,000, integration charges
  related to duplicate facilities and equipment of $3,100,000 and other
  miscellaneous expenses of $1,300,000. The Company also incurred indirect merger-
  related expenses of approximately $1,800,000 for joint sales training and
  merger-related marketing costs, which are included within sales and marketing
  expenses. At December 31, 1998, accrued liabilities included approximately
  $1,450,000 of unpaid merger-related expenses.
  SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
     (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
       The transaction has been accounted for as a pooling of interests.
  Accordingly, the financial statements of Siebel have been restated to include
  the financial position and results of operations of Scopus for all periods
  presented. Prior to the merger with Siebel, Scopus ended its fiscal year on
  March 31. The restated financial statements as of December 31, 1997 and for
  prior periods include Siebel's results of operations for the calendar periods
  noted and Scopus' results of operations for the fiscal periods ending three
  months later. Beginning January 1, 1998, the restated financial statements
  combine the operating results of Siebel and Scopus for the calendar periods
  noted. As a result of conforming the reporting periods of Siebel and Scopus, the
  operating results of Scopus for the three month period ended March 31, 1998 are
  included in the restated financial statements for both 1997 and 1998. Scopus
  revenues and net income for the three-month period ended March 31, 1998 were
  $27,100,000 and $1,500,000, respectively. Net income for this period of
  approximately $1,500,000 is reflected as a reduction of opening retained
  earnings in the restated 1998 financial statements.
  
        The results of operations for the separate companies and the combined
  amounts presented in the consolidated financial statements follow (in
  thousands).
  Year ended          Quarter ended
                                                                   December 31,           March 31,
                                                              --------------------------------------
                                                                 1996         1997          1998
                                                              -----------  -----------  ------------
                                                                                         (unaudited)
  Total revenues:
           Siebel...........................................  $    39,152  $   118,775  $    47,100
           Scopus...........................................       62,210       88,853       27,072
                                                              -----------  -----------  -----------
                                                              $   101,362  $   207,628  $    74,172
                                                              ===========  ===========  ===========
       Net income (loss):
           Siebel...........................................  $     5,025  $    (2,427) $     8,284
           Scopus...........................................        7,836        1,240        1,464
                                                              -----------  -----------  -----------
                                                              $    12,861  $    (1,187) $     9,748
                                                              ===========  ===========  ===========
  In combining the financial statements of Siebel and Scopus, certain
  reclassifications, conforming changes and adjustments relating to revenue
  recognition were made to the historical financial statements of Scopus. These
  conforming changes and adjustments resulted in a reduction of previously
  reported net income of approximately $580,000 in fiscal 1996 and $2,930,000 in
  fiscal 1997. These adjustments will not reverse in future periods.
  
  20*20 Group, Ltd.
  
       On December 17, 1998, the Company acquired all of the outstanding
  securities of the privately-held 20*20 Group, Ltd. ("20*20"), a provider of end-
  user training for the enterprise relationship management software market. The
  transaction was valued at approximately $6,000,000 and was accounted for by the
  purchase method of accounting. Accordingly, the operating results of 20*20 have
  been included in the accompanying consolidated financial statements of the
  Company from the date of acquisition. The purchase price was allocated to
  tangible net assets, including current assets, current liabilities and property,
  plant and equipment. The excess of the purchase price over the fair value of the
  tangible net assets acquired, $5,500,000, was allocated to goodwill. This amount
  will be amortized over three years.
  
  The results of operations of 20*20 prior to the acquisition date are not
  considered material to the consolidated results of operations of the Company
  and, accordingly, pro forma financial statement information has not been
  presented.
  SIEBEL SYSTEMS, INC.
  
              NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
  
  (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
  InterActive WorkPlace, Inc
  
       On October 1, 1997, the Company issued shares of common stock in exchange
  for all outstanding securities of privately-held InterActive WorkPlace, Inc.
  ("InterActive"), a developer of intranet-based business intelligence software
  technology. The transaction was valued at approximately $15,000,000 and was
  accounted for by the purchase method of accounting. Accordingly, the operating
  results of InterActive have been included in the accompanying consolidated
  financial statements of the Company from the date of acquisition. Under the
  terms of the agreement, InterActive's securityholders received or will receive
  up to approximately 1,708,000 shares of the Company's common stock in exchange
  for all outstanding shares in InterActive. Additionally, InterActive optionees
  received options to purchase an aggregate of approximately 128,000 shares of the
  Company's common stock in exchange for their options to purchase InterActive
  common stock. The excess of the purchase price over the fair value of the net
  assets acquired was allocated to purchased in-process research and development
  and intangible assets of $14,017,000 and $104,000, respectively. The purchased
  in-process research and development was charged to operations in the fourth
  quarter of 1997. The amounts allocated to intangible assets will be amortized
  over three years.
  
       Purchased in-process research and development is related to the completion
  of InterActive's data integration, filtering and formatting technology and its
  integration into the Company's products. At the time of acquisition, a prototype
  of InterActive's product existed and was in limited trials, however, the
  prototype was not stable or sufficiently developed to be scalable on an
  enterprise-wide basis. InterActive's technology was completed, at a cost of
  approximately $400,000, and incorporated as a separate module into the Siebel 98
  product suite which was released in June 1998. The Company estimated that the
  technology was approximately 75% complete as of the acquisition date. At that
  date, the only identifiable asset acquired was the technology under development.
  Accordingly, essentially all of the excess purchase price over net assets
  acquired, except for amounts assigned to net current assets, fixed assets and
  workforce-in-place, was assigned to in-process research and development.
  
       The results of operations of InterActive prior to the acquisition date are
  not considered material to the consolidated results of operations of the Company
  and, accordingly, pro forma financial information has not been presented.
  
  Nomadic Systems, Inc
  
       On November 1, 1997, the Company issued shares of common stock in exchange
  for all outstanding securities of privately-held Nomadic Systems, Inc.
  ("Nomadic"), a provider of innovative business solutions to pharmaceutical sales
  forces. The transaction was valued at approximately $11,000,000 and was
  accounted for by the purchase method of accounting. Accordingly, the operating
  results of Nomadic have been included in the accompanying consolidated financial
  statements of the Company from the date of acquisition. Under the terms of the
  agreement, Nomadic's securityholders received approximately 1,200,000 shares of
  the Company's common stock in exchange for all outstanding shares of Nomadic.
  The purchase price was allocated to net current assets, fixed assets, purchased
  in-process research and development and intangible assets of $557,000, $186,000,
  $8,723,000 and $1,553,000, respectively. The purchased in-process research and
  development was charged to operations in the fourth quarter of 1997. The amounts
  allocated to intangible assets will be amortized over three years.
  
