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================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              -------------------
                                    FORM 10-K

[X] ANNUAL REPORT PERSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934
                   For the fiscal year ended December 31, 2001

                                       OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                        Commission File Number: 000-25375

                              VIGNETTE CORPORATION
             (Exact name of registrant as specified in its charter)

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

                           1601 South MoPac Expressway
                               Austin, Texas 78746
                    (Address of principal executive offices)
                              -------------------
                                 (512) 741-4300
              (Registrant's telephone number, including area code)
                              -------------------
        Securities registered pursuant to Section 12(b) of the Act: None

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

                          Common Stock, $0.01 par value
                              (Title of each class)
                              -------------------
     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

     (1) Yes  [X]    No  [_]
     (2) 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 [_]

     As of February 28, 2002, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $542,876,718.

     As of February 28, 2002, there were 248,153,210 shares of the Registrant's
common stock outstanding.
                              -------------------
                       DOCUMENTS INCORPORATED BY REFERENCE

     Parts of the Proxy Statement for Registrant's 2002 Annual Meeting of
Stockholders to be held May 15, 2002 are incorporated by reference in Part III
of this Form 10-K Report.

================================================================================

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                              VIGNETTE CORPORATION
                             FORM 10-K ANNUAL REPORT
                      FOR THE YEAR ENDED DECEMBER 31, 2001

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
Part I.

  Item 1.  Business .......................................................   3
  Item 2.  Properties .....................................................  21
  Item 3.  Legal Proceedings ..............................................  21
  Item 4.  Submission of Matters to a Vote of the Security Holders ........  21
  Item 4A. Executive Officers and Directors of the Registrant .............  22

Part II.
  Item 5.  Market for Registrant's Common Equity and Related
             Stockholder Matters ..........................................  26
  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 .....  47
  Item 8.  Consolidated Financial Statements and Supplementary Data .......  48
  Item 9.  Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosures ....................................  48

Part III.
  Item 10. Directors and Executive Officers of the Registrant .............  49
  Item 11. Executive Compensation .........................................  49
  Item 12. Security Ownership of Certain Beneficial Owners and Management..  49
  Item 13. Certain Relationships and Related Transactions .................  49

Part IV.
  Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.  50

SIGNATURES ................................................................. 53

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                                     PART I.

ITEM 1.  BUSINESS

     The statements contained in this Report on Form 10-K that are not purely
historical statements are forward-looking statements within the meaning of
Section 21E of the Securities and Exchange Act of 1934, including statements
regarding our expectations, beliefs, hopes, intentions or strategies regarding
the future. These forward-looking statements are based upon current expectations
and 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 elsewhere in this report in the section entitled "Risk Factors That
May Affect Future Results" and the risks discussed in our other historical
Securities and Exchange Commission ("SEC") filings.

OVERVIEW

     Vignette Corporation is a leading provider of content management
applications used by organizations to create and maintain effective online
relationships with their customers, employees, business partners and suppliers.
Vignette allows organizations to combine a comprehensive understanding of what
content or information assets they have across the business, and their value,
with Web applications that predict users' needs and expectations to deliver
improved online relationships. By putting the right information in front of the
right person at the right time, we help Web visitors make informed decisions,
and help organizations successfully manage those relationships.

     The family of Vignette products is focused around the comprehensive content
management capabilities required by organizations to handle both the active
management of electronic assets across the business, and the delivery of that
content in context to multiple audiences.

          Content Management --  the ability to manage and deliver content to
                                 almost every electronic touch-point from
                                 virtually any source. This includes the ability
                                 to create new content, collect content from
                                 existing sources, produce it for Web use,
                                 deliver it in context, and observe its use by
                                 Web visitors to continue to deliver the right
                                 content to the right person at the right time.

          Content Management
             Extensions      --  advanced capabilities to extend the
                                 organization's ability to harness available
                                 content, measure its value, deliver it through
                                 multiple channels, and determine appropriate
                                 content offers for different audiences.

     Vignette applications leverage these content capabilities to enable
organizations to use the Web to generate revenue, decrease business costs,
manage information technology costs, and build competitive differentiation.

     Our products are supported by the Vignette(R) Professional Services
organization, which offers a broad range of services, including strategic
planning, project management, general implementation services, and an extensive
array of training offerings. In addition, we partner with a number of systems
integrators such as Accenture, Deloitte Consulting, EDS, IBM Global Services,
Inforte and PricewaterhouseCoopers to implement our content management software
for their current and prospective clients. In many cases, we then work with the
system integrator to jointly implement the technology for the customer.
Additionally, our standards-based products have enabled us to build
relationships with key technology partners such as BEA Systems, IBM and Sun
Microsystems.

PRODUCTS

     Our content management software solutions are embodied in the Vignette(R)
V6 product line. Vignette(R) V6 enables more effective online relationships with
customers, employees, business partners and suppliers. Vignette helps
organizations put the right information in front of the right person at the
right time by helping

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the customer understand the value of content across the enterprise, regardless
of its source, and the needs of Web users. Our open architecture makes it
possible to deploy more powerful content management solutions to support
information portals, self-service applications, brand and retail sites,
value-chain integration and channel management applications. The benefits of our
products and solutions include:

     o    Adaptable design to allow organizations to more easily respond to
          changing strategies and

     o    Powerful solutions to help maximize the performance customers'
          e-business initiatives.

     In September 2001, we launched and shipped the Vignette(R) V6 product
family, the newest release of our flagship content management application. The
core of the V6 product family is the Vignette(R) V6 Content Suite, which is the
first product on the market to combine our content management solution with the
ability to integrate with almost any data source and analyze the content to
deploy dynamic Web content. The Vignette(R) V6 family also includes the Vignette
content extensions, which our customers can use to further expand the
flexibility and functionality of the Vignette(R) V6 Content Suite.

Vignette(R) V6 Content Suite

     Vignette(R) V6 Content Suite is an integrated set of content management
capabilities. Vignette(R) V6 Content Suite enables companies to integrate
content within and across organizational boundaries, manage and deploy content
to almost any electronic touch-point, and continually monitor and help optimize
the effectiveness of their online channel.

     With Vignette(R) V6 Content Suite, our customers can:

     o    Manage content according to their preferred business processes;
     o    Gather data to help gain insight into their customers' behavior;
     o    Deliver personalization;
     o    More easily integrate and automate their business processes; and o
          Aggregate content from almost any source.

     Vignette(R) V6 Content Suite provides many features to help our customers
manage the phases of the content management lifecycle. The following list
highlights features as they relate to specific phases within the content
management lifecycle:

     Content Management Vignette(R) V6 Content Suite includes an open set of
features and services for collecting, producing, delivering and analyzing
content. With information and content coming from many different sources, such
as enterprise resource planning (ERP) systems, sales force automation systems,
legacy systems, supplier catalogs, news feeds, user reviews, discussion forums,
database and file systems, we provide an easier-to-use application that allows a
company to manage its content across multiple Web sites and wireless devices.

     Vignette(R) V6 Content Suite provides companies the ability to enrich
content with flexible metadata and apply workflow processes for approving,
editing and reviewing content using some of their favorite tools. Also, the
ability to schedule the launch and expiration of content enables companies to
provide customers with relevant and current content.

     Insight The Internet offers enterprises the opportunity to more quickly
learn the preferences and habits of customers on a more timely basis. With
Vignette(R) V6 Content Suite, our customers can track and manage site usage and
customer behavior information. Vignette(R) V6 Content Suite provides data to
help gain behavioral insight with pre-configured segmentation, analysis and
reporting capabilities. The customer segmentation interface enables users to
explicitly define more manageable customer groups. The analysis components use
advanced data mining algorithms to organize customer behavior and help discover
less obvious but more profitable customer behavior. Users can gain an in-depth
understanding of site and customer usage through a customizable reporting
interface.

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     Personalization Vignette(R) V6 Content Suite lays the foundation for
extensive personalization by tracking customer behavior and maintaining
real-time profile information. The profile information contains logistical and
behavioral information about customers and employees gathered from multiple
sources. Implementing and managing profiles enables better control of content
delivery, resulting in a personalized interface that suits the individual and
the navigation burden.

     Business Process Integration and Content Aggregation Companies rely on
applications that automate internal processes to execute business with their
customers and partners. Vignette(R) V6 Content Suite delivers capabilities to
integrate many Web applications with existing applications to more quickly
extend the company's presence to the online world. The integration and
aggregation capabilities include access to content in file systems, databases,
back-office ERP, SCM or CRM systems and a multitude of other locations,
including partner systems and Web sites. With robust business process
integration and content aggregation capabilities, one can more quickly build and
deploy links between disparate business systems to expose the right content at
the right time for customers, almost regardless of the platform, operating
system or native language.

Vignette(R) V6 Content Extensions

     Vignette(R) V6 offers extensions that separately provide advanced
capability to the Vignette(R) V6 Content Suite. The extensions include the
following:

Vignette(R) V6 Advanced Deployment Server

     Vignette(R) V6 Advanced Deployment Server (VADS) is designed for companies
that require an enterprise-wide development, testing, and production system for
their enterprise applications.

     Benefits include:

          o    Enhanced management of both static and dynamic content,
               application code, and targeted marketing campaigns, as well as
               rich metadata for personalization, caching and visitor tracking;
          o    An architecture that supports an n-tiered development, testing
               and production environment;
          o    A more flexible and adaptable design so that VADS can be adapted
               to most production environments. The adaptability of VADS allows
               businesses to transfer assets across environments primarily based
               on business, not technical, requirements;
          o    A more rapid implementation time. VADS is a solution that can
               enable a customer to more quickly install, configure, and run a
               robust staging system;
          o    A more robust set of Application Programming Interfaces that can
               be used to extend the functionality of VADS or to integrate the
               functionality of VADS with third-party applications;
          o    By using strong (128-bit) or weak (40-bit) Secure Sockets Layer
               encryption, VADS can be used to deploy assets in a secure manner,
               thus providing protection to a user's sensitive data. VADS
               leverages industry standard security protocols to provide a
               reliable transfer of assets between environments, which reduces
               risk and promotes interoperability.

Vignette(R) V6 Multisite Content Manager

     Vignette(R) V6 Multisite Content Manager provides a set of capabilities to
deploy and manage content on multiple Web sites and multiple portals. Key
features include:

          o    Allows users to create child sites that inherit similar
               characteristics from a pre-existing parent site, which allows the
               user to more easily manage and control content across a portfolio
               of Web sites and portals;
          o    Allows a more rapid time-to-market through the use of pre-defined
               content types, roles, workflows, taxonomies and integrated
               search;
          o    Captures site traffic and usage data so that business users can
               analyze it and make educated decisions regarding future
               investment; and
          o    Facilitates group collaboration among employees, customer and
               partners through online communication capabilities.

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Vignette(R) V6 Relationship Management Server Advanced Edition

     Vignette(R) V6 Relationship Management Server Advanced Edition leverages
the foundation built with the Vignette(R) V6 Content Suite to provide the
interaction management solutions to help build personalized interactions with
employees, customers and partners. This Extension enhances the content
lifecycle, by providing enterprises the ability to create an Internet
application that adapts to the needs of users and deliver the right content to
the right person at the right time. It enables businesses to:

     o    Provide extensive personalization capabilities with powerful real-time
          behavior analysis and content recommendations; and
     o    Automatically deliver highly targeted content to those groups in the
          form of campaigns.

Vignette(R) V6 Multi-Channel Communication Server

     Vignette(R) V6 Multi-Channel Communication Server helps enable companies to
develop mobile applications that likely manage relationships with customers,
partners and employees via multiple electronic touch-points. Vignette(R) V6
Multi-Channel Communication Server enables the proactive distribution of
personalized content and provides closed-loop interaction with a customer's
audience via e-mail, pagers, mobile phones, personal digital assistants, and
other touch-points.

Vignette(R) V6 Content Collaborative Server

     Vignette(R) V6 Content Collaborative Server is a standards-based solution
for automating trading partner and channel communication management, thereby
helping enable a rapid and secure exchange of business content transactions
between businesses and their trading partners, and provides flexible
capabilities for streamlining partner management and collaboration.

     Vignette(R) V6 Content Collaborative Server leverages a Java(TM)-based
architecture and XML technologies, and offers multiple collaboration methods,
business transaction security, high performance, and support for established and
emerging industry standards.

Vignette(R) V6 Content Syndication Server

     Vignette(R) V6 Content Syndication Server is a solution for
distribution--or syndication--of Web-based content from a business to
affiliates, customers, distributors, marketplaces, and other online trading
partners.

     Utilizing a syndication engine and independent application server,
Vignette(R) V6 Content Syndication Server distributes packages of
content--including text, graphics, audio, video, applets, and other
information--directly to affiliates and customers.

     By delivering flexible content syndication capabilities, Vignette(R) V6
Content Syndication Server can help enhance e-businesses to:

     o    Sales channels by simplifying the distribution of timely product
          information and other content in a wide variety of formats;
     o    Increase sales to existing customers by targeting them with customized
          content packages;
     o    Liquidate distressed inventories by distributing targeted product
          information to broader audiences;
     o    Reduce operating costs and errors by automating the manual process of
          distributing product information and other content; and
     o    Build stronger and longer-lasting relationships with key distribution
          partners by supplying them with more up-to-the-minute, accurate, and
          relevant information on a schedule of their choosing.

     Vignette(R) V6 Content Syndication Server features a wide range of
supported input sources and content formats, as well as flexibility in delivery
options. It enables companies to leverage their Web-based content for
distribution to their affiliates and customers more quickly and easily.

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Vignette(R) V6 Enterprise Adapters

     Vignette(R) V6 Enterprise Adapters help users capitalize on their
investment in SAP, Siebel, PeopleSoft and J.D. Edwards applications, by
providing a more intuitive, easier-to-use and more flexible solution for
integrating information and business rules from these powerful applications into
their particular content lifecycle. No Adapter is sponsored or endorsed by, or
affiliated in any way with, the owner of the applicable technology for which
such Adapter relates.

OPEN ARCHITECTURE

     Vignette has built one of the most open and comprehensive platforms in the
market. We provide support for major industry standard platforms, including both
the Java 2 Platform-Enterprise Edition (J2EE(TM)) and Microsoft .NET standards,
with product-specific support for IBM WebSphere, BEA WebLogic and Tomcat
application servers. Our applications provide support for the IBM AIX, Sun
Solaris and Windows 2000 operating systems, the IBM DB2, Oracle, SQL Server and
Sybase database platforms, and JavaServer Pages (JSP) and Active Server Pages
(ASP) as first-class templating languages, and also provide out-of-the box
integration functionality for leading development tools. Any listed environment
can take advantage of Vignette's extensive application program interfaces for
content management and personalization.

SERVICES

     The Company provides services to help define on-line business objectives
and to develop and deliver integrated content management applications. Our
education, consulting and customer care services are based on the best
practices, methodologies and tools developed from experience. The Company's
services are designed to reduce time to deployment, mitigate risk and achieve
greater return on our customers' software investment.

     Vignette Professional Services (VPS(TM)) organization offers global
consulting and education services to help customers identify strategic
e-business objectives, design integrated content management applications and
deliver solutions using the Company's products. Our services center around the
Vignette Solution Methodology. This established framework allows customers and
partners to leverage best practices to plan, build and maintain content
management solutions. VPS works jointly with consulting partners to provide
"best of class" services needed to create Internet applications designed to meet
customers' business objectives. We generally sell our services under
time-and-materials agreements.

     Customer Care, Maintenance and Support Services organizations are committed
to our customers' on-going e-business success. Customer Care services include a
combination of account management and global technical support offerings that
are tailored to meet customers' specific needs. Account management services are
designed to streamline and strengthen our customers' relationship with Vignette.
Account managers work with customers to understand their business needs and to
help them leverage the appropriate Vignette technology and services that can
provide the greatest and most efficient return on their investment. Vignette
Global Support provides optional 24x7 access to skilled technical engineers and
flexible, easy-to-use telephone and Web resources that can provide our customers
with timely, effective assistance.

STRATEGY

     Our objective is to maintain and extend our leadership position as a global
provider of content management solutions. To achieve this objective, we will
focus on expanding our customer base of Fortune 1000 and departmental
enterprises, extending our technology and product leadership through investment
in research and development, expanding our global sales capabilities, and
extending our partnership alliances with leading technology and services
companies.

STRATEGIC ALLIANCES

     A critical element of our sales strategy is to establish strategic
alliances to assist us in marketing, selling and developing customer
applications, as well as to increase product interoperability within the
industry. This

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approach is intended to increase the number of personnel available to perform
application design and development services for our customers and provide
additional marketing expertise and technical expertise in certain vertical
industry segments.

     We have established partnerships with leading systems integrators such as
Accenture, Deloitte Consulting, EDS, IBM Global Services, Inforte and
PricewaterhouseCoopers. We have also established strategic alliances with
technology leaders like BEA Systems, IBM, and Sun Microsystems.

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

ACQUISITIONS

     We have completed four acquisitions since our inception, three of which
occurred during 2000 and one during 1999. We acquired no businesses during 2001.
All acquisitions were accounted for as purchase business combinations and
therefore, the net assets acquired, or net liabilities assumed were recorded at
their estimated fair value at the respective dates of acquisition and the
results of operations have been included with ours for the periods subsequent to
the respective acquisition dates.

     Effective January 18, 2000, we acquired all of the outstanding stock and
assumed all outstanding stock options of Engine 5, Ltd. ("Engine 5"), a
developer of enterprise-wide Java(TM) server technology, in exchange for 248,043
shares of our common stock and approximately $4.9 million in cash. The total
cost of the acquisition, including transaction costs of $400,000, was
approximately $20.0 million.

     Additionally, as part of the Engine 5 acquisition, contingent consideration
of $3.8 million and $1.8 million was recorded during the years ended December
31, 2000 and 2001, respectively. Such contingent consideration was based upon
satisfaction of defined employment requirements subsequent to the January 18,
2000 acquisition date. All employment requirements have been satisfied and there
remains no future contingent stock issuance or cash payments subsequent to
December 31, 2001. The contingent consideration related to the Engine 5
acquisition was not included in the total purchase price, above, but was
expensed as future employment requirements were satisfied.

     Effective February 15, 2000, we acquired all of the outstanding stock and
assumed all outstanding stock options of DataSage, Inc. ("DataSage"), a leading
provider of e-marketing and personalization applications, in exchange for
9,458,061 shares of our common stock. At the time of the acquisition, the total
purchase price, including transaction costs of $1.1 million, was approximately
$586.6 million.

     Effective July 5, 2000, we acquired all of the outstanding stock and
assumed all outstanding stock options of OnDisplay, Inc. ("OnDisplay"), a
leading provider of e-business infrastructure software for powering e-business
portals and e-marketplaces, in exchange for 42,016,975 shares of Vignette common
stock. At the time of the acquisition, the total purchase price, including
transaction costs of $14.0 million, was approximately $1.5 billion.

     In connection with 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. Additionally, a
portion of the OnDisplay and DataSage purchase price was allocated to in-process
research and development and was expensed upon the consummation of these
transactions. These related acquisition, integration and in-process research and
development charges totaled approximately $169.9 million and $1.9 million during
fiscal years 2000 and 2001, respectively.

CUSTOMERS

     As of December 31, 2001, we had served over 1,300 end-user customers. Our
customer list includes successful organizations in the automotive,
entertainment, financial services, government, healthcare, high technology, new
media and publishing, retail, telecom and travel industries.

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COMPETITION

     The market for our products is intensely competitive, subject to rapid
technological change and 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 e-business solutions; and
developers of point solution software that address only certain technology
components of e-business solutions (e.g., content 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. Also, many current and potential
competitors have wider name recognition and more extensive customer bases that
could be leveraged, thereby gaining market share to our detriment. Such
competitors may be able to undertake more extensive promotional activities,
adopt more aggressive pricing policies, and offer more attractive terms to
purchasers than we can. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third-parties to enhance their products. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share.

     Such competition could materially and adversely affect our ability to
obtain revenues from either license or service fees from new or existing
customers on terms favorable to us. Further, competitive pressures may require
us to reduce the price of our software. In either case, our business, operating
results and financial condition would be materially and adversely affected.
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 Acquire and Retain Customers Now and in the Future."

RESEARCH AND DEVELOPMENT

     We have made substantial investments in research and development through
both internal development and technology acquisitions. Although we plan to
continue to evaluate externally developed technologies for integration into our
product lines, we expect that most enhancements to existing and new products
will be developed internally.

     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.

     Our research and development expenditures, excluding the write-off of
acquired in-process research and development, for fiscal 1999, 2000 and 2001
were approximately $16.4 million, $58.3 million and $64.9 million, respectively.
We expect that we will continue to commit significant resources to research and
development in the future. Most research and development expenses have been
expensed as incurred.

     The market for our products and services is characterized by rapid
technological change, frequent new product introductions and enhancements,
evolving industry standards, and rapidly changing customer requirements. The
introduction of products incorporating new technologies and the emergence of new
industry standards could render existing products obsolete and unmarketable. Our
future success will depend in part on our ability to anticipate changes, enhance
our current products, develop and introduce new products that keep pace with
technological advancements and address the increasingly sophisticated needs of
our customers. 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 and also
intend to expand our indirect sales through additional relationships with
systems integrators, VARs and OEMs. We generate leads from a variety of sources,
including businesses seeking partners to develop web-based applications. Initial
sales activities typically include a demonstration of our product capabilities
followed by one or more detailed technical reviews. As of December 31, 2001, the
direct sales force consisted of 343 sales executives and related support
personnel.

     We seek to establish partnerships with major industry vendors that will add
value to our products and expand distribution opportunities.

     We use a variety of marketing programs to build market awareness of us, our
brand name and our products, as well as to attract potential customers for our
products. A broad mix of programs are used 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, trade shows, speaking engagements and Web site marketing.
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 is 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 four patents
and have a number of patent applications pending in the United States. We have
eight registered trademarks in the United States, two pending trademark
applications in the United States, 38 registered trademarks in foreign
countries, and 16 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 "shrinkwrap" 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 that our products infringe 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 Web-based commerce software products will
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

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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. We
license data encryption and authentication technology from RSA Data Security,
Inc., load balancing and traffic management software from Resonate, Inc.,
development software from Iona Technologies, Inc., database access technology
from Rogue Wave Software, Inc., chart and graphing software from Corda
Technologies, concept and keyword search functionality from Autonomy, Inc., and
other software that is integrated with internally developed software. If we
cannot maintain licenses to 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, 2001, we had a total of 1,321 employees. Of the total
employees, 338 were in research and development, 394 in sales and marketing, 419
in professional services and customer support and 170 in finance and
administration. During fiscal year 2001, we significantly reduced our workforce
by approximately 975 employees to better align expenses and revenue levels. 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
business development organizations. 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.

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RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

     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 financial statements and the
related notes.

Risks Related to Our Business

We Expect to Incur Future Losses

     We have not achieved profitability and we expect to incur net operating
losses in the coming quarter and potentially in future quarters. To date, we
have primarily funded our operations from the sale of equity securities. We
expect to continue to incur significant product development, sales and
marketing, and administrative expenses and, as a result, we will need to
generate significant revenues to achieve and subsequently maintain
profitability. We cannot be certain that we will achieve sufficient revenues for
profitability. If we do achieve profitability, we cannot be certain that we can
sustain or increase profitability on a quarterly or annual basis in the future.

Our Limited Operating History Makes Financial Forecasting Difficult

     We were founded in December 1995 and thus have a limited operating history.
As a result of our limited operating history, we cannot forecast revenue and
operating expenses based on our historical results. Accordingly, we base our
expenses 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 projected. Our ability to forecast accurately 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 and
that net losses in a given quarter would be greater than expected.

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

     Terrorist attacks in New York City and Washington, D.C. in September of
2001 have disrupted commerce throughout the United States and other parts of the
world. The continued threat of terrorism within the United States and abroad and
the continuing potential for military action in Afghanistan and other countries
and heightened security measures in response to such threat 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.

We Must Successfully Complete the Implementation of Our Business Restructuring
Efforts

     In accordance with our restructuring efforts announced during 2001, we are
currently transitioning our business and realigning our strategic focus towards
our core market, technologies and products. Internal changes resulting from our
business restructuring announced during 2001 are substantially complete, but
many factors may negatively impact our ability to implement our strategic focus
including our ability to manage the implementation, sustain the productivity of
our workforce and retain key employees, manage our operating expenses and
quickly respond to and recover from unforeseen events associated with the
restructuring. We may be required by market conditions to undertake additional
restructuring efforts in the future. Our business, results of operations or
financial condition could be materially adversely affected if we are unable to
manage the implementation, sustain the productivity of our workforce and retain
key employees, manage our operating expenses or quickly respond to and recover
from unforeseen events associated with any future restructuring efforts.

