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
  
  
                                 November 25, 1998
                                 -----------------
                  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)
  <PAGE>
   
  ITEM 5.    OTHER EVENTS
  
  On April 15, 1998, the Registrant filed with the Securities and Exchange
  Commission (Commission File Number 333-48055) a Registration Statement on Form
  S-4 (the "S-4 Registration Statement") containing the Registrant's unaudited Pro
  Forma Combined Condensed Financial Statements for the years ended December 31,
  1997, 1996 and 1995.  The S-4 Registration Statement was filed pursuant to an
  Agreement and Plan of Merger and Reorganization dated March 1, 1998 among the
  Registrant, Syracuse Acquisition Sub, Inc., a California corporation and then
  wholly-owned subsidiary of the Registrant ("Merger Sub"), and Scopus Technology,
  Inc. ("Scopus"), whereby Merger Sub was merged with and into Scopus.  Attached
  as Appendix A to this current report on Form 8-K are the Registrant's audited
  consolidated financial statements for the three years ended December 31, 1997,
  and the related consolidated financial statement schedule, selected financial
  data and management's discussion and analysis of financial condition and results
  of operations.
  
  ITEM 7.   FINANCIAL STATEMENTS, FINANCIAL INFORMATION AND EXHIBITS
  
  (c)  Exhibits
  
  EXHIBIT NO.    DESCRIPTION
  
  23.1   Consent of KPMG Peat Marwick LLP
  
  27.1   Financial Data Schedule
  <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:  November 25, 1998
  
                                  By: /s/ Howard H. Graham
                                  --------------------------------
                                      Howard H. Graham
                                      Senior Vice President,
                                      Finance and Administration
                                      and Chief Financial Officer
  <PAGE>
   
                                     Appendix A
  
     AUDITED CONSOLIDATED FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE,
   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
  Siebel Systems, Inc.:
  
    We have audited the accompanying consolidated balance sheets of Siebel
  Systems, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
  related consolidated statements of operations, stockholders' equity, and cash
  flows for each of the years in the three-year period ended December 31, 1997.
  These consolidated financial statements are the responsibility of the Company's
  management. Our responsibility is to express an opinion on these consolidated
  financial statements based on our audits.
  
    We conducted our audits in accordance with generally accepted auditing
  standards. Those standards require that we plan and perform the audit to obtain
  reasonable assurance about whether the financial statements are free of material
  misstatement. An audit includes examining, on a test basis, evidence supporting
  the amounts and disclosures in the financial statements. An audit also includes
  assessing the accounting principles used and significant estimates made by
  management, as well as evaluating the overall financial statement presentation.
  We believe that our audits provide a reasonable basis for our opinion.
  
    In our opinion, the consolidated financial statements referred to above
  present fairly, in all material respects, the financial position of Siebel
  Systems, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results
  of their operations and their cash flows for each of the years in the three-year
  period ended December 31, 1997, in conformity with generally accepted accounting
  principles.
  
  
  /s/ KPMG PEAT MARWICK LLP
  
  Mountain View, California
  July 16, 1998
  
  
                                          
  
  
  <PAGE>
   
                               SIEBEL SYSTEMS, INC.
  
                            CONSOLIDATED BALANCE SHEETS
                       (In thousands, except per share data)
  <TABLE> 
  <CAPTION> 
                                                                                                    December 31,
                                                                                              1997                1996
                                                                                        -----------------  ------------------ 
                                                            Assets         
                                                            ------
  <S>                                                                                   <C>                <C>                
  Current assets:                                                                       
        Cash and cash equivalents                                                       $         70,202   $          77,495  
        Short-term investments                                                                    91,999              74,133  
        Accounts receivable, net                                                                  63,056              29,247  
        Deferred income taxes                                                                      4,778               2,706  
        Prepaids and other                                                                         6,701               4,955  
                                                                                        -----------------  ------------------ 
                                                                                                                              
                  Total current assets                                                           236,736             188,536  
                                                                                                                              
  Property and equipment, net                                                                     24,843              15,298  
  Other assets                                                                                     6,585               3,111  
                                                                                        -----------------  ------------------ 
                                                                                                                              
                  Total assets                                                          $        268,164   $         206,945  
                                                                                        =================  ================== 
                                                                                                                              
                                 Liabilities and Stockholders' Equity                                
                                 ------------------------------------
                                                                                                                              
  Current liabilities:                                                                                                        
        Accounts payable                                                                 $         5,684   $           5,341  
        Accrued expenses                                                                          28,362              13,945  
        Income taxes payable                                                                       2,345               3,956  
        Deferred revenue                                                                          22,243              11,067  
                                                                                         ----------------    ---------------- 
                                                                                                                              
                  Total current liabilities                                                       58,634              34,309  
                                                                                                                              
        Deferred income taxes                                                                        162                 205  
                                                                                        -----------------  ------------------ 
                                                                                                                              
                  Total liabilities                                                               58,796              34,514  
                                                                                        -----------------  ------------------ 
                                                                                                                              
  Stockholders' equity:                                                                                                       
        Common stock;  $.001 par value;  300,000 shares authorized; 85,864                                                    
           and 81,969 shares issued and outstanding, respectively                                     86                  82  
        Additional paid-in capital                                                               195,432             157,583  
        Notes receivable from stockholders                                                          (406)               (508) 
        Deferred compensation                                                                       (639)             (1,173) 
        Accumulated other comprehensive losses                                                      (365)                 --  
        Retained earnings                                                                         15,260              16,447  
                                                                                        -----------------  ------------------ 
                                                                                                                              
                  Total stockholders' equity                                                     209,368             172,431  
                                                                                        -----------------  ------------------ 
                                                                                                                              
                  Total liabilities and stockholders' equity                            $        268,164   $         206,945  
                                                                                        =================  ==================
  </TABLE> 
           See accompanying notes to consolidated financial statements.
  
  <PAGE>
   
                               SIEBEL SYSTEMS, INC.
  
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                       (In thousands, except per share data)
  <TABLE> 
  <CAPTION> 
                                                                                              Year Ended
                                                                                             December 31,
                                                                         -----------------------------------------------------
                                                                              1997               1996                1995
                                                                         ---------------    ----------------     -------------
  <S>                                                                    <C>                <C>                  <C> 
  Revenues:
        Software                                                         $      156,971     $        80,413      $     26,589
        Maintenance, consulting and other                                        50,657              20,949             9,245
                                                                         ---------------    ----------------     -------------
  
                     Total revenues                                             207,628             101,362            35,834
  
  Cost of revenues:
        Software                                                                  4,393               2,197               915
        Maintenance, consulting and other                                        28,787              13,183             7,300
                                                                         ---------------    ----------------     -------------
  
                     Total cost of revenues                                      33,180              15,380             8,215
                                                                         ---------------    ----------------     -------------
  
                     Gross margin                                               174,448              85,982            27,619
  
  Operating expenses:
        Product development                                                      26,105              14,775             8,198
        Sales and marketing                                                      98,748              44,044            13,797
        General and administrative                                               16,938               9,737             3,361
        Merger termination costs                                                  3,298                   -                 -
        Write-off acquired research and development                              22,740                   -                 -
                                                                         ---------------    ----------------     -------------
  
                     Total operating expenses                                   167,829              68,556            25,356
                                                                         ---------------    ----------------     -------------
  
                     Operating income                                             6,619              17,426             2,263
  
  Other income, net                                                               5,374               3,118               624
                                                                         ---------------    ----------------     -------------
  
                     Income before income taxes                                  11,993              20,544             2,887
  
  Income taxes                                                                   13,180               7,683             1,085
                                                                         ---------------    ----------------     -------------
  
                     Net income (loss)                                   $       (1,187)    $        12,861      $      1,802
                                                                         ===============    ================     =============
  
  Diluted net income (loss) per share                                    $        (0.01)    $          0.16      $       0.03
                                                                         ===============    ================     =============
  
  Shares used in diluted net income (loss) per share computation                 83,798              78,198            62,409
                                                                         ===============    ================     =============
  
  Basic net income (loss) per share                                      $        (0.01)    $          0.18      $       0.03
                                                                         ===============    ================     =============
  
  Shares used in basic net income (loss) per share computation                   83,798              69,736            62,000
                                                                         ===============    ================     =============
  </TABLE> 
  
           See accompanying notes to consolidated financial statements.
  
  <PAGE>
  <TABLE> 
  <CAPTION> 
                                                                                    Convertible    
                                                                                  preferred stock             Common stock
                                                                 Partners'     ---------------------      --------------------       
                                                                  Capital      Shares       Amount        Shares        Amount       
                                                                 ---------     ------       --------      --------      ------
  <S>                                                            <C>           <C>          <C>           <C>           <C>         
  Balances, December 31, 1994                                        1,153       1,895            19         7,095             7     
                                                                                                                                    
  Conversion of partners' capital                                   (1,153)      9,378             9        32,323            32     
  Issuance of common stock under Employee Stock Option Plans             -           -             -         1,314             1     
  Issuance of common stock, net of issuance costs of $968                -           -             -         2,430             2     
  Conversion of mandatorily redeemable preferred stock                   -           -             -         1,737             2     
  Conversion of convertible preferred stock                              -      (1,895)          (19)        1,380             2     
  Repurchase and retirement of common stock                              -           -             -          (840)           (1)    
  Issuance of convertible preferred stock                                -      10,244            10             -             -     
  Common stock issued for exercise of warrants                           -           -             -           341             1     
  Compensation related to stock options                                  -           -             -             -             -     
  Amortization of deferred compensation related to stock options         -           -             -             -             -     
  Net income                                                             -           -             -             -             -     
                                                                    ------      ------           ---       -------           ---    
  Balances, December 31, 1995                                            -      19,622            19        45,780            46     
                                                                                                                                    
  Issuance of common stock under Employee Stock Option Plans             -           -             -         2,675             3     
  Issuance of common stock under Employee Stock Purchase Plans           -           -             -           295             -     
  Issuance of common stock, net of issuance costs of $1,849              -           -             -        12,891            13     
  Repayment of note receivable                                           -           -             -             -             -     
  Issuance of convertible preferred stock                                -         494             1             -             -     
  Convertible preferred stock issued for exercise of warrant             -         300             -             -             -     
  Tax benefit from stock options                                         -           -             -             -             -     
  Compensation related to stock options                                  -           -             -             -             -     
  Cancellation of stock options issued below fair value                  -           -             -             -             -     
  Conversion of convertible preferred stock into common stock            -     (20,416)          (20)       20,416            20     
  Repurchase and retirement of common stock                              -           -             -           (88)            -     
  Amortization of deferred compensation related to stock options         -           -             -             -             -     
  Net income                                                             -           -             -             -             -     
                                                                    ------      ------           ---       -------           ---    
  Balances, December 31, 1996                                            -           -             -        81,969            82     
                                                                                                                                    
  Issuance of common stock under Employee Stock Option Plans             -           -             -         2,067             2     
  Issuance of common stock under Employee Stock Purchase Plans           -           -             -           626             -     
  Issuance of common stock related to InterActive acquisition            -           -             -           602             1     
  Issuance of common stock related to Nomadic acquisition                -           -             -           600             1     
  Repayment of note receivable                                           -           -             -             -             -     
  Compensation related to stock options                                  -           -             -             -             -     
  Cancellation of stock options issued below fair value                  -           -             -             -             -     
  Tax benefit from stock options                                         -           -             -             -             -     
  Amortization of deferred compensation related to stock options         -           -             -             -             -     
  Currency translation adjustment                                        -           -             -             -             -     
  Net loss                                                               -           -             -             -             -     
                                                                    ------      ------           ---       -------           ---    
  Balances, December 31, 1997                                            -           -             -        85,864            86     
                                                                    ======      ======           ====      =======           ===    
  </TABLE> 
  <TABLE> 
  <CAPTION> 
                                                                                               Notes
                                                                        Additional           receivable            Deferred
                                                                         paid-in               from                 stock
                                                                         capital            stockholders         compensation
                                                                        ----------          ------------         ------------
  <S>                                                                   <C>                 <C>                  <C> 
  Balances, December 31, 1994                                                4,140                (13)                  -       
                                                                                                                               
  Conversion of partners' capital                                            1,112                  -                   -       
  Issuance of common stock under Employee Stock Option Plans                   156                  -                   -       
  Issuance of common stock, net of issuance costs of $968                   23,856                  -                   -       
  Conversion of mandatorily redeemable preferred stock                       1,398                  -                   -       
  Conversion of convertible preferred stock                                     17                  -                   -       
  Repurchase and retirement of common stock                                     (8)                 -                   -       
  Issuance of convertible preferred stock                                    8,344                  -                   -       
  Common stock issued for exercise of warrants                                 136                  -                   -       
  Compensation related to stock options                                        748                  -                (748)      
  Amortization of deferred compensation related to stock options                 -                  -                  96       
  Net income                                                                     -                  -                   -       
                                                                          --------              -----             -------         
  Balances, December 31, 1995                                               39,899                (13)               (652)      
                                                                                                                               
  Issuance of common stock under Employee Stock Option Plans                 2,018                  -                   -       
  Issuance of common stock under Employee Stock Purchase Plans               1,641                  -                   -       
  Issuance of common stock, net of issuance costs of $1,849                109,477               (507)                  -       
  Repayment of note receivable                                                   -                 12                   -       
  Issuance of convertible preferred stock                                    1,094                  -                   -       
  Convertible preferred stock issued for exercise of warrant                   437                  -                   -       
  Tax benefit from stock options                                             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                    -                  -                   -       
  Repurchase and retirement of common stock                                     (1)                 -                   -       
  Amortization of deferred compensation related to stock options                 -                  -                 324       
  Net income                                                                     -                  -                   -       
                                                                          --------              -----             -------         
  Balances, December 31, 1996                                              157,583               (508)             (1,173)      
                                                                                                                               
  Issuance of common stock under Employee Stock Option Plans                 4,788                  -                   -       
  Issuance of common stock under Employee Stock Purchase Plans               4,299                  -                   -       
  Issuance of common stock related to InterActive acquisition               14,580                  -                   -       
  Issuance of common stock related to Nomadic acquisition                   10,393                  -                   -       
  Repayment of note receivable                                                   -                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                  -                   -       
  Amortization of deferred compensation related to stock options                 -                  -                 277       
  Currency translation adjustment                                                -                  -                   -       
  Net loss                                                                       -                  -                   -  
                                                                          --------              -----             -------         
  Balances, December 31, 1997                                              195,432               (406)               (639)
                                                                          ========              =====             =======         
  </TABLE> 
  <TABLE> 
  <CAPTION> 
                                                                           Accumulated
                                                                             other                                  Total
                                                                          comprehensive        Retained          stockholders'
                                                                             losses            earnings            equity
                                                                          -------------        --------          ----------         
  <S>                                                                     <C>                  <C>               <C> 
  Balances, December 31, 1994                                                         -         1,784              7,090
                                                                         
