##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2006

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number: 000-25375



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VIGNETTE CORPORATION

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 74-2769415                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

1301 South MoPac Expressway

Austin, Texas 78746

(Address of principal executive offices)

(512) 741-4300

(Registrants telephone number, including area code)



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Securities registered pursuant to Section 12(b) of the Act:



|                             |  |                                          
|---------------------------- |  | -----------------------------------------
|Title of Each Class          |  | Name of each exchange on which registered
|Common Stock $0.01 par value |  | Nasdaq Global Market                     

Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.    Yes ̈No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
act.    Yes ̈No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

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

Indicate by check mark whether the registrant is a large accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ̈Accelerated Filer  x    Non-Accelerated Filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes ̈No  x

As of June 30, 2006, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $434,496,231

As of February 28, 2006 30,420,536 shares of the registrants common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive Proxy Statement for the 2006 Annual Meeting of Stockholders to be held May 25, 2007 are incorporated by reference in Part III of this Annual Report on Form 10-K.



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VIGNETTE CORPORATION

ANNUAL REPORT ON FORM 10K

For the year ended December 31, 2006

TAB
LE OF CONTENTS



|          |  |                                                                                                               |  |     
|--------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----
|          |  |                                                                                                               |  | Page
|Part I.   |  |                                                                                                               |  |     
|          |  |                                                                                                              
|Item 1.   |  | Business                                                                                                      |  | 3   
|          |  |                                                                                                              
|Item 1A.  |  | Risk Factors                                                                                                  |  | 8   
|          |  |                                                                                                              
|Item 1B.  |  | Unresolved Staff Comments                                                                                     |  | 22  
|          |  |                                                                                                              
|Item 2    |  | Properties                                                                                                    |  | 22  
|          |  |                                                                                                              
|Item 3.   |  | Legal Proceedings                                                                                             |  | 22  
|          |  |                                                                                                              
|Item 4.   |  | Submissions of Matters to a Vote of Security Holders                                                          |  | 24  
|          |  |                                                                                                              
|Part II.  |  |                                                                                                               |  |     
|          |  |                                                                                                              
|Item 5.   |  | Market for Registrants Common Stock and Related Stockholder Matters and Issuer Purchase of Equity Securities |  | 24  
|          |  |                                                                                                              
|Item 6.   |  | Selected Consolidated Financial Data                                                                          |  | 27  
|          |  |                                                                                                              
|Item 7.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  | 28  
|          |  |                                                                                                              
|Item 7A.  |  | Quantitative and Qualitative Disclosures about Market Risk                                                    |  | 45  
|          |  |                                                                                                              
|Item 8.   |  | Consolidated Financial Statements and Supplementary Data                                                      |  | 46  
|          |  |                                                                                                              
|Item 9.   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                          |  | 47  
|          |  |                                                                                                              
|Item 9A.  |  | Controls and Procedures                                                                                       |  | 47  
|          |  |                                                                                                              
|Item 9B.  |  | Other Information                                                                                             |  | 48  
|          |  |                                                                                                              
|Part III. |  |                                                                                                               |  |     
|          |  |                                                                                                              
|Item 10.  |  | Directors and Executive Officers of the Registrant                                                            |  | 48  
|          |  |                                                                                                              
|Item 11.  |  | Executive Compensation                                                                                        |  | 48  
|          |  |                                                                                                              
|Item 12.  |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                |  | 49  
|          |  |                                                                                                              
|Item 13.  |  | Certain Relationships and Related Transactions                                                                |  | 50  
|          |  |                                                                                                              
|Item 14.  |  | Principal Accountant Fees and Services                                                                        |  | 50  
|          |  |                                                                                                              
|Part IV.  |  |                                                                                                               |  |     
|          |  |                                                                                                              
|Item 15.  |  | Exhibits and, Financial Statement Schedules                                                                   |  | 50  
|          |  |                                                                                                              
|          |  | Signatures                                                                                                    |  | 53  



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FORWARD-LOOKING STATEMENTS

The statements contained in this Annual Report on Form 10-K that are not purely historical statements are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, including statements regarding our expectations, beliefs, hopes, intentions or strategies for the future.
These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of
this filing on Form 10-K to conform these statements to actual results. Factors that might cause or contribute to such a difference include, but are not limited to, those discussed in the section entitled Risk Factors That May Affect Future
Results and the risks discussed in our other historical Securities and Exchange Commission filings.

We maintain a World Wide Web
site at www.vignette.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
are available free of charge through our Web site as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the Securities and Exchange Commission. Our Web site and the information contained therein or
connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.

Vignette is a trademark or registered
trademark of Vignette Corporation in the United States and other countries. All other names are the trademarks or registered trademarks of their respective companies.

PART I.



|ITEM 1. | BUSINESS
|------- | --------

Our History

Since the companys founding in 1995, Vignette has specialized in developing and marketing software for managing business content. Vignettes
original focus was Web content management. As companies began to adopt the Web as a channel for business communication, the technical requirements and complexities of managing and delivering information via the Web grew, and the definition of
Web content management expanded.

As the Web evolved in its technical sophistication, and as organizations increased their
investments in the Web as a marketing and communications vehicle, Vignette expanded its portfolio of content management capabilities. As a result of both organic product development and acquisition, Vignette added Web-based analytics and
personalization, application and data integration, interaction management, business portals, collaboration and documents and records management capabilities to its products.

Overview

Today Vignette remains focused on helping enterprise organizations improve the way they do
business online. The company continues to provide a broad set of capabilities to organizations that want to better interact online with their customers, prospects, employees, partners, citizens and other key constituencies. At a time when
organizations globally are recommitting resources, and dedicating strategic projects, to the online customer experience in the interest of top line revenue growth, we believe that Vignette should be well positioned to capitalize.

The target audience for our products generally expects to augment any commercial software they acquire, either for purposes of customizing the behavior
of that software or to integrate it with their existing information technology investments. Our products are built with this audience requirement in mind. We rely on industry standard technologies, and our capabilities are adaptable, allowing
organizations to configure the business solutions to meet their unique requirements.



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Our products and capabilities are supported by our professional services organization, Vignette
Professional Services (VPS). VPS offers pre-packaged and custom services to help organizations define their online business objectives and deploy their content management, portal, process, collaboration, integration and
analysis applications. Our education, consulting and customer care teams give customers the benefit of our experience gained from thousands of customer implementations. We partner with a number of leading system integrators, who implement our
software for their clients. In many cases, we work in blended teams to jointly implement solutions. To ensure that we provide support to our customers on their chosen platform and infrastructure, we have long-standing relationships with key
technology providers such as BEA Systems, Hewlett Packard, Sun Microsystems, and Microsoft.

Products

Our Web content management, collaboration, document and records management, imaging and workflow, portal, integration and interaction management products
enable organizations to build, manage and deploy information-based applications. We help organizations better understand the content assets across their businesses. We also help them build Web applications that manage and deliver the right
information and processes to the right person at the right time.

To address the particular requirements of our customers, we deliver our
products in various suites: Vignette Next-Generation Web, for example, includes Vignette Portal, Content Management, Dialog and Collaboration. Additionally, we allow organizations the flexibility to purchase products individually. Our product
offerings are grouped into six application services categories: Web content management, collaboration, portal, integration and interaction management, document and records management, and imaging and workflow. Organizations may purchase products
individually from these seven categories or pre-bundled into suites that meet their specific needs. Following is a listing of our product offerings.

Web Content Managementmanages content, sites, content types and objects and the deployment and delivery of content.

Collaborationenhances an organizations ability to share knowledge, both internally and among its key constituencies.

Portal provides a platform for
personalizing and customizing Web experiences for individuals and groups.

Integration and Interaction Management helps improve communications with
stakeholders such as customers, prospects, employees and partners.

Document and Records Management helps organizations manage fixed assets,
automates document based workflows, manages casework through a process, and implements important archival and disposition of records.

Imaging and
Workflow allows a user to scan, archive and retrieve document-based content, and helps organizations automate business processes that previously were manual and paper-based.

Services

Vignette Professional Services
(VPS) offers consulting and education services to help customers identify their strategic application objectives, design content, portal, process, collaboration, integration and analysis applications and deliver solutions using our
products. VPS provides services that are tailored to individual customers through either Velocity Services, a set of packaged service offerings, or customized services. VPS also partners with consulting partners to provide
support for content management application development. VPS generally sells its services under
time-and-materials agreements.



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Our Customer Care, Maintenance and Support Services include a combination of account management
and global technical support offerings that are tailored to meet customers specific needs. Vignette Global Support provides optional 24x7 access to skilled technical engineers in addition to telephone and Web resources.

Strategy

Our objective is to maintain and extend our
position as a leading global provider of Next-Generation Web solutions. These solutions enable organizations to harness the power of their business content and the Web to deliver rich, personalized online interactions in direct or indirect support
of customer acquisition and retention and revenue growth. We will continue to focus on delivering sustained revenue and profitable growth, expanding our customer base of global 2000 organizations, extending our technology leadership through
investment in research and development, expanding our global sales capabilities and building upon our strategic alliances with leading companies.

Strategic Alliances

We establish strategic alliances to assist us in the marketing, selling, distribution, and development
of our enterprise content management applications and solutions. This approach is intended to increase the number of qualified personnel available to perform application design and development services for our customers, and to provide additional
marketing and technical expertise, and increased channels of distribution in certain vertical industry segments. In addition, our focus on vertical and horizontal solution offerings increases the importance of our relationships with technology
partners, strategic consulting partners and other channels of distribution to the market.

We intend to invest in our existing partner
relationships as well as to form new partnerships with other market-leading systems integrators, technology vendors and distribution channels.

Business
Combinations

The following is a listing of our three most recent acquisitions:

TOWER Technology Pty Limited.Effective March 1, 2004, we acquired TOWER Technology Pty Limited (Tower Technology), a leading
provider of enterprise document and records management solutions. We paid approximately $125.0 million for Tower Technology, consisting of approximately $49.8 million in cash and 2.7 million shares of common stock on a post split basis for all
of the issued and outstanding shares of Tower Technology.

Intraspect Software, Inc. Effective December 11, 2003, we acquired
all of the outstanding stock of Intraspect Software, Inc. (Intraspect), a leading provider of collaboration software, in exchange for $10.0 million in cash and approximately 0.42 million shares of stock on a post split basis. The
total purchase price, including transaction costs of $0.5 million, was approximately $20.4 million.

Epicentric, Inc. Effective
December 3, 2002, we acquired all of the outstanding stock of Epicentric, Inc. (Epicentric), a leading provider of business portal solutions, in exchange for $26.0 million in cash. The total purchase price, including transaction
costs of $3.1 million, was $29.1 million.

In connection with each of our acquisitions, we incurred one-time acquisition costs and
integration-related charges. Such charges relate to product integration, cross-training of employees, and other merger-related items. In three of our acquisitions, a portion of the purchase price was allocated to in-process research and development
and was expensed upon the consummation of the respective transaction. The Company did not recognize any acquisition related charges in 2006. The related acquisition, integration and in-process research and development charges totaled approximately
$0.3 million, and $7.6 million during 2005, and 2004, respectively.



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Customers

Our customer list includes successful organizations in the telecommunications, entertainment, new media and publishing, financial services, government, healthcare, high technology, higher education, life sciences, manufacturing, retail and
travel industries worldwide. No single customer accounted for ten percent or more of our total revenues in 2006, 2005, or 2004.

Competition

The market for our products is intensely competitive, subject to rapid technological change and is significantly affected by new
product introductions and other market activities of industry participants. We expect competition to persist and intensify in the future. We have three primary sources of competition: in-house development efforts by potential customers or partners;
other vendors of software that directly address content management solutions; and developers of point solution software that address only certain technology components of the solution set that we provide (e.g., Web content management, collaboration,
portal, integration, and interaction management.)

Many of our competitors have longer operating histories and significantly greater
financial, technical, marketing and other resources than we do and thus may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. There can be no assurance that we will be able to compete
successfully with existing or new competitors or that competition will not have a material adverse effect on our business, financial condition and operating results. See Risk Factors that May Affect Future ResultsRisks Related to Our
BusinessWe Face Intense Competition from Other Software Companies, Which Could Make it Difficult to Compete Successfully.

Research and
Development

We have made substantial investments in research and development through both internal development and technology
acquisitions. We have moved to a model where a significant portion of our research and development operations are maintained in India. There, third-party developers are acting as an extension of our primary development and information technology
operations in Austin, Texas and Sydney, Australia. We expect this model to help us achieve significant efficiencies, including reduced operational costs and permit an around-the-clock development cycle. Also, See Risk Factors that May Affect
Future Results Risks Related to our BusinessWe Use a Third-Party Service Provider in India for a Significant Portion of Our Research and Development Operations and, If We Are Unable to Manage Our Outsourcing Relationship or if We Are Unable to
Use Such a Provider, Our Business Could Be Adversely Affected.

The majority of our research and development activity has been
directed towards future extensions to our family of products. This development consists primarily of adding new competitive product features and additional tools and products. We expect that we will continue to commit significant resources to
research and development in the future. All of our research and development costs have been expensed as incurred. This is due to the fact that the time between achieving technological feasibility and the general availability of software has been
short and internal costs qualifying for capitalization have been insignificant.

Research and development expenditures, excluding acquired
in-process research and development charges, for 2006, 2005 and 2004 were approximately $34.0 million, $33.2 million, and $40.2 million respectively.

While we believe we invest appropriate resources in our research and development efforts and have increased our spending in fiscal 2006 versus fiscal 2005, there is no assurance that our current spending will allow us
to maintain our technology leadership. See Risk Factors that May Affect Future ResultsRisks Related to Our BusinessIf We are Unable to Meet the Rapid Changes in Software Technology, Our Existing Products Could Become
Obsolete.



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Sales and Marketing

We market our products primarily through our direct sales force as well as through our indirect sales channel with systems integrators, value-added resellers and original equipment manufacturers. We generate leads
from a variety of sources, including businesses seeking partners to develop Next-Generation Web initiatives. Initial sales activities typically include a demonstration of our product capabilities followed by one or more detailed technical reviews.
As of December 31, 2006, the direct sales force consisted of 171 sales professionals and related support personnel.

We will continue
to establish partnerships with major industry vendors and strategically selected regional partners that will add value to our products and expand distribution opportunities.

We use a variety of marketing programs to build market awareness of our brand name, our products, and Vignette as well as to attract potential customers
for our products. We employ a broad mix of programs to accomplish these goals, including market research, product and strategy updates with industry analysts, public relations activities, advertising, direct marketing and relationship marketing
programs, seminars, customer events, user group meetings, trade shows and speaking engagements. Our marketing organization also produces marketing materials in support of sales to prospective customers that include brochures, data sheets, white
papers, presentations and demonstrations.

Proprietary Rights and Licensing

Our success and ability to compete are dependent on our ability to develop and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of patent, trademark, trade secret and copyright laws and contractual restrictions to protect the proprietary aspects of our technology. These legal protections afford only
limited protection for our technology. We presently own twenty (20) patents, nineteen (19) of which are issued in the United States, and have a number of patent applications pending in the United States. We have fifteen
(15) registered trademarks in the United States, sixty-nine (69) registered trademarks in foreign countries, and seven (7) pending trademark applications in foreign countries. We seek to protect our source code for our software,
documentation and other written materials under trade secret and copyright laws. We license our software pursuant to signed license or shrink-wrap agreements, which impose certain restrictions on the licensees ability to utilize
the software. Finally, we seek to avoid disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements with us and by restricting access to our source
code. Due to rapid technological change, we believe that factors such as the technological and creative skills of our personnel, new product developments and enhancements to existing products are more important than the various legal protections of
our technology to establishing and maintaining a technology leadership position.

Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult and while we are unable to determine the extent to which piracy
of our software exists, software piracy can be expected to be a persistent problem. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or invalidity. However, the laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Any such resulting
litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our business, operating results and financial condition. There can be no assurance that our means of protecting our proprietary
rights will be adequate or that our competitors will not independently develop similar technology. Any failure by us to meaningfully protect our property could have a material adverse effect on our business, operating results and financial
condition.

To date, we have not been notified of any material infringement by our products of the proprietary rights of third parties, but
there can be no assurance that third parties will not claim infringement with respect to our current or future products. We expect that developers of commercial software products will



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increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and as the functionality of products
in different segments of the software industry increasingly overlaps. Any such claims, with or without merit, could be time-consuming to defend, result in costly litigation, divert managements attention and resources, cause product shipment
delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all. A successful claim of product infringement against us and our failure or
inability to license the infringed technology or develop or license technology with comparable functionality could have a material adverse effect on our business, financial condition and operating results. See Risk Factors that May Affect
Future ResultsRisks Related to Our BusinessOur Business is Based on Our Intellectual Property and We Could Incur Substantial Costs Defending Our Intellectual Property from Infringement or a Claim of Infringement.

We include certain third-party software in our products. This third-party software may not continue to be available on commercially reasonable
terms. To the extent we could not maintain licenses to some or all of this third-party software, shipments of our products could be delayed until equivalent software could be developed or licensed and integrated into our products, which could
materially adversely affect our business, operating results and financial condition.

Employees

As of December 31, 2006, we had 670 employees, including 146 in research and development, 195 in sales and marketing, 269 in professional services
and customer support, and 60 in finance and administration. Our future success will depend in part on our ability to attract, retain and motivate highly qualified technical and management personnel, for whom competition is intense. From time to
time, we also employ independent contractors to support our professional services, product development, sales, marketing and finance organizations. We also outsource certain development, including product development and quality assurance. Our
employees are not represented by any collective bargaining unit, and we have never experienced a work stoppage. We believe our relations with our employees are good.



|ITEM 1A. | RI
SK FACTORS
|-------- | -------------

You should carefully consider the following risks before making an investment decision. The risks
described below are not the only ones that we face. Our business, operating results or financial condition could be materially adversely affected by any of the following risks. The trading price of our common stock could decline due to any of these
risks, and you as an investor may lose all or part of your investment. You should also refer to the other information set forth in this report, including our consolidated financial statements and the related notes.

Various sections of this Form 10-K contain forward-looking statements that involve risks and uncertainties. Forward-looking statements are not guarantees of future
performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the section entitled Risk
Factors and elsewhere in this Form 10-K. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Risks Related to Our Business

We Are Profitable but May not be Able to Sustain Consistent Profitability

Although we recorded a profit for fiscal year 2006 and fiscal year 2005, we cannot be certain that we will generate sufficient revenues
to maintain profitability. If we do maintain profitability, we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis in the future. To achieve and sustain profitable operations and positive cash flows, we
must increase our license and support services revenues. If our revenues do not grow at a rate greater than expenses required to fund our continuing operations, we will not be able to maintain the profitability recorded in the fiscal years ended
December 31, 2006 and 2005, which could cause the price of our common stock to decline.



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We Expect Our Quarterly Revenues and Operating Results to Fluctuate

Our revenues and operating results have varied significantly from quarter to quarter in the past and we expect that our operating results will continue to
vary significantly from quarter to quarter. A number of factors are likely to cause these variations, including:



| |  |  | demand for our products and services;
| | - |  | -------------------------------------



| |  |  | the timing of sales of our products and services;
| | - |  | -------------------------------------------------



| |  |  | the timing of customer orders and product implementations;
| | - |  | ----------------------------------------------------------



| |  |  | seasonal fluctuations in information technology purchasing;
| | - |  | -----------------------------------------------------------



| |  |  | unexpected delays in introducing new products and services;
| | - |  | -----------------------------------------------------------



| |  |  | increased expenses, whether related to sales and marketing, product development, product migration and customer support, or administration;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the rapidly evolving market for Web-based applications;
| | - |  | ------------------------------------------------------------------



| |  |  | the mix of product license and services revenue, as well as the mix of products licensed;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | the mix of services provided and whether services are provided by our own staff or third-party contractors;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | the mix of domestic and international sales;
| | - |  | --------------------------------------------



| |  |  | difficulties in collecting accounts receivable;
| | - |  | -----------------------------------------------



| |  |  | costs related to possible acquisitions of technology or businesses;
| | - |  | -------------------------------------------------------------------



| |  |  | global events, including terrorist activities, military operations and widespread epidemics;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | the general economic climate;
| | - |  | -----------------------------



| |  |  | changes to our licensing and pricing model; and
| | - |  | -----------------------------------------------



| |  |  | difficulty in developing and maintaining an indirect sales channel.
| | - |  | -------------------------------------------------------------------

Accordingly, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful. Investors should not rely on the results of one quarter as an indication of future performance.

We will continue to invest in our research and development, sales and marketing, professional services and general and administrative
organizations. We expect such overall spending, in absolute dollars, will increase in future periods. If our revenue expectations are not achieved, our business, operating results or financial condition could be materially adversely affected.



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Our Revenue For a Particular Period is Difficult to Forecast, and a Shortfall in Revenue Would Harm Our Operating
Results

As a result of the evolving nature of the market in which we compete, our revenue, license bookings, and earnings are difficult
to forecast. We plan our operating expense based on our historical results, and in part, on future revenue projections. Most of our expenses are fixed in the short term and we may not be able to quickly reduce spending if our revenues are lower than
we had forecasted. Our ability to accurately forecast our quarterly revenue is limited because our software products have a long sales cycle that makes it difficult to predict the quarter in which sales will occur. We would expect our business,
operating results and financial condition to be materially adversely affected if our revenues do not meet our projections.

We Use a Third-Party Service
Provider in India for a Significant Portion of Our Research and Development Operations and, If We Are Unable to Manage Our Outsourcing Relationship or if We Are Unable to Use Such a Provider, our Business Could Be Adversely Affected

We are currently using a third-party service provider in India to supply approximately half of our research and development operations. As other
software companies have done and are continuing to do, we may continue to allocate more development and IT resources to offshore third parties, and we may expand our own operational capabilities in India, with the expectation of achieving
significant efficiencies including reduced operational costs and an around-the-clock development cycle. If we are unable to successfully manage our relationship with the third-party service providers, we will not be able to achieve such efficiencies
and our business operations could be harmed. In addition, if our third-party service provider is unable to continue to attract and retain highly skilled personnel our business, operating results and financial condition could be materially adversely
affected.

In addition, although to date, the dispute between India and Pakistan involving the Kashmir region and the incidents of
terrorism in India have not adversely affected our ability to utilize a third-party service provider in India, such disputes and acts of terrorism could potentially affect our ability to obtain research and development operations from third-party
providers. Should we be unable to use a third-party service provider in India for a portion of our research and development in the future, we believe that our business could be adversely affected.

Our Business May Become Increasingly Susceptible to Numerous Risks Associated with International Operations

International operations are generally subject to a number of risks, including:



| |  |  | expenses associated with customizing products for foreign countries;
| | - |  | --------------------------------------------------------------------



| |  |  | protectionist laws and business practices that favor local competition;
| | - |  | -----------------------------------------------------------------------



| |  |  | changes in jurisdictional tax laws including laws regulating intercompany transactions;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | dependence on local vendors;
| | - |  | ----------------------------



| |  |  | multiple, conflicting and changing governmental laws and regulations;
| | - |  | ---------------------------------------------------------------------



| |  |  | longer sales cycles;
| | - |  | --------------------



| |  |  | difficulties in collecting accounts receivable;
| | - |  | -----------------------------------------------



| |  |  | seasonality of operations;
| | - |  | --------------------------



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| |  |  | difficulties in staffing and managing foreign operations;
| | - |  | ---------------------------------------------------------



| |  |  | the need to localize our products;
| | - |  | ----------------------------------



| |  |  | licenses, tariffs, and other trade barriers;
| | - |  | --------------------------------------------



| |  |  | loss of proprietary information due to piracy, misappropriation or weaker laws regarding intellectual property protection;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | foreign currency exchange rate fluctuations;
| | - |  | --------------------------------------------



| |  |  | political and economic instability; and
| | - |  | ---------------------------------------



| |  |  | compliance risk.
| | - |  | ----------------

The acquisition of
Tower Technology and our recent consolidation of product development facilities to overseas labor markets substantially increase our international operations. Rapid and complete knowledge transfer and successful retention of key personnel is
essential to our plan to consolidate product development facilities and transfer positions to labor markets with lower cost structures.

We
recorded 38% and 39% of our total revenue for the years ended December 31, 2006 and 2005, respectively, through licenses and services sold to customers located outside of the United States. We expect international revenue to remain a large
percentage of total revenue and we believe that we must continue to expand our international sales activities to be successful. Historically, a majority of our international revenues and costs have been denominated in foreign currencies, and we
expect future international revenues and costs will be denominated in foreign currencies. Our international sales growth will be limited if we are unable to establish appropriate foreign operations, expand international sales channel management and
support organizations, hire additional personnel, customize products for local markets, develop relationships with international service providers and establish relationships with additional distributors and third-party integrators. In that case,
our business, operating results and financial condition could be materially adversely affected. Even if we are able to successfully expand international operations, we cannot be certain that we will be able to maintain or increase international
market demand for our products.

We utilize foreign currency forward contracts to hedge foreign currency-denominated payables and
receivables. To date, we have not hedged forecasted transactions or firm commitments denominated in foreign currencies. Gains and losses on hedging contracts are reflected currently in other income and expense. We typically limit the duration of our
foreign currency forward contracts to 90 days. We do not invest in contracts for speculative purposes.

We Must Overcome Significant Challenges in
Integrating Businesses Operations and Product Offerings to Realize the Benefits of our Business Combinations

As part of our overall
strategy, we have acquired or invested in, complementary companies, products, and technologies. Risks commonly associated with such transactions include:



| |  |  | the potential difficulties of integrating international and domestic operations;
| | - |  | --------------------------------------------------------------------------------



| |  |  | the potential disruption of our ongoing business and diversion of management resources;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | the possibility that the business cultures will not be compatible;
| | - |  | ------------------------------------------------------------------



| |  |  | the difficulty of incorporating acquired technology and rights into our products and services;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | unanticipated expenses related to integration of operations;
| | - |  | ------------------------------------------------------------



| |  |  | the impairment of relationships with employees and customers as a result of any integration of new personnel;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | potential unknown liabilities associated with the acquired business and technology;
| | - |  | -----------------------------------------------------------------------------------



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| |  |  | costs and delays in implementing common systems and procedures, including financial accounting systems and customer information systems; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | potential inability to retain, integrate and motivate key management, marketing, technical sales and customer support personnel.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------

For such transactions to achieve their anticipated benefits, we must successfully combine and integrate products in a timely manner. Integrating can be a
complex, time-consuming and expensive process and may result in revenue disruption and operational difficulties if not completed in a timely and efficient manner. We may be required to spend additional time or money on integration that would
otherwise be spent on developing our business or on other matters. If we do not integrate our operations and technology smoothly or if management spends too much time on integration issues, it could harm our business, financial condition and results
of operations and diminish the benefits of the acquisition as well as harm our content management business.

Prior to the acquisitions,
each company operated independently, each with its own business, business culture, markets, clients, employees and systems. Following the acquisitions, we must operate as a combined organization, utilizing common information communication systems,
operating procedures, financial controls and human resource practices, including benefits, training and professional development programs. There may be substantial difficulties, costs and delays involved in the integration. There can be no assurance
that we will succeed in addressing these risks or any other problems encountered in connection with the acquisition.

We Must Succeed in the Portal,
Collaboration and Content Management Market as Well as the Enterprise Content Management and the Document and Records Management Markets if We Are to Realize the Expected Benefits of Our Product Strategy and Business Combinations.

Our long-term strategic plan depends upon the successful development and introduction of products and solutions that address the needs of the portal,
collaboration and content management market as well as the enterprise content management and the document and records management markets. For us to succeed in these markets, We must align strategies and objectives and diversify the focus of our
resources to succeed in these various markets.

Our success in these new markets will depend on several factors, many of which are outside
our control including:



| |  |  | continued growth of the portal, collaboration and content management market;
| | - |  | ----------------------------------------------------------------------------



| |  |  | continued growth of the enterprise content management and document and records management markets;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | deployment of the combined companys products by enterprises; and
| | - |  | -----------------------------------------------------------------



| |  |  | barriers to entry for the emergence of substitute technologies and products.
| | - |  | ----------------------------------------------------------------------------



| |  |  | Ability to adapt to different sales and marketing techniques required for the various markets.
| | - |  | ----------------------------------------------------------------------------------------------

If we are unable to succeed in these markets, our business may be harmed and we may be prevented from realizing the anticipated benefits of our business
strategy and our acquisitions.

Acquisitions Could Be Difficult to Integrate, Disrupt Our Business, Dilute Stockholder Value and Adversely Affect Our
Operating Results

The Company will continue to consider strategic acquisitions. We may acquire other businesses in the future, which
would complicate our management tasks. We may need to integrate widely dispersed operations that have different and unfamiliar corporate cultures. These integration efforts may not succeed or may distract managements attention from existing
business operations. Failure to successfully integrate acquisitions could seriously harm our business. Also, our existing stockholders would experience dilution if we financed subsequent acquisitions by issuing equity securities.



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In addition, the market price of our common stock could decline as a result of future acquisitions, based
on the occurrence of a number of events, including:



| |  |  | the failure to successfully integrate products;
| | - |  | -----------------------------------------------



| |  |  | delays or failure in the integration of technology;
| | - |  | ---------------------------------------------------



| |  |  | the belief that we have not realized the perceived benefits of the acquisitions in a timely manner or at all;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | the issuance of our shares to the acquired companys shareholders; and
| | - |  | ----------------------------------------------------------------------



| |  |  | the potential negative effect of the acquisition on our operating results, including the impact of amortization of intangible assets, other than goodwill, created
by the acquisition and claims that may arise for which we are not indemnified.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our Quarterly Results May Depend on a Small Number of
Large Orders

In previous quarters, we derived a significant portion of our software license revenues from a small number of relatively
large orders. Our operating results could be materially adversely affected if we are unable to complete a significant order that we expected to complete in a specific quarter.

If We Experienced a Product Liability Claim, We Could Incur Substantial Litigation Costs

Since our
customers use our products for mission-critical applications, errors, defects or other performance problems could result in financial or other damages to our customers. They could seek damages for losses from us, which, if successful, could have a
material adverse effect on our business, operating results and financial condition. Although our license agreements typically contain provisions designed to help limit our exposure to product liability claims, existing or future laws or unfavorable
judicial decisions could negate or alter such limitation of liability provisions. Such claims, if brought against us, even if not successful, would likely be time consuming and costly.

Our Ability to Use Net Operating Losses to Offset Future Taxable Income may be Subject to Certain Limitations.

In
general, under Section 382 of the Internal Revenue Code, a corporation that undergoes an ownership change is subject to limitations on its ability to utilize its pre-change net operating losses (NOLs) to offset future taxable
income. A substantial portion of our existing NOLs and tax credits relate to companies that we have acquired and may be subject to limitations arising from ownership changes prior to, or in connection with, their acquisition by
us. Furthermore, our ability to utilize NOLs and tax credits of companies that we may acquire in the future may be subject to limitations. Our existing NOLs and tax credits may be subject to limitations arising from previous ownership
changes, and future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Internal Revenue Code, potentially further limiting our ability to utilize our NOLs
and tax credits. For these reasons, we may not be able to utilize a material portion of the NOLs and tax credits disclosed in our financial statements to offset future income. This may result in a substantial increase to income tax expense
in future periods.

We Face Intense Competition from Other Software Companies, Which Could Make it Difficult to Compete Successfully

Our market is intensely competitive. Our customers requirements and the technology available to satisfy those requirements continually change. We
expect competition to persist and intensify in the future,



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including competition resulting from consolidations in the software industry. Several large competitors have shown increased focus in our market including
acquisition of smaller competitors which could make the acquiring company stronger.

Our principal competitors include: in-house
development efforts by potential customers or partners; other vendors of software that directly address elements of Web-based applications; and developers of software that address only certain technology components of Web-based applications (e.g.,
content management, portal management, document management, process, collaboration, integration or analytics). In addition, we face increased competition from large companies that includes capabilities similar to our software in larger integrated
product offerings.

Many of these companies have longer operating histories and significantly greater financial, technical, marketing and
other resources than we do. Many of these companies can also leverage extensive customer bases and adopt aggressive pricing policies to gain market share. Potential competitors may bundle or license their products in a manner that may discourage
users from purchasing our products. In addition, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share.

Competitive pressures may make it difficult for us to acquire and retain customers and may require us to reduce the price of our software. We cannot be
certain that we will be able to compete successfully with existing or new competitors. If we fail to compete successfully against current or future competitors, our business, operating results and financial condition would be materially adversely
affected.

We Depend on Increased Business from Our Current and New Customers and, if We Fail to Grow Our Customer Base or Generate Repeat Business, Our
Operating Results Could Be Harmed

If we fail to grow our customer base or generate repeat and expanded business from our current and
new customers, our business and operating results would be seriously harmed. Many of our customers initially make a limited purchase of our products and services. Some of these customers may not choose to purchase additional licenses to expand their
use of our products. Some of these customers have not yet developed or deployed initial applications based on our products. If these customers do not successfully develop and deploy such initial applications, they may not choose to purchase
deployment licenses or additional development licenses. Our business model depends on the expanded use of our products within our customers organizations.

In addition, as we introduce new versions of our existing products or new products, our current customers may not require the functionality of our new products and may not ultimately license these products. Because
the total amount of maintenance and support fees we receive in any period depends in large part on the size and number of licenses that we have previously sold, any downturn in our software license revenue would negatively impact our future services
revenue. In addition, if customers elect not to renew their maintenance agreements, our services revenue could be significantly adversely affected.

Our
Future Revenue is Dependent Upon Our Ability to Successfully Market Our Existing and Future Products

We expect that our future
financial performance will depend significantly on revenue from existing and future software products and the related tools that we plan to develop. There are significant risks inherent in a product introduction, such as our Vignette V7 software
products. Market acceptance of these and future products will depend on continued market development for Web applications and services and the continued commercial adoption of Vignette V7. We cannot be certain that either will occur. We cannot be
certain that our existing or future products will meet customer needs or expectations when released or that they will be free of significant software defects or bugs. If our products do not meet customer needs or expectations, for whatever reason,
upgrading or enhancing the product could be costly and time-consuming.



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Our Operating Results May Be Adversely Affected by Small Delays in Customer Orders or Product Implementations

Small delays in customer orders or product implementations can cause significant variability in our license revenues and operating
results for any particular period. We derive a substantial portion of our revenue from the sale of products with related services. In certain cases, our revenue recognition policy requires us to substantially complete the implementation of our
product before we can recognize software license revenue, and any end-of-quarter delays in product implementation could materially adversely affect operating results for that quarter.

To Increase Market Awareness of Our Products and Generate Increased Revenue, We Need to Continue to Strengthen Our Sales and Distribution Capabilities

Our direct and indirect sales operations must increase market awareness of our products to generate increased revenue. We cannot be certain that we will
be successful in these efforts. Our products and services require a sophisticated sales effort targeted at the senior management of our prospective customers. The market for talented sales resources is very competitive. Over the course of 2006, we
experienced attrition in our sales force. To continue to strengthen sales and distribution, we must continue to hire a significant number of sales personnel. All new hires will require training and will take time to achieve full productivity. We
cannot be certain that our new hires will become as productive as necessary or that we will be able to hire enough qualified individuals or retain existing employees in the future. We plan to expand our relationships with systems integrators and
certain third-party resellers to build an indirect influence and sales channel. In addition, we will need to manage potential conflicts between our direct sales force and any third-party reselling efforts.

Failure to Maintain the Support of Third-Party Systems Integrators May Limit Our Ability to Penetrate Our Markets

A significant portion of our sales are influenced by the recommendations of our products made by systems integrators, consulting firms and other third
parties that help develop and deploy Web-based applications for our customers. Losing the support of these third parties may limit our ability to penetrate our markets. These third parties are under no obligation to recommend or support our
products. These companies could recommend or give higher priority to the products of other companies or to their own products. A significant shift by these companies toward favoring competing products could negatively affect our license and services
revenue. Additionally, these organizations may acquire or distribute software products that compete with our products in future periods. If they become our competitors, this could negatively affect our license and services revenue.

Our Lengthy Sales Cycle and Product Implementation Makes It Difficult to Predict Our Quarterly Results

We have a long sales cycle because we generally need to educate potential customers regarding the use and benefits of Web-based applications. Our long
sales cycle makes it difficult to predict the quarter in which sales may fall. In addition, since we recognize some of our revenue from product sales upon implementation of our product, the timing of product implementation could cause significant
variability in our license revenues and operating results for any particular period. The implementation of our products requires a significant commitment of resources by our customers, third-party professional services organizations or our
professional services organization, which makes it difficult to predict the quarter when implementation will be completed.