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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:

     o    Demand for our products and services; o The timing of sales of our
          products and services;
     o    The timing of customer orders and product implementations;
     o    Seasonal fluctuations in information technology purchasing;
     o    Unexpected delays in introducing new products and services;
     o    Increased expenses, whether related to sales and marketing, product
          development or administration;
     o    Changes in the rapidly evolving market for e-business solutions;
     o    The mix of product license and services revenue, as well as the mix of
          products licensed;
     o    The mix of services provided and whether services are provided by our
          own staff or third-party contractors;
     o    The mix of domestic and international sales;
     o    Difficulties in collecting accounts receivable;
     o    Costs related to possible acquisitions of technology or businesses;
          and
     o    The general economic climate.

     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 spending, in absolute dollars, will be lower than in recent
periods; however, if our revenue expectations are not achieved, our business,
operating results or financial condition could be materially adversely affected
and net losses in a given quarter would be greater than expected.

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

     In prior 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. No single
customer accounted for more than 10% of our total revenues during 2001.

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

     Since our customers use our products for mission critical applications such
as Internet commerce, 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 limit our exposure to
product liability claims, existing or future laws or unfavorable judicial
decisions could negate such limitation of liability provisions. To date, we have
not experienced any product liability claims or litigation that we feel is
material to our business. However, such claims if brought against us, even if
not successful, would likely be time consuming and costly.

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

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<PAGE>

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 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 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.

In Order 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. 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 e-business 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 service 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 e-business applications. Our long
sales cycle makes it difficult to predict the quarter in which sales may fall.
In addition, since we recognize a portion 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.

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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.

     During recent quarters, our professional services organization achieved
profitability; however, prior to 2000, services costs related to professional
services had exceeded, or had been substantially equal to, professional
services-related revenue. In this current economic climate, we make services
capacity decisions on a periodic basis based on our estimates of the future
sales pipeline, 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 fees 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 Support, Consulting and Implementation Services
for Our Products

     There may be a shortage of third-party service providers to assist our
customers with the implementation of our products. We do not believe our
professional services organization will be able to fulfill the expected demand
for support, consulting and implementation services for our products. We are
actively attempting to supplement the capabilities of our services organization
by attracting and educating third-party service providers and consultants to
also provide these services. We may not be successful in attracting these
third-party providers or maintaining the interest of current third- party
providers. In addition, these third parties may not devote enough resources to
these activities. A shortfall in service capabilities may affect our ability to
sell our software.

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

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

     o    Expenses associated with customizing products for foreign countries;
     o    Protectionist laws and business practices that favor local
          competition;
     o    Changes in jurisdictional tax laws;
     o    Dependence on local vendors;
     o    Multiple, conflicting and changing governmental laws and regulations;
     o    Longer sales cycles;
     o    Difficulties in collecting accounts receivable;
     o    Foreign currency exchange rate fluctuations; and
     o    Political and economic instability.

  We recorded 36% of our total revenue for the year ended December 31, 2001
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 in order to be successful. Our international sales growth will be
limited if we are unable to establish additional 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

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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.

     To date, a majority of our international revenues and costs have been
denominated in foreign currencies. We believe that an increasing portion of our
international revenues and costs will be denominated in foreign currencies in
the future. To date, we have not engaged in any foreign exchange hedging
transactions and we are therefore subject to foreign currency risk.

In Order to Properly Manage Future Growth, We May Need to Implement and Improve
Our Operational Systems on a Timely Basis

     We have experienced periods of rapid expansion since our inception. Rapid
growth places a significant demand on management and operational resources. In
order to manage such growth effectively, we must implement and improve our
operational systems, procedures and controls on a timely basis. If we fail to
implement and 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 members of our management. If we lose one or more of these key
employees, our business, operating results and financial condition could be
materially adversely affected. In addition, our future success will depend
largely on our ability to continue attracting and retaining highly skilled
personnel. Like other software companies, we face competition for qualified
personnel, particularly in the Austin, Texas area. We cannot be certain that we
will be successful in attracting, assimilating or retaining qualified personnel
in the future.

We Have Relied and Expect to Continue to Rely on Sales of Our Vignette(R)V6
Product Line for Our Revenue

     We currently derive substantially all of our revenues from the license and
related upgrades, professional services and support of our Vignette(R) V6
software products. We expect that we will continue to depend on revenue related
to new and enhanced versions of our Vignette(R) V6 product line for at least the
next several quarters. We cannot be certain that we will be successful in
upgrading and marketing our products or that we will successfully develop and
market new products and services. If we do not continue to increase revenue
related to our existing products or generate revenue from new products and
services, our business, operating results and financial condition would be
materially 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, which is subject to significant risks. There are significant
risks inherent in a product introduction such as our existing Vignette(R) V6
software products. Market acceptance of these and future products will depend on
continued market development for Internet products and services and the
commercial adoption of standards on which the Vignette(R) V6 is based. We cannot
be certain that either will occur. We cannot be certain that our existing or
future products offering will meet customer performance needs or expectations
when shipped or that it 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.

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

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<PAGE>


technologies, new industry standards or new combinations of existing products as
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 e-business 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 Face Intense Competition from Other Software Companies, Which Could Make it
Difficult to Acquire and Retain Customers Now and in the Future

     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.

     Our principal competitors include: in-house development efforts by
potential customers or partners; other vendors of software that directly address
elements of e-business applications; and developers of software that address
only certain technology components of e-business applications (e.g., content
management).

     Many of these companies, as well as some other competitors, 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 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.

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

     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. Our failure to successfully manage future acquisitions could
seriously harm our business. Also, our existing stockholders would experience
dilution if we financed the acquisitions by issuing equity securities.

The Internet is Generating Privacy Concerns in the Public and Within
Governments, Which Could Result in Legislation Materially and Adversely
Affecting Our Business or Result in Reduced Sales of Our Products, or Both

     Businesses use our Vignette(R) V6 products to develop and maintain profiles
to tailor the content to be provided to Web site visitors. Typically, the
software captures profile information when consumers, business customers or
employees visit a Web site and volunteer information in response to survey
questions. Usage data collected over time augments the profiles. However,
privacy concerns may nevertheless cause visitors to resist providing the
personal data necessary to support this profiling capability. More importantly,
even the perception of security and privacy concerns, whether or not valid, may
indirectly inhibit market acceptance of our products. In addition, legislative
or regulatory requirements may heighten these concerns if businesses must notify
Web site users that the data captured after visiting certain Web sites may be
used by marketing entities to unilaterally direct product promotion and
advertising to that user. We are not aware of any such legislation or regulatory
requirements currently in effect in the United States. Other countries and
political entities, such as the European Economic Community, have adopted such
legislation or regulatory requirements. The United States may adopt similar
legislation or regulatory requirements. If consumer privacy concerns are not
adequately addressed, our business, financial condition and operating results
could

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be materially adversely affected.

     Our Vignette(R) V6 products use "cookies" to track demographic information
and user preferences. A "cookie" is information keyed to a specific server, file
pathway or directory location that is stored on a user's hard drive, possibly
without the user's knowledge, but generally removable by the user. Countries
such as Germany have imposed laws limiting the use of cookies, and a number of
Internet commentators, advocates and governmental bodies in the United States
and other countries have urged passage of laws limiting or abolishing the use of
cookies. If more such laws are passed, our business, operating results and
financial condition could be materially adversely affected.

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 licenses to key 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.

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 which we believe is material to the
Company's 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:

     o    Cease selling, incorporating or using products or services that
          incorporate the challenged intellectual property;
     o    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; and
     o    Redesign those products or services that incorporate such technology.

     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 Charter 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:

     o    Authorizing the issuance of "blank check" preferred stock;
     o    Providing for a classified board of directors with staggered,
          three-year terms;
     o    Prohibiting cumulative voting in the election of directors;
     o    Requiring super-majority voting to effect certain amendments to our
          certificate of incorporation and

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<PAGE>

          bylaws;
     o    Limiting the persons who may call special meetings of stockholders;
     o    Prohibiting stockholder action by written consent; and
     o    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.

Risks Related to the Software Industry

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

     The primary customers for our products are enterprises seeking to launch or
expand e-business initiatives. The continued 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 Growth of the Internet for Transacting
Business

     Our future success depends heavily on the Internet being accepted and
widely used for commerce. If Internet commerce does not continue to grow or
grows more slowly than expected, our business, operating results and financial
condition would be materially adversely affected. Consumers and businesses may
reject the Internet as a viable commercial medium for a number of reasons,
including potentially inadequate network infrastructure, slow development of
enabling technologies or insufficient commercial support. The Internet
infrastructure may not be able to support the demands placed on it by increased
Internet usage and bandwidth requirements. In addition, delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or increased government regulation could
cause the Internet to lose its viability as a commercial medium. Even if the
required infrastructure, standards, protocols or complementary products,
services or facilities are developed, we may incur substantial expenses adapting
our solutions to changing or emerging technologies.

Our Performance Will Depend on the New Market for E-Business Applications
Software

     The market for e-business applications software is new and 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. Accordingly, we cannot be certain that a viable market
for our products will emerge or be sustainable. 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.

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

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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:

     o    Variations in quarterly operating results;
     o    Changes in financial estimates by securities analysts;
     o    Changes in market valuations of Internet software companies;
     o    Announcements by us of significant contracts, acquisitions, strategic
          partnerships, joint ventures or capital commitments;
     o    Loss of a major customer or failure to complete significant license
          transactions;
     o    Additions or departures of key personnel;
     o    Difficulties in collecting accounts receivable;
     o    Sales of common stock in the future; and
     o    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 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

     We expect the cash on hand, cash equivalents, marketable securities and
short-term investments to meet our working capital and capital expenditure needs
for at least the next 12 months. After that time, 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. 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.

                                       20

<PAGE>

ITEM 2.  PROPERTIES

     Our principal research, development, sales, marketing and administrative
headquarter offices are located in Austin, Texas. We own no real estate or
facilities. As of December 31, 2001, we leased office space in the following
locations: Austin and Houston, Texas; San Ramon, California; New York City, New
York; Reston, Virginia; Waltham and Boston, Massachusetts; Maidenhead, England;
Madrid, Spain; Hamburg, Germany; Sydney, Australia; and Singapore. Such leases
have remaining terms of up to 10 years. All offices listed above support sales
and services activity, and we have research and development activity in our
Austin, Texas and Waltham, Massachusetts offices.

     Additionally, we lease several medium-sized, short-term offices, with
remaining terms of less than one year. Such offices are located in: Atlanta,
Georgia; Los Angeles, California; Gaithersburg, Maryland; Paris, France; Munich,
Germany; Melbourne, Australia; and Hong Kong, China. We also lease and utilize
numerous full service managed suites, executive suites, and serviced office
short-term leases for small sales offices across the United States and around
the world. These small offices generally have lease terms of less than one year,
to allow us the flexibility to more quickly adjust to changing business and
customer support requirements. As of December 31, 2001, we leased office space
in 19 countries outside of the United States.

     Throughout fiscal year 2001, we pursued a global consolidation of our
leased office portfolio. Some of the resulting excess lease space had terms that
expired in 2001, or will expire in the near term, and we have successfully
negotiated early terminations of some leases, in part or in whole. We currently
sublease surplus office space in Austin, Texas; Boston and Waltham,
Massachusetts; and Singapore to unrelated third-parties. We are in the process
of actively marketing and attempting to sublease our remaining surplus
properties located in Austin and Houston, Texas; Los Angeles and San Ramon,
California; Waltham, Massachusetts; and New York City, New York for the
remaining lease terms.

ITEM 3.  LEGAL PROCEEDINGS

     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. 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 Company believes that
this lawsuit is without merit and intends to defend itself vigorously.

     The Company is also subject to various legal proceedings and claims arising
in the ordinary course of business. The Company's management does not expect
that the results in any of these legal proceedings will have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.

ITEM 4.  SUBMISSIONS OF MATTERS TO A VOTE OF THE SECURITY HOLDERS

     We did not submit any matters to a vote of security holders during the
fourth quarter of the fiscal year ending December 31, 2001.

                                       21

<PAGE>

ITEM 4A. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

     The following table sets forth certain information regarding the executive
officers and directors of Vignette as of February 28, 2002:

<TABLE>
<CAPTION>
Name                              Age                      Position
----                              ---                      --------
<S>                               <C>   <C>
Gregory A. Peters (1) .........   41    Chief Executive Officer and Chairman of the Board of Directors
Thomas E. Hogan ...............   42    President and Chief Operating Officer and Director,
William R. Daniel .............   46    Senior Vice President and General Manager, Strategy and
                                           Technology
Peter A. Espinosa .............   42    Senior Vice President, Global Sales and Operations
Bryce M. Johnson ..............   43    Senior Vice President, Secretary and General Counsel
Philip C. Powers ..............   43    Senior Vice President, Global Marketing
Charles W. Sansbury ...........   34    Senior Vice President and Chief Financial Officer
David J. Shirk ................   35    Senior Vice President, Products
Jeanne K. Urich ...............   49    Senior Vice President, Global Professional Services
Robert E. Davoli (2) ..........   53    Director
Jeffrey S. Hawn (3) ...........   38    Director
Joseph A. Marengi (2)(3) ......   48    Director
Steven G. Papermaster (3) .....   43    Director
</TABLE>
--------------
(1) Member of the Stock Option Committee
(2) Member of Compensation Committee
(3) Member of Audit Committee

     Set forth below is biographical information about each of our executive
officers and directors.

     Gregory A. Peters has served as our Chief Executive Officer and as a
director since June 1998 and has served as the Chairman of the Board since
January 2000. From June 1998 to March 2001, Mr. Peters served as our President.
From October 1997 to May 1998, Mr. Peters served as President and Chief
Executive Officer of Logic Works, Inc., a software company. Mr. Peters joined
Logic Works as Chief Financial Officer and Executive Vice President, Finance and
Operations in August 1996 and served as Acting President and Chief Executive
Officer from April 1997 to October 1997. From April 1994 to August 1996, Mr.
Peters served as Chief Financial Officer, Treasurer and Senior Vice President,
and from 1992 to March 1994, as Controller and Treasurer, at Micrografx, Inc., a
Windows-based graphics software company. From 1990 to 1992, Mr. Peters held
various financial positions at DSC Communications Corporation, a
telecommunications company. Mr. Peters is a Certified Public Accountant and
received his Bachelor of Arts degree in Business Administration from Rhodes
College in Memphis, Tennessee.

     Thomas E. Hogan has served as our President, Chief Operating Officer and as
a director since April 2001. Mr. Hogan is responsible for managing the Company's
worldwide operations including sales, marketing, professional services and
product development. From March 1999 to March 2001, Mr. Hogan served in various
roles, including most recently as Senior Vice President of Worldwide Sales and
Operations of Siebel Systems Inc. At Siebel Systems, he was responsible for
generating license revenue through all distribution channels, including direct
sales, telesales and the reseller channel. Prior to his employment at Siebel
Systems, Mr. Hogan worked at IBM Corporation from January 1982 to March 1999,
where he held several executive posts, including Vice President of Midrange
Systems, Vice President of Sales, Consumer Packaged Goods and Vice President,
Sales Operations. Mr. Hogan received his Bachelor of Sciences degree in
Biomedical Engineering from the University of Illinois and his Masters of
Business Administration degree in finance and international business with
distinction from the J.L. Kellogg Graduate School of Management at Northwestern
University.

     William R. Daniel has served as our Senior Vice President and General
Manager of Strategy and Technology since July 2001. From September 1999 to June
2001, he served as our Senior Vice President of Products and from November 1998
to August 1999, he served as our Vice President, Business Development. From
August 1995 to May 1998, Mr. Daniel served as President, Chief Operating
Officer, and was a co-founder of Wallop Software, Inc., a provider of web
application development and assembly solutions. From June 1988 to July 1995, he
served as Chief Operating Officer and Senior Vice President of Datis Corporation
(acquired by HCIA, Inc. in 1995), a healthcare information provider. Mr. Daniel
received his Bachelor of Arts degree in Engineering Sciences with honors from
Dartmouth College and his Masters of

                                       22

<PAGE>

Business Administration degree in finance with honors from the Haas School of
Business at the University of California, Berkeley.

     Peter A. Espinosa has served as our Senior Vice President of Global Sales
and Operations since January 2002 and as our Vice President of North American
Sales from May 2001 to January 2002. From December 1999 to May 2001, Mr.
Espinosa was Vice President and Chief Sales Officer for NetSales, Inc., a
provider of e-business solutions for supplier enablement. From May 1999 to
December 1999, he was Vice President of North American Sales for Cambridge
Technology Partners, a global e-services subsidiary of Novell, Inc. From May
1998 to May 1999, Mr. Espinosa was the Vice President of World-Wide Sales and
Marketing for Peritus Software Services, an independent software development
organization. Prior to his employment with Peritus Software Services, Mr.
Espinosa worked at IBM Corp. for 17 years in a variety of sales and marketing
positions. His most recent position at IBM Corp. was as Executive Assistant to
the Chairman of the Board of Directors and Chief Executive Officer. Mr. Espinosa
received his Bachelor of Arts degree in Speech Communications and Political
Sciences from Luther College in Decorah, Iowa.

     Bryce M. Johnson has served as our Senior Vice President and General
Counsel since December 2000 and is responsible for overseeing the Company's
legal, human resources and governmental affairs. From March 1997 to November
2000, Mr. Johnson was the Chief Legal Counsel for Tivoli Systems Inc. and
Associate General Counsel of IBM Corporation. From May 1984 to March 1997, Mr.
Johnson held a variety of legal positions with IBM Corporation, including
Counsel to IBM Europe in Paris, France. Mr. Johnson received his Bachelor of
Arts degree with highest honors from Georgetown College and his Doctorate of
Jurisprudence from the University of Kentucky.

     Philip C. Powers has served as our Senior Vice President of Global
Marketing since February 2002, as our Senior Vice President of Professional
Services from September 1999 to February 2002 and as our Vice President,
Professional Services from August 1998 to September 1999. From February 1997 to
August 1998 he served as Vice President of Worldwide Professional Services at
Tivoli Systems, Inc., a client/server software company. From January 1981 to
February 1997, he held several management roles at IBM which most recently
included Director of Worldwide Channel Marketing for IBM's software group and
Director of Worldwide Marketing, LAN systems for IBM's personal software
products division. Mr. Powers received his Bachelor of Arts in Marketing and
Business Management from the University of Dayton.

     Charles W. Sansbury has served as our Chief Financial Officer since
September 2001. He served as our Senior Vice President of Corporate Development
from January 2000 to August 2001, helping guide our strategic financing
initiatives. From June 1996 to January 2000, Mr. Sansbury was a Principal in the
Technology Investment Banking Group at Morgan Stanley Dean Witter. From August
1993 to June 1996, Mr. Sansbury was an investment banker at Lehman Brothers. Mr.
Sansbury received his Master of Business Administration degree from the Wharton
School of the University of Pennsylvania and his Bachelor of Science degree from
Georgetown University.

     David J. Shirk has served as our Senior Vice President of Products since
July 2001. He served as our Senior Vice President and General Manager,
Application Platform Products Division, from July 2000 to June 2001. From March
1998 to June 2000, Mr. Shirk worked at Novell Corporation as Chief Technology
Officer and Senior Vice President of Product Management, where he was
responsible for delivering Novell's Net services software strategy and roadmap
for all Novell products. From March 1996 to February 1998, he was Vice President
of Marketing at Oracle Corporation in charge of its Industry Applications
Division. He has more than 12 years of experience in product development,
product marketing, business application and vertical industry business
solutions. Mr. Shirk received his Bachelor of Arts degree in Business
Administration from Ohio State University.

     Jeanne K. Urich has served as our Senior Vice President of Global
Professional Services since February 2002. From February 2001 to February 2002,
Ms. Urich served as Vice President of Global Professional Services and Training
at Blue Martini Software, Inc., a provider of electronic customer relationship
management software applications. From March 2000 to December 2000, Ms. Urich
served as Senior Vice President of Global e-Business Professional Services and
Training for Nortel Networks Corporation, a global supplier of networking
solutions and services. From July 1998 to March 2000, Ms. Urich served in a
similar position at Clarify, Inc. a provider of customer relationship management
software. From January 1998 to July 1998, Ms. Urich was worldwide director of
technology services at Compaq Corporation, a global provider of

                                       23

<PAGE>

technology and solutions. From July 1996 to December 1997, Ms. Urich served in a
similar position at Tandem Computers, a supplier of computer products and
services. From July 1976 to July 1996, Ms. Urich held various management
positions including director of services marketing and business development at
Digital Equipment Corporation, a supplier of computer products and services. Ms.
Urich received her Bachelor of Arts degree in mathematics and computer sciences
from Vanderbilt University.

     Robert E. Davoli has served as a director of Vignette since February 1996.
Mr. Davoli has served as General Partner of Sigma Partners, a venture capital
firm, since January 1995. He served as President and Chief Executive Officer of
Epoch Systems, a client-server software company, from February 1993 to September
1994. From May 1986 through June 1992, Mr. Davoli was the President and Chief
Executive Officer of SQL Solutions, a relational database management systems
consulting and tools company that he founded and sold to Sybase, Inc. in January
1990. He is a director of the following publicly held companies: ISS Group,
Inc., a network security software company, StorageNetworks, Inc., a data storage
management software applications and services company, and Versata, Inc., a
business logic development and management software company, and he serves as a
director of several privately held companies. Mr. Davoli received his Bachelor
of Arts degree in History from Ricker College.

     Jeffrey S. Hawn has served as a director of Vignette since November 2001.
Mr. Hawn has served as Senior Vice President, Operations for BMC Software, Inc.
since January 2002, where he is responsible for overseeing the finance,
corporate planning and development, and information technology and business
operations. He joined BMC Software in July 2000 and served as Senior Vice
President, BMC Ventures through January 2002, where he was responsible for
identifying, developing and managing BMC's emerging technologies and new
business opportunities. Prior to joining BMC Software, Mr. Hawn was a partner
with McKinsey & Company, a leading management consulting firm, where he led the
firm's technology practices and served as manager of the Austin, TX office.
During his tenure at McKinsey & Company, Mr. Hawn served a variety of hardware,
software, telecom and IT services firms over the course of nearly 10 years.
Before joining McKinsey & Company, he was with First Boston's investment banking
group. Mr. Hawn received his Master of Business Administration degree from the
University of Texas at Austin and his Bachelor of Science degree in Mechanical
Engineering from Southern Methodist University.

     Joseph A. Marengi has served as a director of Vignette since July 1999. Mr.
Marengi. Mr. Marengi is a Senior Vice President with Dell Computer Corporation
and is responsible for the Dell Americas units serving corporate, government,
education, healthcare, consumer and small and medium business customers
throughout the United States, Canada and Latin America. Prior to joining Dell in
July 1997, Mr. Marengi worked with Novell, Inc., most recently serving as
President and Chief Operating Officer. He joined Novell in 1989, beginning as
director of the Eastern region and moving through successive promotions to
become Executive Vice President of Worldwide Sales and Field Operations. Mr.
Marengi received his Bachelor of Arts degree in Public Administration from the
University of Massachusetts, Boston, and his Masters degree in Management from
the University of Southern California.

     Steven G. Papermaster has served as a director of Vignette since September
1998. Mr. Papermaster has served as the Chairman of Powershift Group, a
technology venture development group, since 1996. He is also Chairman of
Perficient, Inc., a provider of professional services to Internet software
companies, as well as a director of several privately held companies. Mr.
Papermaster was the Founder, Chairman and Chief Executive Officer (CEO) of BSG
Corporation, a system integration company, from 1987 to 1996. Mr. Papermaster
also founded Enterprise Technology Institute in 1990. Mr. Papermaster was also
CEO and Chairman of Agillion, Inc., an Internet business service provider for
small and mid-sized businesses, until November 2001, when he resigned as CEO and
remained as Chairman. Agillion filed for bankruptcy under Chapter 7 of the
United States Bankruptcy Code in July 2001. Mr. Papermaster received his
Bachelor of Arts degree in Finance from the University of Texas at Austin.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     The members of the Board of Directors, the executive officers and persons
who hold more than 10% of our outstanding Common Stock are subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934,
as amended, which require them to file reports with respect to their ownership
of our Common Stock and their transactions in such Common Stock. We believe that
all reporting requirements

                                       24

<PAGE>

under Section 16(a) for such fiscal year were met in a timely manner by our
executive officers, Board members and greater than ten-percent stockholders.