       The appraisal of the acquired research and development was based upon the
  present value of forecasted operating cash flows from the technology acquired,
  giving effect to the stage of completion at the acquisition date. These
  forecasted cash flows were then discounted at a rate which gave consideration to
  the risk involved in completing the acquired technology. The forecasted cash
  flows assumed inclusion of the product developed from acquired technology into
  the existing Siebel product suite.
  SIEBEL SYSTEMS, INC.
  
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  (Unaudited as of September 30, 1999 and for the nine-month periods ended
                           September 30, 1998 and 1999)
  
       The purchased in-process research and development expense related to
  completion of Nomadic's second generation pharmaceutical sales force automation
  product. At the time of the acquisition, Nomadic had a first-generation product
  at a limited number of customers, with a very small user base. There were a
  considerable number of uncertainties as to increasing the product's scalability
  for deployment on an enterprise-wide basis, improving the stability of the
  application and identifying and fixing bugs. The Company allocated limited
  excess purchase price over net assets acquired to net current assets, fixed
  assets and workforce-in-place. The majority of the excess purchase price was
  allocated to in-process research and development and other intangible assets
  (goodwill) based upon the expected cash flows from Nomadic's existing product
  and the product under development, giving consideration to the stage of
  completion of the technology under development at the acquisition date. This
  technology was completed, at a cost of approximately $1,300,000, for enterprise-
  wide release in March 1998.
  
       The results of operations of Nomadic prior to the acquisition date are not
  considered material to the consolidated results of operations of the Company
  and, accordingly, pro forma financial statement information has not been
  presented.
  
  Clear With Computers, Inc.
  
       The Company incurred merger costs of approximately $3,300,000 in the third
  quarter of 1997 in connection with Scopus' planned merger with Clear With
  Computers, Inc. The merger plan was terminated early in the fourth quarter of
  1997.
  
  (10) Selected Quarterly Financial Data (unaudited)
  
       The following table presents selected consolidated quarterly information
  for fiscal 1998 and 1999 (in thousands, except share data):
  First         Second           Third         Fourth
                                                              quarter        quarter         quarter        quarter
                                                           ------------   ------------    ------------   ------------
  1998:
       Net revenues......................................   $    78,597    $    93,868    $   109,322     $   128,099
       Gross margin......................................        65,978         75,422         90,449         107,050
       Net income (loss).................................        10,057           (511)        14,859          19,860
       Pro forma net income (loss).......................         9,881           (729)        14,539          19,769
       Pro forma net income (loss) per diluted share.....          0.05          (0.00)          0.07            0.10
       Pro forma net income (loss) per basic share.......          0.06          (0.00)          0.08            0.11
  
       1999:
       Net revenues......................................   $   141,708    $   174,882    $   206,345
       Gross margin......................................       114,573        135,937        155,091
       Net income (loss).................................        22,000         25,853         29,262
       Pro forma net income (loss).......................        21,756         25,816         29,572
       Pro forma net income (loss) per diluted share.....          0.10           0.12           0.13
       Pro forma net income (loss) per basic share.......          0.12           0.14           0.16
  Schedule II
  
                         Valuation and Qualifying Accounts
  Balance at     Charged to                     Balance at
                                                             Beginning      Costs and                       End of
                                                              of Year       Expenses       Deductions        Year
                                                          -------------  -------------  ---------------  -------------
                                                                                 (in thousands)
  Allowance For Doubtful Accounts
         Year ended December 31, 1998....................     $ 4,288      $  6,230       $    188        $ 10,330
         Year ended December 31, 1997....................     $ 1,940      $  4,920       $  2,572        $  4,288
         Year ended December 31, 1996....................     $   665      $  2,636       $  1,361        $  1,940
  Management's Discussion and Analysis of Financial Condition and Results of
  --------------------------------------------------------------------------
  Operations
  ----------
  
  Overview
  
       Siebel Systems, Inc. ("Siebel" or the "Company") is the world's leading
  supplier of Web-based front office software systems. Siebel provides an
  integrated family of sales, marketing and customer service application software
  for field sales, customer service, telesales, telemarketing, field service,
  third-party resellers and Internet-based e-commerce and self service. Siebel
  Systems' products are designed to meet the needs of small, medium and large
  businesses.
  
       In today's increasingly competitive global markets, businesses must
  continuously improve their operations. Having spent considerable effort and
  resources in previous years automating finance, manufacturing, distribution,
  human resources management, and general office operations, many businesses are
  now looking to apply the leverage of information technology to their sales,
  marketing and customer service processes. Unlike previous automation efforts
  which have focused on decreasing expenses, sales, marketing and customer service
  information systems focus primarily on increasing revenues and customer
  satisfaction.
  
       The Siebel Front Office Applications are comprised of a broad range of
  advanced Web-based application software products designed to allow corporations
  to deploy comprehensive sales, marketing and customer service information
  systems on a global basis. The Company's products provide support for a number
  of frequently interdependent distribution channels, including direct field
  sales, telesales, telemarketing, retail, customer service, call centers, field
  service, resellers, business partners and Internet-based e-commerce, marketing
  and customer service. The Company's products provide support for a broad range
  of industries, business practices and multiple languages and currencies.
  
       In December 1999, the Company acquired OnTarget, Inc. (formerly Target
  Marketing Systems, Inc. "OnTarget"). OnTarget develops and implements advanced
  sales and marketing training and consulting programs for sales organizations
  competing in complex, multilevel sales campaigns. OnTarget's goal is to provide
  its clients with a pragmatic, repeatable and implementable process that will
  create lasting change within sales organizations, and which will enable Siebel's
  clients to effectively respond to today's market challenges. Primary customers
  include corporate clients and business owners who wish to provide for the
  development and training of their sales and marketing personnel.
  