We May Be Unable to
Adequately Sustain a Profitable Professional Services Organization, Which Could Affect Both Our Operating Results and Our Ability to Assist Our Customers with the Implementation of Our Products

Customers that license our software often engage our professional services organization to assist with support, training, consulting and implementation of
their Web solutions. We believe that growth in our product sales depends in part on our continuing ability to provide our customers with these services and to educate third-party resellers on how to use our products.



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Historically, services costs related to professional services have frequently exceeded, or had been
substantially equal to, professional services-related revenue. In this current economic climate, we make periodic capacity decisions based on estimates of future sales, anticipated existing customer needs, and general market conditions. Although we
expect that our professional services-related revenue will continue to exceed professional services-related costs in future periods, we cannot be certain that this will occur.

We generally bill our customers for our services on a time-and-materials basis. However, from time to time we enter into fixed-price contracts for
services, and may include terms and conditions that may extend the recognition of revenue for work performed into following quarters. On occasion, the costs of providing the services have exceeded our fixed price from these contracts and such
contracts have negatively impacted our operating results.

We May Be Unable to Attract Necessary Third-Party Service Providers, Which Could Affect Our
Ability to Provide Sufficient Support, Consulting and Implementation Services for Our Products

We are actively supplementing the
capabilities of our services organization by contracting with and educating third-party service providers and consultants to also provide these services to our customers. We may not be successful in attracting additional third-party providers or in
educating or maintaining the interest of current third-party providers. In addition, these third parties may not devote sufficient resources to these activities to meet customers demands to adequately supplement our services. Additionally,
these organizations may acquire or distribute software products that compete with our products in future periods. If they become our competitors, this could negatively affect our revenue.

To Properly Manage Future Growth, We Need to Continue to Improve Our Operational Systems on a Timely Basis

We have experienced periods of rapid expansion and contraction since our inception. Rapid fluctuations place a significant demand on management and
operational resources. To manage such fluctuations effectively, we must continue to improve our operational systems, procedures and controls on a timely basis. If we fail to continue to improve these systems, our business, operating results and
financial condition will be materially adversely affected.

We May Be Adversely Affected if We Lose Key Personnel

Our success depends largely on the skills, experience and performance of some key technical, sales, managerial, and executive personnel throughout all
areas of our business. If we lose one or more of our key employees, our business, operating results and financial condition could be materially adversely affected. As we continue to manage with an offshore research and development operations model,
it is particularly important that our intellectual property is protected and retained during this transfer. In addition, our future success will depend largely on our ability to continue to attract and retain highly skilled personnel. In particular,
hiring and retaining qualified engineers, skilled solutions providers, and qualified sales representatives is critical to our future. Like other software companies, we face competition for qualified personnel. If we are unable to continue to attract
and retain skilled and experienced personnel, our growth may be limited.

If We are Unable to Meet the Rapid Changes in Software Technology, Our
Existing Products Could Become Obsolete

The market for our products is marked by rapid technological change, frequent new product
introductions and Internet-related technology enhancements, uncertain product life cycles, changes in customer demands, changes in packaging and combination of existing products and evolving industry standards. We cannot be certain that we will
successfully develop and market new products, new product enhancements or new products compliant with present or emerging Internet technology standards. New products based on new technologies, new industry standards or new combinations of existing
products as



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bundled products can render existing products obsolete and unmarketable. To succeed, we will need to enhance our current products and develop new products on
a timely basis to keep pace with developments related to Internet technology and to satisfy the increasingly sophisticated requirements of our customers. Internet commerce technology, particularly Web-based applications technology, is complex and
new products and product enhancements can require long development and testing periods. Any delays in developing and releasing enhanced or new products could have a material adverse effect on our business, operating results and financial condition.

We Develop Complex Software Products Susceptible to Software Errors or Defects that Could Result in Lost Revenues, or Delayed or Limited Market
Acceptance

Complex software products such as ours often contain errors or defects, particularly when first introduced or when new
versions or enhancements are released. Despite internal testing and testing by current and potential customers, our current and future products may contain serious defects. Serious defects or errors could result in lost revenues or a delay in market
acceptance, which would have a material adverse effect on our business, operating results and financial condition.

Our Product Shipments Could Be
Delayed if Third-Party Software Incorporated in Our Products is No Longer Available

We integrate third-party software as a component of
our software. The third-party software may not continue to be available to us on commercially reasonable terms. If we cannot maintain positive relationships and licenses to key third-party software, shipments of our products could be delayed or
disrupted until equivalent software could be developed or licensed and integrated into our products, which could materially adversely affect our business, operating results and financial condition.

Our Business is Based on Our Intellectual Property and We Could Incur Substantial Costs Defending Our Intellectual Property from Infringement or a Claim of
Infringement

In recent years, there has been significant litigation in the United States involving patents and other intellectual
property rights. We could incur substantial costs to prosecute or defend any such litigation. Although we are not involved in any such litigation that we believe is material to our business, if we become a party to litigation in the future to
protect our intellectual property or as a result of an alleged infringement of others intellectual property, we may be forced to do one or more of the following:



| |  |  | cease selling, incorporating or using products or services that incorporate the challenged intellectual property;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | obtain from the holder of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on
reasonable terms;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | redesign those products or services that incorporate such technology; and
| | - |  | -------------------------------------------------------------------------



| |  |  | refund a pro-rata portion of the original license consideration paid by the customer.
| | - |  | -------------------------------------------------------------------------------------

We rely on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect our technology. These legal
protections provide only limited protection. If we litigated to enforce our rights, it would be expensive, divert management resources and may not be adequate to protect our business.

Anti-Takeover Provisions in Our Corporate Documents and Delaware Law Could Prevent or Delay a Change in Control of Our Company

Certain provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable. Such provisions include:



| |  |  | authorizing the issuance of blank check preferred stock;
| | - |  | ----------------------------------------------------------



| |  |  | providing for a classified Board of Directors with staggered, three-year terms;
| | - |  | -------------------------------------------------------------------------------



| |  |  | prohibiting cumulative voting in the election of directors;
| | - |  | -----------------------------------------------------------



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| |  |  | requiring super-majority voting to effect certain amendments to our certificate of incorporation and bylaws;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | limiting the persons who may call special meetings of stockholders;
| | - |  | -------------------------------------------------------------------



| |  |  | prohibiting stockholder action by written consent; and
| | - |  | ------------------------------------------------------



| |  |  | establishing advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted on by stockholders at
stockholder meetings.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Certain provisions of Delaware law and our stock incentive plans may also discourage, delay or
prevent someone from acquiring or merging with us.

Further, in April 2002, our Board of Directors approved, adopted and entered into a
shareholder rights plan referred to as the Plan. The Plan was not adopted in response to any attempt to acquire us, nor were we aware of any such efforts at the time of adoption.

The Plan was designed to enable our stockholders to realize the full value of their investment by providing for fair and equal treatment of all
stockholders in the event that an unsolicited attempt is made to acquire us. Adoption of the Plan was intended to guard shareholders against abusive and coercive takeover tactics.

Under the Plan, stockholders of record as of the close of business on May 6, 2002, received one right to purchase a one one-hundredth of a share of
Series A Junior Participating Preferred Stock, par $0.01 per share, at a price of $300.00 per one one-hundredth, subject to adjustment. The rights were issued as a non-taxable dividend and will expire 10 years from the date of the adoption of the
rights Plan, unless earlier redeemed or exchanged. The rights are not immediately exercisable; however, they will become exercisable upon the earlier to occur of (i) the close of business on the tenth day after a public announcement that a
person or group has acquired beneficial ownership of 15 percent or more of our outstanding common stock or (ii) the close of business on the tenth day (or such later date as may be determined by the Board of Directors prior to such time as any
person becomes an acquiring person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer that would result in the beneficial ownership by a person or group of 15 percent or more of our outstanding
common stock. If a person or group acquires 15 percent or more of our common stock, then all rights holders except the acquirer will be entitled to acquire our common stock at a significant discount. The intended effect will be to discourage
acquisitions of 15 percent or more of our common stock without negotiation with the Board of Directors.

Terrorist Activities and Resulting Military and
Other Actions Could Adversely Affect Our Business

The continued threat of terrorism within the United States and abroad, military
action in other countries, and heightened security measures may cause significant disruption to commerce throughout the world. To the extent that such disruptions result in delays or cancellations of customer orders, a general decrease in corporate
spending on information technology, or our inability to effectively market, sell and deploy our software and services, our business and results of operations could be materially and adversely affected. We are unable to predict whether the threat of
terrorism or the responses thereto will result in any long-term commercial disruptions or if such activities or responses will have a long-term material adverse effect on our business, results of operations or financial condition.

Our Results of Operations Could be Materially Impacted if There are Changes in Our Accounting Estimates Used in the Determination of Stock Compensation Expense.

We estimate the fair value of stock options using a Black-Scholes valuation model, consistent with the provisions of Statement 123R and
the interpretive guidance of SAB 107. Option-pricing models require the input of highly subjective assumptions, including the options expected life and the price volatility of the underlying stock. Judgment is also required in estimating the
number of stock-based awards that are expected to be issued and forfeited. If actual results or future changes in estimates differ significantly from our current estimates, stock-based compensation expense and our results of operations could be
materially impacted.



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Our Financial Statements Could be Impacted by Unauthorized and Improper Actions of Our Personnel

Our financial statements could be adversely impacted by our employees errant or improper actions. For instance, revenue recognition depends on,
among other criteria, the terms negotiated in our contracts with our customers. Our personnel may act outside of their authority and negotiate additional terms without our knowledge. We have implemented policies to prevent and discourage such
conduct, but there can be no assurance that such policies will be followed. For instance, in the event that our sales personnel have negotiated terms that do not appear in the contract and of which we are unaware, whether the additional terms are
written or oral, we could be prevented from recognizing revenue in accordance with our plans.

Furthermore, depending on when we learn of
unauthorized actions and the size of transactions involved, we may have to restate our financial statements for a previously reported period, which would seriously harm our business, operating results and financial condition.

We Have Incurred Significant Costs in Response to Ongoing Laws and Regulations

Laws and regulations affecting public companies, including but not limited to the Sarbanes-Oxley Act of 2002, have caused us to incur costs as we evaluate and respond to the resulting requirements. The rules could
make it more difficult for us to obtain certain types of insurance, and we may incur higher costs to obtain coverage similar to our existing policies. Additionally, we have incurred and expect to incur on an ongoing basis increased accounting, audit
and legal fees to assist us assess, implement and comply with such rules. The ongoing and proposed rules could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors.

Risks Related to the Software Industry

Our Business is Sensitive
to the Overall Economic Environment; a Continued Slowdown in Information Technology Spending Could Harm Our Operating Results

The
primary customers for our products are enterprises seeking to launch or expand Web-based initiatives. A significant downturn in our customers markets and in general economic conditions that result in reduced information technology spending
budgets would likely result in a decreased demand for our products and services and harm our business. Industry downturns like these have been, and may continue to be, characterized by diminished product demand, erosion of average selling prices,
lower than expected revenues and difficulty making collections from existing customers.

Our Performance Will Depend on the Market for Web Based
Application Software

The market for Web-based applications software is rapidly evolving. We expect that we will continue to need
intensive marketing and sales efforts to educate prospective customers about the uses and benefits of our products and services such as the recent launch of our Digital Services Hub campaign. Accordingly, we cannot be certain that a viable market
for our products will emerge or be sustainable or that market campaigns such the Digital Services Hub launch will result in increased demand for our products and services. Enterprises that have already invested substantial resources in other methods
of conducting business may be reluctant or slow to adopt a new approach that may replace, limit or compete with their existing systems. Similarly, individuals have established patterns of purchasing goods and services. They may be reluctant to alter
those patterns. They may also resist providing the personal data necessary to support our existing and potential product uses. Any of these factors could inhibit the growth of online business generally and the markets acceptance of our
products and services in particular.



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There is Substantial Risk that Future Regulations Could Be Enacted that Either Directly Restrict Our Business or
Indirectly Impact Our Business by Limiting the Growth of Internet Commerce

As Internet commerce evolves, we expect that federal, state
or foreign agencies will adopt regulations covering issues such as user privacy, pricing, content and quality of products and services. If enacted, such laws, rules or regulations could limit the market for our products and services, which could
materially adversely affect our business, financial condition and operating results. Although many of these regulations may not apply to our business directly, we expect that laws regulating the solicitation, collection or processing of personal and
consumer information could indirectly affect our business. The Telecommunications Act of 1996 prohibits certain types of information and content from being transmitted over the Internet. The prohibitions scope and the liability associated with
a Telecommunications Act violation are currently unsettled. In addition, although substantial portions of the Communications Decency Act were held to be unconstitutional, we cannot be certain that similar legislation will not be enacted and upheld
in the future. It is possible that such legislation could expose companies involved in Internet commerce to liability, which could limit the growth of Internet commerce generally. Legislation like the Telecommunications Act and the Communications
Decency Act could dampen the growth in Web usage and decrease its acceptance as a communications and commercial medium.

The United States
government also regulates the export of encryption technology, which our products incorporate. If our export authority is revoked or modified, if our software is unlawfully exported or if the United States government adopts new legislation or
regulation restricting export of software and encryption technology, our business, operating results and financial condition could be materially adversely affected. Current or future export regulations may limit our ability to distribute our
software outside the United States. Although we take precautions against unlawful export of our software, we cannot effectively control the unauthorized distribution of software across the Internet.

Risks Related to the Securities Markets

Our Stock Price May Be
Volatile

The market price of our common stock has been highly volatile and has fluctuated significantly in the past. We believe that it
may continue to fluctuate significantly in the future in response to the following factors, some of which are beyond our control:



| |  |  | variations in quarterly operating results;
| | - |  | ------------------------------------------



| |  |  | the impact of stock option expensing;
| | - |  | -------------------------------------



| |  |  | changes in financial estimates by securities analysts;
| | - |  | ------------------------------------------------------



| |  |  | changes in market valuations of Internet software companies;
| | - |  | ------------------------------------------------------------



| |  |  | announcements by us of significant contracts, acquisitions, restructurings, strategic partnerships, joint ventures or capital commitments;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | loss of a major customer or failure to complete significant license transactions;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | additions or departures of key personnel;
| | - |  | -----------------------------------------



| |  |  | difficulties in collecting accounts receivable;
| | - |  | -----------------------------------------------



| |  |  | large percentage of stock held by a few large shareholders; and
| | - |  | ---------------------------------------------------------------



| |  |  | fluctuations in stock market price and volume, which are particularly common among highly volatile securities of Internet and software companies.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------

Our Business May Be Adversely Affected by Class Action Litigation Due to Stock Price Volatility

In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its
securities. We are a party to the securities class action litigation described in Part I, Item 3  Legal Proceedings of this Report. The defense of this litigation described in



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Part I, Item 3 may increase our expenses and divert our managements attention and resources, and an adverse outcome could harm our business and
results of operations. Additionally, we may in the future be the target of similar litigation. Future securities litigation could result in substantial costs and divert managements attention and resources, which could have a material adverse
effect on our business, operating results and financial condition.

We May Be Unable to Meet Our Future Capital Requirements and Raise Additional
Capital, This May Be Dilutive to Our Stockholders

Although we expect our cash balances to be sufficient to manage our operations, it is
possible that we may need to raise additional funds and we cannot be certain that we would be able to obtain additional financing on favorable terms, if at all.

We may need to raise additional funds for other purposes and we cannot be certain that we would be able to obtain additional financing on favorable terms, if at all. Further, if we issue equity securities,
stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of common stock. If we cannot raise funds, if needed, on acceptable terms, we may not be able
to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, which could have a material adverse effect on our business, operating results and financial condition.

If Our Internal Controls Over Financial Reporting Do Not Comply With the Requirements of the Sarbanes-Oxley Act, Our Business and Stock Price Could Be
Adversely Affected

Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal controls
over financial reporting as of the end of each year beginning in 2004, and to include a management report assessing the effectiveness of our internal controls over financial reporting in all annual reports beginning with this Report.
Section 404 also requires our independent registered public accounting firm to attest to, and report on, managements assessment of our internal controls over financial reporting.

Our management, including our CEO and CFO, does not expect that our internal controls over financial reporting will prevent all errors and all fraud. A
control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances
of fraud, if any, involving the company have been, or will be, detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can
also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future
events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of
compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Although our management has determined, and our independent registered public accounting firm has attested, that our internal control over financial
reporting was effective as of December 31, 2006, we cannot provide assurance that we or our independent registered public accounting firm will not identify a material weakness in our internal controls in the future. A material weakness in our
internal controls over financial reporting would require management and our independent registered public accounting firm to evaluate our internal controls as ineffective. If our internal controls over financial reporting are not considered
adequate, we may experience a loss of public confidence, which could have an adverse effect on our business and our stock price.



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Our Business is Subject to Changing Regulation of Corporate Governance and Public Disclosure That Has Increased Both
Our Costs and the Risk of Noncompliance

Because our common stock is publicly traded, we are subject to certain rules and regulations of
federal, state and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the
Securities Exchange Commission and NASDAQ, have recently issued new requirements and regulations and continue to develop additional regulations and requirements in response to recent laws enacted by Congress, most notably the Sarbanes-Oxley Act. Our
efforts to comply with these new regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance
activities. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act and the related regulations regarding our required assessment of our internal controls over financial reporting and our external auditors audit of
that assessment has required, and continues to require, the commitment of significant financial and managerial resources.

Moreover,
because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance
matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None



|ITEM 2. | PROPERTIES
|------- | ----------

Our principal research, development,
sales, marketing and administrative headquarter offices are located in Austin, Texas. We do not own any real estate or facilities. As of December 31, 2006, we leased direct office space in: Austin, Texas; San Francisco, California; New York
City, New York; Boston, Massachusetts; Reston, Virginia; Sydney, Australia; Slough and Maidenhead, United Kingdom; and Madrid, Spain. Such leases have remaining terms of up to five years. All offices listed above support sales and services activity,
and we have research and development activity in our Austin, Texas and Sydney, Australia offices.

Additionally, we lease several
full-service managed suites and executive suites as small sales offices across the United States and around the world. These small offices generally have lease terms of less than one year, allowing us to adjust to changing business and customer
support requirements. As of December 31, 2006, we leased office space in 14 countries outside of the United States.

Throughout 2006,
we consolidated our leased office portfolio. Some of the resulting excess lease space expired in 2006, or will expire in the near term, and we successfully negotiated early terminations of some leases, in part or in whole. We currently sublease some
surplus office space in Austin, Texas; New York City, New York; and Boston, Massachusetts to unrelated third-parties. We are actively marketing and attempting to sublease or negotiate early terminations of our remaining surplus space, including, but
not limited to, space in Austin, Texas; Reston, Virginia; and Slough, United Kingdom for the respective remaining lease terms. The Company occupies or subleases approximately 83% of the leased office space leaving approximately 17% of the leased
space unoccupied.



|ITEM 3. | LEG
AL PROCEEDINGS
|------- | ------------------

Securities Class Action

On October 26, 2001, a class action lawsuit was filed against the Company and certain of its current and former officers and directors in the United
States District Court for the Southern District of New York in an action captioned Leon Leybovich v. Vignette Corporation, et al., seeking unspecified damages on behalf



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of a purported class that purchased Vignette common stock between February 18, 1999 and December 6, 2000. Also named as defendants were four
underwriters involved in the Companys initial public offering of Vignette stock in February 1999 and the Companys secondary public offering of Vignette stock in December 1999Morgan Stanley Dean Witter, Inc., Hambrecht &
Quist, LLC, Dain Rauscher Wessels and U.S. Bancorp Piper Jaffray, Inc. A Consolidated Amended Complaint, which is now the operative complaint, was filed on April 19, 2002. The complaint alleges violations of Sections 11, 12(a)(2) and 15 of the
Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, based on, among other things, claims that the four underwriters awarded material portions of the shares in the Companys
initial and secondary public offerings to certain customers in exchange for excessive commissions. The plaintiff also asserts that the underwriters engaged in tie-in arrangements whereby certain customers were allocated shares of Company
stock sold in its initial and secondary public offerings in exchange for an agreement to purchase additional shares in the aftermarket at pre-determined prices. With respect to the Company, the complaint alleges that the Company and its officers and
directors failed to disclose the existence of these purported excessive commissions and tie-in arrangements in the prospectus and registration statement for the Companys initial public offering and the prospectus and registration statement for
the Companys secondary public offering. The action seeks damages in an unspecified amount.

The action is being coordinated with approximately 300
other nearly identical actions filed against other companies. On October 9, 2002, the Court dismissed the Individual Defendants from the case without prejudice based upon Stipulations of Dismissal filed by the plaintiffs and the Individual
Defendants. On February 19, 2003, the Court denied a motion to dismiss the complaint against the Company. On October 13, 2004, the Court certified a class in six of the other nearly identical actions (the focus cases) and noted
that the decision is intended to provide strong guidance to all parties regarding class certification in the remaining cases. The Underwriter Defendants appealed the decision and the Second Circuit vacated the district courts decision granting
class certification in those six cases on December 5, 2006. Plaintiffs have not yet moved to certify a class in the Companys case.

The Company
has approved a settlement agreement and related agreements which set forth the terms of a settlement between the Company, the individual defendants, the plaintiff class and the vast majority of the other issuer defendants. It is unclear what impact
the Second Circuits decision vacating class certification in the six focus cases will have on the settlement, which has not yet been finally approved by the Court. On December 14, 2006, Judge Scheindlin held a hearing. Plaintiffs informed
the Court that they planned to file a petition for rehearing and rehearing en banc. The Court stayed all proceedings, including a decision on final approval of the settlement and any amendments of the complaints, pending the Second
Circuits decision on Plaintiffs petition for rehearing. Plaintiffs filed the petition for rehearing and rehearing en bancon January 5, 2007.

Pursuant to the settlement and related agreements, if the settlement receives final approval by the Court, the settlement provides for a release of the Company and the Individual Defendants for the conduct alleged in
the action to be wrongful. The Company would agree to undertake certain responsibilities, including agreeing to assign away, not assert, or release certain potential claims the Company may have against its underwriters. The settlement agreement also
provides a guaranteed recovery of $1 billion to plaintiffs for the cases relating to all of the approximately 300 issuers. To the extent that the underwriter defendants settle all of the cases for at least $1 billion, no payment will be required
under the issuers settlement agreement. To the extent that the underwriter defendants settle for less than $1 billion, the issuers are required to make up the difference. On April 20, 2006, JPMorgan Chase and the Plaintiffs reached a
preliminary agreement for a settlement for $425 million. The JPMorgan Chase settlement has not yet been approved by the Court. In an amendment to the issuers settlement agreement, the issuers insurers agreed that the JPMorgan settlement,
if approved, will only offset the insurers obligation to cover the remainder of Plaintiffs guaranteed $1 billion recovery by 50% of the value of the JP Morgan settlement, or $212.5 million. Therefore, if the JP Morgan settlement is
finally approved, then the maximum amount that the issuers insurers will be potentially liable for is $787.5 million. However, future settlements with other underwriters would further reduce that liability. It is unclear what impact the Second
Circuits decision vacating class certification in the focus cases will have on the JP Morgan Chase preliminary agreement.



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It is anticipated that any potential financial obligation of the Company to plaintiffs pursuant to the terms of the
settlement agreement and related agreements will be covered by existing insurance. The Company currently is not aware of any material limitations on the expected recovery of any potential financial obligation to plaintiffs from its insurance
carriers. Its carriers are solvent, and the Company is not aware of any uncertainties as to the legal sufficiency of an insurance claim with respect to any recovery by plaintiffs. Therefore, we do not expect that the settlement will involve any
payment by the Company. Even if material limitations on the expected recovery of any potential financial obligation to the plaintiffs from the Companys insurance carriers should arise, the Companys maximum financial obligation to
plaintiffs pursuant to the settlement agreement is less than $3.4 million.

There is no assurance that the Court will grant final approval of the
settlement. The Company can not predict whether or when a settlement will occur or be finalized. If the settlement is not approved, the Company is unable to determine whether the outcome of the litigation will have a material impact on its results
of operations or financial condition in any future period. The Company believes that this lawsuit is without merit and would continue to defend itself vigorously if the settlement is not approved.

Litigation and Other Claims

We are also subject to various legal
proceedings and claims arising in the ordinary course of business. Our management does not expect that the outcome in any of these legal proceedings, individually or collectively, will have a material adverse effect on our financial condition,
results of operations or cash flows.



|ITEM 4. | SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ----------------------------------------------------

No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report.

PART II.



|ITEM 5. | MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES
|------- | -------------------------------------------------------------------------------------------------------------

Our common stock is listed on the NASDAQ Global Market under the symbol VIGN. Public trading of the common stock commenced on
February 19, 1999. Prior to that, there was no public market for the common stock. The following table sets forth the high and low closing sale price per share of our common stock on the NASDAQ Global Market in each of the last eight fiscal
quarters. All closing sale prices per share have been restated for the one-for-ten reverse stock split of the Company that became effective on June 10, 2005.



|                              |  |      |       |     |   |      
|----------------------------- |  | ---- | ----- | --- | - | -----
|                              |  | High |       | Low
|Year Ended December 31, 2006: |  |      |       |     |   |      
|Fourth Quarter                |  | $    | 17.44 |     | $ | 13.39
|Third Quarter                 |  |      | 15.00 |     |   | 12.11
|Second Quarter                |  |      | 16.55 |     |   | 13.22
|First Quarter                 |  |      | 17.65 |     |   | 14.18
|Year Ended December 31, 2005: |  |      |       |     |   |      
|Fourth Quarter                |  | $    | 18.29 |     | $ | 14.36
|Third Quarter                 |  |      | 16.09 |     |   | 11.30
|Second Quarter                |  |      | 13.20 |     |   | 10.80
|First Quarter                 |  |      | 13.70 |     |   | 11.60



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At February 28, 2007, there were approximately 426 holders of record and approximately 60,000 total
shareholders of our common stock and the closing price of our common stock was $17.84 per share.

We have never declared or paid any cash
dividends on our common stock or other securities and do not anticipate paying cash dividends in the foreseeable future.

On
November 12, 2006, the Board of Directors of the Company approved a stock repurchase program of up to $75 million of the Companys common stock over the 12 months immediately following the approval. Purchases will be made from time to
time as market and business conditions warrant, in the open market, negotiated or block transactions, in accordance with applicable laws, rules and regulations. The table below sets forth the purchases made since the announcement on
November 13, 2006 through the Companys fiscal year end December 31, 2006.

Issuer Purchases of Equity Securities



|                         |  |                                   |  |                                 |       |                                                                               |         |                                                                                             |   |       
|------------------------ |  | --------------------------------- |  | ------------------------------- | ----- | ----------------------------------------------------------------------------- | ------- | ------------------------------------------------------------------------------------------- | - | ------
|Period                   |  | (a) Totalnumber ofsharespurchased |  | (b) Average price paidper share |       | (c) Total numbershares purchasedas part of publiclyannounced plans orprograms |         | (d) Maximum dollar valueof shares that may yetbe purchased underplans or programs (in 000s)
|11/12/2006 to 11/30/2006 |  | 216,700                           |  | $                               | 16.85 |                                                                               | 216,700 |                                                                                             | $ | 71,348
|12/01/2006 to 12/31/2006 |  | 599,050                           |  | $                               | 16.71 |                                                                               | 599,050 |                                                                                             | $ | 61,336
|                         |  |                                   |  |                                 |       |                                                                               |         |                                                                                             |   |       
|Total                    |  | 815,750                           |  | $                               | 16.75 |                                                                               | 815,750 |                                                                                             | $ | 61,336
|                         |  |                                   |  |                                 |       |                                                                               |         |                                                                                             |   |       

STOCK PERFORMANCE GRAPH

The graph set forth below compares the cumulative total stockholder return on the Companys Common Stock between December 31, 2001 and
December 31, 2006 with the cumulative total return (i) The Total Return Index for the NASDAQ Stock Market (US Companies) (The NASDAQ Stock Market-US Index) and (ii) Standard and Poors Information Technology Index
(S&P IT Index), over the same period. This graph assumes $100 investment at the beginning of such period and the reinvestment of all dividends. The Comparisons shown on the graph below are based on historical data. The historical
data for the Company has been retroactively restated for the one-for-ten reverse split that became effective as of June 10, 2005. The Company cautions that the stock performance shown in the graph below is not indicative of, nor intended to
forecast, the potential future performance of the Companys Common Stock.



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LOGO

Cumulative Total Return



|                           |  |        |  |       |  |        |  |        |  |        |  |       
|-------------------------- |  | ------ |  | ----- |  | ------ |  | ------ |  | ------ |  | ------
|                           |  | 12/01  |  | 12/02 |  | 12/03  |  | 12/04  |  | 12/05  |  | 12/06 
|Vignette Corporation       |  | 100.00 |  | 22.85 |  | 42.27  |  | 25.88  |  | 30.37  |  | 31.79 
|NASDAQ Composite           |  | 100.00 |  | 71.97 |  | 107.18 |  | 117.07 |  | 120.50 |  | 137.02
|S&P Information Technology |  | 100.00 |  | 62.59 |  | 92.14  |  | 94.50  |  | 95.44  |  | 103.47



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|ITEM 6. | SELECTED CONSOLIDATED FINANCIAL DATA
|------- | ------------------------------------

The following
selected consolidated financial data should be read in conjunction with our consolidated financial statements and notes thereto, Managements Discussion and Analysis of Financial Condition and Results of Operations and other
financial data included elsewhere in this Annual Report on Form 10-K. The consolidated statements of operations data for the years ended December 31, 2006, 2005 ,and 2004 and the consolidated balance sheet data at December 31, 2006 and
2005 are derived from audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The consolidated statements of operations data for the years ended December 31, 2003 and 2002 and the consolidated balance
sheet data at December 31, 2004, 2003, and 2002 are derived from audited consolidated financial statements not included in this Annual Report on Form 10-K.



|                                                                                     |  |                                       |         |      |   |         |          |  |   |          |   |  |          |         |   |  |   |          |  
|------------------------------------------------------------------------------------ |  | ------------------------------------- | ------- | ---- | - | ------- | -------- |  | - | -------- | - |  | -------- | ------- | - |  | - | -------- | -
|                                                                                     |  | Year ended December 31,               |        
|                                                                                     |  | 2006                                  |         | 2005 |   |         | 2004 (4) |  |   | 2003 (3) |   |  | 2002 (2) |        
|                                                                                     |  | (in thousands, except per share data) |        
|Consolidated Statements of Operations Data:                                          |  |                                       |         |      |   |         |          |  |   |          |   |  |          |         |   |  |   |          |  
|Revenue:                                                                             |  |                                       |         |      |   |         |          |  |   |          |   |  |          |         |   |  |   |          |  
|Product license                                                                      |  | $                                     | 66,368  |      | $ | 70,316  |          |  | $ | 63,152   |   |  | $        | 60,986  |   |  | $ | 62,418   |  
|Services                                                                             |  |                                       | 131,206 |      |   | 120,359 |          |  |   | 114,775  |   |  |          | 97,328  |   |  |   | 92,720   |  
|                                                                                     |  |                                       |         |      |   |         |          |  |   |          |   |  |          |         |   |  |   |          |  
|Total revenue                                                                        |  |                                       | 197,574 |      |   | 190,675 |          |  |   | 177,927  |   |  |          | 158,314 |   |  |   | 155,138  |  
|Cost of revenue:                                                                     |  |                                       |         |      |   |         |          |  |   |          |   |  |          |         |   |  |   |          |  
|Product license                                                                      |  |                                       | 2,548   |      |   | 2,911   |          |  |   | 5,036    |   |  |          | 2,844   |   |  |   | 2,388    |  
|Amortization of acquired technology                                                  |  |                                       | 5,017   |      |   | 6,267   |          |  |   | 10,115   |   |  |          | 3,450   |   |  |   | 267      |  
|Services (1)                                                                         |  |                                       | 60,399  |      |   | 55,427  |          |  |   | 53,281   |   |  |          | 39,531  |   |  |   | 43,844   |  
|                                                                                     |  |                                       |         |      |   |         |          |  |   |          |   |  |          |         |   |  |   |          |  
|Total cost of revenue                                                                |  |                                       | 67,964  |      |   | 64,605  |          |  |   | 68,432   |   |  |          | 45,825  |   |  |   | 46,499   |  
|                                                                                     |  |                                       |         |      |   |         |          |  |   |          |   |  |          |         |   |  |   |          |  
|Gross profit                                                                         |  |                                       | 129,610 |      |   | 126,070 |          |  |   | 109,495  |   |  |          | 112,489 |   |  |   | 108,639  |  
|Operating expenses:                                                                  |  |                                       |         |      |   |         |          |  |   |          |   |  |          |         |   |  |   |          |  
|Research and development (1)                                                         |  |                                       | 34,013  |      |   | 33,212  |          |  |   | 40,140   |   |  |          | 40,247  |   |  |   | 51,775   |  
|Sales and marketing (1)                                                              |  |                                       | 70,192  |      |   | 68,080  |          |  |   | 74,441   |   |  |          | 68,229  |   |  |   | 85,191   |  
|General and administrative (1)                                                       |  |                                       | 17,941  |      |   | 20,291  |          |  |   | 18,571   |   |  |          | 16,441  |   |  |   | 21,713   |  
|Purchased in-process research and development, acquisition-related and other charges |  |                                       |        |      |   | 270     |          |  |   | 7,609    |   |  |          | 4,258   |   |  |   | 1,786    |  
|Impairment of intangible assets                                                      |  |                                       |        |      |   |        |          |  |   |         |   |  |          |        |   |  |   | 147,269  |  
|Business restructuring charges (benefit)                                             |  |                                       | 150     |      |   | (2,899  | )        |  |   | 18,083   |   |  |          | (14,687 | ) |  |   | 35,822   |  
|Amortization of intangible assets                                                    |  |                                       | 3,720   |      |   | 5,003   |          |  |   | 4,919    |   |  |          | 1,965   |   |  |   | 16,060   |  
|                                                                                     |  |                                       |         |      |   |         |          |  |   |          |   |  |          |         |   |  |   |          |  
|Total operating expenses                                                             |  |                                       | 126,016 |      |   | 123,957 |          |  |   | 163,763  |   |  |          | 116,453 |   |  |   | 359,616  |  
|                                                                                     |  |                                       |         |      |   |         |          |  |   |          |   |  |          |         |   |  |   |          |  
|Income (loss) from operations                                                        |  |                                       | 3,594   |      |   | 2,113   |          |  |   | (54,268  | ) |  |          | (3,964  | ) |  |   | (250,977 | )
|Other income (expense), net                                                          |  |                                       | 10,613  |      |   | 20,710  |          |  |   | 2,895    |   |  |          | 5,068   |   |  |   | (517     | )
|                                                                                     |  |                                       |         |      |   |         |          |  |   |          |   |  |          |         |   |  |   |          |  
|Income (loss) before income taxes                                                    |  |                                       | 14,207  |      |   | 22,823  |          |  |   | (51,373  | ) |  |          | 1,104   |   |  |   | (251,494 | )
|Provision for income taxes                                                           |  |                                       | 1,888   |      |   | 2,429   |          |  |   | 1,482    |   |  |          | 1,137   |   |  |   | 1,319    |  
|                                                                                     |  |                                       |         |      |   |         |          |  |   |          |   |  |          |         |   |  |   |          |  
|Net income (loss)                                                                    |  | $                                     | 12,319  |      | $ | 20,394  |          |  | $ | (52,855  | ) |  | $        | (33     | ) |  | $ | (252,813 | )
|                                                                                     |  |                                       |         |      |   |         |          |  |   |          |   |  |          |         |   |  |   |          |  
|Basic net income (loss) per share                                                    |  | $                                     | 0.42    |      | $ | 0.70    |          |  | $ | (1.86    | ) |  | $        | (0.00   | ) |  | $ | (10.14   | )
|                                                                                     |  |                                       |         |      |   |         |          |  |   |          |   |  |          |         |   |  |   |          |  
|Diluted net income (loss) per share                                                  |  | $                                     | 0.41    |      | $ | 0.68    |          |  | $ | (1.86    | ) |  | $        | (0.00   | ) |  | $ | (10.14   | )
|                                                                                     |  |                                       |         |      |   |         |          |  |   |          |   |  |          |         |   |  |   |          |  
|Shares used in computing basic net loss per share (5)                                |  |                                       | 29,658  |      |   | 29,181  |          |  |   | 28,381   |   |  |          | 25,310  |   |  |   | 24,921   |  
|Shares used in computing diluted net loss per share (5)                              |  |                                       | 29,878  |      |   | 29,807  |          |  |   | 28,381   |   |  |          | 25,310  |   |  |   | 24,921   |  



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---

|(1) | Includes stock based compensation as follows:
|--- | ---------------------------------------------



|                                                  |  |                         |         |      |   |          |  |   |          |   |          |   |         |  |   |        
|------------------------------------------------- |  | ----------------------- | ------- | ---- | - | -------- |  | - | -------- | - | -------- | - | ------- |  | - | -------
|                                                  |  | Year ended December 31,
|                                                  |  | 2006                    |         | 2005 |   | 2004 (4) |  |   | 2003 (3) |   | 2002 (2)
|Cost of revenue  services                        |  | $                       | 420     |      | $ |         |  | $ |         |   |          | $ |        |  | $ | 170    
|Research and development                          |  |                         | 278     |      |   | 12       |  |   | (71      | ) |          |   | 324     |  |   | 441    
|Sales and marketing                               |  |                         | 706     |      |   | 124      |  |   | (48      | ) |          |   | 69      |  |   | 416    
|General and administrative                        |  |                         | 1,790   |      |   | 698      |  |   | 599      |   |          |   | 714     |  |   | 369    
|                                                  |  |                         |         |      |   |          |  |   |          |   |          |   |         |  |   |        
|                                                  |  | $                       | 3,194   |      | $ | 834      |  | $ | 480      |   |          | $ | 1,107   |  | $ | 1,396  
|                                                  |  |                         |         |      |   |          |  |   |          |   |          |   |         |  |   |        
|                                                  | 
|                                                  |  | As of December 31,     
|                                                  |  | 2006                    |         | 2005 |   | 2004 (4) |  |   | 2003 (3) |   | 2002 (2)
|                                                  |  | (in thousands)         
|Consolidated Balance Sheet Data:                  |  |                         |         |      |   |          |  |   |          |   |          |   |         |  |   |        
|Cash, cash equivalents and short-term investments |  | $                       | 204,454 |      | $ | 197,057  |  | $ | 164,363  |   |          | $ | 239,513 |  | $ | 307,754
|Working capital                                   |  |                         | 169,268 |      |   | 165,319  |  |   | 126,406  |   |          |   | 205,749 |  |   | 214,625
|Long term investments in marketable securities    |  |                         | 11,688  |      |   |         |  |   |         |   |          |   |        |  |   |       
|Total assets                                      |  |                         | 421,152 |      |   | 417,161  |  |   | 405,456  |   |          |   | 366,116 |  |   | 424,612
|Total stockholders equity                        |  |                         | 337,787 |      |   | 330,109  |  |   | 306,818  |   |          |   | 281,346 |  |   | 265,852



|(2) | Reflects the acquisition of Epicentric on December 3, 2002.
|--- | -----------------------------------------------------------

|(3) | Reflects the acquisition of Intraspect on December 10, 2003.
|--- | ------------------------------------------------------------

|(4) | Reflects the acquisition of Tower Technology on March 1, 2004.
|--- | --------------------------------------------------------------

|(5) | Reflects one-for-ten reverse stock split effective June 10, 2005
|--- | ----------------------------------------------------------------



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Overview

Vignette develops and sells content management software to enterprise customers globally. Vignettes
software helps these organizations improve their interactions with key audiences  customers, prospects, employees, partners, citizens  by making it possible for them to deliver highly personalized, interactive online experiences. Our
early content management and delivery tools laid the groundwork for some of the Webs most influential and popular sites. Today, our award-winning solutions continue to power some of the worlds most prominent online brands, and enable
organizations to have more meaningful interactions with all of their important constituencies.