                                       25

<PAGE>

                                    PART II.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

  Our common stock is traded on the Nasdaq National 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, for the periods indicated, the high and low closing sale price per
share of our common stock on the Nasdaq National Market in each of the last
eight fiscal quarters, as adjusted for the two-for-one forward split of our
common stock paid on December 1, 1999 and for the three-for-one forward split of
our common stock paid on April 14, 2000.

                                                    High          Low
                                                 ----------    ----------
         Year Ended December 31, 2001:
             Fourth Quarter ....................    $ 6.65        $ 3.38
             Third Quarter .....................      9.36          3.54
             Second Quarter ....................     10.59          3.88
             First Quarter .....................     16.63          5.16
         Year Ended December 31, 2000:
             Fourth Quarter ....................   $ 34.38       $ 15.75
             Third Quarter .....................     52.25         27.00
             Second Quarter ....................     66.98         25.50
             First Quarter .....................     99.00         51.67

  At March 20, 2002, there were approximately 1,223 holders of record of our
common stock and the closing price of our common stock was $2.80 per share.

Cash Dividends

  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.

                                       26

<PAGE>

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 Report on Form
10-K. The consolidated statements of operations data for the years ended
December 31, 1999, 2000 and 2001 and the consolidated balance sheet data at
December 31, 2000 and 2001 are derived from audited consolidated financial
statements included elsewhere in this Report on Form 10-K. The consolidated
statements of operations data for the years ended December 31, 1997 and 1998 and
the consolidated balance sheet data at December 31, 1997, 1998 and 1999 are
derived from audited consolidated financial statements not included in this
Report on Form 10-K.

<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                                   -----------------------------------------------------------
                                                     1997        1998      1999 (2)     2000 (3)      2001
                                                   --------    --------    --------    ---------   -----------
                                                              (in thousands, except per share data)
<S>                                                <C>         <C>         <C>         <C>         <C>
Consolidated Statements of Operations Data:
Revenue:
     Product license ............................. $  1,943    $  8,584    $ 46,292    $ 216,257   $   154,381
     Services ....................................    1,081       7,621      42,893      150,404       142,369
                                                   --------    --------    --------    ---------   -----------
             Total revenue .......................    3,024      16,205      89,185      366,661       296,750
Cost of revenue:
     Product license .............................       37         964       3,306        7,611         5,243
     Services (1) ................................    1,438       9,340      32,815      109,039        78,299
                                                   --------    --------    --------    ---------   -----------
             Total cost of revenue ...............    1,475      10,304      36,121      116,650        83,542
                                                   --------    --------    --------    ---------   -----------
Gross profit                                          1,549       5,901      53,064      250,011       213,208
Operating expenses:
     Research and development (1) ................    2,895       6,962      16,447       58,324        64,850
     Sales and marketing (1) .....................    4,964      15,880      50,232      177,391       178,282
     General and administrative (1) ..............    1,333       4,864       9,494       38,625        29,907
     Purchased in-process research and
       development, acquisition-related
       and other charges .........................        -       2,089      15,641      169,885         1,919
     Impairment of goodwill ......................        -           -           -            -       799,169
     Business restructuring charges ..............        -           -           -            -       120,935
     Amortization of deferred stock
       compensation ..............................        -       2,475       5,654       33,863         8,734
     Amortization of intangibles .................        -           -       1,796      328,691       500,045
                                                   --------    --------    --------    ---------   -----------
             Total operating expenses ............    9,192      32,270      99,264      806,779     1,703,841
                                                   --------    --------    --------    ---------   -----------
                Loss from operations .............   (7,643)    (26,369)    (46,200)    (556,768)   (1,490,633)
Other income, net ................................      169         172       3,723       25,992       (35,275)
                                                   --------    --------    --------    ---------   -----------
                Loss before income taxes .........   (7,474)    (26,197)    (42,477)    (530,776)   (1,525,908)
Provision for income taxes .......................        -           -           -        1,449         1,731
                                                   --------    --------    --------    ---------   -----------
                Net loss ......................... $ (7,474)   $(26,197)   $(42,477)   $(532,225)  $(1,527,639)
                                                   ========    ========    ========    =========   ===========
Basic net loss per share ......................... $  (0.70)   $  (1.53)   $  (0.31)   $   (2.59)  $     (6.32)
                                                   ========    ========    ========    =========   ===========
Shares used in computing basic
  net loss per share .............................   10,728      17,094     137,253      205,885       241,762
--------------
(1) Excludes amortization of deferred stock compensation as follows:

                                                                       Year ended December 31,
                                                   -----------------------------------------------------------
                                                     1997        1998        1999        2000         2001
                                                   --------    --------    --------    ---------   -----------

    Cost of revenue - services ................... $    -      $    376    $    820    $   2,968   $     1,965
    Research and development .....................      -           573       1,059       12,300         2,446
    Sales and marketing ..........................      -           898       2,248       11,785         3,066
    General and administrative ...................      -           628       1,527        6,810         1,257
                                                   --------    --------    --------    ---------   -----------
                                                   $    -      $  2,475    $ 5,654     $  33,863   $     8,734
                                                   ========    ========    ========    =========   ===========
</TABLE>

                                       27

<PAGE>

<TABLE>
<CAPTION>
                                                                      As of December 31,
                                                   ------------------------------------------------------
                                                     1997       1998     1999 (2)    2000 (3)     2001
                                                   -------   --------   ---------   ----------  ---------
                                                                     (in thousands)
<S>                                                <C>       <C>        <C>         <C>         <C>
Consolidated Balance Sheet Data:
Consolidated Statements of Operations Data:
Cash, cash equivalents and
   short-term investments ........................ $ 6,865   $ 12,242   $ 402,229   $  447,833  $ 391,632
Working capital ..................................   4,255      3,757     375,211      389,831    305,826
Total assets .....................................   8,499     21,349     498,166    2,190,954    663,026
Long-term debt and capital lease
   obligation, less current portion ..............     833        758           -          782        240
Redeemable convertible preferred stock ...........  13,458     36,258           -            -          -
Total stockholders' equity (deficit) .............  (9,248)   (30,767)    437,059    2,024,513    510,301
------------
</TABLE>
(2)  Reflects the acquisition of Diffusion, Inc. on June 30, 1999.
(3)  Reflects the acquisitions of Engine 5, Ltd., DataSage, Inc. and OnDisplay,
     Inc. on January 18, 2000, February 15, 2000 and July 5, 2000, respectively.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

  The statements contained in this Report on Form 10-K that are not purely
historical statements are forward-looking statements within the meaning of
Section 21E of the Securities and Exchange Act of 1934, including statements
regarding our expectations, beliefs, hopes, intentions or strategies regarding
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 elsewhere in
this report in the section entitled "Risk Factors That May Affect Future
Results" and the risks discussed in our other historical SEC filings.

Overview

  Vignette Corporation is a leading provider of content management applications
used by organizations to create and maintain effective online relationships with
their customers, employees, business partners and suppliers. Vignette allows
organizations to combine a comprehensive understanding of what content assets
they have across the business, and their value, with Web applications that
predict users' needs and expectations. By putting the right information in front
of the right person at the right time, we help Web visitors make informed
decisions, and help organizations successfully manage those relationships.

  The family of Vignette products is focused around the comprehensive content
management capabilities required by organizations to handle both the active
management of electronic assets across the business, and the delivery of that
content in context to multiple audiences.

        Content Management  --  the ability to manage and deliver content to
                                almost every electronic touch-point from
                                virtually any source. This includes the ability
                                to create new content, collect content from
                                existing sources, produce it for Web use,
                                deliver it in context, and observe its use by
                                Web visitors to continue to deliver the right
                                content to the right person at the right time.

        Content Management
              Extensions    --  advanced capabilities to extend the
                                organization's ability to harness all available
                                content, measure its value, deliver it through
                                multiple channels, and determine appropriate
                                content offers for different audiences.

  Our applications leverage these content capabilities to enable organizations
to use the Web to generate revenue. We are focused on the online success of our
more than 1,300 customers.

                                       28

<PAGE>

  Our products are supported by our services organization, which offers a broad
range of services, including strategic planning, project management, account
management, general implementation services, technical support and an extensive
array of training offerings.

  Our business is facilitated by a community of skilled partners specifically
selected to support our customers and to ensure their success. This "Vignette
Economy" includes a number of partnerships with leading system integrators like
Accenture, Deloitte Consulting, EDS, IBM Global Services, Inforte and
PricewaterhouseCoopers. It also includes strategic alliances with technology
leaders like BEA Systems, IBM and Sun Microsystems.

  We are headquartered in Austin, Texas, and operate satellite offices in other
U.S. cities. In addition, we have offices throughout the Americas, Europe, Asia
and Australia. We had 1,321 full-time employees at December 31, 2001. Headcount
decreased from 2,330 at December 31, 2000 due primarily to the restructuring
efforts we implemented in 2001.

  Since our inception, we have incurred substantial costs to develop our
technology and products, market, sell and service these products, recruit and
train personnel and build an infrastructure. As a result, we have incurred
significant losses since our inception and, as of December 31, 2001, we had an
accumulated deficit of approximately $2.1 billion. We believe our success
depends on the continued development and acceptance of our products and
services, the growth of our customer base as well as the overall growth in the
content management applications market. Accordingly, we intend to invest in
research and development, sales, marketing, professional services and to a
lesser extent our operational and financial systems, as necessary. Furthermore,
we expect to continue to incur operating losses in the near future, and we will
require increases in revenues before we achieve and sustain profitability;
however, we cannot assure that such increases in revenue will result in
profitability.

2001 Highlights

Vignette(R) V6 Introduction In September 2001, we launched and shipped the
Vignette(R) V6 product family, the newest release of our flagship content
management application. The core of the V6 family is the Vignette Content Suite,
which is the first product on the market to combine industry-leading content
management, content integration and content analysis applications in a single
solution. The Vignette(R) V6 family also includes the Vignette content
extensions, which our customers can use to further expand the power, flexibility
and functionality of the Vignette Content Suite.

Restructuring Efforts During fiscal year 2001, we approved a restructuring plan
that reduced headcount and infrastructure and consolidated operations. As a
result, we reduced headcount by approximately 975 individuals and recorded
$120.9 million in business restructuring charges in 2001.

  In March 2002, we approved a plan to further align our cost structure with
current economic and industry conditions. These actions, which will affect
employees across all levels, functional areas and geographies, will include:

   o  voluntary salary reductions effective April 1, 2002 through September 30,
      2002;
   o  headcount reductions; and
   o  facilities consolidation.

  We will issue stock options to certain employees who volunteer for a salary
reduction. We expect to record deferred compensation for the intrinsic value of
the stock options as of the grant date. Such amount will be amortized to expense
over the one-year vesting period.

Impairment of Goodwill As a result of negative economic, industry and
Company-specific trends experienced throughout 2001, we recorded a $799.2
million non-cash, goodwill impairment charge during the fourth quarter of 2001.
Such goodwill originally arose in connection with our four business acquisitions
completed during fiscal years 1999 and 2000. These acquisitions were generally
completed during a period when stock valuations for companies in the software
sector were at much higher levels.

                                       29

<PAGE>

Stock Option Exchange Program During 2001, we issued approximately 2.4 million
restricted shares and approximately 7.7 million options to, and concurrently
canceled approximately 19.2 million stock options of, certain employees who
elected to participate in our stock option exchange program. This program was
designed to retain our employees and to provide them with an incentive for
maximizing stockholder value. As a result of this transaction, we recorded
deferred compensation of approximately $14.9 million.

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 have been
prepared in accordance with accounting principles generally accepted in the
United States. 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 various 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.

  We believe the following represent our critical accounting policies:

   o   Revenue Recognition;
   o   Estimating the Allowance for Doubtful Accounts;
   o   Valuation of Investments;
   o   Estimating Business Restructuring Accruals; and
   o   Valuation of Goodwill and Identifiable Intangible Assets.

  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 101, Revenue
Recognition in Financial Statements.

  Where software licenses are sold with maintenance or other services, we
allocate the total fee to the various elements based on the relative 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. For software licenses with a fixed number of licenses, VSOE of fair value
is based upon the price charged when sold separately, which is in accordance
with our standard price list. Our standard price list specifies prices
applicable to each level of volume purchased and is applicable when the products
are sold separately. For software licenses with enterprise-wide usage (unlimited
quantities), VSOE of fair value for the license element is not available, and,
accordingly, license revenue is recognized using the residual method. Under the
residual method, the contract value is first allocated to the undelivered
elements (maintenance and service elements) based upon their VSOE of fair value;
the remaining contract value, including any discount, is allocated to the
delivered element (license element). For consulting and implementation services,
VSOE of fair value is based upon the rates charged for these services when sold
separately. We generally sell services under time-and-material agreements. For
maintenance, VSOE of fair value is based upon either the renewal rate specified
in each contract, or the price charged when sold separately. Both the renewal
rate and price when sold separately are in accordance with our standard price
list. Except when the residual method is 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.

                                       30

<PAGE>

  Revenue allocated to product license fees is recognized when persuasive
evidence of an agreement exists, delivery of the product has occurred, we have
no significant remaining obligations with regard to implementation, 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, we do not
consider delivery to have occurred or customer payment to be probable of
collection until no significant obligations with regard to implementation
remain. Generally, this would occur when substantially all service work has been
completed in accordance with the terms and conditions of the customer's
implementation requirements but may vary depending on factors such as an
individual customer's payment history or order type (e.g., initial versus
follow-on).

  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 (1) such services are available from other
vendors and (2) 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 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 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.

  Investments  We periodically analyze our long-term investments for impairments
considered other than temporary. In performing this analysis, we first evaluate
whether general market conditions which reflect prospects for the economy as a
whole, or specific information pertaining to the specific investment's industry
or that individual company, indicates that a decline in value that is other than
temporary has occurred. If so, we consider specific factors, including the
financial condition and near-term prospects of each investment, any specific
events that may affect the investee company, and our intent and ability to
retain the investment for a period of time sufficient to allow for any
anticipated recovery in market value. We record an investment impairment charge
in the line item "Other income and expense" when we believe an investment has
experienced a decline in value that is other than temporary.

  Future adverse changes in market conditions or poor operating results of
underlying investments could result in losses or an inability to recover the
carrying value of the investments that may not be reflected in an investment's
current carrying value, thereby possibly requiring an impairment charge in the
future.

  Business Restructuring  We vacated excess leased facilities as a result of the
restructuring plan we

                                       31

<PAGE>

initiated during 2001. 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 resulting
sublease income, based on market information and trend 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.

  Impairment of Goodwill and Identifiable Intangible Assets  We assess the
impairment of goodwill and identifiable intangible assets when events or
circumstances indicate that the carrying value may not be recoverable. Events or
circumstances which could trigger an impairment review include, but are not
limited to the following:

   o    Significant negative industry or economic trends;
   o    Significant underperformance relative to our expected historical or our
        projected future operating results;
   o    Significant decline in our common stock for a sustained period of time;
        and
   o    Our market capitalization relative to our net book value.

  If we determine that the carrying value of goodwill may not be recoverable,
then we must estimate the fair value of goodwill. We estimate the fair value of
goodwill by projecting future cash flows and other factors. If the estimated
fair value is less than the carrying value, we record an impairment charge in
the current period. The assumptions supporting the estimated cash flows and
other factors, reflect our best estimates at the time of such impairment
assessment. If these estimates or their related assumptions change in the
future, we may be required to record an impairment charge in future periods.
During the year ended 2001, we recorded a $799.2 million non-cash impairment
charge to reduce enterprise-level goodwill to its estimated fair value. On
January 1, 2002, we adopted the Financial Accounting Standards Board issued
Statement No. 142, Goodwill and Other Intangible Assets ("Statement 142") and
will be required to analyze our goodwill for impairment during the first six
months of fiscal 2002, and then on a periodic basis thereafter.

Accounting Reclassification and Change in Accounting Estimate

  Effective December 31, 2001, we report all bad debt expense in the operating
expense cost category, Selling and marketing. In previous periods, we reported a
portion of bad debt expense in "Cost of revenue - services". Bad debt expense
reported in "Cost of revenue - services" for prior periods have been
reclassified to conform to the current year presentation and such
reclassification had no impact on our reported net loss, net loss per share or
stockholders' equity. Bad debt expense reclassified from "Cost of revenue -
services" to "Selling and marketing" was $673,000, $2.4 million and $5.7 million
for the years ended December 31, 1999, 2000 and 2001, respectively. The effect
of this reclassification was to increase gross margin by approximately 1%, 0%
and 2% in 1999, 2000 and 2001, respectively and to increase "Selling and
marketing" as a percentage of sales by a comparable amount.

  Effective January 1, 2001, we changed the useful life of certain fixed assets,
specifically computer equipment and software. Consequently, the estimated
depreciable lives of these fixed assets were changed from 18 months to 36
months. This change in accounting estimate did not have a material impact on our
financial condition, net losses or cash flows for the year ended December 31,
2001.

Business Combinations

  We have completed four acquisitions since our inception, three of which
occurred during 2000 and one during 1999. We acquired no businesses during 2001.
All acquisitions were accounted for as purchase business combinations and
therefore, the net assets acquired, or net liabilities assumed were recorded at
their estimated fair value at the respective date of acquisition and the results
of operations have been included with ours for the periods subsequent to the
respective acquisition date.

Engine 5 Effective January 18, 2000, we acquired all of the outstanding stock
and assumed all outstanding stock options of Engine 5, Ltd. ("Engine 5"), a
developer of enterprise-wide Java server technology, in

                                       32

<PAGE>

exchange for 248,043 shares of our common stock and approximately $4.9 million
in cash. The total cost of the acquisition, including transaction costs of
$400,000, was approximately $20.0 million.

  Additionally, as part of the Engine 5 acquisition, contingent consideration of
$3.8 million and $1.8 million was recorded during the years ended December 31,
2000 and 2001, respectively. Such contingent consideration was based upon
satisfaction of defined employment requirements subsequent to the January 18,
2000 acquisition date. All employment requirements have been satisfied and there
remains no future contingent stock issuance or cash payments subsequent to
December 31, 2001. The contingent consideration related to the Engine 5
acquisition was not included in the total purchase price, above, but was
expensed as future employment requirements were satisfied.

DataSage Effective February 15, 2000, we acquired all of the outstanding stock
and assumed all outstanding stock options of DataSage, Inc. ("DataSage"), a
leading provider of e-marketing and personalization applications, in exchange
for 9,458,061 shares of our common stock. At the time of the acquisition, the
total purchase price, including transaction costs of $1.1 million, was
approximately $586.6 million.

OnDisplay Effective July 5, 2000, we acquired all of the outstanding stock and
assumed all outstanding stock options of OnDisplay, Inc. ("OnDisplay"), a
leading provider of e-business infrastructure software for powering e-business
portals and e-marketplaces, in exchange for 42,016,975 shares of Vignette common
stock. At the time of the acquisition, the total purchase price, including
transaction costs of $14.0 million, was approximately $1.5 billion.

  In connection with 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. Additionally, a
portion of the OnDisplay and DataSage purchase price was allocated to in-process
research and development and was expensed upon the consummation of these
transactions. These acquisition, integration and in-process research and
development charges totaled approximately $169.9 million and $1.9 million during
fiscal years 2000 and 2001, respectively.

  Intangible assets, net of accumulated amortization, represented 68% and 25% of
total assets at December 31, 2000 and 2001, respectively. The decrease, as a
percentage of total assets, relates primarily to the amortization of intangible
assets and impairment of goodwill during 2001.

                                       33

<PAGE>

Results of Operations

  The following table sets forth, for the periods indicated, the percentage of
revenues represented by certain line items in our consolidated statements of
operations.

                                                        Year Ended December 31,
                                                        -----------------------
                                                         1999    2000     2001
                                                         ----    ----     ----
Consolidated Statements of Operations Data:
Revenue:
     Product license ..................................    52 %    59 %     52 %
     Services .........................................    48      41       48
                                                         ----    ----     ----
          Total revenue ...............................   100     100      100
Cost of revenue:
     Product license ..................................     4       2        2
     Services .........................................    37      30       26
                                                         ----    ----     ----
          Total cost of revenue .......................    41      32       28
                                                         ----    ----     ----
              Gross profit ............................    59      68       72
Operating expenses:
     Research and development .........................    18      16       22
     Sales and marketing ..............................    57      48       60
     General and administrative .......................    11      11       10
     Purchased in-process research and development,
       acquisition-related and other charges ..........    18      46        1
     Impairment of goodwill ...........................     -       -      269
     Business restructuring charges ...................     -       -       41
     Amortization of deferred stock compensation ......     6       9        3
     Amortization of intangibles ......................     2      90      168
                                                         ----    ----     ----
          Total operating expenses ....................   112     220      574
                                                         ----    ----     ----
              Loss from operations ....................   (53)   (152)    (502)
Other income, net .....................................     4       7      (12)
                                                         ----    ----     ----
              Loss before income taxes ................   (49)   (145)    (514)
Provision for income taxes ............................     -       -        1
                                                         ----    ----     ----
              Net loss ................................   (49)%  (145)%   (515)%
                                                         ====    ====     ====

  Revenue

Comparison of fiscal years ended December 31, 2001, 2000 and 1999

  Total revenue decreased 19% to $296.8 million in 2001 from $366.7 million in
2000. This decrease is attributable to a world wide economic slowdown that has
resulted in a substantial reduction in information technology spending. As a
result, we experienced a longer sales cycle and a decrease in the number of new
customers. Total revenue increased 311% to $366.7 million in 2000 from $89.2
million in 1999. This increase was attributable to a substantial increase in our
customer base which grew from 518 at the end of 1999 to 1,250 at the end of
2000, an increase in the average size of new customer orders and follow-on
orders from existing customers.

  We expect the economic uncertainty to continue to adversely affect our
business for at least the next quarter and perhaps longer. We anticipate that
total revenues in 2002 will decline compared to 2001.

  Product license. Product license revenue decreased 29% to $154.4 million in
2001 from $216.3 million in 2000, representing 52% and 59% of total revenue,
respectively. This decrease is attributable to a slowdown in information
technology spending experienced during 2001, as compared to 2000. Product
license increased 367% to $216.3 million in 2000 from $46.3 million in 1999,
representing 59% and 52% of total revenues, respectively. The increase in
product license revenue was due to increases in the number of customers and the
average size of new customer orders resulting from increased market acceptance
of our

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<PAGE>
products, increased follow-on orders from existing customers and orders
influenced and implemented by third-party integration partners.

  Services. Services revenue decreased 5% to $142.4 million in 2001 from $150.4
million in 2000, representing 48% and 41% of total revenue, respectively.
Services revenue from professional services fees continues to be the primary
component of total services revenue, representing 29% and 31% of total revenues
in 2001 and 2000, respectively. The overall decrease in services revenue
resulted from a decrease in professional services revenue, which was partially
offset by an increase in maintenance and support revenue. The decrease in
professional services revenue resulted primarily from the slowdown in the
overall economy, as well as an increase in consulting and implementation
engagements performed by our partners. The increase in maintenance and support
revenue relates to the purchase and renewal of maintenance and support
agreements by our customers. Services revenue increased 251% to $150.4 million
in 2000 from $42.9 million in 1999, representing 41% and 48% of total revenue,
respectively. Services revenue from professional services fees was the primary
component of total services revenue, representing 31% and 39% of total revenues
in 2000 and 1999, respectively. The increase in professional services and
maintenance and support revenues between 2000 and 1999 resulted from the
substantial increase in our customer base and the increased sale of product
licenses, which generally include or lead to agreements to perform professional
services and training and purchases of software maintenance and technical
support service arrangements.

  During the years ended 2001, 2000 and 1999, no single customer accounted for
more than 10% of our total revenues. Revenues from international sales were
approximately $106.1 million, $96.6 million and $13.1 million or 36%, 26% and
15% of total revenues for the years ended December 31, 2001, 2000, and 1999,
respectively.

  Cost of Revenue

  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, and personnel and other expenses related to
providing maintenance and professional services.

Comparison of fiscal years ended December 31, 2001, 2000 and 1999

  Product License. Product license costs decreased 31% to $5.2 million in 2001
from $7.6 million in 2000, representing 3% and 4% of product license revenue,
respectively. The decrease resulted primarily from the decline in overall
product license revenue. Product license costs increased 130% to $7.6 million in
2000 from $3.3 million in 1999, representing 4% and 7% of product license
revenue, respectively. The increase in absolute dollars was principally a result
of both product license sales growth and royalties paid to third-party vendors
for technology embedded in our product offerings. Product license costs were
less as a percentage of product license revenue in 2000 as compared to 1999,
primarily because significant product license revenue growth outpaced increases
in product license costs and higher average sales prices in 2000 relative to
1999. We expect product license costs to increase in the future in absolute
dollar terms due to additional customers licensing our products and the
acquisition of OEM licenses to third-party technology that we may choose to
embed in our product offerings.