  Conversion of partners' capital                                                     -             -                  -
  Issuance of common stock under Employee Stock Option Plans                          -             -                157
  Issuance of common stock, net of issuance costs of $968                             -             -             23,858
  Conversion of mandatorily redeemable preferred stock                                -             -              1,400
  Conversion of convertible preferred stock                                           -             -                  -
  Repurchase and retirement of common stock                                           -             -                 (9)
  Issuance of convertible preferred stock                                             -             -              8,354
  Common stock issued for exercise of warrants                                        -             -                137
  Compensation related to stock options                                               -             -                  -
  Amortization of deferred compensation related to stock options                      -             -                 96
  Net income                                                                          -         1,802              1,802
                                                                                   -----      -------           --------    
  Balances, December 31, 1995                                                         -         3,586             42,885
                                                                         
  Issuance of common stock under Employee Stock Option Plans                          -             -              2,021
  Issuance of common stock under Employee Stock Purchase Plans                        -             -              1,641
  Issuance of common stock, net of issuance costs of $1,849                           -             -            108,983
  Repayment of note receivable                                                        -             -                 12
  Issuance of convertible preferred stock                                             -             -              1,095
  Convertible preferred stock issued for exercise of warrant                          -             -                437
  Tax benefit from stock options                                                      -             -              2,173
  Compensation related to stock options                                               -             -                  -
  Cancellation of stock options issued below fair value                               -             -                  -
  Conversion of convertible preferred stock into common stock                         -             -                  -
  Repurchase and retirement of common stock                                           -             -                 (1)
  Amortization of deferred compensation related to stock options                      -             -                324
  Net income                                                                          -        12,861             12,861
                                                                                   -----      -------           --------    
  Balances, December 31, 1996                                                         -        16,447            172,431
                                                                         
  Issuance of common stock under Employee Stock Option Plans                          -             -              4,790
  Issuance of common stock under Employee Stock Purchase Plans                        -             -              4,299
  Issuance of common stock related to InterActive acquisition                         -             -             14,581
  Issuance of common stock related to Nomadic acquisition                             -             -             10,394
  Repayment of note receivable                                                        -             -                102
  Compensation related to stock options                                               -             -                  -
  Cancellation of stock options issued below fair value                               -             -                  -
  Tax benefit from stock options                                                      -             -              4,046
  Amortization of deferred compensation related to stock options                      -             -                277
  Currency translation adjustment                                                  (365)            -               (365)
  Net loss                                                                            -        (1,187)            (1,187)
                                                                                   -----      -------           --------    
  Balances, December 31, 1997                                                      (365)       15,260            209,368
                                                                                   =====      =======           ========    
  </TABLE> 
  
           See accompanying notes to consolidated financial statements.
  <PAGE>
   
                               SIEBEL SYSTEMS, INC.
  
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (In thousands)
  <TABLE> 
  <CAPTION> 
                                                                                                 Year Ended December 31,
                                                                                    -----------------------------------------------
                                                                                        1997               1996              1995
                                                                                    ----------        -----------        ----------
  <S>                                                                               <C>               <C>                <C> 
  Cash flows from operating activities:
    Net income (loss)                                                               $   (1,187)       $    12,861        $    1,802
    Adjustments to reconcile net income (loss) to net cash provided by
      operating activities:
          Compensation related to stock options                                            277                324                96
          Depreciation and amortization                                                  8,125              3,363             1,089
          Deferred income taxes                                                         (1,615)            (1,617)             (643)
          Tax benefit from exercise of stock options                                     4,046              2,173                 -
          Loss on disposal of property and equipment                                       307                155                 -
          Allowance for doubtful accounts and returns                                    2,348                585                 -
          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                                             (40,485)           (19,636)           (4,548)
                       Prepaids and other                                               (1,736)            (3,313)           (1,228)
                       Accounts payable                                                    126              3,287             1,307
                       Accrued expenses                                                 13,723             10,326             1,935
                       Income taxes payable                                             (1,611)             2,821               862
                       Deferred revenue                                                 15,963              3,632             5,908
                                                                                    ----------        -----------        ----------
                                   Net cash provided by operating activities            21,021             11,553             6,580
                                                                                    ----------        -----------        ----------
  Cash flows from investing activities:
    Purchases of property and equipment                                                (17,640)           (13,742)           (2,637)
    Purchases and sales of short-term investments                                      (68,941)           (73,936)           (7,466)
    Maturites of short-term investmets                                                  51,075              7,265               555
    Proceeds from disposal of property and equipment                                         -                 16                15
    Cash acquired in acquisitions                                                          129                  -                 -
    Other assets                                                                        (1,764)              (947)             (288)
                                                                                    ----------        -----------        ----------
                                   Net cash used in investing activities               (37,141)           (81,344)           (9,821)
                                                                                    ----------        -----------        ----------
  Cash flows from financing activities:
    Proceeds from issuance of common stock, net of repurchases                           8,725            112,559            24,052
    Proceeds from issuance of preferred stock                                                -              1,532             8,354
    Repayment of stockholder notes                                                         102                 12                 -
                                                                                    ----------        -----------        ----------
                                   Net cash provided by financing activities             8,827            114,103            32,406
                                                                                    ----------        -----------        ----------
  Change in cash and cash equivalents                                                   (7,293)            44,312            29,165
  Cash and cash equivalents, beginning of year                                          77,495             33,183             4,018
                                                                                    ----------        -----------        ----------
  Cash and cash equivalents, end of year                                            $   70,202        $    77,495        $   33,183
                                                                                    ==========        ===========        ==========
  Supplemental disclosures of cash flows information:                                                                      
    Conversion of partnership units into common and preferred stock                 $        -        $         -        $    1,153
                                                                                    ==========        ===========        ==========
    Common stock issued for acqusitions                                             $   24,975        $         -        $        -
                                                                                    ==========        ===========        ==========
    Exercise of common stock options in exchange for stockholder note               $        -        $       507        $        -
                                                                                    ==========        ===========        ==========
    Cash paid for income taxes                                                      $   14,077        $     4,597        $    1,171
                                                                                    ==========        ===========        ==========
  </TABLE> 
  
           See accompanying notes to consolidated financial statements.
  
  <PAGE>
   
                                SIEBEL SYSTEMS, INC.
  
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  (1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  
  THE COMPANY
  
    Siebel Systems, Inc. ("Siebel" or the "Company") is the world's leading
  supplier of Enterprise Relationship Management systems for organizations focused
  on increasing sales, marketing and customer service effectiveness in field
  sales, service organizations, telesales, telemarketing, call centers, and third-
  party resellers.  The Company designs, develops, markets, and supports Siebel
  Enterprise Applications, a leading Internet-enabled, object oriented
  client/server application software product family designed to meet the sales,
  marketing and customer service information system requirements of even the
  largest multi-national organizations.
  
    On May 18, 1998, Siebel merged with Scopus Technology Inc. ("Scopus") in a
  transaction recorded 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 used a fiscal year ending 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.   See note 7.
  
  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 No. 91-1, "Software Revenue Recognition". Software license
  revenue was recognized when all of the following criteria had been met: there
  was an executed license agreement, software had been shipped to the customer, no
  significant vendor obligations remained, the license fee was fixed and payable
  within twelve months and collection was deemed probable.
  
    On January 1, 1998, the Company adopted the provisions of Statement of
  Position No. 97-2 "Software Revenue Recognition".  Revenue is recognized under
  SOP 97-2 when persuasive evidence of an arrangement exists and delivery has
  occurred, provided the fee is fixed and determinable, collectibility is probable
  and the arrangement does not require significant customization of the software.
  Under SOP 97-2, revenue on multiple element arrangements is allocated to the
  various elements based on relative fair value.
  
    Maintenance, consulting and other revenues relate primarily to maintenance,
  consulting services and training. Maintenance revenues are recognized ratably
  over the term of the maintenance contract, typically 12 to 36 months. Consulting
  and training revenues are generally recognized as the services are performed and
  are usually performed on a time and materials basis.  Such services primarily
  consist of implementation services related to the installation of the Company's
  products and do not include significant customization to or development of the
  underlying software code.
  
    The Company's customer base includes a number of its suppliers (e.g. AT&T,
  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, NationsBank Montgomery
  Securities, PeopleSoft, Inc., Sequent Computer Systems, Inc., Siemens Medical
  and Sun Microsystems, Inc.).  On 
  <PAGE>
   
  occasion, the Company has purchased goods and/or services for company operations
  from these vendors at or about the same time Siebel has licensed its software to
  these organizations. These transactions are separately negotiated and recorded
  at terms the Company considers to be arm's-length.
  
  COST OF REVENUES
  
    Cost of software consists primarily of media, product packaging, documentation
  and other production costs, and third-party royalties.  Cost of maintenance,
  consulting 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 AND CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
  
    The Company considers all highly liquid investments with an original maturity
  of 90 days or less to be cash equivalents. Short-term investments generally
  consist of highly liquid municipal securities with original maturities in excess
  of 90 days.  The Company has classified its investments in certain debt and
  equity securities as "available for sale."  Such investments are carried at fair
  value, with gross unrealized gains and losses, when material, reported within
  accumulated other comprehensive other losses.
  
  PROPERTY AND EQUIPMENT
  
    Property and equipment are stated at cost less accumulated depreciation and
  amortization. Depreciation is calculated using the straight-line method over the
  estimated useful lives of the respective assets, generally three to five years.
  Leasehold improvements are amortized over the lesser of the lease term or the
  estimated useful lives of the improvements, generally seven years.
  
  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
  Company's software development has been completed concurrent with the
  establishment of technological feasibility, and, accordingly, no costs have been
  capitalized.
  
  ADVERTISING
  
    Advertising costs are expensed as incurred. Advertising expense is included in
  sales and marketing expense and amounted to $7,245,000 in 1997 and was
  immaterial in 1996 and 1995.
  
  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,
  available allowances must 
  <PAGE>
   
  be established. Deferred tax assets and liabilities are measured using enacted
  tax rates in effect for the year in which those temporary differences are
  expected to be recovered or settled.
  
  NET INCOME (LOSS) PER SHARE
  
    Basic earnings per share is computed using the weighted average number of
  shares of common stock outstanding. Diluted earnings per share is computed using
  the weighted average number of shares of common stock and, when dilutive,
  convertible preferred stock outstanding and common equivalent shares from
  options to purchase common stock and warrants outstanding using the treasury
  stock method.
  
    Effective February 3, 1998, the Securities and Exchange Commission ("SEC")
  issued Staff Accounting Bulletin ("SAB") No. 98 which changes the calculation of
  earnings per share in periods prior to initial public offerings as previously
  applied under SAB No. 83. When a registrant issued common stock, warrants,
  options, or other potentially dilutive instruments for consideration or with
  exercise prices below the initial public offering price, within a one year
  period prior to the initial filing of a registration statement relating to an
  initial public offering, SAB No. 83 required such equity instruments to be
  treated as outstanding for all periods presented in the filing using the
  anticipated initial public offering price and the treasury stock method. Under
  SAB No. 98, when common stock, options, warrants, or other potentially dilutive
  instruments have been issued for nominal consideration during the periods
  covered by income statements in the filing, those nominal issuances are to be
  reflected in earnings per share calculations for all periods presented. During
  all periods prior to the Company's initial public offering, no equity
  instruments were issued for nominal consideration.  Net income (loss) per share
  for periods prior to the Company's initial public offering have been restated in
  accordance with SAB No. 98.
  
  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 if on the date
  of grant 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, they are translated into U.S. dollars
  using exchange rates in effect at period end for assets and liabilities and
  average exchange rates during each reporting period for the results of
  operations. Adjustments resulting from translation of foreign subsidiary
  financial statements are reported within accumulated other comprehensive losses.
  
  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.
  
  FAIR VALUE OF FINANCIAL INSTRUMENTS
  
    The carrying amount of the Company's cash and cash equivalents, accounts
  receivable, and accounts payable approximate their respective fair values
  defined as the amount at which the instrument could be exchanged in a current
  transaction between willing parties.
  <PAGE>
   
  IMPAIRMENT OF LONG-LIVED ASSETS
  
    The Company evaluates long-lived assets for impairment whenever events or
  changes in circumstances indicate that the carrying value of an asset may not be
  recoverable. The Company does not have any long-lived assets it considers to be
  impaired.
  
  RECENT ACCOUNTING PRONOUNCEMENTS
  
    In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
  "Disclosures about Segments of an Enterprise and Related Information."  This
  statement establishes standards for the way public business enterprises are to
  report information about operating segments in annual financial statements and
  requires those enterprises to report selected information about operating
  segments in interim financial reports.  The Company will adopt SFAS No. 131 in
  fiscal 1998.  This new accounting standard is not expected to have a material
  effect on the Company's annual consolidated financial statements.
  
    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
  "Accounting for Derivative Instruments and Hedging Activities".  SFAS No. 133
  establishes accounting and reporting standards for derivative instruments,
  including certain derivative instruments embedded in other contracts,
  (collectively referred to as derivatives) and for hedging activities.  It
  requires that an entity recognize all derivatives as either assets or
  liabilities in the statement of financial position and measure those instruments
  at fair value.  If certain conditions are met, a derivative may be specifically
  designated and accounted for as (a) a hedge of the exposure to changes in the
  fair value of a recognized asset or liability or an unrecognized firm
  commitment, (b) a hedge of the exposure to variable cash flows of a forecasted
  transaction, or (c) a hedge of the foreign currency exposure of a net investment
  in a foreign operation, an unrecognized firm commitment, an available-for-sale
  security, or a foreign-currency-denominated forecasted transaction.  For a
  derivative not designated as a hedging instrument, changes in the fair value of
  the derivative are recognized in earnings in the period of change.  This
  statement will be effective for all annual and interim periods beginning after
  June 15, 1999.  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.
  