       Under the terms of the agreement, each outstanding share of OnTarget common
  stock was exchanged for 0.3077516 newly issued shares of common stock of the
  Company. This resulted in the issuance of approximately 3.7 million additional
  shares of the Company's Common Stock. In addition, all outstanding stock options
  of OnTarget were converted into the right to acquire the Company's Common Stock
  at the same exchange ratio with a corresponding adjustment to the exercise
  price.
  
       The acquisition of OnTarget has been accounted for as a pooling of
  interests. Accordingly, the financial statements of the Company have been
  restated to include the financial position and results of operations of OnTarget
  for all periods presented.
  Results of Operations
  
       The following table sets forth statement of operations data for the three
  years ended December 31, 1998 and the nine-month periods ended September 30,
  1999, expressed as a percentage of total revenues:
  Nine Months Ended
                                                                  Year Ended December 31,                 September 30,
                                                          --------------------------------------  -------------------------
                                                               1996          1997         1998          1998         1999
                                                          ------------    ---------    ---------    ----------    ---------
  Revenues:
       Software                                                   71.8         70.7         71.0          71.2         63.0
       Professional services, maintenance and other               28.2         29.3         29.0          28.8         37.0
                                                          ------------    ---------    ---------    ----------    ---------
           Total revenues                                        100.0        100.0        100.0         100.0        100.0
  Cost of revenues:
       Software                                                    1.9          1.9          1.4           1.5          1.0
       Professional services, maintenance and other               14.3         14.3         15.9          16.2         21.5
                                                          ------------    ---------    ---------    ----------    ---------
            Total cost of revenues                                16.2         16.2         17.3          17.7         22.5
            Gross margin                                          83.8         83.8         82.7          82.3         77.5
  Operating expenses:
       Product development                                        13.2         12.0         10.7          12.4         11.2
       Sales and marketing                                        41.6         46.6         43.7          44.9         37.3
       General and administrative                                 12.8          9.6          8.4           6.6          6.6
       Merger-related expenses                                       -         11.7          3.3           4.8            -
            Total operating expenses                      ------------    ---------    ---------    ----------    ---------
                                                                  67.6         79.9         66.1          68.7         55.1
                                                          ------------    ---------    ---------    ----------    ---------
            Operating income                                      16.2          3.9         16.6          13.6         22.4
  Other income, net                                                2.8          2.4          1.5           1.6          1.3
                                                          ------------    ---------    ---------    ----------    ---------
            Income before income taxes                            19.0          6.3         18.1          15.2         23.7
  Income taxes                                                     6.7          5.9          7.3           6.5          9.0
                                                          ------------    ---------    ---------    ----------    ---------
            Net income                                            12.3          0.4         10.8           8.7         14.7
                                                          ============    =========    =========    ==========    =========
  For Each of the Years Ended December 31, 1996, 1997 and 1998
  
  Revenues
  
       Software. License revenues increased from $80,413,000 and $156,971,000 for
  the years ended December 1996 and 1997, respectively, to $290,890,000 for the
  year ended December 31, 1998. License revenues as a percentage of total revenues
  decreased and remained flat from 72% and 71% in the fiscal 1996 period and the
  fiscal 1997 period, respectively, to 71% in the fiscal 1998 period. License
  revenues increased in absolute dollar amount during these periods from the
  respective prior year periods due to an increase in the number of licenses of
  Siebel applications sold to new and existing customers and also due to licenses
  of new modules, released with the latest version of Siebel applications, to
  existing users of Siebel base applications. This increase in the number of
  licenses was primarily due to continued demand by new and existing customers for
  products in the Siebel applications family both in the United States and
  internationally. During 1998, approximately $20,000,000 of license revenue was
  attributable to products developed from technology acquired from Nomadic
  Systems, Inc. ("Nomadic") and InterActive WorkPlace, Inc. ("InterActive"). The
  Company expects that license revenues will continue to increase in absolute
  dollars, but will remain the same or decrease as a percentage of total revenues
  as the Company's maintenance revenues continue to grow as a result of increases
  in the installed base of customers on maintenance.
  
       Professional Services, Maintenance and Other. Professional services,
  maintenance and other revenues increased from $31,567,000 and $65,100,000 for
  the years ended December 31, 1996 and 1997, respectively, to $118,996,000 for
  the year ended December 31, 1998, and as a percentage of total revenues
  increased from 28% and 29% in the fiscal 1996 and 1997 periods, respectively, to
  29% in the fiscal 1998 period. These increases in absolute dollar amount were
  primarily due to growth in the Company's sales and marketing training
  businesses, consulting business and in the installed base of customers on
  maintenance. First-year maintenance is typically sold with the related software
  license. Revenue related to such maintenance is deferred based on vendor-
  specific objective evidence of fair value and amortized over the term of the
  maintenance contract, typically twelve months. The Company expects that
  professional services, maintenance and other revenues will remain the same or
  increase as a percentage of total revenues due to increased maintenance revenues
  derived from the Company's growing installed base and due to the
  Company's expansion of its consulting and training organization to meet
  anticipated customer demands in connection with product implementation and sales
  training.
  
       A relatively small number of customers account for a significant percentage
  of the Company's license revenues. For 1996, 1997 and 1998, sales to the
  Company's ten largest customers accounted for 25%, 22% and 21% of total
  revenues, respectively. The Company expects that licenses of its products to a
  limited number of customers will continue to account for a large percentage of
  revenue for the foreseeable future.
  
       The Company markets its products in the United States through its direct
  sales force and internationally through its sales force and distributors
  primarily in Japan, Latin America, South Africa and Asia. International revenues
  accounted for 10%, 27% and 30% of license revenues in 1996, 1997 and 1998,
  respectively. The Company is increasing its international sales force and is
  seeking to establish distribution relationships with appropriate strategic
  partners and expects international revenues will continue to account for a
  substantial portion of total revenues in the future.
  
  Cost of Revenues
  
       Software.  Cost of software license revenues includes third-party software
  royalties, product packaging, documentation and production. Cost of license
  revenues through December 31, 1998 has averaged less than 3% of software license
  revenues. All costs incurred in the research and development of software
  products and enhancements to existing products have been expensed as incurred,
  and, as a result, cost of license revenues includes no amortization of
  capitalized software development costs. These costs are expected to remain the
  same or increase as a percentage of total revenues.
  
