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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K



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

For the fiscal year ended December 31, 2007

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 incorporation or organization) |  | (I.R.S. Employer Identification No.)

1301 South MoPac Expressway

Austin, Texas 78746

(Address of principal executive offices)





(512) 741-4300

(Registrants telephone number, including area code)





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



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

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





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

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

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

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

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



|                                                                      |  |                            
|--------------------------------------------------------------------- |  | ---------------------------
|Large Accelerated Filer  ̈                                             |  | Accelerated Filer x        
|                                                                      | 
|Non-Accelerated Filer  ̈ (Do not check if a smaller reporting company) |  | Smaller reporting company  ̈

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

As of
June 30, 2007, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $525,862,716

As of February 29, 2008, 24,565,799 shares of the registrants common stock were outstanding.





DOCUMENTS INCORPORATED BY
REFERENCE

Portions of the registrants definitive Proxy Statement for the 2007 Annual Meeting of Stockholders to be held
May 23, 2008 are incorporated by reference in Part III of this Annual Report on Form 10-K.









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VIGNETTE CORPORATION

ANNUAL REPORT ON FORM 10K

For the year ended December 31, 2007

TABLE OF CONTENTS



|           |  |          |  |                                                                                                              |  |     
|---------- |  | -------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|           |  |          |  |                                                                                                              |  | Page
|Part I.    |  |         
|           |  | Item 1.  |  | Business                                                                                                     |  | 3   
|           |  | Item 1A. |  | Risk Factors                                                                                                 |  | 8   
|           |  | Item 1B. |  | Unresolved Staff Comments                                                                                    |  | 22  
|           |  | Item 2   |  | Properties                                                                                                   |  | 22  
|           |  | Item 3.  |  | Legal Proceedings                                                                                            |  | 23  
|           |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                          |  | 24  
|           |  |         
|Part II.   |  |          |  |                                                                                                             
|           |  | Item 5.  |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 25  
|           |  | Item 6.  |  | Selected 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                                                   |  | 41  
|           |  | Item 8.  |  | Financial Statements and Supplementary Data                                                                  |  | 43  
|           |  | Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 43  
|           |  | Item 9A. |  | Controls and Procedures                                                                                      |  | 43  
|           |  | Item 9B. |  | Other Information                                                                                            |  | 43  
|           |  |         
|Part III.  |  |          |  |                                                                                                             
|           |  | Item 10. |  | Directors, Executive Officers and Corporate Governance                                                       |  | 44  
|           |  | Item 11. |  | Executive Compensation                                                                                       |  | 44  
|           |  | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 44  
|           |  | Item 13. |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 44  
|           |  | Item 14. |  | Principal Accounting Fees and Services                                                                       |  | 44  
|           |  |         
|Part IV.   |  |          |  |                                                                                                             
|           |  | Item 15. |  | Exhibits and Financial Statement Schedules                                                                   |  | 45  
|Signatures |  | 50      



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CAUTION REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

PART I.



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

Our History

Since the companys founding in 1995, Vignette has specialized in developing and marketing software for managing and delivering business content.
Vignettes initial technology offerings targeted Web content management and Web site construction. As the Internet grew in scale and complexity and as organizations sought new ways to leverage this evolving global business platform, the terms
Weband Web content managementexpanded proportionately. Vignette expanded its portfolio of content management capabilities to keep pace with the evolving demands of organizations. In particular, as a result of both organic product
development and acquisition, Vignette added Web-based analytics and personalization, application and data integration, interaction management, business portals, collaboration and documents and records management capabilities to its products.

Mission

Our objective is to maintain
and extend our position as a leading global provider of Web Experience solutions. These solutions help enterprise organizations execute on their Web strategies, particularly as those strategies relate to the online experience organizations provide.
The company offers a broad set of capabilities for improving online interactions with customers, prospects, employees, partners, citizens, patients and other key audiences. We will continue to focus on delivering profitable growth, expanding our
customer base of global 2000 organizations, extending our technology leadership through investment in research and development, expanding our global sales capabilities and building upon our strategic alliances with leading companies.

Overview

Organizations globally are recommitting
resources and dedicating strategic projects to the online experience they deliver in support of their broader business goals. In particular, our customers are concerned that they



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remain able to interact online with their key audiences in ways that are more personal, social, transactional and ubiquitous. We believe that Vignette is
well positioned to capitalize on these market demands.

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

Our products
and capabilities are supported by our professional services organization, Vignette Professional Services (VPS). VPS offers pre-packaged and custom services to help organizations define their online business objectives
and build and deploy applications in support of those objectives. Our education, consulting and customer care teams give customers the benefit of our experience gained from thousands of customer implementations.

We partner with a number of leading system integrators, who implement our software for their clients. In many cases, we work in blended teams to jointly
implement solutions. To ensure that we provide support to our customers on their chosen platform and infrastructure, we have long-standing relationships with key technology providers such as BEA Systems, Hewlett Packard, Sun Microsystems and
Microsoft.

Products

Our products
enable organizations to connect online with their key audiences and manage the content that fuels those connections. Together, these products comprise the Vignette Web Experience Platform.

Additionally, we allow organizations the flexibility to purchase products individually. Our product offerings are grouped into six categories:

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

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

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

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

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

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

Organizations may purchase products individually from these six categories or pre-bundled into suites that meet their specific needs.

Services
and Support

Vignette Professional Services (VPS) offers consulting and education services to help customers identify their
strategic application objectives, design applications and deliver solutions using our products. VPS provides services that are tailored to individual customers. VPS also works with strategic consulting partners to provide support for
content management application development. VPS generally sells its services under time-and-materials agreements.



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

Strategic Alliances

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

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

Business Combinations

The following is a listing of
our acquisitions over the last five years:

TOWER Technology Pty Limited.Effective March 1, 2004, we acquired TOWER Technology
Pty Limited (Tower Technology), a leading provider of enterprise document and records management solutions. We paid approximately $125 million for Tower Technology, consisting of approximately $49.8 million in cash and 2.7 million
shares of common stock on a post split basis for all of the issued and outstanding shares of Tower Technology.

Intraspect Software,
Inc. Effective December 11, 2003, we acquired all of the outstanding stock of Intraspect Software, Inc. (Intraspect), a leading provider of collaboration software, in exchange for $10 million in cash and approximately
0.42 million shares of stock on a post split basis. The total purchase price, including transaction costs of $0.5 million, was approximately $20 million.

Epicentric, Inc. Effective December 3, 2002, we acquired all of the outstanding stock of Epicentric, Inc. (Epicentric), a leading provider of business portal solutions, in exchange for $26
million in cash. The total purchase price, including transaction costs of $3.1 million, was approximately $29 million.

In connection with
each of our acquisitions, we incurred one-time acquisition costs and integration-related charges. Such charges relate to product integration, cross-training of employees and other merger-related items. In our acquisitions, a portion of the purchase
price was allocated to in-process research and development and was expensed upon the consummation of the respective transaction. The Company recorded no acquisition related charges in 2007 or 2006 and $0.3 million in 2005.

Customers

Our customer list includes some of the
worlds most successful organizations in the telecommunications, entertainment, new media and publishing, financial services, government, healthcare, high technology, higher education, life sciences, manufacturing, retail and travel industries
worldwide. No single customer accounted for ten percent or more of our total revenues in 2007, 2006, or 2005.

Competition

The market for our products is intensely competitive and subject to rapid technological change. We can be significantly affected by new product
introductions and other market activities of industry participants. We



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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 target enterprise content management solutions; and developers of point solution software that address only certain technology components of the solution set that we provide (e.g., Web content
management, portal, collaboration, integration, interaction management, document and records management and imaging and workflow).

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. In particular, we compete against large integrated technology providers such as IBM, Microsoft, Oracle and SAP. 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Risks Related to Our BusinessWe Face Intense Competition from Other Software Companies, Which Could Make it
Difficult to Compete Successfully.

Research and Development

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

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

Research and development expenditures, excluding acquired in-process research and development charges, for 2007, 2006 and 2005 were approximately $31.0
million, $34.0 million and $33.2 million, respectively.

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

Sales and Marketing

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



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We sell solutions and products through our direct sales force as well as through our indirect sales
channel with systems integrators, value-added resellers and original equipment manufacturers. We generate leads from a variety of sources, including businesses seeking partners to develop next-generation Web initiatives. Initial sales activities
typically include a demonstration of our product capabilities followed by one or more detailed technical reviews. As of December 31, 2007, the direct sales force consisted of 177 sales professionals and related support personnel.

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

Proprietary Rights and Licensing

Our success and ability to compete are dependent on our ability to develop and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of patent, trademark, trade secret and copyright laws and contractual restrictions to protect the proprietary aspects of our technology. These legal protections afford only
limited protection for our technology. We presently own 30 patents, 29 of which are issued in the United States and, also, have a number of patent applications pending in the United States. We have 14 registered trademarks in the United States, 69
registered trademarks in foreign countries and 6 pending trademark applications in foreign countries. We seek to protect our source code for our software, documentation and other written materials under trade secret and copyright laws. We license
our software pursuant to signed license or shrink-wrap agreements, which impose certain restrictions on the licensees ability to utilize the software. Finally, we seek to avoid disclosure of our intellectual property by requiring
employees and consultants with access to our proprietary information to execute confidentiality agreements with us and by restricting access to our source code. Due to rapid technological change, we believe that factors such as the technological and
creative skills of our personnel, new product developments and enhancements to existing products are more important than the various legal protections of our technology to establishing and maintaining a technology leadership position.

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

There can be no assurance that third parties will not claim infringement with respect to our current or future products. We expect that developers of commercial software products will increasingly be subject to infringement claims as the
number of products and competitors in our industry segment grows and as the functionality of products in different segments of the software industry increasingly overlaps. Any such claims, with or without merit, could be time-consuming to defend,
result in costly litigation, divert managements attention and resources, cause product shipment delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on
terms acceptable to us or at all. A successful claim of product infringement against us and our failure or inability to license the infringed technology or develop or license technology with comparable functionality could have a material adverse
effect on our business, financial condition and operating results. See Risk Factors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.



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

Employees

As of December 31, 2007, we had 667 employees, including 116 in research and development, 219 in sales and marketing, 249 in
professional services and customer support and 83 in general and administrative. 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 and marketing and finance organizations. We also outsource certain development, including a portion of product
development and quality assurance. Our employees are not represented by any collective bargaining unit and we have never experienced a work stoppage. We believe our relations with our employees are good.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

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

Risks Related to Our Business

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

Although we recorded a profit in fiscal 2007, we
cannot be certain that we will generate sufficient revenues to maintain profitability. If we do maintain profitability, we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis in the future. To achieve and
sustain profitable operations and positive cash flows, we must increase our license and support services revenues. If our revenues do not grow at a rate greater than expenses required to fund our continuing operations, we will not be able to
maintain the profitability recorded in fiscal 2007, which could cause the price of our common stock to decline.

We Expect Our Quarterly Revenues and
Operating Results to Fluctuate

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

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



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



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



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



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



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



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



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



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



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



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



| |  |  | attrition of key sales, professional services and other customer facing personnel;
| | - |  | ----------------------------------------------------------------------------------



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



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



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



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



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



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

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

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

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

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

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

We are currently using a third-party service provider in India to supply approximately half of our research and development operations. As other software
companies have done and are continuing to do, we may continue to allocate more development and IT resources to offshore third parties and we may expand our own operational capabilities in India, with the expectation of achieving significant
efficiencies including reduced operational costs



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and an around-the-clock development cycle. If we are unable to successfully manage our relationship with the third-party service providers, we will not be
able to achieve such efficiencies and our business operations could be harmed. In addition, if our third-party service provider is unable to continue to attract and retain highly skilled personnel our business, operating results and financial
condition could be materially adversely affected.

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

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

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



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



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



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



| |  |  | difficulties in developing and maintaining relationships with international vendors;
| | - |  | ------------------------------------------------------------------------------------



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



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



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



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



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



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



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



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



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



| |  |  | difficulties in communication of and monitoring compliance with Company controls and policy
| | - |  | -------------------------------------------------------------------------------------------

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

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



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speculative purposes. Our foreign exchange exposures are monitored regularly to ensure the overall effectiveness of our foreign currency hedge positions. At
December 31, 2007 we had no currency forward contracts outstanding.

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

As part of our overall strategy, we have acquired or
invested in, complementary companies, products and technologies. The Company will continue to consider strategic acquisitions. Risks commonly associated with such transactions include:



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



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



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



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



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



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



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



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



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



| |  |  | risks related to remote development operations
| | - |  | ----------------------------------------------



| |  |  | risks related to adoption of new business models, pricing and licensing methods
| | - |  | -------------------------------------------------------------------------------

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

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

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

Our long-term strategic plan depends upon the successful development and introduction of products and solutions that address the needs of the portal,
collaboration and content management market as well as the



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enterprise content management and the document and records management markets. For us to succeed in these markets, we must align strategies and objectives
and diversify the focus of our resources to succeed in these various markets.

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



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



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



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



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



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

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

Acquisitions Could Disrupt Our Business, Adversely Affect Our Operating Results and Harm our Stockholder Value

The Company will continue to consider strategic acquisitions. We may acquire other businesses in the future, which would complicate our
management tasks. We may need to integrate widely dispersed operations that have different and unfamiliar corporate cultures. These integration efforts may not succeed or may distract managements attention from existing business operations.
Failure to successfully integrate acquisitions could seriously harm our business, our operating results and adversely impact our existing stockholders value.

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



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



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



| |  |  | the dilution of our existing stockholders resulting from issuance of our shares to the acquired companys shareholders;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



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



| |  |  | the impact of impairment of goodwill or other acquisition-related intangible assets.
| | - |  | ------------------------------------------------------------------------------------

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

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

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

Since our customers use our products for mission-critical applications, errors, defects or other
performance problems could result in financial or other damages to our customers. They could seek damages for losses from



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us, which, if successful, could have a material adverse effect on our business, operating results and financial condition. Although our license agreements
typically contain provisions designed to help limit our exposure to product liability claims, existing or future laws or unfavorable judicial decisions could negate or alter such limitation of liability provisions. Such claims, if brought against
us, even if not successful, would likely be time consuming and costly.

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

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

Changes in the Companys Tax Rates Could Affect its
Future results.

The Companys future effective tax rates could be favorably or unfavorably affected by changes in the mix of
earnings in countries with differing statutory tax rates, changes in the valuation of the Companys deferred tax assets and liabilities, or by changes in tax laws or their interpretation. In addition, the Company is routinely subject to the
examination of its income tax returns in the United States and Foreign tax jurisdictions. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income
taxes. There can be no assurance the outcomes from these continuous examinations will not have an adverse effect on the Companys results of operations and financial condition.

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

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

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

Many of these companies have longer operating histories and significantly greater financial, technical, marketing and other resources than
we do. Many of these companies can also leverage extensive customer bases and adopt aggressive pricing policies to gain market share. Potential competitors may bundle or license their products in a manner that may discourage users from purchasing
our products. It is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. In addition, this competition may impact existing revenue generating partners which could result in reductions
in our ability to generate future revenue from these companies.



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

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

If we fail to grow our customer base or generate
repeat and expanded business from our current and new customers, our business and operating results would be seriously harmed. Many of our customers initially make a limited purchase of our products and services. Some of these customers may not
choose to purchase additional licenses to expand their use of our products. Some of these customers have not yet developed or deployed initial applications based on our products. If these customers do not successfully develop and deploy such initial
applications, they may choose not 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 Future Revenue is Dependent Upon Our Ability to Successfully Market Our Existing and Future Products and Solutions

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

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 certain revenues and any end-of-quarter delays in product implementation could materially adversely
affect operating results for that quarter.

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

Our direct and indirect sales operations must increase market awareness of our
products to generate increased revenue. We cannot be certain that we will be successful in these efforts. Our products and services require a sophisticated sales effort targeted at the senior management of our prospective customers. The market for
talented sales resources is very competitive. We have experienced attrition in our sales force. To continue to strengthen sales and distribution, we must continue to hire a significant number of sales personnel. All new hires



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will require training and will take time to achieve full productivity. We cannot be certain that our new hires will become as productive as necessary or that
we will be able to hire enough qualified individuals or retain existing employees in the future. We plan to expand our relationships with systems integrators and certain third-party resellers to build an indirect influence and sales channel. In
addition, we will need to manage potential conflicts between our direct sales force and any third-party reselling efforts.

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

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

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

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

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

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

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

Our services organization depends on highly skilled technical resources and managers. Our ability to maintain our revenue and margins for this
organization could be adversely impacted if we are unable to retain such resources or if we experience difficulties in hiring such resources in the future.

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, which may include terms and conditions that may extend the
recognition of revenue for work performed into subsequent quarters. On occasion, the costs of providing the services have exceeded our fixed price from these contracts and such contracts have negatively impacted our operating results.



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

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

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

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

We May Be Adversely Affected if We Lose Key Personnel

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

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

The market for our products is marked by rapid technological change, frequent new product
introductions and Internet-related technology enhancements, uncertain product life cycles, changes in customer demands, changes in packaging and combination of existing products and evolving industry standards. We cannot be certain that we will
successfully develop and market new products, new product enhancements or new products compliant with present or emerging Internet technology standards. New products based on new technologies, new industry standards or new combinations of existing
products as bundled products can render existing products obsolete and unmarketable. To succeed, we will need to enhance our current products and develop new products on a timely basis to keep pace with developments related to Internet technology
and to satisfy the increasingly sophisticated requirements of our customers. Internet commerce technology, particularly Web-based applications technology, is complex and new products and product enhancements can require long development and testing
periods. Any delays in developing and releasing enhanced or new products could have a material adverse effect on our business, operating results and financial condition.

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

Complex software products such as ours often contain errors or defects, particularly when first introduced or when new versions or enhancements are
released. Despite internal testing and testing by current and potential



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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.

The Company is Subject to Risks
Associated with the Availability and Coverage of Insurance.

Although the Company maintains insurance for certain risks, such coverage
does not cover all risks and is limited in coverage amounts and is subject to various policy terms. Because of these limits and because the Company does not maintain insurance coverage for certain risks, unforeseen or catastrophic losses in excess
of insured limits may have a material adverse effect on the Companys results of operations and financial position.

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. Future litigation to either
protect our intellectual property or as a result of an alleged infringement of others intellectual property may require us to do one or more of the following:



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



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



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



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

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

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

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

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

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



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



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



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



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



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



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



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

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

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

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

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

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

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

Changes in Accounting Rules Could Affect the Companys Future Operating Results.

Our financial statements are prepared in accordance with U.S. generally accepted accounting principles. A change from current accounting standards could
have a significant effect on the Companys results of operations. In December 2004, the FASB issued new guidance that addresses the accounting for share-based payments, Statement of Financial Accounting Standards (SFAS)
No. 123 (revised 2004) (SFAS No. 123R),Share-Based Payment, which the Company adopted in 2006. Although the adoption of SFAS No. 123R is expected to continue to have a significant impact on the Companys
results of operations, future changes to various assumptions used to determine the fair-value of awards issued or the amount and type of equity awards granted create uncertainty as to the amount of future stock-based compensation expense.



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

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

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

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

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

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

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

Risks Related to the Software Industry

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

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

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

The market for
Web-based applications software is rapidly evolving. We expect that we will continue to need intensive marketing and sales efforts to educate prospective customers about the uses and benefits of our products and services. Accordingly, we cannot be
certain that a viable market for our products will emerge or be sustainable or that market campaigns will result in increased demand for our products and services. Enterprises that have already invested substantial resources in other methods of
conducting business may be reluctant or slow



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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 are currently unsettled. In addition, although substantial portions of the Communications Decency Act were held to be unconstitutional, we cannot be
certain that similar legislation will not be enacted and upheld in the future. It is possible that such legislation could expose companies involved in Internet commerce to liability, which could limit the growth of Internet commerce generally.
Legislation like the Telecommunications Act and the Communications Decency Act could dampen the growth in Web usage and decrease its acceptance as a communications and commercial medium.

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

Risks Related to the Securities Markets

Our Stock Price May Be Volatile

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



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



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



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



| |  |  | changes in market valuations of web based software companies;
| | - |  | -------------------------------------------------------------



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



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



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



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



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



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| |  |  | 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 Legal Proceedings of this Report. The defense of this litigation 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

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

We May Need to Raise Additional Capital, Which May Be Dilutive to Our Stockholders

We may need to raise additional funds to meet our future capital requirements. 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 Our Internal Controls Over Financial Reporting Do Not Comply With the
Requirements of the Sarbanes-Oxley Act, Our Business and Stock Price Could Be Adversely Affected

Section 404 of the Sarbanes-Oxley
Act of 2002 requires us to evaluate the effectiveness of our internal controls over financial reporting as of the end of each year beginning in 2004 and to include a management report assessing the effectiveness of our internal controls over
financial reporting in all annual reports beginning with the 2004 Report.

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



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##### Table of Contents

Although our management has determined and our independent registered public accounting firm has
attested, that our internal control over financial reporting was effective as of December 31, 2007, we cannot provide assurance that we or our independent registered public accounting firm will not identify a material weakness in our internal
controls in the future. A material weakness in our internal controls over financial reporting would require management and our independent registered public accounting firm to evaluate our internal controls as ineffective. If our internal controls
over financial reporting are not considered adequate, we may experience a loss of public confidence, which could have an adverse effect on our business and our stock price.

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

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



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

None



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

Our principal research, development,
sales, marketing and administrative headquarter offices are located in Austin, Texas. We do not own any real estate or facilities. As of December 31, 2007, we leased direct office space in: Austin, Texas; San Francisco, California; New York
City, New York; Boston, Massachusetts; Reston, Virginia; Sao Paulo, Brazil; Sydney, Australia; Maidenhead, United Kingdom; and Madrid, Spain. Such leases have remaining terms of up to ten years. All offices listed above support sales and services
activity and we have research and development activity in our Austin, Texas and Sydney, Australia offices.

Additionally, we lease several
full-service managed suites and executive suites as small sales offices across the United States and around the world. These small offices generally have lease terms of less than one year, allowing us to adjust to changing business and customer
support requirements. As of December 31, 2007, we leased office space in 12 countries outside of the United States.

Throughout 2007,
we consolidated our leased office portfolio. Some of the resulting excess lease space expired in 2007, or will expire in the near term and we successfully negotiated early terminations of some leases, in part or in whole. We currently sublease some
surplus office space in Austin, Texas; New York City, New York; Boston, Massachusetts; and Reston, Virginia to unrelated third-parties. We are actively marketing and attempting to sublease or negotiate early terminations of our remaining surplus
space, including, but not limited to, space in Austin, Texas for the respective remaining lease terms. The Company occupies or subleases approximately 98% of the leased office space leaving approximately 2% of the leased space unoccupied.



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##### Table of Contents

|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

Securities Class Action

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

The action is being coordinated with approximately 300 other nearly identical actions filed against other companies. On October 9, 2002, the Court
dismissed the Individual Defendants from the case without prejudice based upon Stipulations of Dismissal filed by the plaintiffs and the Individual Defendants. On February 19, 2003, the Court denied a motion to dismiss the complaint against the
Company. On December 5, 2006, the Second Circuit vacated a decision by the district court granting class certification in six of the other nearly identical actions (the focus cases), which are intended to serve as test
cases. The plaintiffs selected these six cases, which do not include the Company. On April 6, 2007, the Second Circuit denied a petition for rehearing filed by the plaintiffs, but noted that the plaintiffs could ask the district court to
certify more narrow classes than those that were rejected.

Prior to the Second Circuits December 5, 2006 ruling, the majority
of the issuers, including the Company and their insurers had submitted a settlement agreement to the district court for approval. In light of the Second Circuit opinion, the parties agreed that the settlement could no longer be
approved. On June 25, 2007, the district court approved a stipulation filed by the plaintiffs and the issuers which terminated the proposed settlement. On August 14, 2007, the plaintiffs filed amended complaints in the six focus
cases. The amended complaints include a number of changes, such as changes to the definition of the purported class of investors and the elimination of the individual defendants as defendants. The six focus case issuers and the underwriters named as
defendants in the focus cases filed motions to dismiss the amended complaints against them on November 14, 2007. On September 27, 2007, the plaintiffs filed a motion for class certification in the six focus cases. On December 21,
2007, the issuers and the underwriters filed papers opposing plaintiffs class certification motion and plaintiffs filed an opposition to defendants motions to dismiss. On January 28, 2008, the issuers and the underwriters filed
reply briefs in further support of their motions to dismiss the amended complaints. Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of the matter. We cannot predict whether we will be able to
renegotiate a settlement that complies with the Second Circuits mandate, nor can we predict the amount of any such settlement and whether that amount would be greater than Vignettes insurance coverage. The Company is unable to
determine whether the outcome of the litigation will have a material impact on its results of operations or financial condition in any future period. The Company will continue to defend itself vigorously against this lawsuit.