Organizations in virtually every industry, including
government, are undertaking Next-Generation Webinitiatives. In general, a renewed focus on growth has led these organizations to re-examine, among other things, the quality of the customer experience they provide. From Vignettes
perspective, improving the customer experience involves better managing business content. Vignettes best customers derive the greatest value from this content at the point of customer interaction, particularly when that point of interaction is
online.



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VignettesNext-Generation Web solutions help our customers improve the way they manage, deliver and provide
interactive access to business content. These solutions help organizations understand customer needs  by analyzing what theyve done and asked for before  and then put business content to use online to meet those needs. They give
organizations the ability to deliver online content in a highly personalized fashion, according to customers own requirements and desires. They help them create large, feature-rich online communities with the interactivity and content
contribution that todays audiences expect, and the performance and scalability that global enterprises require. And they let them conduct long-running online dialogs with individuals or groups, adding tremendous power to technologies as simple
as e-mail.

Vignettes software products are brought together in various combinations to deliver solutions to the common content management challenges
above. Following is a brief description of each of our software products:

Vignette Content Management manages content, content types and objects, as
well as the deployment and delivery of content to Web sites. It is designed to meet the needs of large organizations with requirements for potentially multiple Web sites for distinct sets of constituents. It encourages the separation of content and
its delivery, which allows content to be repurposed easily across multiple sites without issues of currency, versioning, redundancy, and so on. Vignette Content Management is designed to be accessible to non-technical content creators, which means
content can be managed without substantial IT intervention. The Vignette Command Center, the core of Vignette Content Management, is an intuitive and configurable roles-based management console that enables business and technical users to manage
virtually all of their content management objectives through one interface. Once integrated with business processes, users can share knowledge and collaborate on virtually any task, using e-mail, desktop applications and Web-based workspaces. We
also offer a variety of additional specialized products to enhance Vignette Content Management.

Vignette Collaboration creates workspaces, where
teams can share, capture and search information. This helps organizations to reduce the risk of knowledge being lost and improves business relationships.

Vignette Portal is an adaptable, scalable, open solution that enables organizations to rapidly build and deliver highly customizable applications for their organization across audiences such as employees, partners and customers. We
also offer a variety of additional specialized products to enhance our application portal.

Vignette Records & Documents is an
enterprise document and records management solution that manages fixed assets, automates document based workflows, manages casework through a process, and implements important archival and disposition of records. Vignette Records &
Documents facilitates risk and compliance management, and implements important document management capabilities including metadata search, query by example, indexed full text search, check in/out and ACL security.

Vignette WebCapture is a secure Web transaction capture and playback risk management solution that archives transactions on a customers site and
creates a permanent record of them for dispute resolution.

Vignette IDM is an integrated document management, archive and retrieval solution
that addresses document capture, production imaging supporting forms OCR/ICR, high-performance image viewing, printing, and storage management; business process automation and workflow supporting case management, business process management and Web
services; output report management for capturing, mining, linking, distribution, and statement presentment; and COLD storage and records management supporting electronic and physical records, retention management, e-mail archiving and regulatory
compliance.

Vignette Builder enables quick creation, assembly and customization of portal-based applications, empowering organizations to respond
rapidly to changing business needs. Wizard-based interfaces accelerate the development and deployment of a wide range of critical applications that automatically integrate into the customers collaborative portal environment.



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Vignette Business Integration Studio is a graphical application integration environment for collecting and
integrating content and applications from a wide selection of sources with minimal coding. Vignette Business Integration Studio allows users to readily and dynamically map content from disparate schemas, remote repositories and applications to an
aggregated destination. We offer over fifty pre-built application and technology adapters that can be used by Vignette Business Integration Studio to integrate with enterprise, desktop, database and proprietary content sources existing throughout an
enterprise. Adapters are plug-ins to Vignette Business Integration Studio that provide prepackaged integration capabilities to common technology applications.

Vignette Dialog delivers highly personalized content to the intended recipients at the designated time through online and offline touch points. A simple, graphical environment allows business users to create planned, multi-step
conversations that can be triggered by virtually any type of event, including Web site registration, completion of a purchase, event attendance or a customer service call.

Our solutions and products are supported by our professional services organization, Vignette Professional Services (VPS). VPS offers pre-packaged and custom services to help organizations define their online business
objectives and deploy their applications. Our education, consulting and customer care teams give customers the benefit of our experience with thousands of customer implementations. We partner with a number of leading consulting firms and system
integrators to implement our software for their clients. In many cases, we work in blended teams to implement solutions. To ensure that we provide support to our customers on their chosen platform and infrastructure, we have long-standing
relationships with key technology providers such as Microsoft, BEA Systems, Hewlett Packard and Sun Microsystems.

2006 Highlights

Operating Results

The Company reported
increases in fiscal 2006 versus fiscal 2005 in total revenue, gross profit margin and income from operations. The increase in sales combined with lower operating costs as a percentage of total revenue allowed the Company to produce net income of
$12.3 million in fiscal 2006 as compared to net income of $20.4 million during fiscal 2005. The fiscal 2005 results include a one time gain on the sale of equity investments of $15.3 million.

The Company posted an operating income for fiscal year 2006 of $3.6 million compared to operating income of $2.1 million for fiscal year 2005. Total
revenue for fiscal year 2006 was $197.6 million or an increase of 4% over the fiscal year 2005 revenue of $190.7 million. In addition, the Company increased liquidity with an increase in cash, cash equivalents, and short term investments of $7.4
million to a total of $204.5 million at December 31, 2006 versus $197.1 million at December 31, 2005. The Company continues to carry no long term debt.

The improved performance in fiscal 2006 as compared to fiscal 2005 was the result of many factors. We grew our services revenue during 2006 while continuing to focus on cost control and efficiency in our business.
Services revenue increased $10.8 million or 9%. License revenue declined $3.9 million or 6%. Operating expenses increased by $2.1 million or 2%. The net result was that income from operations increased $1.5 million or 70% as the increase in total
revenue was greater than the increase in total operating expenses. The operating margin percentage for fiscal 2006 was 1.8% versus 1.1% for fiscal 2005.

License revenues of $66.4 million in fiscal 2006 and $19.2 million in the fourth quarter of 2006 were down 6% and 4%, respectively, as compared to 2005. Maintenance revenues of $80.2 million in fiscal 2006 and $20.5
million in the fourth quarter of 2006 were up 7% and 10%, respectively, as compared to 2005. Professional services revenues of $51.0 million in fiscal 2006 and $12.8 million in the fourth quarter of 2006 were up 13% and 5% as compared to 2006.
International revenue comprised 38% and 45% of total revenue for the year and quarter ended December 31, 2006, respectively. No single customer accounted for more than 10% of our annual or quarterly revenues.



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The gross profit margin in fiscal 2006 of 66% remained unchanged from fiscal 2005 as the Company did not
have any significant changes in the direct costs to produce its software or provide services. In absolute dollars gross profit increased $3.5 million as result of the increase in total revenue. The total costs of revenue increased $3.4 million to
$68.0 million from $64.6 million. The increase was driven by an increase in the costs of revenue for services which increased $5.0 million to $60.4 million from $55.4 million. As a percentage of services revenue the costs of revenue for services was
46% for fiscal 2006 and 2005 which reflects that there were no significant changes in the costs to provide services. This increase was offset by a decrease in the amortization of acquired technology of $1.3 million to $5.0 million from $6.3 million.
The decrease in the amortization of acquired technology is related to the normal run out of costs associated with acquisitions. There was a decrease in the costs of revenue for product license of $0.3 million.

Total expenses, including both cost of revenue and operating expenses, for fiscal 2006 and for the fourth quarter of 2006 were $194.0 million and $47.9
million, respectively, and included $11.0 million and $2.4 million, respectively, for the following (benefits) charges: business restructuring charges (benefits), acquisition-related charges, amortization of acquired technology and intangibles and
stock option expense. Most of these (benefits) charges relate to our previous acquisitions. The exception to the previous statement is the stock option expense of $2.1 million that was recognized in 2006 upon the adoption of FAS 123R. The remaining
expenses (excluding the expenses discussed above) of $183.0 million for fiscal 2006 were up 1.7% as compared to fiscal 2005 and expenses of $45.5 million for the fourth quarter of 2006 were down 2.8% as compared to the fourth quarter of 2005.

The increase in the expenses for fiscal 2006 after excluding the $11.0 million as described above was the result of several factors. The
primary driver was an increase of $4.3 million for the direct costs to produce software and provide services and is associated with the increase in total revenue. This was offset by a decrease in operating expenses of $1.2 million. The $1.2 million
is net of a decrease in general and administrative expenses of $3.3 million, an increase in research and development expenses of $0.5 million and an increase in sales and marketing expenses of $1.6 million. The decline in general and administrative
expenses is driven by lower regulatory reporting costs and professional fees. The increase in sales and marketing expenses is due to an increase in the marketing efforts for the health care vertical and an increase in regional marketing expenses.

In the fourth quarter of 2006, the Company had operating income of $4.7 million as compared to operating income of $1.7 million for the
fourth quarter of 2005. The increase was due to lower sales and marketing expenses of $1.4 million, lower general and administrative expenses of $1.1 million and lower amortization of intangible assets of $0.2 million that is offset by an increase
in research and development expenses of $0.3 million. The decrease in sales and marketing expenses in the fourth quarter of 2006 as compared to 2005 was due to lower sales commissions associated with the lower license sales and an effort to reduce
costs for general marketing expenses including travel and corporate events. The decrease in general and administrative costs in the fourth quarter of 2006 as compared to 2005 is due primarily lower professional fees associated with regulatory
filings and other services.

The Company continued to offshore research and development to control costs and improve efficiency. Headcount
was 670 employees at December 31, 2006 as compared to 738 employees at December 31, 2005. These and other actions have contributed to the increase in operating income of $1.5 million as discussed above.

Our total cash, cash equivalents, and short-term investments balance totaled approximately $204.5 million as of December 31, 2006, and increased
approximately $7.4 million from December 31, 2005, due to the improved operating results and an increase in interest income associated with invested funds. The increase in cash, cash equivalents and short-term investments is after utilizing
approximately $12.6 million to repurchase common stock of the Company and the purchase of long-term investments totaling $11.7 million.



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Outlook

Our objective is to maintain and extend our position as a leading global provider of Next-Generation Web solutions. These solutions enable organizations to harness the power of their business content and the Web to
deliver rich, personalized online interactions in direct or indirect support of customer acquisition and retention and revenue growth. We will continue to focus on delivering sustained revenue and profitable growth, expanding our customer base of
global 2000 organizations, extending our technology leadership through investment in research and development, expanding our global sales capabilities and building upon our strategic alliances with leading companies.

We will seek to improve sales force and channel productivity. We will strive to encourage cross-functional team selling through enhanced team realignment
around customer accounts and regions, and meet market-specific needs for designated solution areas through specialized teams with subject-matter expertise in areas such as healthcare, imaging and workflow, next generation web presence and
collaborative records and document management. We will continue to focus on the indirect channel as a means to better distribute and expose our software and solutions to the marketplace. We will also continue to focus on realizing efficiencies and
cost-savings across our business.

The primary risk to achieving our goals is competitive pressure, particularly from larger companies with
much longer operating histories and greater resources. Moreover, many of these companies can adopt aggressive pricing policies and provide customers with consolidated offerings that may include some of our product capabilities. Other key risks
include market acceptance of our products, the overall level of information technology spending, the uncertainties and challenges of offshore outsourcing and our ability to maintain control over expenses and cash. Our prospects must be considered in
light of these risks, particularly given that we operate in new and rapidly evolving markets, have completed several acquisitions and face an uncertain economic environment. We may not be successful in addressing such risks and difficulties. See
Risk Factors that May Affect Future Results for more information.

Reverse Stock Split

On June 10, 2005, the one-for-ten reverse stock split of the common stock (the Reverse Stock Split) of the Company became effective. The Reverse Stock
Split was approved by the Companys stockholders on May 27, 2005 at the Companys annual meeting. The Company filed the certificate of Amendment to the Companys Amended and Restated Certificate of Incorporation to affect the
Reverse Stock Split. All per share data and per share amounts have been retroactively restated for the Reverse Stock Split.

Critical Accounting
Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated
financial statements, which were prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions are reviewed periodically. Actual results may differ from these
estimates under different assumptions or conditions.

Management has discussed with and agreed upon the development and selection of the
following critical accounting policies with the Audit Committee of the Board of Directors:



| |  |  | Revenue recognition;
| | - |  | --------------------



| |  |  | Estimating the allowance for doubtful accounts;
| | - |  | -----------------------------------------------



| |  |  | Stock based compensation;
| | - |  | -------------------------



| |  |  | Estimating business restructuring accruals; and
| | - |  | -----------------------------------------------



| |  |  | Valuation of goodwill and identifiable intangible assets.
| | - |  | ---------------------------------------------------------



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Revenue recognition. Revenue consists of product and service fees. Product fee income is earned
through the licensing or right to use our software and from the sale of specific software products. Service fee income is earned through the sale of maintenance and technical support, consulting services and training services.

We do not recognize revenue for agreements with rights of return, refundable fees, cancellation rights or acceptance clauses until such rights to return,
refund or cancel have expired or acceptance has occurred.

We recognize revenue in accordance with Statement of Position (SOP)
97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9, and Securities and Exchange Commission Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements as revised by SAB 104.

Where software licenses are sold with maintenance or other services, we allocate the total fee to the various elements based on the fair values of the
elements specific to us. We determine the fair value of each element in the arrangement based on vendor-specific objective evidence (VSOE) of fair value. VSOE of fair value is based upon the normal pricing and discounting practices for
those products and services when sold separately and, for support services, is additionally measured by the renewal rate. If we do not have VSOE for one of the delivered elements of an arrangement, but do have VSOE for all undelivered elements, we
use the residual method to record revenue. Under the residual method, the arrangement fee is first allocated to the undelivered elements based upon their VSOE of fair value; the remaining arrangement fee, including any discount, is allocated to the
delivered element. If the residual method is not used, discounts, if any, are applied proportionately to each element included in the arrangement based on each elements fair value without regard to the discount.

Revenue allocated to product license fees is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, no
significant remaining obligations with regard to implementation are outstanding, and collection of a fixed or determinable fee is probable. We consider all payments outside our normal payment terms, including all amounts due in excess of one year,
to not be fixed and determinable, and such amounts are recognized as revenue as they become due. If collectibility is not considered probable, revenue is recognized when the fee is collected. For software arrangements where we are obligated to
perform professional services for implementation of the product, we evaluate whether delivery has occurred upon shipment of software or upon completion of services and if the customer payment is probable. This evaluation is made based on various
factors such as the nature of the services work, order type (e.g. initial vs. follow-on), customers payment history, etc. In the instances where delivery is deemed not to have occurred upon shipment based on the aforementioned factors, license
revenue is recognized when we have no significant remaining obligations with regard to the implementation.

Revenue from perpetual licenses
that include unspecified, additional software products is recognized ratably over the term of the arrangement, beginning with the delivery of the first product.

Revenue allocated to maintenance and support is recognized ratably over the maintenance term (typically one year).

Revenue allocated to training and consulting service elements is recognized as the services are performed. Our consulting services are not essential to the functionality of our products as (i) such services are available from other
vendors and (ii) we have sufficient experience in providing such services.

Deferred revenue includes amounts received from customers
in excess of revenue recognized. Accounts receivable includes amounts due from customers for which revenue has been recognized.

We follow
very specific and detailed guidelines, discussed above, in determining revenues; however, certain judgments and estimates are made and used to determine revenue recognized in any accounting period. Material differences may result in the amount and
timing of revenue recognized for any period if different conditions were to prevail. For example, in determining whether collection is probable, we assess



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our customers ability and intent to pay. Our actual experience with respect to collections could differ from our initial assessment if, for instance,
unforeseen declines in the overall economy occur and negatively impact our customers financial condition.

Estimating the
allowance for doubtful accounts. We continuously assess the collectibility of outstanding customer invoices and in doing so; we maintain an allowance for estimated losses resulting from the non-collection of customer receivables. In estimating
this allowance, we consider factors such as: historical collection experience, a customers current credit-worthiness, customer concentrations, age of the receivable balance, both individually and in the aggregate, and general economic
conditions that may affect a customers ability to pay. Actual customer collections could differ from our estimates. For example, if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required.

Stock-Based compensation. The Company measures all share-based payment awards
at fair value on the date of grant and recognizes compensation expenses for all share-based payments on a straight-line basis over the service period that the awards are expected to vest pursuant to the guidance of Statement of Financial Accounting
Standards 123R,Share-Based Payment (Statement 123R) and Staff Accounting Bulletin 107 (SAB 107) of the Securities and Exchange Commission. Restricted stock and stock options issued under equity plans as well as stock
purchases under our employee stock purchase plans are subject to the provisions of Statement 123R and the interpretive guidance of SAB 107.

The Company adopted Statement 123R using the modified prospective method. Under the modified prospective method compensation expense was recognized effective January 1, 2006 for (a) all share-based payments granted or modified
after that date and (b) based on the previous requirements of Statement 123 for all awards granted to employees prior to that date that remain unvested as of January 1, 2006.

We estimate the fair value of stock options using a Black-Scholes valuation model, consistent with the provisions of Statement 123R and the interpretive
guidance of SAB 107. Option-pricing models require the input of highly subjective assumptions, including the options expected life and the price volatility of the underlying stock. Judgment is also required in estimating the number of
stock-based awards that are expected to be forfeited. If actual results or future changes in estimates differ significantly from our current estimates, stock-based compensation expense and our results of operations could be materially impacted.

Estimating business restructuring accruals. We vacated excess leased facilities as a result of the restructuring plan we initiated
in 2001 and subsequently expanded in 2002, 2003, and 2004. We recorded an accrual for the remaining lease liabilities of such vacated properties as well as brokerage commissions, partially offset by estimated sublease income. We estimated the costs
of these excess leased facilities, including estimated costs to sublease and sublease income, based on market information and trend analysis. We continually assess our real estate portfolio and may vacate or occupy other leased space as dictated by
our analysis. Actual results could differ from these estimates. In particular, actual sublease income attributable to the consolidation of excess facilities might deviate from the assumptions used to calculate our accrual for facility lease
commitments.

Valuation of goodwill and identifiable intangible assets. The Company applies Statement of Financial Accounting
Standards No. 142,Goodwill and Other Intangible Assets (Statement 142), in accounting for the valuation of goodwill and identifiable intangible assets. In accordance with Statement 142, we replaced the ratable amortization
of goodwill and other indefinite-lived intangible assets with a periodic review and analysis for possible impairment. We assess our goodwill on October 1 of each year or more frequently if events or changes in circumstances indicate that
goodwill might be impaired. The events and circumstances the Company considers include significant changes in the business climate, legal factors, operating performance indicators and competition. In addition, The Company periodically reviews the
estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in either a diminished fair value or revised useful life. As required by Statement 142, the impairment test is
accomplished using a two-stepped approach. The first step screens for impairment and, when impairment is indicated, a second step is employed to measure the impairment.



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Results of Operations

The following table sets forth, for the periods indicated, certain items from our Consolidated Statements of Operations, expressed as a percentage of total revenues:



|                                                                                     |  |                         |   |  |      |   |  |      |   
|------------------------------------------------------------------------------------ |  | ----------------------- | - |  | ---- | - |  | ---- | --
|                                                                                     |  | Year Ended December 31, |  
|                                                                                     |  | 2006                    |   |  | 2005 |   |  | 2004 |   
|Revenue:                                                                             |  |                         |   |  |      |   |  |      |   
|Product license                                                                      |  | 34                      | % |  | 37   | % |  | 35   | % 
|Services                                                                             |  | 66                      |   |  | 63   |   |  | 65   |   
|                                                                                     |  |                         |   |  |      |   |  |      |   
|Total revenue                                                                        |  | 100                     |   |  | 100  |   |  | 100  |   
|Cost of revenue:                                                                     |  |                         |   |  |      |   |  |      |   
|Product license                                                                      |  | 1                       |   |  | 2    |   |  | 3    |   
|Amortization of acquired technology                                                  |  | 3                       |   |  | 3    |   |  | 6    |   
|Services                                                                             |  | 30                      |   |  | 29   |   |  | 30   |   
|                                                                                     |  |                         |   |  |      |   |  |      |   
|Total cost of revenue                                                                |  | 34                      |   |  | 34   |   |  | 39   |   
|                                                                                     |  |                         |   |  |      |   |  |      |   
|Gross profit                                                                         |  | 66                      |   |  | 66   |   |  | 61   |   
|Operating expenses:                                                                  |  |                         |   |  |      |   |  |      |   
|Research and development                                                             |  | 17                      |   |  | 17   |   |  | 23   |   
|Sales and marketing                                                                  |  | 36                      |   |  | 36   |   |  | 42   |   
|General and administrative                                                           |  | 9                       |   |  | 11   |   |  | 10   |   
|Purchased in-process research and development, acquisition-related and other charges |  |                        |   |  |     |   |  | 4    |   
|Business restructuring (benefits) charges                                            |  |                        |   |  | (2   | ) |  | 10   |   
|Amortization of intangible assets                                                    |  | 2                       |   |  | 3    |   |  | 3    |   
|                                                                                     |  |                         |   |  |      |   |  |      |   
|Total operating expenses                                                             |  | 64                      |   |  | 65   |   |  | 92   |   
|                                                                                     |  |                         |   |  |      |   |  |      |   
|Income ( loss ) from operations                                                      |  | 2                       |   |  | 1    |   |  | (31  | ) 
|Other income (expense), net                                                          |  | 5                       |   |  | 11   |   |  | 2    |   
|                                                                                     |  |                         |   |  |      |   |  |      |   
|Income ( loss ) before income taxes                                                  |  | 7                       |   |  | 12   |   |  | (29  | ) 
|Provision for income taxes                                                           |  | 1                       |   |  | 1    |   |  | 1    |   
|                                                                                     |  |                         |   |  |      |   |  |      |   
|Net income ( loss)                                                                   |  | 6                       | % |  | 11   | % |  | (30  | )%
|                                                                                     |  |                         |   |  |      |   |  |      |   

Comparison of fiscal years ended December 31, 2006, 2005 and 2004 (in thousands, unless otherwise noted)

Revenue



|                        |  |                         |         |                     |   |         |                     |   |         |  |    |    |  |    |  
|----------------------- |  | ----------------------- | ------- | ------------------- | - | ------- | ------------------- | - | ------- |  | -- | -- |  | -- | -
|                        |  | Year Ended December 31, |         | 2006Comparedto 2005 |   |         | 2005Comparedto 2004 |  
|                        |  | 2006                    |         | 2005                |   | 2004    |                     |  
|Product license         |  | $                       | 66,368  |                     | $ | 70,316  |                     | $ | 63,152  |  | (6 | )% |  | 11 | %
|Maintenance and support |  |                         | 80,218  |                     |   | 75,077  |                     |   | 72,164  |  | 7  |    |  | 4  |  
|Professional services   |  |                         | 50,988  |                     |   | 45,282  |                     |   | 42,611  |  | 13 |    |  | 6  |  
|                        |  |                         |         |                     |   |         |                     |   |         |  |    |    |  |    |  
|Total services revenue  |  |                         | 131,206 |                     |   | 120,359 |                     |   | 114,775 |  | 9  |    |  | 5  |  
|                        |  |                         |         |                     |   |         |                     |   |         |  |    |    |  |    |  
|Total revenue           |  | $                       | 197,574 |                     | $ | 190,675 |                     | $ | 177,927 |  | 4  | %  |  | 7  | %
|                        |  |                         |         |                     |   |         |                     |   |         |  |    |    |  |    |  

Total revenue increased 4% in 2006 and 7% in 2005. The increase in revenue in 2006 is due to
increases in services revenue. As noted above the increase in 2006 are in both maintenance and support and professional services. License revenues declined in 2006. The increase in 2005 is due to several factors. The Company made strides in product
integration and stability. The Company also continued to simplify and amplify the message that the Company provides solutions for customers. Lastly, there was renewed interest in Enterprise Content management software during fiscal year 2005.



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Product license. Product license revenue decreased 6% in 2006 and increased 11% in 2005.
The decrease in 2006 can be attributed to two major factors. The first contributor to the decline is the failure of the Company to execute on its plan to further penetrate the healthcare vertical by building on the growth established in fiscal 2005.
In addition, 2006 was a year of transition in which a new Senior Vice President of Global Sales and Services was hired and there was an attrition of sales executives and support personnel. The total number of sales and support personnel was 171 as
of December 31, 2006 versus 187 as of December 31, 2005. Product license revenue increased 11% in 2005. The increase in 2005 can be attributed to an improving market for enterprise content software, the continued integration of the
products, and a focused marketing and sales strategy on industry segments such as healthcare.

Services. Services
revenue increased 9% in 2006 and 5% in 2005. The increase in 2006 is attributable to both maintenance and support and professional services. The increase in maintenance and support is attributable primarily to an increase in rates. The increase in
professional services is due primarily to more effective selling of our services to the Companys installed base of customers. The increase in professional services in 2005 is due primarily to the larger install base of Vignettes software
products and professional services sold in conjunction with new product licenses. The larger install base also increased the amount of maintenance and support revenue.

During fiscal years 2006, 2005 and 2004, no single customer accounted for more than 10% of our total revenues. International revenue was $74.8 million, $74.6 million and $68.2 million, or 38%, 39%, and 38% of total
revenues, in 2006, 2005, and 2004, respectively.

Gross Profit

Cost of revenue consists of costs to manufacture, package and distribute our products and related documentation, the costs of licensing third-party software incorporated into our products, the amortization of certain
acquired technology, and personnel and other expenses related to providing professional and maintenance services.

Gross profit amounts and
percentages are as follows:



|                                    |  |                         |         |   |                     |   |         |                     |  |   |         |   |  |    |    |  |    |  
|----------------------------------- |  | ----------------------- | ------- | - | ------------------- | - | ------- | ------------------- |  | - | ------- | - |  | -- | -- |  | -- | -
|                                    |  | Year ended December 31, |         |   | 2006Comparedto 2005 |   |         | 2005Comparedto 2004 | 
|                                    |  | 2006                    |         |   | 2005                |   |         | 2004                |  |   |        
|Product license                     |  | $                       | 63,820  |   |                     | $ | 67,405  |                     |  | $ | 58,116  |   |  | (5 | )% |  | 16 | %
|Amortization of acquired technology |  |                         | (5,017  | ) |                     |   | (6,267  | )                   |  |   | (10,115 | ) |  | 20 |    |  | 38 |  
|Maintenance and support             |  |                         | 67,209  |   |                     |   | 61,707  |                     |  |   | 58,381  |   |  | 9  |    |  | 6  |  
|Professional services               |  |                         | 3,598   |   |                     |   | 3,225   |                     |  |   | 3,113   |   |  | 11 |    |  | 4  |  
|                                    |  |                         |         |   |                     |   |         |                     |  |   |         |   |  |    |    |  |    |  
|Total services                      |  |                         | 70,807  |   |                     |   | 64,932  |                     |  |   | 61,494  |   |  | 9  |    |  | 6  |  
|                                    |  |                         |         |   |                     |   |         |                     |  |   |         |   |  |    |    |  |    |  
|Total gross profit                  |  | $                       | 129,610 |   |                     | $ | 126,070 |                     |  | $ | 109,495 |   |  | 3  | %  |  | 15 | %
|                                    |  |                         |         |   |                     |   |         |                     |  |   |         |   |  |    |    |  |    |  

As a percent of sales, gross profit represented 66%, 66%, and 61% in 2006, 2005 and 2004,
respectively. In 2006 the gross margin remained unchanged from 2005 as there were no significant changes in the direct costs of the Companys products or services. The increase in gross profit which was $3.5 million or 3% higher than 2005 is
consistent with the 4% increase in total revenue in 2006. The improvement in 2005 is due to improved margins on product licenses and lower amortization charges of acquired technology. The improvement in the gross profit margin for product license
increased in concert with the growth in revenue and by the lower costs of imbedded software. The decline in the amortization of acquired technology in 2005 is due to the normal run out of those amortized costs.



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##### Table of Contents

Operating expenses



|                                                                                     |  |                         |         |                     |   |         |                     |  |   |         |  |      |   |  |      |   
|------------------------------------------------------------------------------------ |  | ----------------------- | ------- | ------------------- | - | ------- | ------------------- |  | - | ------- |  | ---- | - |  | ---- | --
|                                                                                     |  | Year Ended December 31, |         | 2006Comparedto 2005 |   |         | 2005Comparedto 2004 | 
|                                                                                     |  | 2006                    |         | 2005                |   |         | 2004                |  |  
|Research and development                                                             |  | $                       | 34,013  |                     | $ | 33,212  |                     |  | $ | 40,140  |  | 2    | % |  | (17  | )%
|Sales and marketing                                                                  |  |                         | 70,192  |                     |   | 68,080  |                     |  |   | 74,441  |  | 3    |   |  | (9   | ) 
|General and administrative                                                           |  |                         | 17,941  |                     |   | 20,291  |                     |  |   | 18,571  |  | (12  | ) |  | 9    |   
|Purchased in-process research and development, acquisition-related and other charges |  |                         |        |                     |   | 270     |                     |  |   | 7,609   |  | (100 | ) |  | (96  | ) 
|Business restructuring (benefits) charges                                            |  |                         | 150     |                     |   | (2,899  | )                   |  |   | 18,083  |  | 105  |   |  | (116 | ) 
|Amortization of intangible assets                                                    |  |                         | 3,720   |                     |   | 5,003   |                     |  |   | 4,919   |  | (26  | ) |  | 2    |   
|                                                                                     |  |                         |         |                     |   |         |                     |  |   |         |  |      |   |  |      |   
|Total operating expenses                                                             |  | $                       | 126,016 |                     | $ | 123,957 |                     |  | $ | 163,763 |  | 2    | % |  | (24  | )%
|                                                                                     |  |                         |         |                     |   |         |                     |  |   |         |  |      |   |  |      |   

Research and development.Research and development expenses consist primarily
of personnel costs to support product development. Research and development expenses increased 2% in 2006 and decreased 17% in 2005. The increase in research and development is due to increased salaries and wages as headcount increased in 2006 to
146 versus 130 in 2005. The year over year decrease in 2005 is due primarily to our restructuring efforts via reduced engineering headcount in the first half of 2005, lower facilities expenses and other cost saving measures such as the consolidation
of product development facilities and the transition of these activities to an offshore operations model.

The Company did not capitalize
any software development costs in accordance with Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, for fiscal years 2006, 2005, and 2004,
respectively.

Sales and marketing. Sales and marketing expenses consist primarily of salaries and other related
costs for sales, marketing and customer care personnel, sales commissions, public relations, marketing materials and tradeshows as well as bad debt charges. Sales and marketing expenses increased 3% in 2006 and decreased 9% in 2005. The increase in
2006 is due to the increased marketing efforts in the health care vertical and regional marketing expenses during the first half of 2006. The decrease in 2005 is attributable to reduced bad debt charges and lower marketing and headcount costs.

General and administrative. General and administrative expenses consist primarily of salaries and other related costs
for human resources, finance, accounting, facilities, information technology and legal employees. General and administrative expenses decreased 12% in 2006 and increased 9% in 2005. The decrease in 2006 is due to reduced costs for regulatory
reporting and lower professional services. The increase in 2005 is attributable to the increased costs of meeting regulatory reporting requirements including the costs to implement the requirements under the Sarbanes Oxley act of 2002.

Purchased in-process research and development, acquisition-related and other charges.

During fiscal 2006 the Company did not recognize any expense associated with business combinations. The Company made a series of complimentary businesses
acquisitions in the three years ended December 31, 2004. The following table summarizes costs related to our business combinations (in thousands) for the most recent three years:



|                                              |  |                         |   |      |   |      |  |   |      
|--------------------------------------------- |  | ----------------------- | - | ---- | - | ---- |  | - | -----
|                                              |  | Year Ended December 31,
|                                              |  | 2006                    |   | 2005 |   | 2004
|Purchased in-process research and development |  | $                       |  |      | $ |     |  | $ | 4,800
|Cross-training, product integration and other |  |                         |  |      |   | 270  |  |   | 1,345
|Severance and other employee-related costs    |  |                         |  |      |   |     |  |   | 807  
|Contingent compensation                       |  |                         |  |      |   |     |  |   | 657  
|                                              |  |                         |   |      |   |      |  |   |      
|                                              |  | $                       |  |      | $ | 270  |  | $ | 7.609
|                                              |  |                         |   |      |   |      |  |   |      



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##### Table of Contents

Impairment of intangible assets.We use a two-step approach to assess our goodwill
annually, or more frequently, if events or changes in circumstances indicate that goodwill might be impaired. In step 1 of the assessment the Company compares the fair value of the reporting unit to the carrying value of the reporting unit to
determine if an impairment of goodwill is indicated. The estimated fair value is based on market capitalization, as complemented by a discounted cash flow analysis. If no impairment is indicated in Step 1 no additional analysis is performed. Should
an impairment be indicated the Company would measure the loss in Step 2 by comparing the enterprises implied fair value of goodwill to the carrying amount of goodwill to determine the amount of impairment loss to be recorded.