  (2) FINANCIAL STATEMENT DETAILS
  
    Short-Term Investments. Short-term investments, $55,697,000 of which mature in
  less than one year, and $36,302,000 of which mature in one to five years,
  consisted of the following (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                                     December 31,
                                                                               -------------------------
                                                                                   1997         1996
                                                                               ------------  -----------
  <S>                                                                          <C>           <C>
  Certificates of deposit....................................................       $     -      $ 1,325
  Municipal securities.......................................................        91,999       72,808
                                                                                    -------      -------
                                                                                    $91,999      $74,133
                                                                                    =======      =======
  </TABLE>
                                                                                  
    Accounts Receivable, Net.  Accounts receivable, net, consisted of the
  following (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                                     December 31,
                                                                              ------------------------
                                                                                 1997         1996
                                                                              -----------  -----------
  <S>                                                                         <C>          <C>
  Trade accounts receivable.................................................      $67,344      $31,187
  Less: allowances for doubtful accounts and returns........................        4,288        1,940
                                                                                  -------      -------
                                                                                  $63,056      $29,247
                                                                                  =======      =======
  </TABLE>
                                                                                  
  <PAGE>
   
    Property and Equipment, Net. Property and equipment, net, consisted of the
  following (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                                     December 31,
                                                                              --------------------------
                                                                                  1997          1996
                                                                              ------------  ------------
  <S>                                                                         <C>           <C>
  Computer equipment........................................................       $19,728       $14,120
  Furniture and fixtures....................................................         6,096         3,051
  Computer software.........................................................         8,446         2,202
  Leasehold improvements....................................................         3,346           907
                                                                                   -------       -------
                                                                                    37,616        20,280
  Less: accumulated depreciation............................................        12,773         4,982
                                                                                   -------       -------
                                                                                   $24,843       $15,298
                                                                                   =======       =======
  </TABLE>
                                                                                 
    Accrued Expenses. Accrued expenses consisted of the following (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                                    December 31,
                                                                              --------------------------
                                                                                  1997          1996
                                                                              ------------  ------------
  <S>                                                                         <C>           <C>
  Bonuses...................................................................       $ 7,092       $ 1,672
  Commissions...............................................................         5,713         4,129
  Vacation..................................................................         2,312         2,280
  Sales tax.................................................................         3,026         1,103
  Other.....................................................................        10,219         4,761
                                                                                   -------       -------
                                                                                   $28,362       $13,945
                                                                                   =======       =======
  </TABLE>
                                                                                  
     Other Income, Net. Other income, net, consisted of the following (in
  thousands):
  
  <TABLE>
  <CAPTION>
                                                                             Years Ended December 31,
                                                                    -------------------------------------------
                                                                        1997           1996           1995
                                                                    -------------  -------------  -------------
  <S>                                                               <C>            <C>            <C>
  Interest income.................................................        $6,019         $3,281          $ 653
  Interest expense................................................            (4)            (8)           (29)
  Other...........................................................          (641)          (155)             -
                                                                          ------         ------          -----
                                                                          $5,374         $3,118          $ 624
                                                                          ======         ======          =====
  </TABLE>
  
  (3) COMMITMENTS AND CONTINGENCIES
  
  LEASE OBLIGATIONS
  
    As of December 31, 1997, the Company leased facilities under noncancelable
  operating leases expiring between 1998 and 2006. Future minimum lease payments
  are as follows (in thousands):
  
  <TABLE>
  <CAPTION>
  YEAR ENDING DECEMBER 31,
  ------------------------
  <S>                                                                                 <C>
     1998...........................................................................    $ 5,042
     1999...........................................................................      4,193
     2000...........................................................................      3,755
     2001...........................................................................      3,652
     2002...........................................................................      2,912
     Thereafter.....................................................................      6,395
                                                                                        -------
                                                                                        $25,949
                                                                                        =======
  </TABLE>
  <PAGE>
   
    Rent expense for the years ended December 31, 1997, 1996 and 1995, was
  $6,160,000, $2,834,000, and $1,050,000, respectively.
  
  EMPLOYEE BENEFIT PLAN
  
     The Company has a 401(k) plan that allows eligible employees to contribute up
  to 20% of their compensation, limited to $10,000 in 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.
  
  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.
  
  (4) STOCKHOLDERS' EQUITY
  
  STOCK SPLIT
  
     All share and per share amounts for all periods presented have been restated
  to reflect a two-for-one stock split (effected in the form of a stock dividend),
  which was effective March 20, 1998.
  
  NET INCOME (LOSS) PER SHARE
  
    The following is a reconciliation of the number of shares used in the basic
  and diluted earnings per share computation for the periods presented (in
  thousands):
  
  <TABLE>
  <CAPTION>
                                                            For the year ended December 31,
                                                    ---------------------------------------------
                                                         1997             1996            1995
                                                    ------------     ------------     -----------
  <S>                                                 <C>              <C>              <C>
  Shares used in basic net income (loss) per share
   computation......................................      83,798           69,736          62,000
  Effect of dilutive potential common shares........          --            8,462             409
  Shares used in diluted net income (loss) per      ------------     ------------     -----------
   share computation................................      83,798           78,198          62,409
                                                    ============     ============     ===========
  </TABLE>
  
    The Company excluded potentially dilutive securities for each period presented
  from its diluted net income (loss) per share computation because either the
  exercise price of the securities exceeded the average fair value of the
  Company's common stock or the Company had net losses, and, therefore, these
  securities were anti-dilutive.  For the year ended December 31, 1997, the
  Company excluded 10,716,882 employee stock options with a weighted average
  exercise price of $7.48 per share as potentially dilutive common shares.
  
  EMPLOYEE STOCK OPTION AND PURCHASE PLANS
  
    The 1996 Equity Incentive Plan (the "Plan"), which amended and restated the
  Company's 1994 Stock Option Plan and 1996 Supplemental Stock Option Plan,
  provides for the issuance of up to an aggregate of 40,000,000 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. The exercise price for
  incentive stock options is at least 110% of the fair market 
  <PAGE>
   
  value on the date of the grant for persons with greater than 10% of the voting
  power of all classes of stock. Options generally expire in 10 years; however,
  incentive stock options may expire in 5 years if the optionee owns stock
  representing more than 10% of the voting power of all classes of stock. Vesting
  periods are determined by the Board of Directors and generally provide for
  shares to vest ratably over 5 years.
  
    The Plan also allows for the exercise of certain unvested options. Shares of
  common stock issued to employees upon exercise of unvested options are subject
  to repurchase by the Company at the original exercise price. The Company's
  ability to repurchase these shares expires at a rate equivalent to the current
  vesting schedule of each option. As of December 31, 1997, 3,505,000 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 $0.22
  per share.
  
    During the period from October 1995 through April 1996, the Company granted
  options to purchase an aggregate of 16,305,000 shares of common stock at
  exercise prices ranging from $.13 to $1.63 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.
  
    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 plans activity is summarized as follows:
  
  <TABLE>
  <CAPTION>
                                                                                                           WEIGHTED
                                                                                                           AVERAGE
                                                                             SHARES                        EXERCISE
                                                                           AVAILABLE         NUMBER         PRICE
                                                                           FOR GRANT       OF SHARES      PER SHARE
                                                                         --------------  --------------  ------------
  <S>                                                                    <C>             <C>             <C>
    Balances, December 31, 1994........................................     13,312,493         604,566         $ 0.71
       Additional shares authorized....................................      1,310,576              --
       Options granted.................................................     (7,207,100)      7,207,100         $ 0.62
       Options exercised...............................................             --      (1,314,352)        $ 0.10
       Options canceled................................................      1,209,498      (1,209,498)        $ 0.22
                                                                           -----------      ----------
    Balances, December 31, 1995........................................      8,625,467       5,287,816         $ 0.85
       Additional shares authorized....................................     14,700,000              --
       Options granted.................................................    (19,928,944)     19,928,944         $ 3.83
       Options exercised...............................................             --      (2,674,624)        $ 0.45
       Options canceled................................................      1,355,842      (1,355,842)        $ 2.20
                                                                           -----------      ----------
    Balances, December 31, 1996........................................      4,752,365      21,186,294         $ 3.61
       Additional shares authorized....................................     16,000,000              --
       Options granted.................................................    (13,330,274)     13,330,274         $16.55
       Options exercised...............................................             --      (2,067,303)        $ 2.25
       Options canceled................................................      5,409,831      (5,409,831)        $16.69
                                                                           -----------      ----------
    Balances, December 31, 1997........................................     12,831,922      27,039,434         $ 7.48
                                                                           ===========      ==========
  </TABLE>
  <PAGE>
   
    The following table summarizes information about fixed stock options
  outstanding as of December 31, 1997:
  
  <TABLE>
  <CAPTION>
                                        OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                           ----------------------------------------------  -------------------------------
                                                WEIGHTED                                                  
                                                 AVERAGE       WEIGHTED                         WEIGHTED  
                                NUMBER          REMAINING      AVERAGE          NUMBER          AVERAGE   
                            OF OUTSTANDING     CONTRACTUAL     EXERCISE     OF OUTSTANDING      EXERCISE  
  RANGE OF EXERCISE PRICES      OPTIONS           LIFE          PRICE           OPTIONS          PRICE    
  ------------------------  ----------------  -------------  ------------  -----------------  ------------
  <S>                       <C>               <C>            <C>           <C>                <C>
  $ 0.00 - 0.82..........          5,542,735            8.1        $ 0.54          3,624,064        $ 0.45
  $ 1.38 - 4.25..........          7,808,072            8.3        $ 1.90          1,833,143        $ 1.92
  $ 5.81 - 8.44..........          1,871,514            9.0        $ 7.94            160,069        $ 6.55
  $10.99 -14.88..........          8,836,570            9.1        $12.55          1,119,851        $12.52
  $16.14 -20.75..........          2,955,811            9.7        $19.50             33,284        $17.20
  $26.44 -39.83..........             24,732            6.7        $36.34              2,890        $33.30
                                  ----------                                       ---------
  $ 0.00 -39.83..........         27,039,434            8.7        $ 7.48          6,773,301        $ 3.08
                                  ==========                                       =========
  </TABLE>
  
    In May 1996, the Company adopted the 1996 Employee Stock Purchase Plan (the
  "Purchase Plan") and reserved 1,400,000 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 3,400,000 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. 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.  No additional shares will be
  issued under the Acquired Purchase Plan.  As of December 31, 1997, 921,421
  shares had been purchased under the Purchase Plan and the Acquired Purchase
  Plan.
  
  FAIR VALUE INFORMATION
  
    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, 1997, 1996 and 1995, 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.
  
    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, 1997, 1996 and 1995 would have been as indicated below
  (in thousands, except per share data):
  <PAGE>
   
  <TABLE>
  <CAPTION>
                                                                       1997         1996         1995
                                                                   ------------  -----------  -----------
  <S>                                                              <C>           <C>          <C>
    Net income (loss):
       As reported...............................................     $ (1,187)      $12,861       $1,802
       Pro forma.................................................     $(13,939)      $ 9,613       $1,591
    Net income (loss) per diluted share:
       As reported...............................................     $  (0.01)      $  0.16       $ 0.03
       Pro forma.................................................     $  (0.17)      $  0.12       $ 0.03
    Net income (loss) per basic share:
       As reported...............................................     $  (0.01)      $  0.18       $ 0.03
       Pro forma.................................................     $  (0.17)      $  0.14       $ 0.03
  </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>
                                                                       1997          1996          1995
                                                                   ------------  ------------  ------------
  <S>                                                              <C>           <C>           <C>
    Risk-free interest rate......................................          6.1%          6.0%          5.9%
    Expected life (in years).....................................          3.5           3.5           3.6
    Expected volatility..........................................         83.9%         69.2%         70.4%
  </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>
                                                                       1997          1996
                                                                   ------------  ------------
  <S>                                                              <C>           <C>
    Risk-free interest rate......................................          5.3%          5.5%
    Expected life (in years).....................................          0.7           0.5
    Expected volatility..........................................         83.9%         68.5%
  </TABLE>
  
    Under SFAS No. 123, the weighted average estimated fair value of employee
  stock options granted at exercise price equal to market price at grant date
  during 1997, 1996 and 1995 was $16.97, $3.72 and $0.09 per share, respectively.
  
  (5) INCOME TAXES
  
    The components of income tax expense for the years ended December 31, 1997,
  1996 and 1995 are as follows (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                                      1997         1996        1995
                                                                                   -----------  ----------  -----------
  Current:
  <S>                                                                              <C>          <C>         <C>
       Federal...................................................................     $ 7,631     $ 4,984       $1,217
       State.....................................................................       2,669       1,710          368
       Foreign...................................................................         400         345          143
                                                                                      -------     -------       ------
          Total current..........................................................      10,700       7,039        1,728
    Deferred:
       Federal...................................................................      (1,349)     (1,356)        (563)
       State.....................................................................        (217)       (173)         (80)
                                                                                      -------     -------       ------
          Total deferred.........................................................      (1,566)     (1,529)        (643)
                                                                                      -------     -------       ------
    Charge in lieu of taxes attributable to employer's stock option          
            plans................................................................       4,046       2,173           --
                                                                                      -------     -------       ------
          Total income taxes.....................................................     $13,180     $ 7,683       $1,085
                                                                                      =======     =======       ======
  </TABLE>
  <PAGE>
   
    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, 1997, 1996 and 1995 are as follows (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                                      1997         1996        1995
                                                                                   -----------  ----------  ----------
  <S>                                                                              <C>          <C>         <C>
       Expected income tax expense...............................................     $ 4,302      $7,119      $  982
       State income taxes, net of federal tax benefit............................       1,864       1,196         203
       In-process research and development.......................................       7,959          --          --
       Research and experimentation credit.......................................        (543)       (537)       (130)
       Tax exempt interest.......................................................        (995)       (204)         --
       Other, net................................................................         593         109          30
                                                                                      -------      ------      ------
            Total income taxes...................................................     $13,180      $7,683      $1,085
                                                                                      =======      ======      ======
  </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 1996
  are as follows (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                                        1997         1996
                                                                                     -----------  ----------
  Deferred tax assets:
  <S>                                                                                <C>          <C>
         Deferred state taxes......................................................      $  900      $  573
         Accruals and reserves, not currently taken for tax purposes...............       3,276       2,133
         Net operating loss carryforward...........................................         602          --
                                                                                         ------      ------
          Deferred assets..........................................................       4,778       2,706
       Deferred tax liability--depreciation........................................        (162)       (205)
                                                                                         ------      ------
          Net deferred assets......................................................      $4,616      $2,501
                                                                                         ======      ======
  </TABLE>
  
    Management believes it is more likely than not that future operations will
  generate sufficient taxable income to realize the deferred tax assets.
  
  (6) RELATED PARTIES, SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
  
    Certain members of the Company's Board of Directors serve as officers for
  customers of the Company.  In 1997, aggregate revenues associated with shipments
  to these customers were $1,598,000 and accounts receivable from these customers
  was $654,000.  No customer has accounted for 10% or more of total revenues in
  1997, 1996, or 1995.
  
    The Company's export sales for the years ended December 31, 1997 and 1996 were
  $41.8 million and $7.7 million, respectively, (27% and 10% of total license
  revenues, respectively), and were immaterial in 1995.  The Company's export
  sales are made principally in Europe and Asia.
  
  (7) ACQUISITIONS
  
  SCOPUS TECHNOLOGY, INC.
  