23



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##### Table of Contents

Millennium L.P. vs Vignette Corporation

On June 6, 2007, a patent infringement lawsuit was filed against the Company in the United States District Court for the Southern District of New
York (the Court) by Millennium L.P.( Millennium ), for the alleged infringement of various patents by the Companys products (Case No. 07 CIV 4800) . The patents asserted against the
Company are United States Patent Nos. 5,258,855, 5,369,508, 5,625,465, 5,768,416 and 6,094,505. The Complaint also alleges willful infringement of the patents by the Company and seeks a preliminary and permanent injunction of the alleged infringing
acts by the Company, as well as trebling of unspecified damages. The Company filed its answer to the Complaint on July 10, 2007, denying the claims of Millennium and raising various defenses. On July 10, 2007, the
Company also counterclaimed for a declaratory judgment that United States Patent Nos. 5,258,855, 5,369,508, 5,625,465, 5,768,416 and 6,094,505 are not infringed by the Company and are invalid. Millennium replied to the counterclaim on
July 11, 2007.

On December 28, 2007, the Court entered an Order of Discontinuance with prejudice and without costs under which
Millenniums ability to restore the action to the active calendar of the Court expired January 28, 2008. During this period, on January 2, 2008, the Company and Millenium entered into an agreement that resulted in the parties
mutual release of all claims against one another.

Litigation and Other Claims

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



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

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



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##### Table of Contents

PART II.



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

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



|                              |  |      |       |     |   |      
|----------------------------- |  | ---- | ----- | --- | - | -----
|                              |  | High |       | Low
|Year Ended December 31, 2007: |  |      |       |     |   |      
|Fourth Quarter                |  | $    | 20.34 |     | $ | 14.11
|Third Quarter                 |  |      | 21.04 |     |   | 17.25
|Second Quarter                |  |      | 21.16 |     |   | 18.20
|First Quarter                 |  |      | 19.18 |     |   | 16.67
|Year Ended December 31, 2006: |  |      |       |     |   |      
|Fourth Quarter                |  | $    | 17.44 |     | $ | 13.39
|Third Quarter                 |  |      | 15.00 |     |   | 12.11
|Second Quarter                |  |      | 16.55 |     |   | 13.22
|First Quarter                 |  |      | 17.65 |     |   | 14.18

At February 29, 2008, there were approximately 414 holders of record and approximately 33,000
total shareholders of our common stock and the closing price of our common stock was $12.65 per share.

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

On
November 12, 2006, the Board of Directors of the Company approved a stock repurchase program of up to $75 million of the Companys common stock over the following 12 months. In addition, on November 2, 2007, the Board of Directors of
the Company approved an extension to the stock repurchase program approved on November 12, 2006 authorizing the purchase of up to an additional $75 million of the Companys common stock over an indefinite period. Purchases are made from
time to time as market and business conditions warrant, in the open market, negotiated or block transactions, in accordance with applicable laws, rules and regulations. The table below sets forth the purchases made during the fourth quarter of
fiscal 2007.

Issuer Purchases of Equity Securities



|                                     |  |                                |  |                             |  |                                                                           |  |                                                                                       
|------------------------------------ |  | ------------------------------ |  | --------------------------- |  | ------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------
|                                     |  | (a)                            |  | (b)                         |  | (c)                                                                       |  | (d)                                                                                   
|Period                               |  | Total numberof sharespurchased |  | Average pricepaid per share |  | Total numbershares purchasedas part ofpublicly announcedplans or programs |  | Maximum dollar valueof shares that may yetbe purchased underplans or programs(in 000s)
|10/01/2007 to 10/31/2007             |  | 580,708                        |  | 17.41                       |  | 580,708                                                                   |  | 980                                                                                   
|11/01/2007 to 11/30/2007             |  | 496,486                        |  | 15.73                       |  | 496,486                                                                   |  | 68,171                                                                                
|12/01/2007 to 12/31/2007             |  | 416,221                        |  | 14.90                       |  | 416,221                                                                   |  | 61,968                                                                                
|Total for fiscal 2007 fourth quarter |  | 1,493,415                      |  | 16.15                       |  | 1,493,415                                                                 |  | 61,968                                                                                



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##### Table of Contents

STOCK PERFORMANCE GRAPH

The graph set forth below compares the cumulative total stockholder return on the Companys Common Stock between December 31, 2002 and
December 31, 2007 with the cumulative total return (i) The Total Return Index for the NASDAQ Stock Market (US Companies) (The NASDAQ Stock Market-US Index) and (ii) Standard and Poors Information Technology Index
(S&P IT Index), over the same period. This graph assumes $100 investment at the beginning of such period and the reinvestment of all dividends. The Comparisons shown on the graph below are based on historical data. The historical
data for the Company has been retroactively restated for the one-for-ten reverse split that became effective as of June 10, 2005. The Company cautions that the stock performance shown in the graph below is not indicative of, nor is it intended
to forecast, the potential future performance of the Companys common stock.

LOGO

Cumulative Total Return



|                           |  |        |  |        |  |        |  |        |  |        |  |       
|-------------------------- |  | ------ |  | ------ |  | ------ |  | ------ |  | ------ |  | ------
|                           |  | 12/02  |  | 12/03  |  | 12/04  |  | 12/05  |  | 12/06  |  | 12/07 
|Vignette Corporation       |  | 100.00 |  | 185.00 |  | 113.28 |  | 132.93 |  | 139.12 |  | 119.07
|NASDAQ Composite           |  | 100.00 |  | 149.75 |  | 164.64 |  | 168.60 |  | 187.83 |  | 205.22
|S&P Information Technology |  | 100.00 |  | 147.23 |  | 150.99 |  | 152.49 |  | 165.32 |  | 192.28



26



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##### Table of Contents

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

The following selected
consolidated financial data should be read in conjunction with our consolidated financial statements and notes thereto, Managements Discussion and Analysis of Financial Condition and Results of Operations and other financial data
included elsewhere in this Annual Report on Form 10-K. The consolidated statements of operations data for the years ended December 31, 2007, 2006 and 2005 and the consolidated balance sheet data at December 31, 2007 and 2006 are derived
from audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The consolidated statements of operations data for the years ended December 31, 2004 and 2003 and the consolidated balance sheet data at
December 31, 2005, 2004 and 2003 are derived from audited consolidated financial statements not included in this Annual Report on Form 10-K.



|                                                                                     |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------------------ |  | ------------------------------------- | ------- | - | ---- | - | ------- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                                     |  | Year ended December 31,               |        
|                                                                                     |  | 2007                                  |         |   | 2006 |   | 2005    |  |   | 2004    |   |  | 2003 |        
|Consolidated Statements of Operations Data:                                          |  | (in thousands, except per share data) |        
|Revenue:                                                                             |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Product license                                                                      |  | $                                     | 56,059  |   |      | $ | 66,368  |  | $ | 70,316  |   |  | $    | 63,152  |   |  | $ | 60,986  |  
|Services                                                                             |  |                                       | 135,755 |   |      |   | 131,206 |  |   | 120,359 |   |  |      | 114,775 |   |  |   | 97,328  |  
|                                                                                     |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Total revenue                                                                        |  |                                       | 191,814 |   |      |   | 197,574 |  |   | 190,675 |   |  |      | 177,927 |   |  |   | 158,314 |  
|Cost of revenue:                                                                     |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Product license                                                                      |  |                                       | 1,731   |   |      |   | 2,548   |  |   | 2,911   |   |  |      | 5,036   |   |  |   | 2,844   |  
|Amortization of acquired technology                                                  |  |                                       | 5,016   |   |      |   | 5,017   |  |   | 6,267   |   |  |      | 10,115  |   |  |   | 3,450   |  
|Services (1)                                                                         |  |                                       | 61,879  |   |      |   | 60,399  |  |   | 55,427  |   |  |      | 53,281  |   |  |   | 39,531  |  
|                                                                                     |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Total cost of revenue                                                                |  |                                       | 68,626  |   |      |   | 67,964  |  |   | 64,605  |   |  |      | 68,432  |   |  |   | 45,825  |  
|                                                                                     |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Gross profit                                                                         |  |                                       | 123,188 |   |      |   | 129,610 |  |   | 126,070 |   |  |      | 109,495 |   |  |   | 112,489 |  
|Operating expenses:                                                                  |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Research and development (1)                                                         |  |                                       | 30,990  |   |      |   | 34,013  |  |   | 33,212  |   |  |      | 40,140  |   |  |   | 40,247  |  
|Sales and marketing (1)                                                              |  |                                       | 62,041  |   |      |   | 70,192  |  |   | 68,080  |   |  |      | 74,441  |   |  |   | 68,229  |  
|General and administrative (1)                                                       |  |                                       | 19,564  |   |      |   | 17,941  |  |   | 20,291  |   |  |      | 18,571  |   |  |   | 16,441  |  
|Purchased in-process research and development, acquisition-related and other charges |  |                                       |        |   |      |   |        |  |   | 270     |   |  |      | 7,609   |   |  |   | 4,258   |  
|Business restructuring charges (benefit)                                             |  |                                       | (80     | ) |      |   | 150     |  |   | (2,899  | ) |  |      | 18,083  |   |  |   | (14,687 | )
|Amortization of intangible assets                                                    |  |                                       | 3,384   |   |      |   | 3,720   |  |   | 5,003   |   |  |      | 4,919   |   |  |   | 1,965   |  
|                                                                                     |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Total operating expenses                                                             |  |                                       | 115,899 |   |      |   | 126,016 |  |   | 123,957 |   |  |      | 163,763 |   |  |   | 116,453 |  
|                                                                                     |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) from operations                                                        |  |                                       | 7,289   |   |      |   | 3,594   |  |   | 2,113   |   |  |      | (54,268 | ) |  |   | (3,964  | )
|Other income, net                                                                    |  |                                       | 11,845  |   |      |   | 10,613  |  |   | 20,710  |   |  |      | 2,895   |   |  |   | 5,068   |  
|                                                                                     |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) before provision for income taxes                                      |  |                                       | 19,134  |   |      |   | 14,207  |  |   | 22,823  |   |  |      | (51,373 | ) |  |   | 1,104   |  
|Provision for (benefit from) income taxes                                            |  |                                       | (5,691  | ) |      |   | 1,888   |  |   | 2,429   |   |  |      | 1,482   |   |  |   | 1,137   |  
|                                                                                     |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Net income                                                                           |  | $                                     | 24,825  |   |      | $ | 12,319  |  | $ | 20,394  |   |  | $    | (52,855 | ) |  | $ | (33     | )
|                                                                                     |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Basic net income per common share                                                    |  | $                                     | 0.90    |   |      | $ | 0.42    |  | $ | 0.70    |   |  | $    | (1.86   | ) |  | $ | (0.00   | )
|                                                                                     |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Diluted net income per common share                                                  |  | $                                     | 0.89    |   |      | $ | 0.41    |  | $ | 0.68    |   |  | $    | (1.86   | ) |  | $ | (0.00   | )
|                                                                                     |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Shares used in computing basic net income per common share                           |  |                                       | 27,501  |   |      |   | 29,658  |  |   | 29,181  |   |  |      | 28,381  |   |  |   | 25,310  |  
|Shares used in computing diluted net income per common share                         |  |                                       | 27,783  |   |      |   | 29,878  |  |   | 29,807  |   |  |      | 28,381  |   |  |   | 25,310  |  
|(1)    Includes stock based compensation as follows:                                 | 
|                                                                                     | 
|                                                                                     |  | Year ended December 31,               |        
|                                                                                     |  | 2007                                  |         |   | 2006 |   | 2005    |  |   | 2004    |   |  | 2003 |        
|Cost of revenue  services                                                           |  | $                                     | 290     |   |      | $ | 420     |  | $ |        |   |  | $    |        |   |  | $ |        |  
|Research and development                                                             |  |                                       | 511     |   |      |   | 278     |  |   | 12      |   |  |      | (71     | ) |  |   | 324     |  
|Sales and marketing                                                                  |  |                                       | 907     |   |      |   | 706     |  |   | 124     |   |  |      | (48     | ) |  |   | 69      |  
|General and administrative                                                           |  |                                       | 2,522   |   |      |   | 1,790   |  |   | 698     |   |  |      | 599     |   |  |   | 714     |  
|                                                                                     |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|                                                                                     |  | $                                     | 4,230   |   |      | $ | 3,194   |  | $ | 834     |   |  | $    | 480     |   |  | $ | 1,107   |  
|                                                                                     |  |                                       |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |         |  



27



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##### Table of Contents

Actual compensation cost for the years ended December 31, 2007 and 2006 has been recognized using
the fair value method as required by Statement 123R and has been included in the determination of net income and net income per share. Prior to the adoption of Statement 123R in 2006, the only stock based compensation expense related to restricted
stock and not stock options. See Footnote 5 to the Financial Statements for pro forma information for the year ended December 31, 2005, regarding net income and net income per share as required by SFAS 123 as if the Company had accounted for
its employee stock plans under the fair value method of SFAS 123.



|                                                  |  |                    |         |      |   |         |  |      |         |      |   |         |  |   |        
|------------------------------------------------- |  | ------------------ | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                                  |  | As of December 31,
|                                                  |  | 2007               |         | 2006 |   | 2005    |  | 2004 |         | 2003
|                                                  |  | (in thousands)    
|Consolidated Balance Sheet Data:                  |  |                    |         |      |   |         |  |      |         |      |   |         |  |   |        
|Cash, cash equivalents and short-term investments |  | $                  | 148,177 |      | $ | 204,454 |  | $    | 197,057 |      | $ | 164,363 |  | $ | 239,513
|Working capital                                   |  |                    | 112,142 |      |   | 169,268 |  |      | 165,319 |      |   | 126,406 |  |   | 205,749
|Long-term investments in marketable securities    |  |                    | 27,096  |      |   | 11,688  |  |      |        |      |   |        |  |   |       
|Total assets                                      |  |                    | 378,133 |      |   | 421,152 |  |      | 417,161 |      |   | 405,456 |  |   | 366,116
|Total liabilities                                 |  |                    | 81,301  |      |   | 83,365  |  |      | 87,052  |      |   | 98,638  |  |   | 84,770 
|Total shareholders equity                        |  |                    | 296,832 |      |   | 337,787 |  |      | 330,109 |      |   | 306,818 |  |   | 281,346



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

This section and other parts of this Form 10-K contain forward-looking statements that involve risks and uncertainties. Forward-looking statements
can also be identified by words such as anticipates, expects, believes, plans, predicts, and similar terms. Forward-looking statements are not guarantees of future performance and the
Companys actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the subsection entitled Risk
Factors above. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this Form 10-K. All information presented herein is based on the Companys fiscal
calendar. Unless otherwise stated, references in this report to particular years or quarters refer to the Companys fiscal years ended in December and the associated quarters of those fiscal years. The Company assumes no obligation to revise or
update any forward-looking statements for any reason, except as required by law.

Overview

Vignette develops and sells software for managing and delivering business content. Our software products, which fall into various standard industry
categories, including Web content management, portal, collaboration, integration and interaction management, document and records management and imaging and workflow, enable organizations to build, manage and deploy information-based applications.
Vignettes software helps organizations improve their interactions with key audiences, including customers, prospects, employees, partners, patients and citizens, by making it possible for them to deliver online experiences that support their
larger business goals. We place particular emphasis on supporting online experiences that are personal, social, transactional and ubiquitous. Our early content management and delivery tools laid the groundwork for some of the Webs most
influential and popular sites. Today, our award-winning solutions continue to power some of the worlds most prominent online brands and enable organizations to have more meaningful interactions with all of their important constituencies.

Organizations in virtually every industry are undertaking next-generation Web initiatives. In general, a renewed focus on growth has led
these organizations to re-examine, among other things, the quality of the online experience they provide to their key audiences. From Vignettes perspective, improving the online experience demands better management and delivery of business
content. Vignettes best customers derive the greatest value from this content at the point of customer interaction, particularly when that point of interaction is online.



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Vignettes Web Experience Platform helps our customers improve the way they connect with
their key audiences online. It gives them tools for building great online experiences that support the organizations larger goals (creating a more socialonline experience, for example, where visitors spend more time on a site or are
encouraged to provide product feedback can serve an organizations desire to grow online product sales or to shorten product development cycles). Vignettes platform also provides numerous ways to improve the organizations management
of the content that fuels the online experience (and that online visitors create).

Vignettes platform helps organizations create
online experiences that are more personal. It helps them create large, feature-rich online communities with the interactivity and content contribution that todays audiences expect and the performance and scalability that global enterprises
require. Vignettes platform also supports the creation of Web experiences that are of consistently high quality regardless of location, time of day, or device (computer, television, mobile phone, PDA, kiosk, etc.).

Some of our customers also want to use the online channel to connect customers and other key audiences with internal business processes. In particular,
public sector organizations and commercial organizations in the financial services, insurance and healthcare industries are making technology investments that allow them to extend business activities  loan origination, case processing,
customer service and similar processes  to the Web. Vignettes Imaging and Workflowsolution, a component of the Vignette Web Experience Platform is expressly designed to provide these capabilities.

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

Vignette Content Management manages business content of
virtually any type (text, images, video, compound content types, etc.) and ensures the delivery of that content to Web sites. It is especially suited to large organizations that maintain many separate Web sites for distinct sets of constituents
because it eliminates the inevitable issues of versioning, redundancy, currency, and so on, that are common to complex Web environments. It is designed to separate content from its delivery, which makes it easy to repurpose content across multiple
sites that may look and behave very differently. This separation of content and delivery also makes it easy for Vignette customers to offer Web experiences that are of consistent quality regardless of Web device. A great deal of design effort has
gone into making Vignette Content Management accessible to non-technical people, which means that much of the day-to-day responsibility for an organizations online experience can reside with customer-focused business people, not technical
personnel.

Vignette Portal lets organizations build and deliver highly customizable Web experiences tailored to the requirements of
audiences such as employees, partners and customers. A portal application typically combines in a single view or screen a number of visual objects, each of which can be linked to an application or another Web page. Vignette Portal lets organizations
create such composite applications particularly rapidly.

Vignette Collaboration creates workspaces, where teams can share, capture
and search information. This helps organizations reduce the risk of knowledge being lost. It breaks down many of the communication and collaboration barriers that exist in geographically dispersed organizations. Encouraging fluid online
collaboration can also improve business relationships across departments and between organizations and their key constituencies.

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



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

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

Vignette Rich
Media Servicesis of particular value to organizations that must manage large volumes of images, podcasts, Adobe Flash files and video content. These and other types of rich media pose special challenges for editors responsible for managing
libraries of this content and for the approval, categorizations, tagging and publishing of these assets. Rich Media Services helps organizations get their rich media assets under control and productively incorporated into each organizations
particular online experience.

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

Vignette Dialog augments everyday email by delivering highly personalized content to the intended recipients at the designated time through online
and offline touch points. A simple, graphical environment allows business users to create planned, multi-step conversations that can be triggered by virtually any type of event, including opening an email, failing to open an email, filling out a
form on a Web site, completing a purchase, attending an event or placing a customer service call.

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

2007 Highlights

NOTE: Period over period changes and percentages are calculated based on actual numbers and not the rounded numbers presented in this Form 10-K. As such, rounding differences could occur when recalculating the numbers stated
throughout the Form 10-K.

Operating Results

The company reported a 102% increase in net income for fiscal year 2007 versus fiscal year 2006, reporting $24.8 million compared to $12.3 million in the prior year. The Company also posted operating income for fiscal
year 2007 of $7.3 million compared to operating income of $3.6 million for fiscal year 2006, an increase of 103% which led to an increase in the operating margin percentage for fiscal 2007 of 3.8% versus 1.8% for fiscal



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2006. The improved results were driven by our continuing focus on cost control and efficiency in our business, a solid performance by our services
organization and a one-time deferred tax valuation allowance adjustment to the income tax provision. In the fourth quarter of 2007, the Company had operating income of $3.0 million as compared to operating income of $4.7 million for the fourth
quarter of 2006. The decrease was due primarily to higher sales and marketing expenses of $1.6 million as we increased spending on headcount related items.

Total revenue for fiscal year 2007 was $191.8 million, a decrease of 3% over the fiscal year 2006 revenue of $197.6 million. Services revenue increased $4.5 million or 3% and license revenue of $56.1 million declined
$10.3 million or 16% as compared to 2006. License revenues of $18.0 million in the fourth quarter of 2007 were down 6.1% as compared to the fourth quarter of 2006. Maintenance and support revenues of $82.3 million in fiscal 2007 and $20.6 million in
the fourth quarter of 2007 were up 3% and 0.4%, respectively, as compared to 2006. Professional services revenues of $53.4 million in fiscal 2007 and $14.0 million in the fourth quarter of 2007 were up 5.0% and 9.1% as compared to the same period in
2006. International revenue comprised 35% and 32% of total revenue for the year and quarter ended December 31, 2007, respectively. No single customer accounted for more than 10% of our annual or quarterly revenues.

The gross profit margin in fiscal 2007 of 64% decreased $6.4 million or 2% from fiscal 2006 as a result of the lower license revenue. The total costs of
revenue increased $0.6 million to $68.6 million from $68.0 million. The increase was driven by higher costs in our professional services organization of $1.5 million associated with the $2.4 million increase in professional services revenue. This
increase was offset by a decrease in cost of revenue for product license of $0.8 million to $1.7 million from $2.5 million in fiscal 2006, associated with the lower license revenue.

Total expenses, including both cost of revenue and operating expenses, for fiscal 2007 and for the fourth quarter of 2007 were $184.5 million and $49.7
million respectively, as compared to fiscal 2006 and fourth quarter 2006 expenses of $194.0 million and $47.9 million. The primary driver for the decrease in the expenses for fiscal 2007 was a decrease in operating expenses of $10.1 million or 8%.
The $10.1 million is made up primarily of a decrease in research and development expenses of $3.0 million driven by both headcount and facility related costs, a decrease in sales and marketing expenses of $8.2 million driven by a reduction in
headcount related expenses and discretionary spending and an increase in general and administrative expenses of $1.6 million driven by higher professional services fees.

Liquidity decreased during the year with cash, cash equivalents and short term investments reducing by $56.3 million to a total of $148.2 million at December 31, 2007 versus $204.5 million at December 31,
2006. The decrease is as a result of the share repurchase program the company initiated in November 2006 and increased investments in long-term marketable securities. During the year the Company paid $74.2 million to repurchase its common stock and
continues to carry no debt.

Headcount was 667 employees at December 31, 2007 as compared to 670 employees at December 31, 2006
and September 30, 2007.

Outlook

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

We will seek to improve direct and indirect sales channel productivity. We will strive to encourage cross-functional team selling through enhanced team
realignment around customer accounts and regions and meet



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market-specific needs for designated solution areas through specialized teams with subject-matter expertise in areas such as healthcare, imaging and
workflow, next generation web presence and collaborative records and document management. We will continue to focus on the indirect channel as a means to better distribute and expose our software and solutions to the marketplace. We will also
continue to focus on realizing efficiencies and cost-savings across our business.

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

Reverse Stock Split

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

Critical
Accounting Policies and Estimates

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

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



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



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



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



| |  |  | Accounting for income taxes;
| | - |  | ----------------------------



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



| |  |  | 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 support services subscription services, consulting services and training services.



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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, Securities and Exchange Commission Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial
Statements as revised by SAB 104 and Emerging Issues Task Force (EITF) 00-21, Revenue Arrangements with Multiple Deliverables

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

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

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

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

Revenue allocated to subscription services, including implementation
and set-up fees, is recognized ratably over the term of the arrangement beginning on the commencement dates of each contract. We recognize professional services sold with subscription offerings over the term of the related subscription contract as
these services are considered to be inseparable from the subscription service.