We also review other intangible assets for possible impairment periodically. Sustained negative industry and economic trends, a decline in our stock
price and market capitalization for an extended period of time, or changes in our product offerings could result in future impairment charges that are material to our consolidated financial statements.

Based on the methods described above there were no impairment charges related to goodwill or other intangible assets in 2006, 2005, or 2004.

Business restructuring charges. In 2001, we initiated a restructuring program to align our expense and revenue levels and to better
position us for growth and profitability. In 2002, 2003, and 2004, we expanded those restructuring efforts. Although we have substantially implemented our restructuring activities, there can be no assurance that the estimated costs of our
restructuring efforts will not change. Components of business restructuring charges and the remaining restructuring accruals as of December 31, 2006 are as follows (in thousands):



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##### Table of Contents

|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|------------------------------------------------- |  | ------------------------- | ------- | - | ---------------- | - | ------- | -------------------------------- |  | - | ------- | - |  | - | ------- | -
|                                                  |  | Facility LeaseCommitments |         |   | AssetImpairments |   |         | EmployeeSeparationand OtherCosts |  |   | Total   |  
|Balance at December 31, 2000                      |  | $                         |        |   |                  | $ |        |                                  |  | $ |        |   |  | $ |        |  
|Total restructuring charge                        |  |                           | 55,150  |   |                  |   | 33,683  |                                  |  |   | 32,102  |   |  |   | 120,935 |  
|Cash activity                                     |  |                           | (12,397 | ) |                  |   | (878    | )                                |  |   | (22,773 | ) |  |   | (36,048 | )
|Non-cash activity                                 |  |                           | (292    | ) |                  |   | (32,805 | )                                |  |   | (1,918  | ) |  |   | (35,015 | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2001                      |  |                           | 42,461  |   |                  |   |        |                                  |  |   | 7,411   |   |  |   | 49,872  |  
|Effect of expanded restructuring plan             |  |                           | 6,518   |   |                  |   | 8,730   |                                  |  |   | 11,118  |   |  |   | 26,366  |  
|Adjustment to accrual                             |  |                           | 9,538   |   |                  |   | 463     |                                  |  |   | (545    | ) |  |   | 9,456   |  
|Cash activity                                     |  |                           | (21,959 | ) |                  |   |        |                                  |  |   | (11,342 | ) |  |   | (33,301 | )
|Non-cash activity                                 |  |                           |        |   |                  |   | (9,193  | )                                |  |   | (36     | ) |  |   | (9,229  | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2002                      |  |                           | 36,558  |   |                  |   |        |                                  |  |   | 6,606   |   |  |   | 43,164  |  
|Effect of expanded restructuring plan             |  |                           | 9       |   |                  |   |        |                                  |  |   | 2,076   |   |  |   | 2,085   |  
|Adjustment to accrual                             |  |                           | (13,422 | ) |                  |   |        |                                  |  |   | (3,349  | ) |  |   | (16,771 | )
|Cash activity                                     |  |                           | (10,620 | ) |                  |   |        |                                  |  |   | (4,961  | ) |  |   | (15,581 | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2003                      |  |                           | 12,525  |   |                  |   |        |                                  |  |   | 372     |   |  |   | 12,897  |  
|Effect of expanded restructuring plan             |  |                           | 12,421  |   |                  |   | 2,331   |                                  |  |   | 4,085   |   |  |   | 18,837  |  
|Adjustment to accrual                             |  |                           | (780    | ) |                  |   |        |                                  |  |   | (83     | ) |  |   | (863    | )
|Cash activity                                     |  |                           | (8,584  | ) |                  |   |        |                                  |  |   | (3,404  | ) |  |   | (11,988 | )
|Non-cash activity                                 |  |                           | (869    | ) |                  |   | (2,331  | )                                |  |   | (8      | ) |  |   | (3,208  | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2004                      |  |                           | 14,713  |   |                  |   |        |                                  |  |   | 962     |   |  |   | 15,675  |  
|Adjustment to accrual                             |  |                           | (1,676  | ) |                  |   |        |                                  |  |   | (123    | ) |  |   | (1,799  | )
|Cash activity                                     |  |                           | (6,358  | ) |                  |   |        |                                  |  |   | (709    | ) |  |   | (7,067  | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31,2005                       |  | $                         | 6,679   |   |                  | $ |        |                                  |  | $ | 130     |   |  | $ | 6,809   |  
|Adjustment to accrual                             |  |                           | 235     |   |                  |   |        |                                  |  |   |         |   |  |   | 235     |  
|Cash activity                                     |  |                           | (1,757  | ) |                  |   |        |                                  |  |   | (145    | ) |  |   | (1,902  | )
|Non-cash activity                                 |  |                           |        |   |                  |   |        |                                  |  |   | 15      |   |  |   | 15      |  
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2006                      |  | $                         | 5,157   |   |                  | $ |        |                                  |  | $ |        |   |  | $ | 5,157   |  
|Less: current portion                             |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   | (2,119  | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Accrued restructuring costs, less current portion |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  | $ | 3,038   |  
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  

Remaining cash expenditures resulting from the restructuring are estimated to be $5.2 million and
relate to our facility lease commitments, of which the remaining maximum lease commitment extends out to 2011. We have substantially implemented our restructuring efforts initiated in conjunction with this restructuring plan; however, there can be
no assurance that the estimated costs of our restructuring efforts will not change. These are managements best estimates based on currently available information and are subject to change.

Consolidation of excess facilities

Facility lease
commitments relate to lease obligations for excess office space that the Company has vacated as a result of the restructuring plan. The Company continues to actively pursue mitigation strategies to dispose of all excess office space through
subleasing and/or early termination negotiations where possible. The total lease commitments include the estimated lease buyout fees, or the remaining lease liabilities and estimated associated mitigation costs including, but not limited to,
brokerage commissions, legal fees, repairs, restoration costs, and sublease incentives, offset by estimated sublease income. The estimated costs of vacating these leased facilities, including estimated costs to sublease and any resulting



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##### Table of Contents

sublease income, were based on market information and trend analysis as estimated by the Company. The Company continually assesses its real estate portfolio
and may vacate and/or occupy other leased space as dictated by its analysis and by the needs of the business. It is reasonably possible that actual results could continue to differ from these estimates in the near term, and such differences could be
material to the financial statements. In particular, actual sublease income attributable to the consolidation of excess facilities might deviate from the assumptions used to calculate the Companys accrual for facility lease commitments. The
accrual adjustments recorded during fiscal 2005 relate primarily to such differences, namely the buyout fees and sublease income of certain vacated properties were more favorable than we had anticipated. Facility lease commitments relate to the
Companys departure from certain office space in Austin, Texas; Brisbane and San Francisco, California; New York City, New York; Waltham and Boston, Massachusetts; Chicago, Illinois; and Slough, United Kingdom. The maximum lease commitment of
such vacated properties extends through December 2011.

Asset impairments

Asset impairments relate to the impairment of certain fixed assets, prepaid royalties and intangible assets. These fixed assets were impaired as a result
of the Companys decision to vacate certain office space and align its infrastructure with current and projected headcount.

Employee separation
and other costs

Employee separation and other costs include severance, related taxes, outplacement and other restructuring charges. As
a result of the restructuring activities, the Company severed approximately 1,675 employees. Employee groups impacted by the restructuring efforts include personnel in positions throughout the sales, marketing, professional services, engineering and
general and administrative functions in all geographies.

Stock based compensation. The Company adopted Statement 123R
effective January 1, 2006. Under Statement 123R the Company records expense for stock compensation based on the grant date fair value. The Company determines grant date fair value for stock options and the ESPP using the Black-Scholes option
pricing model. The fair value for restricted stock awards (RSAs) is generally equal to their intrinsic value at the date of grant. For the year ended December 31, 2006, the Company recorded $1.7 million for stock options, $1.1 million for
restricted stock awards, and $0.4 million for the employee stock purchase plan. All of the expense for the years ended December 31, 2005 and 2004 is attributable to RSAs. Prior to the adoption of Statement 123R the Company did not record any
expense for stock options with zero intrinsic value or the ESPP.

Prior to the adoption of Statement 123R the Company accelerated the
vesting of approximately 343,000 shares with a weighted average exercise price $22.35. The purpose of the acceleration was to avoid recognizing compensation cost upon the adoption of 123R. The pre-tax charge estimated by the Company to be avoided as
a result of the acceleration amounts to approximately $1 million over the course of the vesting periods. The estimated charge avoided is $0.5 million in 2006, $0.4 million in 2007, and $0.1 million in 2008. All other previously awarded stock options
were not impacted by this change.

The Company still expects to issue stock options but has shifted to offering some stock based
compensation in the form of RSAs.

Stock compensation expense is attributable to the following cost categories (in thousands):



|                           |  |                         |       |      |   |      |  |   |     |  
|-------------------------- |  | ----------------------- | ----- | ---- | - | ---- |  | - | --- | -
|                           |  | Year Ended December 31, |      
|                           |  | 2006                    |       | 2005 |   | 2004 | 
|Cost of revenue  services |  |                         | 420   |      |   |     |  |   |    |  
|Research and development   |  |                         | 278   |      |   | 12   |  |   | (71 | )
|Sales and marketing        |  |                         | 706   |      |   | 124  |  |   | (48 | )
|General and administrative |  |                         | 1,790 |      |   | 698  |  |   | 599 |  
|                           |  |                         |       |      |   |      |  |   |     |  
|                           |  | $                       | 3,194 |      | $ | 834  |  | $ | 480 |  
|                           |  |                         |       |      |   |      |  |   |     |  



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##### Table of Contents

Amortization of intangible assets. Intangible amortization expense decreased 26% in
2006 as compared to 2005 and decreased 2% in 2005 compared to 2004. The decrease in 2006 compared to 2005 relates to the decline in amortization expense for assets assumed from the Intraspect and Tower Technology acquisitions as the remaining
unamortized cost continues to decline. The decrease in 2005 compared to 2004 relates to the decline in amortization for assets assumed from the Intraspect and Tower Technology acquisitions as the remaining unamortized continues to decline.

Other income and expense

Other
income and expense, net consists primarily of interest income and expense, recognized investment gains and losses as well as foreign currency exchange gains and losses.



|                                   |  |                         |       |                     |   |        |                     |   |       |  |     |    |  |     |  
|---------------------------------- |  | ----------------------- | ----- | ------------------- | - | ------ | ------------------- | - | ----- |  | --- | -- |  | --- | -
|                                   |  | Year Ended December 31, |       | 2006Comparedto 2005 |   |        | 2005Comparedto 2004 |  
|                                   |  | 2006                    |       | 2005                |   | 2004   |                     |  
|Interest income and other, net     |  | $                       | 9,327 |                     | $ | 5,419  |                     | $ | 2,895 |  | 72  | %  |  | 87  | %
|                                   |  |                         |       |                     |  
|Purchase accounting credits        |  |                         | 682   |                     |   |       |                     |   |      |  | 100 | %  |  |    |  
|                                   |  |                         |       |                     |  
|Gain on Sale of equity investments |  | $                       | 604   |                     | $ | 15,264 |                     | $ |      |  | (96 | )% |  | 100 | %

Other Income and expense, net decreased in 2006 as compared to 2005 due to a lack of a one time
gain on the sale of equity investments as discussed below. Interest income and other, net increased by 72% due to the higher cash balances and higher yields on invested funds. In 2006 the Company recognized purchase accounting credits due to the
release of liabilities associated with the Companys acquisitions.

Other income and expense, net increased in 2005 as compared to
2004 due to higher cash and short term investment balances and increasing yields on invested funds and a one time gain on the sale of equity investments. The gain on the sale of equity investments was due to the sale of equity securities in
privately held technology companies. The largest of which was a sale of Shopzilla for approximately $600 million to EW Scripps Company. The Company owned approximately 2% of Shopzilla and recognized a gain of approximately $13.0 million. The Company
had no carrying cost in the asset at the time of the sale due to previous impairment charges.

At December 31, 2006, our unrestricted,
long-term investments totaled $13.0 million. Future adverse changes in market conditions or poor operating results of an investee could require future impairment charges.

Provision for income taxes

Income tax expense consists primarily of estimated withholdings
and income taxes due in certain foreign jurisdictions.



|                           |  |                         |       |                     |   |       |                     |   |       |  |     |    |  |    |  
|-------------------------- |  | ----------------------- | ----- | ------------------- | - | ----- | ------------------- | - | ----- |  | --- | -- |  | -- | -
|                           |  | Year Ended December 31, |       | 2006Compared to2005 |   |       | 2005Compared to2004 |  
|                           |  | 2006                    |       | 2005                |   | 2004  |                     |  
|Provision for income taxes |  | $                       | 1,888 |                     | $ | 2,429 |                     | $ | 1,482 |  | (22 | )% |  | 64 | %

We have provided a full valuation allowance against our net deferred tax asset, including all net
operating loss, research and development credit, and capital loss carry forwards based on the determination that it is more likely than not that the benefit related to such assets will not be realized. Our accounting for deferred taxes under SFAS
109 involves the evaluation of a number of factors concerning the realization of our deferred tax assets. In concluding that a full valuation allowance was appropriate, we have considered such factors as our history of incurring operating losses and
our ability to generate sufficient taxable income of the appropriate character within the relevant jurisdictions in future years.



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Quarterly Results

The table on pages F-36 to F-37 of the Consolidated Financial Statements section sets forth certain unaudited consolidated statements of operations data, both in absolute dollars and as a percent of
revenue, for each of the last consecutive eight quarters.

We base our forecast for expenses in part on future (as opposed to historical)
revenue projections due to the continued changes in our business. Many of these expenses are fixed in the short-term, and we may not be able to quickly reduce spending if revenues are lower than we have projected. Our ability to accurately forecast
our quarterly revenue is limited due to the long sales cycle of our software products, which makes it difficult to predict the quarter in which product implementation will occur, and the variability of customer demand for professional services. We
would expect our business, operating results and financial condition to be materially adversely affected if revenues do not meet projections and that net losses in a given quarter would be even greater than expected.

Our operating results have varied significantly from quarter to quarter in the past and we expect our operating results will continue to vary
significantly from quarter to quarter. A number of factors are likely to cause these variations, including:



| |  |  | demand for our products and services;
| | - |  | -------------------------------------



| |  |  | the timing of sales of our products and services;
| | - |  | -------------------------------------------------



| |  |  | the timing of customer orders and product implementations;
| | - |  | ----------------------------------------------------------



| |  |  | seasonal fluctuations in information technology purchasing;
| | - |  | -----------------------------------------------------------



| |  |  | unexpected delays in introducing new products and services;
| | - |  | -----------------------------------------------------------



| |  |  | increased expenses, whether related to sales and marketing, product development or administration;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | changes in the rapidly evolving market for Web-based applications;
| | - |  | ------------------------------------------------------------------



| |  |  | the mix of product license and services revenue, as well as the mix of products licensed;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | the mix of services provided and whether services are provided by our own staff or third-party contractors;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | the mix of domestic and international sales;
| | - |  | --------------------------------------------



| |  |  | difficulties in collecting accounts receivable;
| | - |  | -----------------------------------------------



| |  |  | costs related to possible acquisitions of technology or businesses;
| | - |  | -------------------------------------------------------------------



| |  |  | global events, including terrorist activities and military operations; and
| | - |  | --------------------------------------------------------------------------



| |  |  | the general economic climate;
| | - |  | -----------------------------



| |  |  | changes to our licensing and pricing model.
| | - |  | -------------------------------------------

Accordingly, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful. Investors should not rely on the results of one quarter as an indication of future performance.



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Net Operating Losses and Tax Credit Carry Forwards

As of December 31, 2006, we had domestic federal net operating loss, research and development credit, and capital loss carry forwards of
approximately $760.0 million, $16.4 million, and $40.9 million, respectively. These domestic net operating loss, research and development credit, and capital loss carry forwards will expire at various dates, between 2007 and 2027, if not utilized.
The Company also had foreign net operating loss carry forwards of approximately $9.9 million that are not subject to expiration. Internal Revenue Code Section 382 and similar foreign statutes impose substantial restrictions on the utilization
of net operating losses, tax credits, and capital loss carry forwards in the event of an ownership change of a corporation. Domestic net operating loss carry forwards of approximately $154.3 million, and tax credit carry forwards of $4.5
million at December 31, 2006 were incurred by businesses we acquired and will be subject to annual limitation. These restrictions may severely limit the benefit of these acquired tax attributes in future periods. The remaining tax attributes
that may be subject to such annual limitations include domestic net operating loss carry forwards of $605.7 million, foreign net operating loss carry forwards of $3.2 million, capital loss carry forwards of $40.9 million and research and development
credit carry forwards of $11.9 million. Based upon a review of historical stock ownership, we do not believe that any resulting annual limitation will severely limit our ability to utilize these tax attributes prior to their expiration. In the event
that an ownership change occurs in the future, application of the change in ownership statutes might result in substantial limitation on the utilization of these tax attributes from that point forward.

We have provided a full valuation allowance against our net deferred tax asset, including all net operating loss, research and development credit, and
capital loss carry forwards based on the determination that it is more likely than not that the benefit related to such assets will not be realized. Our accounting for deferred taxes under SFAS 109 involves the evaluation of a number of factors
concerning the realizability of our deferred tax assets. In concluding that a full valuation allowance was appropriate, we have considered such factors as our history of incurring operating losses and our ability to generate sufficient taxable
income of the appropriate character within the relevant jurisdictions in future years.

As of December 31, 2006, approximately $26.3
million of the valuation allowance is related to acquired deferred tax assets of Epicentric, Intraspect, and Tower Technology. If the benefit of these acquired deferred tax assets are realized in the future, the initial recognition will be recorded
first as a reduction to the relevant entitys goodwill, then as a reduction to the relevant entitys other non-current intangible assets, and lastly, as a reduction of current income tax expense. In the year ended December 31, 2006,
we recognized approximately $0.3 million of acquired deferred tax assets as a reduction to goodwill.

Approximately $151.0 million of the
valuation allowance relates to net operating loss carry forwards generated by the deduction of stock option compensation. The initial recognition of these deferred tax assets will be credited directly to contributed capital.

Liquidity and Capital Resources

The following table
presents selected financial statistics and information, (dollars in thousands):



|                          |  |              |         |      |   |         |  |   |        
|------------------------- |  | ------------ | ------- | ---- | - | ------- |  | - | -------
|                          |  | December 31,
|                          |  | 2006         |         | 2005 |   | 2004   
|Cash and cash equivalents |  | $            | 98,832  |      | $ | 124,104 |  | $ | 63,781 
|                          |  |              |        
|Short-term investments    |  | $            | 105,622 |      | $ | 72,953  |  | $ | 100,582
|Working capital           |  | $            | 169,268 |      |   | 165,319 |  | $ | 126,406
|Current ratio             |  |              | 3.2:1   |      |   | 3.1:1   |  |   | 2.5:1  
|Days of sales outstanding |  |              | 61      |      |   | 69      |  |   | 77     



43



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At December 31, 2006, we had $204.5 million in cash, cash equivalents and short-term investments and
no debt. We invest cash exceeding our operating requirements in short-term, investment-grade securities and classify these investments as available-for-sale.

Net cash provided by (used in) operating activities was $27.7 million, $16.7 million, and $(31.5) million, in 2006, 2005 and 2004, respectively. The increases in 2006 and 2005 are related to the improved operating
performance of the Company. The operating cash outflow in 2004 was due to net losses as well as changes in working capital, namely restructuring and exit cash outflows.

Net cash (used) provided by investing activities was $ (46.4) million, $42.0 million, and $51.5 million, in 2006, 2005 and 2004, respectively. The decrease in investing cash flows for 2006 was due primarily to
the purchase of both short-term and long-term investments in order to take advantage of rising yields for longer term investments. The increase in investing cash inflows in 2005 was due to the sale of certain equity investments and the maturities of
short term investments. The increase in investing cash inflows in 2004 was due primarily to the maturity of our investments in marketable and auction rate securities, offset by purchase consideration for our acquisition of Tower Technology.

Net cash (used) provided by financing activities was $(7.7) million, $2.8 million, and $3.2 million in 2006, 2005 and 2004, respectively.
Our financing activities consisted primarily of employee stock option exercises and purchases of employee stock purchase plan shares. However, in the fourth quarter of 2006 the Company expended $12.6 million of cash to repurchase common stock of the
Company under an announced repurchase plan.

Our long-term investments are classified as available-for-sale and consist of limited
partnership interests in a technology incubator, long-term marketable securities and cash collateral pledged for certain lease obligations, and tax obligations. At December 31, 2006 and 2005, long-term investments totaled $19.3 million and $8.3
million, respectively.

At December 31, 2006 and 2005, we had pledged $6.2 million and $6.9 million, respectively, as cash collateral
for certain of our lease obligations and tax obligations. These investments will remain restricted to the extent that the security requirements exist.

We believe that our existing balances will be sufficient to meet our working capital, capital expenditure and investment requirements for at least the next 12 months. We may require additional funds for other purposes
and may seek to raise such additional funds through public and private equity financings or from other sources. However, there can be no assurance that additional financing will be available at all or that, if available, such financing will be
obtainable on terms favorable to us or that any additional financing will not be dilutive.

Future minimum payments as of December 31,
2006 under our lease obligations, including operating lease commitments for all vacated properties, are as follows (in thousands):



|                               |  |                 |        |                 |   |      
|------------------------------ |  | --------------- | ------ | --------------- | - | -----
|                               |  | OperatingLeases |        | Sublease Income
|2007                           |  | $               | 6,908  |                 | $ | 2,172
|2008                           |  |                 | 4,922  |                 |   | 2,033
|2009                           |  |                 | 3,928  |                 |   | 1,862
|2010                           |  |                 | 2,972  |                 |   | 1,411
|2011                           |  |                 | 2,254  |                 |   | 1,157
|                               |  |                 |        |                 |   |      
|Total minimum lease payments   |  | $               | 20,984 |                 |   |      
|                               |  |                 |        |                 |   |      
|Total minimum sublease rentals |  |                 |        |                 | $ | 8,635
|                               |  |                 |        |                 |   |      



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##### Table of Contents

We do not have any significant contractual obligations other than those leases disclosed above.

Recent Accounting Pronouncements

In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 157, Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP) and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal
years. The Company is currently evaluating the effect that the adoption of SFAS 157 will have on its financial position and results of operations. The Company will adopt SFAS 157 January 1, 2008.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (SAB 108), Considering the Effects
of Prior Year Misstatements when Quantifying Current Year Misstatements.SAB 108 requires analysis of misstatements using both an income statement (rollover) approach and a balance sheet (iron curtain) approach in assessing materiality and
provides a one-time cumulative effect transition adjustment. SAB 108 is effective beginning October 1, 2006 and the Companys financial statements for the year ending December 31, 2006. The Company made no adjustments to its financial
statements upon adoption of SAB 108 and will continue to evaluate its accounting based on the requirements of SAB 108.

In June 2006,
the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.48,Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with FASB Statement of Financial Accounting Standards (SFAS) 109, Accounting for Income Taxes. This interpretation defines the minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the effect that the adoption of FIN 48 will have on its
financial position and results of operations, however, we do not believe that it will have a material effect upon adoption. The Company will adopt FIN 48 January 1, 2007.

In February 2007 the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.The standard permits but
does not require entities to measure many financial instruments and certain other items at fair value. Once and entity has elected the fair value option for designated financial instruments and other items changes in fair value must be recognized in
the statement of operations. The election is irrevocable once made. The statement is effective for the first fiscal year after November 15, 2007. The Company is currently evaluating the accounting permitted by the standard and has not
determined if the fair value option will be elected for eligible financial instruments or other items.



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Foreign Currency Exchange Rate Risk

The majority of our operations are based in the United States of America and
accordingly, the majority of our transactions are denominated in U.S. Dollars. We have operations throughout the Americas, Europe, Asia and Australia where transactions are denominated in the local currency of each location. As a result, our
financial results could be affected by changes in foreign currency exchange rates. We have a



45



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##### Table of Contents

foreign exchange policy to reduce our exposure to significant foreign currency fluctuations. We utilize foreign currency forward contracts to hedge foreign
currency-denominated payables and receivables. To date, we have not hedged forecasted transactions or firm commitments denominated in foreign currencies. Gains and losses on hedging contracts are reflected currently in other income and expense. We
typically limit the duration of our foreign currency forward contracts to 90 days. We do not invest in contracts for speculative purposes. Our foreign exchange exposures are monitored regularly to ensure the overall effectiveness of our foreign
currency hedge positions.

Interest Rate Risk

Cash, cash equivalents and short-term investments.Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments. Due to the
nature of our short-term investments, we have concluded that we do not have material interest risk exposure. The risk associated with fluctuating interest rates is limited to our investment portfolio and we do not believe that a 10% change in
interest rates would have a significant impact on our interest income. Our investment policy requires us to invest funds in excess of current operating requirements in:



| |  |  | obligations of the U.S. government and its agencies;
| | - |  | ----------------------------------------------------



| |  |  | investment grade state and local government obligations;
| | - |  | --------------------------------------------------------



| |  |  | securities of U.S. corporations rated A1 or P1 by Standard & Poors or the Moodys equivalents; and
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | money market funds, deposits or notes issued or guaranteed by U.S. and non-U.S. commercial banks meeting certain credit rating and net worth requirements with
maturities of less than two years;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | auction rate securities.
| | - |  | ------------------------

At
December 31, 2006, our cash and cash equivalents consisted primarily of commercial paper.

Long-term investments. At
December 31, 2006 our long-term investments consist of long-tem marketable securities, a limited partnership investment in a technology incubator and restricted investments.

Our long-term marketable securities consist primarily of obligations of the U.S. government and corporate notes and totaled $11.7 million as of
December 31, 2006. The Company did not have any long-term marketable securities as of December 31, 2005.

We also invest in
emerging technology companies considered strategic to our software business. At December 31, 2006, long-term investments included a limited partnership interest in a technology incubator. We periodically analyze this long-term investment for
impairments that could be considered other than temporary. The Company did not recognize any unrealized gain or loss on this investment during 2006.

In addition to strategic investments, we held $6.2 million and $6.9 million in restricted investments at December 31, 2006 and December 31, 2005, respectively. At December 31, 2006, restricted
investments were composed of a certificate of deposit and investment grade securities placed with a high credit quality financial institution. Such restricted investments collateralize letters of credit related to certain leased office space
security deposits and a tax obligation. These investments will remain restricted to the extent that the security requirements exist. All restricted investments mature beginning in 2007 through 2010 and the average yield of these investments is
approximately 4.3%.



|ITEM 8. | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | --------------------------------------------------------

Reference is made to the Index to Consolidated Financial Statements that appears on page F1 of this Report. The Report of Independent Registered Public Accounting Firm, the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements, listed in the Index to Consolidated Financial Statements, which appear beginning on page F2 of this Report, are incorporated by reference into this Item 8.



46



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|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

On December 1, 2005, Vignette Corporation (the Company) sent out a request for proposal to five registered public accounting firms
inviting them to compete for the assignment to provide the Company with audit-related services beginning in fiscal year 2006. The Companys previous auditor, Ernst & Young, received the request for proposal and was invited to compete
for the assignment in 2006. On December 20, 2005, Ernst & Young notified the Company that Ernst & Young had decided to decline the opportunity to compete and would not submit a response to Vignettes request for proposal
for audit services. As such, Ernst & Young (E&Y) had decided to decline to stand for re-election as the Companys independent registered public accounting firm. E&Y ceased to serve as the Companys independent
accounting firm after the completion of the audit for the fiscal year ended December 31, 2005 effective with the Companys filing of the Form 10K for fiscal year 2005 on March 15, 2006.

The reports of E&Y on the Companys financial statements for the fiscal years ended December 31, 2005, December 31, 2004 and
December 31, 2003 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.

During the Companys fiscal years ended December 31, 2005 and December 31, 2004, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to E&Ys satisfaction, would have caused E&Y to make reference thereto in its reports on the
Companys financial statements for such years.

During the Companys fiscal years ended December 31, 2005 and
December 31, 2004, there were no reportable events (as described in Item 304(a)(1)(v) of Regulation S-K).

On February 7,
2006, the Audit Committee of the Board of Directors of the Company approved the engagement of Grant Thornton LLP as the Companys independent registered public accounting firm. The Company has not consulted with Grant Thornton LLP during the
two fiscal years ended December 31, 2005 and 2004 or during any subsequent interim period preceding this Current Report on: the application of accounting principles to a specified transaction, either completed or proposed; the type of audit
opinion that might be rendered on the Companys consolidated financial statements; or any matter that was either the subject of a disagreement, as that term is described in Item 304(a)(1)(iv) of Regulation S-K, or a
reportable event, as that term is described in Item 304(a)(1)(v) of Regulation S-K.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of
Disclosure Controls and Procedures

Our management, under supervision and with the participation of the Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of
December 31, 2006, the disclosure controls and procedures were effective to ensure that information required to be disclosed in the Companys Exchange Act reports is recorded, processed, summarized and reported within the time periods
specified in the Securities Exchange Commissions rules and forms.

Managements Report On Internal Control Over Financial
Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined under Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles.



47



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##### Table of Contents

All internal control systems, no matter how well designed, have inherent limitations and may not prevent
or detect misstatements. Therefore even those systems determined to be effective can only provide reasonable assurance with respect to financial reporting reliability and financial statement preparation and presentation. In addition, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2006. In making this
assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its assessment, management concluded that, as of
December 31, 2006, the Companys internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.

Our managements assessment of the effectiveness of our internal control
over financial reporting as of December 31, 2006, has been audited by Grant Thornton LLP, an independent registered public accounting firm. This report appears on page F-2 in our Consolidated Financial Statements.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None

PART III.



|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
|-------- | --------------------------------------------------

The information required by this item is incorporated herein by reference to the information under the sections entitled Proposal No. 1Election of Directors, Executive Officers, Section 16(a)
Beneficial Ownership Reporting Compliance and Code of Ethics of our definitive Proxy Statement (the Proxy Statement) to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, for our
Annual Meeting of Stockholders to be held on May 25, 2007. We anticipate filing the Proxy Statement within 120 days of the end of our fiscal year ended December 31, 2006.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The information regarding
executive compensation is incorporated herein by reference from the section entitled Executive Compensation and Related Information of the Proxy Statement.



48



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##### Table of Contents

|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The information regarding security ownership of certain beneficial owners and management is incorporated herein by reference from the section entitled
Share Ownership of Certain Beneficial Owners and Management of the Proxy Statement. The table below presents the following information as of December 31, 2006: (i) aggregate number of securities to be issued under the stock
plans upon exercise of outstanding options, warrants and other rights, (ii) the related weighted-average exercise price and (iii) the aggregate number of securities reserved for future issuance under such plans. The table does not include
information with respect to shares subject to outstanding options assumed by the Company in business combinations. Note (5) to the table sets forth information for options assumed by the Company.



|                                                               |  |                                                                                           |     |  |                                                                             |       |     |                                                                                                                                        |           |    
|-------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | --- |  | --------------------------------------------------------------------------- | ----- | --- | -------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---
|                                                               |  | Number ofSecurities to Be Issued uponExercise ofOutstandingOptions,Warrants andRights (i) |     |  | Weighted-AverageExercisePrice
ofOutstandingOptions,Warrants and Rights (ii) |       |     | Number ofSecuritiesRemainingAvailable
forFutureIssuance under EquityCompensationPlans[ExcludingSecuritiesReflected
inColumn (i)] (iii) |          
|Equity compensation plans approved by security holders (1)     |  | 1,258,838                                                                                 | (3) |  | $                                                                           | 19.27 | (3) |                                                                                                                                        | 3,640,140 | (4)
|Equity compensation plans not approved by security holders (2) |  | 1,002,754                                                                                 |     |  | $                                                                           | 27.83 |     |                                                                                                                                        | 2,000,838 |    
|                                                               |  |                                                                                           |     |  |                                                                             |       |     |                                                                                                                                        |           |    
|Total (5)                                                      |  | 2,261,592                                                                                 |     |  | $                                                                           | 23.07 |     |                                                                                                                                        | 5,640,978 |    
|                                                               |  |                                                                                           |     |  |                                                                             |       |     |                                                                                                                                        |           |    

---

|(1) | Consists of the following plans: 1995 Stock Option/Stock Issuance Plan, the 1999 Equity Incentive Plan, the 1999 Non-Employee Directors Plan and the Employee Stock Option Plan
(ESPP). Each fiscal year, commencing with the year 2000 and ending with the year 2002, the aggregate number of shares authorized under the 1999 Equity Incentive Plan automatically increased by the lesser of (i) 5% of the total
number of shares of the common stock then outstanding or (ii) 1,180,482, shares. Each fiscal year, commencing with the year 2000 and ending with the year 2002, the number of shares under the ESPP automatically increased by the lesser of
(i) 2% of the total number of shares of common stock then outstanding or (ii) 450,000 shares.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Consists of the 1999 Supplemental Stock Option Plan (the 1999 Supplemental Plan) as well as inducement option grants for certain Company officers at the time of hire. As
it relates to the 1999 Supplemental Plan, a total of 947,754 shares of the Companys common stock were issuable upon exercise of outstanding options at December 31, 2006; the weighted average exercise price of those outstanding options was
$24.95 per share. No options were granted and no shares were issued under the 1999 Supplemental Plan to any of the Companys directors or executive officers. The material features of the 1999 Supplemental Plan are outlined in Note 5 to the
Consolidated Financial Statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As it relates to inducement options granted to Company officers, such grants were issued
pursuant to NASD Rule 4350(i). As of December 31, 2006, a total of 55,000 shares of the Companys common stock were issuable upon exercise of such outstanding options. The weighted average exercise price of those outstanding options was
$77.50 per share. In addition to the individual terms summarized in items (a) and (b) below, if there is a change in control of the Company and the respective officers employment is terminated within eighteen months of the change in
control, then the remaining unvested options will become immediately exercisable.



49



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##### Table of Contents

(a) On April 6, 2001, the Company granted 345,000 stock options at an exercise price of $38.80 to
Thomas E. Hogan, who served as President, Chief Executive Officer and Director. At time of grant, these options were to expire on April 6, 2009 and became exercisable as follows: 86,500 options became exercisable at a rate of 25% per
quarter over one year beginning April 6, 2001; and 258,750 options became exercisable at a rate of 6.25% per quarter beginning April 6, 2001. In February 2006, Mr. Hogan resigned as President and Chief Executive Officer and his
service as a Director ended in May 2006. None of the stock options under this grant were exercised and all cancelled on August 3, 2006.

(b) On January 22, 2001, the Company granted 55,000 stock options at an exercise price of $77.50 per share to Bryce M. Johnson, who serves as Senior Vice President, General Counsel and Secretary. These options expire on
January 22, 2009 and become exercisable as follows: 25% on January 22, 2002 and 6.25% quarterly thereafter. As of December 31, 2006, a total of 55,000 stock options under this grant remain outstanding.



|(3) | Excludes purchase rights accrued under the ESPP.
|--- | ------------------------------------------------

|(4) | Includes shares available for future issuance under the ESPP. As of December 31, 2006, there were 1,080,744 shares available for future issuance under the ESPP.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Excludes information for options assumed by the Company in business combinations. As of December 31, 2006, a total of 680 shares of the Companys common stock were
issuable upon exercise of outstanding assumed options under the assumed plans. The related weighted average exercise price of those outstanding options was $63.57 per share. Upon assumption by the Company, no additional options may be granted under
these plans.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | The following executive officers have entered into individual Rule 10b5-1 trading plans pursuant to which stock of the Company will be sold for their account from time to time in
accordance with the provisions of the plans without any further action or involvement by the officers: Charles Sansbury, Bryce M. Johnson, Conleth OConnell, Leo Brunnick.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------

The
information regarding certain relationships and related transactions is incorporated herein by reference from the section entitled Certain Relationships and Related Transactions of the Proxy Statement.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

The
information related to audit fees and services paid to Grant Thornton LLP and Ernst & Young LLP appearing in the Proxy Statement is incorporated herein by reference.

PART IV.