  Services. Services costs decreased 28% to $78.3 million in 2001 from $109.0
million in 2000, representing 55% and 72% of services revenue, respectively. The
decrease in absolute dollars relates primarily to cost savings resulting from
the restructuring plan we initiated during 2001. The overall improvement in
services gross margin between 2001 and 2000, was driven by a higher mix of
maintenance and support revenue, in relation to total services revenue. As a
result of our restructuring activities, we expect our services costs, in
absolute dollars, to decrease in the near future. We expect services costs as a
percentage of services revenue to decrease over time, but may vary significantly
from period to period depending on the mix of services we provide, whether such
services are provided by us or third-party contractors and overall utilization
rates of our services personnel.

  Service costs increased 232% to $109.0 million in 2000 from $32.8 million in
1999, representing 72% and 77% of services revenue, respectively. The increase
in absolute dollars resulted from the rapid expansion of our services
organization. The overall improvement in services gross profit margin reflected
increased leverage from the productivity of support, training, consulting and
implementation activities.

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<PAGE>

  Professional services-related costs decreased 30% to $71.7 million in 2001
from $101.9 million in 2000, representing 83% and 89% of professional services
revenue, respectively. Professional services costs increased 230% to $101.9
million in 2000 from $30.9 million in 1999, representing 89% and 90% of
professional services-related revenue, respectively. Maintenance and support
costs decreased 7% to $6.6 million in 2001 from $7.1 million in 2000,
representing 12% and 20% of maintenance and support revenue, respectively.
Maintenance and support costs increased 255% to $7.1 million in 2000 from $2.0
million in 1999, representing 20% and 23% of maintenance and support revenue,
respectively.

  Operating Expenses

  We believe we must continue to improve efficiencies, reduce operating expenses
and increase revenue to achieve profitability. As a result, we expect absolute
dollars spent on research and development, sales and marketing and general and
administrative activities to decrease in the near future; however, we cannot
assure that such decreases will result in profitability.

Comparison of fiscal years ended December 31, 2001, 2000 and 1999

  Research and Development. Research and development expenses consist primarily
of personnel costs to support product development. Research and development
expenses increased 11% to $64.8 million in 2001 from $58.3 million in 2000,
representing 22% and 16% of total revenue, respectively. The increase is
primarily attributable to the timing of our acquisition of OnDisplay in July
2000. This resulted in the increase of research and development personnel
required to support our expanded product offering. Research and development
increased 255% to $58.3 million in 2000 from $16.4 million in 1999, representing
16% and 18% of total revenue, respectively. The increase in absolute dollars was
due to the increase in research and development personnel, through both internal
growth and our acquisitions in 2000, and to the expansion of our product
offerings. The decrease in research and development as a percentage of total
revenue in 2000 as compared to 1999 resulted primarily because significant
revenue growth during 2000 outpaced increases in research and development
expenditures.

  As a result of our restructuring plan initiated during 2001, we expect our
research and development spending, in absolute dollars, to decrease in the near
future; however, to maintain a competitive advantage, we will continue to invest
significant resources in research and development activities.

  Software development costs that were eligible for capitalization in accordance
with Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, totaled
$687,000, $1.9 million and $550,000 in 2001, 2000 and 1999. Due to the
restructuring plan implemented during 2001 and the resulting decision to no
longer market, sell and support certain of our products, we impaired $1.9
million of previously capitalized software.

  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. Sales and marketing expenses increased 1% to $178.3 million in 2001
from $177.4 million in 2000, representing 60% and 48% of total revenue,
respectively. The increase in absolute dollars relates primarily to the increase
in personnel in our customer care organization and increased bad debt charges
recognized during the first quarter of 2001, partially offset by a decrease in
earned commissions, resulting from lower revenues, and cost savings from our
2001 restructuring activities. The bad debt charges recognized during the first
quarter of 2001 related to the unfavorable financial impacts the economic
downturn had on many of our early-stage customers. The increase in sales and
marketing expenses, as a percentage of total revenue, resulted from a decrease
in total revenues between the comparative periods. Sales and marketing expenses
increased 253% to $177.4 million in 2000 from $50.2 million in 1999,
representing 48% and 57% of total revenue, respectively. Sales and marketing
expenses increased in absolute dollars due to a significant increase in sales
and marketing personnel, increased marketing program expenditures as well as
higher commissions expense resulting from the absolute dollar growth in our
customer orders. The decrease in sales and marketing expenses as a percentage of
total revenue resulted primarily because significant revenue growth outpaced
increases in sales and marketing expenditures. Although we anticipate that the
recent restructuring of our business will reduce sales and marketing

                                       36

<PAGE>

expenses in the near term, these expenses may increase over the longer term. We
also anticipate that sales and marketing expenses may fluctuate as a percentage
of total revenue from period to period as new sales personnel are hired and
begin to achieve productivity as well as the timing of new product releases.

  General and Administrative. General and administrative expenses consist
primarily of salaries and other related costs for human resources, finance,
accounting, information technology and legal employees and certain
facilities-related expenses. General and administrative expenses decreased 23%
to $29.9 million in 2001 from $38.6 million in 2000, representing 10% and 11% of
total revenue, respectively. The decrease in absolute dollars and as a
percentage of total revenue between the comparative periods relates primarily to
a reduction in general and administrative headcount as well as other cost saving
measures resulting from our restructuring plan. General and administrative
expenses increased 307% to $38.6 million in 2000 from $9.5 million in 1999,
representing 11% of total revenue in both years. The increase between these
periods was due to increased personnel, information technology and facility
expenses necessary to support our rapid expansion experienced during 2000.
Although we anticipate that the recent restructuring of our business will reduce
general and administrative expenses in the near term, these expenses may
increase over the longer term.

  Purchased In-Process Research and Development, Acquisition-Related and Other
Charges. During the three years ended December 31, 2001, we acquired a series of
complementary businesses. In connection with these acquisitions, we acquired all
outstanding stock and assumed all outstanding stock options of the respective
acquirees. All acquisitions were accounted for as purchase business
combinations. Accordingly, the results of operations of the acquired companies
have been included with our results of operations for periods subsequent to the
respective dates of acquisition.

  The following table presents the purchase price allocation of our acquisitions
during the three years ended December 31, 2001 (in thousands):

<TABLE>
<CAPTION>
                                                 1999                                2000
                                            ---------------    ---------------------------------------------------
                                            Diffusion, Inc.    Engine 5, Ltd.    DataSage, Inc.    OnDisplay, Inc.
                                            ---------------    --------------    --------------    ---------------
<S>                                         <C>                <C>               <C>               <C>
 In-process research and development ...... $        11,600    $            -    $       43,400    $       103,200
 Acquired technology ......................           6,300             1,000             4,000             24,800
 Workforce ................................             900               300             3,300             19,100
 Trademark ................................               -                 -               800                  -
 Deferred compensation ....................               -                 -                 -             52,865
 Goodwill .................................          14,466            18,974           514,436          1,199,968
 Net fair value of tangible assets
   acquired and liabilities assumed .......          (2,032)             (296)           20,660             97,977
                                            ---------------    --------------    --------------    ---------------
 Purchase price ........................... $        31,234    $       19,978    $      586,596    $     1,497,910
                                            ===============    ==============    ==============    ===============
 Acquisition date .........................       June 1999         Jan. 2000         Feb. 2000          July 2000
 Shares of Company stock issued ...........           2,301               105             7,746             35,869
 Employee stock options exchanged .........              59               143             1,712              6,148
                                            ---------------    --------------    --------------    ---------------
    Total shares of Company stock
      issued and exchanged ................           2,360               248             9,458             42,017
                                            ===============    ==============    ==============    ===============
Cash paid by Company ...................... $             -    $        4,900    $            -    $             -
</TABLE>

                                       37

<PAGE>

  Included in the acquired net assets of Diffusion, DataSage and OnDisplay was
in-process research and development ("IPR&D") efforts we intended on re-working
and integrating into our products (in thousands):

<TABLE>
<CAPTION>
                                         Acquired IPR&D-                                      Current Status at
    Acquired Company                   Project Description                Fair Value          December 31, 2001
------------------------  ----------------------------------------------  ----------  -----------------------------------
<S>                       <C>                                             <C>         <C>
Diffusion, Inc. Provides  Diffusion Server 4.0 - Expand delivery           $ 11,600   Application from this project has
multi-channel             capabilities, user features and                             been fully integrated into our products
information delivery      functionality of the existing Diffusion
solutions                 Server 3.0 multi-channel platform (2-way
                          pager, telephone, audit/logging/tracking) as
                          well as add new components (event processor,
                          DB monitor)

DataSage, Inc.            NetCustomer - Integrate with content             $ 24,700   Application from this project has
Provides e-marketing      management systems, improve data collection                 been fully integrated into our products
and personalization       processes and development of real time
software applications     personalization features

                          MarketExpert - Application for use in retail     $  6,500   Project canceled and has no
                          stores and pharmacies                                       alternative future use

                          Analysis Engine - Creation of an online          $ 12,200   Application from this project has
                          analysis manager engine and creation of                     been fully integrated into our products
                          application modules for use with the software

OnDisplay, Inc.           Centerstage Platform - Platform to support       $ 16,300   Project canceled and has no
Provides                  OnDisplay product line                                      alternative future use
business-to-business
infrastructure software,  E-BizXchange - Allows real time business         $ 25,600   Application from this project has
which empowers            document exchange with partners                             been fully integrated into our products
e-business portals and
e-marketplaces            E-Content - Transforms diverse content from      $ 16,700   Application from this project has
                          various sources, including HTML                             been fully integrated into our products

                          E-Integrate - Integrates internal e-business     $ 5,800    Application from this project has
                          systems such as ERP applications                            been fully integrated into our products

                          E-Notify - Enables E-mail notification           $  2,500   Project canceled and has no
                          systems                                                     alternative future use

                          E-Syndicate - Delivers real time content         $  2,300   Application from this project has
                          syndication                                                 been fully integrated into our products

                          E-Wireless - Allows wireless information         $ 34,000   Application from this project has
                          exchange                                                    been fully integrated into our products
</TABLE>

  The amounts allocated to IPR&D were based on a discounted cash flow model, as
modified to conform to Securities and Exchange Commission guidelines.
Specifically, this model employed cash flow projections for revenue based on the
projected incremental increase in revenue that the acquired company expected to
receive from the completed IPR&D based on management's estimates and the growth
potential of the market. Revenue for these five-year projection periods assumed
an annual compound growth rate of 122.4%, 121.3% and 89.9% for Diffusion,
DataSage and OnDisplay, respectively, and was adjusted to reflect the percentage
of research and development determined to be complete as of the acquisition
date. Cost of goods sold, selling, general and administrative expense, and
research and development expense were estimated as a percent of revenue based on
each acquired company's historical results and industry averages. The cost to
complete the in-process products was removed from the research and development
expense. These estimated operating expenses as well as capital charges and
applicable income taxes were deducted to arrive at an estimated after-tax cash
flow. The after-tax cash flow projections were discounted using a risk-adjusted
rate of return, ranging between 21% and 23%. Such discount rates were based on
each acquired company's weighted average cost of capital of 16% or 18%, as
adjusted upwards for the additional risk related to the projects' development
and success.

  The resulting IPR&D was expensed at the time of purchase because technological
feasibility had not been established and no future alternative uses existed. The
efforts required to develop the purchased IPR&D into commercially viable
products principally related to the completion of all planning, designing,
prototyping, verification and testing activities that would be necessary to
establish that the products could be produced to

                                       38

<PAGE>

meet their design specifications, including functions, features and technical
performance requirements. The timing for the completion of such efforts was
expected to range between twelve and eighteen months. Further, we were uncertain
of our ability to complete the products within a timeframe acceptable to the
market and ahead of competitors.

  Acquisition-related and other charges include costs incurred for employees and
consultants related to product integration and cross-training, Engine 5, Ltd.
("Engine 5") contingent consideration, impairment of certain intangibles assets
and other employee-related costs, including severance. The following table
presents acquisition-related and other charges for the three years ended
December 31, 2001, 2000 and 1999 (in thousands):

                                                      Year Ended December 31,
                                                  ------------------------------
                                                    2001        2000       1999
                                                  -------    --------    -------

 Cross-training, product integration and other .. $    94    $  4,431    $   238
 Impairment of intangibles ......................       -       2,791          -
 Severance and other employee-related costs .....       -       1,534        891
 Employee stock compensation ....................       -      10,699      2,912
 Contingent consideration .......................   1,825       3,830          -
                                                  -------    --------    -------
                                                  $ 1,919    $ 23,285    $ 4,041
                                                  =======    ========    =======

  Impairment of Goodwill. As a result of our ongoing assessment of acquired
intangible assets, we recorded an impairment charge related to goodwill in 2001.
The impairment was recorded in light of significant negative industry and
economic trends impacting current operations, the significant decline in our
stock price for a sustained period of time and our market capitalization
relative to our net book value. The overall decline in industry and economic
growth rates indicated that this trend may continue for an indefinite period.
Using a discounted cash flow approach, we recorded a $799.2 million non-cash
impairment charge in the quarter ended December 31, 2001 to reduce
enterprise-level goodwill to its estimated fair value. Goodwill was originally
recorded in connection with our four business acquisitions completed during
fiscal years 1999 and 2000. Such acquisitions were generally completed during a
period when stock valuations for companies in the software sector were at a much
higher level. The estimate of fair value was based upon the discounted estimated
cash flows using a discount rate of 24% and an estimated terminal growth rate of
6%. The discount rate was based upon our risk-adjusted weighted average cost of
capital. The assumptions supporting the estimated cash flows, including the
discount rate and estimated terminal value, reflect management's best estimates.
It is reasonably possible that the estimates and assumptions used under our
assessment may change in the near term.

  There were no impairment charges related to goodwill in 2000 or 1999.

  Business Restructuring Charges. During fiscal year 2001, we approved a
restructuring plan to reduce headcount and infrastructure and to consolidate
operations. As a result, we recorded $120.9 million in business restructuring
charges in 2001. There were no business restructuring charges in 2000 or 1999.
Components of business restructuring charges and the remaining restructuring
accrual as of December 31, 2001 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                        Employee
                                                                       Separation
                                      Facility Lease       Asset        and Other
                                        Commitments     Impairments       Costs        Total
                                      --------------   -------------   ----------    --------
<S>                                   <C>              <C>             <C>           <C>
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
                                         ========        =======        ========
 Less: current portion ..............                                                  23,390
                                                                                     --------
 Accrued restructuring costs, less
      current portion ...............                                                $ 26,482
                                                                                     ========
</TABLE>

                                       39

<PAGE>

  Consolidation of Excess Facilities

  Facility lease commitments relate to lease obligations for offices we have
vacated or intend to vacate as a result of our restructuring plan. The locations
affected include certain leased facilities in Austin and Houston, Texas; Redwood
City, Los Angeles and San Ramon, California; Boston, Waltham, Reading and
Cambridge, Massachusetts; New York City, New York; Paris, France; Hamburg,
Germany; Madrid, Spain; Sydney, Australia; Bangalore and Guragon, India; and
Singapore. We recorded $55.2 million in restructuring expense in relation to
such site consolidation. The maximum lease commitment of such vacated properties
is 10 years. Total lease commitments include the remaining lease liabilities and
brokerage commissions, offset by estimated sublease income. We estimated the
costs of vacating these leased facilities, including estimated costs to sublease
and resulting sublease income, based on market information and trend analysis.
It is reasonably possible that actual results could 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 our accrual for facility lease commitments.

  Asset Impairments

  Asset impairments recorded pursuant to Financial Accounting Standards Board
("FASB") Statement No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of ("Statement 121"), relate to the
impairment of certain intangible assets, including: acquired workforce, acquired
technology, prepaid royalties and licenses, as well as the impairment of certain
leasehold improvements and office equipment. As a result of the termination of
former employees of acquired businesses, acquired workforce was impaired by
$12.3 million during 2001. Our decision to no longer sell or support certain
products acquired through business combinations or software arrangements,
reduced the net realizable value of such products to zero. As such, certain of
our acquired technology and prepaid royalties and licenses were impaired by $7.3
million during 2001. Certain leasehold improvements and office equipment were
impaired as a result of our decision to vacate certain office space resulting in
an impairment charge of $14.1 million during 2001.

  Employee Separation and Other Costs

  Employee separation and other costs, which include severance, related taxes,
outplacement and other benefits, payable to approximately 975 terminated
employees, totaled $32.1 million, of which approximately $24.7 million has been
paid in cash and stock compensation at December 31, 2001. 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.

  At December 31, 2001, remaining cash expenditures resulting from the
restructuring are estimated to be $49.9 million, and relate primarily to
facility lease commitments. Excluding facilities lease commitments, we estimate
the remaining costs will be substantially incurred within one year of the
restructuring. We have substantially implemented our restructuring efforts
initiated in conjunction with the restructuring announcements made during 2001;
however, there can be no assurance that the estimated costs of our restructuring
efforts will not change.

  Amortization of Deferred Stock Compensation. For the stock options we award to
employees from our stock option plans, we have recorded deferred compensation
for the difference between the exercise price of certain stock option grants and
the market value of our common stock at the time of such grants. For the stock
options we assumed in connection with our acquisition of OnDisplay in July 2000,
we have recorded deferred compensation for the difference between the exercise
price of the unvested stock options and the fair value of our common stock at
the acquisition date. For the restricted shares we issued in February 2001 as
part of our stock option exchange program, we have recorded deferred
compensation for the market value on the issue date.

  We are amortizing the deferred compensation amount over the vesting periods of
the applicable options and restricted share grants, resulting in amortization
expense of $8.7 million, $33.9 million and $5.7 million in 2001, 2000 and 1999,
respectively. We present the amortization of deferred stock compensation as a
separate line item on our Consolidated Statements of Operations. In 2001, 2000
and 1999, amortization of

                                       40

<PAGE>

deferred stock compensation is attributable to the following cost categories
(in thousands):

                                             2001        2000        1999
                                            ------     -------      ------

    Cost of revenue - services ............ $1,965     $ 2,968      $  820
    Research and development ..............  2,446      12,300       1,059
    Sales and marketing ...................  3,066      11,785       2,248
    General and administrative ............  1,257       6,810       1,527
                                            ------     -------      ------
                                            $8,734     $33,863      $5,654
                                            ======     =======      ======

Amortization of Intangibles. Amortization of intangible assets relates to all of
the intangible assets obtained in our acquisitions of Diffusion, Inc., Engine 5,
DataSage and OnDisplay. Such intangible assets are amortized over the assets'
estimated useful lives, which range from two to four years. Intangible
amortization expense was $500.0 million, $328.7 million and $1.8 million in
2001, 2000 and 1999, respectively.

  In July 2001, the Financial Accounting Standards Board issued Statement No.
142, Goodwill and Other Intangible Assets ("Statement 142"). Statement 142
requires that ratable amortization of goodwill be replaced with periodic review
and analysis of goodwill for possible impairment. Intangible assets with
definite lives must be amortized over their estimated useful lives. The
provisions of Statement 142 will be effective for fiscal years beginning after
December 15, 2001. Beginning fiscal year 2002, we will adopt Statement 142 and
will review our intangible assets and goodwill for impairment pursuant to this
Statement. Upon adoption on January 1, 2002, we will no longer amortize
goodwill, acquired workforce or our trademark, thereby eliminating annual
amortization of approximately $70.7 million, based on forecasted amortization
for 2002. During the first six months of 2002, we will perform the required
transitional impairment tests of goodwill and indefinite-lived intangible assets
as of January 1, 2002. We have not yet determined what the effect of these tests
will be, if any, on our Consolidated Financial Statements.

  We adjusted the carrying amount of certain intangible assets, primarily
acquired workforce, due to our 2001 restructuring efforts, resulting in
restructuring charges totaling $15.3 million during 2001.

Other Income and Expense, Net

  Other income and expense, net consists primarily of interest income and
expense, as well as recognized investment gains and losses. Other expense, net
decreased 235% to $35.2 million in 2001 from other income, net of $26.0 million
in 2000. The significant decrease in other income and expense, net during 2001
resulted primarily from the impairment of certain long-term investments,
principally redeemable convertible preferred stock in privately-held companies.
We determined that these investments had experienced a decline in value that was
other than temporary and therefore, we recorded an impairment charge of $51.6
million in 2001. We recorded no investment impairment charge in 2000. Excluding
such investment impairment charge, other income and expense, net was $16.3
million of income in 2001. Excluding such impairment charge, the decrease in
other income relates to the decrease in our cash balances and the general
decline in investment yields on our cash, cash equivalents and short-term
investments experienced during 2001. Other income, net increased to $26.0
million in 2000 from $3.7 million in 1999. The significant increase was due to
interest income earned on higher cash balances, cash equivalents and short-term
investments resulting from our secondary public offering in December 1999, cash
acquired through our purchases of businesses as well as higher investment yields
experienced during 2000.

Provision for Income Taxes

  We have incurred income tax expense of approximately $1.7 million, $1.4
million and $0 in 2001, 2000 and 1999, respectively. The income tax expense
consists primarily of estimated withholdings and income taxes due in certain
foreign jurisdictions.

  We have provided a full valuation allowance on our net deferred tax assets,
which include net operating loss and research and development carryforwards,
because of the uncertainty regarding their realization. Our accounting for
deferred taxes under Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("Statement 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 required, we

                                       41

<PAGE>

primarily considered such factors as our history of operating losses and
expected future losses and the nature of our deferred tax assets.

Quarterly Results

  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 our
opinion, 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.

<TABLE>
<CAPTION>
                                                                        Three Months Ended
                                     ---------------------------------------------------------------------------------------
                                     March 31,   June 30,  Sept. 30,   Dec. 31,  March 31,   June 30,  Sept. 30,   Dec. 31,
                                       2000        2000      2000       2000       2001       2001       2001        2001
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
                                                       (in thousands, except share data and percentages)
<S>                                  <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Consolidated Statements of Operations Data:
 Revenue:
 Product license ................... $  29,148  $  42,173  $  66,194  $  78,742  $  48,004  $  44,529  $  40,276  $   21,572
 Services ..........................    26,081     34,958     44,193     45,172     42,122     39,095     30,220      30,932
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
    Total revenue ..................    55,229     77,131    110,387    123,914     90,126     83,624     70,496      52,504
 Cost of revenue:
 Product license ...................     1,361      2,372      2,365      1,513      1,477      1,135      1,639         992
 Services ..........................    19,468     25,320     32,202     32,049     25,354     22,101     17,021      13,823
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
    Total cost of revenue ..........    20,829     27,692     34,567     33,562     26,831     23,236     18,660      14,815
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
       Gross profit ................    34,400     49,439     75,820     90,352     63,295     60,388     51,836      37,689
 Operating expenses:
 Research and development ..........     7,534     10,386     17,734     22,670     18,988     16,463     15,570      13,829
 Sales and marketing ...............    27,293     35,065     54,138     60,895     52,672     50,117     44,867      30,626
 General and administrative ........     4,890      7,533     13,097     13,105      7,935      8,137      6,932       6,903
 Purchased in-process research and
   development, acquisition-related
   and other charges ...............    56,475      3,135    107,279      2,996        678        663        578           -
 Impairment of goodwill ............         -          -          -          -          -          -          -     799,169
 Business restructuring charges ....         -          -          -          -     49,122     41,536          -      30,277
 Amortization of deferred stock
   compensation ....................     1,681      1,320     22,366      8,496      4,097      2,705      1,731         201
 Amortization of intangibles .......    26,081     48,503    126,826    127,281    126,865    124,109    125,530     123,541
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
    Total operating expenses .......   123,954    105,942    341,440    235,443    260,357    243,730    195,208   1,004,546
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
       Loss from operations ........   (89,554)   (56,503)  (265,620)  (145,091)  (197,062)  (183,342)  (143,372)   (966,857)
 Other income, net .................     6,037      5,814      6,741      7,400    (32,500)       848     (4,248)        625
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
       Loss before income taxes ....   (83,517)   (50,689)  (258,879)  (137,691)  (229,562)  (182,494)  (147,620)   (966,232)
 Provision for income taxes ........         -          -        440      1,009        200        878        297         356
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
       Net loss .................... $ (83,517) $ (50,689) $(259,319) $(138,700) $(229,762) $(183,372) $(147,917) $ (966,588)
                                     =========  =========  =========  =========  =========  =========  =========  ==========
 Basic net loss per share (1) ...... $  (0.47)  $   (0.27) $   (1.15) $   (0.60) $   (0.97) $   (0.76) $   (0.61) $    (3.96)
                                     =========  =========  =========  =========  =========  =========  =========  ==========
------------
</TABLE>
(1)      Basic net loss per share is computed independently for each of the
         quarters presented. Therefore, the sum of the quarterly per common
         share information may not equal the annual earnings per share.