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

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



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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.

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

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

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

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

Accounting for income taxes. We account for the effect of income taxes in
accordance with Statement of Financial Accounting Standards 109, Accounting for Income Taxes (SFAS No. 109) and the various interpretations thereof. At the end of each interim period we make our best estimate of the effective
tax rate expected to be applicable for the full fiscal year. This estimated effective tax rate is used to determine income taxes on a current year-to-date basis from ordinary operations. Estimating an effective tax rate involves estimates and
forecasts by management in arriving at an estimated full year tax liability on a legal entity basis. In each successive interim period, to the extent our estimates need to be revised, we expect that our effective tax rate will change accordingly,
affecting tax expense (or benefit) for both that successive interim period as well as year-to-date interim results. In addition to the tax provision attributable to ordinary operations, the income tax expense recorded will also reflect the impact of
discrete adjustments for each interim period.

Deferred tax assets and liabilities result from temporary differences between the GAAP and
tax treatment of certain income and expense. We must assess and make estimates regarding, the likelihood that our deferred tax assets will be recovered. To the extent that we determine that the deferred tax assets will not be recovered, we must
establish a valuation allowance against such assets. In making such a determination, we must take into account positive and negative evidence including projections of future taxable income and assessments of potential tax planning strategies.



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In 2007 we released a portion of the valuation allowance we had recorded against our deferred tax assets
based on the determination that it is now more likely than not that part of the net operating loss carryforward will be realized. Recognition of the deferred tax asset was primarily based on Managements conclusions regarding our ability to
utilize net operating losses and other deferred tax assets to offset income in future periods. Although we anticipate the company will continue its trend of recent profitability and that some portion of the valuation allowance will be reduced in
future periods, a subsequent decrease in the forecast in the future periods or future losses might require an increase to the valuation allowance resulting in a potentially material charge to income tax expense in future periods.

Tax contingencies are provided for in accordance with the requirements of FASB Interpretation No. 48, Accounting for Uncertainties in Income
Taxes(FIN 48). Although we believe that we have appropriate support for the positions taken on our tax filings across all of the jurisdictions in which we operate, we must evaluate potential uncertainties and record a liability for
our best estimate of the probable loss on these positions. We believe that our accruals related to such uncertainties are adequate for all open years, based on our assessment of many factors including past experience and interpretations of tax law
applied to the facts of each matter. However, the final determination of tax audits and any related litigation could be materially different than that which is reflected in historical income tax provisions and recorded assets and liabilities,
necessitating a material adjustment to our income tax provision, net income, or cash flows in the period or periods in which such determination is made. The balance of unrecognized tax benefits was $10.7 million and $10.9 million at
December 31, 2007 and 2006, respectively.

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

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



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Results of Operations

The following table sets forth, for the periods indicated, certain items from our consolidated statements of operations, expressed as a percentage of total revenues:



|                                          |  |                        |   |  |      |   |  |      |  
|----------------------------------------- |  | ---------------------- | - |  | ---- | - |  | ---- | -
|                                          |  | Year EndedDecember 31, |  
|                                          |  | 2007                   |   |  | 2006 |   |  | 2005 |  
|Revenue:                                  |  |                        |   |  |      |   |  |      |  
|Product license                           |  | 29                     | % |  | 34   | % |  | 37   | %
|Services                                  |  | 71                     |   |  | 66   |   |  | 63   |  
|                                          |  |                        |   |  |      |   |  |      |  
|Total revenue                             |  | 100                    |   |  | 100  |   |  | 100  |  
|Cost of revenue:                          |  |                        |   |  |      |   |  |      |  
|Product license                           |  | 1                      |   |  | 1    |   |  | 2    |  
|Amortization of acquired technology       |  | 3                      |   |  | 3    |   |  | 3    |  
|Services                                  |  | 32                     |   |  | 30   |   |  | 29   |  
|                                          |  |                        |   |  |      |   |  |      |  
|Total cost of revenue                     |  | 36                     |   |  | 34   |   |  | 34   |  
|Gross profit                              |  | 64                     |   |  | 66   |   |  | 66   |  
|Operating expenses:                       |  |                        |   |  |      |   |  |      |  
|Research and development                  |  | 16                     |   |  | 17   |   |  | 17   |  
|Sales and marketing                       |  | 32                     |   |  | 36   |   |  | 36   |  
|General and administrative                |  | 10                     |   |  | 9    |   |  | 11   |  
|Business restructuring charges (benefits) |  |                       |   |  |     |   |  | (2   | )
|Amortization of other intangible assets   |  | 2                      |   |  | 2    |   |  | 3    |  
|                                          |  |                        |   |  |      |   |  |      |  
|Total operating expenses                  |  | 60                     |   |  | 64   |   |  | 65   |  
|                                          |  |                        |   |  |      |   |  |      |  
|Income from operations                    |  | 4                      |   |  | 2    |   |  | 1    |  
|Other income, net                         |  | 6                      |   |  | 5    |   |  | 11   |  
|                                          |  |                        |   |  |      |   |  |      |  
|Income before provision for income taxes  |  | 10                     |   |  | 7    |   |  | 12   |  
|Provision for (benefit from) income taxes |  | (3                     | ) |  | 1    |   |  | 1    |  
|                                          |  |                        |   |  |      |   |  |      |  
|Net income                                |  | 13                     | % |  | 6    | % |  | 11   | %
|                                          |  |                        |   |  |      |   |  |      |  

Comparison of fiscal years ended December 31, 2007, 2006 and 2005 (in thousands, unless otherwise noted)

Revenue



|                        |      |                         |         |                     |      |         |                     |   |         |  |     |    |  |    |   
|----------------------- | ---- | ----------------------- | ------- | ------------------- | ---- | ------- | ------------------- | - | ------- |  | --- | -- |  | -- | --
|                        |      | Year Ended December 31, |         | 2007Comparedto 2006 |      |         | 2006Comparedto 2005 |  
|                        | 2007 |                         | 2006    |                     | 2005 |         |                    
|Product license         |      | $                       | 56,059  |                     | $    | 66,368  |                     | $ | 70,316  |  | (16 | )% |  | (6 | )%
|Services Revenue        |      |                         |         |                     |      |         |                     |   |         |  |     |    |  |    |   
|Subscription services   |      |                         | 11      |                     |      |        |                     |   |        |  | 100 |    |  |   |   
|Maintenance and support |      |                         | 82,315  |                     |      | 80,218  |                     |   | 75,077  |  | 3   |    |  | 7  |   
|Professional services   |      |                         | 53,429  |                     |      | 50,988  |                     |   | 45,282  |  | 5   |    |  | 13 |   
|                        |      |                         |         |                     |      |         |                     |   |         |  |     |    |  |    |   
|Total services revenue  |      |                         | 135,755 |                     |      | 131,206 |                     |   | 120,359 |  | 3   |    |  | 9  |   
|                        |      |                         |         |                     |      |         |                     |   |         |  |     |    |  |    |   
|Total revenue           |      | $                       | 191,814 |                     | $    | 197,574 |                     | $ | 190,675 |  | (3  | )% |  | 4  | % 
|                        |      |                         |         |                     |      |         |                     |   |         |  |     |    |  |    |   

Total revenue decreased 3% in 2007 and increased 4% in 2006. The decrease in revenue in 2007 is
due to decreased license revenue offset by increases in both maintenance and support and professional services. The increase in 2006 from 2005 was also due to decreased license revenue offset by increases in both maintenance and support and
professional services.



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Product license. Product license revenue decreased 16% in 2007 and decreased 6% in 2006.
The decrease in 2007 is a result of significant attrition in our sales organization and an insufficient pipeline of new software sales opportunities. The decrease in 2006 was a result of inconsistent ales execution and sales force attrition in the
latter part of the year. The total number of sales and support personnel was 177 as of December 31, 2007 versus 171 as of December 31, 2006.

Services. Services revenue increased 3% in 2007 and 9% in 2006. The increase in 2007 is attributable to both maintenance and support and professional services. The increase in maintenance and
support is attributable to continued strong renewal rates and price increases across our customer base. The increase in professional services is due to our continued focus on providing additional capacity via third party resources. The increase in
professional services in 2006 was due primarily to more effective selling of our services to the Companys installed base of customers. The increase in maintenance and support in 2006 was attributable primarily to an inflationary index related
increase in rates.

During fiscal years 2007, 2006 and 2005, no single customer accounted for more than 10% of our total revenues.
International revenue was $67.2 million, $74.8 million and $74.6 million, or 35%, 38% and 39% of total revenues, in 2007, 2006 and 2005, respectively.

Gross Profit

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

Gross profit amounts and percentages are as follows:



|                                    |      |                         |         |      |                     |   |         |                     |  |   |         |   |  |     |    |  |    |   
|----------------------------------- | ---- | ----------------------- | ------- | ---- | ------------------- | - | ------- | ------------------- |  | - | ------- | - |  | --- | -- |  | -- | --
|                                    |      | Year Ended December 31, |         |      | 2007Compared to2006 |   |         | 2006Compared to2005 | 
|                                    | 2007 |                         |         | 2006 |                     |   | 2005    |                     |  |  
|Product license                     |      | $                       | 54,328  |      |                     | $ | 63,820  |                     |  | $ | 67,405  |   |  | (15 | )% |  | (5 | )%
|Services:                           |      |                         |         |      |                     |   |         |                     |  |   |         |   |  |     |    |  |    |   
|Subscription services               |      |                         | 11      |      |                     |   |        |                     |  |   |        |   |  | 100 |    |  |   |   
|Maintenance and support             |      |                         | 69,356  |      |                     |   | 67,209  |                     |  |   | 61,707  |   |  | 3   |    |  | 9  |   
|Professional services               |      |                         | 4,509   |      |                     |   | 3,598   |                     |  |   | 3,225   |   |  | 25  |    |  | 11 |   
|                                    |      |                         |         |      |                     |   |         |                     |  |   |         |   |  |     |    |  |    |   
|Total services                      |      |                         | 73,876  |      |                     |   | 70,807  |                     |  |   | 64,932  |   |  | 4   |    |  | 9  |   
|                                    |      |                         |         |      |                     |   |         |                     |  |   |         |   |  |     |    |  |    |   
|Amortization of acquired technology |      |                         | (5,016  | )    |                     |   | (5,017  | )                   |  |   | (6,267  | ) |  |    |    |  | 20 |   
|                                    |      |                         |         |      |                     |   |         |                     |  |   |         |   |  |     |    |  |    |   
|Total gross profit                  |      | $                       | 123,188 |      |                     | $ | 129,610 |                     |  | $ | 126,070 |   |  | (5  | )% |  | 3  | % 
|                                    |      |                         |         |      |                     |   |         |                     |  |   |         |   |  |     |    |  |    |   

As a percent of sales, gross profit represented 64%, 66% and 66% in 2007, 2006 and 2005,
respectively. Even though there was a slight decrease in gross margin in 2007 there were no significant changes in the direct costs of the Companys products or services. The decrease in gross profit, which was $6.4 million or 5% lower than
2006, is consistent with the 3% decrease in total revenue in 2007.



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Operating expenses



|                                                                                     |      |                         |         |      |                     |      |                     |  |   |         |   |  |                |  |               
|------------------------------------------------------------------------------------ | ---- | ----------------------- | ------- | ---- | ------------------- | ---- | ------------------- |  | - | ------- | - |  | -------------- |  | --------------
|                                                                                     |      | Year Ended December 31, |         |      | 2007Compared to2006 |      | 2006Compared to2005
|                                                                                     | 2007 |                         |         | 2006 |                     | 2005 |                     |  |  
|Research and development                                                             |      | $                       | 30,990  |      |                     | $    | 34,013              |  | $ | 33,212  |   |  | (9)%           |  | 2%            
|Sales and marketing                                                                  |      |                         | 62,041  |      |                     |      | 70,192              |  |   | 68,080  |   |  | (12)           |  | 3             
|General and administrative                                                           |      |                         | 19,564  |      |                     |      | 17,941              |  |   | 20,291  |   |  | 9              |  | (12)          
|Purchased in-process research and development, acquisition-related and other charges |      |                         |        |      |                     |      |                    |  |   | 270     |   |  |               |  | (100)         
|Business restructuring charges (benefits)                                            |      |                         | (80     | )    |                     |      | 150                 |  |   | (2,899  | ) |  | Not meaningful |  | Not meaningful
|Amortization of other intangible assets                                              |      |                         | 3,384   |      |                     |      | 3,720               |  |   | 5,003   |   |  | (9)            |  | (26)          
|                                                                                     |      |                         |         |      |                     |      |                     |  |   |         |   |  |                |  |               
|Total operating expenses                                                             |      | $                       | 115,899 |      |                     | $    | 126,016             |  | $ | 123,957 |   |  | (8)%           |  | 2%            
|                                                                                     |      |                         |         |      |                     |      |                     |  |   |         |   |  |                |  |               

Research and development.Research and development expenses consist primarily
of personnel costs to support product development. Research and development expenses decreased 9% in 2007 and increased 2% in 2006. The decrease in research and development in 2007 is due to lower headcount related expenses as we continued to invest
more heavily in our overseas development resource. The increase in research and development in 2006 was due to increased salaries and wages as onshore headcount increased in 2006.

The Company did not capitalize any software development costs in accordance with Statement of Financial Accounting Standards No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, for fiscal years 2007, 2006 and 2005, respectively.

Sales and marketing. Sales and marketing expenses consist primarily of salaries and other related costs for sales and marketing personnel, sales commissions, public relations, marketing materials and tradeshows as well
as bad debt charges. Sales and marketing expenses decreased 12% in 2007 and increased 3% in 2006. The decrease in 2007 is as a result of the attrition we experienced at the end of 2006 and the early part of 2007. The increase in 2006 was due to the
increased marketing efforts in the health care vertical and regional marketing expenses during the first half of 2006.

General and
administrative. General and administrative expenses consist primarily of salaries and other related costs for human resources, finance, accounting, facilities, information technology and legal employees. General and administrative
expenses increased 9% in 2007 and decreased 12% in 2006. The increase in 2007 is due to increased investment in outside professional services. The decrease in 2006 was due to reduced costs for regulatory reporting and lower professional services.

Purchased in-process research and development, acquisition-related and other charges. The Company made a series of
complimentary business acquisitions through the periods ended December 31, 2004. In connection with each of our acquisitions, we incurred one-time acquisition costs and integration-related charges. Such charges relate to product integration,
cross-training of employees and other merger-related items. In our acquisitions, a portion of the purchase price was allocated to in-process research and development and was expensed upon the consummation of the respective transaction. The Company
recorded no acquisition related charges in 2007 or 2006 and $0.3 million in 2005. Components of acquisition-related charges and the remaining accruals are presented in Note 3  Business Combinations and Acquired In-Process Research and
Development in our Notes to Consolidated Financial Statements.

Business restructuring charges (benefits). In 2001, we
initiated a restructuring program to align our expense and revenue levels and to better position us for growth and profitability. In 2002, 2003 and 2004, we expanded those restructuring efforts. Although we have substantially implemented our
restructuring activities, there can be no assurance that the estimated costs of our restructuring efforts will not change. Components of



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business restructuring charges and the remaining restructuring accruals are presented inNote 6  Business Restructuring in our Notes to
Consolidated Financial Statements.,

Amortization of other intangible assets. Amortization of other intangible assets
includes amortization of customer relationships and non-compete contracts. Amortization expenses related to acquired technology are recorded in cost of revenue. Other intangible amortization expense decreased $0.3 million and 9% in 2007. This
decrease relates to the decline in amortization expense for assets acquired as part of the Tower Technology acquisition as the remaining unamortized cost continues to decline. Amortization expense is recorded ratably over the estimated useful lives
of the other intangible assets, which range from two to six years. Components of other intangible assets are presented inNote 4  Intangible Assets in our Notes to Consolidated Financial Statements.

Other income, net.

Other income, net for the
years ended December 31, 2007, 2006 and 2005 were as follows (in thousands):



|                            |      |                         |        |                     |      |        |                     |   |        |  |     |   |  |     |   
|--------------------------- | ---- | ----------------------- | ------ | ------------------- | ---- | ------ | ------------------- | - | ------ |  | --- | - |  | --- | --
|                            |      | Year Ended December 31, |        | 2007Compared to2006 |      |        | 2006Compared to2005 |  
|                            | 2007 |                         | 2006   |                     | 2005 |        |                    
|Interest income             |      | $                       | 10,062 |                     | $    | 9,875  |                     | $ | 5,890  |  | 2   | % |  | 68  | % 
|Other income (expense), net |      |                         | 1,783  |                     |      | 738    |                     |   | 14,820 |  | 142 | % |  | (95 | )%
|                            |      |                         |        |                     |      |        |                     |   |        |  |     |   |  |     |   
|                            |      | $                       | 11,845 |                     | $    | 10,613 |                     | $ | 20,710 |  | 12  | % |  | (49 | )%
|                            |      |                         |        |                     |      |        |                     |   |        |  |     |   |  |     |   

Other income (expense), net is composed of recognized investment gains, foreign currency exchange
realized and unrealized gains/(losses), gains on sale of intellectual property and/or disposed equipment and purchase accounting credits.

Other income (expense), net increased in 2007 as compared to 2006 due to a $0.8 million increase in foreign currency exchange realized and unrealized gains, a $0.3 million one time gain on the sale of intellectual property in the first
quarter of 2007, a $0.5 million accrual adjustment in the fourth quarter of 2007, offset slightly by a $0.5 million purchase accounting credit recorded by the Company in the first quarter of 2006 related to the releasing of a liability recorded for
the Tower Technology purchase in the first quarter of 2004.

Interest income increased in 2006 as compared to 2005 due to the higher cash
balances and higher yields on invested funds. Other income (expense), net decreased in 2006 as compared to 2005 due to a one time gain on the sale of equity investments in 2005 in the amount of approximately $13.0 million. The gain on the sale of
equity investments in 2005 was due to the sale of equity securities in privately held technology companies, the largest of which was a sale of Shopzilla for approximately $600 million to EW Scripps Company, in which the Company owned approximately
2%. The Company had no carrying cost in the asset at the time of the sale due to previous impairment charges.

Provision for (benefit from) income
taxes

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



|                           |      |                         |       |                     |  |      |                     |  |   |       |  |      |    |  |     |   
|-------------------------- | ---- | ----------------------- | ----- | ------------------- |  | ---- | ------------------- |  | - | ----- |  | ---- | -- |  | --- | --
|                           |      | Year Ended December 31, |       | 2007Compared to2006 |  |      | 2006Compared to2005 | 
|                           | 2007 |                         |       | 2006                |  | 2005 |                     | 
|Provision for income taxes |      | ($                      | 5,691 | )                   |  | $    | 1,888               |  | $ | 2,429 |  | (398 | )% |  | (22 | )%

Our accounting for deferred taxes under SFAS 109 involves the evaluation of a number of factors
concerning the realizability of our deferred tax assets. In 2007, we released $9.8 million of the valuation



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allowance we had recorded against our net deferred tax asset based on the determination that it is now more likely than not that part of the benefit related
to the net operating loss carryforward will be realized. Approximately $7.4 million of the benefit from release of the valuation allowance was recorded as a benefit to our income tax provision and the remaining $2.4 million related to assets of
acquired companies and was recorded as a reduction of goodwill. In concluding that releasing part of the valuation allowance was appropriate, we have considered such factors as our operating history and our ability, based on a projection, to
generate sufficient taxable income of the appropriate character within the relevant jurisdictions in future years. We cannot currently estimate the changes in deferred tax asset valuation allowance that may be appropriate in future periods.

As of December 31, 2007, we had domestic federal net operating loss, research and development credit and capital loss carry forwards
of approximately $745.0 million, $16.3 million and $15.2 million, respectively. These domestic net operating loss, research and development credit and capital loss carry forwards will expire at various dates, between 2008 and 2027, if not utilized.
The Company also had foreign net operating loss carry forwards of approximately $12.4 million that are not subject to expiration.

Internal
Revenue Code Section 382 and similar foreign statutes impose substantial restrictions on the utilization of net operating losses, tax credits and capital loss carry forwards in the event of an ownership change of a corporation.
Domestic net operating loss carry forwards of approximately $151.1 million and tax credit carry forwards of $4.4 million at December 31, 2007 were incurred by businesses we acquired and are subject to annual limitation. The remaining tax
attributes that would be subject to annual limitations upon an ownership change include domestic net operating loss carry forwards of $593.8 million, foreign net operating loss carry forwards of $3.2 million, capital loss carry forwards
of $15.2 million and research and development credit carry forwards of $11.9 million. Based upon a review of historical stock ownership, we do not believe we have undergone an ownership change that will severely limit our ability to
utilize these tax attributes prior to their expiration. In the event that an ownership change occurs in the future, application of the change in ownership statutes might result in substantial limitation on the utilization of these tax attributes
from that point forward.

Further discussion of our provision for income taxes and our deferred tax asset and valuation allowance are
presented in Note 9  Income Taxesin our Notes to Consolidated Financial Statements.

Liquidity and Capital Resources

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



|                          |  |                         |         |      |   |         |  |   |        
|------------------------- |  | ----------------------- | ------- | ---- | - | ------- |  | - | -------
|                          |  | Year Ended December 31,
|                          |  | 2007                    |         | 2006 |   | 2005   
|Cash and cash equivalents |  | $                       | 94,201  |      | $ | 98,832  |  | $ | 124,104
|Short-term investments    |  | $                       | 53,976  |      | $ | 105,622 |  | $ | 72,953 
|Working capital           |  | $                       | 112,142 |      | $ | 169,268 |  | $ | 165,319
|Current ratio             |  |                         | 2.4:1   |      |   | 3.2:1   |  |   | 3.1:1  
|Days of sales outstanding |  |                         | 64      |      |   | 61      |  |   | 69     

At December 31, 2007, we had $148.2 million in cash, cash equivalents and short-term
investments and no debt. We invest cash exceeding our operating requirements in short or long-term, investment-grade securities and classify these investments as available-for-sale.

Net cash provided by operating activities was $29.9 million, $27.7 million and $16.7 million, in 2007, 2006 and 2005, respectively. The increases in
2007, 2006 and 2005 are related to the improved operating performance of the Company.

Net cash provided by (used in) investing activities
was $34.5 million, $(46.4) million and $42.0 million, in 2007, 2006 and 2005, respectively. The increase in investing cash flows for 2007 was due to the maturity of



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short-term investments, the proceeds from which were utilized in our share repurchase program. The decrease in investing cash flows for 2006 was due to the
purchase of both short-term and long-term investments in order to take advantage of rising yields for longer term investments.

Net cash
provided by (used in) financing activities was $(70.3) million, $(7.7) million and $2.8 million in 2007, 2006 and 2005, respectively. Our financing activities consisted primarily of employee stock option exercises and shares purchased under employee
stock purchase plans. However, in the fourth quarter of 2006 the Company spent $12.6 million to repurchase common stock of the Company under a $75 million repurchase plan that was announced on November 12, 2006. The Company spent a further
$74.2 million during 2007 under a combination of the original repurchase plan and a $75 million extension that was announced on November 2, 2007.

We believe that we have sufficient capital resources to meet our working capital, capital expenditure and investment requirements for at least the next 12 months.

Contractual Obligations

The following table
summarizes our significant contractual obligations (in thousands) at December 31, 2007 and the effect such obligations are expected to have on our liquidity and cash flows in future periods. This table excludes amounts already recorded on our
balance sheet as current liabilities.



|                                |  |       |        |   |                |   |        |           |  |   |           |   |  |                   |        |   |  |   |      
|------------------------------- |  | ----- | ------ | - | -------------- | - | ------ | --------- |  | - | --------- | - |  | ----------------- | ------ | - |  | - | -----
|                                |  | Total |        |   | Less than 1 Yr |   |        | 1-3 Years |  |   | 3-5 Years |   |  | More than 5 Years
|Operating lease obligations     |  | $     | 19,814 |   |                | $ | 5,722  |           |  | $ | 8,139     |   |  | $                 | 3,350  |   |  | $ | 2,603
|Operating sublease income       |  |       | (6,531 | ) |                |   | (2,101 | )         |  |   | (3,273    | ) |  |                   | (1,157 | ) |  |   |     
|                                |  |       |        |   |                |   |        |           |  |   |           |   |  |                   |        |   |  |   |      
|Net operating lease obligations |  | $     | 13,283 |   |                | $ | 3,621  |           |  | $ | 4,866     |   |  | $                 | 2,193  |   |  | $ | 2,603
|                                |  |       |        |   |                |   |        |           |  |   |           |   |  |                   |        |   |  |   |      

The Company leases its office facilities and various equipment under operating lease agreements
having expiration dates through 2017.

