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ESO'S - Is Siebel Getting the Message?

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By admiraltroll
March 31, 2003

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Hi Collective,
I posted this on the Siebel board in response to hueyone. It would appear that shareholder pressure is having some effect on Siebel's ESO program - Heck even Tom Siebel cancelled nearly 26m of his own ESO's!

Good post but I would say that Siebel is partially getting the message about ESO's. In the last few years, dilution due to ESO's was about 5% per annum as options got exercised. IMO this is a better real measure than Black-Scholes, which is designed for valuing freely traded options. ESO's have restrictions that make them less valuable. You will also note that Siebel bought back many millions at prices significantly below the B-S value + many simply expire due to employees leaving etc, etc.

Also Tom Siebel cancelled nearly 26m of his own ESO's. Hey perhaps Tom read my September 2002 post on his option grants!

However the most striking thing is the comparison of options granted in 2002 versus options granted in 2001 and the outstanding options left


                               2001          2002
ESO's Granted                  111m         5.887m
% of Outstanding shares         24%           1.2%
Outstanding ESO's              247m          185m
% of outstanding shares         53%           38%

Average weighted strike price is $17.42 of the outstanding ESO's. Note the options bought back were those in excess of $40 strike price

So Siebel is doing something about options grants. I would expect 2003 to be in the 15m to 20m ESO's (3 to 4% of shares outstanding) granted bearing this comment in mind

From the SEC 10K
==========================
2003 Anticipated Stock Option Grants

The Company intends to continue to manage the number of stock options
granted in the future, while still providing competitive compensation
packages to its employees. The Company currently expects that the
incremental Dilution Percentage resulting from new stock option grants for
2003 will be less than the Dilution Percentage for 2000 and 2001, but will
be higher than the percentage for 2002. This estimate could differ from the
actual percentage for 2003, depending on various factors, including changes
in estimated stock option grants for planned hiring, acquisition, merit and
retention-based programs.
==========================

So in any valuation of Siebel I would allow a continued 5% dilution due to ESO's for the next 5 years and may be drop it to 2 or 3% after five years.

One thing is sure ESO's will continue to be a big part of Siebel's employee compensation plan and will still be on the high side if not excessive going forward and must be taken into account in any evaluation of Siebel IMO.

I believe that though the gross excesses of 1999-2001 are being curbed Siebel's future ESO plans are still detrimental to outside shareholders.

Regards
Philip


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