    On May 18, 1998, the Company completed the acquisition of Scopus of
  Emeryville, California, a leading provider of customer service, field service,
  and call center software solutions. Under the terms of the agreement, each
  outstanding share of Scopus common stock was exchanged for newly issued shares
  of common stock of the Company. This resulted in the issuance of approximately
  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 $13.5 million of direct
  transaction fees for investment bankers, attorneys, accountants and other
  professional fees of $9.1 million, integration charges related to duplicate
  facilities and equipment of $3.1 million and other miscellaneous expenses of
  $1.3 million.
  <PAGE>
   
    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 used a fiscal year ending 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 on January 1, 1998, the restated financial statements combine the
  operating results of Siebel and Scopus for the calendar periods noted.
  
    The results of operations for the separate companies and the combined amounts
  presented in the consolidated financial statements follow (in thousands).
  
  <TABLE>
  <CAPTION>
                                     Years Ended December 31, 
                            -----------------------------------------
                                 1997           1996          1995
                            --------------  ------------  ------------
  Total revenues:
  <S>                       <C>             <C>           <C>
   Siebel.................       $118,775       $ 39,152       $ 8,038
   Scopus.................         88,853         62,210        27,796
                                 --------       --------       -------
                                 $207,628       $101,362       $35,834
                                 ========       ========       =======
   
  Net income (loss):
   Siebel.................       $ (2,427)      $  5,025       $   317
   Scopus.................          1,240          7,836         1,485
                                 --------       --------       -------
                                 $ (1,187)      $ 12,861       $ 1,802
                                 ========       ========       =======
  </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 $2,930,000 in fiscal 1997, $580,000 in
  fiscal 1996, and $505,000 in fiscal 1995.
  
  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 million 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 854,000 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 64,000 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.
  
    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 million and was accounted 
  <PAGE>
   
  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 600,000 shares of the Company's
  common stock in exchange for all outstanding shares of Nomadic. 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
  $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 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 $3.3 million in the third
  quarter of 1997 in connection with its planned merger with Clear With Computers,
  Inc.  The merger plan was terminated early in the fourth quarter of 1997.
  <PAGE>
   
                                                                       SCHEDULE II
  
                                SIEBEL SYSTEMS, INC.
  
                         VALUATION AND QUALIFYING ACCOUNTS
                                          
  <TABLE>
  <CAPTION>
                                                     BALANCE AT        CHARGES TO
                                                      BEGINNING        COSTS AND                          BALANCE AT
                                                       OF YEAR          EXPENSES        DEDUCTIONS        END OF YEAR
                                                   -------------    --------------    -------------     -------------
                                                                              (IN THOUSANDS)
  <S>                                                <C>              <C>               <C>               <C>
  Allowance for doubtful accounts:
    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
    Year ended December 31, 1995..............            $  349            $1,072           $  756            $  665
  </TABLE>
  <PAGE>
   
  SELECTED FINANCIAL DATA
  -----------------------
  
  <TABLE>
  <CAPTION>
                                                           Years Ended December 31,
                                                  -------------------------------------------
                                                      1997             1996           1995
                                                  ------------     ------------    ----------
  <S>                                             <C>              <C>             <C>
  Operating Data
  Net revenues..................................      $207,628         $101,362       $35,834
  Operating income..............................      $  6,619         $ 17,426       $ 2,263
  Net income (loss).............................      $ (1,187)        $ 12,861       $ 1,802
  Pro forma net income *........................      $ 24,851         $ 12,861       $ 1,802
  Net income (loss) per diluted share...........      $  (0.01)        $   0.16       $  0.03
  Pro forma net income per diluted share *......      $   0.26         $   0.16       $  0.03
  Total assets..................................      $268,164         $206,945       $57,167
  Total equity..................................      $209,368         $172,430       $42,884
  </TABLE>
  ______________
  *  Excludes write-off of acquired research and development
  
  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 Enterprise Relationship Management systems for organizations focused
  on increasing sales, marketing and customer service effectiveness in field
  sales, service organizations, telesales, telemarketing, call centers and third-
  party resellers.  The Company designs, develops, markets, and supports Siebel
  Enterprise Applications, a leading Internet-enabled, object oriented
  client/server application software product family designed to meet the sales,
  marketing and customer service information system requirements of even the
  largest multi-national organizations.
  
  
    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.
  
    The Siebel Enterprise Applications are comprised of a broad range of advanced
  client/server application products designed to allow corporations to deploy
  comprehensive customer information systems, product information systems,
  competitive information systems, and decision support systems on a global basis.
  The Company's products provide support for multiple languages and multiple
  currencies with support for a number of frequently interdependent distribution
  channels, including direct field sales, telesales, telemarketing, distribution,
  retail and Internet-based selling and support.
   
    This Report contains forward looking statements that involve risks and
  uncertainties. The Company's future financial results are subject to a number of
  risk factors which may cause the Company's actual results to vary, perhaps
  materially, from current expectations. Some of these factors are discussed in
  "Risk Factors" below and elsewhere in this Report.
  
  RECENT DEVELOPMENTS
  
    On May 18, 1998, the Company completed the acquisition of Scopus of
  Emeryville, California, a leading provider of customer service, field service,
  and call center software solutions. Under the terms of the agreement, each
  outstanding share of Scopus common stock was exchanged for newly issued shares
  of common stock of the Company. This resulted in the issuance of approximately
  15.1 million additional shares of the Company's Common Stock. In addition, all
  outstanding stock options of Scopus were 
  <PAGE>
   
  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 $13.5 million, consisting of direct transaction fees for
  investment bankers, attorneys, accountants and other professional fees of $9.1
  million, integration charges related to duplicate facilities and equipment of
  $3.1 million and other miscellaneous expenses of $1.3 million.
  
    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 used a fiscal year ending March 31.
  
  RESULTS OF OPERATIONS
  
    The following table sets forth statement of operations data for the three
  years ended December 31, 1997 expressed as a percentage of total revenues:
   
  <TABLE>
  <CAPTION>
   
                                                                       YEAR  ENDED DECEMBER 31,
                                                                --------------------------------------
                                                                   1997         1996          1995
                                                                -----------  -----------  ------------
  <S>                                                           <C>          <C>          <C>
  Revenues:                                                            %            %            %
       Software...............................................        75.6         79.3          74.2
       Maintenance, consulting and other......................        24.4         20.7          25.8
                                                                     -----        -----         -----
          Total revenues......................................       100.0        100.0         100.0
    Cost of revenues:
       Software...............................................         2.1          2.2           2.5
       Maintenance, consulting and other......................        13.9         13.0          20.4
                                                                     -----        -----         -----
          Total cost of revenues..............................        16.0         15.2          22.9
                                                                     -----        -----         -----
          Gross margin........................................        84.0         84.8          77.1
    Operating expenses:
       Product development....................................        12.6         14.6          22.9
       Sales and marketing....................................        47.6         43.4          38.5
       General and administrative.............................         8.2          9.6           9.4
       Merger termination costs...............................         1.6           --            --
       Write-off of acquired research and development.........        11.0           --            --
                                                                     -----        -----         -----
          Total operating expenses............................        80.8         67.6          70.8
                                                                     -----        -----         -----
          Operating income....................................         3.2         17.2           6.3
    Other income, net.........................................         2.6          3.1           1.7
                                                                     -----        -----         -----
          Income before taxes.................................         5.8         20.3           8.0
    Income taxes..............................................         6.3          7.6           3.0
                                                                     -----        -----         -----
          Net income (loss)...................................        (0.5)        12.7           5.0
                                                                     =====        =====         =====
  </TABLE>
  
  REVENUES
  
    Software. License revenues increased to $156,971,000 for the year ended
  December 31, 1997 from $80,413,000 and $26,589,000 for the years ended December
  31, 1996 and 1995, respectively.  License revenues as a percentage of total
  revenues were 76% in the fiscal 1997 period as compared to 79% in the fiscal
  1996 period and 74% in the fiscal 1995 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.  The Company
  expects that license revenues will remain the same or decrease as a percentage
  of total revenues.
  
    Maintenance, Consulting and Other. Maintenance, consulting and other revenues
  increased to $50,657,000 for the year ended December 31, 1997 from $20,949,000
  and $9,245,000 for the years ended 
  <PAGE>
   
  December 31, 1996 and 1995, respectively, and as a percentage of total revenues
  were 24% in the fiscal 1997 period as compared to 21% and 26% in the fiscal 1996
  and 1995 periods, respectively. These increases in absolute dollar amount were
  due to growth in the Company's consulting business and growth in the installed
  base of customers with a maintenance component and maintenance renewals from
  products licensed in prior periods. The Company expects that maintenance,
  consulting 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.
  
    A relatively small number of customers account for a significant percentage of
  the Company's license revenues. For 1997 and 1996, sales to the Company's ten
  largest customers accounted for 27% and 28% 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 in Japan.
  International revenues accounted for 27% and 10% of total revenues in 1997 and
  1996, 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, 1997 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.
  
    Maintenance, Consulting and Other. Cost of maintenance, consulting and other
  revenues consist primarily of personnel, facility and systems costs incurred in
  providing customer support.  Cost of maintenance, consulting and other revenues
  increased to $28,787,000 for the year ended December 31, 1997 from $13,183,000
  and $7,300,000 for the years ended December 31, 1996 and 1995, respectively, and
  as a percentage of total revenues were 14% for the year ended December 31, 1997
  as compared to 13% in the fiscal 1996 and 20% in fiscal 1995.  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 business. The Company expects that maintenance,
  consulting and other costs will continue to increase in absolute dollar amount
  as the Company expands both its customer support organization to support a
  growing installed base and its consulting organization to meet anticipated
  customer demands in connection with product implementation.  These costs are
  expected to remain the same or increase as a percentage of total revenues.
  
  OPERATING EXPENSES
  
    Product Development. Product development expenses include expenses associated
  with the development of new products, enhancements of existing products and
  quality assurance activities, and consist primarily of employee salaries,
  benefits, consulting costs and the cost of software development tools.  Product
  development expenses increased to $26,105,000 for the year ended December 31,
  1997 from $14,775,000 and $8,198,000 for the years ended December 31, 1996 and
  1995, respectively, and decreased as a percentage of total revenues to 13% in
  the fiscal 1995 period from 15% and 23% in the fiscal 1996 and 1995 periods,
  respectively. The increases in the dollar amount of product development expenses
  were primarily attributable to costs of additional personnel in the Company's
  product development operations. The Company anticipates that it will continue to
  devote substantial resources to product development. The Company expects product
  development expenses to increase in absolute dollar amount but remain at a
  <PAGE>
   
  similar percentage of total revenues as in 1997. The Company to date has not
  capitalized any software development costs.
  
    Sales and Marketing. Sales and marketing expenses consist primarily of
  salaries, commissions and bonuses earned by sales and marketing personnel, field
  office expenses, travel and entertainment and promotional expenses. Sales and
  marketing expenses increased to $98,748,000 for the year ended December 31, 1997
  from $44,044,000 and $13,797,000 for the years ended December 31, 1996 and 1995,
  respectively, and as a percentage of total revenues sales and marketing expenses
  increased to 48% in 1997, from 43% and 39% in the fiscal 1996 and 1995 periods,
  respectively. The increases in the dollar amount of sales and marketing expenses
  reflect primarily the hiring of additional sales and marketing personnel and,
  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 1997.
  
    General and Administrative. General and administrative expenses consist
  primarily of salaries and occupancy costs for administrative, executive and
  finance personnel.  General and administrative expenses increased to $16,938,000
  for the year ended December 31, 1997 from $9,737,000 and $3,361,000 for the
  years ended December 31, 1996 and 1995, respectively, and as a percentage of
  total revenues were 8% in the fiscal 1997 period and 10% and 9% in the fiscal
  1996 and 1995 periods, respectively. The increases in the absolute dollar amount
  of general and administrative expenses were primarily due to increased staffing
  and associated expenses necessary to manage and support the Company's increased
  scale of operations. The Company believes that its general and administrative
  expenses will continue to increase in absolute dollar amount as a result of the
  continued expansion of the Company's administrative staff and facilities to
  support growing operations and the expenses associated with being a public
  company. The Company anticipates that its general and administrative expenses as
  a percentage of total revenues should remain at a similar percentage as in 1997.
  
    Merger Termination Costs.  The Company incurred merger costs of approximately
  $3.3 million in the third quarter of 1997 in connection with its planned merger
  with Clear With Computers, Inc.  The merger plan was terminated early in the
  fourth quarter of 1997.
  
    Write-off of Acquired Research and Development.  On October 1, 1997, the
  Company completed its purchase of InterActive WorkPlace, Inc. ("InterActive"), a
  developer of intranet-based business intelligence software technology that has
  been incorporated into the Siebel InterActive product. The Company took a one-
  time charge of $14,017,000 million, 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. The acquisition was accounted for by the
  purchase method of accounting.
  
    On November 1, 1997, the Company completed its purchase of Nomadic Systems,
  Inc. ("Nomadic"), a provider of innovative business solutions to pharmaceutical
  sales forces.  Technology acquired with Nomadic has been incorporated into the
  Siebel Pharma product. The Company took a one-time charge 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
  acquisition was accounted for by the purchase method of accounting.
  
  OPERATING INCOME AND OPERATING MARGIN
  
    Operating income decreased to $6,619,000 for the year ended December 31, 1997
  from  $17,426,000 for the year ended December 31, 1996 and increased from
  $2,263,000 for the year ended December 31, 1995 and operating margin was 3% in
  the fiscal 1997 period, as compared with 17% and 6% in the fiscal 1996 and 1995
  periods, respectively. Excluding merger termination costs, the write-off of
  acquired research and development and merger related expenses, operating income
  increased to 
  <PAGE>
   
  $32,657,000 for the year ended December 31, 1997 from $17,426,000 and $2,263,000
  for the years ended December 31, 1996 and 1995, respectively, and operating
  margin was 16% in the fiscal 1997 period as compared to 17% and 6% in the fiscal
  1996 and 1995 periods, respectively. These increases in operating income and
  margin, excluding merger termination costs and the write-off of in-process
  research and development, were 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 it continues to invest 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.
  
  PROVISION FOR INCOME TAXES
  
    Income taxes are comprised primarily of federal and state taxes. The provision
  for income taxes was $13,180,000 $1,085,000, $7,683,000, and in 1997, 1996, and
  1995, respectively.  The provision for income taxes as a percentage of pretax
  income was 110%, 38% and 37%, respectively. The tax rate in 1997 was higher than
  the rates in 1996 and 1995 primarily due to non-deductible items related to
  acquisitions.  The Company expects its effective tax rate to be approximately
  38%, excluding the effect of non-recurring, non-deductible costs such as merger-
  related expenses.
  
  NET INCOME (LOSS)
  
    The Company had a net loss of $1,187,000 for the year ended December 31, 1997
  compared to net income of $12,861,000 and net income of $1,802,000 for the years
  ended December 31, 1996 and 1995, respectively. Net loss per share was $0.01 per
  diluted share in fiscal 1997, compared with net income of $0.16 and $0.03 in the
  fiscal 1996 and 1995 periods, respectively.
  