       Professional Services, Maintenance and Other.  Cost of professional
  services, maintenance and other revenues consist primarily of personnel,
  facilities, systems costs incurred in providing customer support and costs
  incurred in the providing and administering of training programs. Cost of
  professional services, maintenance and other revenues increased from $15,979,000
  and $31,646,000 for the years ended December 31, 1996 and 1997, respectively, to
  $65,387,000 for the year ended December 31, 1998, and as a percentage of
  professional services, maintenance and other revenues were 51% and 49% for the
  years ended 1996 and 1997, respectively, as compared to 55% in 1998. The
  increases in the absolute dollar amount reflect the effect of fixed costs
  resulting from the Company's expansion of its maintenance and support
  organization and growth in the Company's consulting and sales training
  businesses. 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 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 from $14,775,000 and $26,650,000 for the
  years ended December 31, 1996 and 1997, respectively, to $43,950,000 for the
  year ended December 31, 1998, and decreased as a percentage of total revenues
  from 13% and 12% in 1996 and 1997, respectively, to 11% in 1998. The increases
  in the dollar amount of product development expenses were primarily attributable
  to costs of additional personnel in the Company's product development
  operations. The Company anticipates that it will continue to devote substantial
  resources to product development. The Company expects product development
  expenses to increase in absolute dollar amount but remain at a similar
  percentage of total revenues as in 1998. The Company considers technological
  feasibility of its software products to have been reached upon completion of a
  working model that has met certain performance criteria. The period between
  achievement of technological feasibility and general release of a software
  product is typically very short, and development costs incurred during that
  period have not been material. Accordingly, the Company has not capitalized any
  software development costs to date.
  Sales and  Marketing.  Sales and marketing expenses consist primarily of
  salaries, commissions and bonuses earned by sales and marketing personnel, field
  office expenses, travel and entertainment and promotional expenses. Sales and
  marketing expenses increased from $46,549,000 and $103,551,000 in the years
  ended December 31, 1996 and 1997, respectively, to $178,957,000 for the year
  ended December 31, 1998, and as a percentage of total revenues, sales and
  marketing expenses decreased from 42% and 47% in 1996 and 1997, respectively, to
  44% in 1998. The increases in the dollar amount of sales and marketing expenses
  reflect primarily the hiring of additional sales and marketing personnel, costs
  associated with expanded promotional activities, and indirect merger-related
  costs, such as corporate sales training and marketing programs. The Company
  expects that sales and marketing expenses will continue to increase in absolute
  dollar amount as the Company continues to expand its sales and marketing
  efforts, establishes additional sales offices in the United States and
  internationally and increases promotional activities. These expenses are
  expected to remain at a similar percentage of total revenues as in 1998.
  
       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 from
  $14,318,000 and $21,275,000 for the years ended December 31, 1996 and 1997,
  respectively, to $34,473,000 for the year ended December 31, 1998, and decreased
  as a percentage of total revenues from 13% and 10% for 1996 and 1997,
  respectively, to 8% in 1998. The increases in the absolute dollar amount of
  general and administrative expenses were primarily due to increased staffing and
  associated expenses necessary to manage and support the Company's increased
  scale of operations. The Company believes that its general and administrative
  expenses will continue to increase in absolute dollar amount as a result of the
  continued expansion of the Company's administrative staff and facilities to
  support growing operations. The Company anticipates that its general and
  administrative expenses as a percentage of total revenues should remain at a
  similar percentage as in 1998.
  
       Merger-Related Expenses.  In connection with the Company's merger with
  Scopus Technology, Inc. ("Scopus"), the Company incurred direct merger-related
  expenses of approximately $13,500,000, comprised primarily of investment
  bankers, attorneys, accountants and other professional fees of $9,100,000,
  duplicate facilities and equipment of $3,100,000 and other miscellaneous
  expenses of $1,300,000. The Company also incurred indirect merger-related
  expenses of approximately $1,800,000 for joint sales training and merger-related
  marketing costs, which are included within sales and marketing expenses.
  
       The Company incurred merger costs of approximately $3,300,000 in the third
  quarter of 1997 in connection with Scopus' planned merger with Clear With
  Computers, Inc. The merger plan was terminated early in the fourth quarter of
  1997.
  
       On October 1, 1997, the Company completed its purchase of InterActive, a
  developer of intranet-based business intelligence software technology that has
  been incorporated into the Siebel InterActive product. The acquisition was
  accounted for by the purchase method of accounting. The Company recorded a
  charge to income of $14,017,000, or $0.17 per diluted share, pursuant to an
  allocation of the purchase price by an independent appraiser, as a write-off of
  acquired research and development. Purchased in-process research and development
  is related to the completion of InterActive's data integration, filtering and
  formatting technology and its integration into the Company's products. At the
  time of acquisition, a prototype of InterActive's product existed and was in
  limited trials, however, the prototype was not stable or sufficiently developed
  to be scalable on an enterprise-wide basis. InterActive's technology was
  completed, at a cost of approximately $400,000, and incorporated as a separate
  module into the Siebel 98 product suite, which was released in June 1998. The
  Company estimated that technology was approximately 75% complete as of the
  acquisition date. At that date, the only identifiable asset acquired was the
  technology under development. Accordingly, essentially all of the excess
  purchase price over net assets acquired, except for amounts assigned to net
  current assets, fixed assets and workforce-in-place, was assigned to in-process
  research and development.
  
       The valuation of acquired research and development was prepared using the
  income approach and contemplated that sales of products incorporating
  InterActive's technology would be $11,500,000 in 1998, increasing to $35,000,000
  in 2000, and declining significantly thereafter. Revenue increases were based
  upon the historical growth rate of software sales for the customer relationship
  management market and the Company. Operating costs as a percentage of revenue
  ranged from 56% in 1998 to 47% in 2000 based upon the Company's normal operating
  margin. Operating cash flows were reduced by an expected effective tax rate of
  38% consistent with the Company's effective tax rate. Net cash flows were
  discounted to their present value at the acquisition date
  using an after-tax risk-adjusted discount rate of 30%. The Company believes this
  discount rate is consistent with that required by venture capitalists for
  investments in unproven but partially developed software products. Through the
  end of 1998, total revenues from Siebel Interactive were approximately
  $5,000,000; however, the Company is unable to quantify the effect of Siebel
  Interactive as a competitive differentiator. The Company does not track selling,
  general and administrative costs by product but believes the incremental costs
  associated with selling and distributing Siebel Interactive were substantially
  lower than those used in the valuation due to synergies associated with selling
  the product as a separate module in the Siebel 98 product suite. If the Company
  is unable to continuously upgrade the Siebel Interactive product or existing and
  future customers do not elect to purchase this module, the Company's ability to
  recover the value assigned to the acquired research and development will be
  impaired and revenue and profitability will be adversely affected.
  