The expected timing of payment of the obligations detailed above is estimated based on current
information. Timing of payments and actual amounts paid may be different depending on the time of receipt of capital or services or changes to agreed-upon amounts for some obligations.

Off-Balance Sheet Arrangements

As of December 31, 2007, we did not have any significant
off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Recent Accounting Pronouncements

SeeNote 2  Summary of Significant Accounting Policies in our Notes to Consolidated Financial Statements for details of recently issued
accounting pronouncements and their expected impact on our financial statements.



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

Foreign Currency Exchange Rate Risk

The majority of our operations are based in the United States of America and
accordingly, the majority of our transactions are denominated in U.S. Dollars. We have operations throughout the Americas, Europe, Asia and Australia where transactions are denominated in the local currency of each location. As a result, our
financial results could be affected by changes in foreign currency exchange rates. We utilize foreign currency forward contracts to hedge foreign currency-denominated payables and receivables. To date, we have not hedged forecasted transactions or
firm commitments denominated in foreign currencies and therefore, financial reporting



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of our foreign operations is subject to foreign currency risk. Gains and losses on hedging contracts are reflected in other income and expense. We typically
limit the duration of our foreign currency forward contracts to 90 days. We do not invest in contracts for speculative purposes. Our foreign exchange exposures are monitored regularly to ensure the overall effectiveness of our foreign currency hedge
positions. As part of this monitoring program, in order to evaluate the effectiveness of our hedging practices, in the second quarter of 2007 we did not replace foreign currency hedge positions which expired and have not yet re-engaged our foreign
currency hedge program. Consequently, at December 31, 2007 we had no foreign currency contracts outstanding. For the year ended December 31, 2007, the Company recognized a foreign exchange gain of $0.2 million including the impact of
foreign exchange contracts.

Interest Rate Risk

Cash, cash equivalents and short-term investments.Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments. Due to the
nature of our short-term investments, we have concluded that we do not have material interest risk exposure. Our investment policy requires us to invest funds in excess of current operating requirements in:



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



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



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



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

Our cash and cash equivalents consisted primarily of commercial paper and money market
funds. Short-term investments consist of marketable securities including corporate notes, corporate bonds and medium-term notes in large U.S. institutions and governmental agencies and auction rate securities. Our marketable securities that are
classified as short-term investments will mature in less than one year from the Companys balance sheet date. Auction rate securities may have nominal maturity dates that are more than one year from the Companys balance sheet date, but
are classified as short term investments by the Company. These securities are classified as available-for-sale and are recorded at their estimated fair value. The Company held no auction rate securities at December 31, 2007 and $42 million at
December 31, 2006.

Long-term investments. At December 31, 2007, long-term investments consisted of long-term marketable
securities, cash collateral pledged for certain lease and tax obligations and a limited partnership interest in a technology incubator. We periodically analyze our long-term investments for impairments that could be considered other than temporary.
In performing this analysis, the Company evaluates whether general market conditions which reflect prospects for the economy as a whole or information pertaining to the specific investments industry, or that individual company, indicates that
an other than temporary decline in value has occurred. If so, the Company considers specific factors, including the financial condition and near-term prospect of each investment, any specific events that may affect the investee company and the
intent and ability of the Company to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value. As a result of such review, the Company recognized no impairment charges during 2007, 2006 or 2005. We
classify our long-term investments as available-for-sale. The Company did not have any long-term marketable securities as of December 31, 2005.

We held $5.3 million and $6.2 million in restricted investments at December 31, 2007 and December 31, 2006, respectively. At December 31, 2007, restricted investments consisted of a certificate of
deposit and investment grade securities placed with a high credit quality financial institution. Such restricted investments collateralize letters of credit related to certain leased office space security deposits and tax obligations. These
investments will remain restricted to the extent that the security requirements exist or until the tax obligations are settled. The average yield of these investments is approximately 4.8%.



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

The
consolidated financial statements and supplementary data required by this item are included in Part IV, Item 15 of this Form 10-K and are presented beginning on page F-1.



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

None.



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

Evaluation of
Disclosure Controls and Procedures

Our management, under supervision and with the participation of the Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of
December 31, 2007, the disclosure controls and procedures were effective to ensure that information required to be disclosed in the Companys Exchange Act reports is recorded, processed, summarized and reported within the time periods
specified in the Securities Exchange Commissions rules and forms.

Managements Report On Internal Control Over Financial
Reporting

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

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

Management assessed the effectiveness of the Companys internal control
over financial reporting as of December 31, 2007. In making this assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
Based on its assessment, management concluded that, as of December 31, 2007, the Companys internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.

Changes in Internal Control Over Financial Reporting

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



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

None



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PART III.



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

The information required by this item is incorporated herein by reference to the information under the sections entitled Proposal No. 1Election of Directors, Executive Officers, Section 16(a)
Beneficial Ownership Reporting Compliance Code of Ethics and Statement on Corporate Governance of our definitive Proxy Statement (the Proxy Statement) to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended, for our Annual Meeting of Stockholders to be held on May 23, 2008. We anticipate filing the Proxy Statement within 120 days of the end of our fiscal year ended December 31, 2007.



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

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



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

The information regarding security ownership of certain beneficial owners and management is incorporated herein by reference from the section entitled
Share Ownership of Certain Beneficial Owners and Management of the Proxy Statement.

The information regarding related
stockholder matters in incorporated herein by reference from the section entitled Related Shareholder Matters of the Proxy Statement.



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------

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



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

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



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PART IV.



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

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

(a) 1.    Financial Statements

Index



|                                                                                                                                          |  |     
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                          |  | Page
|Reports of Independent Registered Public Accounting Firms                                                                                 |  | F-1 
|Consolidated Balance Sheets at December 31, 2007 and December 31, 2006                                                                    |  | F-4 
|Consolidated Statements of Operations for the years ended December 31, 2007, December 31, 2006 and December 31, 2005                      |  | F-5 
|Consolidated Statements of Changes in Shareholders Equity for the years ended December 31, 2007, December 31, 2006 and December 31, 2005 |  | F-6 
|Consolidated Statements of Cash Flows for the years ended December 31, 2007, December 31, 2006 and December 31, 2005                      |  | F-7 
|Notes to Consolidated Financial Statements                                                                                                |  | F-8 

2.    Financial Statement Schedules

All financial statement schedules have been omitted as the information required to be set forth therein is either not applicable or is included in the
consolidated financial statements or the notes thereto.

3.    Exhibits

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

(b) Exhibits



|               |  |                                                                                                |  |                                                                                                   |  |                        
|-------------- |  | ---------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | -----------------------
|Exhibit Number |  | Exhibit Description                                                                            |  | Incorporated by Reference                                                                         |  | File Furnished Herewith
|               |  |                                                                                                | 
|3.1            |  | Certificate of Incorporation of the Registrant.                                                |  | Companys Registration Statement on Form S-1, as amended (File No. 333-68345)                     |  |                        
|               |  |                                                                                                | 
|3.2            |  | Amendment to Certificate of Incorporation of the Registrant.                                   |  | Companys definitive Proxy Statement for Special Meeting of Stockholders, dated February 17, 2000 |  |                        
|               |  |                                                                                                | 
|3.3            |  | Bylaws of the Registrant.                                                                      |  | Companys Registration Statement on Form S-1, as amended (File No. 333-68345)                     |  |                        
|               |  |                                                                                                | 
|3.4            |  | Certificate of Designation of Series A Junior Participating Preferred Stock of the Registrant. |  | Companys Registration Statement on Form 8-A filed on April 30, 2002 (File No. 000-25375)         |  |                        



45



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|               |  |                                                                                                                                      |  |                                                                                           |  |                        
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------- |  | -----------------------
|Exhibit Number |  | Exhibit Description                                                                                                                  |  | Incorporated by Reference                                                                 |  | File Furnished Herewith
|               |  |                                                                                                                                      | 
|3.5            |  | Certificate of Amendment to the Companys Amended and Restated Certificate of Incorporation                                          |  | Companys Form 8K filed on June 10, 2005 (File No. 000-25375)                             |  |                        
|               |  |                                                                                                                                      | 
|4.1            |  | Reference is made to Exhibits 3.1, 3.2. and 3.3                                                                                      |  |                                                                                           |  |                        
|               |  |                                                                                                                                      | 
|4.2            |  | Specimen common stock certificate.                                                                                                   |  | Companys Registration Statement on Form S-1, as amended (File No. 333-68345)             |  |                        
|               |  |                                                                                                                                      | 
|4.3            |  | Rights Agreement dated April 25, 2002 between the Company and Mellon Investor Services, LLC.                                         |  | Companys Registration Statement on Form 8-A filed on April 30, 2002 (File No. 000-25375) |  |                        
|               |  |                                                                                                                                      | 
|10.1           |  | Form of Indemnification Agreements.                                                                                                  |  | Companys Registration Statement on Form S-1, as amended (File No. 333-68345)             |  |                        
|               |  |                                                                                                                                      | 
|10.2           |  | 1995 Stock Option/Stock Issuance Plan and forms of agreements thereunder.                                                            |  | Companys Registration Statement on Form S-1, as amended (File No. 333-68345)             |  |                        
|               |  |                                                                                                                                      | 
|10.3           |  | 1999 Equity Incentive Plan.                                                                                                          |  | Companys Registration Statement on Form S-1, as amended (File No. 333-68345)             |  |                        
|               |  |                                                                                                                                      | 
|10.4           |  | 1999 Supplemental Stock Option Plan.                                                                                                 |  | Companys Form 10-K filed on March 28, 2003 (File No. 000-25375)                          |  |                        
|               |  |                                                                                                                                      | 
|10.7           |  | Lease Agreement dated March 3, 2000 between the Registrant and Prentiss Properties Acquisition Partners, L.P.                        |  | Companys Form 10-K/A filed on March 30, 2001 (File No. 000-25375)                        |  |                        
|               |  |                                                                                                                                      | 
|10.8           |  | First Amendment to Lease Agreement dated September 1, 2000 between the Registrant and Prentiss Properties Acquisition Partners, L.P. |  | Companys Form 10-K/A filed on March 30, 2001 (File No. 000-25375)                        |  |                        
|               |  |                                                                                                                                      | 
|10.9           |  | Sublease dated September 26, 2000 among the Registrant, Aptis, Inc. and Billing Concepts Corp.                                       |  | Companys Form 10-K/A filed on March 30, 2001 (File No. 000-25375)                        |  |                        
|               |  |                                                                                                                                      | 
|10.13          |  | Stock Option Agreement  Bryce M. Johnson.                                                                                           |  | Management agreement or compensatory arrangement                                          |  |                        
|               |  |                                                                                                                                      | 
|10.14          |  | Share Sale Agreement dated January 16, 2004 between the Registrant and Tower Technology Pty Limited.                                 |  | Companys Form 8-K filed on March 5, 2004 (File No. 000-25375)                            |  |                        



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|               |  |                                                                                                                                      |  |                                                                 |  |                        
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------- |  | -----------------------
|Exhibit Number |  | Exhibit Description                                                                                                                  |  | Incorporated by Reference                                       |  | File Furnished Herewith
|               |  |                                                                                                                                      | 
|10.15          |  | Notice of Stock Option Grant and Stock Option Agreement  1999 Supplemental Stock Option Plan                                        |  | Companys Form 10K filed on March 15, 2005 (File No. 000-25375) |  |                        
|               |  |                                                                                                                                      | 
|10.16          |  | 1999 Non-Employee Director Option Plan.                                                                                              |  | Companys Form 10K filed on March 15, 2005 (File No. 000-25375) |  |                        
|               |  |                                                                                                                                      | 
|10.17          |  | Notice of Stock Option Grant and Stock Option Agreement  1999 Non-Employee Director Automatic Option Plan.                          |  | Companys Form 10K filed on March 15, 2005 (File No. 000-25375) |  |                        
|               |  |                                                                                                                                      | 
|10.18          |  | Notice of Stock Option Grant and Stock Option Agreement  1999 Equity Incentive Plan.                                                |  | Companys Form 10K filed on March 15, 2005 (File No. 000-25375) |  |                        
|               |  |                                                                                                                                      | 
|10.19          |  | Lease Agreement dated January 31, 2002 between the Registrant and Prentiss Properties Acquisition Partners, L.P.                     |  | Companys Form 10K filed on March 15, 2005 (File No. 000-25375) |  |                        
|               |  |                                                                                                                                      | 
|10.20          |  | First Amendment to Lease Agreement dated November 12, 2001 between the Registrant and Prentiss Properties Acquisition Partners, L.P. |  | Companys Form 10K filed on March 15, 2005 (File No. 000-25375) |  |                        
|               |  |                                                                                                                                      | 
|10.21          |  | Second Amendment to Lease Agreement dated July 22, 2003 between the Registrant and Prentiss Properties Acquisition Partners, L.P.    |  | Companys Form 10K filed on March 15, 2005 (File No. 000-25375) |  |                        
|               |  |                                                                                                                                      | 
|10.22          |  | Notice of Restricted Stock Award and Restricted Stock Agreement  1999 Equity Incentive Plan.                                        |  | Companys Form 10K filed on March 15, 2005 (File No. 000-25375) |  |                        
|               |  |                                                                                                                                      | 
|10.23          |  | Amended and restated Master Services Agreement with Virtusa Corporation                                                              |  | Companys Form 10K filed on March 15, 2006 (File No. 000-25375) |  |                        
|               |  |                                                                                                                                      | 
|10.24          |  | The amended Vignette Corporation Employee Stock Purchase Plan                                                                        |  | Companys Form 10K filed on March 15, 2006 (File No. 000-25375) |  |                        
|               |  |                                                                                                                                      | 
|10.25          |  | The amended Vignette Corporation International Employee Stock Purchase Plan                                                          |  | Companys Form 10K filed on March 15, 2006 (File No. 000-25375) |  |                        
|               |  |                                                                                                                                      | 
|10.26          |  | Michael A. Aviles Stock Option Agreement                                                                                             |  | Companys Form 10K filed on March 15, 2006 (File No. 000-25375) |  |                        



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|               |  |                                                                                                                                    |  |                                                                   |  |                        
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------- |  | -----------------------
|Exhibit Number |  | Exhibit Description                                                                                                                |  | Incorporated by Reference                                         |  | File Furnished Herewith
|               |  |                                                                                                                                    | 
|10.27          |  | Michael A. Aviles Restricted Stock Agreement <<<                                                                                   |  | Companys Form 10K filed on March 15, 2006 (File No. 000-25375)   |  |                        
|               |  |                                                                                                                                    | 
|10.28          |  | Offer Letter Agreement with Michael A. Aviles                                                                                      |  | Companys Form 10K filed on March 15, 2006 (File No. 000-25375)   |  |                        
|               |  |                                                                                                                                    | 
|10.29          |  | Michael A. Aviles Separation Agreement                                                                                             |  | Companys Form 10K filed on March 15, 2006 (File No. 000-25375)   |  |                        
|               |  |                                                                                                                                    | 
|10.30          |  | Notice of Restricted Stock Award and Restricted Stock Agreement for Board of Director members under the 1999 Equity Incentive Plan |  | Companys Form 10K filed on March 15, 2006 (File No. 000-25375)   |  |                        
|               |  |                                                                                                                                    | 
|10.31          |  | Notice of Stock Option Grant and Option Agreement for Board of Director members under the 1999 Equity Incentive Plan               |  | Companys Form 10K filed on March 15, 2006 (File No. 000-25375)   |  |                        
|               |  |                                                                                                                                    | 
|10.34          |  | Offer Letter Agreement with Gayle Wiley                                                                                            |  | Companys Form 10K filed on March 15, 2006 (File No. 000-25375)   |  |                        
|               |  |                                                                                                                                    | 
|10.36          |  | Amended and Restated 1999 Equity Incentive Plan dated May 26, 2006                                                                 |  | Companys Form 10Q filed on August 9, 2006 (File No. 000-25375)   |  |                        
|               |  |                                                                                                                                    | 
|10.37          |  | Offer Letter Agreement with T. Patrick Kelly                                                                                       |  | Companys Form 10Q filed on August 9, 2006 (File No. 000-25375)   |  |                        
|               |  |                                                                                                                                    | 
|10.38          |  | T. Patrick Kelly Stock Option Agreement                                                                                            |  | Companys Form 10Q filed on August 9, 2006 (File No. 000-25375)   |  |                        
|               |  |                                                                                                                                    | 
|10.39          |  | T. Patrick Kelly Restricted Stock Agreement                                                                                        |  | Companys Form 10Q filed on August 9, 2006 (File No. 000-25375)   |  |                        
|               |  |                                                                                                                                    | 
|10.42          |  | Leo Brunnick Commuting Expense Agreement                                                                                           |  | Companys Form 10Q filed on November 8, 2006 (File No. 000-25375) |  |                        
|               |  |                                                                                                                                    | 
|10.43          |  | Offer Letter Agreement with Alex Shootman                                                                                          |  | Companys Form 10Q filed on November 8, 2006 (File No. 000-25375) |  |                        
|               |  |                                                                                                                                    | 
|10.44          |  | Offer Letter Agreement with Somesh Singh                                                                                           |  |                                                                   |  | X                      



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|               |  |                                                                                                                    |  |                                                                   |  |                        
|-------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------- |  | -----------------------
|Exhibit Number |  | Exhibit Description                                                                                                |  | Incorporated by Reference                                         |  | File Furnished Herewith
|               |  |                                                                                                                    | 
|16.1           |  | Letter From Ernst & Young LLP to the Securities and Exchange Commission concerning change in certifying accountant |  | Companys Form 8K filed on December 27, 2005 (File No. 000-25375) |  |                        
|               |  |                                                                                                                    | 
|21.1           |  | Subsidiaries List.                                                                                                 |  |                                                                   |  | X                      
|               |  |                                                                                                                    | 
|23.1           |  | Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm.                                      |  |                                                                   |  | X                      
|               |  |                                                                                                                    | 
|23.2           |  | Consent of Ernst & Young LLP, Independent Public Accounting Firm                                                   |  |                                                                   |  | X                      
|               |  |                                                                                                                    | 
|31.1           |  | Certification of Chief Executive Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002.             |  |                                                                   |  | X                      
|               |  |                                                                                                                    | 
|31.2           |  | Certification of Chief Financial Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002.             |  |                                                                   |  | X                      
|               |  |                                                                                                                    | 
|32.1           |  | Certification as required by Section 906 of the Sarbanes-Oxley Act of 2002.                                        |  |                                                                   |  | X                      



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Vignette Corporation (Registrant)BY:

/S/    T. PATRICK KELLYT. Patrick Kelly Chief Financial Officer


Dated: March 11, 2008

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



|                                             |  |                                                 |  |               
|-------------------------------------------- |  | ----------------------------------------------- |  | --------------
|Signature                                    |  | Title                                           |  | Date          
|                                             |  |                                                
|/S/    MICHAEL A.
AVILES Michael A. Aviles   |  | President, Chief Executive Officer and Director |  | March 11, 2008
|                                             |  |                                                
|/S/    T. PATRICK
KELLY T. Patrick Kelly     |  | Chief Financial Officer                         |  | March 11, 2008
|                                             |  |                                                
|/S/    JAN H.
LINDELOW Jan H. Lindelow       |  | Chairman of the Board of Directors              |  | March 11, 2008
|                                             |  |                                                
|/S/    HENRY T.
DENERO Henry T. DeNero       |  | Director                                        |  | March 11, 2008
|                                             |  |                                                
|/S/    KATHLEEN
EARLEY Kathleen Earley       |  | Director                                        |  | March 11, 2008
|                                             |  |                                                
|/S/    JOSEPH M.
GRANT Joseph M. Grant       |  | Director                                        |  | March 11, 2008
|                                             |  |                                                
|/S/    JEFFREY S.
HAWN Jeffrey S. Hawn       |  | Director                                        |  | March 11, 2008
|                                             |  |                                                
|/S/    MICHAEL D.
LAMBERT Michael D. Lambert |  | Director                                        |  | March 11, 2008



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Vignette Corporation

We have audited Vignette Corporation and subsidiaries
(the Company) internal control over financial reporting as of December 31, 2007, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.

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

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

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

In our opinion, the Company maintained effective internal control over financial reporting as of December 31,
2007, based on the criteria established in Internal ControlIntegrated Frameworkissued by COSO.

We have also audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated financial statements of the Company as of and for the year ended December 31, 2007 and 2006 and our report dated March 10, 2008
expressed an unqualified opinion on those financial statements.

/s/ Grant Thornton LLP

Dallas, Texas

March 10, 2008



F-1



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Vignette Corporation

We have audited the accompanying consolidated balance sheets of Vignette Corporation and subsidiaries (the Company) as of December 31,
2007 and December 31, 2006, and the related consolidated statements of operations, stockholders equity, and cash flows for the years then ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2007 and 2006, and the results of their operations and their cash
flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 9 to the
consolidated financial statements, the Company changed its method of accounting for unrecognized tax benefits as of January 1, 2007, in connection with the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes: an interpretation of FASB Statement No.109. Also, as discussed in Note 2 to the consolidated financial statements, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R,
Share Based Payment.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 10, 2008 expressed an unqualified opinion.