    Excluding merger termination costs and the write-off of acquired research and
  development, the Company had pro-forma net income of $23,630,000 for the year
  ended December 31, 1997 compared to net income of $12,861,000 and $1,802,000 for
  the years ended December 31, 1996 and 1995, respectively. Net income per diluted
  share was $0.28 per share in fiscal 1997, compared with net income of $0.16 and
  $0.03 in the fiscal 1996 and 1995 periods, respectively.  Pro-forma net income
  as a percentage of total revenues was 11% in the year ended December 31, 1997
  compared to 13% and 5% in the years ended December 31, 1996 and 1995,
  respectively.
  
  LIQUIDITY AND CAPITAL RESOURCES
  
    The Company's cash, cash equivalents and short-term investments increased to
  $162,201,000 as of December 31, 1997 from $151,628,000 as of December 31, 1996,
  representing approximately 60% and 73% of total assets, respectively.  This
  increase was primarily attributable to increases in accrued expenses and
  deferred revenue, partially offset by increases in accounts receivable and
  purchases of property and equipment.  The Company has generated positive cash
  flow in 1997, 1996 and 1995.
  
    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 leased facilities, both domestically and internationally, and
  expects this trend to continue.  Accordingly, capital expenditures are expected
  to increase during 1998 and in 1999.
  <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.
metadata_documents: [{"type": "8-K", "sequence": "1", "description": "FORM 8-K FOR SIEBEL SYSTEMS, INC.", "secsgml_size_bytes": 119342}]
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": "98760108"}, "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
  
                                 November 25, 1998
                                 -----------------
                  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)
  ITEM 5.    OTHER EVENTS
  
  On April 15, 1998, the Registrant filed with the Securities and Exchange
  Commission (Commission File Number 333-48055) a Registration Statement on Form
  S-4 (the "S-4 Registration Statement") containing the Registrant's unaudited Pro
  Forma Combined Condensed Financial Statements for the years ended December 31,
  1997, 1996 and 1995.  The S-4 Registration Statement was filed pursuant to an
  Agreement and Plan of Merger and Reorganization dated March 1, 1998 among the
  Registrant, Syracuse Acquisition Sub, Inc., a California corporation and then
  wholly-owned subsidiary of the Registrant ("Merger Sub"), and Scopus Technology,
  Inc. ("Scopus"), whereby Merger Sub was merged with and into Scopus.  Attached
  as Appendix A to this current report on Form 8-K are the Registrant's audited
  consolidated financial statements for the three years ended December 31, 1997,
  and the related consolidated financial statement schedule, selected financial
  data and management's discussion and analysis of financial condition and results
  of operations.
  
  ITEM 7.   FINANCIAL STATEMENTS, FINANCIAL INFORMATION AND EXHIBITS
  
  (c)  Exhibits
  
  EXHIBIT NO.    DESCRIPTION
  
  23.1   Consent of KPMG Peat Marwick LLP
  
  27.1   Financial Data Schedule
  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:  November 25, 1998
  
                                  By: /s/ Howard H. Graham
                                  --------------------------------
                                      Howard H. Graham
                                      Senior Vice President,
                                      Finance and Administration
                                      and Chief Financial Officer
  Appendix A
  
     AUDITED CONSOLIDATED FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE,
   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
  Siebel Systems, Inc.:
  
    We have audited the accompanying consolidated balance sheets of Siebel
  Systems, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
  related consolidated statements of operations, stockholders' equity, and cash
  flows for each of the years in the three-year period ended December 31, 1997.
  These consolidated financial statements are the responsibility of the Company's
  management. Our responsibility is to express an opinion on these consolidated
  financial statements based on our audits.
  
    We conducted our audits in accordance with generally accepted auditing
  standards. Those standards require that we plan and perform the audit to obtain
  reasonable assurance about whether the financial statements are free of material
  misstatement. An audit includes examining, on a test basis, evidence supporting
  the amounts and disclosures in the financial statements. An audit also includes
  assessing the accounting principles used and significant estimates made by
  management, as well as evaluating the overall financial statement presentation.
  We believe that our audits provide a reasonable basis for our opinion.
  
    In our opinion, the consolidated financial statements referred to above
  present fairly, in all material respects, the financial position of Siebel
  Systems, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results
  of their operations and their cash flows for each of the years in the three-year
  period ended December 31, 1997, in conformity with generally accepted accounting
  principles.
  
  /s/ KPMG PEAT MARWICK LLP
  
  Mountain View, California
  July 16, 1998
  SIEBEL SYSTEMS, INC.
  
                            CONSOLIDATED BALANCE SHEETS
                       (In thousands, except per share data)
  December 31,
                                                                                              1997                1996
                                                                                        -----------------  ------------------ 
                                                            Assets         
                                                            ------
  Current assets:                                                                       
        Cash and cash equivalents                                                       $         70,202   $          77,495  
        Short-term investments                                                                    91,999              74,133  
        Accounts receivable, net                                                                  63,056              29,247  
        Deferred income taxes                                                                      4,778               2,706  
        Prepaids and other                                                                         6,701               4,955  
                                                                                        -----------------  ------------------ 
                                                                                                                              
                  Total current assets                                                           236,736             188,536  
                                                                                                                              
  Property and equipment, net                                                                     24,843              15,298  
  Other assets                                                                                     6,585               3,111  
                                                                                        -----------------  ------------------ 
                                                                                                                              
                  Total assets                                                          $        268,164   $         206,945  
                                                                                        =================  ================== 
                                                                                                                              
                                 Liabilities and Stockholders' Equity                                
                                 ------------------------------------
                                                                                                                              
  Current liabilities:                                                                                                        
        Accounts payable                                                                 $         5,684   $           5,341  
        Accrued expenses                                                                          28,362              13,945  
        Income taxes payable                                                                       2,345               3,956  
        Deferred revenue                                                                          22,243              11,067  
                                                                                         ----------------    ---------------- 
                                                                                                                              
                  Total current liabilities                                                       58,634              34,309  
                                                                                                                              
        Deferred income taxes                                                                        162                 205  
                                                                                        -----------------  ------------------ 
                                                                                                                              
                  Total liabilities                                                               58,796              34,514  
                                                                                        -----------------  ------------------ 
                                                                                                                              
  Stockholders' equity:                                                                                                       
        Common stock;  $.001 par value;  300,000 shares authorized; 85,864                                                    
           and 81,969 shares issued and outstanding, respectively                                     86                  82  
        Additional paid-in capital                                                               195,432             157,583  
        Notes receivable from stockholders                                                          (406)               (508) 
        Deferred compensation                                                                       (639)             (1,173) 
        Accumulated other comprehensive losses                                                      (365)                 --  
        Retained earnings                                                                         15,260              16,447  
                                                                                        -----------------  ------------------ 
                                                                                                                              
                  Total stockholders' equity                                                     209,368             172,431  
                                                                                        -----------------  ------------------ 
                                                                                                                              
                  Total liabilities and stockholders' equity                            $        268,164   $         206,945  
                                                                                        =================  ==================
  See accompanying notes to consolidated financial statements.
  SIEBEL SYSTEMS, INC.
  
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                       (In thousands, except per share data)
  Year Ended
                                                                                             December 31,
                                                                         -----------------------------------------------------
                                                                              1997               1996                1995
                                                                         ---------------    ----------------     -------------
  Revenues:
        Software                                                         $      156,971     $        80,413      $     26,589
        Maintenance, consulting and other                                        50,657              20,949             9,245
                                                                         ---------------    ----------------     -------------
  
                     Total revenues                                             207,628             101,362            35,834
  
  Cost of revenues:
        Software                                                                  4,393               2,197               915
        Maintenance, consulting and other                                        28,787              13,183             7,300
                                                                         ---------------    ----------------     -------------
  
                     Total cost of revenues                                      33,180              15,380             8,215
                                                                         ---------------    ----------------     -------------
  
                     Gross margin                                               174,448              85,982            27,619
  
  Operating expenses:
        Product development                                                      26,105              14,775             8,198
        Sales and marketing                                                      98,748              44,044            13,797
        General and administrative                                               16,938               9,737             3,361
        Merger termination costs                                                  3,298                   -                 -
        Write-off acquired research and development                              22,740                   -                 -
                                                                         ---------------    ----------------     -------------
  
                     Total operating expenses                                   167,829              68,556            25,356
                                                                         ---------------    ----------------     -------------
  
                     Operating income                                             6,619              17,426             2,263
  
  Other income, net                                                               5,374               3,118               624
                                                                         ---------------    ----------------     -------------
  
                     Income before income taxes                                  11,993              20,544             2,887
  
  Income taxes                                                                   13,180               7,683             1,085
                                                                         ---------------    ----------------     -------------
  
                     Net income (loss)                                   $       (1,187)    $        12,861      $      1,802
                                                                         ===============    ================     =============
  
  Diluted net income (loss) per share                                    $        (0.01)    $          0.16      $       0.03
                                                                         ===============    ================     =============
  
  Shares used in diluted net income (loss) per share computation                 83,798              78,198            62,409
                                                                         ===============    ================     =============
  
  Basic net income (loss) per share                                      $        (0.01)    $          0.18      $       0.03
                                                                         ===============    ================     =============
  
  Shares used in basic net income (loss) per share computation                   83,798              69,736            62,000
                                                                         ===============    ================     =============
  See accompanying notes to consolidated financial statements.
  Convertible    
                                                                                  preferred stock             Common stock
                                                                 Partners'     ---------------------      --------------------       
                                                                  Capital      Shares       Amount        Shares        Amount       
                                                                 ---------     ------       --------      --------      ------
  Balances, December 31, 1994                                        1,153       1,895            19         7,095             7     
                                                                                                                                    
  Conversion of partners' capital                                   (1,153)      9,378             9        32,323            32     
  Issuance of common stock under Employee Stock Option Plans             -           -             -         1,314             1     
  Issuance of common stock, net of issuance costs of $968                -           -             -         2,430             2     
  Conversion of mandatorily redeemable preferred stock                   -           -             -         1,737             2     
  Conversion of convertible preferred stock                              -      (1,895)          (19)        1,380             2     
  Repurchase and retirement of common stock                              -           -             -          (840)           (1)    
  Issuance of convertible preferred stock                                -      10,244            10             -             -     
  Common stock issued for exercise of warrants                           -           -             -           341             1     
  Compensation related to stock options                                  -           -             -             -             -     
  Amortization of deferred compensation related to stock options         -           -             -             -             -     
  Net income                                                             -           -             -             -             -     
                                                                    ------      ------           ---       -------           ---    
  Balances, December 31, 1995                                            -      19,622            19        45,780            46     
                                                                                                                                    
  Issuance of common stock under Employee Stock Option Plans             -           -             -         2,675             3     
  Issuance of common stock under Employee Stock Purchase Plans           -           -             -           295             -     
  Issuance of common stock, net of issuance costs of $1,849              -           -             -        12,891            13     
  Repayment of note receivable                                           -           -             -             -             -     
  Issuance of convertible preferred stock                                -         494             1             -             -     
  Convertible preferred stock issued for exercise of warrant             -         300             -             -             -     
  Tax benefit from stock options                                         -           -             -             -             -     
  Compensation related to stock options                                  -           -             -             -             -     
  Cancellation of stock options issued below fair value                  -           -             -             -             -     
  Conversion of convertible preferred stock into common stock            -     (20,416)          (20)       20,416            20     
  Repurchase and retirement of common stock                              -           -             -           (88)            -     
  Amortization of deferred compensation related to stock options         -           -             -             -             -     
  Net income                                                             -           -             -             -             -     
                                                                    ------      ------           ---       -------           ---    
  Balances, December 31, 1996                                            -           -             -        81,969            82     
                                                                                                                                    
  Issuance of common stock under Employee Stock Option Plans             -           -             -         2,067             2     
  Issuance of common stock under Employee Stock Purchase Plans           -           -             -           626             -     
  Issuance of common stock related to InterActive acquisition            -           -             -           602             1     
  Issuance of common stock related to Nomadic acquisition                -           -             -           600             1     
  Repayment of note receivable                                           -           -             -             -             -     
  Compensation related to stock options                                  -           -             -             -             -     
  Cancellation of stock options issued below fair value                  -           -             -             -             -     
  Tax benefit from stock options                                         -           -             -             -             -     
  Amortization of deferred compensation related to stock options         -           -             -             -             -     
  Currency translation adjustment                                        -           -             -             -             -     
  Net loss                                                               -           -             -             -             -     
                                                                    ------      ------           ---       -------           ---    
  Balances, December 31, 1997                                            -           -             -        85,864            86     
                                                                    ======      ======           ====      =======           ===
  Notes
                                                                        Additional           receivable            Deferred
                                                                         paid-in               from                 stock
                                                                         capital            stockholders         compensation
                                                                        ----------          ------------         ------------
  Balances, December 31, 1994                                                4,140                (13)                  -       
                                                                                                                               
  Conversion of partners' capital                                            1,112                  -                   -       
  Issuance of common stock under Employee Stock Option Plans                   156                  -                   -       
  Issuance of common stock, net of issuance costs of $968                   23,856                  -                   -       
  Conversion of mandatorily redeemable preferred stock                       1,398                  -                   -       
  Conversion of convertible preferred stock                                     17                  -                   -       
  Repurchase and retirement of common stock                                     (8)                 -                   -       
  Issuance of convertible preferred stock                                    8,344                  -                   -       
  Common stock issued for exercise of warrants                                 136                  -                   -       
  Compensation related to stock options                                        748                  -                (748)      
  Amortization of deferred compensation related to stock options                 -                  -                  96       
  Net income                                                                     -                  -                   -       
                                                                          --------              -----             -------         
  Balances, December 31, 1995                                               39,899                (13)               (652)      
                                                                                                                               
  Issuance of common stock under Employee Stock Option Plans                 2,018                  -                   -       
  Issuance of common stock under Employee Stock Purchase Plans               1,641                  -                   -       
  Issuance of common stock, net of issuance costs of $1,849                109,477               (507)                  -       
  Repayment of note receivable                                                   -                 12                   -       
  Issuance of convertible preferred stock                                    1,094                  -                   -       
  Convertible preferred stock issued for exercise of warrant                   437                  -                   -       
  Tax benefit from stock options                                             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                    -                  -                   -       
  Repurchase and retirement of common stock                                     (1)                 -                   -       
  Amortization of deferred compensation related to stock options                 -                  -                 324       
  Net income                                                                     -                  -                   -       
                                                                          --------              -----             -------         
  Balances, December 31, 1996                                              157,583               (508)             (1,173)      
                                                                                                                               