                                       42

<PAGE>

<TABLE>
<CAPTION>
                                                                        Three Months Ended
                                     ---------------------------------------------------------------------------------------
                                     March 31,   June 30,  Sept. 30,   Dec. 31,  March 31,   June 30,  Sept. 30,   Dec. 31,
                                       2000        2000      2000       2000       2001       2001       2001        2001
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
<S>                                  <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
 As a Percentage of Total  Revenue:
 Revenue:
 Product license ...................     53%        55%        60%        64%        53%         53%        57%        41%
 Services ..........................     47         45         40         36         47          47         43         59
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
    Total revenue ..................    100        100        100        100        100         100        100        100
 Cost of revenue:
 Product license ...................      2          3          2          2          2           1          2          2
 Services ..........................     36         33         29         26         28          27         24         26
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
    Total cost of revenue ..........     38         36         31         28         30          28         26         28
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
       Gross profit ................     62         64         69         72         70          72         74         72
 Operating expenses:
 Research and development ..........     14         13         16         18         21          20         22         26
 Sales and marketing ...............     49         45         49         49         58          60         64         58
 General and administrative ........      9         10         12         11          9          10         10         13
 Purchased in-process research and
    development, acquisition-related
    and other charges ..............    102          4         97          2          1           1          1          -
 Impairment of goodwill ............      -          -          -          -          -           -          -      1,522
 Business restructuring charges ....      -          -          -          -         54          50          -         58
 Amortization of deferred stock
  Compensation .....................      3          2         20          7          4           3          2          1
 Amortization of intangibles .......     47         63        115        102        141         147        178        235
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
    Total operating expenses .......    224        137        309        189        288         291        277      1,913
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
       Loss from operations ........   (162)       (73)      (240)      (117)      (218)       (219)      (203)    (1,841)
 Other income, net .................     11          7          6          6       (36)           1        (6)          1
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
       Loss before income taxes ....   (151)       (66)      (234)      (111)      (254)       (218)      (209)    (1,840)
 Provision for income taxes ........      -          -          -          1          1           1          1          1
                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------  ----------
       Net loss ....................   (151)%      (66)%     (234)%     (112)%     (255)%      (219)%     (210)%   (1,841)%
                                     =========  =========  =========  =========  =========  =========  =========  ==========
</TABLE>

  As a result of our limited operating history, we cannot forecast operating
expenses based on historical results. Accordingly, we base our forecast for
expenses in part on future revenue projections. Most 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 forecast accurately 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:

  o   Demand for our products and services;
  o   The timing of sales of our products and services;
  o   The timing of customer orders and product implementations;
  o   Seasonal fluctuations in information technology spending;
  o   Unexpected delays in introducing new products and services;
  o   Increased expenses, whether related to sales and marketing, product
      development or administration;
  o   Changes in the rapidly evolving market for e-business solutions;
  o   The mix of product license and services revenue, as well as the mix of
      products licensed;
  o   The mix of services provided and whether services are provided by our own
      staff or third-party contractors;

                                       43

<PAGE>

  o   The mix of domestic and international sales;
  o   Difficulties in collecting accounts receivable;
  o   Costs related to possible acquisitions of technology or businesses; and
  o   The general economic climate.

  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 believe we must continue to improve efficiencies, reduce operating expenses
and grow revenue in order to achieve profitability. As a result, we expect
absolute dollars spent on research and development, sales and marketing and
general and administrative activities to decrease in the near future; however,
we cannot assure that such decreases will result in profitability.

Net Operating Losses and Tax Credit Carryforwards

  As of December 31, 2001, we had federal net operating loss and research and
development carryforwards of approximately $629.6 million and $9.0 million,
respectively. The net operating loss and credit carryforwards will expire at
various dates, between 2003 and 2021, if not utilized. The Tax Reform Act of
1986 imposes substantial restrictions on the utilization of net operating losses
and tax credits in the event of an "ownership change" of a corporation. Net
operating loss carryforwards of approximately $118.3 million and tax credit
carryforwards of $2.0 million at December 31, 2001 were incurred by Diffusion,
Engine 5, DataSage and OnDisplay prior to being acquired by us and will be
subject to annual limitation. The annual limitation may result in the expiration
of net operating losses and tax credits before utilization.

  We have provided a full valuation allowance on our net deferred tax assets,
which include net operating loss and research and development carryforwards,
because of the uncertainty regarding their realization. Our accounting for
deferred taxes under Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, involves the evaluation of a number of factors
concerning the realizability of our deferred tax assets. In concluding that a
full valuation allowance was required, we primarily considered such factors as
our history of operating losses and expected future losses and the nature of our
deferred tax assets. See Note 9 of Notes to Consolidated Financial Statements.

  As of December 31, 2001, the valuation allowance includes approximately $32.6
million related to the acquisition of Diffusion, Engine 5, DataSage and
OnDisplay net deferred tax assets. The initial recognition of these acquired
deferred tax asset items will first reduce goodwill, then other non-current
intangible assets of the acquired entity. Approximately $140.6 million of the
valuation allowance relates to tax benefits for stock option deductions included
in the net operating loss carryforward, which when realized, will be allocated
directly to contributed capital to the extent the benefits exceed amounts
attributable to deferred compensation expense.

                                       44

<PAGE>

Liquidity and Capital Resources

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

<TABLE>
<CAPTION>
                                                             1999         2000         2001
                                                           --------     --------     --------
<S>                                                        <C>          <C>          <C>
 Cash and cash equivalents ..............................  $391,278     $435,481     $348,916
 Marketable securities and short-term investments .......  $ 10,951     $ 12,352     $ 42,716
 Working capital ........................................  $375,211     $389,831     $305,826
 Current ratio ..........................................     7.1:1        3.4:1        3.4:1
 Days of sales outstanding (DSO) ........................        63           73           61
</TABLE>

  Total cash, cash equivalents and short-term investments decreased 13% to
$391.6 million at December 31, 2001 from $447.8 million at December 31, 2000.
Our use of cash and cash equivalents during fiscal year 2001 is described below.

  Net cash used in operating activities was $44.3 million, $13.0 million and
$1.5 million for the years ended December 31, 2001, 2000 and 1999, respectively.
The increase in 2001 operating cash outflows was due primarily to the increase
in our net loss for the period, excluding non-cash charges, and cash payments
related to our restructuring plan, such as severance and the buy-out of certain
leases. We anticipate using net cash to fund operating activities in 2002, but
at reduced levels as compared to 2001.

  Net cash used in investing activities was $51.6 million, $100.3 million
(excluding $123.4 million acquired through our purchase of businesses) and $50.8
million for the years ended December 31, 2001, 2000 and 1999, respectively. The
decrease in investing cash outflows during 2001 was due primarily to decreased
capital expenditures and investment in privately-held companies, partially
offset by purchases of short-term investments. Our investing activities have
consisted largely of capital expenditures totaling $20.7 million, $53.8 million
and $11.9 million in 2001, 2000 and 1999, respectively. We expect that our
future investing activities will generally consist of capital expenditures to
support our future needs.

  Net cash provided by financing activities was $11.8 million, $34.0 million and
$431.3 million in 2001, 2000 and 1999, respectively. Our financing activities
during both 2001 and 2000 consisted primarily of proceeds received from the
exercise of employee stock options and the purchase of employee stock purchase
plan shares. In September 2001, the Board of Directors approved a stock
repurchase program whereby we can repurchase up to $50.0 million of our common
stock over a period of up to six months. Any such repurchased shares may be used
for general corporate purposes, including issuance under our employee stock
plans. As of December 31, 2001, we had repurchased 1.4 million shares of common
stock for an aggregate cost of $5.5 million. All such repurchases were conducted
through open market transactions.

  Our long-term investments consist of redeemable convertible preferred stock in
privately-held technology companies and collateral pledged for certain lease
obligations. At December 31, 2001 and 2000, long-term investments totaled $22.4
million and $84.3 million, respectively. We classify these investments as
available-for-sale and have recorded a cumulative net unrealized gain of $1.4
million and $12.1 million at December 31, 2001 and 2000, respectively.

  The future value of our investments in redeemable convertible preferred stock
of privately-held technology companies may be affected by a number of factors
including general economic conditions, and the ability of the companies to
secure additional funding and execute on their respective business plans. During
2001, we determined that certain of these investments had experienced a decline
in value that was other than temporary, resulting in a recognized investment
loss of $51.6 million. We may continue to invest in companies strategic to our
business; however, we do not expect the impact of this activity to be material
to our liquidity position.

  In addition to the preceding investments, we had pledged $13.7 million and
$14.0 million as collateral for certain of our lease obligations at December 31,
2001 and 2000, respectively. There are certain time restrictions placed on these
instruments that we are obligated to meet in order to liquidate the principal of
these investments.

                                       45

<PAGE>

     We expect our existing cash, cash equivalents and short-term investment
balances will decline during fiscal year 2002; however, we believe that our
existing balances will be sufficient to meet our working capital, capital
expenditure and investment requirements for the foreseeable future. We may
require additional funds for other purposes and may seek to raise such
additional funds through public and private equity financings form other
sources. 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.

Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
("Statement 133"). In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133 ("Statement
137"), which deferred for one year the effective date of Statement 133. As a
result of the deferral provisions of Statement 137, we formally adopted the
Statement during the first quarter of 2001. We have minimal use of derivatives.
The adoption of Statement 133 did not have a material impact on our results of
operations or our financial position for the year ended December 31, 2001.

     In July 2001, the FASB issued Statement No. 141, Business Combinations
("Statement 141"). Statement 141 requires that all business combinations be
accounted for under the purchase method of accounting. Additionally, certain
intangible assets acquired as part of a business combination must be recognized
as separate assets, apart from goodwill. Statement 141 is effective for all
business combinations initiated subsequent to June 30, 2001. To date, all our
acquisitions have been accounted for under the purchase method of accounting.
The adoption of Statement 141 did not have a significant impact on our financial
statements.

     Also in July 2001, the FASB issued Statement No. 142, Goodwill and Other
Intangible Assets ("Statement 142"). Statement 142 requires that ratable
amortization of goodwill be replaced with periodic review and analysis of
goodwill for possible impairment. Intangible assets with definite lives must be
amortized over their estimated useful lives. The provisions of Statement 142
will be effective for fiscal years beginning after December 15, 2001. Beginning
fiscal year 2002, we will adopt Statement 142 and will review our intangible
assets and goodwill for impairment pursuant to this Statement. Upon adoption on
January 1, 2002, we will no longer amortize goodwill or acquired workforce,
thereby eliminating annual amortization of approximately $70.7 million, based on
forecasted amortization for 2002. During the first six months of 2002, we will
perform the required transitional impairment tests of goodwill and
indefinite-lived intangible assets as of January 1, 2002. We have not yet
determined what the effect of these tests, if any, will be on our financial
statements.

     In August 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations ("Statement 143"). Statement 143 addresses the financial
accounting and reporting for obligations and retirement costs related to the
retirement of tangible long-lived assets. The provisions of Statement 143 will
be effective for our fiscal year beginning January 1, 2003. We do not expect the
adoption of Statement 143 will have a significant impact on our financial
statements.

     Also in August 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("Statement 144"). Statement 144
supersedes Statement 121 and the accounting and reporting provisions relating to
the disposal of a segment of a business of Accounting Principles Board Opinion
No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. The provisions of Statement 144 will be
effective for our fiscal year beginning January 1, 2002. We do not expect that
the adoption of Statement 144 will have a significant impact on our financial
statements.

                                       46

<PAGE>

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 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 currently do not use derivatives to hedge potential exposure
to foreign exchange rate risk. To date, the impact of foreign exchange rate
fluctuations has not been material to our consolidated financial statements.

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 market risk exposure. Our investment policy requires us to invest funds
in excess of current operating requirements in:

     o    obligations of the U.S. government and its agencies;

     o    investment grade state and local government obligations;

     o    securities of U.S. corporations rated A1 or P1 by Standard & Poors or
          the Moody's equivalents; and/or

     o    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.

     At December 31, 2001, our cash and cash equivalents consisted primarily of
commercial paper and market auction preferreds held by large institutions in the
U.S. Our short-term investments were invested in commercial paper, corporate
notes, corporate bonds and medium term notes held by large U.S. institutions and
a U.S. governmental agency. Such short-term investments will mature in less than
one year from December 31, 2001.

     Long-term investments Long-term investments consist primarily of redeemable
convertible preferred stock. We classify these investments as
available-for-sale. These investments were established to enable us to invest in
emerging technology companies strategic to our software business The Company
recorded a cumulative net unrealized gain of $12.1 and $1.4 million related to
these securities at December 31, 2000 and 2001, respectively. Two of these
investments held by the Company at December 31, 2001 are publicly traded. There
is no established market for the remaining investments, therefore, the
investments in non-public companies are valued based on the most recent round of
financing involving new non-strategic investors and, where appropriate, by
estimates made by management.

     We periodically analyze our long-term investments for impairments that
could be deemed other than temporary. As a result of such review, we
recognized an impairment charge of $51.6 million for the year ended December 31,
2001.

     In addition to these strategic investments, we held $14.0 million and $13.7
million in certificates of deposit at December 31, 2000 and 2001, respectively.
These investments are restricted and support certain leased office space
security deposits. Such certificates of deposit are placed with a high credit
quality financial institution. The maturity dates range from 2002 to 2010 and
the stated yields of these investments vary between 1.39% and 2.03%. There are
certain time restrictions placed on these instruments that we are obligated to
meet in order to liquidate the principal of these investments.

                                       47

<PAGE>

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements and supplementary data required by this Item 8 are
listed in Item 14(a)(1) and begin at page F-1 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

     Not applicable.

                                       48

<PAGE>

                                    PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information regarding directors is incorporated herein by reference
from the section entitled "Proposal No. 1--Election of Directors" of the
Company's definitive Proxy Statement (the "Proxy Statement") to be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended,
for the registrant's Annual Meeting of Stockholders to be held on May 15, 2002.
The Proxy Statement is anticipated to be filed within 120 days after the end of
the registrant's fiscal year ended December 31, 2001. For information regarding
the executive officers and directors of the Company, see the information
appearing under the caption "Executive Officers and Directors of the Registrant"
in Part I, Item 4A of this Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     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.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     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.

                                       49

<PAGE>

                                    PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K

     (a)(1) Financial Statements

     The following consolidated financial statements of the Company are filed as
part of this Annual Report on Form 10-K as follows:

<TABLE>
<CAPTION>
                                                                                       Page

<S>                                                                                    <C>
Report of Independent Auditors .....................................................   F - 2

Consolidated Balance Sheets at December 31, 2000 and 2001 ..........................   F - 3

Consolidated Statements of Operations for the years ended December 31, 1999,
     2000 and 2001 .................................................................   F - 4

Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the
     years ended December 31, 1999, 2000 and 2001 ..................................   F - 5

Consolidated Statements of Cash Flows for the years ended December 31, 1999,
     2000 and 2001 .................................................................   F - 7

Notes to Consolidated Financial Statements .........................................   F - 8
</TABLE>


                                       50

<PAGE>

  (a)(2) Financial Statement Schedules

    Not applicable.

  (a)(3) Exhibits

     Exhibit
     -------
     Number                               Description
     ------       --------------------------------------------------------------
       2.1*       Agreement between Registrant and Diffusion, Inc. dated May 10,
                  1999.
       2.2**      Agreement between Registrant and DataSage, Inc. dated January
                  7, 2000.
       2.3****    Agreement and Plan of Merger, among Registrant, Wheels
                  Acquisition Corp. and OnDisplay,  Inc. dated May 21, 2000.
       3.1+       Certificate of Incorporation of the Registrant.
       3.2***     Amendment to Certificate of Incorporation.
       3.3+       Bylaws of the Registrant.
       4.1        Reference is made to Exhibits 3.1, 3.2. and 3.3
       4.2+       Specimen common stock certificate.
       4.3+       Fifth Amended and Restated Registration Rights Agreement dated
                  November 30, 1998.
     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         Amended and Restated Employee Stock Purchase Plan.
     10.5+        1999 Non-Employee Directors Option Plan.
     10.6+        Security and Loan Agreement dated March 24, 1998 between the
                  Registrant and Imperial Bank.
     10.7+        Lease Agreement dated September 20, 1996 between the
                  Registrant and David B. Barrow, Jr.
     10.8+        First Supplement to Lease Agreement dated November 4, 1997
                  between  Registrant and 3410 Far West, Ltd.
     10.9+        Second  Supplement to Lease  Agreement dated February 23,
                  1998 between  Registrant and 3410 Far West, Ltd.
     10.10+       Office Lease Agreement date August 4, 1998 between Registrant
                  and B.O. III, Ltd.
     10.11+       "Prism" Development and Marketing Agreement dated July 19,
                  1996 between the Registrant and CNET, Inc.
     10.12+       Letter Amendment to "Prism"  Development and Marketing
                  Agreement between the Registrant and CNET, Inc. dated August
                  15, 1998 and attachments thereto.
     10.13+       Software License Agreement dated April 6, 1998 between
                  Registrant and Net Perceptions, Inc.
     10.14+       StoryServer Q2 Volume Purchase Agreement between Registrant
                  and Tribune Interactive Inc.
     10.15+       Protege Software (Holdings) Confidential Professional Services
                  Agreement dated November 15, 1997.
     10.16+       Subordinated Loan and Security Agreement dated December 3,
                  1998 between Registrant and Comdisco, Inc.
     10.17+       Master Lease Agreement dated December 3, 1998 between
                  Registrant and Comdisco, Inc.
     10.18++      Lease  Agreement dated March 3, 2000 between the Registrant
                  and Prentiss  Properties  Acquisition Partners, L.P.
     10.19++      First Amendment to Lease Agreement dated September 1, 2000
                  between the Registrant and Prentiss Properties Acquisition
                  Partners, L.P.
     10.20++      Sublease dated September 26, 2000 among the Registrant, Aptis,
                  Inc. and Billing Concepts Corp.
     10.21++      First Amendment to Lease dated October 30, 1998 between the
                  Registrant and B.O. III, Ltd.
     10.22++      Second Amendment to Lease dated December 30, 1998 between the
                  Registrant and B.O. III, Ltd.
     10.23++      Third Amendment to Lease dated April 27, 1999  between  the
                  Registrant and The Prudential Insurance Company of America
                  (successor in interest to B.O. III, Ltd.).

                                       51

<PAGE>

      10.24++     Fourth Amendment to Lease dated August 1, 2000 between the
                  Registrant and The Prudential Insurance Company of America
                  (successor in interest to B.O. III, Ltd.).
      10.25++     Fifth Amendment to Lease dated December 12, 2000 between the
                  Registrant and The Prudential Insurance Company of America
                  (successor in interest to B.O. III, Ltd.).
      21.1        Subsidiaries List.
      23.1        Consent of Ernst & Young LLP, Independent Auditors.
---------
+     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 8-K filed on July 15, 1999
      (File No. 000-25375).
**    Incorporated by reference to the Company's Form 8-K filed on February 29,
      2000 (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 Registration Statement on Form
      S-4, as amended  (File No. 333-38478).

  (b) Reports on Form 8-K

  None.

                                       52

<PAGE>

                                   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/ GREGORY A. PETERS
                                                  ------------------------------
                                                        Gregory A. Peters
                                                     Chief Executive Officer

Dated: March 29, 2002

     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:

<TABLE>
<CAPTION>
                  Signature                                         Title                              Date
                  ---------                                         -----                              ----

<S>                                                <C>                                            <C>
            /s/ GREGORY A. PETERS                  Chief Executive Officer and                    March 29, 2002
-----------------------------------------------      Chairman of the Board of Directors
              Gregory A. Peters


             /s/ THOMAS E. HOGAN                   President, Chief Operating Officer and         March 29, 2002
-----------------------------------------------      Director
               Thomas E. Hogan


           /s/ CHARLES W. SANSBURY                 Chief Financial Officer                        March 29, 2002
-----------------------------------------------
             Charles W. Sansbury


             /s/ ROBERT E. DAVOLI                  Director                                       March 29, 2002
-----------------------------------------------
               Robert E. Davoli


             /s/ JEFFREY S. HAWN                   Director                                       March 29, 2002
-----------------------------------------------
               Jeffrey S. Hawn


            /s/ JOSEPH A. MARENGI                  Director                                       March 29, 2002
-----------------------------------------------
              Joseph A. Marengi


          /s/ STEVEN G. PAPERMASTER                Director                                       March 29, 2002
-----------------------------------------------
            Steven G. Papermaster
</TABLE>

                                       53

<PAGE>

                              VIGNETTE CORPORATION

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                        Page

Report of Independent Auditors .......................................  F - 2
Consolidated Balance Sheets at December 31, 2000 and 2001 ............  F - 3
Consolidated Statements of Operations for the years ended
   December 31, 1999, 2000 and 2001 ..................................  F - 4
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
    for the years ended December 31, 1999, 2000 and 2001 .............  F - 5
Consolidated Statements of Cash Flows for the years ended
   December 31, 1999, 2000 and 2001 ..................................  F - 7
Notes to Consolidated Financial Statements ...........................  F - 8

                                     F - 1

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Vignette Corporation

     We have audited the accompanying consolidated balance sheets of Vignette
Corporation and its subsidiaries (the "Company") as of December 31, 2000 and
2001, and the related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 2001. 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 auditing standards generally
accepted in the 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, 2000 and 2001, and the consolidated results of their
operations and cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

                                          /s/ ERNST & YOUNG LLP

Austin, Texas
January 21, 2002

                                     F - 2

<PAGE>

                              VIGNETTE CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                 (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                             --------------------------------------
                                    ASSETS                                          2000                 2001
                                                                             -----------------    -----------------
<S>                                                                          <C>                  <C>
Current assets:
  Cash and cash equivalents ................................................    $  435,481          $    348,916
  Marketable securities and short-term investments .........................        12,352                42,716
  Accounts receivable, net of allowance of $9,643 in
    2000 and $9,335 in 2001 ................................................        99,485                35,477
  Prepaid expenses and other ...............................................         8,172                 4,720
                                                                                ----------          ------------
          Total current assets .............................................       555,490               431,829

Property and equipment:
  Equipment ................................................................         2,847                 2,309
  Computers and purchased software .........................................        44,429                52,376
  Furniture and fixtures ...................................................         7,037                 4,839
  Leasehold improvements ...................................................        20,651                15,142
                                                                                ----------          ------------
                                                                                    74,964                74,666
  Accumulated depreciation .................................................       (17,501)              (31,191)
                                                                                ----------          ------------

                                                                                    57,463                43,475
Investments ................................................................        84,295                22,414
Intangibles, net of accumulated amortization and impairment
  charges of $330,487 in 2000 and $1,645,133 in 2001 .......................     1,489,040               163,211
Other assets ...............................................................         4,666                 2,097
                                                                                ----------          ------------
          Total assets .....................................................    $2,190,954          $    663,026
                                                                                ==========          ============

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable .........................................................    $   17,634          $      8,967
  Accrued employee liabilities .............................................        39,078                22,896
  Accrued restructuring charges ............................................             -                23,390
  Accrued other charges ....................................................        33,581                18,203
  Deferred revenue .........................................................        65,591                46,051
  Current portion of capital lease obligation ..............................           751                   750
  Other current liabilities ................................................         9,024                 5,746
                                                                                ----------          ------------
          Total current liabilities ........................................       165,659               126,003

Accrued restructuring charges, less current portion ........................             -                26,482
Capital lease obligation, less current portion .............................           782                   240
                                                                                ----------          ------------
          Total liabilities ................................................       166,441               152,725

Stockholders' equity:
  Common stock - $.01 par value; 500,000,000 shares authorized; 237,765,075
    and 246,483,932 shares issued and outstanding for 2000 and 2001,
    respectively (net of treasury shares of 515,679 and 2,968,647 for
    2000 and 2001, respectively) ...........................................         2,380                 2,465
  Additional paid-in capital ...............................................     2,642,494             2,648,688
  Notes receivable for purchase of common stock ............................         (900)                  (32)
  Deferred stock compensation ..............................................      (19,786)                 (734)
  Accumulated other comprehensive income ...................................        12,324                 (448)
  Accumulated deficit ......................................................     (611,999)           (2,139,638)
                                                                                ----------          ------------
          Total stockholders' equity .......................................     2,024,513               510,301
                                                                                ----------          ------------