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------



|(a) | The following documents are filed as part of this Annual Report on Form 10-K:
|--- | -----------------------------------------------------------------------------



| | (1) | Financial Statements
| | --- | --------------------

The Companys
consolidated financial statements, listed on the Index to Consolidated Financial Statements, on page F-1.



| | (2) | Financial Statement Schedules
| | --- | -----------------------------

Financial Statement
Schedules have been omitted as the information required to be set forth therein is either not applicable or is included in the Consolidated Financial Statements or the notes thereto.



| | (3) | Exhibits
| | --- | --------

Reference is made to Item 15(b) of
this Annual Report on Form 10-K.



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##### Table of Contents

|(b) | Exhibits
|--- | --------

Exhibits submitted with this Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission and those incorporated by reference to other filings, are listed, below.



|               |  |                                                                                                                                                     
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                         
|3.1           |  | Certificate of Incorporation of the Registrant.                                                                                                     
|3.2*           |  | Amendment to Certificate of Incorporation of the Registrant.                                                                                        
|3.3           |  | Bylaws of the Registrant.                                                                                                                           
|3.4        |  | Certificate of Designation of Series A Junior Participating Preferred Stock of the Registrant.                                                      
|3.5**          |  | Certificate of Amendment to the Companys Amended and Restated Certificate of Incorporation                                                         
|4.1            |  | Reference is made to Exhibits 3.1, 3.2. and 3.3                                                                                                     
|4.2           |  | Specimen common stock certificate.                                                                                                                  
|4.3        |  | Rights Agreement dated April 25, 2002 between the Company and Mellon Investor Services, LLC.                                                        
|10.1          |  | Form of Indemnification Agreements.                                                                                                                 
|10.2          |  | 1995 Stock Option/Stock Issuance Plan and forms of agreements thereunder.                                                                           
|10.3          |  | 1999 Equity Incentive Plan.                                                                                                                         
|10.4^          |  | 1999 Supplemental Stock Option Plan.                                                                                                                
|10.5          |  | Prism Development and Marketing Agreement dated July 19, 1996 between the Registrant and CNET, Inc.                                               
|10.6          |  | Letter Amendment to Prism Development and Marketing Agreement between the Registrant and CNET, Inc. dated August 15, 1998 and attachments thereto.
|10.7         |  | Lease Agreement dated March 3, 2000 between the Registrant and Prentiss Properties Acquisition Partners, L.P.                                       
|10.8         |  | First Amendment to Lease Agreement dated September 1, 2000 between the Registrant and Prentiss Properties Acquisition Partners, L.P.                
|10.9         |  | Sublease dated September 26, 2000 among the Registrant, Aptis, Inc. and Billing Concepts Corp.                                                      
|10.10^         |  | Stock Option Agreement  Jon. O. Niess.<<<                                                                                                          
|10.11^         |  | Stock Option Agreement I  Thomas E. Hogan.<<<                                                                                                      
|10.12^         |  | Stock Option Agreement II  Thomas E. Hogan.<<<                                                                                                     
|10.13^         |  | Stock Option Agreement  Bryce M. Johnson.<<<                                                                                                       
|10.14^^        |  | Share Sale Agreement dated January 16, 2004 between the Registrant and Tower Technology Pty Limited.                                                
|10.15^^^       |  | Notice of Stock Option Grant and Stock Option Agreement  1999 Supplemental Stock Option Plan                                                       
|10.16^^^       |  | 1999 Non-Employee Director Option Plan.                                                                                                             
|10.17^^^       |  | Notice of Stock Option Grant and Stock Option Agreement  1999 Non-Employee Director Automatic Option Plan.                                         
|10.18^^^       |  | Notice of Stock Option Grant and Stock Option Agreement  1999 Equity Incentive Plan.                                                               
|10.19^^^       |  | Lease Agreement dated January 31, 2002 between the Registrant and Prentiss Properties Acquisition Partners, L.P.                                    
|10.20^^^       |  | First Amendment to Lease Agreement dated November 12, 2001 between the Registrant and Prentiss Properties Acquisition Partners, L.P.                
|10.21^^^       |  | Second Amendment to Lease Agreement dated July 22, 2003 between the Registrant and Prentiss Properties Acquisition Partners, L.P.                   
|10.22^^^       |  | Notice of Restricted Stock Award and Restricted Stock Agreement  1999 Equity Incentive Plan.                                                       
|10.23***       |  | Amended and restated Master Services Agreement with Virtusa Corporation                                                                             
|10.24***       |  | The amended Vignette Corporation Employee Stock Purchase Plan                                                                                       



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|         |  |                                                                                                                                   
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|10.25*** |  | The amended Vignette Corporation International Employee Stock Purchase Plan                                                       
|10.26*** |  | Michael A. Aviles Stock Option Agreement<<<                                                                                       
|10.27*** |  | Michael A. Aviles Restricted Stock Agreement<<<                                                                                   
|10.28*** |  | Offer Letter Agreement with Michael A. Aviles<<<                                                                                  
|10.29*** |  | Michael A. Aviles Separation Agreement<<<                                                                                         
|10.30*** |  | Notice of Restricted Stock Award and Restricted Stock Agreement for Board of Director members under the 1999 Equity Incentive Plan
|10.31*** |  | Notice of Stock Option Grant and Option Agreement for Board of Director members under the 1999 Equity Incentive Plan              
|10.32*** |  | Offer Letter Agreement with Brett Bachman<<<                                                                                      
|10.33*** |  | Offer Letter Agreement with David Crean<<<                                                                                        
|10.34*** |  | Offer Letter Agreement with Gayle Wiley<<<                                                                                        
|10.35*** |  | Offer Letter Agreement with Lawrence Warnock<<<                                                                                   
|10.36<   |  | Amended and Restated 1999 Equity Incentive Plan dated May 26, 2006                                                                
|10.37<   |  | Offer Letter Agreement with T. Patrick Kelly<<<                                                                                   
|10.38<   |  | T. Patrick Kelly Stock Option Agreement<<<                                                                                        
|10.39<   |  | T. Patrick Kelly Restricted Stock Agreement<<<                                                                                    
|10.40 << |  | Brett Bachman Severance Agreement<<<                                                                                              
|10.41<<  |  | David Crean Severance Agreement<<<                                                                                                
|10.42<<  |  | Leo Brunnick Commuting Expense Agreement<<<                                                                                       
|10.43<<  |  | Offer Letter Agreement with Alex Shootman<<<                                                                                      
|16.1^^^^ |  | Letter From Ernst & Young LLP to the Securities and Exchange Commission concerning change in certifying accountant                
|21.1     |  | Subsidiaries List.                                                                                                                
|23.1     |  | Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm.                                                     
|23.2     |  | Consent of Ernst & Young LLP, Independent Public Accounting Firm                                                                  
|31.1     |  | Certification of Chief Executive Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002.                            
|31.2     |  | Certification of Chief Financial Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002.                            
|32.1     |  | Certification as required by Section 906 of the Sarbanes-Oxley Act of 2002.                                                       

---

| | Incorporated by reference to the Companys Registration Statement on Form S-1, as amended (File No. 333-68345).
|- | ---------------------------------------------------------------------------------------------------------------

| | Incorporated by reference to the Companys Form 10-K/A filed on March 30, 2001 (File No. 000-25375).
|-- | ----------------------------------------------------------------------------------------------------

| | Incorporated by reference to the Companys Form 10-K filed on March 29, 2002 (File No. 000-25375).
|--- | --------------------------------------------------------------------------------------------------

| | Incorporated by reference to the Companys Registration Statement on Form 8-A filed on April 30, 2002 (File No. 000-25375).
|---- | ---------------------------------------------------------------------------------------------------------------------------

|* | Incorporated by reference to the Companys definitive Proxy Statement for Special Meeting of Stockholders, dated February 17, 2000.
|- | -----------------------------------------------------------------------------------------------------------------------------------

|^ | Incorporated by reference to the Companys Form 10-K filed on March 28, 2003 (File No. 000-25375).
|- | --------------------------------------------------------------------------------------------------

|^^ | Incorporated by reference to the Companys Form 8-K filed on March 5, 2004 (File No. 000-25375).
|-- | ------------------------------------------------------------------------------------------------

|^^^ | Incorporated by reference to the Companys Form 10K filed on March 15, 2005 (File No. 000-25375)
|--- | ------------------------------------------------------------------------------------------------

|^^^^ | Incorporated by reference to the Companys Form 8K filed on December 27, 2005 (File No. 000-25375)
|---- | --------------------------------------------------------------------------------------------------

|** | Incorporated by reference to the Companys Form 8K filed on June 10, 2005 (File No. 000-25375)
|-- | ----------------------------------------------------------------------------------------------

|*** | Incorporated by reference to the Companys Form 10K filed on March 15, 2006 (File No. 000-25375)
|--- | ------------------------------------------------------------------------------------------------

|< | Incorporated by reference to the Companys Form 10Q filed on August 9, 2006 (File No. 000-25375)
|- | ------------------------------------------------------------------------------------------------

|<< | Incorporated by reference to the Companys Form 10Q filed on November 8, 2006 (File No. 000-25375)
|-- | --------------------------------------------------------------------------------------------------

|<<< | Management agreement or compensatory arrangement
|--- | ------------------------------------------------



52



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##### Table of Contents

SIGNATURES

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 thereunto duly authorized.



Vignette Corporation(Registrant)By:

/s/ T. Patrick KellyT. Patrick KellyChief Financial Officer


Dated: March 15, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated:



|                                          |  |  |  |                                                 |  |  |  |               
|----------------------------------------- |  |  |  | ----------------------------------------------- |  |  |  | --------------
|Signature                                 |  |  |  | Title                                           |  |  |  | Date          
|                                          |  |  |  |                                                
|/s/ Michael A. Aviles Michael A. Aviles   |  |  |  | President, Chief Executive Officer and Director |  |  |  | March 15, 2007
|                                          |  |  |  |                                                
|/s/ T. Patrick Kelly T. Patrick Kelly     |  |  |  | Chief Financial Officer                         |  |  |  | March 15, 2007
|                                          |  |  |  |                                                
|/s/ Jan H. Lindelow Jan H. Lindelow       |  |  |  | Chairman of the Board of Directors              |  |  |  | March 15, 2007
|                                          |  |  |  |                                                
|/s/ Henry T. DeNero Henry T. DeNero       |  |  |  | Director                                        |  |  |  | March 15, 2007
|                                          |  |  |  |                                                
|/s/ Kathleen Earley Kathleen Earley       |  |  |  | Director                                        |  |  |  | March 15, 2007
|                                          |  |  |  |                                                
|/s/ Joseph M. Grant Joseph M. Grant       |  |  |  | Director                                        |  |  |  | March 15, 2007
|                                          |  |  |  |                                                
|/s/ Jeffrey S. Hawn Jeffrey S. Hawn       |  |  |  | Director                                        |  |  |  | March 15, 2007
|                                          |  |  |  |                                                
|/s/ Michael D. Lambert Michael D. Lambert |  |  |  | Director                                        |  |  |  | March 15, 2007



53



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##### Table of Contents

VIGNETTE CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                |  |     
|--------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                |  | Page
|                                                                                                                | 
|Reports of Independent Registered Public Accounting Firms                                                       |  | F 2
|                                                                                                                | 
|Consolidated Balance Sheets at December 31, 2006 and 2005                                                       |  | F 5
|                                                                                                                | 
|Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004                      |  | F 6
|                                                                                                                | 
|Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2006, 2005 and 2004 |  | F 7
|                                                                                                                | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004                      |  | F 8
|                                                                                                                | 
|Notes to Consolidated Financial Statements                                                                      |  | F 9



F - 1



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Board of Directors and Stockholders

Vignette Corporation

We have audited managements assessment, included in Item 9A of this Annual Report on Form 10-K, that Vignette Corporation
maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Vignette Corporations management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to
express an opinion on managements assessment and an opinion on the effectiveness of the companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, managements assessment that Vignette Corporation maintained effective internal control over financial reporting as of
December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Vignette Corporation maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of Vignette Corporation as of December 31, 2006 , and the related consolidated statements of operations, changes in stockholders equity, and cash flows for the
year ended December 31, 2006 and our report dated March 13, 2007 expressed an unqualified opinion on those financial statements.



|                      
|----------------------
|/s/ Grant Thornton LLP
|                      
|Dallas , Texas        
|March 13, 2007        



F - 2



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Vignette Corporation

We have audited the accompanying consolidated balance sheet of Vignette Corporation (the Company) as of December 31, 2006, and the
related consolidated statements of operations, changes in stockholders equity, and cash flows for the year ended December 31, 2006. These financial statements are the responsibility of the Companys management. Our responsibility is
to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial
statements referred to above present fairly, in all material respects, the consolidated financial position of Vignette Corporation at December 31, 2006, and the consolidated results of their operations and their cash flows for the year ended
December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note
2 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 123R, Share Based Payment,effective January 1, 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the
Companys internal control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 13, 2007 expressed an unqualified opinion on Managements assessment of the effectiveness of internal control over financial reporting and an unqualified opinion on the effectiveness of internal control over financial
reporting.



|                      
|----------------------
|/s/ Grant Thornton LLP
|                      
|Dallas, Texas         
|March 13, 2007        



F - 3



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Vignette Corporation

We have audited the accompanying consolidated balance sheet of Vignette Corporation (the Company) as of December 31, 2005 and the
related consolidated statements of operations, changes in stockholders equity, and cash flows for each of the two years in the period ended December 31, 2005. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Vignette Corporation at December 31, 2005 and the consolidated results of its operations and its cash flows
for each of the two years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Vignette Corporations internal control over financial reporting as of December 31, 2005, based on
criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2006 (not included herein) expressed an unqualified opinion thereon.



|              |  |  |  |                      
|------------- |  |  |  | ---------------------
|              |  |  |  | /s/ Ernst & Young LLP
|              |  | 
|Austin, Texas |  |  |  |                      
|March 9, 2006 |  |  |  |                      



F - 4



---

##### Table of Contents

VIGNETTE CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)



|                                                                                                                                                                                                                                                                |  |              |            |   |      |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                                                                                                                                |  | December 31, |           
|                                                                                                                                                                                                                                                                |  | 2006         |            |   | 2005 |  
|ASSETS                                                                                                                                                                                                                                                          |  |              |            |   |      |   |            |  
|Current assets:                                                                                                                                                                                                                                                 |  |              |            |   |      |   |            |  
|Cash and cash equivalents                                                                                                                                                                                                                                       |  | $            | 98,832     |   |      | $ | 124,104    |  
|Short-term investments                                                                                                                                                                                                                                          |  |              | 105,622    |   |      |   | 72,953     |  
|Accounts receivable, net of allowance of $2,600 and $1,383 as of December 31, 2006 and 2005, respectively                                                                                                                                                       |  |              | 35,700     |   |      |   | 38,610     |  
|Prepaid expenses and other                                                                                                                                                                                                                                      |  |              | 7,163      |   |      |   | 7,828      |  
|                                                                                                                                                                                                                                                                |  |              |            |   |      |   |            |  
|Total current assets                                                                                                                                                                                                                                            |  |              | 247,317    |   |      |   | 243,495    |  
|                                                                                                                                                                                                                                                                |  |             
|Property and equipment:                                                                                                                                                                                                                                         |  |              |            |   |      |   |            |  
|Equipment                                                                                                                                                                                                                                                       |  |              | 1,359      |   |      |   | 1,362      |  
|Computers and purchased software                                                                                                                                                                                                                                |  |              | 36,645     |   |      |   | 34,090     |  
|Furniture and fixtures                                                                                                                                                                                                                                          |  |              | 2,767      |   |      |   | 2,725      |  
|Leasehold improvements                                                                                                                                                                                                                                          |  |              | 8,236      |   |      |   | 8,199      |  
|                                                                                                                                                                                                                                                                |  |              |            |   |      |   |            |  
|                                                                                                                                                                                                                                                                |  |              | 49,007     |   |      |   | 46,376     |  
|Accumulated depreciation                                                                                                                                                                                                                                        |  |              | (42,108    | ) |      |   | (38,185    | )
|                                                                                                                                                                                                                                                                |  |              |            |   |      |   |            |  
|                                                                                                                                                                                                                                                                |  |              | 6,899      |   |      |   | 8,191      |  
|                                                                                                                                                                                                                                                                |  |             
|Investments-other                                                                                                                                                                                                                                               |  |              | 7,563      |   |      |   | 8,288      |  
|Long Term Investments in Marketable Securities                                                                                                                                                                                                                  |  |              | 11,688     |   |      |   |           |  
|Goodwill                                                                                                                                                                                                                                                        |  |              | 119,722    |   |      |   | 120,110    |  
|Technology, net of accumulated amortization and impairment charges of $61,214 and $56,198, as of December 31, 2006 and 2005,
respectively                                                                                                                       |  |              | 15,887     |   |      |   | 20,903     |  
|Other intangible assets, net of accumulated amortization and impairment charges of $15,586 and $11,867 as of December 31, 2006 and 2005,
respectively                                                                                                           |  |              | 10,013     |   |      |   | 13,733     |  
|Other assets                                                                                                                                                                                                                                                    |  |              | 2,063      |   |      |   | 2,441      |  
|                                                                                                                                                                                                                                                                |  |              |            |   |      |   |            |  
|Total assets                                                                                                                                                                                                                                                    |  | $            | 421,152    |   |      | $ | 417,161    |  
|                                                                                                                                                                                                                                                                |  |              |            |   |      |   |            |  
|                                                                                                                                                                                                                                                                |  |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                            |  |              |            |   |      |   |            |  
|Current liabilities:                                                                                                                                                                                                                                            |  |              |            |   |      |   |            |  
|Accounts payable                                                                                                                                                                                                                                                |  | $            | 2,842      |   |      | $ | 3,910      |  
|Accrued employee liabilities                                                                                                                                                                                                                                    |  |              | 16,668     |   |      |   | 14,638     |  
|Accrued restructuring charges                                                                                                                                                                                                                                   |  |              | 2,119      |   |      |   | 2,901      |  
|Accrued exit and severance costs                                                                                                                                                                                                                                |  |              | 481        |   |      |   | 1,119      |  
|Accrued income taxes                                                                                                                                                                                                                                            |  |              | 5,735      |   |      |   | 5,597      |  
|Accrued professional fees                                                                                                                                                                                                                                       |  |              | 3,580      |   |      |   | 5,688      |  
|Accrued sales and marketing expenses                                                                                                                                                                                                                            |  |              | 1,741      |   |      |   | 2,078      |  
|Accrued other charges                                                                                                                                                                                                                                           |  |              | 7,139      |   |      |   | 6,213      |  
|Deferred revenue                                                                                                                                                                                                                                                |  |              | 35,717     |   |      |   | 34,306     |  
|Accrued other taxes                                                                                                                                                                                                                                             |  |              | 2,027      |   |      |   | 1,726      |  
|                                                                                                                                                                                                                                                                |  |              |            |   |      |   |            |  
|Total current liabilities                                                                                                                                                                                                                                       |  |              | 78,049     |   |      |   | 78,176     |  
|Accrued restructuring charges, less current portion                                                                                                                                                                                                             |  |              | 3,038      |   |      |   | 3,908      |  
|Deferred revenue, less current portion                                                                                                                                                                                                                          |  |              | 2,203      |   |      |   | 4,553      |  
|Other accrued liabilities                                                                                                                                                                                                                                       |  |              | 75         |   |      |   | 415        |  
|                                                                                                                                                                                                                                                                |  |              |            |   |      |   |            |  
|Total liabilities                                                                                                                                                                                                                                               |  |              | 83,365     |   |      |   | 87,052     |  
|                                                                                                                                                                                                                                                                |  |             
|Stockholders equity:                                                                                                                                                                                                                                           |  |              |            |   |      |   |            |  
|Common stock  $0.01 par value; 500,000,000 shares authorized; 29,378,968 and 29,546,137 shares issued and outstanding December 31,
2006 and 2005, respectively (net of treasury shares of 1,028,517 and 212,767 as of December 31, 2006 and 2005 respectively) |  |              | 294        |   |      |   | 296        |  
|Additional paid-in capital                                                                                                                                                                                                                                      |  |              | 2,747,946  |   |      |   | 2,753,557  |  
|Accumulated other comprehensive income                                                                                                                                                                                                                          |  |              | 2,176      |   |      |   | 1,204      |  
|Accumulated deficit                                                                                                                                                                                                                                             |  |              | (2,412,629 | ) |      |   | (2,424,948 | )
|                                                                                                                                                                                                                                                                |  |              |            |   |      |   |            |  
|Total stockholders equity                                                                                                                                                                                                                                      |  |              | 337,787    |   |      |   | 330,109    |  
|                                                                                                                                                                                                                                                                |  |              |            |   |      |   |            |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                      |  | $            | 421,152    |   |      | $ | 417,161    |  
|                                                                                                                                                                                                                                                                |  |              |            |   |      |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.



F - 5



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##### Table of Contents

VIGNETTE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



|                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                     |  | Year Ended December 31, |        
|                                                                                     |  | 2006                    |         |   | 2005 |   |         | 2004 | 
|Revenue:                                                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Product license                                                                      |  | $                       | 66,368  |   |      | $ | 70,316  |      |  | $ | 63,152  |  
|Services                                                                             |  |                         | 131,206 |   |      |   | 120,359 |      |  |   | 114,775 |  
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Total revenue                                                                        |  |                         | 197,574 |   |      |   | 190,675 |      |  |   | 177,927 |  
|Cost of revenue:                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Product license                                                                      |  |                         | 2,548   |   |      |   | 2,911   |      |  |   | 5,036   |  
|Amortization of acquired technology                                                  |  |                         | 5,017   |   |      |   | 6,267   |      |  |   | 10,115  |  
|Services                                                                             |  |                         | 60,399  |   |      |   | 55,427  |      |  |   | 53,281  |  
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Total cost of revenue                                                                |  |                         | 67,964  |   |      |   | 64,605  |      |  |   | 68,432  |  
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Gross profit                                                                         |  |                         | 129,610 |   |      |   | 126,070 |      |  |   | 109,495 |  
|Operating expenses:                                                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|Research and development                                                             |  |                         | 34,013  |   |      |   | 33,212  |      |  |   | 40,140  |  
|Sales and marketing                                                                  |  |                         | 70,192  |   |      |   | 68,080  |      |  |   | 74,441  |  
|General and administrative                                                           |  |                         | 17,941  |   |      |   | 20,291  |      |  |   | 18,571  |  
|Purchased in-process research and development, acquisition-related and other charges |  |                         |        |   |      |   | 270     |      |  |   | 7,609   |  
|Business restructuring (benefit) charges                                             |  |                         | 150     |   |      |   | (2,899  | )    |  |   | 18,083  |  
|Amortization of intangible assets                                                    |  |                         | 3,720   |   |      |   | 5,003   |      |  |   | 4,919   |  
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                                                             |  |                         | 126,016 |   |      |   | 123,957 |      |  |   | 163,763 |  
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Income (loss) from operations                                                        |  |                         | 3,594   |   |      |   | 2,113   |      |  |   | (54,268 | )
|Other income (expense):                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Interest income                                                                      |  |                         | 9,876   |   |      |   | 5,944   |      |  |   | 3,158   |  
|Interest expense                                                                     |  |                         | (1      | ) |      |   | (137    | )    |  |   | (118    | )
|Other                                                                                |  |                         | (548    | ) |      |   | (361    | )    |  |   | (145    | )
|Purchase Accounting Credits                                                          |  |                         | 682     |   |      |   |        |      |  |   |        |  
|Gain on sale of equity investments                                                   |  |                         | 604     |   |      |   | 15,264  |      |  |   |        |  
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Total other income (expense), net                                                    |  |                         | 10,613  |   |      |   | 20,710  |      |  |   | 2,895   |  
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Income (loss) before income taxes                                                    |  |                         | 14,207  |   |      |   | 22,823  |      |  |   | (51,373 | )
|Provision for income taxes                                                           |  |                         | (1,888  | ) |      |   | (2,429  | )    |  |   | (1,482  | )
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                                                                    |  | $                       | 12,319  |   |      | $ | 20,394  |      |  | $ | (52,855 | )
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Basic net income (loss) per share                                                    |  | $                       | 0.42    |   |      | $ | 0.70    |      |  | $ | (1.86   | )
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Diluted net income (loss) per share                                                  |  | $                       | 0.41    |   |      | $ | 0.68    |      |  | $ | (1.86   | )
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Shares used in computing basic net income (loss) per share                           |  |                         | 29,658  |   |      |   | 29,181  |      |  |   | 28,381  |  
|Shares used in computing diluted net income (loss) per share                         |  |                         | 29,878  |   |      |   | 29,807  |      |  |   | 28,381  |  

The accompanying notes are an integral part of these consolidated financial statements.



F - 6



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##### Table of Contents

VIGNETTE CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(in thousands, except share data)



|                                                                                                    |  |              |   |                          |   |     |                                               |   |           |                     |  |   |                            |   |  |   |            |   |  |   |         |  
|--------------------------------------------------------------------------------------------------- |  | ------------ | - | ------------------------ | - | --- | --------------------------------------------- | - | --------- | ------------------- |  | - | -------------------------- | - |  | - | ---------- | - |  | - | ------- | -
|                                                                                                    |  | Common Stock |   | AdditionalPaid-inCapital |   |     | Accumulated Other Comprehensive Income (Loss) |   |           | Accumulated Deficit |  |   | Total Stockholders Equity |  
|Balance at December 31, 2003                                                                        |  | 26,005,339   |   |                          | $ | 260 |                                               | $ | 2,672,873 |                     |  | $ | 697                        |   |  | $ | (2,392,484 | ) |  | $ | 281,346 |  
|Issuance of common stock in purchase of business                                                    |  | 2,715,152    |   |                          |   | 27  |                                               |   | 73,273    |                     |  |   |                           |   |  |   |           |   |  |   | 73,300  |  
|Issuance of common stock pursuant to employee stock purchase plan                                   |  | 120,735      |   |                          |   | 1   |                                               |   | 1,497     |                     |  |   |                           |   |  |   |           |   |  |   | 1,498   |  
|Stock options exercised                                                                             |  | 175,155      |   |                          |   | 2   |                                               |   | 1,807     |                     |  |   |                           |   |  |   |           |   |  |   | 1,809   |  
|                                                                                                    |  |              |   |                          |   |    
|Forfeiture of restricted stock grants                                                               |  | (30,625      | ) |                          |   |    |                                               |   | 139       |                     |  |   |                           |   |  |   |           |   |  |   | 139     |  
|Deferred stock compensation related to stock option and restricted stock grants                     |  |             |   |                          |   |    |                                               |   | 5         |                     |  |   |                           |   |  |   |           |   |  |   | 5       |  
|Repurchase of restricted stock                                                                      |  | (3,000       | ) |                          |   |    |                                               |   | (189      | )                   |  |   |                            |   |  |   |            |   |  |   | (189    | )
|Amortization of deferred stock compensation                                                         |  |             |   |                          |   |    |                                               |   | 480       |                     |  |   |                           |   |  |   |           |   |  |   | 480     |  
|Other                                                                                               |  |             |   |                          |   |    |                                               |   |          |                     |  |   |                           |   |  |   | (3         | ) |  |   | (3      | )
|Comprehensive loss:                                                                                 |  |              |   |                          |   |     |                                               |   |           |                     |  |   |                            |   |  |   |            |   |  |   |         |  
|Net loss                                                                                            |  |             |   |                          |   |    |                                               |   |          |                     |  |   |                           |   |  |   | (52,855    | ) |  |   | (52,855 | )
|Unrealized Investment gains                                                                         |  |             |   |                          |   |    |                                               |   |          |                     |  |   | 1,002                      |   |  |   |           |   |  |   | 1,002   |  
|Foreign currency translation adjustment, cumulative translation gain of $723 at December 31, 2003   |  |             |   |                          |   |    |                                               |   |          |                     |  |   | 286                        |   |  |   |           |   |  |   | 286     |  
|                                                                                                    |  |              |   |                          |   |     |                                               |   |           |                     |  |   |                            |   |  |   |            |   |  |   |         |  
|Total comprehensive income                                                                          |  |              |   |                          |   |     |                                               |   |           |                     |  |   |                            |   |  |   |            |   |  |   | (51,567 | )
|                                                                                                    |  |              |   |                          |   |     |                                               |   |           |                     |  |   |                            |   |  |   |            |   |  |   |         |  
|Balance at December 31, 2004                                                                        |  | 28,982,756   |   |                          |   | 290 |                                               |   | 2,749,885 |                     |  |   | 1,985                      |   |  |   | (2,445,342 | ) |  |   | 306,818 |  
|Issuance of common stock pursuant to employee stock purchase plan                                   |  | 88,900       |   |                          |   | 1   |                                               |   | 986       |                     |  |   |                           |   |  |   |           |   |  |   | 987     |  
|Stock options exercised                                                                             |  | 416,437      |   |                          |   | 4   |                                               |   | 1,851     |                     |  |   |                           |   |  |   |           |   |  |   | 1,855   |  
|Forfeiture of restricted stock grants                                                               |  | (2,500       | ) |                          |   |    |                                               |   |          |                     |  |   |                           |   |  |   |           |   |  |   |        |  
|Deferred stock compensation related to stock option and restricted stock grants                     |  | 60,544       |   |                          |   | 1   |                                               |   | 1         |                     |  |   |                           |   |  |   |           |   |  |   | 2       |  
|Repurchase of restricted stock                                                                      |  |             |   |                          |   |    |                                               |   |          |                     |  |   |                           |   |  |   |           |   |  |   |        |  
|Amortization of deferred stock compensation                                                         |  |             |   |                          |   |    |                                               |   | 834       |                     |  |   |                           |   |  |   |           |   |  |   | 834     |  
|Comprehensive loss:                                                                                 |  |              |   |                          |   |     |                                               |   |           |                     |  |   |                            |   |  |   |            |   |  |   |         |  
|Net income                                                                                          |  |             |   |                          |   |    |                                               |   |          |                     |  |   |                           |   |  |   | 20,394     |   |  |   | 20,394  |  
|Unrealized Investment gains                                                                         |  |             |   |                          |   |    |                                               |   |          |                     |  |   | (992                       | ) |  |   |           |   |  |   | (992    | )
|Foreign currency translation adjustment, cumulative translation gain of $1,009 at December 31, 2004 |  |             |   |                          |   |    |                                               |   |          |                     |  |   | 211                        |   |  |   |           |   |  |   | 211     |  
|                                                                                                    |  |              |   |                          |   |     |                                               |   |           |                     |  |   |                            |   |  |   |            |   |  |   |         |  
|Total comprehensive loss                                                                            |  |              |   |                          |   |     |                                               |   |           |                     |  |   |                            |   |  |   |            |   |  |   | 19,613  |  

The accompanying notes are an integral part of these consolidated financial statements.



|                                                                                                    |  |                 |   |  |                          |     |   |                                               |   |           |                     |  |   |                            |   |  |   |            |   |  |   |         |  
|--------------------------------------------------------------------------------------------------- |  | --------------- | - |  | ------------------------ | --- | - | --------------------------------------------- | - | --------- | ------------------- |  | - | -------------------------- | - |  | - | ---------- | - |  | - | ------- | -
|                                                                                                    |  | Common Stock    |   |  | AdditionalPaid-inCapital |     |   | Accumulated Other Comprehensive Income (Loss) |   |           | Accumulated Deficit |  |   | Total Stockholders Equity |  
|                                                                                                    |  | Number ofShares |   |  | Par Value                |     |   |                                               |   |          
|Balance at December 31, 2005                                                                        |  | 29,546,137      |   |  | $                        | 296 |   |                                               | $ | 2,753,557 |                     |  | $ | 1,204                      |   |  | $ | (2,424,948 | ) |  | $ | 330,109 |  
|Issuance of common stock pursuant to employee stock purchase plan                                   |  | 98,775          |   |  |                          | 1   |   |                                               |   | 1,109     |                     |  |   |                           |   |  |   |           |   |  |   | 1,110   |  
|Stock options exercised                                                                             |  | 370,194         |   |  |                          | 3   |   |                                               |   | 3,749     |                     |  |   |                           |   |  |   |           |   |  |   | 3,752   |  
|Forfeiture of restricted stock grants                                                               |  | (21,574         | ) |  |                          |    |   |                                               |   |          |                     |  |   |                           |   |  |   |           |   |  |   |        |  
|Deferred stock compensation related to stock option and restricted stock grants                     |  | 201,186         |   |  |                          | 2   |   |                                               |   | 3,187     |                     |  |   |                           |   |  |   |           |   |  |   | 3,189   |  
|Purchases of treasury stock                                                                         |  | (815,750        | ) |  |                          | (8  | ) |                                               |   | (13,656   | )                   |  |   |                           |   |  |   |           |   |  |   | (13,664 | )
|Comprehensive loss:                                                                                 |  |                 |   |  |                          |     |   |                                               |   |           |                     |  |   |                            |   |  |   |            |   |  |   |         |  
|Net income                                                                                          |  |                |   |  |                          |    |   |                                               |   |          |                     |  |   |                           |   |  |   | 12,319     |   |  |   | 12,319  |  
|Unrealized investment gains                                                                         |  |                |   |  |                          |    |   |                                               |   |          |                     |  |   | (6                         | ) |  |   |           |   |  |   | (6      | )
|Foreign currency translation adjustment, cumulative translation gain of $1,220 at December 31, 2005 |  |                |   |  |                          |    |   |                                               |   |          |                     |  |   | 978                        |   |  |   |           |   |  |   | 978     |  
|                                                                                                    |  |                 |   |  |                          |     |   |                                               |   |           |                     |  |   |                            |   |  |   |            |   |  |   |         |  
|Total comprehensive income                                                                          |  |                 |   |  |                          |     |   |                                               |   |           |                     |  |   |                            |   |  |   |            |   |  |   | 13,291  |  
|                                                                                                    |  |                 |   |  |                          |     |   |                                               |   |           |                     |  |   |                            |   |  |   |            |   |  |   |         |  
|Balance at December 31, 2006                                                                        |  | 29,378,968      |   |  | $                        | 294 |   |                                               | $ | 2,747,946 |                     |  | $ | 2,176                      |   |  | $ | (2,412,629 | ) |  | $ | 337,787 |  
|                                                                                                    |  |                 |   |  |                          |     |   |                                               |   |           |                     |  |   |                            |   |  |   |            |   |  |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.