  Issuance of common stock under Employee Stock Option Plans                 4,788                  -                   -       
  Issuance of common stock under Employee Stock Purchase Plans               4,299                  -                   -       
  Issuance of common stock related to InterActive acquisition               14,580                  -                   -       
  Issuance of common stock related to Nomadic acquisition                   10,393                  -                   -       
  Repayment of note receivable                                                   -                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                  -                   -       
  Amortization of deferred compensation related to stock options                 -                  -                 277       
  Currency translation adjustment                                                -                  -                   -       
  Net loss                                                                       -                  -                   -  
                                                                          --------              -----             -------         
  Balances, December 31, 1997                                              195,432               (406)               (639)
                                                                          ========              =====             =======
  Accumulated
                                                                             other                                  Total
                                                                          comprehensive        Retained          stockholders'
                                                                             losses            earnings            equity
                                                                          -------------        --------          ----------
  Balances, December 31, 1994                                                         -         1,784              7,090
                                                                         
  Conversion of partners' capital                                                     -             -                  -
  Issuance of common stock under Employee Stock Option Plans                          -             -                157
  Issuance of common stock, net of issuance costs of $968                             -             -             23,858
  Conversion of mandatorily redeemable preferred stock                                -             -              1,400
  Conversion of convertible preferred stock                                           -             -                  -
  Repurchase and retirement of common stock                                           -             -                 (9)
  Issuance of convertible preferred stock                                             -             -              8,354
  Common stock issued for exercise of warrants                                        -             -                137
  Compensation related to stock options                                               -             -                  -
  Amortization of deferred compensation related to stock options                      -             -                 96
  Net income                                                                          -         1,802              1,802
                                                                                   -----      -------           --------    
  Balances, December 31, 1995                                                         -         3,586             42,885
                                                                         
  Issuance of common stock under Employee Stock Option Plans                          -             -              2,021
  Issuance of common stock under Employee Stock Purchase Plans                        -             -              1,641
  Issuance of common stock, net of issuance costs of $1,849                           -             -            108,983
  Repayment of note receivable                                                        -             -                 12
  Issuance of convertible preferred stock                                             -             -              1,095
  Convertible preferred stock issued for exercise of warrant                          -             -                437
  Tax benefit from stock options                                                      -             -              2,173
  Compensation related to stock options                                               -             -                  -
  Cancellation of stock options issued below fair value                               -             -                  -
  Conversion of convertible preferred stock into common stock                         -             -                  -
  Repurchase and retirement of common stock                                           -             -                 (1)
  Amortization of deferred compensation related to stock options                      -             -                324
  Net income                                                                          -        12,861             12,861
                                                                                   -----      -------           --------    
  Balances, December 31, 1996                                                         -        16,447            172,431
                                                                         
  Issuance of common stock under Employee Stock Option Plans                          -             -              4,790
  Issuance of common stock under Employee Stock Purchase Plans                        -             -              4,299
  Issuance of common stock related to InterActive acquisition                         -             -             14,581
  Issuance of common stock related to Nomadic acquisition                             -             -             10,394
  Repayment of note receivable                                                        -             -                102
  Compensation related to stock options                                               -             -                  -
  Cancellation of stock options issued below fair value                               -             -                  -
  Tax benefit from stock options                                                      -             -              4,046
  Amortization of deferred compensation related to stock options                      -             -                277
  Currency translation adjustment                                                  (365)            -               (365)
  Net loss                                                                            -        (1,187)            (1,187)
                                                                                   -----      -------           --------    
  Balances, December 31, 1997                                                      (365)       15,260            209,368
                                                                                   =====      =======           ========
  See accompanying notes to consolidated financial statements.
  SIEBEL SYSTEMS, INC.
  
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (In thousands)
  Year Ended December 31,
                                                                                    -----------------------------------------------
                                                                                        1997               1996              1995
                                                                                    ----------        -----------        ----------
  Cash flows from operating activities:
    Net income (loss)                                                               $   (1,187)       $    12,861        $    1,802
    Adjustments to reconcile net income (loss) to net cash provided by
      operating activities:
          Compensation related to stock options                                            277                324                96
          Depreciation and amortization                                                  8,125              3,363             1,089
          Deferred income taxes                                                         (1,615)            (1,617)             (643)
          Tax benefit from exercise of stock options                                     4,046              2,173                 -
          Loss on disposal of property and equipment                                       307                155                 -
          Allowance for doubtful accounts and returns                                    2,348                585                 -
          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                                             (40,485)           (19,636)           (4,548)
                       Prepaids and other                                               (1,736)            (3,313)           (1,228)
                       Accounts payable                                                    126              3,287             1,307
                       Accrued expenses                                                 13,723             10,326             1,935
                       Income taxes payable                                             (1,611)             2,821               862
                       Deferred revenue                                                 15,963              3,632             5,908
                                                                                    ----------        -----------        ----------
                                   Net cash provided by operating activities            21,021             11,553             6,580
                                                                                    ----------        -----------        ----------
  Cash flows from investing activities:
    Purchases of property and equipment                                                (17,640)           (13,742)           (2,637)
    Purchases and sales of short-term investments                                      (68,941)           (73,936)           (7,466)
    Maturites of short-term investmets                                                  51,075              7,265               555
    Proceeds from disposal of property and equipment                                         -                 16                15
    Cash acquired in acquisitions                                                          129                  -                 -
    Other assets                                                                        (1,764)              (947)             (288)
                                                                                    ----------        -----------        ----------
                                   Net cash used in investing activities               (37,141)           (81,344)           (9,821)
                                                                                    ----------        -----------        ----------
  Cash flows from financing activities:
    Proceeds from issuance of common stock, net of repurchases                           8,725            112,559            24,052
    Proceeds from issuance of preferred stock                                                -              1,532             8,354
    Repayment of stockholder notes                                                         102                 12                 -
                                                                                    ----------        -----------        ----------
                                   Net cash provided by financing activities             8,827            114,103            32,406
                                                                                    ----------        -----------        ----------
  Change in cash and cash equivalents                                                   (7,293)            44,312            29,165
  Cash and cash equivalents, beginning of year                                          77,495             33,183             4,018
                                                                                    ----------        -----------        ----------
  Cash and cash equivalents, end of year                                            $   70,202        $    77,495        $   33,183
                                                                                    ==========        ===========        ==========
  Supplemental disclosures of cash flows information:                                                                      
    Conversion of partnership units into common and preferred stock                 $        -        $         -        $    1,153
                                                                                    ==========        ===========        ==========
    Common stock issued for acqusitions                                             $   24,975        $         -        $        -
                                                                                    ==========        ===========        ==========
    Exercise of common stock options in exchange for stockholder note               $        -        $       507        $        -
                                                                                    ==========        ===========        ==========
    Cash paid for income taxes                                                      $   14,077        $     4,597        $    1,171
                                                                                    ==========        ===========        ==========
  See accompanying notes to consolidated financial statements.
  SIEBEL SYSTEMS, INC.
  
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  (1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  
  THE COMPANY
  
    Siebel Systems, Inc. ("Siebel" or the "Company") is the world's leading
  supplier of Enterprise Relationship Management systems for organizations focused
  on increasing sales, marketing and customer service effectiveness in field
  sales, service organizations, telesales, telemarketing, call centers, and third-
  party resellers.  The Company designs, develops, markets, and supports Siebel
  Enterprise Applications, a leading Internet-enabled, object oriented
  client/server application software product family designed to meet the sales,
  marketing and customer service information system requirements of even the
  largest multi-national organizations.
  
    On May 18, 1998, Siebel merged with Scopus Technology Inc. ("Scopus") in a
  transaction recorded 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 used a fiscal year ending 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.   See note 7.
  
  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 No. 91-1, "Software Revenue Recognition". Software license
  revenue was recognized when all of the following criteria had been met: there
  was an executed license agreement, software had been shipped to the customer, no
  significant vendor obligations remained, the license fee was fixed and payable
  within twelve months and collection was deemed probable.
  
    On January 1, 1998, the Company adopted the provisions of Statement of
  Position No. 97-2 "Software Revenue Recognition".  Revenue is recognized under
  SOP 97-2 when persuasive evidence of an arrangement exists and delivery has
  occurred, provided the fee is fixed and determinable, collectibility is probable
  and the arrangement does not require significant customization of the software.
  Under SOP 97-2, revenue on multiple element arrangements is allocated to the
  various elements based on relative fair value.
  
    Maintenance, consulting and other revenues relate primarily to maintenance,
  consulting services and training. Maintenance revenues are recognized ratably
  over the term of the maintenance contract, typically 12 to 36 months. Consulting
  and training revenues are generally recognized as the services are performed and
  are usually performed on a time and materials basis.  Such services primarily
  consist of implementation services related to the installation of the Company's
  products and do not include significant customization to or development of the
  underlying software code.
  
    The Company's customer base includes a number of its suppliers (e.g. AT&T,
  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, NationsBank Montgomery
  Securities, PeopleSoft, Inc., Sequent Computer Systems, Inc., Siemens Medical
  and Sun Microsystems, Inc.).  On
  occasion, the Company has purchased goods and/or services for company operations
  from these vendors at or about the same time Siebel has licensed its software to
  these organizations. These transactions are separately negotiated and recorded
  at terms the Company considers to be arm's-length.
  
  COST OF REVENUES
  
    Cost of software consists primarily of media, product packaging, documentation
  and other production costs, and third-party royalties.  Cost of maintenance,
  consulting 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 AND CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
  
    The Company considers all highly liquid investments with an original maturity
  of 90 days or less to be cash equivalents. Short-term investments generally
  consist of highly liquid municipal securities with original maturities in excess
  of 90 days.  The Company has classified its investments in certain debt and
  equity securities as "available for sale."  Such investments are carried at fair
  value, with gross unrealized gains and losses, when material, reported within
  accumulated other comprehensive other losses.
  
  PROPERTY AND EQUIPMENT
  
    Property and equipment are stated at cost less accumulated depreciation and
  amortization. Depreciation is calculated using the straight-line method over the
  estimated useful lives of the respective assets, generally three to five years.
  Leasehold improvements are amortized over the lesser of the lease term or the
  estimated useful lives of the improvements, generally seven years.
  
  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
  Company's software development has been completed concurrent with the
  establishment of technological feasibility, and, accordingly, no costs have been
  capitalized.
  
  ADVERTISING
  
    Advertising costs are expensed as incurred. Advertising expense is included in
  sales and marketing expense and amounted to $7,245,000 in 1997 and was
  immaterial in 1996 and 1995.
  
  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,
  available allowances must
  be established. Deferred tax assets and liabilities are measured using enacted
  tax rates in effect for the year in which those temporary differences are
  expected to be recovered or settled.
  
  NET INCOME (LOSS) PER SHARE
  
    Basic earnings per share is computed using the weighted average number of
  shares of common stock outstanding. Diluted earnings per share is computed using
  the weighted average number of shares of common stock and, when dilutive,
  convertible preferred stock outstanding and common equivalent shares from
  options to purchase common stock and warrants outstanding using the treasury
  stock method.
  
    Effective February 3, 1998, the Securities and Exchange Commission ("SEC")
  issued Staff Accounting Bulletin ("SAB") No. 98 which changes the calculation of
  earnings per share in periods prior to initial public offerings as previously
  applied under SAB No. 83. When a registrant issued common stock, warrants,
  options, or other potentially dilutive instruments for consideration or with
  exercise prices below the initial public offering price, within a one year
  period prior to the initial filing of a registration statement relating to an
  initial public offering, SAB No. 83 required such equity instruments to be
  treated as outstanding for all periods presented in the filing using the
  anticipated initial public offering price and the treasury stock method. Under
  SAB No. 98, when common stock, options, warrants, or other potentially dilutive
  instruments have been issued for nominal consideration during the periods
  covered by income statements in the filing, those nominal issuances are to be
  reflected in earnings per share calculations for all periods presented. During
  all periods prior to the Company's initial public offering, no equity
  instruments were issued for nominal consideration.  Net income (loss) per share
  for periods prior to the Company's initial public offering have been restated in
  accordance with SAB No. 98.
  
  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 if on the date
  of grant 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, they are translated into U.S. dollars
  using exchange rates in effect at period end for assets and liabilities and
  average exchange rates during each reporting period for the results of
  operations. Adjustments resulting from translation of foreign subsidiary
  financial statements are reported within accumulated other comprehensive losses.
  
  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.
  
  FAIR VALUE OF FINANCIAL INSTRUMENTS
  
    The carrying amount of the Company's cash and cash equivalents, accounts
  receivable, and accounts payable approximate their respective fair values
  defined as the amount at which the instrument could be exchanged in a current
  transaction between willing parties.
  IMPAIRMENT OF LONG-LIVED ASSETS
  
    The Company evaluates long-lived assets for impairment whenever events or
  changes in circumstances indicate that the carrying value of an asset may not be
  recoverable. The Company does not have any long-lived assets it considers to be
  impaired.
  
  RECENT ACCOUNTING PRONOUNCEMENTS
  
    In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
  "Disclosures about Segments of an Enterprise and Related Information."  This
  statement establishes standards for the way public business enterprises are to
  report information about operating segments in annual financial statements and
  requires those enterprises to report selected information about operating
  segments in interim financial reports.  The Company will adopt SFAS No. 131 in
  fiscal 1998.  This new accounting standard is not expected to have a material
  effect on the Company's annual consolidated financial statements.
  
    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
  "Accounting for Derivative Instruments and Hedging Activities".  SFAS No. 133
  establishes accounting and reporting standards for derivative instruments,
  including certain derivative instruments embedded in other contracts,
  (collectively referred to as derivatives) and for hedging activities.  It
  requires that an entity recognize all derivatives as either assets or
  liabilities in the statement of financial position and measure those instruments
  at fair value.  If certain conditions are met, a derivative may be specifically
  designated and accounted for as (a) a hedge of the exposure to changes in the
  fair value of a recognized asset or liability or an unrecognized firm
  commitment, (b) a hedge of the exposure to variable cash flows of a forecasted
  transaction, or (c) a hedge of the foreign currency exposure of a net investment
  in a foreign operation, an unrecognized firm commitment, an available-for-sale
  security, or a foreign-currency-denominated forecasted transaction.  For a
  derivative not designated as a hedging instrument, changes in the fair value of
  the derivative are recognized in earnings in the period of change.  This
  statement will be effective for all annual and interim periods beginning after
  June 15, 1999.  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.
  