       On November 1, 1997, the Company completed its purchase of Nomadic, a
  provider of innovative business solutions to pharmaceutical sales forces. The
  acquisition was accounted for by the purchase method of accounting. Technology
  acquired from Nomadic has been incorporated into the Siebel Pharma product. The
  Company recorded a charge to income of $8,723,000 or $0.10 per diluted share,
  pursuant to an allocation of the purchase price by an independent appraiser, as
  a write-off of acquired research and development. The appraisal of the acquired
  research and development was based upon the present value of forecasted
  operating cash flows from the technology acquired, giving effect to the stage of
  completion at the acquisition date. These forecasted cash flows were then
  discounted at a rate commensurate with the risk involved in completing the
  acquired technology. The forecasted cash flows assumed inclusion of the product
  developed from acquired technology into the existing Siebel product suite. The
  purchased in-process research and development expense related to completion of
  Nomadic's second generation pharmaceutical sales force automation product. This
  product was completed and enterprise-wide deployment to end-user customers
  commenced in March 1998. Much of the functionality was incorporated into the
  Company's Pharma product, which was released in June 1998. At the time of the
  acquisition, Nomadic had a first-generation product at a limited number of
  customers, with a very small user base. There were a considerable number of
  uncertainties as to increasing the product's scalability for deployment on an
  enterprise-wide basis, improving the stability of the application and
  identifying and fixing bugs. The Company allocated limited excess purchase price
  over net assets acquired to net current assets, fixed assets and workforce-in-
  place. The majority of the excess purchase price was allocated to in-process
  research and development and other intangible assets (goodwill) based upon the
  expected cash flows from Nomadic's existing product and the product under
  development, giving consideration to the stage of completion of the technology
  under development at the acquisition date. This technology was completed, at a
  cost of approximately $1,300,000, for enterprise-wide release in March 1998.
  
       The valuation of acquired research and development was prepared using the
  income approach and contemplated that sales of products incorporating Nomadic's
  technology would be $11,500,000 in 1998, increasing to $35,000,000 in 2000, and
  declining significantly thereafter. Revenue increases were based upon the
  historical growth rate of software sales for the customer resource management
  market and the Company. Operating costs as a percentage of revenue were
  estimated at 70%, based upon the Company's normal operating margin. Operating
  cash flows were reduced by an expected effective tax rate of 39% consistent with
  the Company's effective tax rate. Net cash flows were discounted to their
  present value at the acquisition date using an after-tax risk-adjusted discount
  rate of 25%. The Company believes this discount rate is consistent with that
  required by venture capitalists for investments in unproven but partially
  developed software products. Through the end of 1998, total revenues from
  products incorporating the Nomadic technology under development at the
  acquisition date were approximately $24,000,000. Although the Company does not
  track selling, general and administrative costs by product, because these
  products are sold as vertical customer resource management solutions for the
  pharmaceutical industry, the Company believes the operating margin is similar to
  the Company's consolidated operating margin. If the Company is unable to
  continuously upgrade the Pharma product or superior products are released by
  competitors, the Company's ability to recover the value assigned to the acquired
  research and development will be impaired and revenue and profitability will be
  adversely affected.
  Operating Income and Operating Margin
  
       Operating income increased from $18,162,000 and $8,518,000 for the years
  ended December 31, 1996 and December 31, 1997, respectively, to $68,019,000 for
  the year ended December 31, 1998. Operating margin was 16% and 4% in 1996 and
  1997, respectively, compared with 17% in 1998. Excluding merger-related
  expenses, operating income increased from $18,162,000 and $34,556,000 for the
  years ended December 31, 1996 and December 31, 1997, respectively, to
  $81,519,000 for the year ended December 31 1998, and operating margin increased
  from 16% and 16% in 1996 and 1997, respectively, to 20% in 1998. These increases
  in operating income and margin, excluding merger-related expenses, were due to
  increases in license revenues without a proportional increase in cost,
  particularly costs associated with the hiring of new personnel.
  
  Other Income, Net
  
       Other income, net, is primarily comprised of interest income earned on the
  Company's cash and cash equivalents and short-term investments and reflects
  earnings on increasing cash and cash equivalents and short-term investment
  balances.
  
  Pro forma Provision for Income Taxes
  
       Income taxes are comprised primarily of federal and state taxes. The pro
  forma provision for income taxes reflects income tax expense that would have
  been reported if OnTarget (an S Corporation for income tax reporting purposes)
  had been a C Corporation for each of the periods presented. The pro forma
  provision for income taxes was $7,983,000, $13,848,000 and $30,817,00 in 1996,
  1997, and 1998, respectively . The pro forma provision for income taxes as a
  percentage of pretax income was 37%, 100% and 41%, respectively. The pro forma
  tax rate in 1997 was higher than the rates in 1998 and 1996 primarily due to
  non- deductible items related to acquisitions. The Company expects its effective
  tax rate in 1999 to be approximately 38%, excluding the effect of non-deductible
  costs such as merger-related expenses.
  
  Pro forma Net Income
  
       The Company had pro forma net income of $13,313,000 and $55,000 in 1996 and
  1997 respectively and pro forma net income of $43,460,000 for 1998. Pro forma
  net income per share was $0.08 in 1996, and $0.00 in fiscal 1997, compared to
  pro forma net income of $0.21 per diluted share in 1998.
  
  Liquidity and Capital Resources
  
       The Company's cash, cash equivalents and short-term investments increased
  from $162,335,000 as of December 31, 1997 to $232,629,000 as of December 31,
  1998, representing approximately 60% and 52% of total assets, respectively. This
  increase was primarily attributable to cash flows from operations and, to a
  lesser extent, sale of common stock through the Company's stock option and stock
  purchase plans. The increase was partially offset by increases in accounts
  receivable, purchases of property and equipment and short-term investments. The
  Company has generated positive cash flow from operating activities in 1996, 1997
  and 1998.
  