          Total liabilities and stockholders' equity .......................    $2,190,954          $    663,026
                                                                                ==========          ============
</TABLE>

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

                                      F - 3

<PAGE>

                              VIGNETTE CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                         Year ended December 31,
                                                                            ---------------------------------------------------
                                                                                 1999             2000               2001
                                                                            ---------------   ---------------   ---------------
<S>                                                                         <C>               <C>               <C>
Revenue:
    Product license .....................................................       $ 46,292        $  216,257        $   154,381
    Services ............................................................         42,893           150,404            142,369
                                                                                --------        ----------        -----------

      Total revenue .....................................................         89,185           366,661            296,750

Cost of revenue:
    Product license .....................................................          3,306             7,611              5,243
    Services (1) ........................................................         32,815           109,039            78,299
                                                                                --------        ----------        -----------

      Total cost of revenue .............................................         36,121           116,650            83,542
                                                                                --------        ----------        -----------

          Gross profit ..................................................         53,064           250,011            213,208

Operating expenses:
    Research and development (1) ........................................         16,447            58,324             64,850
    Sales and marketing (1) .............................................         50,232           177,391            178,282
    General and administrative (1) ......................................          9,494            38,625             29,907
    Purchased in-process research and development,
       acquisition-related and other charges ............................         15,641           169,885              1,919
    Impairment of goodwill ..............................................              -                 -            799,169
    Business restructuring charges ......................................              -                 -            120,935
    Amortization of deferred stock compensation .........................          5,654            33,863              8,734
    Amortization of intangibles .........................................          1,796           328,691            500,045
                                                                                --------        ----------        -----------

       Total operating expenses .........................................         99,264           806,779          1,703,841
                                                                                --------        ----------        -----------
          Loss from operations ..........................................        (46,200)         (556,768)        (1,490,633)

Other income (expenses):
    Interest income .....................................................          3,894            29,312             17,173
    Interest expense ....................................................           (201)           (3,281)              (191)
    Other ...............................................................             30              (39)            (52,257)
                                                                                --------        ----------        -----------
      Total other income (expense), net .................................          3,723            25,992            (35,275)

          Loss before income taxes ......................................        (42,477)         (530,776)        (1,525,908)

Provision for income taxes ..............................................              -             1,449              1,731
                                                                                ========        ==========        ===========

          Net loss ......................................................       $(42,477)       $ (532,225)       $(1,527,639)
                                                                                ========        ==========        ===========

Basic net loss per share ................................................       $  (0.31)       $  (2.59)         $     (6.32)
                                                                                ========        ==========        ===========
Shares used in computing basic net loss per share .......................        137,253           205,885            241,762


                                                                                        Year ended December 31,
                                                                           ----------------------------------------------------
                                                                                1999             2000                2001
                                                                           ---------------   ---------------    ---------------
(1) Excludes amortization of deferred stock compensation as follows:
    Cost of revenue - services ..........................................       $    820        $    2,968        $     1,965
    Research and development ............................................          1,059            12,300              2,446
    Sales and marketing .................................................          2,248            11,785              3,066
    General and administrative ..........................................          1,527             6,810              1,257
                                                                                --------        ----------        -----------
                                                                                $  5,654        $   33,863        $     8,734
                                                                                ========        ==========        ===========
</TABLE>

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

                                     F - 4

<PAGE>
                              VIGNETTE CORPORATION

      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                        (in thousands, except share data)
<TABLE>
<CAPTION>
                                                                    Stockholders' Equity (Deficit)
                                       -------------------------------------------------------------------------------------------
                                          Convertible                                                 Notes
                                        Preferred Stock      Common Stock                         Receivable for
                                       -----------------  ------------------  Additional           Purchase of
                                       Number of    Par    Number of    Par    Paid-In                Common      Deferred Stock
                                         Shares    Value    Shares     Value   Capital   Warrants     Stock        Compensation
                                         -------   -----    ------     -----   -------   --------     -----        ------------
<S>                                    <C>         <C>     <C>        <C>      <C>       <C>      <C>             <C>
Balance at December 31, 1998 .........  25,042,524   $42   34,061,100 $  341      12,526      $  -     $(172)            $(6,196)
Conversion of preferred stock upon
  initial public offering, net ....... (25,042,524   (42) 101,749,914  1,018      35,282       169         -                   -
Common stock issued upon
  initial public offering, net .......          -      -   25,680,000    257      73,500         -         -                   -
Issuance of common stock in
  purchase of business ...............          -      -    2,300,532     23      31,211         -         -                   -
Issuance of common stock pursuant
  to employee stock purchase plan ....          -      -      784,446      8       2,103         -         -                   -
Common stock issued upon secondary
  offering, net ......................          -      -    8,028,000     80     355,403         -         -                   -
Stock options exercised ..............          -      -    6,897,705     69       2,353         -         -                   -
Warrants exercised ...................          -      -      861,108      9         399      (157)        -                   -
Repurchase of unvested common stock ..          -      -   (1,719,999)   (17)        (40)        -         -                   -
Deferred stock compensation related
  to stock options, net of
  forfeitures ........................          -      -            -      -      15,729         -         -             (15,729)
Payments on notes receivable for
  purchase of common stock ...........          -      -            -      -           -         -        97                   -
Amortization of deferred stock
  compensation .......................          -      -            -      -           -         -         -               8,566
Comprehensive loss:
  Net loss ...........................          -      -            -      -           -         -         -                   -
  Unrealized investment gains of
    $54 at December 31, 1999 .........          -      -            -      -           -         -         -                   -
  Foreign currency translation
    adjustment, cumulative
    translation loss of $53 at
    December 31, 1999 ................          -      -            -      -           -         -         -                   -
          Total comprehensive loss
                                       -------------------------------------------------------------------------------------------
Balance at December 31, 1999 .........          -      -  178,642,806  1,788     528,466        12       (75)            (13,359)
Issuance of common stock in
   purchase of businesses ............          -      -   43,830,486    438    2,077,14         -    (1,788)            (52,865)
Issuance of common stock pursuant
  to employee stock purchase plan ....          -      -    2,072,902     21      10,217         -         -                   -
Stock options exercised ..............          -      -   13,138,972    131      28,404         -         -                   -
Warrants exercised ...................          -      -      145,475      2       3,514       (12)        -                   -
Repurchase of unvested common stock ..          -      -     (59,514)      -         (38)        -         -                   -
Deferred stock compensation related
  to stock options, net of
  forfeitures ........................          -      -            -      -      (4,733)        -         -               4,733
Payments on notes receivable for
  purchase of common stock ...........          -      -            -      -           -         -       963                   -
Amortization of deferred stock
  compensation .......................          -      -            -      -         (42)        -         -              41,705
Treasury stock purchase ..............          -      -      (6,052)      -        (443)        -         -                   -
Comprehensive loss:
  Net loss ...........................          -      -            -      -           -         -         -                   -
  Unrealized investment gains of
$12,040 at December 31, 2000 .........          -      -            -      -           -         -         -                   -
  Foreign currency translation
    adjustment, cumulative
    translation gain of at
    December 31, 2000 ................          -      -            -      -           -         -         -                   -
          Total comprehensive loss ...
                                       -------------------------------------------------------------------------------------------
<CAPTION>
                                            Stockholders' Equity (Deficit)
                                       -----------------------------------------

                                        Accumulated
                                           Other                       Total
                                       Comprehensive  Accumulated   Stockholders'
                                       Income (loss)    Deficit    Equity (Deficit)
                                       ------------   -----------  ----------------

<S>                                    <C>            <C>         <C>
Balance at December 31, 1998 .........    $ (11)       $(37,297)   $ (30,767)
Conversion of preferred stock upon
  initial public offering, net .......        -               -       36,427
Common stock issued upon
  initial public offering, net .......        -               -       73,757
Issuance of common stock in
  purchase of business ...............        -               -       31,234
Issuance of common stock pursuant
  to employee stock purchase plan ....        -               -        2,111
Common stock issued upon secondary
  offering, net ......................        -               -      355,483
Stock options exercised ..............        -               -        2,422
Warrants exercised ...................        -               -          251
Repurchase of unvested common stock ..        -               -         (57)
Deferred stock compensation related
  to stock options, net of
  forfeitures ........................        -               -            -
Payments on notes receivable for
  purchase of common stock ...........        -               -           97
Amortization of deferred stock
  compensation .......................        -               -        8,566
  Comprehensive loss:
  Net loss ...........................        -         (42,477)     (42,477)
  Unrealized investment gains of
    $54 at December 31, 1999 .........       54               -           54
  Foreign currency translation
    adjustment, cumulative translation
    loss of $(53) at December 31,
    1999 .............................      (42)              -          (42)
                                                                   -------------
          Total comprehensive loss....                               (42,465)
                                         ---------------------------------------
Balance at December 31, 1999 .........        1         (79,774)     437,059
Issuance of common stock in
  purchase of businesses .............        -               -    2,022,934
Issuance of common stock pursuant
  to employee stock purchase plan ....        -               -       10,238
Stock options exercised ..............        -               -       28,535
Warrants exercised ...................        -               -        3,504
Repurchase of unvested common stock ..        -               -         (38)
Deferred stock compensation related
  to stock options, net of
  forfeitures ........................        -               -            -
Payments on notes receivable for
  purchase of common stock ...........        -               -          963
Amortization of deferred stock
  compensation .......................        -               -       41,663
Treasury stock purchase ..............        -               -        (443)
Comprehensive loss:
  Net loss ...........................        -        (532,225)    (532,225)
  Unrealized investment gains of
    $12,040 at December 31, 2000 .....   11,986               -       11,986
  Foreign currency translation
    adjustment, cumulative
    translation gain of at
    December 31, 2000 ................      337               -          337
                                                                   -------------
          Total comprehensive loss ...                              (519,902)
                                         ---------------------------------------
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                     F - 5

<PAGE>
<TABLE>
<CAPTION>

                                                       VIGNETTE CORPORATION

                          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - (Continued)
                                                 (in thousands, except share data)

                                                                    Stockholders' Equity (Deficit)
                                       -------------------------------------------------------------------------------------------
                                          Convertible                                                 Notes
                                        Preferred Stock      Common Stock                         Receivable for
                                       -----------------  ------------------  Additional           Purchases of
                                       Number of    Par    Number of    Par    Paid-In                Common      Deferred Stock
                                         Shares    Value    Shares     Value   Capital   Warrants     Stock        Compensation
                                         -------   -----    ------     -----   -------   --------     -----        ------------
<S>                                    <C>         <C>    <C>         <C>     <C>        <C>      <C>             <C>
Balance at December 31, 2000 ..........          -    $-  237,765,075 $2,380  $2,642,494       $ -     $(900)          $ (19,786)
Issuance of common stock in
 purchase of businesses, for
 contingent purchase price ............          -     -      121,751      1       2,630         -         -                   -
Issuance of common stock pursuant
  to employee stock purchase plan .....          -     -    2,182,189     22       9,806         -         -                   -
Stock options exercised ...............          -     -    6,953,197     70       7,581         -         -                   -
Issuance of common stock pursuant
  to option exchange program ..........          -     -    1,788,929     17      14,961         -         -             (14,978)
Issuance of common stock pursuant to
  business restructuring activities ...          -     -      122,552      1       1,961         -         -                   -
Repurchase of unvested common stock ...          -     -   (1,052,968)   (10)       (313)        -         -                   -
Repurchase of common stock ............                    (1,400,000)   (14)     (5,436)        -         -                   -
Payments on notes receivable for
  purchase of common stock ............          -     -            -      -           -         -       868                   -
Deferred stock compensation related
  to stock options ....................          -     -            -      -         623         -         -                (623)
Forfeiture of stock options ...........          -     -            -      -     (25,600)        -         -              25,919
Amortization of deferred stock
  compensation ........................          -     -            -      -           -         -         -               8,734
Other .................................          -     -        3,207     (2)        (19)        -         -                   -
Comprehensive loss:
  Net loss ............................          -     -            -      -           -         -         -                   -
  Unrealized investment gains of
    $1,194 at December 31, 2001 .......          -     -            -      -           -         -         -                   -
  Realized investment losses ..........          -     -            -      -           -         -         -                   -
  Foreign currency translation
    adjustment, cumulative translation
    loss of $(1,642) at December 31,
    2001 ..............................          -     -            -      -           -         -         -                   -
      Total comprehensive loss ........
                                       -------------------------------------------------------------------------------------------
Balance at December 31, 2001                     -    $-  246,483,932 $2,465 $ 2,648,688       $ -     $ (32)             $ (734)
                                       ===========================================================================================
<CAPTION>
                                            Stockholders' Equity (Deficit)
                                       -----------------------------------------

                                        Accumulated
                                           Other                       Total
                                       Comprehensive   Accumulated   Stockholders'
                                       Income (loss)    Deficit     Equity (Deficit)
                                       -------------   -----------  ----------------
<S>                                    <C>            <C>         <C>
Balance at December 31, 2000 ..........      $12,324       $(611,999) $ 2,024,513
Issuance of common stock in
 purchase of businesses, for
 contingent purchase price ............            -               -        2,631
Issuance of common stock pursuant
  to employee stock purchase plan .....            -               -        9,828
Stock options exercised ...............            -               -        7,651
Issuance of common stock pursuant
  to option exchange program ..........            -               -            -
Issuance of common stock pursuant to
  business restructuring activities ...            -               -        1,962
Repurchase of unvested common stock ...            -               -         (323)
Repurchase of common stock ............            -               -       (5,450)
Payments on notes receivable for
  purchase of common stock ............            -               -          868
Deferred stock compensation related
  to stock options ....................            -               -            -
Forfeiture of stock options ...........            -               -          319
Amortization of deferred stock
  compensation ........................            -               -        8,734
Other .................................            -               -         (21)
Comprehensive loss:
  Net loss ............................            -      (1,527,639)  (1,527,639)
  Unrealized investment gains of
    $1,194 at December 31, 2001 .......        2,830                        2,830
  Realized investment losses ..........      (13,676)              -      (13,676)
  Foreign currency translation
    adjustment, cumulative translation
    loss of $(1,642) at December 31,
    2001 ..............................       (1,926)              -       (1,926)
                                                                       ----------
      Total comprehensive loss ........                                (1,540,411)
                                       ------------------------------------------
Balance at December 31, 2001                  $ (448)  $              $   510,301
                                       ==========================================
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                     F - 6

<PAGE>

                              VIGNETTE CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                          Year ended December 31,
                                                                                  -----------------------------------------
                                                                                    1999           2000             2001
                                                                                  --------      ----------      -----------
<S>                                                                               <C>           <C>             <C>
Operating activities:

Net loss .......................................................................  $(42,477)     $ (532,225)     $(1,527,639)

Adjustment to reconcile net loss to cash used in operating activities:
 Depreciation ..................................................................     2,736          13,599           21,065
 Amortization ..................................................................     1,796         328,691          500,574
 Impairment of goodwill ........................................................         -               -          799,169
 Noncash compensation expense ..................................................     5,654          33,863            8,734
  Purchased in-process research and development,
     acquisition-related and other charges (noncash) ...........................    14,512         161,826              207
 Noncash restructuring charges .................................................         -               -           35,015
 Noncash investment impairments ................................................         -               -           51,563
 Interest on restricted cash investments .......................................         -               -            (702)
 Other noncash items ...........................................................         -             679              172
 Changes in operating assets and liabilities, net of effects from purchases of
     businesses:
        Accounts receivable, net ...............................................   (22,330)        (64,388)          61,975
        Prepaid expenses and other assets ......................................    (6,263)        (11,731)           4,352
        Accounts payable .......................................................     3,524          10,509           (8,482)
        Accrued expenses .......................................................    17,407          19,264           29,587
        Deferred revenue .......................................................    22,905          19,433          (16,605)
        Other liabilities ......................................................     1,075           7,519           (3,276)
                                                                                  --------      ----------      -----------

  Net cash used in operating activities ........................................    (1,461)        (12,961)         (44,291)

Investing activities:
Purchase of property and equipment .............................................   (11,863)        (53,849)         (20,686)
Cash acquired in purchase of businesses, net of transaction costs ..............        56         123,356                -
Maturity (purchase) of restricted investments ..................................         -         (13,963)             868
Purchase of marketable securities and short-term investments ...................   (11,005)         (1,529)         (30,364)
Purchase of equity securities ..................................................   (27,011)        (30,963)            (555)
Deferred acquisition costs .....................................................    (1,000)              -                -
Other ..........................................................................         -               -             (828)
                                                                                  --------      ----------      -----------

  Net cash provided by (used in) investing activities ..........................   (50,823)         23,052          (51,565)

Financing activities:
Proceeds from issuance of common stock, net ....................................   429,240               -                -
Payments on long-term debt and capital lease obligations .......................    (2,762)         (5,709)            (728)
Proceeds from exercise of stock options and purchase of
     employee stock purchase plan shares .......................................     4,533          38,773           17,479
Proceeds from exercise of warrants .............................................       251               -                -
Payments for repurchase of unvested common stock ...............................       (57)            (38)            (323)
Purchase of Company common stock ...............................................         -               -           (5,450)
Proceeds from repayment of stockholder notes receivable ........................        97             963              868
                                                                                  --------      ----------      -----------

  Net cash provided by financing activities ....................................   431,302          33,989           11,846

Effect of exchange rate changes on cash and cash equivalents ...................        18             123           (2,555)
                                                                                  --------      ----------      -----------

Net increase (decrease) in cash and cash equivalents ...........................   379,036          44,203          (86,565)
Cash and cash equivalents at beginning of year .................................    12,242         391,278          435,481
                                                                                  --------      ----------      -----------
Cash and cash equivalents at end of year .......................................  $391,278      $  435,481      $   348,916
                                                                                  ========      ==========      ===========

Supplemental disclosure of cash flow information:
 Interest paid .................................................................   $   201      $    3,281      $       191
                                                                                  ========      ==========      ===========
 Income taxes paid .............................................................  $      -      $        -      $         -
                                                                                  ========      ==========      ===========
Noncash activities:
 Common stock issued and stock options exchanged to
     acquire businesses ........................................................  $ 31,234      $2,104,484      $         -
                                                                                  ========      ==========      ===========
</TABLE>


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

                                     F - 7


<PAGE>

                              VIGNETTE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2001

NOTE 1 -- Business

     Vignette Corporation, along with its wholly-owned subsidiaries
(collectively, "Vignette" or "the Company"), is a leading provider of content
management applications used by organizations to create and maintain effective
online relationships with their customers, employees, business partners and
suppliers. Vignette allows organizations to combine a comprehensive
understanding of what content or information assets they have across the
business, and their value, with Web applications that predict users' needs and
expectations to deliver improved online relaionships. By putting the right
information in front of the right person at the right time, the Company helps
Web visitors make informed decisions, and help organizations successfully manage
those relationships. The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.

     The Company was incorporated in Delaware on December 19, 1995. Vignette
currently markets its products and services throughout the Americas, Europe,
Asia and Australia.

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 amounts reported in the financial
statements and accompanying notes. 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 accrual for facility lease commitments, vacated as a result of the
Company's business restructuring. It is reasonably possible that such sublease
assumptions could change in the near term, requiring adjustments to future
income.

  Revenue Recognition

     Revenue consists of product and service fees. Product fee income is earned
through the licensing or right to use the Company's 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.

     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 101, Revenue
Recognition in Financial Statements.

     Where software licenses are sold with maintenance or other services, the
Company allocates the total fee to the various elements based on the relative
fair values of the elements specific to the Company. The Company determines the
fair value of each element in the arrangement based on vendor-specific objective
evidence ("VSOE") of fair value. For software licenses with a fixed number of
licenses, VSOE of fair value is based upon the price charged when sold
separately, which is in accordance with the Company's standard price list. The
Company's standard price list specifies prices applicable to each level of
volume purchased and is applicable when the products are sold separately. For
software licenses with enterprise-wide usage (unlimited quantities), VSOE of
fair value for the license element is not available, and, accordingly, license
revenue is recognized using the residual method. Under the residual method, the
contract value is first


                                     F - 8


<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

allocated to the undelivered elements (maintenance and service elements) based
upon their VSOE of fair value; the remaining contract value, including any
discount, is allocated to the delivered element (license element). For
consulting and implementation services, VSOE of fair value is based upon the
rates charged for these services when sold separately. The Company generally
sells services under time-and-material agreements. For maintenance, VSOE of fair
value is based upon either the renewal rate specified in each contract, or the
price charged when sold separately. Both the renewal rate and price when sold
separately are in accordance with the Company's standard price list. Except when
the residual method is 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 obligations by the Company with regard to implementation remain, and
collection of a fixed or determinable fee is probable. The Company considers all
payments outside the Company's 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, the Company does not consider delivery to have occurred or
customer payment to be probable of collection until no significant obligations
with regard to implementation remain. Generally, this would occur when
substantially all service work has been completed in accordance with the terms
and conditions of the customer's implementation requirements but may vary
depending on factors such as an individual customer's payment history or order
type (e.g., initial versus follow-on).

     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. The Company's consulting services are not
essential to the functionality of its products as (1) such services are
available from other vendors and (2) the Company has 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.

Cash Equivalents

     Cash equivalents consist primarily of marketable securities having original
maturities of 90 days or less from the respective date of acquisition. The
Company classifies these investments as available-for-sale and any unrealized
gains or losses are included in other comprehensive income. At December 31, 2000
and 2001, cash and cash equivalents included a net unrealized loss of $66,000
and $210,000, respectively. Realized gains and losses were not material during
2001.

Short-Term Investments

     Short-term investments consist of marketable securities, excluding
cash-equivalents, having remaining maturities of less than one year from the
respective balance sheet date. The Company classifies these investments as
available-for-sale and any unrealized gains or losses are included in other
comprehensive income. Realized gains and losses are computed based on the
specific identification method. Realized gains and losses were not material for
all years presented.


                                     F - 9


<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


     Short-term investments consist of the following at December 31, 2000 and
2001, respectively (in thousands):

<TABLE>
<CAPTION>
                                                December 31, 2000                            December 31, 2001
                                     ----------------------------------------    -----------------------------------------
                                                                   Estimated                                    Estimated
                                                                     Fair                                         Fair
                                                   Unrealized        Market                     Unrealized        Market
                                       Cost        Gain (Loss)       Value          Cost        Gain (Loss)       Value
                                     ---------     -----------    -----------    ----------     -----------    -----------
<S>                                  <C>           <C>            <C>            <C>            <C>            <C>
Marketable securities:
   U.S. Government agencies ......   $  5,338            $ (6)      $  5,332       $ 5,093           $   2       $  5,095
   U.S. Treasury notes ...........      1,998              (4)         1,994             -               -              -
   Corporate bonds ...............      2,027               1          2,028         2,181              (6)         2,175
   Corporate notes ...............      2,996               2          2,998         6,394             (23)         6,371
   Medium term notes .............          -               -              -         3,602              (3)         3,599
   Commercial paper ..............          -               -              -        25,477              (1)        25,476
                                     ---------     -----------    -----------    ----------     -----------    -----------
                                     $ 12,359            $ (7)      $ 12,352       $42,747           $ (31)      $ 42,716
                                     =========     ===========    ===========    ==========     ===========    ===========
</TABLE>

  Long-Term Investments

     Long-term investments consist primarily of equity investments in public and
non-public companies and certificates of deposit. The investments in non-public
companies are generally in the form of mandatorily redeemable preferred stock.
The Company classifies these investments as available-for-sale and any
unrealized gains or losses are included in other comprehensive income. For its
equity investments, the Company holds a less than 20% interest in, and does not
exert significant influence over any of the respective investees. Therefore, the
Company uses the cost method of accounting for its equity investments.

     These equity investments were established to enable the Company to invest
in emerging technology companies strategic to the Company's software business.
The Company recorded a cumulative net unrealized gain of $12.1 and $1.4 million
related to these securities at December 31, 2000 and 2001, respectively. Two of
these investments held by the Company at December 31, 2001 are publicly traded.
There is no established market for the remaining investments, therefore, the
investments in non-public companies are valued based on estimates made by
management.

     The Company periodically analyzes its long-term investments for impairments
considered other than temporary. In performing this analysis, the Company first
evaluates whether general market conditions which reflect prospects for the
economy as a whole, or specific information pertaining to the specific
investment's industry or that individual company, indicates that a decline in
value that is other than temporary has occurred. If so, the Company considers
specific factors, including the financial condition and near-term prospects 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 such review, the Company recognized $51.6 million in impairment
charges for the year ended December 31, 2001, and such amount is recorded in
Other expenses on the Consolidated Statements of Operations.