  (2) FINANCIAL STATEMENT DETAILS
  
    Short-Term Investments. Short-term investments, $55,697,000 of which mature in
  less than one year, and $36,302,000 of which mature in one to five years,
  consisted of the following (in thousands):
  December 31,
                                                                               -------------------------
                                                                                   1997         1996
                                                                               ------------  -----------
  Certificates of deposit....................................................       $     -      $ 1,325
  Municipal securities.......................................................        91,999       72,808
                                                                                    -------      -------
                                                                                    $91,999      $74,133
                                                                                    =======      =======
  Accounts Receivable, Net.  Accounts receivable, net, consisted of the
  following (in thousands):
  December 31,
                                                                              ------------------------
                                                                                 1997         1996
                                                                              -----------  -----------
  Trade accounts receivable.................................................      $67,344      $31,187
  Less: allowances for doubtful accounts and returns........................        4,288        1,940
                                                                                  -------      -------
                                                                                  $63,056      $29,247
                                                                                  =======      =======
  Property and Equipment, Net. Property and equipment, net, consisted of the
  following (in thousands):
  December 31,
                                                                              --------------------------
                                                                                  1997          1996
                                                                              ------------  ------------
  Computer equipment........................................................       $19,728       $14,120
  Furniture and fixtures....................................................         6,096         3,051
  Computer software.........................................................         8,446         2,202
  Leasehold improvements....................................................         3,346           907
                                                                                   -------       -------
                                                                                    37,616        20,280
  Less: accumulated depreciation............................................        12,773         4,982
                                                                                   -------       -------
                                                                                   $24,843       $15,298
                                                                                   =======       =======
  Accrued Expenses. Accrued expenses consisted of the following (in thousands):
  December 31,
                                                                              --------------------------
                                                                                  1997          1996
                                                                              ------------  ------------
  Bonuses...................................................................       $ 7,092       $ 1,672
  Commissions...............................................................         5,713         4,129
  Vacation..................................................................         2,312         2,280
  Sales tax.................................................................         3,026         1,103
  Other.....................................................................        10,219         4,761
                                                                                   -------       -------
                                                                                   $28,362       $13,945
                                                                                   =======       =======
  Other Income, Net. Other income, net, consisted of the following (in
  thousands):
  Years Ended December 31,
                                                                    -------------------------------------------
                                                                        1997           1996           1995
                                                                    -------------  -------------  -------------
  Interest income.................................................        $6,019         $3,281          $ 653
  Interest expense................................................            (4)            (8)           (29)
  Other...........................................................          (641)          (155)             -
                                                                          ------         ------          -----
                                                                          $5,374         $3,118          $ 624
                                                                          ======         ======          =====
  (3) COMMITMENTS AND CONTINGENCIES
  
  LEASE OBLIGATIONS
  
    As of December 31, 1997, the Company leased facilities under noncancelable
  operating leases expiring between 1998 and 2006. Future minimum lease payments
  are as follows (in thousands):
  YEAR ENDING DECEMBER 31,
  ------------------------
  1998...........................................................................    $ 5,042
     1999...........................................................................      4,193
     2000...........................................................................      3,755
     2001...........................................................................      3,652
     2002...........................................................................      2,912
     Thereafter.....................................................................      6,395
                                                                                        -------
                                                                                        $25,949
                                                                                        =======
  Rent expense for the years ended December 31, 1997, 1996 and 1995, was
  $6,160,000, $2,834,000, and $1,050,000, respectively.
  
  EMPLOYEE BENEFIT PLAN
  
     The Company has a 401(k) plan that allows eligible employees to contribute up
  to 20% of their compensation, limited to $10,000 in 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.
  
  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.
  
  (4) STOCKHOLDERS' EQUITY
  
  STOCK SPLIT
  
     All share and per share amounts for all periods presented have been restated
  to reflect a two-for-one stock split (effected in the form of a stock dividend),
  which was effective March 20, 1998.
  
  NET INCOME (LOSS) PER SHARE
  
    The following is a reconciliation of the number of shares used in the basic
  and diluted earnings per share computation for the periods presented (in
  thousands):
  For the year ended December 31,
                                                    ---------------------------------------------
                                                         1997             1996            1995
                                                    ------------     ------------     -----------
  Shares used in basic net income (loss) per share
   computation......................................      83,798           69,736          62,000
  Effect of dilutive potential common shares........          --            8,462             409
  Shares used in diluted net income (loss) per      ------------     ------------     -----------
   share computation................................      83,798           78,198          62,409
                                                    ============     ============     ===========
  The Company excluded potentially dilutive securities for each period presented
  from its diluted net income (loss) per share computation because either the
  exercise price of the securities exceeded the average fair value of the
  Company's common stock or the Company had net losses, and, therefore, these
  securities were anti-dilutive.  For the year ended December 31, 1997, the
  Company excluded 10,716,882 employee stock options with a weighted average
  exercise price of $7.48 per share as potentially dilutive common shares.
  
  EMPLOYEE STOCK OPTION AND PURCHASE PLANS
  
    The 1996 Equity Incentive Plan (the "Plan"), which amended and restated the
  Company's 1994 Stock Option Plan and 1996 Supplemental Stock Option Plan,
  provides for the issuance of up to an aggregate of 40,000,000 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. The exercise price for
  incentive stock options is at least 110% of the fair market
  value on the date of the grant for persons with greater than 10% of the voting
  power of all classes of stock. Options generally expire in 10 years; however,
  incentive stock options may expire in 5 years if the optionee owns stock
  representing more than 10% of the voting power of all classes of stock. Vesting
  periods are determined by the Board of Directors and generally provide for
  shares to vest ratably over 5 years.
  
    The Plan also allows for the exercise of certain unvested options. Shares of
  common stock issued to employees upon exercise of unvested options are subject
  to repurchase by the Company at the original exercise price. The Company's
  ability to repurchase these shares expires at a rate equivalent to the current
  vesting schedule of each option. As of December 31, 1997, 3,505,000 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 $0.22
  per share.
  
    During the period from October 1995 through April 1996, the Company granted
  options to purchase an aggregate of 16,305,000 shares of common stock at
  exercise prices ranging from $.13 to $1.63 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.
  
    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 plans activity is summarized as follows:
  WEIGHTED
                                                                                                           AVERAGE
                                                                             SHARES                        EXERCISE
                                                                           AVAILABLE         NUMBER         PRICE
                                                                           FOR GRANT       OF SHARES      PER SHARE
                                                                         --------------  --------------  ------------
  Balances, December 31, 1994........................................     13,312,493         604,566         $ 0.71
       Additional shares authorized....................................      1,310,576              --
       Options granted.................................................     (7,207,100)      7,207,100         $ 0.62
       Options exercised...............................................             --      (1,314,352)        $ 0.10
       Options canceled................................................      1,209,498      (1,209,498)        $ 0.22
                                                                           -----------      ----------
    Balances, December 31, 1995........................................      8,625,467       5,287,816         $ 0.85
       Additional shares authorized....................................     14,700,000              --
       Options granted.................................................    (19,928,944)     19,928,944         $ 3.83
       Options exercised...............................................             --      (2,674,624)        $ 0.45
       Options canceled................................................      1,355,842      (1,355,842)        $ 2.20
                                                                           -----------      ----------
    Balances, December 31, 1996........................................      4,752,365      21,186,294         $ 3.61
       Additional shares authorized....................................     16,000,000              --
       Options granted.................................................    (13,330,274)     13,330,274         $16.55
       Options exercised...............................................             --      (2,067,303)        $ 2.25
       Options canceled................................................      5,409,831      (5,409,831)        $16.69
                                                                           -----------      ----------
    Balances, December 31, 1997........................................     12,831,922      27,039,434         $ 7.48
                                                                           ===========      ==========
  The following table summarizes information about fixed stock options
  outstanding as of December 31, 1997:
  OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                           ----------------------------------------------  -------------------------------
                                                WEIGHTED                                                  
                                                 AVERAGE       WEIGHTED                         WEIGHTED  
                                NUMBER          REMAINING      AVERAGE          NUMBER          AVERAGE   
                            OF OUTSTANDING     CONTRACTUAL     EXERCISE     OF OUTSTANDING      EXERCISE  
  RANGE OF EXERCISE PRICES      OPTIONS           LIFE          PRICE           OPTIONS          PRICE    
  ------------------------  ----------------  -------------  ------------  -----------------  ------------
  $ 0.00 - 0.82..........          5,542,735            8.1        $ 0.54          3,624,064        $ 0.45
  $ 1.38 - 4.25..........          7,808,072            8.3        $ 1.90          1,833,143        $ 1.92
  $ 5.81 - 8.44..........          1,871,514            9.0        $ 7.94            160,069        $ 6.55
  $10.99 -14.88..........          8,836,570            9.1        $12.55          1,119,851        $12.52
  $16.14 -20.75..........          2,955,811            9.7        $19.50             33,284        $17.20
  $26.44 -39.83..........             24,732            6.7        $36.34              2,890        $33.30
                                  ----------                                       ---------
  $ 0.00 -39.83..........         27,039,434            8.7        $ 7.48          6,773,301        $ 3.08
                                  ==========                                       =========
  In May 1996, the Company adopted the 1996 Employee Stock Purchase Plan (the
  "Purchase Plan") and reserved 1,400,000 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 3,400,000 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. 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.  No additional shares will be
  issued under the Acquired Purchase Plan.  As of December 31, 1997, 921,421
  shares had been purchased under the Purchase Plan and the Acquired Purchase
  Plan.
  
  FAIR VALUE INFORMATION
  
    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, 1997, 1996 and 1995, 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.
  
    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, 1997, 1996 and 1995 would have been as indicated below
  (in thousands, except per share data):
  1997         1996         1995
                                                                   ------------  -----------  -----------
  Net income (loss):
       As reported...............................................     $ (1,187)      $12,861       $1,802
       Pro forma.................................................     $(13,939)      $ 9,613       $1,591
    Net income (loss) per diluted share:
       As reported...............................................     $  (0.01)      $  0.16       $ 0.03
       Pro forma.................................................     $  (0.17)      $  0.12       $ 0.03
    Net income (loss) per basic share:
       As reported...............................................     $  (0.01)      $  0.18       $ 0.03
       Pro forma.................................................     $  (0.17)      $  0.14       $ 0.03
  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:
  1997          1996          1995
                                                                   ------------  ------------  ------------
  Risk-free interest rate......................................          6.1%          6.0%          5.9%
    Expected life (in years).....................................          3.5           3.5           3.6
    Expected volatility..........................................         83.9%         69.2%         70.4%
  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:
  1997          1996
                                                                   ------------  ------------
  Risk-free interest rate......................................          5.3%          5.5%
    Expected life (in years).....................................          0.7           0.5
    Expected volatility..........................................         83.9%         68.5%
  Under SFAS No. 123, the weighted average estimated fair value of employee
  stock options granted at exercise price equal to market price at grant date
  during 1997, 1996 and 1995 was $16.97, $3.72 and $0.09 per share, respectively.
  
  (5) INCOME TAXES
  
    The components of income tax expense for the years ended December 31, 1997,
  1996 and 1995 are as follows (in thousands):
  1997         1996        1995
                                                                                   -----------  ----------  -----------
  Current:
  Federal...................................................................     $ 7,631     $ 4,984       $1,217
       State.....................................................................       2,669       1,710          368
       Foreign...................................................................         400         345          143
                                                                                      -------     -------       ------
          Total current..........................................................      10,700       7,039        1,728
    Deferred:
       Federal...................................................................      (1,349)     (1,356)        (563)
       State.....................................................................        (217)       (173)         (80)
                                                                                      -------     -------       ------
          Total deferred.........................................................      (1,566)     (1,529)        (643)
                                                                                      -------     -------       ------
    Charge in lieu of taxes attributable to employer's stock option          
            plans................................................................       4,046       2,173           --
                                                                                      -------     -------       ------
          Total income taxes.....................................................     $13,180     $ 7,683       $1,085
                                                                                      =======     =======       ======
  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, 1997, 1996 and 1995 are as follows (in thousands):
  1997         1996        1995
                                                                                   -----------  ----------  ----------
  Expected income tax expense...............................................     $ 4,302      $7,119      $  982
       State income taxes, net of federal tax benefit............................       1,864       1,196         203
       In-process research and development.......................................       7,959          --          --
       Research and experimentation credit.......................................        (543)       (537)       (130)
       Tax exempt interest.......................................................        (995)       (204)         --
       Other, net................................................................         593         109          30
                                                                                      -------      ------      ------
            Total income taxes...................................................     $13,180      $7,683      $1,085
                                                                                      =======      ======      ======
  The tax effects of temporary differences that give rise to significant
  portions of deferred tax assets and liabilities as of December 31, 1997 and 1996
  are as follows (in thousands):
  1997         1996
                                                                                     -----------  ----------
  Deferred tax assets:
  Deferred state taxes......................................................      $  900      $  573
         Accruals and reserves, not currently taken for tax purposes...............       3,276       2,133
         Net operating loss carryforward...........................................         602          --
                                                                                         ------      ------
          Deferred assets..........................................................       4,778       2,706
       Deferred tax liability--depreciation........................................        (162)       (205)
                                                                                         ------      ------
          Net deferred assets......................................................      $4,616      $2,501
                                                                                         ======      ======
  Management believes it is more likely than not that future operations will
  generate sufficient taxable income to realize the deferred tax assets.
  
  (6) RELATED PARTIES, SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
  
    Certain members of the Company's Board of Directors serve as officers for
  customers of the Company.  In 1997, aggregate revenues associated with shipments
  to these customers were $1,598,000 and accounts receivable from these customers
  was $654,000.  No customer has accounted for 10% or more of total revenues in
  1997, 1996, or 1995.
  
    The Company's export sales for the years ended December 31, 1997 and 1996 were
  $41.8 million and $7.7 million, respectively, (27% and 10% of total license
  revenues, respectively), and were immaterial in 1995.  The Company's export
  sales are made principally in Europe and Asia.
  
  (7) ACQUISITIONS
  
  SCOPUS TECHNOLOGY, INC.
  
    On May 18, 1998, the Company completed the acquisition of Scopus of
  Emeryville, California, a leading provider of customer service, field service,
  and call center software solutions. Under the terms of the agreement, each
  outstanding share of Scopus common stock was exchanged for newly issued shares
  of common stock of the Company. This resulted in the issuance of approximately
  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 $13.5 million of direct
  transaction fees for investment bankers, attorneys, accountants and other
  professional fees of $9.1 million, integration charges related to duplicate
  facilities and equipment of $3.1 million and other miscellaneous expenses of
  $1.3 million.
  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 used a fiscal year ending 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 on January 1, 1998, the restated financial statements combine the
  operating results of Siebel and Scopus for the calendar periods noted.
  