       Of the approximately $39,581,000 of purchases of property and equipment
  during 1998, approximately $14,000,000 related to computer and networking
  equipment to support the Company's introduction of SiebelNet. SiebelNet is a
  family of application hosting, outsourcing and training services designed to
  help customers quickly deploy and easily manage their sales, marketing and
  customer service systems.
  
       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.
  
       Capital expenditures of the nature described above are expected to increase
  during 1999 and 2000.
  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.
  
  For Each of the Nine-Month Periods Ended September 30, 1998 and 1999
  
  Revenues
  
       Software. License revenues increased from $200,567,000 for the nine months
  ended September 30, 1998 to $329,388,000 for the nine months ended September 30,
  1999 and decreased as a percentage of total revenues from 71% in 1998 to 63% in
  1999. 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 revenues continue
  to grow as a result of increases in the installed base of customers on receiving
  maintenance and due to the Company's expansion of its consulting organization to
  meet anticipated customer demands in connection with product implementation.
  
       Professional Services, Maintenance and Other. Professional services,
  maintenance and other revenues increased from $81,220,000 for the nine months
  ended September 30, 1998 to $193,547,000 for the nine months ended September 30,
  1999 and increased as a percentage of total revenues from 29% in 1998 to 37% in
  1999. The increase in the absolute dollar amount were primarily due to growth in
  OnTarget sales and marketing training revenues, growth in the Company's
  consulting business and in the installed base of customers with a maintenance
  contract. 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 organization to meet anticipated customer demands in connection with
  product implementation and sales training.
  
       The Company markets its products in the United States through its direct
  sales force and internationally through its sales force and through distributors
  which are primarily in Japan, Latin America, South Africa and Asia.
  International revenues accounted for 29% and 31% of license revenues for the
  nine months ended September 30, 1998 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.
  
  Cost of Revenues
  
       Software. Cost of license revenues increased from $4,295,000 for the nine
  months ended September 30, 1998 to $5,111,000 for the nine months ended
  September 30, 1999 and as a percentage of total revenues was less than 3% for
  each of the nine month periods ended September 30, 1998 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. These costs are expected to remain the same or increase as a percentage
  of total revenues.
  
       Professional Services, Maintenance and Other. Cost of professional
  services, maintenance and other revenues consists primarily of personnel,
  facilities and systems costs incurred in providing consulting and customer
  support. Cost of professional services, maintenance and other revenues increased
  from $45,643,000 for the nine months ended September 30, 1998 to $112,223,000
  for the nine months ended September 30, 1999 and increased as a percentage of
  total revenues from 16% in 1998 to 21% in 1999. The increases in the absolute
  dollar amount reflect the effect of fixed costs resulting from the Company's
  expansion of its maintenance and support organization and growth in the
  Company's consulting and sales training businesses. The Company expects that
  professional services,
  maintenance and other costs will continue to increase in absolute dollar amount
  as the Company integrates OnTarget's training and consulting operations. The
  Company also expects to expand both its customer support organization to support
  a growing installed base and its consulting and training organizations to meet
  anticipated customer demands in connection with product implementation and sales
  training. These costs are expected to remain the same or increase as a
  percentage of total revenues.
  
  Operating Expenses
  
       Product Development. Product development expenses include expenses
  associated with the development of new products, enhancements of existing
  products and quality assurance activities, and consist primarily of employee
  salaries, benefits, consulting costs and the cost of software development tools.
  Product development expenses increased from $34,909,000 for the nine months
  ended September 30, 1998 to $58,324,000 for the nine months ended September 30,
  1999 and decreased as a percentage of total revenues from 12% in 1998 to 11% in
  1999. 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 nine months of 1999. The
  Company considers technological feasibility of its software products to have
  been reached upon completion of a working model that has met certain performance
  criteria. The period between achievement of technological feasibility and
  general release of a software product is typically very short, and development
  costs incurred during that period have not been material. Accordingly, the
  Company has not capitalized any software development costs to date.
  
       Sales and Marketing. Sales and marketing expenses consist primarily of
  salaries, commissions and bonuses earned by sales and marketing personnel, field
  office expenses, travel and entertainment and promotional expenses. Sales and
  marketing expenses increased from $126,482,000 for the nine months ended
  September 30, 1998 to $194,874,000 for the nine months ended September 30, 1999
  and decreased as a percentage of total revenues from 45% 1998 to 37% in 1999.
  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 in the first nine months of 1999.
  
       General and Administrative. General and administrative expenses consist
  primarily of salaries and occupancy costs for administrative, executive and
  finance personnel. General and administrative expenses increased from
  $18,593,000 for the nine months ended September 30, 1998 to $34,674,000 for the
  nine months ended September 30, 1999 and remained as a percentage of total
  revenues at 7% in each of 1998 and 1999. 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 nine months of 1999.
  Merger related expenses. In connection with the merger with Scopus, the
  Company incurred direct merger-related expenses of approximately $13,500,000
  consisting of direct transaction fees for investment bankers, attorneys,
  accountants and other professional fees of $9,100,000, integration charges
  related to duplicate facilities and equipment of $3,100,000 and other
  miscellaneous expenses of $1,300,000. The Company also incurred indirect
  merger-related expenses of approximately $1,800,000 for joint sales training
  and merger-related marketing costs, which are included within sales and
  marketing expenses.
  
       There were no merger-related expenses in the nine months ended
  September 30, 1999.
  
  Operating Income and Operating Margin
  
       For the nine months ended September 30, 1999 as compared with the nine
  months ended September 30, 1998, operating income increased from $38,365,000 to
  $117,729,000 and operating margin increased from 14% in 1998 to 23% in 1999.
  These increases in operating income and margin were primarily due to $13,500,000
  of merger-related expenses incurred in the three months ended September 30,
  1998, not recurring in 1999. Excluding the merger related expenses, operating
  income for the nine months ended September 30, 1999 increased from $51,865,000
  for the nine months ended September 30, 1998 to $117,729,000 for the nine months
  ended September 1999 and operating margin increased from 18% in 1998 to 23% in
  1999. This increase in operating income and margin was due to increases in
  license revenues without a proportional increase in cost, particularly costs
  associated with the hiring of new personnel. The Company expects operating
  margins, net of merger-related expenses, to decrease as compared to operating
  margin for the first nine months of 1999 as it continues to invest heavily in
  sales, marketing, development and support activities globally.
  