/s/ Grant Thornton LLP

Dallas, Texas

March 10, 2008



F-2



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Vignette Corporation

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

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated results of operations and cash flows of Vignette Corporation for the year ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Austin,
Texas

March 9, 2006



F-3



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##### Table of Contents

VIGNETTE CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)



|                                                                                                                                                                                                                                                                  |  |              |            |   |      |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                                                                                                                                  |  | December 31, |           
|                                                                                                                                                                                                                                                                  |  | 2007         |            |   | 2006 |  
|ASSETS                                                                                                                                                                                                                                                            |  |              |            |   |      |   |            |  
|Current assets:                                                                                                                                                                                                                                                   |  |              |            |   |      |   |            |  
|Cash and cash equivalents                                                                                                                                                                                                                                         |  | $            | 94,201     |   |      | $ | 98,832     |  
|Short-term investments                                                                                                                                                                                                                                            |  |              | 53,976     |   |      |   | 105,622    |  
|Accounts receivable, net of allowance of $2,133 and $2,600 as of December 31, 2007 and 2006, respectively                                                                                                                                                         |  |              | 37,229     |   |      |   | 35,700     |  
|Prepaid expenses and other current assets                                                                                                                                                                                                                         |  |              | 5,336      |   |      |   | 7,163      |  
|                                                                                                                                                                                                                                                                  |  |              |            |   |      |   |            |  
|Total current assets                                                                                                                                                                                                                                              |  |              | 190,742    |   |      |   | 247,317    |  
|Property and equipment:                                                                                                                                                                                                                                           |  |              |            |   |      |   |            |  
|Equipment                                                                                                                                                                                                                                                         |  |              | 959        |   |      |   | 1,359      |  
|Computers and purchased software                                                                                                                                                                                                                                  |  |              | 30,686     |   |      |   | 36,645     |  
|Furniture and fixtures                                                                                                                                                                                                                                            |  |              | 2,971      |   |      |   | 2,767      |  
|Leasehold improvements                                                                                                                                                                                                                                            |  |              | 5,586      |   |      |   | 8,236      |  
|                                                                                                                                                                                                                                                                  |  |              |            |   |      |   |            |  
|                                                                                                                                                                                                                                                                  |  |              | 40,202     |   |      |   | 49,007     |  
|Accumulated depreciation                                                                                                                                                                                                                                          |  |              | (33,529    | ) |      |   | (42,108    | )
|                                                                                                                                                                                                                                                                  |  |              |            |   |      |   |            |  
|                                                                                                                                                                                                                                                                  |  |              | 6,673      |   |      |   | 6,899      |  
|Long-term investments                                                                                                                                                                                                                                             |  |              | 33,521     |   |      |   | 19,251     |  
|Goodwill                                                                                                                                                                                                                                                          |  |              | 115,808    |   |      |   | 119,722    |  
|Other intangible assets, net of accumulated amortization and impairment charges of $86,701 and $78,301 as of December 31, 2007 and 2006,
respectively                                                                                                             |  |              | 17,500     |   |      |   | 25,900     |  
|Other assets                                                                                                                                                                                                                                                      |  |              | 13,889     |   |      |   | 2,063      |  
|                                                                                                                                                                                                                                                                  |  |              |            |   |      |   |            |  
|Total assets                                                                                                                                                                                                                                                      |  | $            | 378,133    |   |      | $ | 421,152    |  
|                                                                                                                                                                                                                                                                  |  |              |            |   |      |   |            |  
|                                                                                                                                                                                                                                                                  |  |             
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                                                              |  |              |            |   |      |   |            |  
|Current liabilities:                                                                                                                                                                                                                                              |  |              |            |   |      |   |            |  
|Accounts payable and accrued expenses:                                                                                                                                                                                                                            |  |              |            |   |      |   |            |  
|Accounts payable                                                                                                                                                                                                                                                  |  | $            | 7,507      |   |      | $ | 2,842      |  
|Accrued employee liabilities                                                                                                                                                                                                                                      |  |              | 13,660     |   |      |   | 16,668     |  
|Accrued treasury stock liability                                                                                                                                                                                                                                  |  |              | 1,291      |   |      |   | 1,082      |  
|Accrued restructuring charges                                                                                                                                                                                                                                     |  |              | 1,555      |   |      |   | 2,119      |  
|Accrued exit costs                                                                                                                                                                                                                                                |  |              |           |   |      |   | 481        |  
|Accrued professional fees                                                                                                                                                                                                                                         |  |              | 3,490      |   |      |   | 3,580      |  
|Accrued sales and marketing expenses                                                                                                                                                                                                                              |  |              | 1,258      |   |      |   | 1,741      |  
|Accrued other charges                                                                                                                                                                                                                                             |  |              | 9,394      |   |      |   | 6,057      |  
|                                                                                                                                                                                                                                                                  |  |              |            |   |      |   |            |  
|Total accounts payable and accrued expenses                                                                                                                                                                                                                       |  |              | 38,155     |   |      |   | 34,570     |  
|Deferred revenue                                                                                                                                                                                                                                                  |  |              | 36,047     |   |      |   | 35,717     |  
|Other current liabilities:                                                                                                                                                                                                                                        |  |              |            |   |      |   |            |  
|Accrued income taxes                                                                                                                                                                                                                                              |  |              | 2,659      |   |      |   | 5,735      |  
|Accrued other taxes                                                                                                                                                                                                                                               |  |              | 1,739      |   |      |   | 2,027      |  
|                                                                                                                                                                                                                                                                  |  |              |            |   |      |   |            |  
|Total other current liabilities                                                                                                                                                                                                                                   |  |              | 4,398      |   |      |   | 7,762      |  
|                                                                                                                                                                                                                                                                  |  |              |            |   |      |   |            |  
|Total current liabilities                                                                                                                                                                                                                                         |  |              | 78,600     |   |      |   | 78,049     |  
|Accrued restructuring charges, net of current portion                                                                                                                                                                                                             |  |              | 1,843      |   |      |   | 3,038      |  
|Deferred revenue, less current portion                                                                                                                                                                                                                            |  |              | 858        |   |      |   | 2,203      |  
|Other accrued liabilities                                                                                                                                                                                                                                         |  |              |           |   |      |   | 75         |  
|                                                                                                                                                                                                                                                                  |  |              |            |   |      |   |            |  
|Total liabilities                                                                                                                                                                                                                                                 |  |              | 81,301     |   |      |   | 83,365     |  
|Shareholders equity:                                                                                                                                                                                                                                             |  |              |            |   |      |   |            |  
|Common stock  $0.01 par value; 500,000,000 shares authorized;25,797,102 and 29,378,968 shares issued and outstanding
December 31, 2007 and 2006, respectively (net of treasury shares of 5,015,639 and 1,028,517 as of December 31, 2007 and 2006, respectively) |  |              | 258        |   |      |   | 294        |  
|Additional paid-in capital                                                                                                                                                                                                                                        |  |              | 2,681,677  |   |      |   | 2,747,946  |  
|Accumulated other comprehensive income                                                                                                                                                                                                                            |  |              | 2,701      |   |      |   | 2,176      |  
|Retained earnings                                                                                                                                                                                                                                                 |  |              | (2,387,804 | ) |      |   | (2,412,629 | )
|                                                                                                                                                                                                                                                                  |  |              |            |   |      |   |            |  
|Total shareholders equity                                                                                                                                                                                                                                        |  |              | 296,832    |   |      |   | 337,787    |  
|                                                                                                                                                                                                                                                                  |  |              |            |   |      |   |            |  
|Total liabilities and shareholders equity                                                                                                                                                                                                                        |  | $            | 378,133    |   |      | $ | 421,152    |  
|                                                                                                                                                                                                                                                                  |  |              |            |   |      |   |            |  

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



F-4



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##### Table of Contents

VIGNETTE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



|                                                                                     |  |                         |         |   |      |   |         |  |   |         |  
|------------------------------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- |  | - | ------- | -
|                                                                                     |  | Year Ended December 31, |        
|                                                                                     |  | 2007                    |         |   | 2006 |   | 2005    | 
|Revenue:                                                                             |  |                         |         |   |      |   |         |  |   |         |  
|Product license                                                                      |  | $                       | 56,059  |   |      | $ | 66,368  |  | $ | 70,316  |  
|Services                                                                             |  |                         | 135,755 |   |      |   | 131,206 |  |   | 120,359 |  
|                                                                                     |  |                         |         |   |      |   |         |  |   |         |  
|Total revenue                                                                        |  |                         | 191,814 |   |      |   | 197,574 |  |   | 190,675 |  
|Cost of revenue:                                                                     |  |                         |         |   |      |   |         |  |   |         |  
|Product license                                                                      |  |                         | 1,731   |   |      |   | 2,548   |  |   | 2,911   |  
|Amortization of acquired technology                                                  |  |                         | 5,016   |   |      |   | 5,017   |  |   | 6,267   |  
|Services                                                                             |  |                         | 61,879  |   |      |   | 60,399  |  |   | 55,427  |  
|                                                                                     |  |                         |         |   |      |   |         |  |   |         |  
|Total cost of revenue                                                                |  |                         | 68,626  |   |      |   | 67,964  |  |   | 64,605  |  
|                                                                                     |  |                         |         |   |      |   |         |  |   |         |  
|Gross profit                                                                         |  |                         | 123,188 |   |      |   | 129,610 |  |   | 126,070 |  
|Operating expenses:                                                                  |  |                         |         |   |      |   |         |  |   |         |  
|Research and development                                                             |  |                         | 30,990  |   |      |   | 34,013  |  |   | 33,212  |  
|Sales and marketing                                                                  |  |                         | 62,041  |   |      |   | 70,192  |  |   | 68,080  |  
|General and administrative                                                           |  |                         | 19,564  |   |      |   | 17,941  |  |   | 20,291  |  
|Purchased in-process research and development, acquisition-related and other charges |  |                         |        |   |      |   |        |  |   | 270     |  
|Business restructuring (benefit) charges                                             |  |                         | (80     | ) |      |   | 150     |  |   | (2,899  | )
|Amortization of intangible assets                                                    |  |                         | 3,384   |   |      |   | 3,720   |  |   | 5,003   |  
|                                                                                     |  |                         |         |   |      |   |         |  |   |         |  
|Total operating expenses                                                             |  |                         | 115,899 |   |      |   | 126,016 |  |   | 123,957 |  
|                                                                                     |  |                         |         |   |      |   |         |  |   |         |  
|Income from operations                                                               |  |                         | 7,289   |   |      |   | 3,594   |  |   | 2,113   |  
|Other income, net                                                                    |  |                         | 11,845  |   |      |   | 10,613  |  |   | 20,710  |  
|                                                                                     |  |                         |         |   |      |   |         |  |   |         |  
|Income before provision for income taxes                                             |  |                         | 19,134  |   |      |   | 14,207  |  |   | 22,823  |  
|Provision for (benefit from) income taxes                                            |  |                         | (5,691  | ) |      |   | 1,888   |  |   | 2,429   |  
|                                                                                     |  |                         |         |   |      |   |         |  |   |         |  
|Net income                                                                           |  | $                       | 24,825  |   |      | $ | 12,319  |  | $ | 20,394  |  
|                                                                                     |  |                         |         |   |      |   |         |  |   |         |  
|                                                                                     |  |                         |         |   |      |   |         |  |   |         |  
|                                                                                     |  |                         |         |   |      |   |         |  |   |         |  
|Basic net income per share                                                           |  | $                       | 0.90    |   |      | $ | 0.42    |  | $ | 0.70    |  
|                                                                                     |  |                         |         |   |      |   |         |  |   |         |  
|Diluted net income per share                                                         |  | $                       | 0.89    |   |      | $ | 0.41    |  | $ | 0.68    |  
|                                                                                     |  |                         |         |   |      |   |         |  |   |         |  
|Shares used in computing basic net income per share                                  |  |                         | 27,501  |   |      |   | 29,658  |  |   | 29,181  |  
|Shares used in computing diluted net income per share                                |  |                         | 27,783  |   |      |   | 29,878  |  |   | 29,807  |  

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



F-5



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##### Table of Contents

VIGNETTE CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

(in thousands, except share data)



|                                                                                                                                                                                                                                  |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | - |  | ------------------------ | --- | - | ------------------------------------------ | - | --------- | ------------------ |  | - | ----------------------- | - |  | - | ---------- | - |  | - | ------- | -
|                                                                                                                                                                                                                                  |  | Common Stock |   |  | AdditionalPaid-inCapital |     |   | AccumulatedOtherComprehensiveIncome (Loss) |   |           | AccumulatedDeficit |  |   | TotalStockholdersEquity |  
|Balance as of December 31, 2004                                                                                                                                                                                                   |  | 28,982,756   |   |  | $                        | 290 |   |                                            | $ | 2,749,885 |                    |  | $ | 1,985                   |   |  | $ | (2,445,342 | ) |  | $ | 306,818 |  
|Issuance of common stock pursuant to employee stock purchase plan                                                                                                                                                                 |  | 88,900       |   |  |                          | 1   |   |                                            |   | 986       |                    |  |   |                        |   |  |   |           |   |  |   | 987     |  
|Stock options exercised                                                                                                                                                                                                           |  | 416,437      |   |  |                          | 4   |   |                                            |   | 1,851     |                    |  |   |                        |   |  |   |           |   |  |   | 1,855   |  
|Forfeiture of restricted stock grants                                                                                                                                                                                             |  | (2,500       | ) |  |                          |    |   |                                            |   |          |                    |  |   |                        |   |  |   |           |   |  |   |        |  
|Deferred stock compensation related to stock option and restricted stock grants                                                                                                                                                   |  | 60,544       |   |  |                          | 1   |   |                                            |   | 1         |                    |  |   |                        |   |  |   |           |   |  |   | 2       |  
|Repurchase of restricted stock                                                                                                                                                                                                    |  |             |   |  |                          |    |   |                                            |   |          |                    |  |   |                        |   |  |   |           |   |  |   |        |  
|Amortization of deferred stock compensation                                                                                                                                                                                       |  |             |   |  |                          |    |   |                                            |   | 834       |                    |  |   |                        |   |  |   |           |   |  |   | 834     |  
|Components of comprehensive income:                                                                                                                                                                                               |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   |         |  
|Net income                                                                                                                                                                                                                        |  |             |   |  |                          |    |   |                                            |   |          |                    |  |   |                        |   |  |   | 20,394     |   |  |   | 20,394  |  
|Change in unrealized investment gain (loss) on available-for-sale securitiescumulative unrealized investment loss on short-term
investments of $(74) and investment gain on long-term investments of $1,050 at December 31, 2004 |  |             |   |  |                          |    |   |                                            |   |          |                    |  |   | (992                    | ) |  |   |           |   |  |   | (992    | )
|Change in foreign currency translation adjustmentcumulative translation gain of $1,009 at December 31, 2004                                                                                                                      |  |             |   |  |                          |    |   |                                            |   |          |                    |  |   | 211                     |   |  |   |           |   |  |   | 211     |  
|                                                                                                                                                                                                                                  |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   |         |  
|Total comprehensive income                                                                                                                                                                                                        |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   | 19,613  |  
|                                                                                                                                                                                                                                  |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   |         |  
|Balance as of December 31, 2005                                                                                                                                                                                                   |  | 29,546,137   |   |  |                          | 296 |   |                                            |   | 2,753,557 |                    |  |   | 1,204                   |   |  |   | (2,424,948 | ) |  |   | 330,109 |  
|                                                                                                                                                                                                                                  |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   |         |  
|Issuance of common stock pursuant to employee stock purchase plan                                                                                                                                                                 |  | 98,775       |   |  |                          | 1   |   |                                            |   | 1,109     |                    |  |   |                        |   |  |   |           |   |  |   | 1,110   |  
|Stock options exercised                                                                                                                                                                                                           |  | 370,194      |   |  |                          | 3   |   |                                            |   | 3,749     |                    |  |   |                        |   |  |   |           |   |  |   | 3,752   |  
|Forfeiture of restricted stock grants                                                                                                                                                                                             |  | (21,574      | ) |  |                          |    |   |                                            |   |          |                    |  |   |                        |   |  |   |           |   |  |   |        |  
|Stock compensation related to stock option and restricted stock grants                                                                                                                                                            |  | 201,186      |   |  |                          | 2   |   |                                            |   | 3,187     |                    |  |   |                        |   |  |   |           |   |  |   | 3,189   |  
|Purchases of treasury stock                                                                                                                                                                                                       |  | (815,750     | ) |  |                          | (8  | ) |                                            |   | (13,656   | )                  |  |   |                        |   |  |   |           |   |  |   | (13,664 | )
|Components of comprehensive income:                                                                                                                                                                                               |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   |         |  
|Net income                                                                                                                                                                                                                        |  |             |   |  |                          |    |   |                                            |   |          |                    |  |   |                        |   |  |   | 12,319     |   |  |   | 12,319  |  
|Change in unrealized investment gain (loss) on available-for-sale securitiescumulative unrealized investment loss on short-term
investments of $(16) at December 31, 2005                                                        |  |             |   |  |                          |    |   |                                            |   |          |                    |  |   | (6                      | ) |  |   |           |   |  |   | (6      | )
|Change in foreign currency translation adjustmentcumulative translation gain of $1,220 at December 31, 2005                                                                                                                      |  |             |   |  |                          |    |   |                                            |   |          |                    |  |   | 978                     |   |  |   |           |   |  |   | 978     |  
|                                                                                                                                                                                                                                  |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   |         |  
|Total comprehensive income                                                                                                                                                                                                        |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   | 13,291  |  
|                                                                                                                                                                                                                                  |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   |         |  
|Balance as of December 31, 2006                                                                                                                                                                                                   |  | 29,378,968   |   |  |                          | 294 |   |                                            |   | 2,747,946 |                    |  |   | 2,176                   |   |  |   | (2,412,629 | ) |  |   | 337,787 |  
|                                                                                                                                                                                                                                  |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   |         |  
|Issuance of common stock pursuant to employee stock purchase plan                                                                                                                                                                 |  | 84,058       |   |  |                          | 1   |   |                                            |   | 940       |                    |  |   |                        |   |  |   |           |   |  |   | 941     |  
|Stock options exercised                                                                                                                                                                                                           |  | 244,759      |   |  |                          | 2   |   |                                            |   | 2,945     |                    |  |   |                        |   |  |   |           |   |  |   | 2,947   |  
|Forfeiture of restricted stock grants                                                                                                                                                                                             |  | (28,505      | ) |  |                          |    |   |                                            |   | (55       | )                  |  |   |                        |   |  |   |           |   |  |   | (55     | )
|Stock compensation related to stock option and restricted stock grants                                                                                                                                                            |  | 317,711      |   |  |                          | 3   |   |                                            |   | 4,227     |                    |  |   |                        |   |  |   |           |   |  |   | 4,230   |  
|Purchases of treasury stock                                                                                                                                                                                                       |  | (4,199,889   | ) |  |                          | (42 | ) |                                            |   | (74,326   | )                  |  |   |                        |   |  |   |           |   |  |   | (74,368 | )
|Components of comprehensive income:                                                                                                                                                                                               |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   |         |  
|Net income                                                                                                                                                                                                                        |  |             |   |  |                          |    |   |                                            |   |          |                    |  |   |                        |   |  |   | 24,825     |   |  |   | 24,825  |  
|Change in unrealized investment gain (loss) on available-for-sale securitiescumulative unrealized investment loss on short-term
investments of $(26) and investment gain on long-term investments of $5 at December 31, 2006     |  |             |   |  |                          |    |   |                                            |   |          |                    |  |   | 162                     |   |  |   |           |   |  |   | 162     |  
|Change in foreign currency translation adjustmentcumulative translation gain of $2,197 at December 31, 2006                                                                                                                      |  |             |   |  |                          |    |   |                                            |   |          |                    |  |   | 363                     |   |  |   |           |   |  |   | 363     |  
|                                                                                                                                                                                                                                  |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   |         |  
|Total comprehensive income                                                                                                                                                                                                        |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   | 25,350  |  
|                                                                                                                                                                                                                                  |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   |         |  
|Balance as of December 31, 2007                                                                                                                                                                                                   |  | 25,797,102   |   |  | $                        | 258 |   |                                            | $ | 2,681,677 |                    |  | $ | 2,701                   |   |  | $ | (2,387,804 | ) |  | $ | 296,832 |  
|                                                                                                                                                                                                                                  |  |              |   |  |                          |     |   |                                            |   |           |                    |  |   |                         |   |  |   |            |   |  |   |         |  

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



F-6



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##### Table of Contents

VIGNETTE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                             |  |                         |         |   |      |   |          |      |  |   |         |  
|---------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                                             |  | Year Ended December 31, |        
|                                                                             |  | 2007                    |         |   | 2006 |   |          | 2005 | 
|Operating activities:                                                        |  |                         |         |   |      |   |          |      |  |   |         |  
|Net income                                                                   |  | $                       | 24,825  |   |      | $ | 12,319   |      |  | $ | 20,394  |  
|Adjustment to reconcile net income to cash provided by operating activities: |  |                         |         |   |      |   |          |      |  |   |         |  
|Depreciation                                                                 |  |                         | 3,884   |   |      |   | 4,752    |      |  |   | 5,654   |  
|Amortization of intangible assets                                            |  |                         | 8,400   |   |      |   | 8,736    |      |  |   | 11,270  |  
|Loss (gain) on sale of patent                                                |  |                         | (263    | ) |      |   |         |      |  |   |        |  
|Loss (gain) on disposal of fixed assets                                      |  |                         | (25     | ) |      |   | (12      | )    |  |   | (114    | )
|Loss (gain) on sale of equity investments                                    |  |                         |        |   |      |   | (604     | )    |  |   | (15,264 | )
|Non-cash compensation expense                                                |  |                         | 4,230   |   |      |   | 3,189    |      |  |   | 834     |  
|Non-cash restructuring charges/(benefits)                                    |  |                         | (80     | ) |      |   | 150      |      |  |   | (778    | )
|Non-cash purchase accounting credits                                         |  |                         | (694    | ) |      |   | (682     | )    |  |   |        |  
|Non-cash deferred tax valuation allowance adjustment                         |  |                         | (7,354  | ) |      |   |         |      |  |   |        |  
|Other non-cash charges, net                                                  |  |                         | 89      |   |      |   | 1,201    |      |  |   | 188     |  
|Changes in operating assets and liabilities                                  |  |                         |         |   |      |   |          |      |  |   |         |  
|Accounts receivable, net                                                     |  |                         | (1,036  | ) |      |   | 3,449    |      |  |   | 682     |  
|Prepaid expenses and other assets                                            |  |                         | (691    | ) |      |   | 1,350    |      |  |   | 1,412   |  
|Accounts payable                                                             |  |                         | 4,570   |   |      |   | (1,192   | )    |  |   | 1,702   |  
|Accrued expenses                                                             |  |                         | (855    | ) |      |   | (813     | )    |  |   | 497     |  
|Accrued restructuring expenses                                               |  |                         | 3       |   |      |   | (2,809   | )    |  |   | (12,935 | )
|Deferred revenue                                                             |  |                         | (1,516  | ) |      |   | (1,986   | )    |  |   | 3,957   |  
|Other assets and liabilities                                                 |  |                         | (3,586  | ) |      |   | 664      |      |  |   | (769    | )
|                                                                             |  |                         |         |   |      |   |          |      |  |   |         |  
|Net cash provided by (used in) operating activities                          |  |                         | 29,901  |   |      |   | 27,712   |      |  |   | 16,730  |  
|Investing activities:                                                        |  |                         |         |   |      |   |          |      |  |   |         |  
|Purchase of property and equipment                                           |  |                         | (3,601  | ) |      |   | (3,549   | )    |  |   | (4,253  | )
|Proceeds from sale of patent                                                 |  |                         | 300     |   |      |   |         |      |  |   |        |  
|Maturity of restricted investments                                           |  |                         | 1,154   |   |      |   | 894      |      |  |   | 2,858   |  
|Purchase of short-term investments                                           |  |                         | (49,738 | ) |      |   | (150,168 | )    |  |   | (50,028 | )
|Maturity of short-term investments                                           |  |                         | 101,422 |   |      |   | 117,494  |      |  |   | 77,657  |  
|Purchase of long-term investments                                            |  |                         | (20,937 | ) |      |   | (11,688  | )    |  |   |        |  
|Maturity of long-term investments                                            |  |                         | 5,601   |   |      |   |         |      |  |   |        |  
|Purchase of equity securities                                                |  |                         |        |   |      |   |         |      |  |   | (45     | )
|Proceeds from sale of equity securities                                      |  |                         | 222     |   |      |   | 604      |      |  |   | 15,517  |  
|Other                                                                        |  |                         | 42      |   |      |   | 27       |      |  |   | 253     |  
|                                                                             |  |                         |         |   |      |   |          |      |  |   |         |  
|Net cash provided by (used in) investing activities                          |  |                         | 34,465  |   |      |   | (46,386  | )    |  |   | 41,959  |  
|Financing activities:                                                        |  |                         |         |   |      |   |          |      |  |   |         |  
|Payments for treasury shares at cost                                         |  |                         | (74,159 | ) |      |   | (12,582  | )    |  |   |        |  
|Proceeds from issuance of common stock                                       |  |                         | 3,833   |   |      |   | 4,862    |      |  |   | 2,843   |  
|                                                                             |  |                         |         |   |      |   |          |      |  |   |         |  
|Net cash provided by (used in) financing activities                          |  |                         | (70,326 | ) |      |   | (7,720   | )    |  |   | 2,843   |  
|Effect of exchange rate changes on cash and cash equivalents                 |  |                         | 1,329   |   |      |   | 1,122    |      |  |   | (1,209  | )
|                                                                             |  |                         |         |   |      |   |          |      |  |   |         |  
|Net change in cash and cash equivalents                                      |  |                         | (4,631  | ) |      |   | (25,272  | )    |  |   | 60,323  |  
|Cash and cash equivalents at beginning of period                             |  |                         | 98,832  |   |      |   | 124,104  |      |  |   | 63,781  |  
|                                                                             |  |                         |         |   |      |   |          |      |  |   |         |  
|Cash and cash equivalents at end of period                                   |  | $                       | 94,201  |   |      | $ | 98,832   |      |  | $ | 124,104 |  
|                                                                             |  |                         |         |   |      |   |          |      |  |   |         |  
|Supplemental disclosure of cash flow information:                            |  |                         |         |   |      |   |          |      |  |   |         |  
|Interest paid                                                                |  |                         | 30      |   |      |   | 1        |      |  |   | 137     |  
|Income taxes paid                                                            |  |                         | 1,023   |   |      |   | 730      |      |  |   | 905     |  
|Noncash activities:                                                          |  |                         |         |   |      |   |          |      |  |   |         |  
|Liability incurred to purchase common stock                                  |  |                         | 1,291   |   |      |   | 1,082    |      |  |   |        |  

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



F-7



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 1  Business

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

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

NOTE 2  Summary of Significant Accounting Policies

Use of Estimates

The preparation
of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and such differences could be material to the financial
statements. In particular, actual sublease income attributable to the consolidation of excess facilities might deviate from the assumptions used to calculate the Companys accruals for facility lease commitments vacated as a result of both its
business restructuring and business acquisitions. During the year ended December 31, 2007, the Company continued to execute on its existing business restructuring plan. It is reasonably possible that sublease assumptions could change further in
the near term, requiring adjustments to future income.