     In addition to these equity investments, the Company held $14.0 million and
$13.7 million in certificates of deposit at December 31, 2000 and 2001,
respectively. These investments are restricted and support certain leased office
space security deposits. Such certificates of deposit are placed with a high
credit quality financial institution. The maturity dates range from 2002 to 2010
and the stated yields of these investments vary between 1.39% and 2.03%. There
are certain time restrictions placed on these instruments that the Company is
obligated to meet in order to liquidate the principal of these investments.


                                     F - 10


<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


     The following presents the estimated fair value of the Company's long-term
investments at December 31, 2000 and 2001, respectively (in thousands):

                                                            2000      2001
                                                          --------- --------
         Equity investments:
            Mandatorily redeemable preferred stock ....   $ 67,938   $ 3,474
            Common stock and other ....................      2,394     5,268
         Restricted certificates of deposit (cost
            approximates fair value) ..................     13,963    13,672
                                                          --------- --------
                                                          $ 84,295  $ 22,414
                                                          ========= ========

Allowance for Doubtful Accounts

     The Company maintains an allowance for estimated losses resulting from the
non-collection of customer receivables. In estimating this allowance, the
Company considers 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.

  Property and Equipment

     Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the useful lives of
the assets, generally 36 months. Amortization of assets recorded under capital
leases is computed using the straight-line method over the shorter of the
asset's useful life or the term of the lease. Such amortization of capital
leases is included with depreciation expense.

     Effective January 1, 2001, the Company changed the useful life of its
computer equipment and software. Consequently, the estimated depreciable lives
of these fixed assets were changed from 18 months to 36 months. This change in
accounting estimate did not have a material impact on the Company's financial
condition, net losses or cash flows for the year ended December 31, 2001.

Intangible Assets

     Intangible assets are being amortized using the straight-line method. The
amounts allocated to acquired technology, workforce, trademark and excess of
cost over fair value of net assets acquired or net liabilities assumed
("goodwill") are being amortized over the assets' estimated useful lives, which
range from two to four years. Such amortization is included in "Amortization of
intangibles" in the accompanying Consolidated Statements of Operations.

     Intangible assets consist of the following at December 31, 2000 and 2001,
respectively (in thousands):

<TABLE>
<CAPTION>
                                                                              2000            2001
                                                                          ------------    ------------
<S>                                                                       <C>             <C>
Intangible assets acquired through business combinations:
   Goodwill ..........................................................    $ 1,757,178     $ 1,747,844
   Acquired technology ...............................................         36,100          36,100
   Acquired workforce ................................................         23,600          23,600
   Trademark .........................................................            800             800

Capitalized research and development costs ...........................          1,849               -
                                                                          ------------    ------------
                                                                            1,819,527       1,808,344
Less: accumulated amortization and
   impairment charges ................................................       (330,487)     (1,645,133)
                                                                          ------------    ------------
Total intangibles, net ...............................................    $ 1,489,040     $   163,211
                                                                          ============    ============
</TABLE>


                                      F-11

<PAGE>
                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

     Goodwill was originally recorded in connection with the Company's business
acquisitions. At the respective dates of acquisition, the purchase prices were
tentative. The purchase prices were finalized during 2001, resulting in a $9.3
million net adjustment to goodwill.

     In July 2001, the Financial Accounting Standards Board issued Statement No.
142, Goodwill and Other Intangible Assets ("Statement 142"). Statement 142
requires that ratable amortization of goodwill be replaced with periodic review
and analysis of goodwill for possible impairment. Intangible assets with
definite lives must be amortized over their estimated useful lives. The
provisions of Statement 142 will be effective for fiscal years beginning after
December 15, 2001. Beginning fiscal year 2002, the Company will adopt Statement
142 and will review its intangible assets and goodwill for impairment pursuant
to this Statement. Upon adoption on January 1, 2002, the Company will no longer
amortize goodwill, acquired workforce or an acquired trademark, thereby
eliminating annual amortization of approximately $70.7 million, based on
forecasted amortization for 2002.

  Impairment of Long-Lived Assets

     The Company periodically reviews the carrying amounts of property and
equipment, identifiable intangible assets and goodwill, both purchased in the
normal course of business and acquired through business combinations, to
determine whether current events or circumstances, as defined in Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("Statement 121"),
warrant adjustment to such carrying amounts. In reviewing the carrying amounts
of property and equipment and identifiable intangible assets, the Company
considers, among other things, 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.

     The Company periodically assesses the impairment of enterprise-level
goodwill pursuant to the provisions of APB Opinion No. 17, Intangible Assets.
The Company reviews and evaluates the recoverability of goodwill and takes into
account events or circumstances that warrant revised estimates of useful lives
or that indicate an impairment exists. Specifically, the Company monitors its
average market capitalization for a 90-day period relative to its net book
value, and if such average market capitalization is less than the Company's net
book value, then the Company performs an impairment analysis to reduce the
carrying value of enterprise-level goodwill to its estimated fair value. The
estimated fair value of enterprise-level goodwill is determined by subtracting
the net carrying values of all assets and liabilities of the Company, excluding
goodwill, from its estimated enterprise fair value. The Company determines the
estimated enterprise fair value based upon the discounted cash flow method.

     The Company reviews the valuation and amortization periods of goodwill and
its identifiable intangible assets on a periodic basis, taking into
consideration any events or circumstances which might result in diminished
fair value or revised useful life. In fiscal year 2000, the Company changed the
estimated useful life of goodwill resulting from the Diffusion, Inc.
acquisition. The estimated useful life was reduced from seven years in 1999 to
three years in 2000 and resulted in an increase in net loss of $2.9 million and
an increase in basic net loss per share of $0.01 per share for the year ended
December 31, 2000.

  Research and Development

     Research and development expenditures are expensed to operations as
incurred. Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed ("Statement
86"), requires capitalization of certain software development costs subsequent
to the establishment of technological feasibility. Based on the Company's
product development process, technological feasibility is established upon
completion of a working model. Software development costs capitalized in
accordance with Statement 86 totaled $550,000, $1.9 million and $687,000 in
1999, 2000 and 2001, respectively. These capitalized costs are amortized to cost
of revenue over the respective application's estimated useful life, generally
not exceeding 18 months. Amortization expense was $0,

                                     F - 12

<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


$632,000 and $662,000 for the years ended 1999, 2000 and 2001, respectively. In
connection with its restructuring plan implemented during 2001, the Company
decided to no longer sell or support certain of its software products; resulting
in the impairment of approximately $1.9 million of previously capitalized
software.

Advertising Costs

     The Company expenses advertising costs as incurred. These expenses were
approximately $2.1 million, $8.4 million and $1.0 million for the years ended
December 31, 1999, 2000 and 2001, respectively.

  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 bases 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.

  Foreign Currency

     For the Company's foreign subsidiaries, the functional currency has been
determined to be the local currency, and therefore, assets and liabilities are
translated at year-end exchange rates, and income statement items are translated
at average exchange rates prevailing during the year or period. Such translation
adjustments are recorded in aggregate as a component of stockholders' equity.
Gains and losses from foreign currency denominated transactions are included in
Other income (expense) and were not significant for all years presented.

  Stock-Based Compensation

     Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("Statement 123"), prescribes accounting and reporting
standards for all stock-based compensation plans, including employee stock
options. As allowed by Statement 123, the Company has elected to continue to
account for its employee stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25"), as clarified by Interpretation No. 44, Accounting for Certain Transactions
Involving Stock Compensation ("Interpretation 44").

     The Company has applied the requirements of Interpretation 44 in connection
with its acquisition and assumption of all of OnDisplay's outstanding stock
options in July 2000.

  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 certificates of deposit. The Company's short-term
investments, which are included in cash and cash equivalents and short-term
investments for reporting purposes, and restricted certificates of deposit,
which are included in long-term investments for reporting purposes, are placed
with high credit quality financial institutions and issuers.


                                     F - 13


<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


     The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. The following
table summarizes the changes in allowance for doubtful accounts for trade
receivables (in thousands):

         Balance at December 31, 1998 ........................  $   297
             Additions charged to costs and expenses .........    1,030
             Write-off of uncollectible accounts .............      (73)
                                                               ---------
         Balance at December 31, 1999 ........................    1,254
             Additions charged to costs and expenses .........   10,482
             Additions resulting from business combinations ..    1,560
             Write-off of uncollectible accounts .............   (3,653)
                                                               ---------
         Balance at December 31, 2000 ........................    9,643
             Additions charged to costs and expenses .........   17,899
             Write-off of uncollectible accounts .............  (18,207)
                                                               ---------
         Balance at December 31, 2001 ........................  $ 9,335
                                                               =========

     No customers accounted for more than 10% of the Company's total revenue
during the years ended December 31, 1999, 2000 or 2001.

  Net Loss Per Share

     The Company follows the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share. Basic net loss per share is computed by
dividing net loss available to common stockholders by the weighted average
number of common shares outstanding during the period, excluding shares subject
to repurchase. Diluted net loss per share has not been presented as the effect
of the assumed exercise of stock options, warrants and contingently issued
shares is antidilutive due to the Company's net loss. The Company had
outstanding common stock options of 51,199,728, 63,594,736 and 47,148,500 at
December 31, 1999, 2000 and 2001, respectively. Such outstanding common stock
options have been excluded from the calculation of diluted net loss per share,
as the effect of their exercise would be antidilutive. During 1999, 101,749,914
shares of preferred stock for the period from January 1, 1999 to February 19,
1999 have been excluded from diluted net loss per share, as the effect of their
conversion prior to the Company's initial public offering would be antidilutive.

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

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                     --------------------------------------------------
                                                                         1999              2000              2001
                                                                     --------------    --------------    --------------
<S>                                                                  <C>               <C>               <C>

 Net loss ........................................................       $ (42,477)       $ (532,225)     $ (1,527,639)
                                                                         =========        ==========      ============
 Basic:
     Weighted-average shares of common stock outstanding .........         143,898           209,184           242,572
     Weighted-average shares of common stock
           subject to repurchase .................................          (6,645)           (3,299)             (810)
                                                                         ---------        ----------      ------------
     Shares used in computing basic net loss per share ...........         137,253           205,885           241,762
                                                                         =========        ==========      ============

     Basic net loss per share ....................................       $   (0.31)         $  (2.59)        $   (6.32)
                                                                         =========        ==========      ============
</TABLE>

Segments

     Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("Statement
131"). The adoption of Statement No. 131 did not have a significant effect on
the disclosure of segment information as the Company continues to consider its
business activities as a single segment.


                                     F - 14


<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Financial Instruments

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
("Statement 133"). In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133 ("Statement
137"), which deferred for one year the effective date of Statement 133. As a
result of the deferral provisions of Statement 137, the Company formally adopted
the Statement during the first quarter of 2001. The Company has minimal use of
derivatives, and accordingly, the adoption of Statement 133 did not have a
material impact on its results of operations or financial position for the year
ended December 31, 2001.

Recent Pronouncements

     In July 2001, the FASB issued Statement No. 141, Business Combinations
("Statement 141"). Statement 141 requires that all business combinations be
accounted for under the purchase method of accounting. Additionally, certain
intangible assets acquired as part of a business combination must be recognized
as separate assets, apart from goodwill. Statement 141 is effective for all
business combinations initiated subsequent to June 30, 2001. To date, all of the
Company's acquisitions have been accounted for under the purchase method of
accounting. The adoption of Statement 141 did not have a significant impact on
the Company's financial statements.

     Also in July 2001, the FASB issued Statement No. 142, Goodwill and Other
Intangible Assets ("Statement 142"). Statement 142 requires that ratable
amortization of goodwill be replaced with periodic review and analysis of
goodwill for possible impairment. Intangible assets with definite lives must be
amortized over their estimated useful lives. The provisions of Statement 142
will be effective for fiscal years beginning after December 15, 2001. Beginning
in fiscal year 2002, the Company will adopt Statement 142 and will review its
intangible assets and goodwill for impairment pursuant to this Statement. Upon
adoption on January 1, 2002, the Company will no longer amortize goodwill or
acquired workforce, thereby eliminating annual amortization of approximately
$70.7 million, based on forecasted amortization for 2002. During the first six
months of 2002, the Company will perform the required transitional impairment
tests of goodwill and indefinite-lived intangible assets as of January 1, 2002.
The Company has not yet determined what the effect of these tests will be, if
any, on its Consolidated Financial Statements.

     In August 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations ("Statement 143"). Statement 143 addresses the financial
accounting and reporting for obligations and retirement costs related to the
retirement of tangible long-lived assets. The provisions of Statement 143 will
be effective for the Company's fiscal year beginning January 1, 2003. The
Company does not expect the adoption of Statement 143 will have a significant
impact on its financial statements.

     Also in August 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("Statement 144"). Statement 144
supersedes Statement 121 and the accounting and reporting provisions relating to
the disposal of a segment of a business of Accounting Principles Board Opinion
No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. The provisions of Statement 144 will be
effective for the Company's fiscal year beginning January 1, 2002. The Company
does not expect that the adoption of Statement 144 will have a significant
impact on its financial statements.

  Reclassifications

     Certain reclassifications have been made to prior years financial
statements to conform to the current year presentation.


                                     F - 15


<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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

     During the three years ended December 31, 2001, the Company acquired a
series of complementary businesses. In connection with these acquisitions, the
Company acquired all outstanding stock and assumed all outstanding stock options
of the respective acquirees. All acquisitions were accounted for as a purchase
business combination. Accordingly, the results of operations of the acquired
companies have been included with those of the Company for periods subsequent to
the respective dates of acquisition. The Company values securities issued in a
business combination based on the average trading price of the Company's
securities for the two days prior, the day of, and the two days subsequent to
the date that the business combination is agreed to and announced, and there is
no subsequent significant change in the number of shares issued.

     The following table presents the purchase price allocation of the Company's
acquisitions during the three years ended December 31, 2001 (in thousands):

<TABLE>
<CAPTION>
                                                               1999                            2000
                                                           -------------   --------------------------------------------
                                                            Diffusion,      Engine 5,       DataSage,       OnDisplay,
                                                               Inc.           Ltd.            Inc.             Inc.
                                                           -------------   -----------     ----------     -------------
<S>                                                        <C>             <C>             <C>            <C>
In-process research and development ....................   $     11,600    $               $  43,400      $    103,200
Acquired technology ....................................          6,300         1,000          4,000            24,800
Workforce ..............................................            900           300          3,300            19,100
Trademark ..............................................              -             -            800                 -
Deferred compensation ..................................              -             -              -            52,865
Goodwill ...............................................         14,466        18,974        514,436         1,199,968
Net fair value of tangible assets
  acquired and liabilities assumed .....................         (2,032)         (296)        20,660            97,977
                                                            -----------    ----------      ---------       -----------

Purchase price .........................................    $    31,234    $   19,978      $ 586,596       $ 1,497,910
                                                            ===========    ==========      =========       ===========

Acquisition date .......................................      June 1999     Jan. 2000      Feb. 2000         July 2000
Shares of Company stock issued .........................          2,301           105          7,746            35,869
Employee stock options exchanged .......................             59           143          1,712             6,148
                                                            -----------    ----------      ---------       -----------
   Total shares of Company stock
     issued and exchanged ..............................          2,360           248          9,458            42,017
                                                            ===========    ==========      =========       ===========
Cash paid by Company ...................................    $         -    $    4,900      $       -       $         -
</TABLE>

In-Process Research and Development

     The amounts allocated to IPR&D were based on a discounted cash flow model,
as modified to conform to Securities and Exchange Commission guidelines.
Specifically, this model employed cash flow projections for revenue based on the
projected incremental increase in revenue that the acquired company expected to
receive from the completed IPR&D based on management's estimates and the growth
potential of the market. Revenue for these five-year projection periods assumed
an annual compound growth rate of 122.4%, 121.3% and 89.9% for Diffusion,
DataSage and OnDisplay, respectively, and was adjusted to reflect the percentage
of research and development determined to be complete as of the acquisition
date. Cost of goods sold, selling, general and administrative expense, and
research and development expense were estimated as a percent of revenue based on
each acquired company's historical results and industry averages. The cost to
complete the in-process products was removed from the research and development
expense. These estimated operating expenses as well as capital charges and
applicable income taxes were deducted to arrive at an estimated after-tax cash
flow. The after-tax cash flow projections were discounted using a risk-adjusted
rate of return, ranging between 21% and 23%. Such discount rates were based on
each acquired company's weighted average cost of capital of 16% or 18%, as
adjusted upwards for the additional risk related to the projects' development
and success.

     The resulting IPR&D was expensed at the time of purchase because
technological feasibility had not been established and no future alternative
uses existed.


                                     F - 16


<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Acquisition-related and other charges

     Acquisition-related and other charges include costs incurred for employees
and consultants related to product integration and cross-training, Engine 5,
Ltd. ("Engine 5") contingent consideration, impairment of certain intangibles
assets and other employee-related costs, including severance. The following
table presents acquisition-related and other charges for the three years ended
December 31, 1999, 2000 and 2001 (in thousands):

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                     --------------------------------------------------
                                                                         1999              2000              2001
                                                                     --------------    --------------    --------------
<S>                                                                  <C>               <C>               <C>

 Cross-training, product integration and other ..................           $  238           $ 4,431            $   94
 Impairment of intangibles ......................................                -             2,791                 -
 Severance and other employee-related costs .....................              891             1,534                 -
 Employee stock compensation ....................................            2,912            10,699                 -
 Contingent consideration .......................................                -             3,830             1,825
                                                                           -------          --------           -------
                                                                           $ 4,041          $ 23,285           $ 1,919
                                                                           =======          ========           =======
</TABLE>

     As a result of the Company's business combinations and the integration of
acquired products, the Company determined that certain royalties or license fees
previously capitalized by the Company were impaired. Such impairment resulted
primarily from the technology acquired in the business combinations, rendering
previously capitalized technology obsolete. Such impairment charges totaled $0,
$2.8 million and $0 in 1999, 2000 and 2001, respectively.

     Shortly after the closing of the acquisitions, the Company entered into
severance agreements with certain acquired employees. The costs associated with
such severance agreements were not accrued as part of purchase accounting as
they were not considered exit costs at the time of the acquisition. However,
such costs are a result of the integration of the acquired businesses and
accordingly have been recorded as acquisition-related and other charges and
totaled $900,000, $1.6 million and $0 in 1999, 2000 and 2001, respectively.

     The Company has stock option agreements with certain employees which
contained acceleration provisions of vesting based upon business acquisitions
made by the Company. The Company recorded the actual amortization of deferred
stock compensation associated with such acceleration provisions as an
acquisition-related and other charge. Additionally, subsequent to the closing of
the acquisitions, the Company entered into severance agreements with certain
acquired employees which included the acceleration of vesting for outstanding
stock options. Such modification resulted in a new measurement date for the
stock options. The total expense recorded by the Company as a result of the
acceleration of vesting for these arrangements was $2.9 million, $10.7 million
and $0 in 1999, 2000 and 2001.

     As part of the Engine 5 acquisition, contingent consideration of $3.8
million and $1.8 million was recorded during the years ended 2000 and 2001,
respectively. This contingent consideration was based on defined future
employment requirements met through the fourth quarter of 2001. The contingent
consideration related to the Engine 5 acquisition was not included in the total
purchase price, but was expensed as future employment requirements were
satisfied.

 OnDisplay Stock Options

     In connection with the OnDisplay, Inc. ("OnDisplay") acquisition, the
Company exchanged all outstanding OnDisplay stock options for 6,147,919 of
Vignette stock options. Using the Black-Scholes method of valuing options, the
estimated fair value of employee stock options granted was $168.5 million.
Approximately $52.9 million of such value, representing the intrinsic value of
unvested stock options, was recorded as deferred stock compensation and is being
amortized over the options' remaining vesting term. The remaining $115.6 million
was included in goodwill and is amortized over the asset's estimated useful
life, which is equivalent to four years.


                                     F - 17

<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Impairment

     The Company assesses impairment of enterprise-level goodwill pursuant to
the provisions of APB Opinion No. 17. As a result of the Company's ongoing
assessment of enterprise-level goodwill, the Company recorded an impairment
charge in 2001 in the amount of $799.2 million. The impairment was recorded in
light of significant negative industry and economic trends impacting current
operations, the significant decline in the Company's stock price for a sustained
period of time and the Company's market capitalization relative to its net book
value. Goodwill was recorded in connection with the Company's four business
combinations effected during fiscal 1999 and 2000. Such acquisitions were
completed during a period when stock valuations for companies in the software
sector were generally at much higher levels.

     During the quarter ended December 31, 2001, the Company determined that the
Company's average market capitalization for a 90-day period was less than the
Company's net book value. The overall decline in industry and economic growth
rates indicated that this trend may continue for an indefinite period. The
Company used the discounted cash flow method to estimate the enterprise fair
value of the Company. The discounted cash flow model used by the Company assumed
a discount rate of 24% and a terminal growth rate of 6%. The discounted cash
flow model also considered the impact of the Company's current cash and cash
equivalents on-hand. Based on this analysis, the Company recorded a goodwill
impairment charge of $799.2 million to writedown its carrying value to its
implied fair value. The assumptions supporting the estimated cash flows,
including the discount rate and estimated terminal value, reflect management's
best estimates. It is reasonably possible that the estimates and assumptions
used by the Company may change in the short term.

     Beginning in fiscal year 2002, the Company will adopt FASB Statement No.
142, Goodwill and Other Intangible Assets ("Statement 142"), and will review its
intangible assets and goodwill for impairment pursuant to this Statement. Upon
adoption on January 1, 2002, the Company will no longer amortize goodwill or
acquired workforce, thereby eliminating annual amortization of approximately
$70.7 million, based upon forecasted amortization for 2002. During the first six
months of 2002, the Company will perform the required transitional impairment
tests of goodwill and indefinite-lived intangible assets as of January 1, 2002.
The Company has not yet determined what the effect of these tests will be, if
any, on its Consolidated Financial Statements.

Pro Forma Results

     The following presents the unaudited pro forma combined results of
operations of the Company with Diffusion Inc., Engine 5, DataSage and OnDisplay
for the years ended December 31, 1999 and 2000, after giving effect to certain
pro forma adjustments. These unaudited pro forma results are not necessarily
indicative of the actual consolidated results of operations had the acquisitions
actually occurred on January 1, 1999 or of future results of operations of the
consolidated entities (in thousands, except for per share data):

                                            Year ended December 31,
                                     ---------------------------------------
                                           1999                 2000
                                     ------------------   ------------------
   Revenue ......................             $107,611             $388,718
   Operating loss ...............             (564,989)            (643,537)
   Net loss .....................             (561,104)            (615,498)
   Basic loss per share .........             $  (3.11)            $  (2.73)

     The pro forma amounts reflected above exclude one-time acquisition charges,
including in-process research and development charges, of $11.6 million and
$146.6 million for the years ended December 31, 1999 and 2000, respectively.

NOTE 4 -- Stockholders' Equity and Redeemable Convertible Preferred Stock

  Public Offerings

     In February 1999, the Company completed an initial public offering in which
the Company sold 25,680,000 shares of its common stock for proceeds to the
Company of $81.3 million, less offering costs of


                                     F - 18

<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


$7.5 million. In December 1999, the Company completed a secondary public
offering in which the Company sold 8,028,000 shares of its common stock for
proceeds to the Company of $374.3 million, less offering costs of $18.8 million.

  Voting Rights

     Each share of common stock has one voting right.

  Stock Dividends

     In November 1999, the Company announced a two-for-one stock split in the
form of a stock dividend. Stockholders received one additional share for each
share of Vignette common stock held on the record date of November 15, 1999.
These shares were paid after market close on December 1, 1999. In April 2000,
the Company effected a three-for-one stock split in the form of a stock
dividend. Stockholders received two additional shares for each share of Vignette
common stock held on the record date of March 27, 2000. These shares were paid
after market close on April 13, 2000. All financial and share information
contained herein retroactively reflects the effect of these stock dividends.

  Preferred Stock

     In February 1999, upon the closing of the Company's initial public
offering, all of the outstanding preferred stock was converted into 101,749,914
shares of common stock. In addition, the Company's Certificate of Incorporation
was amended authorizing the Board of Directors to issue preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without further vote or action by the stockholders. At December 31, 2001, the
Company had not issued any new preferred stock. As of December 31, 2000 and
2001, there were 30,000,000 shares authorized to be designated as preferred
stock. No preferred shares were outstanding at December 31, 2000 or 2001.

  Stock Plans

     The Company has established the 1995 Stock Option/Stock Issuance Plan, the
1999 Equity Incentive Plan, the 1999 Supplemental Stock Option Plan, the 1999
Non-Employee Directors Option Plan and the Employee Stock Purchase Plan.