  Other Income, Net
  
       Other income, net is primarily comprised of interest income earned on the
  Company's cash and cash equivalents and short-term investments and reflects
  earnings on increasing cash and cash equivalents and short-term investment
  balances.
  
  Pro forma Provision for Income Taxes
  
       Pro forma income taxes are comprised primarily of federal and state taxes.
  The pro forma provision for income taxes reflects income tax expense that would
  have been reported if OnTarget (an S Corporation for income tax reporting
  purposes) had been a C Corporation for each of the periods presented. The pro
  forma provision for income taxes was $19,140,000 and $47,282,000 and
  approximately 45% and 38% of income before taxes, respectively, for the nine
  months ended September 30, 1998 and 1999 respectively. The pro forma effective
  tax rate in 1998 was affected by the non-deductibility of certain merger-related
  expenses. The Company expects its effective tax rate for the remainder of 1999
  to be approximately 38%.
  
  Pro forma Net Income
  
       The Company had pro forma net income of $23,691,000 for the nine months
  ended September 30, 1998 compared to net income of $77,144,000 for the nine
  months ended September 30, 1999. Pro forma net income increased as a percentage
  of total revenues from 8% in the nine months ended September 30, 1998 to 15% in
  the nine months ended September 30, 1999, due primarily to the effect of the
  merger-related expenses in 1998.
  
  Liquidity and Capital Resources
  
       The Company's cash, cash equivalents and short-term investments increased
  to $624,791,000 as of September 30, 1999 from $232,629,000 as of December 31,
  1998, representing approximately 62% and 52% of total assets, respectively. This
  increase was primarily attributable to issuance of convertible subordinated
  debentures, net income, sale of certain property and equipment, increases in
  accounts payable, accrued expenses, income taxes payable and deferred revenue,
  and issuance of common stock under the Company's stock option plans, partially
  offset by an increase in accounts receivable and purchases of property and
  equipment. The Company's days sales outstanding (DSO) in accounts receivable was
  98 as of September 30, 1999, as compared with 88 as of December 31, 1998. The
  Company expects DSO to fluctuate significantly in future quarters.
  As of December 21, 1999, the fair market value of the Company's marketable
  equity securities was $137,277,000.
  
       The Company has used fully serviced office suites on a month-to-month
  rental basis to establish its presence in new locations. As these locations
  expand, the Company expects to transition more of the office suites to leased
  space. This transition will involve build-out of tenant improvements,
  acquisition of furniture and fixtures, and other capital costs, which were not
  incurred in connection with the use of fully serviced office suites. The Company
  has already built-out a number of leased facilities, both domestically and
  internationally, and expects this trend to continue.
  
       Capital expenditures of the nature described above are expected to increase
  during the remainder of 1999 and 2000.
  
       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.
  
  Audit Committee
  
       The Company has established an Audit Committee of the Board of Directors,
  the charter of which is to oversee the activities of management and the
  Company's external auditors as they relate to the financial reporting process.
  The Audit Committee is comprised of James C. Gaither, Charles R. Schwab and
  George T. Shaheen. In particular, the Audit Committee's role includes ensuring
  that management properly develops and adheres to a sound system of internal
  controls, and that the Company's auditors, through their own review, assess the
  effectiveness of those controls and management's adherence to them.
  
       In fulfilling their responsibilities, the Audit Committee conducted
  regular, quarterly meetings with the Company's outside auditors. In each of
  these meetings, the Audit Committee met with the Company's outside auditors,
  independent of management, to assure the Audit Committee an independent and
  confidential view of the Company's management and internal controls as they
  relate to the quality and reliability of the Company's financial statements.
  The Company is committed to supporting this process and the Audit Committee
  in fulfilling their role of ensuring the integrity of the Company's internal
  controls and financial reporting.
  
  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,
  and available-for-sale short-term investments, which are subject to interest
  rate risk. The Company does not consider its cash equivalents to be subject to
  interest rate risk due to their short maturities.
  
       The Company generally manages its foreign currency exchange rate risk by
  entering into contracts to sell foreign currency at the time a foreign currency
  receivable is generated. When the foreign currency receivable is collected, the
  contract is liquidated, thereby converting the foreign currency to US dollars
  and mitigating the exchange rate risk.
  
       The Company manages its interest rate risk by maintaining an investment
  portfolio with debt instruments of high credit quality and relatively short
  average maturities. The Company also manages interest rate risk by maintaining
  sufficient cash and cash equivalent balances such that it is typically able to
  hold its investments to maturity.
  
       The Company is exposed to equity price risks on its marketable equity
  securities. This investment is in a publicly-traded company in the high-
  technology industry sector. The Company typically does not attempt to reduce or
  eliminate its market exposure on these securities. A 10% adverse change in the
  equity price would result in an approximate $4.7 million decrease in the fair
  value of the Company's marketable equity securities as of September 30, 1999.
  
       The following summarizes the Company's foreign currency forward contracts,
  all of which mature in 1999, by currency, as of September 30, 1999. Contract
  amounts are representative of the expected payments to be made under these
  instruments (unaudited, in thousands):
  Contract                             Fair Value
                                                                   Amount                             at September
                                                                   (Local             Contract         30, 1999
                                                                  Currency)         Amount (US$)          (US$)
                                                               --------------       ------------      --------------
  German marks (contracts to pay DM/receive US$)...........          DM 4,930           $  2,664              $  (20)
  
  British pounds (contracts to pay(pound)/receive US$).....     (pound) 4,741           $  7,628              $ (179)
  
  Japanese yen (contracts to pay(Yen)/receive US$).........    (Yen)1,543,100           $ 13,795              $ (714)
  
  Euro (contracts to pay EUR/receive US$)..................          EUR2,300           $  2,475              $   26
  
  British pounds (contracts to pay(pound)/receive EUR).....       (pound) 83O           EUR1,279              $    5
  The following summarizes the Company's short-term investments and the
  weighted average yields, as of September 30, 1999 (unaudited, in thousands):
  Expected maturity date
                          ---------------------------------------------------------------------------------------
                            1999            2000           2001           2002          2003          Thereafter
                          --------        --------       --------       --------      --------      -------------
  US treasury
       securities....           --              --        $ 1,986        $ 3,002        $1,984             $3,900
    Wtd. Avg. Yld.                                           5.88%          5.71%         5.73%              6.84%
  
  Municipal
       securities....      $ 8,701        $ 55,234        $37,226        $36,708        $5,347                 --
    Wtd. Avg. Yld.            3.86%           3.85%          3.78%          4.29%         4.39%
  
  Corporate bonds....           --              --             --        $ 4,505
  
    Wtd. Avg. Yld.                                                          5.93%           --                 --
  On September 30, 1999, the Company had an investment portfolio of fixed
  income securities, excluding those classified as cash and cash equivalents, of
  $158,600,000. 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 September 30, 1999, the fair value of the portfolio
  would decline by approximately $2,400,000.
  