The Company periodically reviews the valuation and amortization of its identifiable
intangible assets, taking into consideration any events or circumstances that might result in a diminished fair value or useful life. During the years ended December 31, 2007 and December 31, 2006, no changes to the established estimated
lives for identifiable intangible assets were made and no impairment charges were deemed necessary.

Revenue Recognition

Revenue consists of product 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 support services, subscription services, 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.



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VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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, Securities and Exchange Commission Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements as revised by SAB 104 and Emerging Issues Task Force
(EITF) 00-21, Revenue Arrangements with Multiple Deliverables.

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

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

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

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

Revenue allocated to subscription services, including implementation and set-up fees, is recognized ratably
over the term of the arrangement beginning on the commencement dates of each contract. We recognize professional services sold with subscription offerings over the term of the related subscription contract as these services are considered to be
inseparable from the subscription service.

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

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



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VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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.

Cash, Cash Equivalents and Short-Term Investments

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

Short-term investments consist of marketable securities that have remaining maturities of less than one year from the balance sheet date, excluding cash
equivalents as described above and auction rate securities as described below. Investment securities are classified as available-for-sale and are presented at estimated fair value with any unrealized gains or losses included in other
comprehensive income. Fair values are based on quoted market prices where available. If quoted market prices are not available, management estimates fair value by using a composite of quoted market prices of companies that are comparable in size and
industry classification to the Companys non-public investments. Realized gains and losses are computed based on the specific identification method. Realized gains and losses were not material for the periods presented.

Auction rate securities are highly liquid, variable rate debt securities. While the underlying security has a long-term nominal maturity, the interest
rate is reset through Dutch auctions that are typically held every 7, 28, or 35 days. The securities trade at par and are callable at par on any interest payment date at the option of the issuer. Interest is paid at the end of each auction period.
The Company classifies auction rate securities as available-for-sale pursuant to Statement of Accounting Standards No. 115. Furthermore, the Company classified these securities as short-term because: (i) we acquired and held these
securities with the intent to liquidate them as the need for working capital arose in the ordinary course of business; and (ii) we are able to either liquidate our holdings or roll our investment over to the next reset period at each rate reset
interval as described above. The Company held no auction rate securities at December 31, 2007 and $42 million at December 31, 2007.

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



|                                       |  |                   |        |                      |   |                    |  |      |        |                      |   |         |                     |   |     |   |  |   |        
|-------------------------------------- |  | ----------------- | ------ | -------------------- | - | ------------------ |  | ---- | ------ | -------------------- | - | ------- | ------------------- | - | --- | - |  | - | -------
|                                       |  | December 31, 2007 |        | December 31, 2006   
|                                       |  | Cost              |        | UnrealizedGain(Loss) |   | EstimatedFairValue |  | Cost |        | UnrealizedGain(Loss) |   |         | EstimatedFair Value
|Marketable securities:                 |  |                   |        |                      |   |                    |  |      |        |                      |   |         |                     |   |     |   |  |   |        
|Municipal and U.S. Government agencies |  | $                 | 18,567 |                      | $ | 74                 |  | $    | 18,641 |                      | $ | 34,227  |                     | $ | (17 | ) |  | $ | 34,210 
|Corporate notes                        |  |                   | 35,335 |                      |   |                   |  |      | 35,335 |                      |   | 29,459  |                     |   | (9  | ) |  |   | 29,450 
|Auction rate securities                |  |                   |       |                      |   |                   |  |      |       |                      |   | 41,962  |                     |   |    |   |  |   | 41,962 
|                                       |  |                   |        |                      |   |                    |  |      |        |                      |   |         |                     |   |     |   |  |   |        
|                                       |  | $                 | 53,902 |                      | $ | 74                 |  | $    | 53,976 |                      | $ | 105,648 |                     | $ | (26 | ) |  | $ | 105,622
|                                       |  |                   |        |                      |   |                    |  |      |        |                      |   |         |                     |   |     |   |  |   |        

Accounts Receivable

Accounts receivable are recorded at cost. We continuously assess the collectibility of outstanding customer invoices and, in doing so, we maintain an allowance for estimated losses resulting from the non-collection of
customer receivables. In estimating this allowance, we consider factors such as: historical collection experience, a customers current credit-worthiness, customer concentrations, age of the receivable balance, both individually



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VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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.

Concentration of Credit Risk

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

The Company performs periodic credit evaluations of its customers financial condition and
generally does not require collateral. The Company maintains an allowance for estimated losses resulting from the non-collection of customer receivables. In estimating this allowance, the following factors are considered: historical collection
experience, a customers current credit-worthiness, customer concentrations, age of the receivable balance, both individually and in the aggregate and general economic conditions that may affect a customers ability to pay. The following
table summarizes the changes in allowance for doubtful accounts for trade receivables (in thousands):



|                             |  |                              |       |                                     |       |                                      |     |                                   |        |   |                         |   |      
|---------------------------- |  | ---------------------------- | ----- | ----------------------------------- | ----- | ------------------------------------ | --- | --------------------------------- | ------ | - | ----------------------- | - | -----
|                             |  | Balance atBeginning ofPeriod |       | Charged toExpense, net ofRecoveries |       | Adjustmentsfrom BusinessCombinations |     | Deduction ofUncollectibleAccounts |        |   | Balance at Endof Period
|Year ended December 31, 2007 |  | $                            | 2,600 |                                     | 503   |                                      |    |                                   | (970   | ) |                         | $ | 2,133
|Year ended December 31, 2006 |  | $                            | 1,383 |                                     | 1,459 |                                      |    |                                   | (242   | ) |                         | $ | 2,600
|Year ended December 31, 2005 |  | $                            | 4,454 |                                     | 180   |                                      | 107 |                                   | (3,358 | ) |                         | $ | 1,383

No customers accounted for more than 10% of the Companys total revenue or accounts
receivable during the years ended December 31, 2007, 2006 or 2005.

Long-Term Investments

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



|                                |  |              |        |      |   |       
|------------------------------- |  | ------------ | ------ | ---- | - | ------
|                                |  | December 31,
|                                |  | 2007         |        | 2006
|Restricted investments          |  | $            | 5,319  |      | $ | 6,235 
|Long-term marketable securities |  |              | 27,096 |      |   | 11,688
|Limited partnership interest    |  |              | 1,106  |      |   | 1,328 
|                                |  |              |        |      |   |       
|Total long-term investments     |  | $            | 33,521 |      | $ | 19,251
|                                |  |              |        |      |   |       



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VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Long-term marketable securities consist of the following (in thousands):



|                                       |  |                   |        |                       |   |                     |  |      |        |                       |   |                     |  |   |   |  |   |       
|-------------------------------------- |  | ----------------- | ------ | --------------------- | - | ------------------- |  | ---- | ------ | --------------------- | - | ------------------- |  | - | - |  | - | ------
|                                       |  | December 31, 2007 |        | December 31, 2006    
|                                       |  | Cost              |        | UnrealizedGain (Loss) |   | EstimatedFair Value |  | Cost |        | UnrealizedGain (Loss) |   | EstimatedFair Value
|Marketable securities:                 |  |                   |        |                       |   |                     |  |      |        |                       |   |                     |  |   |   |  |   |       
|Municipal and U.S. Government agencies |  | $                 | 5,109  |                       | $ | 4                   |  | $    | 5,113  |                       | $ | 2,007               |  | $ | 5 |  | $ | 2,012 
|Corporate notes                        |  |                   | 21,920 |                       |   | 63                  |  |      | 21,983 |                       |   | 9,676               |  |   |  |  |   | 9,676 
|                                       |  |                   |        |                       |   |                     |  |      |        |                       |   |                     |  |   |   |  |   |       
|                                       |  | $                 | 27,029 |                       | $ | 67                  |  | $    | 27,096 |                       | $ | 11,683              |  | $ | 5 |  | $ | 11,688
|                                       |  |                   |        |                       |   |                     |  |      |        |                       |   |                     |  |   |   |  |   |       

All long-term marketable securities mature in 2009.

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

The Company held restricted investments in the form of a certificate of deposit and investment grade securities placed with high credit quality financial institutions. Such restricted investments collateralize letters
of credit related to certain leased office space security deposits and tax obligations. These investments will remain restricted to the extent that the security requirements exist. The average yield of these investments is approximately 4.8%. These
investments are recorded at cost, which estimates fair value.

The Company periodically analyzes its long-term investments for impairments
considered other than temporary. In performing this analysis, the Company evaluates whether general market conditions that reflect prospects for the economy as a whole or information pertaining to the specific investments industry, or that
individual company, indicates that an other than temporary decline in value has occurred. If so, the Company considers specific factors, including the financial condition and near-term prospect of each investment, any specific events that may affect
the investee company and the intent and ability of the Company to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value. As a result of these reviews, the Company recognized no impairment charges
in fiscal 2007, 2006 and 2005.

Financial Instruments

The reported amounts of certain of the Companys financial instruments, including cash and cash equivalents, short-term investments, accounts receivables, accounts payable and accrued liabilities approximate fair
value based on the short term nature of these items. We utilize foreign currency forward contracts to hedge foreign currency-denominated payables and receivables. To date, we have not hedged forecasted transactions or firm commitments denominated in
foreign currencies and therefore, financial reporting of our foreign operations is subject to foreign currency risk. Gains and losses on hedging contracts are reflected currently in other income, net. We typically limit the duration of our foreign
currency forward contracts to 90 days. We do not invest in contracts for speculative purposes. Our foreign exchange exposures are monitored regularly to ensure the overall effectiveness of our foreign currency hedge positions. As part of this
monitoring program, in order to evaluate the effectiveness of our hedging practices, in the second quarter of 2007 we did not replace foreign currency hedge positions which expired and have not yet re-engaged our foreign currency hedge program.
Consequently, at December 31, 2007 we had no foreign currency contracts outstanding. For the year ended December 31, 2007, the Company realized a loss on foreign currency contracts of $0.3 million. At December 31, 2006, the
notional value of the foreign currency contracts was $5.5 million and, based on the applicable exchange rates, the fair value of derivative financial instruments was a liability of $38,000. For the year ended December 31, 2006 there



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VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



was a realized gain on foreign currency contracts of $12,000 included in other income in the consolidated statement of operations. At December 31, 2005,
the notional value of the foreign currency contracts was $10.9 million and based on the applicable exchange rates, the fair value of derivative financial instruments was a liability of $0.1 million. For the year ended December 31, 2005 there
was a realized loss on foreign currency contracts of $13,000 included in other income in the consolidated statement of operations. Foreign currency contracts are classified on the balance sheet in Prepaid expenses and other or in
Other current liabilities.

Property and Equipment

Property and equipment are stated at cost. Depreciation of assets is computed using the straight-line method over the estimated useful lives of the assets, ranging from three to five years.

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

During 2007, the Company disposed of approximately $8.9 million of fully depreciated assets as part of its annual inventory and useful life evaluation and also disposed of approximately $3.5 million of fully
depreciated leasehold improvements as part of the relocation of its European headquarters facility.

Impairment of Long-Lived Assets

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

Goodwill and Other Intangible Assets

Goodwill
represents the excess purchase price over the fair value of net assets acquired, or net liabilities assumed, in a business combination.

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

The Company periodically assesses its intangible assets, including goodwill, for indications of impairment. Based on this assessment no such impairment
charges were recorded in 2007, 2006 or 2005.

Comprehensive Income

The Companys comprehensive income is included as a component of shareholders equity and is composed of net income, foreign currency translation adjustments and unrealized gains and losses on investments



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VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



designated as available-for-sale. See the components of comprehensive income for the years ended December 31, 2005, 2006 and 2007, including their
ending balances and period changes, included in the Consolidated Statements of Changes in Shareholders Equity at page F-6 of this Form 10-K.

Research and Development

Research and development expense consists primarily of personnel costs to support product
development and is expensed as incurred.

The Company capitalizes costs related to certain software development activities in accordance
with Statement of Financial Accounting Standards 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed (Statement 86). Capitalization commences when technological feasibility has been
established and ceases when the product is available for general release to customers. Based on the Companys product development process, technological feasibility is established upon completion of a working model. To date, the time between
achieving technological feasibility and the general availability of software has been short and internal costs qualifying for capitalization have been insignificant. During fiscal years 2007, 2006 and 2005 no such costs were capitalized.

Foreign Currency

The functional currency of the
Companys foreign subsidiaries is the respective local currency. Assets and liabilities of these foreign subsidiaries are translated to U.S. dollars at year-end exchange rates. Income statement items are translated to U.S. dollars at average
exchange rates prevailing during the period. Accumulated net translation adjustments are recorded in Accumulated other comprehensive income, a separate component of stockholders equity. Gains and losses from foreign currency
denominated transactions are included in other income, net in the consolidated statements of operations. Gains and losses from foreign currency denominated transactions amounted to a $0.2 million gain, a $0.6 million loss and a $0.6 million loss for
the years ended December 31, 2007, 2006 and 2005, respectively.

Share Based Payments

At December 31, 2007, the Company has five stock based compensation plans which are described more fully in Note 5. Effective January 1, 2006
the Company adopted Statement 123R, which prescribes accounting and reporting standards for all share-based compensation plans, including employee stock options, restricted stock awards and employee stock purchase plans (ESPP). In
accordance with Statement 123R the fair value method has been applied using the modified prospective method, under which compensation cost has been recognized beginning January 1, 2006 based on the requirements of Statement 123R for all
share-based payments granted or modified after that date and based on the previous requirements of Financial Accounting Standards No. 123,Stock-Based Compensation (SFAS 123), for all awards granted to employees prior to that
date that remain unvested on January 1, 2006.

Prior to January 1, 2006, the Company accounted for employee stock based
compensation using the intrinsic method in accordance with Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees (APB 25) as permitted by SFAS 123 and Financial Accounting Standard
No. 148,Accounting for Stock-Based Compensation  Transition and Disclosure. Under the intrinsic method, the excess of the market price on the date of grant over the exercise price is charged to the results of operations
over the vesting period. Accordingly, the Company was not required to recognize compensation cost for stock options issued to the Companys employees or shares issued under the employee stock purchase plan when the exercise price was equal to
the market price on the date of grant. Prior to the adoption of Statement 123R, we recognized



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VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



compensation cost only for restricted stock and for stock options issued with exercise prices set below market prices on the date of grant. During the year
ended December 31, 2005 we recognized compensation expense of $0.8 million for restricted stock which was charged to our consolidated statement of operations. There was no compensation cost recognized for stock options or the employee stock
purchase plans. The following table illustrates the pro forma effect on net income and net income per share had the Company accounted for all employee stock based compensation based on the estimated grant date fair values, as defined by SFAS 123 in
2005:



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

For the year ended December 31, 2007, the Company recognized $4.2 million for stock based
compensation. The expense includes $2.0 million for stock options, $1.8 million for restricted stock awards and $0.4 million for the employee stock purchase plan. The Company recognized $3.2 million in the year ended December 31, 2006, for
stock based compensation. This expense includes $1.7 million for stock options, $1.1 million for restricted stock awards and $0.4 million for the employee stock purchase plan. The costs for stock based compensation for the year ended
December 31, 2005 are related to restricted stock awards. Prior to the adoption of Statement 123R the Company did not record any expense for stock options with zero intrinsic value or the ESPP. The tables below present the costs recorded
related to stock based compensation and the effect of stock based compensation on earnings per share for the years ended December 31, 2007 and 2006 and 2005, respectively:

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



|                               |  |                                |       |      |   |       |  |   |    
|------------------------------ |  | ------------------------------ | ----- | ---- | - | ----- |  | - | ---
|                               |  | For The Year EndedDecember 31,
|                               |  | 2007                           |       | 2006 |   | 2005 
|Cost of revenue  services     |  | $                              | 290   |      | $ | 420   |  | $ |   
|Research and development       |  |                                | 511   |      |   | 278   |  |   | 12 
|Sales and marketing            |  |                                | 907   |      |   | 706   |  |   | 124
|General and administrative     |  |                                | 2,522 |      |   | 1,790 |  |   | 698
|                               |  |                                |       |      |   |       |  |   |    
|Total stock based compensation |  | $                              | 4,230 |      | $ | 3,194 |  | $ | 834
|                               |  |                                |       |      |   |       |  |   |    



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VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                                          |  |                                |      |      |   |      |  |   |     
|--------------------------------------------------------- |  | ------------------------------ | ---- | ---- | - | ---- |  | - | ----
|                                                          |  | For The Year EndedDecember 31,
|                                                          |  | 2007                           |      | 2006 |   | 2005
|Effect of stock based compensation on earnings per share: |  |                                |      |      |   |      |  |   |     
|Basic                                                     |  | $                              | 0.15 |      | $ | 0.11 |  | $ | 0.03
|Diluted                                                   |  | $                              | 0.15 |      | $ | 0.11 |  | $ | 0.03

Product Warranties

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

Advertising Costs

Advertising costs are expensed as incurred. The company did not recognize any material advertising expenses for the years ended December 31, 2007, 2006 and 2005, respectively.

Taxes Collected from Customers

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

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting
for Income Taxes. SFAS 109 requires the use of the asset and 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. These differences result in deferred tax assets and liabilities, which are included in the Companys consolidated balance
sheet.

The Company then assesses the likelihood of realizing benefits related to such assets by considering factors such as historical
taxable income and our ability to generate sufficient taxable income of the appropriate character within the relevant jurisdictions in future years. If the realization of these assets is not likely based on these factors, a valuation allowance is
established against our deferred tax assets.

Earnings Per Share

Basic net income per share is computed by dividing the net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period, excluding shares subject
to repurchase or forfeiture. Diluted earnings per share is computed by dividing net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period increased to include the number
of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued. The dilutive effect of outstanding options, shares to be purchased under the employee stock purchase plan and
unvested restricted stock is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



the fair market value of the Companys common stock can result in a greater dilutive effect from outstanding options and restricted stock. Additionally,
the exercise of common stock options and the vesting of restricted stock can result in a dilutive effect on earnings per share. The Company excludes outstanding stock options from the computation of diluted earnings per share when such inclusion
would be antidilutive. The Company excluded 0.8 million, 1.4 million and 1.9 million outstanding stock options for the years ended December 31, 2007, 2006 and 2005, respectively.

The following table sets forth the computation of basic and diluted earnings per share (in thousands except per share data):



|                                                                         |  |                         |        |      |   |        |  |   |       
|------------------------------------------------------------------------ |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|                                                                         |  | Year Ended December 31,
|                                                                         |  | 2007                    |        | 2006 |   | 2005  
|Numerator:                                                               |  |                         |        |      |   |        |  |   |       
|Net income                                                               |  | $                       | 24,825 |      | $ | 12,319 |  | $ | 20,394
|Denominator:                                                             |  |                         |        |      |   |        |  |   |       
|Weighted Average Shares Outstanding:                                     |  |                         |        |      |   |        |  |   |       
|Weighted-average shares outstanding, excluding unvested restricted stock |  |                         | 27,501 |      |   | 29,658 |  |   | 29,181
|Stock Options, ESPP and restricted shares                                |  |                         | 282    |      |   | 220    |  |   | 626   
|Diluted                                                                  |  |                         | 27,783 |      |   | 29,878 |  |   | 29,807
|Earnings per common share:                                               |  |                         |        |      |   |        |  |   |       
|Basic                                                                    |  | $                       | 0.90   |      | $ | 0.42   |  | $ | 0.70  
|Diluted                                                                  |  | $                       | 0.89   |      | $ | 0.41   |  | $ | 0.68  

Segments

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

Employee 401(k) Plan

In 1997, the Company established a voluntary defined contribution retirement plan qualifying under Section 401(k) of the Internal Revenue Code of 1986 (The Plan). Participants are allowed to make voluntary contributions to
the Plan up to 25% of compensation. The Company can make discretionary contributions to the Plan of amounts determined and authorized by the Companys Board of Directors up to the maximum amounts permitted by the Internal Revenue Service
(IRS). Participants direct the investment allocation of all contributions. Contributions are subject to limitations imposed by the Internal Revenue Code (the Code). For the years ended December 31, 2006 and 2005, the
Company chose to match the first one thousand dollars of each participants contributions for a total company contribution of $286,000 and $347,000, respectively. For the year ended December 31, 2007, the Company chose to match 50% of the
first four thousand dollars of each participants contributions for a total company contribution of $528,000.

Reclassifications

Certain prior year amounts have been reclassified to conform to the fiscal 2006 and 2007 presentation. This includes primarily amounts that have been
reclassified as required by Statement 123R. The Company also



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VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



reclassified the amortization of deferred stock compensation previously reported on a separate line in the consolidated statement of operations for the year
ended December 31, 2005. That expense is now included in the appropriate functional expense category and is presented in tabular form in this footnote. The Company also reclassified the unamortized cost of $380,000 related to restricted stock
awards to additional paid-in capital that was previously reported as deferred compensation in the equity section of the Companys consolidated balance sheet as of December 31, 2005. The reclassifications of the amortization of deferred
stock compensation and deferred compensation had no impact on the Companys financial position, results of operations, or cash flows.

Recent
Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) 157,Fair Value Measurements . SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures about fair value measurements. SFAS 157
is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years and is required to be adopted by the Company beginning in the first quarter of fiscal 2008. Although the Company will continue to
evaluate the application of SFAS No. 157, management does not currently believe adoption will have a material impact on the Companys financial condition or operating results.

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

In December 2007, the Financial Accounting Standards Board issued Statement 141 (revised 2007),Business Combinations (Statement
141R) to change how an entity accounts for the acquisition of a business. When effective, Statement 141R will replace existing Statement 141 in its entirety, will amend Statement 109 and Interpretation 48 and also will amend the goodwill impairment
test requirements in Statement 142. Statement 141R is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2008. Early adoption is prohibited.

The Company currently records all changes to a valuation allowance for acquired deferred tax assets or the effect of changes in an acquired tax
position that occur after the acquisition date by initially reducing the related goodwill to zero, next by reducing other noncurrent intangible assets related to the acquisition to zero and lastly by reducing income tax expense. However, Statement
141R amends Statement 109 and Interpretation 48 to require the Company to recognize changes to the valuation allowance for an acquired deferred tax asset or the effect of changes to an acquired tax position as adjustments to income tax expense or
contributed capital, as appropriate, and not as adjustments to goodwill. This accounting will be required when Statement 141R becomes effective (January 1, 2009 for the Company) and applies to valuation allowances and tax positions related to
acquisitions accounted for originally under Statement 141 as well as those accounted for under Statement 141R. The Company has a $21.0 million valuation allowance at December 31, 2007 related to deferred tax assets acquired in a business
combination. Any change in the valuation allowance subsequent to December 31, 2008 will be recorded as a reduction of income tax expense rather than as a reduction of goodwill. The Company has not determined what effect, if any, Statement 141R
will have on the results of any changes in the valuation allowance subsequent to December 31, 2008.



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Statement 141R amends the goodwill impairment test requirements in Statement 142. For a goodwill
impairment test as of a date after the effective date of Statement 141R, the value of the reporting unit and the amount of implied goodwill, calculated in the second step of the test, will be determined in accordance with the measurement and
recognition guidance on accounting for business combinations under Statement 141R. This change could effect the determination of what amount, if any, should be recognized as an impairment loss for goodwill recorded before the effective date of
Statement 141R. This accounting will be required when Statement 141R becomes effective (January 1, 2009 for the Company) and applies to goodwill related to acquisitions accounted for originally under Statement 141 as well as those accounted for
under Statement 141R. The Company has $115.8 million of goodwill at December 31, 2007 related to previous business combinations. The Company has not determined what effect, if any, Statement 141R will have on the results of its impairment
testing subsequent to December 31, 2008.