F - 7



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##### Table of Contents

VIGNETTE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                                |  |                         |          |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                |  | Year Ended December 31, |         
|                                                                                                |  | 2006                    |          |   | 2005 |   |         | 2004 | 
|Operating activities:                                                                           |  |                         |          |   |      |   |         |      |  |   |         |  
|Net income (loss)                                                                               |  | $                       | 12,319   |   |      | $ | 20,394  |      |  | $ | (52,855 | )
|Adjustment to reconcile net income ( loss) to cash used in operating activities:                |  |                         |          |   |      |   |         |      |  |   |         |  
|Depreciation                                                                                    |  |                         | 4,752    |   |      |   | 5,654   |      |  |   | 9,065   |  
|Amortization                                                                                    |  |                         | 8,736    |   |      |   | 11,270  |      |  |   | 15,150  |  
|Noncash compensation expense                                                                    |  |                         | 3,189    |   |      |   | 834     |      |  |   | 480     |  
|Bad debt expense                                                                                |  |                         | 732      |   |      |   | 180     |      |  |   | 1,288   |  
|Purchase accounting credits                                                                     |  |                         | (682     | ) |      |   |        |      |  |   |        |  
|Purchased in-process research and development, acquisition-related and other (benefits) charges |  |                         |         |   |      |   |        |      |  |   | 5,923   |  
|Noncash restructuring charges (benefits)                                                        |  |                         | 150      |   |      |   | (778    | )    |  |   | 3,200   |  
|Noncash investment impairments                                                                  |  |                         |         |   |      |   |        |      |  |   | 206     |  
|Noncash unrealized foreign currency exchange loss                                               |  |                         | 1,201    |   |      |   |        |      |  |   |        |  
|Gain on Sale of equity investments                                                              |  |                         | (604     | ) |      |   | (15,264 | )    |  |   |        |  
|Gain on disposal of fixed assets                                                                |  |                         | (12      | ) |      |   | (114    | )    |  |   |        |  
|Other noncash items                                                                             |  |                         |         |   |      |   | 188     |      |  |   | (398    | )
|Changes in operating assets and liabilities, net of effects from purchases of businesses:       |  |                         |          |   |      |   |         |      |  |   |         |  
|Accounts receivable, net                                                                        |  |                         | 2,717    |   |      |   | 502     |      |  |   | (3,409  | )
|Prepaid expenses and other assets                                                               |  |                         | 1,350    |   |      |   | 1,412   |      |  |   | 1,741   |  
|Accounts payable                                                                                |  |                         | (1,192   | ) |      |   | 1,702   |      |  |   | (622    | )
|Accrued expenses                                                                                |  |                         | (813     | ) |      |   | 497     |      |  |   | (5,808  | )
|Accrued restructuring expenses                                                                  |  |                         | (2,809   | ) |      |   | (12,935 | )    |  |   |        |  
|Deferred revenue                                                                                |  |                         | (1,986   | ) |      |   | 3,957   |      |  |   | (5,665  | )
|Other liabilities                                                                               |  |                         | 664      |   |      |   | (769    | )    |  |   | 213     |  
|                                                                                                |  |                         |          |   |      |   |         |      |  |   |         |  
|Net cash provided by (used in) operating activities                                             |  |                         | 27,712   |   |      |   | 16,730  |      |  |   | (31,491 | )
|                                                                                                |  |                         |         
|Investing activities:                                                                           |  |                         |          |   |      |   |         |      |  |   |         |  
|Purchase of property and equipment                                                              |  |                         | (3,549   | ) |      |   | (4,253  | )    |  |   | (4,983  | )
|Purchase of businesses, net of cash acquired                                                    |  |                         |         |   |      |   |        |      |  |   | (43,751 | )
|Maturity of restricted investments                                                              |  |                         | 894      |   |      |   | 2,858   |      |  |   | 457     |  
|Purchase of marketable securities and short-term investments                                    |  |                         | (150,168 | ) |      |   | (50,028 | )    |  |   |        |  
|Maturity of marketable securities and short-term investments                                    |  |                         | 117,494  |   |      |   | 77,657  |      |  |   | 99,291  |  
|Purchase of securities and long-term investments                                                |  |                         | (11,688  | ) |      |   |        |      |  |   |        |  
|Purchase of equity securities                                                                   |  |                         |         |   |      |   | (45     | )    |  |   | (276    | )
|Proceeds from sale of equity securities                                                         |  |                         | 604      |   |      |   | 15,517  |      |  |   | 824     |  
|Other                                                                                           |  |                         | 27       |   |      |   | 253     |      |  |   | (45     | )
|                                                                                                |  |                         |          |   |      |   |         |      |  |   |         |  
|Net cash (used in) provided by investing activities                                             |  |                         | (46,386  | ) |      |   | 41,959  |      |  |   | 51,517  |  
|Financing activities:                                                                           |  |                         |          |   |      |   |         |      |  |   |         |  
|Payments on long-term debt and capital lease obligations                                        |  |                         |         |   |      |   |        |      |  |   | (72     | )
|Proceeds from exercise of stock options and purchase of employee stock purchase plan shares     |  |                         | 4,862    |   |      |   | 2,843   |      |  |   | 3,307   |  
|Purchase of Company common stock                                                                |  |                         | (12,582  | ) |      |   |        |      |  |   |        |  
|                                                                                                |  |                         |          |   |      |   |         |      |  |   |         |  
|Net cash (used in) provided by financing activities                                             |  |                         | (7,720   | ) |      |   | 2,843   |      |  |   | 3,235   |  
|Effect of exchange rate changes on cash and cash equivalents                                    |  |                         | 1,122    |   |      |   | (1,209  | )    |  |   | 881     |  
|                                                                                                |  |                         |          |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                            |  |                         | (25,272  | ) |      |   | 60,323  |      |  |   | 24,142  |  
|Cash and cash equivalents at beginning of year                                                  |  |                         | 124,104  |   |      |   | 63,781  |      |  |   | 39,639  |  
|                                                                                                |  |                         |          |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents at end of year                                                        |  | $                       | 98,832   |   |      | $ | 124,104 |      |  | $ | 63,781  |  
|                                                                                                |  |                         |          |   |      |   |         |      |  |   |         |  
|Supplemental disclosure of cash flow information:                                               |  |                         |          |   |      |   |         |      |  |   |         |  
|Interest paid                                                                                   |  | $                       | 1        |   |      | $ | 137     |      |  | $ | 118     |  
|                                                                                                |  |                         |          |   |      |   |         |      |  |   |         |  
|Income taxes paid                                                                               |  | $                       | 730      |   |      | $ | 905     |      |  | $ | 1,609   |  
|                                                                                                |  |                         |          |   |      |   |         |      |  |   |         |  
|Noncash activities:                                                                             |  |                         |          |   |      |   |         |      |  |   |         |  
|Common stock issued and stock options exchanged to acquire businesses                           |  | $                       |         |   |      | $ |        |      |  | $ | 73,300  |  
|                                                                                                |  |                         |          |   |      |   |         |      |  |   |         |  
|Liability incurred to purchase common stock                                                     |  | $                       | 1,082    |   |      | $ |        |      |  | $ |        |  
|                                                                                                |  |                         |          |   |      |   |         |      |  |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005

NOTE 1  Business

Vignette Corporation, along with its wholly-owned subsidiaries (collectively, the Company or Vignette),
provides Web content management, collaboration, portal and interaction management technologies. Our Web content management, collaboration, portal and interaction management technologies give organizations the capability to provide a personalized and
highly interactive Web experience that matches the expectations created by high-profile Web properties. In addition to creating high-value interactions through their Web presence, Vignette customers are also able to integrate systems and information
from inside and outside the organization; manage the lifecycle of enterprise information; and collaborate by supporting ad-hoc and process-based information sharing. Together, our products and expertise help companies harness the power of their
information and the Web to deliver high-value interactions, build communities online, and meet users demands for any content, at any time, anywhere, on the device of the users choosing.

The Company was incorporated in Delaware on December 19, 1995. Vignette currently markets its products and services throughout the Americas, Europe,
Asia and Australia. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

NOTE 2  Summary of Significant Accounting Policies

Use of
estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States
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 financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those estimates, and such differences could be material to the financial statements. In particular, actual sublease income attributable to the consolidation of excess facilities
might deviate from the assumptions used to calculate the Companys accruals for facility lease commitments vacated as a result of both its business restructuring and business acquisitions. During the year ended December 31, 2006, the
Company continued to execute on its existing business restructuring plan. It is reasonably possible that sublease assumptions could change further in the near term, requiring adjustments to future income and goodwill.

The Company periodically reviews the valuation and amortization of its identifiable intangible assets, taking into consideration any events or
circumstances that might result in a diminished fair value or useful life. During the years ended December 31, 2006 and December 31, 2005, no changes to the established estimated lives for identifiable intangible assets were made and no
impairment charges were deemed necessary.

Revenue recognition

Revenue consists of product license and services fees. Product license fee income is earned through licensing the right to use our software and from the sale of specific software products. Services fee income is
earned through the sale of maintenance and technical support, consulting services and training services.

The Company does not recognize
revenue for agreements with rights of return, refundable fees, cancellation rights or acceptance clauses until such rights to return, refund or cancel have expired or acceptance has occurred.

The Company recognizes revenue in accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and
SOP 98-9, and Securities and Exchange Commission Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements as revised by SAB 104.



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Where software licenses are sold with maintenance or other services, the Company allocates the total
fee to the various elements based on the fair values of each element in the arrangement. The Company determines the fair value of each element in the arrangement based on vendor-specific objective evidence (VSOE) of fair value. VSOE of
fair value is based upon the normal pricing and discounting practices for those products and services when sold separately and, for support services, is additionally measured by the renewal rate. If we do not have VSOE for license elements of an
arrangement, but do have VSOE for all undelivered elements, the Company uses the residual method to record revenue. Under the residual method, the arrangement fee is first allocated to the undelivered elements based upon their VSOE of fair value;
the remaining arrangement fee, including any discount, is allocated to the delivered element. If the residual method is not used, discounts, if any, are applied proportionately to each element included in the arrangement based on each elements
fair value without regard to the discount.

Revenue allocated to product license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred and collection of a fixed or determinable fee is probable. We consider all payments outside our normal payment terms, including all amounts due in excess of one year, to not be fixed and
determinable, and such amounts are recognized as revenue as they become due. If collectibility is not considered probable, revenue is recognized when the fee is collected. For software arrangements where the Company is obligated to perform
professional services for implementation of the product, the Company evaluates whether delivery has occurred upon shipment of software or upon completion of services and if the customer payment is probable. This evaluation is made based on various
factors such as the nature of the services work, order type (e.g. initial vs. follow-on) and customers payment history. In the instances where delivery is deemed not to have occurred upon shipment based on the aforementioned factors, license
revenue is taken when the Company has no significant remaining obligations with regard to the implementation.

Revenue from perpetual
licenses that include unspecified, additional software products is recognized ratably over the term of the arrangement, beginning with the delivery of the first product.

Revenue allocated to maintenance and support is recognized ratably over the maintenance term (typically one year).

Revenue allocated to training and consulting service elements is recognized as the services are performed as they are not essential to the functionality of our products.

Deferred revenue includes amounts received from customers in excess of revenue recognized. Accounts receivable includes amounts due from customers for
which revenue has been recognized.

The Company follows very specific and detailed guidelines, discussed above, in determining revenues;
however, certain judgments and estimates are made and used to determine revenue recognized in any accounting period. Material differences may result in the amount and timing of revenue recognized for any period if different conditions were to
prevail. For example, in determining whether collection is probable, we assess our customers ability and intent to pay. Our actual experience with respect to collections could differ from our initial assessment if, for instance, unforeseen
declines in the overall economy occur and negatively impact our customers financial condition

Accounts receivable

Accounts receivable are recorded at cost. We continuously assess the collectibility of outstanding customer invoices and in doing such, we maintain an
allowance for estimated losses resulting from the non-collection of customer receivables. In estimating this allowance, we consider factors such as: historical collection experience, a customers current credit-worthiness, customer
concentrations, age of the receivable balance, both individually and in the aggregate, and general economic conditions that may affect a customers ability to pay. Actual customer collections could differ from our estimates. For example, if the
financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.



F - 10



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Cash, cash equivalents and short-term investments

The Company considers all highly liquid investment securities with an original maturity of three months or less at the date of purchase to be cash
equivalents.

Short-term investments consist of marketable securities that have remaining maturities of less than one year from the balance
sheet date, excluding cash equivalents, and auction rate securities as described below. Investment securities are classified as available-for-sale and are presented at estimated fair value with any unrealized gains or losses included in other
comprehensive income (loss). Realized gains and losses are computed based on the specific identification method. Realized gains and losses were not material for the years presented.

Auction rate securities are highly liquid, variable rate securities. While the underlying security has a long-term nominal maturity, the interest rate is
reset through dutch auctions that are typically held every 7, 28, or 35 days. The securities trade at par and are callable at par on any interest payment date at the option of the issuer. Interest is paid at the end of each auction period.
Substantially all of the auction rate securities held have contractual maturities in excess of ten years from December 31, 2006.

The
Company classifies auction rate securities as available for sale pursuant to Statement of accounting Standards No. 115. Furthermore, the Company classified these securities as short-term because: (i) we acquired and held these
securities with the intent to liquidate them as the need for working capital arose in the ordinary course of business; (ii) we are able to either liquidate our holdings or roll our investment over to the next reset period at each rate reset
interval as described above.

Short-term investments consist of the following (in thousands):



|                                       |  |                   |         |                      |   |                     |  |      |         |                      |   |        |                     |   |     |   |  |   |       
|-------------------------------------- |  | ----------------- | ------- | -------------------- | - | ------------------- |  | ---- | ------- | -------------------- | - | ------ | ------------------- | - | --- | - |  | - | ------
|                                       |  | December 31, 2006 |         | December 31, 2005   
|                                       |  | Cost              |         | UnrealizedGain(Loss) |   | EstimatedFair Value |  | Cost |         | UnrealizedGain(Loss) |   |        | EstimatedFair Value
|Marketable securities:                 |  |                   |         |                      |   |                     |  |      |         |                      |   |        |                     |   |     |   |  |   |       
|Municipal and U.S. Government agencies |  | $                 | 34,193  |                      | $ | 17                  |  | $    | 34,210  |                      | $ | 9,369  |                     | $ | (16 | ) |  | $ | 9,353 
|Corporate notes                        |  |                   | 29,441  |                      |   | 9                   |  |      | 29,450  |                      |   | 1,043  |                     |   |    |   |  |   | 1,043 
|Auction rate                           |  |                   | 41,962  |                      |   |                    |  |      | 41,962  |                      |   | 62,557 |                     |   |    |   |  |   | 62,557
|                                       |  |                   |         |                      |   |                     |  |      |         |                      |   |        |                     |   |     |   |  |   |       
|                                       |  | $                 | 105,596 |                      | $ | 26                  |  | $    | 105,622 |                      | $ | 72,969 |                     | $ | (16 | ) |  | $ | 72,953
|                                       |  |                   |         |                      |   |                     |  |      |         |                      |   |        |                     |   |     |   |  |   |       

Long-term investments

Long-term investments are classified as available-for-sale and are presented at estimated fair value with any unrealized gains or losses included in other comprehensive income (loss). The Company holds a less than 20%
interest in, and does not exert significant influence over, any of the respective equity investees. The Company, therefore, applies the cost method. Long-term investments consisted of the following (in thousands):



|                                                      |  |              |        |      |   |      
|----------------------------------------------------- |  | ------------ | ------ | ---- | - | -----
|                                                      |  | December 31,
|                                                      |  | 2006         |        | 2005
|Restricted investments (cost approximates fair value) |  | $            | 6,235  |      | $ | 6,960
|Long-term marketable securities                       |  |              | 11,688 |      |   |     
|Equity investments:                                   |  |              |        |      |   |      
|Limited partnership interest                          |  |              | 1,328  |      |   | 1,328
|                                                      |  |              |        |      |   |      
|                                                      |  | $            | 19,251 |      | $ | 8,288
|                                                      |  |              |        |      |   |      



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Long-term marketable securities consist of the following:



|                                       |  |                   |        |                      |   |    |                     |  |   |       
|-------------------------------------- |  | ----------------- | ------ | -------------------- | - | -- | ------------------- |  | - | ------
|                                       |  | December 31, 2006
|                                       |  | Cost              |        | UnrealizedGain(Loss) |   |    | EstimatedFair Value
|Marketable securities:                 |  |                   |        |                      |   |    |                     |  |   |       
|Municipal and U.S. Government agencies |  | $                 | 2,017  |                      | $ | (5 | )                   |  | $ | 2,012 
|Corporate notes                        |  |                   | 9,676  |                      |   |   |                     |  |   | 9,676 
|                                       |  |                   |        |                      |   |    |                     |  |   |       
|                                       |  | $                 | 11,693 |                      | $ | (5 | )                   |  | $ | 11,688
|                                       |  |                   |        |                      |   |    |                     |  |   |       

All long-term marketable securities mature in 2008.

Fair values are based on quoted market prices where available. If quoted market prices are not available, management estimates fair value by using a
composite of quoted market prices of companies that are comparable in size and industry classification to the Companys non-public investments.

The Company held restricted investments in the form of a certificate of deposit and investment grade securities placed with a high credit quality financial institution. Such restricted investments collateralize
letters of credit related to certain leased office space security deposits and tax obligations. These investments will remain restricted to the extent that the security requirements exist. The average yield of these investments is approximately
4.03%.

The Company periodically analyzes its long-term investments for impairments considered other than temporary. In performing this
analysis, the Company evaluates whether general market conditions that reflect prospects for the economy as a whole or information pertaining to the specific investments industry, or that individual company, indicates that an other than
temporary decline in value has occurred. If so, the Company considers specific factors, including the financial condition and near-term prospect of each investment, any specific events that may affect the investee company, and the intent and ability
of the Company to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value. As a result of these reviews, the Company recognized no impairment charges in fiscal 2006 and 2005. The Company recognized
impairment charges $0.2 million for the year ended December 31, 2004. Such impairments are recorded in Other income (expense) on the Consolidated Statements of Operations.

Concentration of credit risk

Financial instruments
that potentially subject the Company to concentrations of credit risk consist of short-term investments, trade accounts receivable and restricted investments. The Companys short-term investments and restricted investments are placed with high
credit quality financial institutions and issuers.

The Company performs periodic credit evaluations of its customers financial
condition and generally does not require collateral. The Company maintains an allowance for estimated losses resulting from the



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



non-collection of customer receivables. In estimating this allowance, the following factors are considered: historical collection experience, a
customers current credit-worthiness, customer concentrations, age of the receivable balance, both individually and in the aggregate, and general economic conditions that may affect a customers ability to pay. The following table
summarizes the changes in allowance for doubtful accounts for trade receivables (in thousands):



|                             |  |                               |       |                                      |       |                                      |     |                                   |        |   |                         |   |      
|---------------------------- |  | ----------------------------- | ----- | ------------------------------------ | ----- | ------------------------------------ | --- | --------------------------------- | ------ | - | ----------------------- | - | -----
|                             |  | Balance atBeginning of Period |       | Charged toExpense, net of Recoveries |       | Adjustmentsfrom BusinessCombinations |     | Deduction ofUncollectibleAccounts |        |   | Balance atEnd of Period
|Year ended December 31, 2006 |  | $                             | 1,383 |                                      | 1,459 |                                      |    |                                   | (242   | ) |                         | $ | 2,600
|Year ended December 31, 2005 |  | $                             | 4,454 |                                      | 180   |                                      | 107 |                                   | (3,358 | ) |                         | $ | 1,383
|Year ended December 31, 2004 |  | $                             | 3,344 |                                      | 1,288 |                                      | 149 |                                   | (327   | ) |                         | $ | 4,454

No customers accounted for more than 10% of the Companys total revenue during the years
ended December 31, 2006, 2005 or 2004.

Financial instruments

The reported amounts of certain of the Companys financial instruments, including cash and cash equivalents, short-term investments, accounts receivables, accounts payable and accrued liabilities approximate fair
value based on the short term nature of these items. The Company uses derivative financial instruments to reduce its risk to foreign currency fluctuations. At December 31, 2006, the notional value of the foreign currency contracts was $5.5
million and based on the applicable exchange rates, the fair value of derivative financial instruments was a liability of $38,000. For the year ended December 31, 2006 there was a realized gain on foreign currency contracts of $12,000 and is
included in other income in the Consolidated Statement of Operations. At December 31, 2005, the notional value of the foreign currency contracts was $10.9 million and based on the applicable exchange rates, the fair value of derivative
financial instruments was a liability of $0.1 million. For the year ended December 31, 2005 there was a realized gain on foreign currency contracts of $13,000 and is included in other income in the Consolidated Statement of Operations. At
December 31, 2004, the notional value of the foreign currency contracts was $16.6 million and based on the applicable exchange rates, the fair value of derivative financial instruments was a liability of $0.6 million. For the year ended
December 31, 2004 there was a realized gain on foreign currency contracts of $68,000 and is included in other income in the Consolidated Statement of Operations. Foreign currency contracts are classified on the balance sheet in Prepaid
expenses and other or in Other current liabilities.

Property and equipment

Property and equipment are stated at cost. Depreciation of assets is computed using the straight-line method over the estimated useful lives of the
assets, ranging from three to five years. Assets under capital lease are amortized using the straight-line method over the shorter of the lease term or the estimated useful life. Amortization is included with depreciation expense.

Major improvements are capitalized, while maintenance and repairs that do not substantially enhance or extend the estimated useful life of the assets
benefited are charged to expense in the period incurred. Upon asset retirement or disposal, any resulting gain or loss is included in the results of operations.

Goodwill and other intangible assets

Goodwill represents the excess purchase price over the fair value of net assets
acquired, or net liabilities assumed, in a business combination. The Company periodically assesses its intangible assets, including goodwill, for indications of impairment. Based on this assessment no such impairment charges were recorded in 2006,
2005, or 2004.

Other intangible assets, including amounts allocated to acquired technology, non-compete contracts and customer
relationships, are being amortized over the assets estimated useful lives using the straight-line method. Estimated useful lives range from two to six years. Amortization of acquired technology is considered a cost of revenue and is presented
as Amortization of acquired technology in the accompanying Consolidated Statements of Operations. Amortization of non-compete contracts and customer relationships is considered operating expense and included in Amortization of
intangible assets in the accompanying Consolidated Statements of Operations. The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might
result in a diminished fair value or revised useful life.



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Research and development

Research and development expenses consist primarily of personnel costs and the Companys offshore suppliers to support product development and are expensed as incurred.

The Company capitalizes costs related to certain software development activities in accordance with Statement of Financial Accounting Standards 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed (Statement 86). Capitalization commences when technological feasibility has been established and ceases when the product is available for
general release to customers. Based on the Companys product development process, technological feasibility is established upon completion of a working model. To date, the time between achieving technological feasibility and the general
availability of software has been short and internal costs qualifying for capitalization have been insignificant. During fiscal years 2006, 2005, and 2004 no such costs were capitalized. In years prior to 2004 such capitalized costs relate to
software developed by third-parties that were not acquired in a business combination. They are amortized using the straight-line method over the estimated useful life, generally 18 months. The Company recognized no amortization expense for fiscal
years 2006 and 2005. Amortization expense was $0.1 million for fiscal 2004 and is included in Cost of revenue  product license in the accompanying Consolidated Statements of Operations.

Impairment of long-lived assets

The Company
periodically reviews the carrying amounts of property and equipment, to determine whether current events or circumstances, as defined in Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, (Statement 144), warrant adjustment to such carrying amounts. In reviewing the carrying amounts of long-lived assets, the Company considers, among other factors, the future cash inflows expected to result from the
use of the asset and its eventual disposition less the future cash outflows expected to be necessary to obtain those inflows.

Foreign currency

The functional currency of the Companys foreign subsidiaries is the respective local currency. Assets and liabilities of these
foreign subsidiaries are translated to U.S. Dollars at year-end exchange rates. Income statement items are translated to U.S. dollars at average exchange rates prevailing during the period. Accumulated net translation adjustments are recorded in
Accumulated other comprehensive income, a separate component of stockholders equity. Gains and losses from foreign currency denominated transactions are included in Other income (expense) in the accompanying
Consolidated Statements of Operations. Gains and losses from foreign currency denominated transactions amounted to a $0.6 million loss, a $0.6 million loss, and a $0.1 million loss for the years ended December 31, 2006, 2005 and 2004,
respectively.

Stock-based compensation

At December 31, 2006, the Company has five stock based compensation plans which are described more fully in Note 5. Effective January 1, 2006 the Company adopted Statement 123R, which prescribes accounting and reporting standards
for all share-based compensation plans, including employee stock options, restricted stock awards, and employee stock purchase plans. In accordance with Statement 123R the fair value method has been applied using the modified prospective method,
under which compensation cost has been recognized beginning January 1, 2006 (a) based on the requirements of Statement 123R for all share-based payments granted or modified after that date and (b) based on the previous requirements of
Financial Accounting Standards No. 123,Stock-Based Compensation (SFAS 123) for all awards granted to employees prior to that date that remain unvested on January 1, 2006.



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Prior to January 1, 2006, the Company accounted for employee stock based compensation using the
intrinsic method in accordance with Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees (APB 25) as permitted by SFAS 123 and Financial Accounting Standard No. 148,Accounting for
Stock-Based Compensation  Transition and Disclosure . Under the intrinsic method, the difference between the market price on the date of grant and the exercise price is charged to the results of operations over the vesting period.
Accordingly, the Company was not required to recognize compensation cost for stock options issued to the Companys employees or shares issued under the employee stock purchase plan when the exercise price was equal to the market price on the
date of grant. Prior to the adoption of Statement 123R, we recognized compensation cost only for restricted stock and for stock options issued with exercise prices set below market prices on the date of grant. During the years ended
December 31, 2005 and 2004 we recognized compensation expense of $0.8 million and $0.5 million, respectively, for restricted stock which was charged to our consolidated statement of operations. There was no compensation cost recognized for
stock options or the employee stock purchase plans. The following table illustrates the effect on net income (loss) and net income (loss) per share had the Company accounted for all employee stock based compensation based on the estimated grant date
fair values, as defined by SFAS 123, the Companys net income and net income per share would have been adjusted to the following pro forma amounts (in thousands, except per share data):



|                                                                                                                                          |  |                         |        |   |      |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------- | -
|                                                                                                                                          |  | Year ended December 31, |       
|                                                                                                                                          |  | 2005                    |        |   | 2004 |  
|Net income (loss):                                                                                                                        |  |                         |        |   |      |   |         |  
|Reported net income (loss)                                                                                                                |  | $                       | 20,394 |   |      | $ | (52,855 | )
|Add: Total stock-based employee compensation expense included in the determination of net loss as reported, net of related tax
effects    |  |                         | 834    |   |      |   | 480     |  
|Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                         | (7,707 | ) |      |   | (16,951 | )
|                                                                                                                                          |  |                         |        |   |      |   |         |  
|Pro forma net income (loss)                                                                                                               |  | $                       | 13,521 |   |      | $ | (69,326 | )
|                                                                                                                                          |  |                         |        |   |      |   |         |  
|Basic net income (loss) per share :                                                                                                       |  |                         |        |   |      |   |         |  
|Reported net income (loss) per share                                                                                                      |  | $                       | 0.70   |   |      | $ | (1.86   | )
|                                                                                                                                          |  |                         |        |   |      |   |         |  
|Pro-forma net income (loss) per share                                                                                                     |  | $                       | 0.46   |   |      | $ | (2.44   | )
|                                                                                                                                          |  |                         |        |   |      |   |         |  
|Diluted net income (loss) per share :                                                                                                     |  |                         |        |   |      |   |         |  
|Reported net income (loss) per share                                                                                                      |  | $                       | 0.68   |   |      | $ | (1.86   | )
|                                                                                                                                          |  |                         |        |   |      |   |         |  
|Pro-forma net income (loss) per share                                                                                                     |  | $                       | 0.45   |   |      | $ | (2.44   | )
|                                                                                                                                          |  |                         |        |   |      |   |         |  

The Company recognized $3.2 million in the year ended December 31, 2006, for stock based
compensation. This expense includes $1.7 million for stock options, $1.1 million for restricted stock awards, and $0.4 million for the employee stock purchase plans. The costs for stock based compensation for the years ended December 31, 2005
and 2004, respectively are related to restricted stock awards. The tables below present the costs recorded related to stock based compensation and the effect of stock based compensation on earnings per share for the years ended December 31,
2006 and 2005, and 2004, respectively:



|                               |  |                                |       |      |   |      |  |   |     |  
|------------------------------ |  | ------------------------------ | ----- | ---- | - | ---- |  | - | --- | -
|                               |  | For The Year EndedDecember 31, |      
|                               |  | 2006                           |       | 2005 |   | 2004 | 
|Cost of revenue  services     |  | $                              | 420   |      | $ |     |  | $ |    |  
|Research and development       |  |                                | 278   |      |   | 12   |  |   | (71 | )
|Sales and marketing            |  |                                | 706   |      |   | 124  |  |   | (48 | )
|General and administrative     |  |                                | 1,790 |      |   | 698  |  |   | 599 |  
|                               |  |                                |       |      |   |      |  |   |     |  
|Total stock based compensation |  | $                              | 3,194 |      | $ | 834  |  | $ | 480 |  
|                               |  |                                |       |      |   |      |  |   |     |  



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



|                                                          |  |                                |      |      |   |      |  |   |     
|--------------------------------------------------------- |  | ------------------------------ | ---- | ---- | - | ---- |  | - | ----
|                                                          |  | For The Year EndedDecember 31,
|                                                          |  | 2006                           |      | 2005 |   | 2004
|Effect of stock based compensation on earnings per share: |  |                                |      |      |   |      |  |   |     
|Basic                                                     |  | $                              | 0.11 |      | $ | 0.03 |  | $ | 0.02
|Diluted                                                   |  | $                              | 0.11 |      | $ | 0.03 |  | $ | 0.02

Comprehensive income

Comprehensive income includes net income (loss) and other comprehensive income (loss) and is presented in the Consolidated Statements of Changes in Stockholders Equity. Statement of Financial Accounting Standard
No. 130, Reporting Comprehensive Income establishes standards for reporting comprehensive income and its components in the financial statements. Accumulated other comprehensive income is displayed as a separate component of
stockholders equity in the Companys Consolidated Balance Sheet and consisted of the following (in thousands):



|                                                          |  |              |       |   |      |   |       |  
|--------------------------------------------------------- |  | ------------ | ----- | - | ---- | - | ----- | -
|                                                          |  | December 31, |      
|                                                          |  | 2006         |       |   | 2005 |  
|Foreign currency translation                              |  | $            | 2,197 |   |      | $ | 1,220 |  
|Unrealized (gain) loss on available-for-sale investments: |  |              |       |   |      |   |       |  
|Short-term investments                                    |  |              | (26   | ) |      |   | (16   | )
|Long-term investments                                     |  |              | 5     |   |      |   |      |  
|                                                          |  |              |       |   |      |   |       |  
|                                                          |  | $            | 2,176 |   |      | $ | 1,204 |  
|                                                          |  |              |       |   |      |   |       |  

Product warranties

The Company offers warranties to its customers, requiring that the Company replace defective products within a specified time period from the date of sale. The Company records warranty costs as incurred and
historically such costs have not been material.

Advertising costs

Advertising costs are expensed as incurred. The company did not recognize any material advertising expenses for the years ended December 31, 2006, 2005 and 2004, respectively.

Taxes Collected from Customers

In the course of doing
business the Company collects various taxes from customers including but not limited to sales and use taxes and value added taxes. It is the Companys policy to record these on net basis in the statement of operations and, therefore, does not
include the taxes collected as a component of revenue.

Income taxes

The Company accounts for income taxes using the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Net income (loss) per share

Basic net income (loss) per share is computed by dividing the net income (loss) available to common stockholders for the period by the weighted average number of common shares outstanding during the period, excluding
shares subject to repurchase or forfeiture. The Company includes stock options, the employee stock purchase plan (ESPP), and restricted shares in the calculation of diluted earnings per share. The Company had outstanding common stock
options of 3,587,412 at December 31, 2004. Such outstanding common stock options have been excluded from the calculation of diluted net loss per share for fiscal year 2004, as the effect of their exercise would be antidilutive.

The following table presents the calculation of basic and diluted net income (loss) per share (in thousands, except per share data):



|                                                                                     |  |                         |        |   |      |   |        |      |  |   |         |  
|------------------------------------------------------------------------------------ |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                                     |  | Year Ended December 31, |       
|                                                                                     |  | 2006                    |        |   | 2005 |   |        | 2004 | 
|Net income (loss)                                                                    |  | $                       | 12,319 |   |      | $ | 20,394 |      |  | $ | (52,855 | )
|                                                                                     |  |                         |        |   |      |   |        |      |  |   |         |  
|Basic:                                                                               |  |                         |        |   |      |   |        |      |  |   |         |  
|Weighted-average common shares outstanding                                           |  |                         | 29,854 |   |      |   | 29,285 |      |  |   | 28,428  |  
|Weighted-average common shares subject to repurchase or forfeiture                   |  |                         | (196   | ) |      |   | (104   | )    |  |   | (47     | )
|                                                                                     |  |                         |        |   |      |   |        |      |  |   |         |  
|Weighted-average common shares used in computing basic net income (loss) per share   |  |                         | 29,658 |   |      |   | 29,181 |      |  |   | 28,381  |  
|                                                                                     |  |                         |        |   |      |   |        |      |  |   |         |  
|Diluted:                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|                                                                                     |  |                         |       
|Stock Options, ESPP, and restricted shares                                           |  |                         | 220    |   |      |   | 626    |      |  |   |        |  
|                                                                                     |  |                         |        |   |      |   |        |      |  |   |         |  
|Weighted-average common shares used in computing diluted net income (loss) per share |  |                         | 29,878 |   |      |   | 29,807 |      |  |   | 28,381  |  
|                                                                                     |  |                         |        |   |      |   |        |      |  |   |         |  
|Basic net income (loss) per share                                                    |  | $                       | 0.42   |   |      | $ | 0.70   |      |  | $ | (1.86   | )
|                                                                                     |  |                         |       
|Diluted net income (loss) per share                                                  |  | $                       | 0.41   |   |      | $ | 0.68   |      |  | $ | (1.86   | )

Segments

The Company applies Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, and considers its business activities to constitute a single
segment.

Employee 401(k) plan

In
1997, the Company established a voluntary defined contribution retirement plan qualifying under Section 401(k) of the Internal Revenue Code of 1986 (The Plan). Participants are allowed to make voluntary contributions to the Plan up
to 25% of compensation. The Company can make discretionary contributions to the Plan of amounts determined and authorized by the Companys Board of Directors up to the maximum amounts permitted by the Internal Revenue Service (IRS).
Participants direct the investment allocation of all contributions. Contributions are subject to limitations imposed by the Internal Revenue Code (the Code). The Company elected to match the first one thousand dollars of each
participants contributions for a total company contribution of $286,000 and $347,000 for the years ended December 31, 2006 and 2005, respectively. The Company made no contributions in the year ended December 31, 2004.

Through its prior business combinations, the Company assumed the 401(k) Plans of Tower Technology, Epicentric, and Intraspect (the Assumed
Plans). The Assumed Plans are voluntary defined contribution retirement plans qualifying under Section 401(k) of the Internal Revenue Code of 1986. Under the terms of the Assumed Plans, the Company may match employee contributions;
however, the company elected to not make any contributions to the plans. The Company elected to merge the Tower Technology 401(K) Plan into the Vignette Corporation 401(K) Plan, effective July 1, 2004. Employees of Tower Technology became
participants in the Plan as of July 1, 2004. Assets in the amount of $ 0.9 million were converted to the Vignette Corporation 401(k) Plan. In 2005, after deducting all charges and expenses of the Intraspect plan, the balances of all
individual accounts were adjusted and the remaining assets distributed



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Reclassifications

Certain prior year amounts have been reclassified to conform to the fiscal 2006 presentation. This includes certain amounts that have been reclassified as required by Statement of Financial Accounting Standards No. 123R, Share Based
Payment (Statement 123R). The Company reclassified the amortization of deferred stock compensation previously reported on a separate line in the Condensed Consolidated Statement of operations for the years ended December 31, 2005 and 2004,
respectively. That expense is now included in the appropriate functional expense category and is presented in tabular form in this footnote. The Company also reclassified the unamortized cost of $380,000 related to restricted stock awards to
additional paid-in capital that was previously reported as deferred compensation in the equity section of the Companys Consolidated Balance Sheets as of December 31, 2005. The reclassifications of the amortization of deferred stock
compensation and deferred compensation had no impact on the Companys financial position, results of operations, or cash flows.

Recent accounting
pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) 157, Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures about fair value
measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is currently evaluating the effect that the adoption of SFAS 157 will have on its
financial position and results of operations. The Company will adopt SFAS 157 January 1, 2007.

In September 2006, the Securities
and Exchange Commission issued Staff Accounting Bulletin No. 108 (SAB 108), Considering the Effects of Prior Year Misstatements when Quantifying Current Year Misstatements.SAB 108 requires analysis of misstatements using
both an income statement (rollover) approach and a balance sheet (iron curtain) approach in assessing materiality and provides a one-time cumulative effect transition adjustment. SAB 108 is effective beginning October 1, 2006 and the
Companys financial statements for the year ending December 31, 2006. The Company made no adjustments to its financial statements upon adoption of SAB 108 and will continue to evaluate its accounting based on the requirements of SAB 108.

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.48,Accounting for Uncertainty in
Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with FASB Statement of Financial Accounting Standards (SFAS) 109,
Accounting for Income Taxes. This interpretation defines the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning
after December 15, 2006. The Company is currently evaluating the effect that the adoption of FIN 48 will have on its financial position and results of operations, however, we do not believe that it will have a material effect upon
adoption. The Company will adopt FIN 48 January 1, 2007.

In February 2007 the FASB issued SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities.The standard permits but does not require entities to measure many financial instruments and certain other items at fair value. Once and entity has elected the fair value option for
designated financial instruments and other items, changes in fair value must be recognized in the statement of operations. The election is irrevocable once made. The statement is effective for the first fiscal year after November 15, 2007. The
Company is currently evaluating the accounting permitted by the standard and has not determined if the fair value option will be elected for eligible financial instruments or other items.