  Year 2000 Preparedness
  
       Many existing computer programs and systems use only two-digit fields to
  identify the year, e.g. 85=1985, and they are unable to process date and time
  information between the twentieth and twenty-first centuries. Accordingly,
  computer programs and software may need to be modified prior to the year 2000
  ("Y2K") in order to remain functional. Failure to complete the necessary
  modifications could cause a disruption or failure of such program and system.
  
       The Company's Y2K initiative has been managed by a team of internal staff
  and third-party consultants specializing in Y2K issues. The team's activities
  are designed to identify potential Y2K problems and to ensure that there is no
  adverse effect on our core business operations and that transactions with
  clients, suppliers and financial institutions are fully supported. The Company's
  efforts have focused on three areas: (i) the Company's products, (ii) internal
  operating systems and (iii) interfaces with third-party systems.
  
       Products. The Company has put in place a certification program to verify
  the Y2K compliance of its products. Beginning with version 4.0 (Siebel 98), the
  Company's programs have been designed to be Y2K compliant. The Company has
  applied a number of test approaches and criteria to each of its products
  beginning with Siebel 98 and believes that all such products are Y2K compliant.
  While we believe that our currently developed and actively marketed products are
  Y2K compliant for significantly all functionality, our software products could
  contain errors or defects relating to Y2K. The Company has advised certain of
  its customers that internal testing of Y2K compliance should be conducted to
  ensure that the operations managed by Siebel products continue without
  disruption. If such modifications and conversions are not made, or are not
  completed in a timely manner, the Y2K issue could have a material adverse impact
  on our operations. The costs incurred to test the Company's products for Y2K
  compliance were incurred as normal product development expenses. Any additional
  expenses are expected to be minimal.
  
       Internal Operating Systems. The Company has implemented a plan to test all
  internal operating systems, such as computer hardware and software,
  telephone/PBX systems, fax machines, facilities systems such as building access
  and other miscellaneous systems on a worldwide basis. The Company has approached
  its Y2K internal readiness program in the following three phases: (i)
  assessment, (ii) planning and (iii) implementation. These phases included such
  individual steps as taking an inventory of the Company's operating systems
  prioritized by risk,
  identifying failure dates, defining a solution strategy, estimating repair
  costs, identifying specific tasks necessary to ensure readiness, determining
  resource requirements and allocations, and finally, testing and fixing the
  operating systems as well as putting in place contingency plans for operating
  systems that have a high impact on the Company's business. The plan has been
  executed and the Company does not believe that the Y2K issue will pose
  significant operational problems to our internal operating systems. Costs
  incurred to complete this process have not been material.
  
       Third-Party Systems. The Company has developed a Y2K process for dealing
  with its key suppliers, distributors, vendors, system integrators and other
  partners. The Company has been in contact with its key third-party relationships
  regarding their Y2K compliance. The Company has received responses from its
  critical third-party relationships, who have stated that they expect to address
  all of their significant Y2K issues in a timely manner. The Company is working
  to identify and analyze the most reasonably likely worst case scenarios for key
  third party relationships affected by Y2K. These scenarios could include
  possible infrastructure collapse, the failure of water and power supplies, major
  transportation disruptions and failures of communications or financial systems -
  any of which could have a material adverse effect on the Company's ability to
  deliver its products and services to its customers. While the Company has
  contingency plans in place to address most issues under its control, an
  infrastructure problem outside of its control could result in a delay in product
  shipments, depending on the nature and severity of the problems. The Company has
  analyzed its key third-party systems and believes all of them to be largely Y2K
  compliant. Costs incurred to complete this process have not been material.
  
       Contingency plans. Our Y2K Program is designed to minimize the possibility
  of serious Year 2000 interruptions. However, since their possibility cannot be
  eliminated, we are developing contingency plans addressing Year 2000 concerns in
  high impact areas. These plans will continue to be reviewed and updated through
  out the end of the calendar year. Other contingency plans will be prepared,
  tested, and updated as deemed practicable and appropriate.
  
       The Company currently believes that the most reasonably likely worst-case
  scenario is that there will be some Year 2000 disruptions at individual
  locations that could affect individual business processes, facilities or third
  parties for a short time. The Company does not expect such disruptions to be
  long-term, or for the disruptions to affect the operations of the Company as a
  whole. Because of the uncertainty as to the exact nature or location of
  potential Year 2000-related problems that might arise, the business
  continuity/contingency planning has focused on development of flexible plans to
  minimize the scope, impact and duration of any Year 2000 problems that may
  occur. The Company expects to have personnel and resources available to deal
  with any Year 2000 problems that occur. Some of the currently planned
  contingency actions include designating emergency response teams, increasing
  staffing at critical times, in particular the Year 2000 weekend, and heightening
  proactive monitoring at likely dates of impact.
  
       Although the Company has spent a large amount of time and resource to
  address potential Y2K problems, there is no assurance that the Company will be
  successful in its efforts to identify and address all Y2K issues. Even though
  the Company has acted in a timely manner to complete all of its assessments and
  planned solutions, some problems may not have been identified or corrected in
  time to prevent material adverse consequences to the Company. The discussion
  above includes forward-looking statements regarding Y2K and is based on the
  Company's best estimates given information that is currently available and is
  subject to change. As the Company continues to progress with its Y2K
  initiatives, it may discover that actual results will differ materially from
  these estimates. See "Factors Affecting Operating Results -- Year 2000 Problems
  may cause an Interruption in our Business."