     Under the 1995 Stock Option/Stock Issuance Plan (the "1995 Plan"),
employees, members of the Board of Directors and independent advisors were
eligible to be granted options to purchase shares of the Company's common stock
or could be issued shares of the Company's common stock directly. Options are
immediately exercisable. Upon certain events, the Company has repurchase rights
for unvested shares equal to the original exercise price. 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
Equity Incentive Plan. No Options could be granted from the 1995 Plan subsequent
to the Company's initial public offering, therefore, there were no shares
available for future grant under the 1995 Plan at December 31, 2001. Options
that expire under the 1995 Plan will be available for future grants under the
1999 Equity Incentive Plan.

     Under the 1999 Equity Incentive Plan (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


                                     F - 19

<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Agreement. The term of each option is no more than ten years from the date of
grant. Under the 1999 Plan, 31,362,876 were reserved for issuance, including
options assumed from the 1995 Plan. At December 31, 2001, 11,694,694 were
available for future grant. As of January 1 of each year, commencing with the
year 2000 and ending with the year 2002, the aggregate number of shares
authorized under the 1999 Plan shall automatically increase by a number equal to
the lesser of 5% of the total number of shares of the Common Stock then
outstanding or 11,804,820 shares.

     Under the 1999 Supplemental Stock Option Plan (the "1999 Supplemental
Plan"), employees, non-employee members of the Board and consultants may be
granted non-qualified options to purchase shares of common stock. The term and
vesting periods are the same as those under the 1999 Plan. There were 33,000,000
shares authorized under the 1999 Supplemental Plan at December 31, 2001 of which
18,164,954 were available for future grant.

     Under the 1999 Non-Employee Directors Option Plan, non-employee board
members may be granted non-statutory options to purchase shares of common stock.
Vesting occurs over a four-year cumulative period. The term of each option is no
more than ten years from the date of grant. There were 1,500,000 shares
authorized under the Non-Employee Directors Option Plan at December 31, 2001 of
which 1,360,000 were available for future grant.

     Under the Employee Stock Purchase Plan ("ESPP"), the Company has reserved
12,872,856 shares of common stock for issuance under the ESPP. As of January 1,
each year, the number of shares under the ESPP will automatically increase by
the lesser of 2% of the total number of shares of common stock outstanding or
4,500,000 shares. The ESPP was amended during fiscal year 2001 to clarify
certain employee contribution limitations, decrease the employee share purchase
limit per period to 2,000 shares, permit employee enrollment with a zero
contribution percentage and allow the Compensation Committee to reduce the
number of additional shares reserved for the ESPP. As of December 31, 2001,
5,039,537 shares were issued under the ESPP.

     A summary of the Company's stock option activity and related information
through December 31, 2001 follows:

<TABLE>
<CAPTION>
                                                          Number of        Range of      Weighted-Average
                                                            Shares     Exercise Prices    Exercise Price
                                                         -----------   ---------------   ----------------
<S>                                                      <C>           <C>               <C>
Options outstanding - December 31, 1998 ...............   32,523,462   $0.01  - $ 1.10        $     0.52
    Granted and assumed ...............................   27,240,774    1.14  -  54.33             17.64
    Exercised .........................................   (6,848,193)   0.01  -   2.90              0.35
    Canceled ..........................................   (1,716,315)   0.01  -  27.50              2.35
                                                         -----------   ---------------   ----------------
Options outstanding - December 31, 1999 ...............   51,199,728    0.01  -  54.33              9.64
    Granted and assumed ...............................   31,151,439    0.06  -  99.00             40.84
    Exercised .........................................  (13,138,972)   0.01  -  51.67              2.17
    Canceled ..........................................   (5,617,459)   0.01  -  88.92             29.39
                                                         -----------   ---------------   ----------------
Options outstanding - December 31, 2000 ...............   63,594,736    0.01  -  99.00             24.71
    Granted ...........................................   32,058,576    3.54  -  10.02              5.65
    Exercised .........................................   (6,953,197)   0.01  -  13.68              1.10
    Canceled ..........................................  (41,551,615)   0.02  -  99.00             32.91
                                                         -----------   ---------------   ----------------
Options outstanding - December 31, 2001 ...............   47,148,500   $0.01  - $99.00        $     7.80
                                                         ===========
Options available for grant - December 31, 2001 .......   31,219,648
                                                         ===========
</TABLE>



                                     F - 20


<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


     The following is a summary of options outstanding and exercisable at
December 31, 2001:

<TABLE>
<CAPTION>
                                  Outstanding                              Exercisable
                  ---------------------------------------------  ----------------------------------
                                    Weighted-
                                     Average        Weighted-                         Weighted-
                                    Remaining        Average                           Average
Range of            Number of      Contractual       Exercise      Number of           Exercise
Exercise Prices      Options     Life (in years)      Price         Options             Price
----------------  -------------  ----------------  ------------  ---------------  -----------------
<S>               <C>            <C>               <C>           <C>              <C>
$ 0.01 - $ 9.90   39,413,079             6.4          $ 4.31       13,418,885          $ 1.98
$ 9.91 - $19.80    4,605,112             4.4          $13.71        2,663,830           13.56
$19.81 - $29.70      473,211             5.1          $26.39          298,711           25.62
$29.71 - $39.60      880,411             5.5          $34.73          382,812           34.37
$39.61 - $49.50      340,543             6.6          $43.98          160,222           44.22
$49.51 - $59.40    1,308,757             3.2          $51.76          256,063           52.04
$59.41 - $69.30       64,012             6.0          $67.22           28,662           67.27
$69.31 - $79.20       50,625             5.4          $71.09           25,311           71.73
$79.21 - $89.10        7,500             0.3          $88.92            3,281           88.92
$89.11 - $99.00        5,250             3.6          $99.00            3,562           99.00
                  ----------             ---          ------       ----------          ------
                  47,148,500             6.1          $ 7.80       17,241,339          $ 6.28
                  ==========                                       ==========
</TABLE>

     A total of 810,357 shares of outstanding common stock were unvested at
December 31, 2001 and may be repurchased by the Company should vesting
requirements not be fulfilled. A total of 28,955,955, 27,559,181 and 17,241,339
outstanding options are exercisable at December 31, 1999, 2000 and 2001,
respectively.

     Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value of each option grant was estimated using the Black-Scholes option-pricing
model, with the following assumptions:

<TABLE>
<CAPTION>
                                                                                                          Employee
                                                                                                           Stock
                                                                                                          Purchase
                                                                            Employee Stock Options          Plan
                                                                    -----------------------------------  -----------
                                                                       1999         2000        2001        2001
                                                                    -----------  ----------  ----------  -----------
<S>                                                                 <C>          <C>         <C>         <C>
Risk-free interest rate ..........................................        5.8%        5.1%        3.8%         1.8%
Weighted-average expected life of the options ....................     4 years     4 years     3 years    0.5 years
Dividend rate ....................................................          0%          0%          0%           0%
Assumed volatility ...............................................         1.2         1.4         1.3          1.3
Weighted-average fair value of options granted
  Exercise price equal to fair value of stock on date of grant ...     $ 13.95     $ 43.01     $  4.29
  Exercise price less than fair value of stock on date of grant ..     $  7.23     $ 45.10           -
</TABLE>

     For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period and stock
purchased under the Employee Stock Purchase Plan is amortized over the six-month
purchase period. The Company's pro forma information follows (in thousands,
except per share data):

<TABLE>
<CAPTION>
                                                                                 Year ended December 31,
                                                                        -----------------------------------------
                                                                           1999           2000           2001
                                                                        -----------    -----------    -----------
<S>                                                                     <C>            <C>            <C>
Pro forma stock-based compensation expense ........................        $ 25,661      $ 290,342    $    89,283
Pro forma net loss ................................................        $(68,138)     $(822,567)   $(1,616,922)
Pro forma basic net loss per share ................................        $  (0.50)     $   (4.00)   $     (6.69)
</TABLE>

Employee Option Exchange Program

     In February 2001, the Company issued approximately 2.4 million restricted
shares to certain employees who elected to participate in the Company's stock
option exchange program, a program designed to retain the Company's employees
and to provide them with an incentive for maximizing stockholder value.
Subsequent to February 2001, approximately 600,000 restricted shares were
forfeited by certain employees because such employees had not fulfilled related
vesting requirements. As a result of this program, deferred compensation has
been recorded for the market value of the restricted shares issued as of the
grant date in the amount of approximately $14.9 million. Such amount is being


                                     F - 21

<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


amortized to expense over the one-year vesting period, commencing at the date of
issue. At December 31, 2001, the weighted-average fair value of restricted stock
granted in relation to this program was $6.38.

     Also under the same option exchange program, the Company canceled
approximately 19.2 million stock options previously granted to those employees
who voluntarily participated in the program in exchange for approximately 7.7
million new options which were granted on August 20, 2001. The exercise price of
these new options was equal to the fair market value of the Company's common
stock on the grant date. The program did not result in any additional
compensation charges or variable plan accounting. Members of the Company's Board
of Directors and its officers were not eligible to participate in this program.

Deferred Stock Compensation

     In 2000 and 2001, the Company recorded total deferred stock compensation of
$56.1 million and $15.6 million, respectively. In 2000, this amount is
represented, in part, by the difference between the exercise price of stock
option grants for 412,500 shares of common stock and the fair value of the
Company's common stock at the time of such grants, which was $43.92 per share
and $51.67 per share, respectively; it is also represented by the difference
between the exercise price of the unvested stock options exchanged in the
OnDisplay acquisition and the fair value of the Company's common stock at the
acquisition date. In 2001, this amount related primarily to the issuance of
restricted common stock to employees participating in the employee option
exchange program. These amounts are being amortized over the vesting periods of
the applicable options, resulting in amortization of $41.7 million and $8.7
million for the years ended December 31, 2000 and 2001, respectively.

  Warrants

     In connection with the issuance of the Series A Redeemable Convertible
Preferred Stock in February 1996, the Company also issued a warrant to purchase
88,536 shares of Series A Redeemable Convertible Preferred Stock at $0.09 per
share. During 1999, the warrant was exercised by the holder under the cashless
exercise provision in the agreement, resulting in the issuance of 87,816 shares
of common stock.

     In 1997, the Company issued warrants to purchase 289,320 shares of common
stock in connection with a professional services agreement. The warrants had an
exercise price of $0.87 per share and were fully exercised in 1999.

     In December 1998, the Company entered into agreements with a company
providing for available credit of up to $5.0 million and an equipment lease line
of $1.25 million. In connection with such agreements, the Company issued a
warrant to the company to purchase 542,148 shares of Series H Redeemable
Convertible Preferred Stock at an exercise price of $1.38. The Company valued
the warrant at $169,000 using the Black-Scholes model, an assumed volatility of
51%, a risk-free interest rate of 6%, a weighted-average expected life of 1
year, and a dividend rate of 0%. The warrants were exercised in full during the
years ended December 31, 1999 and 2000, respectively under the cashless exercise
provision of the warrant agreement , resulting in the issuance of 518,187 shares
of common stock.

     In connection with the acquisition of OnDisplay, the Company exchanged
warrants to purchase 117,520 shares of common stock with holders of warrants
that were originally issued by OnDisplay. These warrants were valued using an
option pricing model, with the value included in purchase allocation. After
conversion, the warrants had an exercise price of $6.05 per share. During the
fourth quarter of 2000, the Company issued 111,260 shares of common stock to
these holders under the cashless exercise provision of the warrant agreement.

 Share Repurchase Program

     In September 2001, the Board of Directors approved a stock repurchase
program whereby the Company could repurchase up to $50.0 million of its common
stock. Any share repurchases under the program may be made over a period of up
to six months and may be made in the open market, through block trades or
otherwise. Any repurchased shares could be used for general corporate purposes,
including issuance under the Company's employee stock plans. As of December 31,
2001, the Company had repurchased 1.4 million shares of common stock for an
aggregate cost of $5.5 million. All such repurchases were conducted through open
market transactions.

NOTE 5 -- 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 Company made no contributions in the years ended December 31, 1999,
2000, and 2001.


                                     F - 22

<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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. As a
result, the Company recorded $120.9 million in restructuring charges. Components
of business restructuring charges and the remaining restructuring accruals as of
December 31, 2001 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                         Employee
                                                                                        Separation
                                                 Facility Lease           Asset          and Other
                                                   Commitments         Impairments         Costs             Total
                                                 --------------        -----------      -----------       -----------
<S>                                              <C>                   <C>              <C>               <C>
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
                                                     =========           ========         ========
 Less: current portion ......................                                                                 23,390
                                                                                                            --------
 Accrued restructuring costs, less
      current portion .......................                                                               $ 26,482
                                                                                                            ========
</TABLE>

Consolidation of Excess Facilities

     Facility lease commitments relate to lease obligations for offices the
Company has vacated or intends to vacate as a result of the restructuring plan.
These commitments relate to the abandonment of certain excess leased facilities
in Austin and Houston, Texas, Redwood City, Los Angeles and San Ramon,
California, Boston, Waltham, Reading and Cambridge, Massachusetts, New York, New
York, Paris, France, Hamburg, Germany, Madrid, Spain, Sydney, Australia,
Bangalore and Guragon, India and Singapore. The Company recorded $55.2 million
in restructuring expense in relation to such site consolidation. The maximum
lease commitment of such vacated properties is 10 years. Total lease commitments
include the remaining lease liabilities and brokerage commissions, offset by
estimated sublease income. The estimated costs of vacating these leased
facilities, including estimated costs to sublease and resulting sublease income,
were based on market information and trend analysis as estimated by the Company.
It is reasonably possible that actual results could 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.

Asset Impairments

     Asset impairments recorded pursuant to Financial Accounting Standards Board
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ("Statement 121"), relate to the impairment
of certain intangible assets, including: acquired workforce, acquired
technology, prepaid royalties and licenses, as well as the impairment of certain
leasehold improvements and office equipment. As a result of the termination of
former employees of acquired businesses, acquired workforce was impaired by
$12.3 million during 2001. The Company's decision to no longer sell or support
certain products acquired through business combinations or software
arrangements, reduced the net realizable value of such products to zero. As
such, certain of the Company's acquired technology and prepaid royalties and
licenses were impaired by $7.3 million during 2001. Certain leasehold
improvements and office equipment were impaired as a result of the Company's
decision to vacate certain office space resulting in an impairment charge of
$14.1 million during 2001.

Employee Separation and Other Costs

     Employee separation and other costs, which include severance, related
taxes, outplacement and other benefits, payable to approximately 975 terminated
employees, totaled $32.1 million, of which approximately


                                     F - 23

<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


$24.7 million has been paid in cash and stock compensation at December 31, 2001.
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.

     At December 31, 2001, remaining cash expenditures resulting from the
restructuring are estimated to be $49.9 million, and relate primarily to
facility lease commitments. Excluding facilities lease commitments, the Company
estimates costs will be substantially incurred within one year of the
restructuring. The Company has substantially implemented its restructuring
efforts initiated in conjunction with the restructuring announcements made
during 2001; however, there can be no assurance that the estimated costs of the
Company's restructuring efforts will not change.

NOTE 7 -- Lease Commitments

     The Company has financed the acquisition of certain computers and equipment
through capital lease transactions that are accounted for as financings.
Included in property and equipment at December 31, 2000 and 2001 are the
following assets held under capital leases (in thousands):

                                                          December 31,
                                                    -----------------------
                                                       2000         2001
                                                    ----------   ----------
           Property and equipment ................    $ 4,834      $ 4,834
           Less accumulated depreciation .........     (1,531)      (3,142)
                                                      -------      -------
                                                      $ 3,303      $ 1,692
                                                      =======      =======

     The Company leases its office facilities and office equipment under various
operating and capital lease agreements with various expiration dates through
2011. Rent expense for the years ended December 31, 1999, 2000 and 2001 was $3.8
million, $9.0 million and $15.7 million, respectively. At December 31, 2001,
estimated future rents receivable from signed sublease agreements is $2.9
million through 2005. Future minimum payments as of December 31, 2001 under
these leases, including operating lease commitments for vacated properties, are
as follows (in thousands):

<TABLE>
<CAPTION>
                                                     Operating        Sublease         Capital
                                                      Leases           Income          Leases
                                                    ------------    -------------   -------------
<S>                                                 <C>             <C>             <C>
           2002 ..................................    $ 19,142          $ 1,274           $ 788
           2003 ..................................      15,492            1,149             244
           2004 ..................................      12,486              430               -
           2005 ..................................      10,996               61               -
           2006 ..................................       7,012                -               -
           Thereafter ............................      16,670                -               -
                                                      --------          -------          ------
           Total minimum lease payments ..........    $ 81,798                -           1,032
           Total minimum sublease rentals ........                      $ 2,914               -
                                                                        =======
           Amounts representing interest .........                                          (42)
                                                                                         ------
           Present value of net minimum lease
            payments (including current portion
            of $750) .............................                                       $  990
                                                                                         ======
</TABLE>


NOTE 8 -- Legal Matters

     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. 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


                                     F - 24

<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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 Company believes that this lawsuit is without merit and intends to
defend itself vigorously.

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

NOTE 9 -- Income Taxes

     As of December 31, 2001, the Company had federal net operating loss and
research and development credit carryforwards of approximately $629.6 million
and $9.0 million, respectively. The net operating loss and credit carryforwards
will expire in varying amounts, between 2003 and 2021, if not utilized.

     The Tax Reform Act of 1986 imposes substantial restrictions on the
utilization of net operating losses and tax credit carryforwards in the event of
an "ownership change" of a corporation. Net operating loss carryforwards of
approximately $118.3 million and tax credit carryforwards of $2.0 million at
December 31, 2001 were incurred by Diffusion, Engine 5, DataSage and OnDisplay
prior to being acquired by us and will be subject to annual limitation. The
annual limitation may result in the expiration of net operating losses and tax
credits before utilization.

     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, 2000 and 2001 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                     December 31,
                                                                 2000           2001
                                                             ------------   ------------
<S>                                                          <C>            <C>
     Deferred tax liabilities:
         Intangible assets ...............................    $ (17,706)     $  (7,130)
         Other ...........................................          (22)          (236)
                                                             ------------   ------------
                                                                (17,728)        (7,366)
     Deferred tax assets:
         Depreciable assets ..............................        1,477          1,846
         Equity investments ..............................            -         18,711
         Deferred revenue ................................       15,046          1,050
         Tax carryforwards ...............................      149,488        242,098
         Accrued liabilities and other ...................        6,071         21,086
                                                             ------------   ------------
                                                                172,082        284,791
                                                             ------------   ------------
     Net deferred tax assets .............................      154,354        277,425
     Valuation allowance for net deferred tax assets .....     (154,354)      (277,425)
                                                             ------------   ------------
     Net deferred taxes ..................................    $       -      $       -
                                                             ============   ============
</TABLE>

     The Company has established a valuation allowance equal to the net deferred
tax asset due to uncertainties regarding the realization of deferred tax assets
based on the Company's lack of earnings history. As of December 31, 2001, the
valuation allowance includes approximately $32.6 million related to the
acquisition of Diffusion, Engine 5, DataSage and OnDisplay net deferred tax
assets. The initial recognition of these acquired deferred tax asset items will
first reduce goodwill, then other non-current intangible assets of the acquired
entity. Approximately $140.6 million of the valuation allowance relates to tax
benefits for stock option deductions included in the net operating loss
carryforward, which when realized,


                                     F - 25

<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


will be allocated directly to contributed capital to the extent the benefits
exceed amounts attributable to deferred compensation expense.

     Undistributed earnings of the Company's foreign subsidiary were immaterial
as of December 31, 2000 and 2001. Those earnings are considered to be
permanently reinvested and, accordingly, no provision for U.S. federal and/or
state income taxes has been provided thereon.

     The Company's provision for income taxes for 1999, 2000 and 2001 consists
primarily of 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:

<TABLE>
<CAPTION>
                                                                  Year ended December 31,
                                                         ------------------------------------------
                                                            1999            2000            2001
                                                         -----------     -----------    -----------
<S>                                                      <C>             <C>            <C>
     Federal statutory rate ..........................       (34.0)%         (34.0)%        (34.0)%
     State taxes, net of federal benefit .............        (1.4)            (.1)           (.4)
     Non-deductible goodwill amortization ............          .9            20.5           28.7
     In-process research and development .............        12.7            10.5              -
     Stock compensation ..............................         4.3             2.2             .2
     Foreign taxes at different rates ................           -              .3             .1
     Change in deferred tax items ....................        17.6              .8            5.4
     Other ...........................................         (.1)             .1             .1
                                                           -------         -------        -------
                                                                 -%             .3%           .1%
                                                           =======         =======        =======
</TABLE>

NOTE 10 -- Related Party Transactions

     The Company holds a Promissory Note from a non-Section 16 employee of the
Company. The principal sum of $400,000 was used for personal purposes. The loan
is due and payable on December 31, 2002 but is accelerated if certain events
occur prior to the maturity date. The note bears interest at a rate of 8% per
annum, compounded quarterly. The loan note is secured by the employee's
principal residence.

     The Company holds an additional Promissory Note from another non-Section 16
employee. The principal sum of $300,000 was used for personal purposes. The loan
is due and payable on June 30, 2002 but is accelerated if certain events occur
prior to the maturity date. The note bears interest at a rate of 8% per annum,
compounded quarterly. The loan note is secured by a first priority mortgage on
such employee's real estate.

     The Company loaned David J. Shirk, Senior Vice President, Products, the
principal sum of $250,000 to purchase his primary residence in Texas in
connection with his relocation to Texas. The note bore interest at a rate of 6%
per annum. The note was paid in full on September 28, 2001. The largest
aggregate indebtedness outstanding at any time during the fiscal year was
$255,465 on September 28, 2001.

     The Company holds a Promissory Note from William R. Daniel, Senior Vice
President and General Manager of the Application Products Division. The
principal sum of $500,000 was used to purchase his primary residence in Texas in
connection with his relocation to Texas. The loan is due and payable on June 13,
2004 but is accelerated if certain events occur prior to the maturity date. The
note bears no interest. The loan note is secured by a deed of trust on the
property acquired and a security interest in Vignette Common Stock pledged by
Mr. Daniel.

     The Company entered into an offer letter agreement dated January 18, 2002
with Jeanne K. Urich, Senior Vice President, Global Professional Services. The
agreement provides that Ms. Urich may borrow up to $2,000,000 from the Company
pursuant to a loan to purchase a residence. The loan will initially be
interest-free and is to be secured by a priority deed of trust on the residence
and a pledge of any shares acquired pursuant to the exercise of her Company
options. The loan is to be due six years from the execution of the loan but will
be repayable one year after she leaves the Company's employ or upon a sale or
other transfer of the residence and must be repaid from 50% of the proceeds of
any sale by Ms. Urich of her option shares.

                                     F - 26

<PAGE>

                              VIGNETTE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


NOTE 11 -- 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):

<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                     ----------------------------------------------------
                                                         1999              2000               2001
                                                     --------------    --------------    ----------------
<S>                                                  <C>               <C>               <C>
     Revenue:
         Americas
             United States .......................        $ 76,037        $  270,091           $ 190,613
             Other ...............................               -                 -               1,330
                                                          --------        ----------           ---------
                 Total Americas ..................          76,037           270,091             191,943
         Europe ..................................           9,730            78,795              93,797
         Asia Pacific ............................           3,418            17,775              11,010
                                                          --------        ----------           ---------
                 Total revenue ...................        $ 89,185        $  366,661           $ 296,750
                                                          ========        ==========           =========

<CAPTION>
                                                                                At December 31,
                                                                       ----------------------------------
                                                                           2000               2001
                                                                       --------------    ----------------
<S>                                                                    <C>               <C>
     Identifiable assets:
         Americas
             United States .......................                        $2,112,981           $ 594,366
             Other ...............................                             3,037               2,749
                                                                          ----------           ---------
                 Total Americas ..................                         2,116,018             597,115
         Europe ..................................                            60,913              60,478
         Asia Pacific ............................                            14,023               5,433
                                                                          ----------           ---------
                 Total ...........................                        $2,190,954           $ 663,026
                                                                          ==========           =========
</TABLE>

NOTE 12 -- Subsequent Events (Unaudited)

     In March 2002, the Company approved a plan to further align its cost
structure with current economic and industry conditions. These actions, which
will affect employees across all levels, functional areas and geographies, will
include:

     o  voluntary salary reductions effective April 1, 2002 through September
        30, 2002;
     o  headcount reductions; and
     o  facilities consolidation.

     The Company will issue stock options to certain employees who volunteer for
a salary reduction. The Company expects to record deferred compensation for the
intrinsic value of the stock options as of the grant date. Such amount will be
amortized to expense over the one-year vesting period.


                                     F - 27