F - 18



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



NOTE 3  Business Combinations and Acquired In-Process Research and Development

Acquisition of Tower Technology

On March 1, 2004
the Company acquired all issued and outstanding shares of Tower Technology Pty Limited (Tower Technology), a privately held Australian company and leading provider of enterprise document and records management solutions. At the time of
the acquisition the Company recorded liabilities for accounts payable, accrued exit costs, accrued employee severance, accrued relocation and accrued other expenses. The Company recorded an accrual for exit costs of $3.1 million that related to
lease obligations for excess office space that the Company has vacated or intended to vacate under the approved facilities exit plan. The total lease commitments include the estimated buyout fees or the remaining lease liabilities and estimated
associated mitigation costs including, but not limited to, brokerage commission, legal fees, repairs, restoration costs, and sublease incentives offset by estimated sublease income. The Company also recorded an accrual of $1.4 million for severance
and relocation costs that has been fully utilized.

The following table summarizes activity for exit costs, employee severance and
relocation costs (in thousands) related to the Tower technology PTY Ltd acquisition:



|                                                  |  |            |       |   |                        |   |        |       |  |   |        |  
|------------------------------------------------- |  | ---------- | ----- | - | ---------------------- | - | ------ | ----- |  | - | ------ | -
|                                                  |  | Exit Costs |       |   | SeveranceandRelocation |   |        | Total | 
|Initial accrual at March 1, 2004                  |  | $          | 3,146 |   |                        | $ | 1,426  |       |  | $ | 4,572  |  
|Cash activity                                     |  |            | (864  | ) |                        |   | (1,400 | )     |  |   | (2,264 | )
|Adjustment to accrual                             |  |            | (866  | ) |                        |   | (26    | )     |  |   | (892   | )
|                                                  |  |            |       |   |                        |   |        |       |  |   |        |  
|Balance at December 31, 2004                      |  |            | 1,416 |   |                        |   |       |       |  |   | 1,416  |  
|Cash activity                                     |  |            | (689  | ) |                        |   |       |       |  |   | (689   | )
|Adjustment to accrual                             |  |            | 190   |   |                        |   |       |       |  |   | 190    |  
|                                                  |  |            |       |   |                        |   |        |       |  |   |        |  
|Balance at December 31, 2005                      |  |            | 917   |   |                        |   |       |       |  |   | 917    |  
|Cash activity                                     |  |            | (495  | ) |                        |   |       |       |  |   | (495   | )
|Adjustment to accrual                             |  |            | (33   | ) |                        |   |       |       |  |   | (33    | )
|Non-cash activity                                 |  |            | 92    |   |                        |   |       |       |  |   | 92     |  
|                                                  |  |            |       |   |                        |   |        |       |  |   |        |  
|Balance at December 31, 2006                      |  |            | 481   |   |                        |   |       |       |  |   | 481    |  
|Less: current portion                             |  |            |       |   |                        |   |        |       |  |   | 481    |  
|                                                  |  |            |       |   |                        |   |        |       |  |   |        |  
|Long-term exit costs and severance and relocation |  |            |       |   |                        |   |        |       |  | $ |       |  
|                                                  |  |            |       |   |                        |   |        |       |  |   |        |  

Acquisition of Intraspect Software, Inc.

On December 10, 2003, the Company acquired all issued and outstanding shares of Intraspect Software, Inc. (Intraspect). The Company
recorded exit costs of $2.3 million that related to lease obligations for excess office space that the Company has vacated or intended to vacate under the approved facilities exit plan. The total lease commitments include the estimated buyout fees
or the remaining lease liabilities and estimated associated mitigation costs including, but not limited to, brokerage commission, legal fees, repairs, restoration costs, and sublease incentives offset by estimated sublease income. The accrual for
exit costs has been fully utilized. The Company also recorded an accrual of $0.5 million for severance and relocation costs that has been fully utilized.

The following table summarizes activity for exit costs, employee severance and relocation costs (in thousands:



F - 19



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



|                                     |  |            |       |   |                        |   |      |       |  |   |       |  
|------------------------------------ |  | ---------- | ----- | - | ---------------------- | - | ---- | ----- |  | - | ----- | -
|                                     |  | Exit Costs |       |   | Severanceandrelocation |   |      | Total | 
|Initial accrual at December 10, 2003 |  | $          | 2,250 |   |                        | $ | 543  |       |  | $ | 2,793 |  
|Adjustment to accrual                |  |            |      |   |                        |   | (30  | )     |  |   | (30   | )
|                                     |  |            |      
|Cash activity                        |  |            | (67   | ) |                        |   | (507 | )     |  |   | (574  | )
|                                     |  |            |       |   |                        |   |      |       |  |   |       |  
|Balance at December 31, 2003         |  |            | 2,183 |   |                        |   | 6    |       |  |   | 2,189 |  
|Adjustment to accrual                |  |            | 21    |   |                        |   | 148  |       |  |   | 169   |  
|Cash activity                        |  |            | (834  | ) |                        |   | (154 | )     |  |   | (988  | )
|                                     |  |            |       |   |                        |   |      |       |  |   |       |  
|Balance at December 31, 2004         |  |            | 1,370 |   |                        |   |     |       |  |   | 1,370 |  
|Adjustment to accrual                |  |            | (38   | ) |                        |   |     |       |  |   | (38   | )
|Cash activity                        |  |            | (801  | ) |                        |   |     |       |  |   | (801  | )
|                                     |  |            |       |   |                        |   |      |       |  |   |       |  
|Balance at December 31, 2005         |  | $          | 531   |   |                        | $ |     |       |  | $ | 531   |  
|Adjustment to accrual                |  |            |      |   |                        |   |     |       |  |   |      |  
|Cash activity                        |  |            | (531  | ) |                        |   |     |       |  |   | (531  | )
|                                     |  |            |       |   |                        |   |      |       |  |   |       |  
|Balance at December 31, 2006         |  | $          |      |   |                        | $ |     |       |  | $ |      |  
|                                     |  |            |       |   |                        |   |      |       |  |   |       |  

Acquisition of Epicentric, Inc

On December 3, 2002, the Company acquired all issued and outstanding shares of Epicentric, Inc. (Epicentric). Accrued exit costs of $9.8
million at acquisition date relate to lease obligations for excess office space that the Company has vacated under the approved facilities exit plan. The total lease commitments include the estimated lease buyout fees or the remaining lease
liabilities and estimated associated mitigation costs including, but not limited to, brokerage commissions, legal fees, repairs, restoration costs, and sublease incentives, offset by estimated sublease income. The accrual for exit costs has been
fully utilized. The Company also established an accrual of $1.9 million of severance and relocation costs that has been fully utilized.

The following table summarizes activity for exit costs, employee severance and relocation costs (in thousands):



|                                    |  |            |        |   |                        |   |        |       |  |   |        |  
|----------------------------------- |  | ---------- | ------ | - | ---------------------- | - | ------ | ----- |  | - | ------ | -
|                                    |  | Exit Costs |        |   | SeveranceandRelocation |   |        | Total | 
|Initial accrual at December 3, 2002 |  | $          | 9,794  |   |                        | $ | 1,895  |       |  | $ | 11,689 |  
|                                    |  |            |       
|Cash activity                       |  |            |       |   |                        |   |       |       |  |   |       |  
|                                    |  |            |        |   |                        |   |        |       |  |   |        |  
|Balance at December 31, 2002        |  |            | 9,794  |   |                        |   | 1,895  |       |  |   | 11,689 |  
|Adjustment to accrual               |  |            | 190    |   |                        |   |       |       |  |   | 190    |  
|Cash activity                       |  |            | (3,692 | ) |                        |   | (1,823 | )     |  |   | (5,515 | )
|                                    |  |            |        |   |                        |   |        |       |  |   |        |  
|Balance at December 31, 2003        |  |            | 6,292  |   |                        |   | 72     |       |  |   | 6,364  |  
|Adjustment to accrual               |  |            | (454   | ) |                        |   | (72    | )     |  |   | (526   | )
|Cash activity                       |  |            | (2,360 | ) |                        |   |       |       |  |   | (2,360 | )
|                                    |  |            |        |   |                        |   |        |       |  |   |        |  
|Balance at December 31, 2004        |  |            | 3,478  |   |                        |   |       |       |  |   | 3,478  |  
|Adjustment to accrual               |  |            | (833   | ) |                        |   |       |       |  |   | (833   | )
|Cash activity                       |  |            | (2,559 | ) |                        |   |       |       |  |   | (2,559 | )
|                                    |  |            |        |   |                        |   |        |       |  |   |        |  
|Balance at December 31, 2005        |  |            | 86     |   |                        |   |       |       |  |   | 86     |  
|Adjustment to accrual               |  |            | (19    | ) |                        |   |        |       |  |   | (19    | )
|Cash activity                       |  |            | (67    | ) |                        |   |       |       |  |   | (67    | )
|                                    |  |            |        |   |                        |   |        |       |  |   |        |  
|Balance as of December 31, 2006     |  | $          |       |   |                        | $ |       |       |  | $ |       |  
|                                    |  |            |        |   |                        |   |        |       |  |   |        |  



F - 20



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



The following table summarizes costs related to our business combinations (in thousands):



|                                              |  |                         |   |      |   |      |  |   |      
|--------------------------------------------- |  | ----------------------- | - | ---- | - | ---- |  | - | -----
|                                              |  | Year Ended December 31,
|                                              |  | 2006                    |   | 2005 |   | 2004
|Purchased in-process research and development |  | $                       |  |      | $ |     |  | $ | 4,800
|Cross-training, product integration and other |  |                         |  |      |   | 270  |  |   | 1,345
|Severance and other employee-related costs    |  |                         |  |      |   |     |  |   | 807  
|Contingent compensation                       |  |                         |  |      |   |     |  |   | 657  
|                                              |  |                         |   |      |   |      |  |   |      
|                                              |  | $                       |  |      | $ | 270  |  | $ | 7,609
|                                              |  |                         |   |      |   |      |  |   |      

Purchase Accounting Credits

The Company recognized approximately $0.7 million of credits as other income in the statement of operations for the year ended December 31, 2006 as a result of the release of designated liabilities recorded as
part of its most recent business acquisitions that were no longer required.

NOTE 4  Intangible Assets

Goodwill

The changes in the carrying amount of
goodwill, net of accumulated amortization and impairment charges, are as follows (in thousands):



|                             |  |          |         |  
|---------------------------- |  | -------- | ------- | -
|                             |  | Goodwill |        
|Balance at December 31, 2005 |  | $        | 120,110 |  
|Purchase price adjustments   |  |          | (388    | )
|                             |  |          |         |  
|Balance at December 31, 2006 |  | $        | 119,722 |  
|                             |  |          |         |  

The goodwill balance at December 31, 2006 and 2005 pertains to the Tower Technology business
combination completed in March 2004, the Intraspect business combination completed in December 2003, and the Epicentric business combination completed in December 2002.

The purchase price adjustment in 2006 is an adjustment associated with our deferred income taxes recorded in conjunction with the Tower Technology acquisition.

Goodwill impairment tests

In accordance with
Statement 142, the Company performs an annual impairment test of goodwill. The Company evaluates goodwill at the enterprise level as of October 1 each year or more frequently if events or changes in circumstances indicate that goodwill might be
impaired. As required by Statement 142, the impairment test is accomplished using a two-stepped approach. The first step screens for impairment and, when impairment is indicated, a second step is employed to measure the impairment.

Using data as of October 1, 2006 and 2005, the Company passed the first step. The Company also reviewed other factors to determine the likelihood of
impairment. Based on these findings, the remaining net goodwill balance of $119.7 million is not considered impaired at December 31, 2006.

Intangible assets with definite lives

Following is a summary of the Companys intangible assets that are subject to
amortization (in thousands):



F - 21



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



|                                                 |  |                     |         |                                      |   |         |                   |  |                     |        |                                      |   |         |                   |   |         |   |  |   |       
|------------------------------------------------ |  | ------------------- | ------- | ------------------------------------ | - | ------- | ----------------- |  | ------------------- | ------ | ------------------------------------ | - | ------- | ----------------- | - | ------- | - |  | - | ------
|                                                 |  | December 31,       
|                                                 |  | 2006                |         | 2005                                
|                                                 |  | GrossCarryingAmount |         | AccumulatedAmortizationandImpairment |   |         | NetCarryingAmount |  | GrossCarryingAmount |        | AccumulatedAmortizationandImpairment |   |         | NetCarryingAmount
|Business combinations:                           |  |                     |         |                                      |   |         |                   |  |                     |        |                                      |   |         |                   |   |         |   |  |   |       
|Technology                                       |  | $                   | 77,101  |                                      | $ | (61,214 | )                 |  | $                   | 15,887 |                                      | $ | 77,101  |                   | $ | (56,198 | ) |  | $ | 20,903
|Non-compete contracts                            |  |                     | 2,200   |                                      |   | (1,792  | )                 |  |                     | 408    |                                      |   | 2,200   |                   |   | (1,442  | ) |  |   | 758   
|Customer relationships                           |  |                     | 23,400  |                                      |   | (13,795 | )                 |  |                     | 9,605  |                                      |   | 23,400  |                   |   | (10,425 | ) |  |   | 12,975
|                                                 |  |                     |         |                                      |   |         |                   |  |                     |        |                                      |   |         |                   |   |         |   |  |   |       
|Non-compete contracts and customer relationships |  |                     | 25,600  |                                      |   | (15,587 | )                 |  |                     | 10,013 |                                      |   | 25,600  |                   |   | (11,567 | ) |  |   | 13,733
|                                                 |  |                     |         |                                      |   |         |                   |  |                     |        |                                      |   |         |                   |   |         |   |  |   |       
|Balance at December 31, 2006 and 2005            |  | $                   | 102,701 |                                      | $ | (76,801 | )                 |  | $                   | 25,900 |                                      | $ | 102,701 |                   | $ | (68,065 | ) |  | $ | 34,636
|                                                 |  |                     |         |                                      |   |         |                   |  |                     |        |                                      |   |         |                   |   |         |   |  |   |       

The net carrying amount of intangible assets acquired in business combinations relates to the
Epicentric, Intraspect, and Tower Technology purchases.

The Companys intangible assets with definite lives are being amortized over
the assets estimated useful lives using the straight-line method. Estimated useful lives range from two to six years. The weighted average useful life for technology is 72 months. The weighted average useful life for non-compete contracts is
48 months. The weighted average useful life of customer relationships is 70 months. The weighted average useful life for intangible assets in total with definite lives is 71 months. The Company periodically reviews the estimated useful lives of its
identifiable intangible assets, taking into consideration any events or circumstances that might result in either a diminished fair value or revised useful life. Total amortization expense for the years ended December 31, 2006, 2005, and 2004
was $8.7 million, $11.2 million, and $15.0 million, respectively. Of these amounts, $3.7 million, $5.0 million, and $4.9 million, was recorded as Amortization of intangible assets in operating expenses, respectively, and the remaining
$5.0 million, $6.3 million, and $10.1 million, respectively, was recorded as a cost of revenue.

Estimated annual amortization expense (in
thousands) over the remaining amortization period is as follows:



|                                     |  |   |      
|------------------------------------ |  | - | -----
|For the year ended December 31, 2007 |  | $ | 8,400
|For the year ended December 31, 2008 |  | $ | 8,108
|For the year ended December 31, 2009 |  | $ | 8,050
|For the year ended December 31, 2010 |  | $ | 1,342

NOTE 5  Stockholders Equity

Reverse Stock Split

On June 10, 2005, the one for ten reverse stock split of the common stock of the Company
became effective. The reverse stock split was approved by the Companys stockholders on May 27, 2005 at the Companys annual meeting. The Company filed a Certificate of Amendment to the Companys Amended and Restated Certificate
of Incorporation to effect the reverse stock split. All share and per share information included in these consolidated financial statements have been retroactively adjusted to reflect the reverse stock split.

Preferred stock

The number of shares authorized to
be designated as preferred stock was 10,000,000 at December 31, 2006. In June 2005 the Company amended its Amended and Restated Certificate of Incorporation to change the number of shares authorized to be designated as preferred stock from
30,000,000 shares to 10,000,000 shares. There were no shares outstanding at December 31, 2006 or 2005.



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Shareholder rights plan

In April 2002, the Board adopted a shareholder rights plan (the Plan). The Plan was not adopted in response to any attempt to acquire the Company, nor was the Company aware of any such efforts at the time
of adoption. The Plan was designed to enable the Companys stockholders to realize the full value of their investment by providing for fair and equal treatment of all stockholders in the event that an unsolicited attempt is made to acquire the
company. Adoption of the Plan was intended to guard shareholders against abusive and coercive takeover tactics.

Under the Plan,
stockholders on May 6, 2002 received one right to purchase a one one-hundredth of a share of Series A Junior Participating Preferred Stock, par $0.01 per share, at a price of $300.00 per one one-hundredth, subject to adjustment. The rights were
issued as a non-taxable dividend and will expire 10 years from the date of the adoption of the Plan, unless earlier redeemed or exchanged. The rights are not immediately exercisable; however, they will become exercisable upon the earlier to occur of
(i) the close of business on the tenth day after a public announcement that a person or group has acquired beneficial ownership of 15 percent or more of the Companys outstanding common stock or (ii) the close of business on the tenth
day (or such later date as may be determined by the Board of Directors prior to such time as any person becomes an acquiring person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer that would
result in the beneficial ownership by a person or group of 15 percent or more of the Companys outstanding common stock. If a person or group acquires 15 percent or more of the Companys common stock, then all rights holders except the
acquirer will be entitled to acquire the Companys common stock at a significant discount. The intended effect will be to discourage acquisitions of 15 percent or more of the Companys common stock without negotiation with the Board of
Directors.

Common stock

The Company
authorized the issuance of 500,000,000 shares of $0.01 par value common stock. A portion of the shares issued are restricted and are subject to forfeiture, until the respective vesting requirement is achieved, which is generally one to three years
from grant or issuance. As of December 31, 2006, 195,936 shares were subject to forfeiture.

As of December 31, 2006, the Company
reserved shares of its common stock for the following purposes:



|                                      |  |          
|------------------------------------- |  | ---------
|Employee stock purchase plan          |  | 1,080,744
|Stock options available for grant     |  | 4,560,234
|Exercise of outstanding stock options |  | 2,262,272
|                                      |  |          
|                                      |  | 7,903,250
|                                      |  |          

Stock plans

The Company has established five stock plans: (i) the 1995 Stock Option/Stock Issuance Plan (the 1995 Plan); (ii) the 1999 Equity Incentive Plan (the 1999 Plan); (iii) the 1999
Supplemental Stock Option Plan (the 1999 Supplemental Plan); (iv) the 1999 Non-Employee Directors Option Plan (the Directors Plan) and (v) the Employee Stock Purchase Plan and the International Employee Stock
Purchase Plan (the ESPP). Of these plans, the 1995 Plan, the 1999 Plan, the Directors Plan and the ESPP have been approved by the Companys shareholders. The 1999 Supplemental Plan did not require approval by the
Companys shareholders.

Under the 1995 Plan, certain employees, members of the Board and independent advisors were granted options to
purchase shares of the Companys common stock and were issued shares of the Companys common stock. Options are immediately exercisable. Upon certain events, the Company has



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



repurchase rights for unvested shares equal to the original exercise price. At December 31, 2006, no shares were subject to repurchase. The Company also
has the right of first refusal for any proposed disposition of shares issued under the 1995 Plan. The stock options and the related exercised stock will generally vest over a four-year cumulative period. The term of each option is no more than ten
years from the date of grant. Stock issuance may be for purchase or as a bonus for services rendered to the Company. Options outstanding at the time of the Companys initial public offering were assumed under the Companys 1999 Plan.
Options may not be granted from the 1995 Plan subsequent to the Companys initial public offering, therefore, no shares were available for future grant under the 1995 Plan at December 31, 2006. Options that expire under the 1995 Plan will
be available for future grants under the 1999 Plan.

Under the 1999 Plan, employees, non-employee members of the Board and consultants may
be granted options to purchase shares of common stock, stock appreciation rights, restricted shares and stock units. Options are exercisable in accordance with each stock option agreement. The term of each option is no more than ten years from the
date of grant. The compensation committee of the board of directors determines the vesting for each grant. All outstanding options as of December 31, 2006 vest over a period of three to four years. Each fiscal year, commencing with the year 2000 and
ending with the year 2002, the aggregate number of shares authorized under the 1999 Plan automatically increased by the lesser of (i) 5% of the total number of shares of the common stock then outstanding or (ii) 1,180,482 shares. At
December 31, 2006, there were 7,239,387 shares authorized for issuance, including shares assumed from the 1995 Plan, of which 2,467,896 were available for future grant.

Under the 1999 Supplemental Plan, only employees and consultants who are common-law employees of the corporation are eligible for the grant of options.
Employees who are officers of the corporation are not eligible for the grant of options under this Plan. The compensation committee of the board of directors determines the vesting for each grant. All outstanding options as of December 31, 2006 vest
over a period of three to four years. At December 31, 2006, there were 3,300,000 shares authorized for issuance of which 2,000,838 were available for future grant.

Under the Directors Plan, non-employee members of the Board may be granted non-qualified options to purchase shares of common stock. Vesting for options granted prior to April 2004 occurs over a four-year
cumulative period. Vesting of options granted after April 2004 occurs over a one-year period. The term of each option is no more than ten years from the date of grant. At December 31, 2006, there were 150,000 shares authorized for issuance of
which 91,500 were available for future grant.

In addition to the aforementioned plans, the Company assumed several plans through its
business combinations. These assumed plans have not been approved by the Companys shareholders; however, upon assumption, these plans terminated and no further options may be granted. Options previously granted under these plans that have not
yet expired or otherwise become unexercisable continue to be administered under the governing plan, and any portions that expire or become unexercisable for any reason shall be cancelled and be unavailable for future issuance. The Company also
grants options to certain of its officers upon their employment. Such options are issued as inducement grants pursuant to NASD Rule 4350(i).

The following table summarizes stock option activity and related information through December 31, 2006. The activity presented below is on a post split basis after giving effect for the one-for-ten reverse stock split and is as
follows:



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



|                                   |  |                         |   |      |                              |       |         |           |   |                              |   |         |  |            |                              |  |   |      
|---------------------------------- |  | ----------------------- | - | ---- | ---------------------------- | ----- | ------- | --------- | - | ---------------------------- | - | ------- |  | ---------- | ---------------------------- |  | - | -----
|                                   |  | Year Ended December 31,
|                                   |  | 2006                    |   | 2005 |                              | 2004 
|                                   |  | Options                 |   |      | Weightedaverageexerciseprice |       | Options |           |   | Weightedaverageexerciseprice |   | Options |  |            | Weightedaverageexerciseprice
|Outstanding at beginning of period |  | 3,146,523               |   |      | $                            | 25.96 |         | 3,587,412 |   |                              | $ | 31.24   |  | 4,081,384  |                              |  | $ | 45.42
|Granted                            |  | 547,836                 |   |      |                              | 15.10 |         | 736,953   |   |                              |   | 13.15   |  | 1,235,327  |                              |  |   | 17.74
|Exercised                          |  | (370,194                | ) |      |                              | 10.14 |         | (416,437  | ) |                              |   | 4.45    |  | (175,155   | )                            |  |   | 10.33
|Canceled                           |  | (1,061,893              | ) |      |                              | 32.02 |         | (761,405  | ) |                              |   | 50.18   |  | (1,554,144 | )                            |  |   | 60.11
|                                   |  |                         |   |      |                              |       |         |           |   |                              |   |         |  |            |                              |  |   |      
|Outstanding at end of period       |  | 2,262,272               |   |      |                              | 23.08 |         | 3,146,523 |   |                              |   | 25.96   |  | 3,587,412  |                              |  |   | 31.24
|                                   |  |                         |   |      |                              |       |         |           |   |                              |   |         |  |            |                              |  |   |      
|Options exercisable at period end  |  | 1,420,316               |   |      |                              | 28.18 |         | 2,213,835 |   |                              |   | 31.54   |  | 1,985,033  |                              |  |   | 41.50
|                                   |  |                         |   |      |                              |       |         |           |   |                              |   |         |  |            |                              |  |   |      
|Options available for grant        |  | 4,560,234               |   |      |                              |       |         | 4,820,773 |   |                              |   |         |  | 4,567,251  |                              |  |   |      
|                                   |  |                         |   |      |                              |       |         |           |   |                              |   |         |  |            |                              |  |   |      



|                                   |  |                                                               |      
|---------------------------------- |  | ------------------------------------------------------------- | -----
|                                   |  | Year Ended December 31 2006Aggregate IntrinsicValue (in 000s)
|Options outstanding at end of year |  | $                                                             | 5,486
|Options exercisable at end of year |  | $                                                             | 3,286

As of December 31, 2006 the unamortized cost for outstanding stock options is approximately $
2.7 million. The estimated unamortized cost is net of estimated forfeitures used in computing compensation expense. The Company will adjust the estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures
differ from such estimates. Changes in estimated forfeitures will be recognized with a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods. The Company
expects to recognize that expense over a weighted average period of approximately 1.7 years. The aggregate intrinsic value of stock options exercised for the year ended December 31, 2006 was $1.8 million.

The following table summarizes options outstanding and exercisable as of December 31, 2006:



|                         |  |                  |  |                                                     |  |                               |        |                  |           |                               |   |       
|------------------------ |  | ---------------- |  | --------------------------------------------------- |  | ----------------------------- | ------ | ---------------- | --------- | ----------------------------- | - | ------
|                         |  | Outstanding      |  | Exercisable                                        
|Range of Exercise Prices |  | Number ofOptions |  | Weighted-AverageRemainingContractualLife (in years) |  | Weighted-AverageExercisePrice |        | Number ofOptions |           | Weighted-AverageExercisePrice
|$ 0.01$ 7.50            |  |                 |  |                                                    |  |                               |       |                  |          |                               |   |      
|$ 7.51$ 15.00           |  | 896,634          |  | 5.0                                                 |  | $                             | 11.67  |                  | 538,336   |                               | $ | 11.09 
|$ 15.01$ 30.00          |  | 996,700          |  | 5.9                                                 |  |                               | 21.30  |                  | 513,042   |                               |   | 21.51 
|$ 30.01$ 50.00          |  | 172,196          |  | 2.7                                                 |  |                               | 38.81  |                  | 172,196   |                               |   | 38.81 
|$ 50.01$ 75.00          |  | 102,537          |  | 2.4                                                 |  |                               | 55.82  |                  | 102,537   |                               |   | 55.82 
|$ 75.01$150.00          |  | 85,354           |  | 1.5                                                 |  |                               | 86.2   |                  | 85,354    |                               |   | 86.2  
|$ 150.01250.00          |  | 1,829            |  | 1.7                                                 |  |                               | 188.64 |                  | 1,829     |                               |   | 188.64
|$250.01$700.00          |  | 7,022            |  | 1.0                                                 |  |                               | 413.5  |                  | 7,022     |                               |   | 413.5 
|                         |  |                  |  |                                                     |  |                               |        |                  |           |                               |   |       
|                         |  | 2,262,272        |  | 5.0                                                 |  | $                             | 23.08  |                  | 1,420,316 |                               | $ | 28.18 
|                         |  |                  |  |                                                     |  |                               |        |                  |           |                               |   |       



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Under the ESPP, as amended, the Company has reserved 2,157,286 shares of common stock for issuance to
participating employees. The plan is considered compensatory by the Company. Under the terms of the ESPP, there are two, six-month offerings per year. Employees may direct the Company to withhold up to 15% of their salary to purchase the
Companys common stock. An employee may purchase a maximum of 200 shares per six-month offering period. Each fiscal year, commencing with the year 2000 and ending with the year 2002, the number of shares under the ESPP automatically increased
by the lesser of (i) 2% of the total number of shares of common stock then outstanding or (ii) 450,000 shares. As of December 31, 2006, 1,076,541 shares were issued under the ESPP. This plan has 1,080,744 shares available for future
issuance.

Fair value disclosures for stock options

Actual compensation cost for the year ended December 31, 2006 has been recognized using the fair value method as required by Statement 123R and has been included in the determination of net income and net income
per share. Pro forma information for the years ended December 31, 2005 and 2004, respectively, regarding net income and net income per share as required by SFAS 123, has been determined as if the Company had accounted for its employee stock
plans under the fair value method of SFAS 123.

In anticipation of the adoption of Statement 123R, and previously for SFAS 123, the Company
evaluated the assumptions to be used in the Black-Scholes option pricing model. The Company bases expected volatility on historical volatility. The expected term is calculated based on an analysis of historical exercises of stock options. The
Company bases the estimate of the risk-free rate on the U.S. Treasury rates in effect at the time of the grant. The Company has never paid cash dividends and does not currently intend to pay cash dividends and has assumed a 0% dividend yield. Fair
value was estimated using the Black-Scholes option-pricing model, with the following assumptions, for stock options and the ESPP granted in the years ended December 31, 2006, 2005 and 2004, respectively:



|                                                          |  |                        |      |   |                           |   |      |      |  |   |       |   |  |   |      |  
|--------------------------------------------------------- |  | ---------------------- | ---- | - | ------------------------- | - | ---- | ---- |  | - | ----- | - |  | - | ---- | -
|                                                          |  | Employee Stock Options |      |   | EmployeeStockPurchasePlan |  
|                                                          |  | 2006                   |      |   | 2005                      |   |      | 2004 |  |   | 2006  |  
|Risk-free interest rate                                   |  |                        | 4.8  | % |                           |   | 3.8  | %    |  |   | 2.7   | % |  |   | 4.84 | %
|Weighted-average expected life of the options (years)     |  |                        | 3.0  |   |                           |   | 2.0  |      |  |   | 2.4   |   |  |   | 0.7  |  
|Dividend rate                                             |  |                        | 0.0  | % |                           |   | 0.0  | %    |  |   | 0.0   | % |  |   | 0.0  | %
|Assumed volatility                                        |  |                        | 55   | % |                           |   | 63   | %    |  |   | 109   | % |  |   | 36   | %
|Weighted-average grant date fair value of options granted |  | $                      | 6.26 |   |                           | $ | 4.81 |      |  | $ | 10.93 |   |  | $ | 3.98 |  



|                                            |  |              |        |      |   |         |  
|------------------------------------------- |  | ------------ | ------ | ---- | - | ------- | -
|                                            |  | December 31, |       
|                                            |  | 2005         |        | 2004 |  
|Pro forma stock-based compensation expense  |  | $            | 7,707  |      | $ | 16,951  |  
|Pro forma net income (loss)                 |  | $            | 13,521 |      | $ | (69,326 | )
|Pro forma basic net income (loss) per share |  | $            | 0.46   |      | $ | (2.44   | )
|Pro forma diluted income (loss) per share   |  | $            | 0.45   |      | $ | (2.44   | )

Fair Value disclosure for restricted stock awards

All outstanding restricted stock awards (RSAs) were issued with a zero exercise price. Therefore, the fair value of RSAs is generally equal to their
intrinsic value at date of grant. The total intrinsic value at date of grant for the RSAs outstanding at December 31, 2006 is approximately $3.0 million with an unamortized cost of approximately $2.0 million as of December 31,
2006.



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VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



|                                              |  |         |   |  |                                     |       |                                                  |     |                                               |   |        |  
|--------------------------------------------- |  | ------- | - |  | ----------------------------------- | ----- | ------------------------------------------------ | --- | --------------------------------------------- | - | ------ | -
|Restricted Stock Awards                       |  | Shares  |   |  | WeightedAverageGrant DateFair Value |       | WeightedAverageRemainingVestingPeriod (in years) |     | Grant DateAggregate Intrinsic Value (in 000s) |  
|Outstanding and unvested at December 31, 2005 |  | 103,644 |   |  | $                                   | 16.96 |                                                  | 2.1 |                                               | $ | 1,758  |  
|Granted                                       |  | 201,186 |   |  | $                                   | 15.25 |                                                  | 1.9 |                                               |   | 3,068  |  
|Vested                                        |  | (87,644 | ) |  | $                                   | 17.59 |                                                  |    |                                               |   | (1,541 | )
|Forfeited                                     |  | (21,250 | ) |  | $                                   | 14.56 |                                                  |    |                                               |   | (309   | )
|                                              |  |         |   |  |                                     |       |                                                  |     |                                               |   |        |  
|Outstanding and unvested at December 31, 2006 |  | 195,936 |   |  | $                                   | 15.19 |                                                  | 1.9 |                                               | $ | 2,976  |  
|                                              |  |         |   |  |                                     |       |                                                  |     |                                               |   |        |  

Stock Option Vesting Acceleration

On December 27, 2005, the Board of Directors of the Company approved the acceleration of vesting for certain of the Companys unvested and
out of the money stock options previously awarded to its employees, officers and directors under the Companys Stock Plans with exercise prices ranging from $20.00 to $54.40 per share. The acceleration was effective for stock
options unvested and outstanding as of December 27, 2005 and held by optionees providing service to the company as of December 27, 2005. There were approximately 343,000 shares for which the vesting was accelerated with a weighted average
exercise price of $22.35.

The purpose of the acceleration is to enable the Company to avoid recognizing compensation expense associated with these options
in future periods in its consolidated statements of operations, upon effectiveness of the application of FASB Statement No.123R (Share-Based Payment) which the Company adopted effective January 1, 2006. The pre-tax charge estimated by the
Company to be avoided as a result of the acceleration amounts to approximately $ 1.0 million over the course of the original vesting periods. The estimated charge avoided is $0.5 million in 2006, $0.4 million in 2007 and $0.1 million in 2008.
All other previously awarded stock options are not impacted by this change.

Share repurchase program

On November 12, 2006, the Board of Directors of the Company approved a stock repurchase program of up to $75 million of the Companys
common stock over the next 12 months. Purchases will be made from time to time as market and business conditions warrant, in the open market, negotiated or block transactions, in accordance with applicable laws, rules and regulations. As of
December 31, 2006 the Company has repurchased 815,750 shares under the program at an average market price of $16.75 per share. The Company paid cash of approximately $12.6 million and incurred a liability of approximately $1.1 million for these
repurchases. The Company uses the cost method to account for treasury stock. The Company did not repurchase stock in 2005 or 2004.

NOTE 6 
Business Restructuring

During fiscal year 2001, the Companys management approved a restructuring plan to reduce headcount and
infrastructure and to consolidate operations. The Company expanded the restructuring plan during 2002, 2003 and 2004. We have substantially implemented our restructuring efforts initiated in conjunction with this restructuring plan; however, there
can be no assurance that the estimated costs of our restructuring efforts will not change. These are managements best estimates based on currently available information and are subject to change. Components of business restructuring charges
and the remaining restructuring accruals as of December 31, 2006 are as follows (in thousands):



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|------------------------------------------------- |  | ------------------------- | ------- | - | ---------------- | - | ------- | -------------------------------- |  | - | ------- | - |  | - | ------- | -
|                                                  |  | Facility LeaseCommitments |         |   | AssetImpairments |   |         | EmployeeSeparationand OtherCosts |  |   | Total   |  
|Balance at December 31, 2000                      |  | $                         |        |   |                  | $ |        |                                  |  | $ |        |   |  | $ |        |  
|Total restructuring charge                        |  |                           | 55,150  |   |                  |   | 33,683  |                                  |  |   | 32,102  |   |  |   | 120,935 |  
|Cash activity                                     |  |                           | (12,397 | ) |                  |   | (878    | )                                |  |   | (22,773 | ) |  |   | (36,048 | )
|Non-cash activity                                 |  |                           | (292    | ) |                  |   | (32,805 | )                                |  |   | (1,918  | ) |  |   | (35,015 | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2001                      |  |                           | 42,461  |   |                  |   |        |                                  |  |   | 7,411   |   |  |   | 49,872  |  
|Effect of expanded restructuring plan             |  |                           | 6,518   |   |                  |   | 8,730   |                                  |  |   | 11,118  |   |  |   | 26,366  |  
|Adjustment to accrual                             |  |                           | 9,538   |   |                  |   | 463     |                                  |  |   | (545    | ) |  |   | 9,456   |  
|Cash activity                                     |  |                           | (21,959 | ) |                  |   |        |                                  |  |   | (11,342 | ) |  |   | (33,301 | )
|Non-cash activity                                 |  |                           |        |   |                  |   | (9,193  | )                                |  |   | (36     | ) |  |   | (9,229  | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2002                      |  |                           | 36,558  |   |                  |   |        |                                  |  |   | 6,606   |   |  |   | 43,164  |  
|Effect of expanded restructuring plan             |  |                           | 9       |   |                  |   |        |                                  |  |   | 2,076   |   |  |   | 2,085   |  
|Adjustment to accrual                             |  |                           | (13,422 | ) |                  |   |        |                                  |  |   | (3,349  | ) |  |   | (16,771 | )
|Cash activity                                     |  |                           | (10,620 | ) |                  |   |        |                                  |  |   | (4,961  | ) |  |   | (15,581 | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2003                      |  |                           | 12,525  |   |                  |   |        |                                  |  |   | 372     |   |  |   | 12,897  |  
|Effect of expanded restructuring plan             |  |                           | 12,421  |   |                  |   | 2,331   |                                  |  |   | 4,085   |   |  |   | 18,837  |  
|Adjustment to accrual                             |  |                           | (780    | ) |                  |   |        |                                  |  |   | (83     | ) |  |   | (863    | )
|Cash activity                                     |  |                           | (8,584  | ) |                  |   |        |                                  |  |   | (3,404  | ) |  |   | (11,988 | )
|Non-cash activity                                 |  |                           | (869    | ) |                  |   | (2,331  | )                                |  |   | (8      | ) |  |   | (3,208  | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2004                      |  |                           | 14,713  |   |                  |   |        |                                  |  |   | 962     |   |  |   | 15,675  |  
|Adjustment to accrual                             |  |                           | (1,676  | ) |                  |   |        |                                  |  |   | (123    | ) |  |   | (1,799  | )
|Cash activity                                     |  |                           | (6,358  | ) |                  |   |        |                                  |  |   | (709    | ) |  |   | (7,067  | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2005                      |  |                           | 6,679   |   |                  |   |        |                                  |  |   | 130     |   |  |   | 6,809   |  
|Adjustment to accrual                             |  |                           | 235     |   |                  |   |        |                                  |  |   |         |   |  |   | 235     |  
|Cash activity                                     |  |                           | (1,757  | ) |                  |   |        |                                  |  |   | (145    | ) |  |   | (1,902  | )
|Non-cash activity                                 |  |                           |        |   |                  |   |        |                                  |  |   | 15      |   |  |   | 15      |  
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2006                      |  | $                         | 5,157   |   |                  | $ |        |                                  |  | $ |        |   |  | $ | 5,157   |  
|Less: current portion                             |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   | (2,119  | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Accrued restructuring costs, less current portion |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  | $ | 3,038   |  
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  

Remaining cash expenditures resulting from the restructuring are estimated to be $5.2 million and
relate primarily to facility lease commitments, of which the remaining maximum lease commitment extends out to 2011.