The Company intends to adopt Statement 141R effective January 1, 2009 and apply its
provisions prospectively. The Company is evaluating the impact that the adoption of Statement 141R will have on its financial statements.

From time to time, new accounting pronouncements applicable to the Company are issued by the FASB or other standards setting bodies, which we will adopt as of the specified effective date. Unless otherwise discussed, we believe the impact
of recently issued standards that are not effective will not have a material impact on our consolidated financial statements upon adoption.

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

Acquisition of Tower Technology

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



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                 |  |            |       |   |                         |   |        |       |  |   |        |  
|-------------------------------- |  | ---------- | ----- | - | ----------------------- | - | ------ | ----- |  | - | ------ | -
|                                 |  | Exit Costs |       |   | Severance andRelocation |   |        | Total | 
|Initial accrual at March 1, 2004 |  | $          | 3,146 |   |                         | $ | 1,426  |       |  | $ | 4,572  |  
|                                 |  |            |      
|Cash activity                    |  |            | (864  | ) |                         |   | (1,400 | )     |  |   | (2,264 | )
|Adjustment to accrual            |  |            | (866  | ) |                         |   | (26    | )     |  |   | (892   | )
|                                 |  |            |       |   |                         |   |        |       |  |   |        |  
|Balance at December 31, 2004     |  |            | 1,416 |   |                         |   |       |       |  |   | 1,416  |  
|                                 |  |            |       |   |                         |   |        |       |  |   |        |  
|Cash activity                    |  |            | (689  | ) |                         |   |       |       |  |   | (689   | )
|Adjustment to accrual            |  |            | 190   |   |                         |   |       |       |  |   | 190    |  
|                                 |  |            |       |   |                         |   |        |       |  |   |        |  
|Balance at December 31, 2005     |  |            | 917   |   |                         |   |       |       |  |   | 917    |  
|                                 |  |            |       |   |                         |   |        |       |  |   |        |  
|Cash activity                    |  |            | (495  | ) |                         |   |       |       |  |   | (495   | )
|Adjustment to accrual            |  |            | (33   | ) |                         |   |       |       |  |   | (33    | )
|Non-cash activity                |  |            | 92    |   |                         |   |       |       |  |   | 92     |  
|                                 |  |            |       |   |                         |   |        |       |  |   |        |  
|Balance at December 31, 2006     |  |            | 481   |   |                         |   |       |       |  |   | 481    |  
|                                 |  |            |       |   |                         |   |        |       |  |   |        |  
|Cash activity                    |  |            | (68   | ) |                         |   |       |       |  |   | (68    | )
|Adjustment to accrual            |  |            | (422  | ) |                         |   |       |       |  |   | (422   | )
|Non-cash activity                |  |            | 9     |   |                         |   |       |       |  |   | 9      |  
|                                 |  |            |       |   |                         |   |        |       |  |   |        |  
|Balance at December 31, 2007     |  |            |      |   |                         |   |       |       |  |   |       |  
|                                 |  |            |       |   |                         |   |        |       |  |   |        |  

The Company recorded no acquisition related charges in 2007 or 2006 and $0.3 million in 2005.
However, the Company recognized approximately $0.7 million of purchase accounting credits as other income in the statement of operations for the year ended December 31, 2007 as a result of the release of designated liabilities recorded as part
of its business acquisitions that were no longer required.

NOTE 4  Intangible Assets

Goodwill

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



|                             |  |          |         |  
|---------------------------- |  | -------- | ------- | -
|                             |  | Goodwill |        
|Balance at December 31, 2005 |  | $        | 120,110 |  
|Purchase price adjustments   |  |          | (388    | )
|Balance at December 31, 2006 |  | $        | 119,722 |  
|Purchase price adjustments   |  |          | (3,914  | )
|                             |  |          |         |  
|Balance at December 31, 2007 |  | $        | 115,808 |  
|                             |  |          |         |  

The goodwill balance at December 31, 2007, 2006 and 2005 pertains to the Tower Technology
business combination completed in March 2004, the Intraspect business combination completed in December 2003 and the Epicentric business combination completed in December 2002.

The purchase price adjustments in 2007 and 2006 are adjustments associated with the Company realizing the benefit of previously unrecognized tax assets,
acquired as part of these business combinations. See Note 9  Income Taxes for further detail regarding the purchase price adjustments.



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Goodwill Impairment Tests

In accordance with Statement 142, the Company performs an annual impairment test of goodwill. The Company evaluates goodwill at the enterprise level as of October 1 each year or more frequently if events or
changes in circumstances indicate that goodwill might be impaired. As required by Statement 142, the impairment test is accomplished using a two-stepped approach. The first step screens for impairment by comparing the fair value of the Company with
its carrying amount, including goodwill. To determine the Companys fair value, the Company employs the market capitalization approach, comparing the net book value of the Company to its market capitalization. If, under the first step, an
impairment is indicated, a second step is employed to measure the impairment.

Using data as of October 1, 2007, 2006 and 2005, the
Company passed the first step. The Company also reviewed other factors to determine the likelihood of impairment. Based on these findings, the remaining net goodwill balance of $115.8 million is not considered impaired at December 31, 2007.

Intangible Assets with Definite Lives

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



|                                      |  |                     |         |                                      |   |         |                   |  |                     |        |                                      |   |         |                   |   |         |   |  |   |       
|------------------------------------- |  | ------------------- | ------- | ------------------------------------ | - | ------- | ----------------- |  | ------------------- | ------ | ------------------------------------ | - | ------- | ----------------- | - | ------- | - |  | - | ------
|                                      |  | December 31,       
|                                      |  | 2007                |         | 2006                                
|                                      |  | GrossCarryingAmount |         | AccumulatedAmortizationandImpairment |   |         | NetCarryingAmount |  | GrossCarryingAmount |        | AccumulatedAmortizationandImpairment |   |         | NetCarryingAmount
|Technology                            |  | $                   | 77,101  |                                      | $ | (66,231 | )                 |  | $                   | 10,870 |                                      | $ | 77,101  |                   | $ | (61,214 | ) |  | $ | 15,887
|Non-compete contracts                 |  |                     | 2,200   |                                      |   | (2,142  | )                 |  |                     | 58     |                                      |   | 2,200   |                   |   | (1,792  | ) |  |   | 408   
|Customer relationships                |  |                     | 23,400  |                                      |   | (16,828 | )                 |  |                     | 6,572  |                                      |   | 23,400  |                   |   | (13,795 | ) |  |   | 9,605 
|Trademarks                            |  |                     | 800     |                                      |   | (800    | )                 |  |                     |       |                                      |   | 800     |                   |   | (800    | ) |  |   |      
|Capitalized research and development  |  |                     | 700     |                                      |   | (700    | )                 |  |                     |       |                                      |   | 700     |                   |   | (700    | ) |  |   |      
|                                      |  |                     |         |                                      |   |         |                   |  |                     |        |                                      |   |         |                   |   |         |   |  |   |       
|Balance at December 31, 2007 and 2006 |  | $                   | 104,201 |                                      | $ | (86,701 | )                 |  | $                   | 17,500 |                                      | $ | 104,201 |                   | $ | (78,301 | ) |  | $ | 25,900
|                                      |  |                     |         |                                      |   |         |                   |  |                     |        |                                      |   |         |                   |   |         |   |  |   |       

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

The Companys intangible assets with definite lives with remaining net carrying amounts are being
amortized over the assets estimated useful lives using the straight-line method. Estimated useful lives range from two to six years. The useful life for technology is 72 months. The useful life for non-compete contracts is 48 months. The
useful life of customer relationships is 72 months. The weighted average useful life for intangible assets in total with definite lives is 65 months. The Company periodically reviews the estimated useful lives of its identifiable intangible assets,
taking into consideration any events or circumstances that might result in either a diminished fair value or revised useful life. Total amortization expense for the years ended December 31, 2007, 2006 and 2005 was $8.4 million, $8.7 million and
$11.2 million, respectively. Of these amounts, $3.4 million, $3.7 million and $5.0 million, was recorded as Amortization of intangible assets in operating expenses, respectively and the remaining $5.0 million, $5.0 million and $6.3
million, respectively, was recorded as a cost of revenue.



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VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                     |  |   |       
|------------------------------------ |  | - | ------
|For the year ended December 31, 2008 |  | $ | 8,108 
|For the year ended December 31, 2009 |  |   | 8,050 
|For the year ended December 31, 2010 |  |   | 1,342 
|                                     |  |   |       
|Total remaining amortization         |  | $ | 17,500
|                                     |  |   |       

NOTE 5  Shareholders Equity

Common Stock

The Company authorized the issuance of 500,000,000 shares of $0.01 par value common
stock. A portion of the shares issued are restricted and are subject to forfeiture, until the respective vesting requirement is achieved, which is generally one to three years from grant or issuance. As of December 31, 2007, 437,461 shares were
subject to forfeiture under restricted stock awards.

As of December 31, 2007, the Company reserved shares of its common stock for the
following purposes:



|                                      |  |          
|------------------------------------- |  | ---------
|Employee stock purchase plan          |  | 996,686  
|Stock options available for grant     |  | 3,752,652
|Exercise of outstanding stock options |  | 2,388,178
|                                      |  |          
|                                      |  | 7,137,516
|                                      |  |          

Reverse Stock Split

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

Preferred Stock

The number of shares authorized to be designated as preferred stock was 10,000,000 at December 31, 2007. In June 2005 the Company amended its Amended
and Restated Certificate of Incorporation to change the number of shares authorized to be designated as preferred stock from 30,000,000 shares to 10,000,000 shares. There were no preferred shares outstanding at December 31, 2007 or 2006.

Shareholder Rights Plan

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



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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

Stock Plans

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

Under the 1995 Plan, certain employees, members of the Board and independent advisors were granted options to purchase shares of the Companys common stock and were issued shares of the Companys common
stock. Options are immediately exercisable. Upon certain events, the Company has repurchase rights for unvested shares equal to the original exercise price. At December 31, 2007, no shares were subject to repurchase. The Company also has the
right of first refusal for any proposed disposition of shares issued under the 1995 Plan. The stock options and the related exercised stock will generally vest over a four-year cumulative period. The term of each option is no more than ten years
from the date of grant. Stock issuance may be for purchase or as a bonus for services rendered to the Company. Options outstanding at the time of the Companys initial public offering were assumed under the Companys 1999 Plan. Options may
not be granted from the 1995 Plan subsequent to the Companys initial public offering, therefore, no shares were available for future grant under the 1995 Plan at December 31, 2007. Options that expire under the 1995 Plan will be available
for future grants under the 1999 Plan.

Under the 1999 Plan, employees, non-employee members of the Board and consultants may be granted
options to purchase shares of common stock, stock appreciation rights, restricted shares and stock units. Options are exercisable in accordance with each stock option agreement. The term of each option is no more than ten years from the date of
grant. The compensation committee of the board of directors determines the vesting for each grant. All outstanding options as of December 31, 2007 vest over a period of three to four years. At December 31, 2007, there were 7,239,387 shares
authorized for issuance, including shares assumed from the 1995 Plan, of which 1,480,919 were available for future grant.

Under the 1999
Supplemental Plan, only employees and consultants who are common-law employees of the corporation are eligible for the grant of options. Employees who are officers of the corporation are not eligible for the grant of options under this Plan. The
compensation committee of the board of directors determines the



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



vesting for each grant. At December 31, 2007, there were 3,300,000 shares authorized for issuance of which 2,189,233 were available for future grant.

Under the Directors Plan, non-employee members of the Board may be granted non-qualified options to purchase shares of common stock.
Vesting for options granted prior to April 2004 occurs over a four-year cumulative period. Vesting of options granted after April 2004 occurs over a one-year period. The term of each option is no more than ten years from the date of grant. At
December 31, 2007, there were 150,000 shares authorized for issuance of which 82,500 were available for future grant.

Under the ESPP,
as amended, the Company has reserved 2,157,286 shares of common stock for issuance to participating employees. The plan is considered compensatory by the Company. Under the terms of the ESPP, there are two, six-month offerings per year. Employees
may direct the Company to withhold up to 15% of their salary to purchase the Companys common stock. An employee may purchase a maximum of 200 shares per six-month offering period. As of December 31, 2007, 1,160,600 shares were issued
under the ESPP. This plan has 996,686 shares available for future issuance.

In addition to the aforementioned plans, the Company assumed
several plans through its business combinations. These assumed plans have not been approved by the Companys shareholders; however, upon assumption, these plans terminated and no further options may be granted. Options previously granted under
these plans that have not yet expired or otherwise become unexercisable continue to be administered under the governing plan and any portions that expire or become unexercisable for any reason shall be cancelled and be unavailable for future
issuance. Prior to 2003, the Company also granted options to certain of its officers upon their employment. Such options were issued as inducement grants pursuant to NASD Rule 4350(i).

The following table summarizes stock option activity and related information through December 31, 2007. The activity presented below is on a post
split basis after giving effect for the one-for-ten reverse stock split and is as follows:



|                                   |  |                         |   |      |                              |       |         |            |   |                              |   |         |  |           |                              |  |   |      
|---------------------------------- |  | ----------------------- | - | ---- | ---------------------------- | ----- | ------- | ---------- | - | ---------------------------- | - | ------- |  | --------- | ---------------------------- |  | - | -----
|                                   |  | Year Ended December 31,
|                                   |  | 2007                    |   | 2006 |                              | 2005 
|                                   |  | Options                 |   |      | Weightedaverageexerciseprice |       | Options |            |   | Weightedaverageexerciseprice |   | Options |  |           | Weightedaverageexerciseprice
|Outstanding at beginning of period |  | 2,262,272               |   |      | $                            | 23.08 |         | 3,146,523  |   |                              | $ | 25.96   |  | 3,587,412 |                              |  | $ | 31.24
|Granted                            |  | 764,616                 |   |      |                              | 17.93 |         | 547,836    |   |                              |   | 15.10   |  | 736,953   |                              |  |   | 13.15
|Exercised                          |  | (244,759                | ) |      |                              | 12.05 |         | (370,194   | ) |                              |   | 10.14   |  | (416,437  | )                            |  |   | 4.45 
|Canceled                           |  | (393,951                | ) |      |                              | 32.94 |         | (1,061,893 | ) |                              |   | 32.02   |  | (761,405  | )                            |  |   | 50.18
|                                   |  |                         |   |      |                              |       |         |            |   |                              |   |         |  |           |                              |  |   |      
|Outstanding at end of period       |  | 2,388,178               |   |      |                              | 20.93 |         | 2,262,272  |   |                              |   | 23.08   |  | 3,146,523 |                              |  |   | 25.96
|                                   |  |                         |   |      |                              |       |         |            |   |                              |   |         |  |           |                              |  |   |      
|Options exercisable at period end  |  | 1,281,312               |   |      |                              | 24.62 |         | 1,420,316  |   |                              |   | 28.18   |  | 2,213,835 |                              |  |   | 31.54
|                                   |  |                         |   |      |                              |       |         |            |   |                              |   |         |  |           |                              |  |   |      
|Options available for grant        |  | 3,752,652               |   |      |                              |       |         | 4,560,234  |   |                              |   |         |  | 4,820,773 |                              |  |   |      
|                                   |  |                         |   |      |                              |       |         |            |   |                              |   |         |  |           |                              |  |   |      



|                                   |  |                                    |      
|---------------------------------- |  | ---------------------------------- | -----
|                                   |  | Year EndedDecember 31, 2007       
|                                   |  | Aggregate Intrinsic Value(in 000s)
|Options outstanding at end of year |  | $                                  | 1,859
|Options exercisable at end of year |  | $                                  | 1,529



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table summarizes options outstanding and exercisable as of December 31, 2007:



|                        |  |                  |  |                                                     |  |                               |       |                  |           |                                                    |      |                               |   |      
|----------------------- |  | ---------------- |  | --------------------------------------------------- |  | ----------------------------- | ----- | ---------------- | --------- | -------------------------------------------------- | ---- | ----------------------------- | - | -----
|                        |  | Outstanding      |  | Exercisable                                        
|Range of ExercisePrices |  | Number ofOptions |  | Weighted-AverageRemainingContractualLife (in years) |  | Weighted-AverageExercisePrice |       | Number ofOptions |           | WeightedAverageRemainingContractualLife (in years) |      | Weighted-AverageExercisePrice
|$0.01 - $10.00          |  | 128,096          |  | 2.88                                                |  | $                             | 8.31  |                  | 128,096   |                                                    | 2.88 |                               | $ | 8.31 
|$10.01 - $15.00         |  | 496,831          |  | 4.70                                                |  | $                             | 12.50 |                  | 344,505   |                                                    | 4.68 |                               | $ | 12.52
|$15.01 - $20.00         |  | 1,189,003        |  | 6.79                                                |  | $                             | 17.10 |                  | 234,463   |                                                    | 5.99 |                               | $ | 16.14
|$20.01 - $25.00         |  | 275,477          |  | 4.16                                                |  | $                             | 21.55 |                  | 275,477   |                                                    | 4.16 |                               | $ | 21.55
|$25.01 - $30.00         |  | 31,788           |  | 2.46                                                |  | $                             | 27.60 |                  | 31,788    |                                                    | 2.46 |                               | $ | 27.60
|$30.01 - $700.00        |  | 266,983          |  | 1.54                                                |  | $                             | 58.32 |                  | 266,983   |                                                    | 1.54 |                               | $ | 58.32
|                        |  |                  |  |                                                     |  |                               |       |                  |           |                                                    |      |                               |   |      
|                        |  | 2,388,178        |  | 5.20                                                |  | $                             | 20.93 |                  | 1,281,312 |                                                    | 3.92 |                               | $ | 24.62
|                        |  |                  |  |                                                     |  |                               |       |                  |           |                                                    |      |                               |   |      

Fair Value Disclosures for Stock Options

Actual compensation cost for the years ended December 31, 2007 and 2006 has been recognized using the fair value method as required by Statement 123R
and has been included in the determination of net income and net income per share. Pro forma information for the year ended December 31, 2005, regarding net income and net income per share as required by SFAS 123, has been determined as if the
Company had accounted for its employee stock plans under the fair value method of SFAS 123.

In anticipation of the adoption of Statement
123R, and previously for SFAS 123, the Company evaluated the assumptions to be used in the Black-Scholes option pricing model. The Company bases expected volatility on historical volatility. The expected term is calculated based on an analysis of
historical exercises of stock options. The Company bases the estimate of the risk-free rate on the U.S. Treasury rates in effect at the time of the grant. The Company has never paid cash dividends and does not currently intend to pay cash dividends
and has assumed a 0% dividend yield. Fair value was estimated using the Black-Scholes option-pricing model, with the following assumptions, for stock options and the ESPP granted in the years ended December 31, 2007, 2006 and 2005,
respectively:



|                                                          |  |                        |      |   |                             |   |      |      |  |   |      |   |  |      |      |   |      |   |      |   |  |   |      |  
|--------------------------------------------------------- |  | ---------------------- | ---- | - | --------------------------- | - | ---- | ---- |  | - | ---- | - |  | ---- | ---- | - | ---- | - | ---- | - |  | - | ---- | -
|                                                          |  | Employee Stock Options |      |   | Employee StockPurchase Plan |  
|                                                          |  | 2007                   |      |   | 2006                        |   |      | 2005 |  |   | 2007 |   |  | 2006 |      |   | 2005 |  
|Risk-free interest rate                                   |  |                        | 4.6  | % |                             |   | 4.8  | %    |  |   | 3.8  | % |  |      | 4.51 | % |      |   | 4.84 | % |  |   | 4.00 | %
|Weighted-average expected life of the options (years)     |  |                        | 4.0  |   |                             |   | 3.0  |      |  |   | 2.0  |   |  |      | 0.75 |   |      |   | 0.75 |   |  |   | 1.00 |  
|Dividend rate                                             |  |                        | 0.0  | % |                             |   | 0.0  | %    |  |   | 0.0  | % |  |      | 0.0  | % |      |   | 0.0  | % |  |   | 0.0  | %
|Assumed volatility                                        |  |                        | 51   | % |                             |   | 55   | %    |  |   | 63   | % |  |      | 34   | % |      |   | 36   | % |  |   | 60   | %
|Weighted-average grant date fair value of options granted |  | $                      | 8.17 |   |                             | $ | 6.26 |      |  | $ | 4.81 |   |  | $    | 4.82 |   |      | $ | 3.98 |   |  | $ | 4.04 |  

As of December 31, 2007 the unamortized cost for outstanding stock options is approximately
$5.0 million. The estimated unamortized cost is net of estimated forfeitures used in computing compensation expense. The Company will adjust the estimate of forfeitures over the requisite service period based on the extent to which actual
forfeitures differ from such estimates. Changes in estimated forfeitures will be recognized with a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods. The
Company expects to recognize that expense over a weighted average period of approximately 1.5 years. The aggregate intrinsic value of stock options exercised for the year ended December 31, 2007 was $1.6 million.



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Fair Value Disclosure for Restricted Stock Awards

All outstanding restricted stock awards (RSAs) were issued with a zero exercise price. Therefore, the fair value of RSAs is generally equal to their
intrinsic value at date of grant. The total intrinsic value at date of grant for the RSAs outstanding at December 31, 2007 is approximately $6.4 million with an unamortized cost of approximately $4.7 million, net of estimated
forfeitures.



|                                              |  |         |   |  |                                     |       |                                                 |      |                                             |   |       |  
|--------------------------------------------- |  | ------- | - |  | ----------------------------------- | ----- | ----------------------------------------------- | ---- | ------------------------------------------- | - | ----- | -
|Restricted Stock Awards                       |  | Shares  |   |  | WeightedAverageGrant DateFair Value |       | WeightedAverageRemainingVestingPeriod(in years) |      | Grant DateAggregateIntrinsicValue (in 000s) |  
|Outstanding and unvested at December 31, 2006 |  | 195,936 |   |  | $                                   | 15.19 |                                                 | 1.9  |                                             | $ | 2,976 |  
|Granted                                       |  | 317,711 |   |  | $                                   | 17.72 |                                                 |     |                                             |   | 5,631 |  
|Vested                                        |  | (50,402 | ) |  | $                                   | 14.52 |                                                 |     |                                             |   | (732  | )
|Forfeited                                     |  | (25,784 | ) |  | $                                   | 17.76 |                                                 |     |                                             |   | (458  | )
|                                              |  |         |   |  |                                     |       |                                                 |      |                                             |   |       |  
|Outstanding and unvested at December 31, 2007 |  | 437,461 |   |  | $                                   | 16.96 |                                                 | 1.64 |                                             | $ | 7,418 |  
|                                              |  |         |   |  |                                     |       |                                                 |      |                                             |   |       |  

Stock Option Vesting Acceleration

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

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

Share Repurchase Program

On November 12, 2006, the Board of Directors of the Company approved a stock repurchase program of up to $75 million of the Companys common
stock over the following 12 months. In addition, on November 2, 2007, the Board of Directors of the Company approved an extension to the stock repurchase program approved on November 12, 2006 authorizing the purchase of up to an additional
$75 million of the Companys common stock over an indefinite period. Purchases are made from time to time as market and business conditions warrant, in the open market, negotiated or block transactions, in accordance with applicable laws, rules
and regulations. As of December 31, 2007 the Company has repurchased 5,015,639 shares under the programs at an average market price of $17.55 per share. The Company paid cash of approximately $86.7 million and incurred a liability of
approximately $1.3 million for these repurchases. The Company uses the cost method to account for treasury stock. The Company did not repurchase stock in 2005.