    The results of operations for the separate companies and the combined amounts
  presented in the consolidated financial statements follow (in thousands).
  Years Ended December 31, 
                            -----------------------------------------
                                 1997           1996          1995
                            --------------  ------------  ------------
  Total revenues:
  Siebel.................       $118,775       $ 39,152       $ 8,038
   Scopus.................         88,853         62,210        27,796
                                 --------       --------       -------
                                 $207,628       $101,362       $35,834
                                 ========       ========       =======
   
  Net income (loss):
   Siebel.................       $ (2,427)      $  5,025       $   317
   Scopus.................          1,240          7,836         1,485
                                 --------       --------       -------
                                 $ (1,187)      $ 12,861       $ 1,802
                                 ========       ========       =======
  In combining the financial statements of Siebel and Scopus, certain
  reclassifications, conforming changes and adjustments relating to revenue
  recognition were made to the historical financial statements of Scopus. These
  conforming changes and adjustments resulted in a reduction of previously
  reported net income of approximately $2,930,000 in fiscal 1997, $580,000 in
  fiscal 1996, and $505,000 in fiscal 1995.
  
  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 million 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 854,000 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 64,000 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.
  
    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 million 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 600,000 shares of the Company's
  common stock in exchange for all outstanding shares of Nomadic. 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
  $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 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 $3.3 million in the third
  quarter of 1997 in connection with its planned merger with Clear With Computers,
  Inc.  The merger plan was terminated early in the fourth quarter of 1997.
  SCHEDULE II
  
                                SIEBEL SYSTEMS, INC.
  
                         VALUATION AND QUALIFYING ACCOUNTS
  BALANCE AT        CHARGES TO
                                                      BEGINNING        COSTS AND                          BALANCE AT
                                                       OF YEAR          EXPENSES        DEDUCTIONS        END OF YEAR
                                                   -------------    --------------    -------------     -------------
                                                                              (IN THOUSANDS)
  Allowance for doubtful accounts:
    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
    Year ended December 31, 1995..............            $  349            $1,072           $  756            $  665
  SELECTED FINANCIAL DATA
  -----------------------
  Years Ended December 31,
                                                  -------------------------------------------
                                                      1997             1996           1995
                                                  ------------     ------------    ----------
  Operating Data
  Net revenues..................................      $207,628         $101,362       $35,834
  Operating income..............................      $  6,619         $ 17,426       $ 2,263
  Net income (loss).............................      $ (1,187)        $ 12,861       $ 1,802
  Pro forma net income *........................      $ 24,851         $ 12,861       $ 1,802
  Net income (loss) per diluted share...........      $  (0.01)        $   0.16       $  0.03
  Pro forma net income per diluted share *......      $   0.26         $   0.16       $  0.03
  Total assets..................................      $268,164         $206,945       $57,167
  Total equity..................................      $209,368         $172,430       $42,884
  ______________
  *  Excludes write-off of acquired research and development
  
  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 Enterprise Relationship Management systems for organizations focused
  on increasing sales, marketing and customer service effectiveness in field
  sales, service organizations, telesales, telemarketing, call centers and third-
  party resellers.  The Company designs, develops, markets, and supports Siebel
  Enterprise Applications, a leading Internet-enabled, object oriented
  client/server application software product family designed to meet the sales,
  marketing and customer service information system requirements of even the
  largest multi-national organizations.
  
    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.
  
    The Siebel Enterprise Applications are comprised of a broad range of advanced
  client/server application products designed to allow corporations to deploy
  comprehensive customer information systems, product information systems,
  competitive information systems, and decision support systems on a global basis.
  The Company's products provide support for multiple languages and multiple
  currencies with support for a number of frequently interdependent distribution
  channels, including direct field sales, telesales, telemarketing, distribution,
  retail and Internet-based selling and support.
   
    This Report contains forward looking statements that involve risks and
  uncertainties. The Company's future financial results are subject to a number of
  risk factors which may cause the Company's actual results to vary, perhaps
  materially, from current expectations. Some of these factors are discussed in
  "Risk Factors" below and elsewhere in this Report.
  
  RECENT DEVELOPMENTS
  
    On May 18, 1998, the Company completed the acquisition of Scopus of
  Emeryville, California, a leading provider of customer service, field service,
  and call center software solutions. Under the terms of the agreement, each
  outstanding share of Scopus common stock was exchanged for newly issued shares
  of common stock of the Company. This resulted in the issuance of approximately
  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 $13.5 million, consisting of direct transaction fees for
  investment bankers, attorneys, accountants and other professional fees of $9.1
  million, integration charges related to duplicate facilities and equipment of
  $3.1 million and other miscellaneous expenses of $1.3 million.
  
    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 used a fiscal year ending March 31.
  
  RESULTS OF OPERATIONS
  
    The following table sets forth statement of operations data for the three
  years ended December 31, 1997 expressed as a percentage of total revenues:
  YEAR  ENDED DECEMBER 31,
                                                                --------------------------------------
                                                                   1997         1996          1995
                                                                -----------  -----------  ------------
  Revenues:                                                            %            %            %
       Software...............................................        75.6         79.3          74.2
       Maintenance, consulting and other......................        24.4         20.7          25.8
                                                                     -----        -----         -----
          Total revenues......................................       100.0        100.0         100.0
    Cost of revenues:
       Software...............................................         2.1          2.2           2.5
       Maintenance, consulting and other......................        13.9         13.0          20.4
                                                                     -----        -----         -----
          Total cost of revenues..............................        16.0         15.2          22.9
                                                                     -----        -----         -----
          Gross margin........................................        84.0         84.8          77.1
    Operating expenses:
       Product development....................................        12.6         14.6          22.9
       Sales and marketing....................................        47.6         43.4          38.5
       General and administrative.............................         8.2          9.6           9.4
       Merger termination costs...............................         1.6           --            --
       Write-off of acquired research and development.........        11.0           --            --
                                                                     -----        -----         -----
          Total operating expenses............................        80.8         67.6          70.8
                                                                     -----        -----         -----
          Operating income....................................         3.2         17.2           6.3
    Other income, net.........................................         2.6          3.1           1.7
                                                                     -----        -----         -----
          Income before taxes.................................         5.8         20.3           8.0
    Income taxes..............................................         6.3          7.6           3.0
                                                                     -----        -----         -----
          Net income (loss)...................................        (0.5)        12.7           5.0
                                                                     =====        =====         =====
  REVENUES
  
    Software. License revenues increased to $156,971,000 for the year ended
  December 31, 1997 from $80,413,000 and $26,589,000 for the years ended December
  31, 1996 and 1995, respectively.  License revenues as a percentage of total
  revenues were 76% in the fiscal 1997 period as compared to 79% in the fiscal
  1996 period and 74% in the fiscal 1995 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.  The Company
  expects that license revenues will remain the same or decrease as a percentage
  of total revenues.
  
    Maintenance, Consulting and Other. Maintenance, consulting and other revenues
  increased to $50,657,000 for the year ended December 31, 1997 from $20,949,000
  and $9,245,000 for the years ended
  December 31, 1996 and 1995, respectively, and as a percentage of total revenues
  were 24% in the fiscal 1997 period as compared to 21% and 26% in the fiscal 1996
  and 1995 periods, respectively. These increases in absolute dollar amount were
  due to growth in the Company's consulting business and growth in the installed
  base of customers with a maintenance component and maintenance renewals from
  products licensed in prior periods. The Company expects that maintenance,
  consulting 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.
  
    A relatively small number of customers account for a significant percentage of
  the Company's license revenues. For 1997 and 1996, sales to the Company's ten
  largest customers accounted for 27% and 28% 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 in Japan.
  International revenues accounted for 27% and 10% of total revenues in 1997 and
  1996, 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, 1997 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.
  
    Maintenance, Consulting and Other. Cost of maintenance, consulting and other
  revenues consist primarily of personnel, facility and systems costs incurred in
  providing customer support.  Cost of maintenance, consulting and other revenues
  increased to $28,787,000 for the year ended December 31, 1997 from $13,183,000
  and $7,300,000 for the years ended December 31, 1996 and 1995, respectively, and
  as a percentage of total revenues were 14% for the year ended December 31, 1997
  as compared to 13% in the fiscal 1996 and 20% in fiscal 1995.  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 business. The Company expects that maintenance,
  consulting and other costs will continue to increase in absolute dollar amount
  as the Company expands both its customer support organization to support a
  growing installed base and its consulting organization to meet anticipated
  customer demands in connection with product implementation.  These costs are
  expected to remain the same or increase as a percentage of total revenues.
  
  OPERATING EXPENSES
  
    Product Development. Product development expenses include expenses associated
  with the development of new products, enhancements of existing products and
  quality assurance activities, and consist primarily of employee salaries,
  benefits, consulting costs and the cost of software development tools.  Product
  development expenses increased to $26,105,000 for the year ended December 31,
  1997 from $14,775,000 and $8,198,000 for the years ended December 31, 1996 and
  1995, respectively, and decreased as a percentage of total revenues to 13% in
  the fiscal 1995 period from 15% and 23% in the fiscal 1996 and 1995 periods,
  respectively. The increases in the dollar amount of product development expenses
  were primarily attributable to costs of additional personnel in the Company's
  product development operations. The Company anticipates that it will continue to
  devote substantial resources to product development. The Company expects product
  development expenses to increase in absolute dollar amount but remain at a
  similar percentage of total revenues as in 1997. The Company to date has not
  capitalized any software development costs.
  
    Sales and Marketing. Sales and marketing expenses consist primarily of
  salaries, commissions and bonuses earned by sales and marketing personnel, field
  office expenses, travel and entertainment and promotional expenses. Sales and
  marketing expenses increased to $98,748,000 for the year ended December 31, 1997
  from $44,044,000 and $13,797,000 for the years ended December 31, 1996 and 1995,
  respectively, and as a percentage of total revenues sales and marketing expenses
  increased to 48% in 1997, from 43% and 39% in the fiscal 1996 and 1995 periods,
  respectively. The increases in the dollar amount of sales and marketing expenses
  reflect primarily the hiring of additional sales and marketing personnel and,
  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 1997.
  
    General and Administrative. General and administrative expenses consist
  primarily of salaries and occupancy costs for administrative, executive and
  finance personnel.  General and administrative expenses increased to $16,938,000
  for the year ended December 31, 1997 from $9,737,000 and $3,361,000 for the
  years ended December 31, 1996 and 1995, respectively, and as a percentage of
  total revenues were 8% in the fiscal 1997 period and 10% and 9% in the fiscal
  1996 and 1995 periods, respectively. The increases in the absolute dollar amount
  of general and administrative expenses were primarily due to increased staffing
  and associated expenses necessary to manage and support the Company's increased
  scale of operations. The Company believes that its general and administrative
  expenses will continue to increase in absolute dollar amount as a result of the
  continued expansion of the Company's administrative staff and facilities to
  support growing operations and the expenses associated with being a public
  company. The Company anticipates that its general and administrative expenses as
  a percentage of total revenues should remain at a similar percentage as in 1997.
  
    Merger Termination Costs.  The Company incurred merger costs of approximately
  $3.3 million in the third quarter of 1997 in connection with its planned merger
  with Clear With Computers, Inc.  The merger plan was terminated early in the
  fourth quarter of 1997.
  
    Write-off of Acquired Research and Development.  On October 1, 1997, the
  Company completed its purchase of InterActive WorkPlace, Inc. ("InterActive"), a
  developer of intranet-based business intelligence software technology that has
  been incorporated into the Siebel InterActive product. The Company took a one-
  time charge of $14,017,000 million, 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. The acquisition was accounted for by the
  purchase method of accounting.
  
    On November 1, 1997, the Company completed its purchase of Nomadic Systems,
  Inc. ("Nomadic"), a provider of innovative business solutions to pharmaceutical
  sales forces.  Technology acquired with Nomadic has been incorporated into the
  Siebel Pharma product. The Company took a one-time charge 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
  acquisition was accounted for by the purchase method of accounting.
  
  OPERATING INCOME AND OPERATING MARGIN
  
    Operating income decreased to $6,619,000 for the year ended December 31, 1997
  from  $17,426,000 for the year ended December 31, 1996 and increased from
  $2,263,000 for the year ended December 31, 1995 and operating margin was 3% in
  the fiscal 1997 period, as compared with 17% and 6% in the fiscal 1996 and 1995
  periods, respectively. Excluding merger termination costs, the write-off of
  acquired research and development and merger related expenses, operating income
  increased to
  $32,657,000 for the year ended December 31, 1997 from $17,426,000 and $2,263,000
  for the years ended December 31, 1996 and 1995, respectively, and operating
  margin was 16% in the fiscal 1997 period as compared to 17% and 6% in the fiscal
  1996 and 1995 periods, respectively. These increases in operating income and
  margin, excluding merger termination costs and the write-off of in-process
  research and development, were 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 it continues to invest 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.
  
  PROVISION FOR INCOME TAXES
  
    Income taxes are comprised primarily of federal and state taxes. The provision
  for income taxes was $13,180,000 $1,085,000, $7,683,000, and in 1997, 1996, and
  1995, respectively.  The provision for income taxes as a percentage of pretax
  income was 110%, 38% and 37%, respectively. The tax rate in 1997 was higher than
  the rates in 1996 and 1995 primarily due to non-deductible items related to
  acquisitions.  The Company expects its effective tax rate to be approximately
  38%, excluding the effect of non-recurring, non-deductible costs such as merger-
  related expenses.
  
  NET INCOME (LOSS)
  
    The Company had a net loss of $1,187,000 for the year ended December 31, 1997
  compared to net income of $12,861,000 and net income of $1,802,000 for the years
  ended December 31, 1996 and 1995, respectively. Net loss per share was $0.01 per
  diluted share in fiscal 1997, compared with net income of $0.16 and $0.03 in the
  fiscal 1996 and 1995 periods, respectively.
  
    Excluding merger termination costs and the write-off of acquired research and
  development, the Company had pro-forma net income of $23,630,000 for the year
  ended December 31, 1997 compared to net income of $12,861,000 and $1,802,000 for
  the years ended December 31, 1996 and 1995, respectively. Net income per diluted
  share was $0.28 per share in fiscal 1997, compared with net income of $0.16 and
  $0.03 in the fiscal 1996 and 1995 periods, respectively.  Pro-forma net income
  as a percentage of total revenues was 11% in the year ended December 31, 1997
  compared to 13% and 5% in the years ended December 31, 1996 and 1995,
  respectively.
  
  LIQUIDITY AND CAPITAL RESOURCES
  
    The Company's cash, cash equivalents and short-term investments increased to
  $162,201,000 as of December 31, 1997 from $151,628,000 as of December 31, 1996,
  representing approximately 60% and 73% of total assets, respectively.  This
  increase was primarily attributable to increases in accrued expenses and
  deferred revenue, partially offset by increases in accounts receivable and
  purchases of property and equipment.  The Company has generated positive cash
  flow in 1997, 1996 and 1995.
  
    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 leased facilities, both domestically and internationally, and
  expects this trend to continue.  Accordingly, capital expenditures are expected
  to increase during 1998 and in 1999.
  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.