Consolidation of excess facilities

Facility lease commitments relate to lease obligations for excess office space that the Company has vacated as a result of the restructuring plan. The
Company continues to actively pursue mitigation strategies to dispose of all excess office space through subleasing and/or early termination negotiations where possible. The total lease commitments include the estimated lease buyout fees or the
remaining lease liabilities and estimated associated mitigation costs including, but not limited to, brokerage commissions, legal fees, repairs, restoration costs, and sublease incentives, offset by estimated sublease income. The estimated costs of
vacating these leased facilities, including estimated costs to sublease and any resulting sublease



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VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



income were based on market information and trend analysis as estimated by the Company. The Company continually assesses its real estate portfolio and may
vacate and/or occupy other leased space as dictated by its analysis and by the needs of the business. It is reasonably possible that actual results could continue to differ from these estimates in the near term, and such differences could be
material to the financial statements. In particular, actual sublease income attributable to the consolidation of excess facilities might deviate from the assumptions used to calculate the Companys accrual for facility lease commitments. The
accrual adjustments recorded in the first nine months of 2006 relate to such differences, namely the buyout fees and sublease income of certain vacated properties were less favorable than we had anticipated. Facility lease commitments relate to the
Companys departure from certain office space in Austin, Texas; San Francisco, California; New York City, New York; and Waltham and Boston, Massachusetts. The maximum lease commitment of such vacated properties extends through December 2011.

Asset impairments

Asset impairments
relate to the impairment of certain fixed assets. These fixed assets were impaired as a result of the Companys decision to vacate certain office space and align its infrastructure with current and projected headcount. There were no impairment
charges in fiscal 2006 and 2005. There was an impairment charge of $2.3 million in fiscal 2004.

Employee separation and other costs

Employee separation and other costs include severance, related taxes, outplacement and other restructuring charges. As a result of the restructuring
activities, the Company severed approximately 1,675 employees. Employee groups impacted by the restructuring efforts include personnel in positions throughout the sales, marketing, professional services, research and development, and general and
administrative functions in all geographies.

NOTE 7 Commitments and Contingencies

The Company leases its office facilities, vehicles and office equipment under various operating lease agreements having expiration dates through 2011. The
Company has operating leases for facilities with escalating rents. Pursuant to SFAS 13  Accounting for Leases, the Company recognizes rent expense on a straight line basis over the lease term. Rent expense, excluding vacated properties,
for the years ended December 31, 2006, 2005, and 2004 was $5.0 million, $4.8 million, and $6.2 million respectively. At December 31, 2006, estimated future rents receivable from signed sublease agreements are $8.6 million through 2011.
Future minimum payments due and receivable as of December 31, 2006 under these leases and subleases, including operating lease commitments for all vacated properties, are as follows (in thousands):



|                               |  |                 |        |                |   |      
|------------------------------ |  | --------------- | ------ | -------------- | - | -----
|                               |  | OperatingLeases |        | SubleaseIncome
|2007                           |  | $               | 6,908  |                | $ | 2,172
|2008                           |  |                 | 4,922  |                |   | 2,033
|2009                           |  |                 | 3,928  |                |   | 1,862
|2010                           |  |                 | 2,972  |                |   | 1,411
|2011                           |  |                 | 2,254  |                |   | 1,157
|                               |  |                 |        |                |   |      
|Total minimum lease payments   |  | $               | 20,984 |                |   |      
|                               |  |                 |        |                |   |      
|Total minimum sublease rentals |  |                 |        |                | $ | 8,635
|                               |  |                 |        |                |   |      



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Software license indemnifications

Financial Accounting Standards Board Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others(Interpretation 45), requires that the Company recognize the fair value for certain guarantee and indemnification arrangements issued or modified by the Company after December 31,
2002. When the Company determines that a loss is probable, the estimated loss must be recognized as it relates to applicable guarantees and indemnifications. Some of the software licenses granted by the Company contain provisions that indemnify
customers of the Companys software from damages and costs resulting from claims alleging that the Companys software infringes on the intellectual property rights of a third party. The Company records resulting costs as incurred and
historically, such costs have not been material. Accordingly, the Company has not recorded a liability related to these indemnification provisions.

We cannot guarantee that the steps we have taken to protect our proprietary rights will be adequate to deter misappropriation of our intellectual property, and we may not be able to detect unauthorized use and take appropriate steps to
enforce our intellectual property rights. If third parties infringe on or misappropriate our copyrights, trademarks, trade secrets or infringe on the intellectual property rights of others, other parties may assert infringement claims against us or
claim that we have violated their intellectual property rights.

In certain instances we indemnify our customers against these claims.
Although we have never had to make payment on a claim, claims against us, either successful or unsuccessful could result in significant legal and other costs and may be a distraction to management. While we have primarily focused on intellectual
property protection within the United States of America (United States), we have expanded that scope to selected international markets. Protection of intellectual property outside of the United States will sometimes require additional
filings with local patent, trademark, or copyright offices, as well as implementation of contractual or license terms different from those used in the United States. Protection of intellectual property in many foreign countries is weaker and less
reliable than in the United States. As our business expands into foreign countries, costs and risks associated with protecting our intellectual property abroad will increase. See Risk Factors-Our Business May Become Increasingly
Susceptible to Numerous Risks Associated with International Operations , andOur Business is Based on Our Intellectual Property and We Could Incur Substantial Costs Defending Our Intellectual Property from Infringement or a Claim of
Infringement .

NOTE 8  Legal Matters

Securities Class Action

On October 26, 2001, a class action lawsuit was filed against the Company and certain of its
current and former officers and directors in the United States District Court for the Southern District of New York in an action captioned Leon Leybovich v. Vignette Corporation, et al., seeking unspecified damages on behalf of a purported class
that purchased Vignette common stock between February 18, 1999 and December 6, 2000. Also named as defendants were four underwriters involved in the Companys initial public offering of Vignette stock in February 1999 and the
Companys secondary public offering of Vignette stock in December 1999Morgan Stanley Dean Witter, Inc., Hambrecht & Quist, LLC, Dain Rauscher Wessels and U.S. Bancorp Piper Jaffray, Inc. A Consolidated Amended Complaint, which is
now the operative complaint, was filed on April 19, 2002. The complaint alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder, based on, among other things, claims that the four underwriters awarded material portions of the shares in the Companys initial and secondary public offerings to certain customers in exchange for excessive commissions. The
plaintiff also asserts that the underwriters engaged in tie-in arrangements whereby certain customers were allocated shares of Company stock sold in its initial and secondary public offerings in exchange for an agreement to purchase
additional shares in the aftermarket at pre-determined prices. With respect to the Company, the complaint alleges that the Company and its officers and directors failed to disclose the existence of these purported excessive commissions and tie-in
arrangements in the prospectus and registration statement for the Companys initial public offering and the prospectus and registration statement for the Companys secondary public offering. The action seeks damages in an unspecified
amount.



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VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



The action is being coordinated with approximately 300 other nearly identical actions filed against other companies.
On October 9, 2002, the Court dismissed the Individual Defendants from the case without prejudice based upon Stipulations of Dismissal filed by the plaintiffs and the Individual Defendants. On February 19, 2003, the Court denied a motion
to dismiss the complaint against the Company. On October 13, 2004, the Court certified a class in six of the other nearly identical actions (the focus cases) and noted that the decision is intended to provide strong guidance to all
parties regarding class certification in the remaining cases. The Underwriter Defendants appealed the decision and the Second Circuit vacated the district courts decision granting class certification in those six cases on December 5,
2006. Plaintiffs have not yet moved to certify a class in the Companys case.

The Company has approved a settlement agreement and related agreements
which set forth the terms of a settlement between the Company, the individual defendants, the plaintiff class and the vast majority of the other issuer defendants. It is unclear what impact the Second Circuits decision vacating class
certification in the six focus cases will have on the settlement, which has not yet been finally approved by the Court. On December 14, 2006, Judge Scheindlin held a hearing. Plaintiffs informed the Court that they planned to file a petition
for rehearing and rehearing en banc. The Court stayed all proceedings, including a decision on final approval of the settlement and any amendments of the complaints, pending the Second Circuits decision on Plaintiffs petition for
rehearing. Plaintiffs filed the petition for rehearing and rehearing en bancon January 5, 2007.

Pursuant to the settlement and related
agreements, if the settlement receives final approval by the Court, the settlement provides for a release of the Company and the Individual Defendants for the conduct alleged in the action to be wrongful. The Company would agree to undertake certain
responsibilities, including agreeing to assign away, not assert, or release certain potential claims the Company may have against its underwriters. The settlement agreement also provides a guaranteed recovery of $1 billion to plaintiffs for the
cases relating to all of the approximately 300 issuers. To the extent that the underwriter defendants settle all of the cases for at least $1 billion, no payment will be required under the issuers settlement agreement. To the extent that the
underwriter defendants settle for less than $1 billion, the issuers are required to make up the difference. On April 20, 2006, JPMorgan Chase and the Plaintiffs reached a preliminary agreement for a settlement for $425 million. The JPMorgan
Chase settlement has not yet been approved by the Court. In an amendment to the issuers settlement agreement, the issuers insurers agreed that the JPMorgan settlement, if approved, will only offset the insurers obligation to cover
the remainder of Plaintiffs guaranteed $1 billion recovery by 50% of the value of the JP Morgan settlement, or $212.5 million. Therefore, if the JP Morgan settlement is finally approved, then the maximum amount that the issuers insurers
will be potentially liable for is $787.5 million. However, future settlements with other underwriters would further reduce that liability. It is unclear what impact the Second Circuits decision vacating class certification in the focus cases
will have on the JP Morgan Chase preliminary agreement.

It is anticipated that any potential financial obligation of the Company to plaintiffs pursuant to
the terms of the settlement agreement and related agreements will be covered by existing insurance. The Company currently is not aware of any material limitations on the expected recovery of any potential financial obligation to plaintiffs from its
insurance carriers. Its carriers are solvent, and the company is not aware of any uncertainties as to the legal sufficiency of an insurance claim with respect to any recovery by plaintiffs. Therefore, we do not expect that the settlement will
involve any payment by the Company. Even if material limitations on the expected recovery of any potential financial obligation to the plaintiffs from the Companys insurance carriers should arise, the Companys maximum financial
obligation to plaintiffs pursuant to the settlement agreement is less than $3.4 million.

There is no assurance that the Court will grant final approval of
the settlement. The Company can not predict whether or when a settlement will occur or be finalized. If the settlement is not approved, the Company is unable to determine whether the outcome of the litigation will have a material impact on its
results of operations or financial condition in any future period. The Company believes that this lawsuit is without merit and would continue to defend itself vigorously if the settlement is not approved.



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Litigation and Other Claims

We are also subject to various legal proceedings and claims arising in the ordinary course of business. Our management does not expect that the outcome in any of these legal proceedings, individually or collectively,
will have a material adverse effect on our financial condition, results of operations or cash flows.

NOTE 9  Income Taxes

As of December 31, 2006, we had domestic federal net operating loss, research and development credit, and capital loss carry forwards of
approximately $760.0 million, $16.4 million, and $40.9 million, respectively. These domestic net operating loss, research and development credit, and capital loss carry forwards will expire at various dates, between 2007 and 2027, if not utilized.
The Company also had foreign net operating loss carry forwards of approximately $9.9 million that are not subject to expiration. Internal Revenue Code Section 382 and similar foreign statutes impose substantial restrictions on the utilization
of net operating losses, tax credits, and capital loss carry forwards in the event of an ownership change of a corporation. Domestic net operating loss carry forwards of approximately $154.3 million, foreign net operating loss carry
forwards of $6.7 million, and tax credit carry forwards of $4.5 million at December 31, 2006 were incurred by businesses we acquired and will be subject to annual limitation. These restrictions may severely limit the benefit of these acquired
tax attributes in future periods. The remaining tax attributes that may be subject to such annual limitations include domestic net operating loss carry forwards of $605.7 million, foreign net operating loss carry forwards of $3.2 million, capital
loss carry forwards of $40.9 million and research and development credit carry forwards of $11.9 million. Based upon a review of historical stock ownership, we do not believe that any resulting annual limitation will severely limit our ability to
utilize these tax attributes prior to their expiration. In the event that an ownership change occurs in the future, application of the change in ownership statutes might result in substantial limitation on the utilization of these tax attributes
from that point forward.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred taxes as of December 31, 2006 and 2005 are as follows (in thousands):



|                                                |  |              |          |   |      |   |          |  
|----------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                |  | December 31, |         
|                                                |  | 2006         |          |   | 2005 |  
|Deferred tax liabilities:                       |  |              |          |   |      |   |          |  
|Intangible assets                               |  | $            |         |   |      | $ | (124     | )
|Other                                           |  |              | (735     | ) |      |   | (1,235   | )
|                                                |  |              |          |   |      |   |          |  
|                                                |  |              | (735     | ) |      |   | (1,359   | )
|                                                |  |             
|Deferred tax assets:                            |  |              |          |   |      |   |          |  
|Depreciable assets                              |  |              | 1,804    |   |      |   | 1,675    |  
|Foreign intangible assets                       |  |              | 6,119    |   |      |   | 4,008    |  
|Capitalized development costs                   |  |              | 26,107   |   |      |   | 30,576   |  
|Tax carry forwards                              |  |              | 310,207  |   |      |   | 312,623  |  
|Accrued liabilities and other                   |  |              | 6,582    |   |      |   | 8,051    |  
|                                                |  |              |          |   |      |   |          |  
|                                                |  |              | 350,819  |   |      |   | 356,933  |  
|                                                |  |              |          |   |      |   |          |  
|Net deferred tax assets                         |  |              | 350,084  |   |      |   | 355,574  |  
|Valuation allowance for net deferred tax assets |  |              | (350,084 | ) |      |   | (355,574 | )
|                                                |  |              |          |   |      |   |          |  
|Net deferred taxes                              |  | $            |         |   |      | $ |         |  
|                                                |  |              |          |   |      |   |          |  



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



We have provided a full valuation allowance against our net deferred tax asset, including all net
operating loss, research and development credit, and capital loss carry forwards based on the determination that it is more likely than not that the benefit related to such assets will not be realized. Our accounting for deferred taxes under SFAS
109 involves the evaluation of a number of factors concerning the realizability of our deferred tax assets. In concluding that a full valuation allowance was appropriate, we have considered such factors as our history of incurring operating losses
and our ability to generate sufficient taxable income of the appropriate character within the relevant jurisdictions in future years.

As
of December 31, 2006, approximately $26.3 million of the valuation allowance is related to acquired deferred tax assets of Epicentric, Intraspect, and Tower Technology. If the benefit of these acquired deferred tax assets are realized in the
future, the initial recognition will be recorded first as a reduction to the relevant entitys goodwill, then as a reduction to the relevant entitys other non-current intangible assets, and lastly, as a reduction of current income tax
expense. In the year ended December 31, 2006, we recognized approximately $0.3 million of acquired deferred tax assets as a reduction to goodwill.

Approximately $151.0 million of the valuation allowance relates to net operating loss carry forwards generated by the deduction of stock option compensation. The initial recognition of these deferred tax assets will be credited directly to
contributed capital.

Undistributed earnings of the Companys foreign subsidiaries were immaterial as of December 31, 2006 and
2005. Those earnings are considered to be permanently reinvested and, accordingly, no provision for U.S. federal or state income taxes has been provided thereon.

The Companys provision for income taxes for 2006, 2005 and 2004 consists primarily of foreign income taxes and withholdings on income generated in foreign countries. The provision for income taxes differs from
the expected tax benefit amount computed by applying the statutory federal income tax rate of 34% to income before income taxes as a result of the following:



|                                    |  |                         |   |  |       |   |  |       |   
|----------------------------------- |  | ----------------------- | - |  | ----- | - |  | ----- | --
|                                    |  | Year ended December 31, |  
|                                    |  | 2006                    |   |  | 2005  |   |  | 2004  |   
|Federal statutory rate              |  | 34.0                    | % |  | 34.0  | % |  | (34.0 | )%
|State taxes, net of federal benefit |  | 2.1                     |   |  | 2.4   |   |  | (1.5  | ) 
|In-process research and development |  |                        |   |  |      |   |  | 3.2   |   
|Foreign taxes at different rates    |  | (.1                     | ) |  | 6.5   |   |  | (1.9  | ) 
|Change in valuation allowance       |  | (23.8                   | ) |  | (34.2 | ) |  | 36.9  |   
|Non-deductible expenses & other     |  | 1.1                     |   |  | 1.9   |   |  | 0.2   |   
|                                    |  |                         |   |  |       |   |  |       |   
|                                    |  | 13.3                    | % |  | 10.6  | % |  | 2.9   | % 
|                                    |  |                         |   |  |       |   |  |       |   

The Companys tax accounts include an accrual for income taxes for amounts intended to
satisfy income tax assessments that may result from the examination of the Companys corporate tax returns. The



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



amounts ultimately paid upon resolution of these examinations could be materially different from the amounts included in the provision for income taxes and
result in additional tax benefit, or expense, depending on the ultimate outcome.

NOTE 10  Segments of Business and Geographic Area Information

The Company considers its business activities to constitute a single segment. A summary of the Companys operations by geographic
area follows (in thousands):



|               |  |                         |         |      |   |         |  |   |        
|-------------- |  | ----------------------- | ------- | ---- | - | ------- |  | - | -------
|               |  | Year ended December 31,
|               |  | 2006                    |         | 2005 |   | 2004   
|Revenue:       |  |                         |         |      |   |         |  |   |        
|Americas:      |  |                         |         |      |   |         |  |   |        
|United States  |  | $                       | 122,753 |      | $ | 116,057 |  | $ | 109,736
|Other          |  |                         | 5,329   |      |   | 3,234   |  |   | 2,446  
|               |  |                         |         |      |   |         |  |   |        
|Total Americas |  |                         | 128,082 |      |   | 119,291 |  |   | 112,182
|Europe         |  |                         | 56,321  |      |   | 58,079  |  |   | 53,681 
|Asia Pacific   |  |                         | 13,171  |      |   | 13,305  |  |   | 12,064 
|               |  |                         |         |      |   |         |  |   |        
|Total          |  | $                       | 197,574 |      | $ | 190,675 |  | $ | 177,927
|               |  |                         |         |      |   |         |  |   |        



|                     |  |                 |         |      |   |        
|-------------------- |  | --------------- | ------- | ---- | - | -------
|                     |  | At December 31,
|                     |  | 2006            |         | 2005
|Identifiable assets: |  |                 |         |      |   |        
|Americas:            |  |                 |         |      |   |        
|United States        |  | $               | 281,262 |      | $ | 269,401
|Other                |  |                 | 7,799   |      |   | 6,055  
|                     |  |                 |         |      |   |        
|Total Americas       |  |                 | 289,061 |      |   | 275,456
|Europe               |  |                 | 26,443  |      |   | 28,064 
|Asia Pacific         |  |                 | 105,648 |      |   | 113,641
|                     |  |                 |         |      |   |        
|Total                |  | $               | 421,152 |      | $ | 417,161
|                     |  |                 |         |      |   |        

The income from domestic US operations before income taxes was approximately $12.1 million and
$37.9 million for the years ended December 31, 2006 and 2005, respectively. The loss from domestic US operations before income taxes was approximately $44.0 million for the year ended December 31, 2004.



F - 34



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Supplemental Financial Information (Unaudited)

The following tables set forth certain unaudited consolidated statements of operations data, both in absolute dollars and as a percentage of total
revenue, for each of our last eight quarters. This data has been derived from unaudited condensed consolidated financial statements that have been prepared on the same basis as the annual audited consolidated financial statements and, in the opinion
of the Companys management, include all normal recurring adjustments necessary for a fair presentation of such information. These unaudited quarterly results should be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere in this Form 10-K. The consolidated results of operations for any quarter are not necessarily indicative of the results for any future period.



|                                                                                     |  |                                                   |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------ |  | ------------------------------------------------- | ------ | - | -------------- | - | ------ | ------------- |  | - | -------------- | - |  | ------------- | ------ | - | -------------- | - | ------ | ------------- |  | - | -------------- | - |  | - | ------ | - |  | - | ------ | -
|                                                                                     |  | Three Months Ended                                |       
|                                                                                     |  | Dec. 31, 2006                                     |        |   | Sept. 30, 2006 |   |        | June 30, 2006 |  |   | March 31, 2006 |   |  | Dec. 31, 2005 |        |   | Sept. 30, 2005 |   |        | June 30, 2005 |  |   | March 31, 2005 |  
|                                                                                     |  | (in thousands, except share data and percentages) |       
|Revenue:                                                                             |  |                                                   |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|                                                                                     |  |                                                   |        |   |                |   |        |              
|Product license                                                                      |  | $                                                 | 19,215 |   |                | $ | 16,351 |               |  | $ | 15,336         |   |  | $             | 15,466 |   |                | $ | 20,054 |               |  | $ | 16,822         |   |  | $ | 17,150 |   |  | $ | 16,290 |  
|Services                                                                             |  |                                                   | 33,363 |   |                |   | 32,951 |               |  |   | 33,462         |   |  |               | 31,430 |   |                |   | 30,810 |               |  |   | 30,354         |   |  |   | 29,839 |   |  |   | 29,356 |  
|                                                                                     |  |                                                   |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Total revenue                                                                        |  |                                                   | 52,578 |   |                |   | 49,302 |               |  |   | 48,798         |   |  |               | 46,896 |   |                |   | 50,864 |               |  |   | 47,176         |   |  |   | 46,989 |   |  |   | 45,646 |  
|                                                                                     |  |                                                   |        |   |                |   |        |              
|Cost of revenue:                                                                     |  |                                                   |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|                                                                                     |  |                                                   |        |   |                |   |        |              
|Product license                                                                      |  |                                                   | 717    |   |                |   | 495    |               |  |   | 573            |   |  |               | 763    |   |                |   | 528    |               |  |   | 706            |   |  |   | 885    |   |  |   | 792    |  
|Amortization of acquired technology                                                  |  |                                                   | 1,254  |   |                |   | 1,254  |               |  |   | 1,254          |   |  |               | 1,254  |   |                |   | 1,254  |               |  |   | 1,240          |   |  |   | 1,769  |   |  |   | 2,004  |  
|Services                                                                             |  |                                                   | 15,554 |   |                |   | 15,131 |               |  |   | 15,292         |   |  |               | 14,423 |   |                |   | 14,499 |               |  |   | 14,396         |   |  |   | 13,540 |   |  |   | 12,992 |  
|                                                                                     |  |                                                   |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Total cost of revenue                                                                |  |                                                   | 17,525 |   |                |   | 16,880 |               |  |   | 17,119         |   |  |               | 16,440 |   |                |   | 16,281 |               |  |   | 16,342         |   |  |   | 16,194 |   |  |   | 15,788 |  
|                                                                                     |  |                                                   |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Gross profit                                                                         |  |                                                   | 35,053 |   |                |   | 32,422 |               |  |   | 31,679         |   |  |               | 30,456 |   |                |   | 34,583 |               |  |   | 30,834         |   |  |   | 30,795 |   |  |   | 29,858 |  
|                                                                                     |  |                                                   |        |   |                |   |        |              
|Operating expenses:                                                                  |  |                                                   |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|                                                                                     |  |                                                   |        |   |                |   |        |              
|Research and development                                                             |  |                                                   | 8,355  |   |                |   | 8,509  |               |  |   | 8,757          |   |  |               | 8,392  |   |                |   | 8,051  |               |  |   | 7,954          |   |  |   | 8,554  |   |  |   | 8,654  |  
|                                                                                     |  |                                                   |        |   |                |   |        |              
|Sales and marketing                                                                  |  |                                                   | 16,974 |   |                |   | 17,655 |               |  |   | 18,099         |   |  |               | 17,464 |   |                |   | 18,363 |               |  |   | 17,219         |   |  |   | 16,550 |   |  |   | 15,948 |  
|                                                                                     |  |                                                   |        |   |                |   |        |              
|General and administrative                                                           |  |                                                   | 4,231  |   |                |   | 4,569  |               |  |   | 4,642          |   |  |               | 4,498  |   |                |   | 5,318  |               |  |   | 4,849          |   |  |   | 5,027  |   |  |   | 5,096  |  
|Purchased in-process research and development, acquisition-related and other charges |  |                                                   |       |   |                |   |       |               |  |   |               |   |  |               |       |   |                |   |       |               |  |   |               |   |  |   |       |   |  |   | 270    |  
|                                                                                     |  |                                                   |        |   |                |   |        |              
|Business restructuring charges                                                       |  |                                                   | (84    | ) |                |   | (32    | )             |  |   | 292            |   |  |               | (25    | ) |                |   | (10    | )             |  |   | (778           | ) |  |   | 43     |   |  |   | (2,154 | )
|                                                                                     |  |                                                   |        |   |                |   |        |              
|Amortization of intangible assets                                                    |  |                                                   | 907    |   |                |   | 938    |               |  |   | 938            |   |  |               | 938    |   |                |   | 1,166  |               |  |   | 1,279          |   |  |   | 1,279  |   |  |   | 1,279  |  
|                                                                                     |  |                                                   |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Total operating expenses                                                             |  |                                                   | 30,383 |   |                |   | 31,639 |               |  |   | 32,728         |   |  |               | 31,267 |   |                |   | 32,888 |               |  |   | 30,523         |   |  |   | 31,453 |   |  |   | 29,093 |  
|                                                                                     |  |                                                   |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Income (loss) from operations                                                        |  |                                                   | 4,670  |   |                |   | 783    |               |  |   | (1,049         | ) |  |               | (811   | ) |                |   | 1,695  |               |  |   | 311            |   |  |   | (658   | ) |  |   | 765    |  
|                                                                                     |  |                                                   |        |   |                |   |        |              
|Other income (expense), net                                                          |  |                                                   | 2,793  |   |                |   | 2,769  |               |  |   | 2,368          |   |  |               | 2,683  |   |                |   | 1,800  |               |  |   | 1,551          |   |  |   | 14,908 |   |  |   | 2,451  |  
|                                                                                     |  |                                                   |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Income (loss) before income taxes                                                    |  |                                                   | 7,463  |   |                |   | 3,552  |               |  |   | 1,319          |   |  |               | 1,872  |   |                |   | 3,495  |               |  |   | 1,862          |   |  |   | 14,250 |   |  |   | 3,216  |  
|                                                                                     |  |                                                   |        |   |                |   |        |              
|Provision for income taxes                                                           |  |                                                   | (648   | ) |                |   | (274   | )             |  |   | (461           | ) |  |               | (504   | ) |                |   | (600   | )             |  |   | (542           | ) |  |   | (789   | ) |  |   | (498   | )
|                                                                                     |  |                                                   |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Net income ( loss)                                                                   |  | $                                                 | 6,815  |   |                | $ | 3,278  |               |  | $ | 858            |   |  | $             | 1,368  |   |                | $ | 2,895  |               |  | $ | 1,320          |   |  | $ | 13,461 |   |  | $ | 2,718  |  
|                                                                                     |  |                                                   |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Basic income (loss) per share (1)                                                    |  | $                                                 | 0.23   |   |                | $ | 0.11   |               |  | $ | 0.03           |   |  | $             | 0.05   |   |                | $ | 0.10   |               |  | $ | 0.05           |   |  | $ | 0.46   |   |  | $ | 0.09   |  
|                                                                                     |  |                                                   |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Diluted income (loss) per share (1)                                                  |  | $                                                 | 0.23   |   |                | $ | 0.11   |               |  | $ | 0.03           |   |  | $             | 0.05   |   |                | $ | 0.10   |               |  | $ | 0.04           |   |  | $ | 0.46   |   |  | $ | 0.09   |  
|                                                                                     |  |                                                   |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  

---

|(1) | Basic and diluted net income (loss) per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly loss per common share information may
not equal the annual loss per share.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



|                                                                                     |  |                    |   |  |               |   |  |               |   |  |                |   |  |               |   |  |                |   |  |               |   |  |                |  
|------------------------------------------------------------------------------------ |  | ------------------ | - |  | ------------- | - |  | ------------- | - |  | -------------- | - |  | ------------- | - |  | -------------- | - |  | ------------- | - |  | -------------- | -
|                                                                                     |  | Three Months Ended |  
|                                                                                     |  | Dec. 31, 2006      |   |  | Sept.30, 2006 |   |  | June 30, 2006 |   |  | March 31, 2006 |   |  | Dec. 31, 2005 |   |  | Sept. 30, 2005 |   |  | June 30, 2005 |   |  | March 31, 2005 |  
|As a Percentage of Total Revenue:                                                    |  |                    |   |  |               |   |  |               |   |  |                |   |  |               |   |  |                |   |  |               |   |  |                |  
|Revenue:                                                                             |  |                    |   |  |               |   |  |               |   |  |                |   |  |               |   |  |                |   |  |               |   |  |                |  
|Product license                                                                      |  | 37                 | % |  | 33            | % |  | 31            | % |  | 33             | % |  | 39            | % |  | 36             | % |  | 36            | % |  | 36             | %
|Services                                                                             |  | 63                 |   |  | 67            |   |  | 69            |   |  | 67             |   |  | 61            |   |  | 64             |   |  | 64            |   |  | 64             |  
|                                                                                     |  |                    |   |  |               |   |  |               |   |  |                |   |  |               |   |  |                |   |  |               |   |  |                |  
|Total revenue                                                                        |  | 100                |   |  | 100           |   |  | 100           |   |  | 100            |   |  | 100           |   |  | 100            |   |  | 100           |   |  | 100            |  
|Cost of revenue:                                                                     |  |                    |   |  |               |   |  |               |   |  |                |   |  |               |   |  |                |   |  |               |   |  |                |  
|Product license                                                                      |  | 1                  |   |  | 1             |   |  | 1             |   |  | 2              |   |  | 1             |   |  | 1              |   |  | 2             |   |  | 2              |  
|Amortization of acquired technology                                                  |  | 2                  |   |  | 2             |   |  | 3             |   |  | 3              |   |  | 2             |   |  | 3              |   |  | 4             |   |  | 4              |  
|Services                                                                             |  | 30                 |   |  | 31            |   |  | 31            |   |  | 30             |   |  | 29            |   |  | 31             |   |  | 28            |   |  | 29             |  
|                                                                                     |  |                    |   |  |               |   |  |               |   |  |                |   |  |               |   |  |                |   |  |               |   |  |                |  
|Total cost of revenue                                                                |  | 33                 |   |  | 34            |   |  | 35            |   |  | 35             |   |  | 32            |   |  | 35             |   |  | 34            |   |  | 35             |  
|                                                                                     |  |                    |   |  |               |   |  |               |   |  |                |   |  |               |   |  |                |   |  |               |   |  |                |  
|Gross profit                                                                         |  | 67                 |   |  | 66            |   |  | 65            |   |  | 65             |   |  | 68            |   |  | 65             |   |  | 66            |   |  | 65             |  
|Operating expenses:                                                                  |  |                    |   |  |               |   |  |               |   |  |                |   |  |               |   |  |                |   |  |               |   |  |                |  
|Research and development                                                             |  | 16                 |   |  | 17            |   |  | 18            |   |  | 18             |   |  | 16            |   |  | 17             |   |  | 18            |   |  | 19             |  
|Sales and marketing                                                                  |  | 32                 |   |  | 36            |   |  | 37            |   |  | 37             |   |  | 36            |   |  | 36             |   |  | 35            |   |  | 35             |  
|General and administrative                                                           |  | 8                  |   |  | 9             |   |  | 10            |   |  | 10             |   |  | 11            |   |  | 10             |   |  | 11            |   |  | 11             |  
|Purchased in-process research and development, acquisition-related and other charges |  |                   |   |  |              |   |  |              |   |  |               |   |  |              |   |  |               |   |  |              |   |  | 1              |  
|Business restructuring charges                                                       |  |                   |   |  |              |   |  |              |   |  |               |   |  |              |   |  | (2             | ) |  |              |   |  | (5             | )
|                                                                                     |  |                    |   |  |               |   |  |              
|Amortization of intangible assets                                                    |  | 2                  |   |  | 2             |   |  | 2             |   |  | 2              |   |  | 2             |   |  | 3              |   |  | 3             |   |  | 3              |  
|                                                                                     |  |                    |   |  |               |   |  |               |   |  |                |   |  |               |   |  |                |   |  |               |   |  |                |  
|Total operating expenses                                                             |  | 58                 |   |  | 64            |   |  | 67            |   |  | 67             |   |  | 65            |   |  | 64             |   |  | 67            |   |  | 64             |  
|                                                                                     |  |                    |   |  |               |   |  |               |   |  |                |   |  |               |   |  |                |   |  |               |   |  |                |  
|Income (loss) from operations                                                        |  | 9                  |   |  | 2             |   |  | (2            | ) |  | (2             | ) |  | 3             |   |  | 1              |   |  | (1            | ) |  | 1              |  
|                                                                                     |  |                    |   |  |               |   |  |              
|Other income, net                                                                    |  | 5                  |   |  | 5             |   |  | 5             |   |  | 6              |   |  | 4             |   |  | 3              |   |  | 31            |   |  | 5              |  
|                                                                                     |  |                    |   |  |               |   |  |               |   |  |                |   |  |               |   |  |                |   |  |               |   |  |                |  
|Income (loss) before income taxes                                                    |  | 14                 |   |  | 7             |   |  | 3             |   |  | 4              |   |  | 7             |   |  | 4              |   |  | 30            |   |  | 6              |  
|                                                                                     |  |                    |   |  |               |   |  |              
|Provision for income taxes                                                           |  | 1                  |   |  | 1             |   |  | 1             |   |  | 1              |   |  | 1             |   |  | 1              |   |  | 1             |   |  | 1              |  
|                                                                                     |  |                    |   |  |               |   |  |               |   |  |                |   |  |               |   |  |                |   |  |               |   |  |                |  
|Net income (loss)                                                                    |  | 13                 | % |  | 6             | % |  | 2             | % |  | 3              | % |  | 6             | % |  | 3              | % |  | 29            | % |  | 5              | %
|                                                                                     |  |                    |   |  |               |   |  |               |   |  |                |   |  |               |   |  |                |   |  |               |   |  |                |  



F - 36