F-26



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 6  Business Restructuring

In 2001, we initiated a restructuring program to align our expense and revenue levels and to better position us for growth and profitability. In 2002,
2003 and 2004, we expanded those restructuring efforts. Although we have substantially implemented our restructuring activities, there can be no assurance that the estimated costs of our restructuring efforts will not change. Components of business
restructuring charges and the remaining restructuring accruals as of December 31, 2007 are as follows (in thousands):



|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|------------------------------------------------- |  | ------------------------- | ------- | - | ---------------- | - | ------- | -------------------------------- |  | - | ------- | - |  | - | ------- | -
|                                                  |  | Facility LeaseCommitments |         |   | AssetImpairments |   |         | EmployeeSeparationand OtherCosts |  |   | Total   |  
|Balance at December 31, 2000                      |  | $                         |        |   |                  | $ |        |                                  |  | $ |        |   |  | $ |        |  
|Total restructuring charge                        |  |                           | 55,150  |   |                  |   | 33,683  |                                  |  |   | 32,102  |   |  |   | 120,935 |  
|Cash activity                                     |  |                           | (12,397 | ) |                  |   | (878    | )                                |  |   | (22,773 | ) |  |   | (36,048 | )
|Non-cash activity                                 |  |                           | (292    | ) |                  |   | (32,805 | )                                |  |   | (1,918  | ) |  |   | (35,015 | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2001                      |  |                           | 42,461  |   |                  |   |        |                                  |  |   | 7,411   |   |  |   | 49,872  |  
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Effect of expanded restructuring plan             |  |                           | 6,518   |   |                  |   | 8,730   |                                  |  |   | 11,118  |   |  |   | 26,366  |  
|Adjustment to accrual                             |  |                           | 9,538   |   |                  |   | 463     |                                  |  |   | (545    | ) |  |   | 9,456   |  
|Cash activity                                     |  |                           | (21,959 | ) |                  |   |        |                                  |  |   | (11,342 | ) |  |   | (33,301 | )
|Non-cash activity                                 |  |                           |        |   |                  |   | (9,193  | )                                |  |   | (36     | ) |  |   | (9,229  | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2002                      |  |                           | 36,558  |   |                  |   |        |                                  |  |   | 6,606   |   |  |   | 43,164  |  
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Effect of expanded restructuring plan             |  |                           | 9       |   |                  |   |        |                                  |  |   | 2,076   |   |  |   | 2,085   |  
|Adjustment to accrual                             |  |                           | (13,422 | ) |                  |   |        |                                  |  |   | (3,349  | ) |  |   | (16,771 | )
|Cash activity                                     |  |                           | (10,620 | ) |                  |   |        |                                  |  |   | (4,961  | ) |  |   | (15,581 | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2003                      |  |                           | 12,525  |   |                  |   |        |                                  |  |   | 372     |   |  |   | 12,897  |  
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Effect of expanded restructuring plan             |  |                           | 12,421  |   |                  |   | 2,331   |                                  |  |   | 4,085   |   |  |   | 18,837  |  
|Adjustment to accrual                             |  |                           | (780    | ) |                  |   |        |                                  |  |   | (83     | ) |  |   | (863    | )
|Cash activity                                     |  |                           | (8,584  | ) |                  |   |        |                                  |  |   | (3,404  | ) |  |   | (11,988 | )
|Non-cash activity                                 |  |                           | (869    | ) |                  |   | (2,331  | )                                |  |   | (8      | ) |  |   | (3,208  | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2004                      |  |                           | 14,713  |   |                  |   |        |                                  |  |   | 962     |   |  |   | 15,675  |  
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Adjustment to accrual                             |  |                           | (1,676  | ) |                  |   |        |                                  |  |   | (123    | ) |  |   | (1,799  | )
|Cash activity                                     |  |                           | (6,358  | ) |                  |   |        |                                  |  |   | (709    | ) |  |   | (7,067  | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2005                      |  |                           | 6,679   |   |                  |   |        |                                  |  |   | 130     |   |  |   | 6,809   |  
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Adjustment to accrual                             |  |                           | 235     |   |                  |   |        |                                  |  |   |        |   |  |   | 235     |  
|Cash activity                                     |  |                           | (1,757  | ) |                  |   |        |                                  |  |   | (145    | ) |  |   | (1,902  | )
|Non-cash activity                                 |  |                           |        |   |                  |   |        |                                  |  |   | 15      |   |  |   | 15      |  
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2006                      |  |                           | 5,157   |   |                  |   |        |                                  |  |   |        |   |  |   | 5,157   |  
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Adjustment to accrual                             |  |                           | (80     | ) |                  |   |        |                                  |  |   |        |   |  |   | (80     | )
|Cash activity                                     |  |                           | (1,769  | ) |                  |   |        |                                  |  |   |        |   |  |   | (1,769  | )
|Non-cash activity                                 |  |                           | 90      |   |                  |   |        |                                  |  |   |        |   |  |   | 90      |  
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Balance at December 31, 2007                      |  | $                         | 3,398   |   |                  | $ |        |                                  |  | $ |        |   |  | $ | 3,398   |  
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Less: current portion                             |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   | (1,555  | )
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  
|Accrued restructuring costs, less current portion |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   | 1,843   |  
|                                                  |  |                           |         |   |                  |   |         |                                  |  |   |         |   |  |   |         |  



F-27



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Remaining cash expenditures resulting from the restructuring are estimated to be $3.4 million and
relate to our facility lease commitments, of which the remaining maximum lease commitment extends out to 2011.

Consolidation of Excess Facilities

Facility lease commitments relate to lease obligations for excess office space that the Company has vacated as a result of the
restructuring plan. The Company continues to actively pursue mitigation strategies to dispose of all excess office space through subleasing and/or early termination negotiations where possible. The total lease commitments include the estimated lease
buyout fees, or the remaining lease liabilities and estimated associated mitigation costs including, but not limited to, brokerage commissions, legal fees, repairs, restoration costs and sublease incentives, offset by estimated sublease income. The
estimated costs of vacating these leased facilities, including estimated costs to sublease and any resulting sublease income, were based on market information and trend analysis as estimated by the Company. The Company continually assesses its real
estate portfolio and may vacate and/or occupy other leased space as dictated by its analysis and by the needs of the business. It is reasonably possible that actual results could differ from these estimates in the near term and such differences
could be material to the financial statements. In particular, actual sublease income attributable to the consolidation of excess facilities might deviate from the assumptions used to calculate the Companys accrual for facility lease
commitments. The accrual adjustments recorded during fiscal 2005 relate primarily to such differences, namely the buyout fees and sublease income of certain vacated properties were more favorable than we had anticipated. Facility lease commitments
relate to the Companys departure from certain office space in Austin, Texas; Brisbane and San Francisco, California; New York City, New York; Waltham and Boston, Massachusetts; Chicago, Illinois; and Maidenhead, United Kingdom. The maximum
lease commitment of such vacated properties extends through December 2011.

Asset Impairments

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

Employee Separation
and Other Costs

Employee separation and other costs include severance, related taxes, outplacement and other restructuring charges. As
a result of the restructuring activities, the Company severed approximately 1,675 employees in the years 2001 through 2004. 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.

NOTE 7  Commitments and Contingencies

The Company leases its office facilities and various equipment under operating lease agreements having expiration dates through 2017.
The Company has operating leases for facilities with escalating rents. Pursuant to SFAS 13  Accounting for Leases, the Company recognizes rent expense on a straight line basis over the lease term. Rent expense, excluding vacated
properties, for the years ended December 31, 2007, 2006 and 2005 was $3.5 million, $5.0 million and $4.8 million respectively. At December 31, 2007, estimated future rents receivable from signed sublease agreements are $6.5 million through
2011. Future minimum rental payments as of



F-28



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2007 under our lease obligations, including operating lease commitments for all vacated properties, are as follows (in thousands):



|                               |  |                 |        |                |   |      
|------------------------------ |  | --------------- | ------ | -------------- | - | -----
|                               |  | OperatingLeases |        | SubleaseIncome
|2008                           |  | $               | 5,722  |                | $ | 2,101
|2009                           |  |                 | 4,490  |                |   | 1,862
|2010                           |  |                 | 3,649  |                |   | 1,411
|2011                           |  |                 | 2,802  |                |   | 1,157
|2012                           |  |                 | 548    |                |   |     
|                               |  |                 |        |                |   |      
|Total minimum lease payments   |  | $               | 17,211 |                |   |      
|                               |  |                 |        |                |   |      
|Total minimum sublease rentals |  |                 |        |                | $ | 6,531
|                               |  |                 |        |                |   |      

Software License Indemnifications

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

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

In certain instances we indemnify our customers against these claims.
Although we have never had to make payment on a claim, claims against us, either successful or unsuccessful could result in significant legal and other costs and may be a distraction to management. While we have primarily focused on intellectual
property protection within the United States of America (United States), we have expanded that scope to selected international markets. Protection of intellectual property outside of the United States will sometimes require additional
filings with local patent, trademark, or copyright offices, as well as implementation of contractual or license terms different from those used in the United States. Protection of intellectual property in many foreign countries is weaker and less
reliable than in the United States. As our business expands into foreign countries, costs and risks associated with protecting our intellectual property abroad will increase.

NOTE 8  Legal Matters

Securities Class Action

On October 26, 2001, a class action lawsuit was filed against the Company and certain of its current and former officers and directors in the United
States District Court for the Southern District of New York in an



F-29



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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

The action is being coordinated with approximately 300 other nearly identical actions filed against other companies. On October 9, 2002, the Court
dismissed the Individual Defendants from the case without prejudice based upon Stipulations of Dismissal filed by the plaintiffs and the Individual Defendants. On February 19, 2003, the Court denied a motion to dismiss the complaint against the
Company. On December 5, 2006, the Second Circuit vacated a decision by the district court granting class certification in six of the other nearly identical actions (the focus cases), which are intended to serve as test
cases. The plaintiffs selected these six cases, which do not include the Company. On April 6, 2007, the Second Circuit denied a petition for rehearing filed by the plaintiffs, but noted that the plaintiffs could ask the district court to
certify more narrow classes than those that were rejected.

Prior to the Second Circuits December 5, 2006 ruling, the majority
of the issuers, including the Company, and their insurers had submitted a settlement agreement to the district court for approval. In light of the Second Circuit opinion, the parties agreed that the settlement could no longer be
approved. On June 25, 2007, the district court approved a stipulation filed by the plaintiffs and the issuers which terminated the proposed settlement. On August 14, 2007, the plaintiffs filed amended complaints in the six focus
cases. The amended complaints include a number of changes, such as changes to the definition of the purported class of investors and the elimination of the individual defendants as defendants. The six focus case issuers and the underwriters named as
defendants in the focus cases filed motions to dismiss the amended complaints against them on November 14, 2007. On September 27, 2007, the plaintiffs filed a motion for class certification in the six focus cases. On December 21,
2007, the issuers and the underwriters filed papers opposing plaintiffs class certification motion and plaintiffs filed an opposition to defendants motions to dismiss. On January 28, 2008, the issuers and the underwriters filed
reply briefs in further support of their motions to dismiss the amended complaints. Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of the matter. We cannot predict whether we will be able to
renegotiate a settlement that complies with the Second Circuits mandate, nor can we predict the amount of any such settlement and whether that amount would be greater than Vignettes insurance coverage. The Company is unable to
determine whether the outcome of the litigation will have a material impact on its results of operations or financial condition in any future period. The Company will continue to defend itself vigorously against this lawsuit.



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Millennium L.P. vs Vignette Corporation

On June 6, 2007, a patent infringement lawsuit was filed against the Company in the United States District Court for the Southern District of New
York (the Court) by Millennium L.P.( Millennium ), for the alleged infringement of various patents by the Companys products (Case No. 07 CIV 4800) . The patents asserted against the
Company are United States Patent Nos. 5,258,855, 5,369,508, 5,625,465, 5,768,416 and 6,094,505. The Complaint also alleges willful infringement of the patents by the Company and seeks a preliminary and permanent injunction of the alleged infringing
acts by the Company, as well as trebling of unspecified damages. The Company filed its answer to the Complaint on July 10, 2007, denying the claims of Millennium and raising various defenses. On July 10, 2007, the
Company also counterclaimed for a declaratory judgment that United States Patent Nos. 5,258,855, 5,369,508, 5,625,465, 5,768,416 and 6,094,505 are not infringed by the Company and are invalid. Millennium replied to the counterclaim on
July 11, 2007.

On December 28, 2007, the Court entered an Order of Discontinuance with prejudice and without costs under which
Millenniums ability to restore the action to the active calendar of the Court expired January 28, 2008. During this period, on January 2, 2008, the Company and Millennium entered into an agreement that resulted in the parties
mutual release of all claims against one another.

Litigation and Other Claims

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

NOTE 9  Income Taxes

Deferred Tax Asset and Valuation Allowance

As of December 31, 2007, we had domestic federal net operating loss, research and development credit and capital loss carry forwards of approximately
$745.0 million, $16.3 million and $15.2 million, respectively. These domestic net operating loss, research and development credit and capital loss carry forwards will expire at various dates, between 2008 and 2027, if not utilized. The Company also
had foreign net operating loss carry forwards of approximately $12.4 million that are not subject to expiration.

Internal Revenue Code
Section 382 and similar foreign statutes impose substantial restrictions on the utilization of net operating losses, tax credits and capital loss carry forwards in the event of an ownership change of a corporation. Domestic net
operating loss carry forwards of approximately $151.1 million and tax credit carry forwards of $4.4 million at December 31, 2007 were incurred by businesses we acquired and are subject to annual limitation. The remaining tax attributes that
would be subject to annual limitations upon an ownership change include domestic net operating loss carry forwards of $593.8 million, foreign net operating loss carry forwards of $3.2 million, capital loss carry forwards of $15.2 million
and research and development credit carry forwards of $11.9 million. Based upon a review of historical stock ownership, we do not believe we have undergone an ownership change that will severely limit our ability to utilize these tax
attributes prior to their expiration. In the event that an ownership change occurs in the future, application of the change in ownership statutes might result in substantial limitation on the utilization of these tax attributes from that point
forward.



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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, 2007 and 2006 are as follows (in thousands):



|                                                |  |              |          |   |      |   |          |  
|----------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                |  | December 31, |         
|                                                |  | 2007         |          |   | 2006 |  
|Deferred tax assets:                            |  |              |          |   |      |   |          |  
|Depreciable assets                              |  | $            | 2,317    |   |      | $ | 1,804    |  
|Foreign intangible assets                       |  |              | 7,907    |   |      |   | 6,119    |  
|Capitalized development costs                   |  |              | 20,468   |   |      |   | 26,107   |  
|Tax carry forwards                              |  |              | 281,585  |   |      |   | 310,207  |  
|Accrued liabilities and other                   |  |              | 8,949    |   |      |   | 6,582    |  
|                                                |  |              |          |   |      |   |          |  
|Total deferred tax assets                       |  |              | 321,226  |   |      |   | 350,819  |  
|                                                |  |              |          |   |      |   |          |  
|                                                |  |             
|Deferred tax liabilities:                       |  |              |          |   |      |   |          |  
|Other                                           |  |              |         |   |      |   | (735     | )
|                                                |  |              |          |   |      |   |          |  
|Total deferred tax liabilities                  |  |              |         |   |      |   | (735     | )
|                                                |  |              |          |   |      |   |          |  
|Valuation allowance for net deferred tax assets |  |              | (311,438 | ) |      |   | (350,084 | )
|                                                |  |              |          |   |      |   |          |  
|Net deferred tax assets                         |  | $            | 9,788    |   |      | $ |         |  
|                                                |  |              |          |   |      |   |          |  

Our accounting for deferred taxes under SFAS 109 involves the evaluation of a number of factors
concerning the realizability of our deferred tax assets. In 2007, we released $9.8 million of the valuation allowance we had recorded against our net deferred tax asset based on the determination that it is now more likely than not that part of
the benefit related to the net operating loss carryforward will be realized. Of the $9.8 million $0.3 million is classified as a short-term asset on our balance sheet. Approximately $7.4 million of the benefit from release of the valuation
allowance was recorded as a benefit to our income tax provision and the remaining $2.4 million related to assets of acquired companies and was recorded as a reduction of goodwill. In concluding that releasing part of the valuation allowance was
appropriate, we have considered such factors as our operating history and our ability, based on a projection, to generate sufficient taxable income of the appropriate character within the relevant jurisdictions in future years.

We cannot currently estimate the changes in deferred tax asset valuation allowance that may be appropriate in future periods. Although we anticipate the
company will continue its trend of profitability and that some portion of the valuation allowance will be reduced in future periods, a subsequent decrease in profitability in future periods might require an increase to the valuation allowance
resulting in a potentially material charge to income tax expense.

As of December 31, 2007, approximately $21.0 million of the
valuation allowance is related to acquired deferred tax assets of Epicentric, Intraspect and Tower Technology. The benefit of these acquired assets are recorded first as a reduction to the relevant entitys goodwill then as a reduction of
current income tax expense. In the year ended December 31, 2007, we recognized approximately $3.9 million of acquired deferred tax assets as a reduction to goodwill, including a release of approximately $2.4 million from the valuation
allowance. The reduction in deferred tax assets during 2007 includes the impact of expiration of capital loss carryovers during the year of approximately $25 million.



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Approximately $143.8 million of the valuation allowance relates to net operating loss carry forwards
generated by the deduction of stock option compensation. The initial recognition of these deferred tax assets will be credited directly to additional paid-in capital.

Undistributed earnings of the Companys foreign subsidiaries were immaterial as of December 31, 2007, 2006 and 2005. Those earnings are considered to be permanently reinvested and, accordingly, no provision
for U.S. federal or state income taxes has been provided thereon.

Provision for Income Taxes

The Companys provision for income taxes for 2007, 2006 and 2005 consists primarily of foreign income taxes and withholdings on income generated in
foreign countries. The provision for income taxes differs from the expected tax benefit amount computed by applying the statutory federal income tax rate of 34% to income before income taxes as a result of the following:



|                                    |  |                         |    |  |       |   |  |       |  
|----------------------------------- |  | ----------------------- | -- |  | ----- | - |  | ----- | -
|                                    |  | Year ended December 31, |   
|                                    |  | 2007                    |    |  | 2006  |   |  | 2005  |  
|Federal statutory rate              |  | 34.0                    | %  |  | 34.0  | % |  | 34.0  | %
|State taxes, net of federal benefit |  | 0.6                     |    |  | 2.1   |   |  | 2.4   |  
|In-process research and development |  |                         |    |  |      |   |  |      |  
|Foreign taxes at different rates    |  | (1.0                    | )  |  | (.1   | ) |  | 6.5   |  
|Change in valuation allowance       |  | (68.4                   | )  |  | (23.8 | ) |  | (34.2 | )
|Non-deductible expenses & other     |  | 4.4                     |    |  | 1.1   |   |  | 1.9   |  
|                                    |  |                         |    |  |       |   |  |       |  
|                                    |  | (30.4                   | %) |  | 13.3  | % |  | 10.6  | %
|                                    |  |                         |    |  |       |   |  |       |  

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes on January 1, 2007. As a result of the implementation, the Company did not recognize any change in the liability for unrecognized tax benefit and, accordingly, recorded no adjustment to the January 1, 2007
balance of retained earnings. A reconciliation of the change in our unrecognized tax benefits for the year ended December 31, 2007 is as follows:



|                                                             |  |   |        |  
|------------------------------------------------------------ |  | - | ------ | -
|Balance at January 1, 2007                                   |  | $ | 10,899 |  
|Additions based on tax positions related to the current year |  |   | 376    |  
|Reductions for tax positions taken in prior years            |  |   | (535   | )
|                                                             |  |   |        |  
|Balance at December 31, 2007                                 |  | $ | 10,740 |  
|                                                             |  |   |        |  

At both January 1, 2007 and December 31, 2007 approximately $2.1 million and $1.9
million, respectively, of unrecognized tax benefits are attributed to uncertain tax positions that, if recognized, would have an effective tax rate effect.

The Company accrues and recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2007, the balance of accrued interest and penalties related
to unrecognized tax benefits was approximately $0.2 million and $0.2 million, respectively.

With few exceptions, the Company and all of
its major filing subsidiaries are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2002.



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



It is reasonably possible that within 12 months of December 31, 2007 the balance of unrecognized
tax benefits could increase by up to $0.3 million or decrease by up to $0.6 million due to the following:



| | i. | lapse of statute of limitation, or settlement with the relevant tax authority, for tax filings in several foreign jurisdictions whose transfer pricing arrangements might be subject
to adjustment;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ii. | a ruling from the Indian court of appeals on the Companys protest of a tax assessment;
| | --- | ---------------------------------------------------------------------------------------



| | iii. | concluding our tax examination in Germany; and
| | ---- | ----------------------------------------------



| | iv. | reaching final agreement in the United Kingdom regarding deduction of interest paid to the U.S. parent company.
| | --- | ---------------------------------------------------------------------------------------------------------------

NOTE 10  Segments of Business and Geographic Area Information

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



|                   |  |                         |         |      |   |         |  |   |        
|------------------ |  | ----------------------- | ------- | ---- | - | ------- |  | - | -------
|                   |  | Year ended December 31,
|                   |  | 2007                    |         | 2006 |   | 2005   
|Revenue:           |  |                         |         |      |   |         |  |   |        
|Americas:          |  |                         |         |      |   |         |  |   |        
|United States      |  | $                       | 124,651 |      | $ | 122,753 |  | $ | 116,057
|Other              |  |                         | 6,486   |      |   | 5,329   |  |   | 3,234  
|                   |  |                         |         |      |   |         |  |   |        
|Total Americas     |  |                         | 131,137 |      |   | 128,082 |  |   | 119,291
|Europe             |  |                         | 47,137  |      |   | 56,321  |  |   | 58,079 
|Asia Pacific       |  |                         | 13,540  |      |   | 13,171  |  |   | 13,305 
|                   |  |                         |         |      |   |         |  |   |        
|Total              |  | $                       | 191,814 |      | $ | 197,574 |  | $ | 190,675
|                   |  |                         |         |      |   |         |  |   |        
|                   |  |                        
|                   |  | At December 31,         |         |     
|                   |  | 2007                    |         | 2006 |   |        
|Long-Lived assets: |  |                         |         |      |   |         |  |   |        
|Americas:          |  |                         |         |      |   |         |  |   |        
|United States      |  | $                       | 55,195  |      | $ | 57,513  |  |   |        
|Other              |  |                         | 106     |      |   |        |  |   |        
|                   |  |                         |         |      |   |         |  |   |        
|Total Americas     |  |                         | 55,301  |      |   | 57,513  |  |   |        
|Europe             |  |                         | 1,343   |      |   | 462     |  |   |        
|Asia Pacific       |  |                         | 87,324  |      |   | 95,863  |  |   |        
|                   |  |                         |         |      |   |         |  |   |        
|Total              |  | $                       | 143,968 |      | $ | 153,838 |  |   |        
|                   |  |                         |         |      |   |         |  |   |        

The income from domestic U.S. operations before income taxes was approximately $20.0 million,
$12.1 million and $37.9 million for the years ended December 31, 2007, 2006 and 2005, respectively.



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 11  Supplemental Financial Information (Unaudited)

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



|                                         |  |                                                   |        |   |               |   |              |  |   |               |   |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|---------------------------------------- |  | ------------------------------------------------- | ------ | - | ------------- | - | ------------ |  | - | ------------- | - |  | ------------ | ------ | - | ------------- | - | ------ | ------------ |  | - | ------------- | - |  | - | ------ | - |  | - | ------ | -
|                                         |  | Three Months Ended                                |       
|                                         |  | Dec. 31,2007                                      |        |   | Sept. 30,2007 |   | June 30,2007 |  |   | March 31,2007 |   |  | Dec. 31,2006 |        |   | Sept. 30,2006 |   |        | June 30,2006 |  |   | March 31,2006 |  
|                                         |  | (in thousands, except share data and percentages) |       
|Revenue:                                 |  |                                                   |        |   |               |   |              |  |   |               |   |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Product license                          |  | $                                                 | 18,045 |   |               | $ | 8,038        |  | $ | 14,637        |   |  | $            | 15,339 |   |               | $ | 19,215 |              |  | $ | 16,351        |   |  | $ | 15,336 |   |  | $ | 15,466 |  
|Services                                 |  |                                                   | 34,615 |   |               |   | 35,509       |  |   | 33,381        |   |  |              | 32,249 |   |               |   | 33,363 |              |  |   | 32,951        |   |  |   | 33,462 |   |  |   | 31,430 |  
|                                         |  |                                                   |        |   |               |   |              |  |   |               |   |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Total revenue                            |  |                                                   | 52,660 |   |               |   | 43,547       |  |   | 48,018        |   |  |              | 47,588 |   |               |   | 52,578 |              |  |   | 49,302        |   |  |   | 48,798 |   |  |   | 46,896 |  
|Cost of revenue:                         |  |                                                   |        |   |               |   |              |  |   |               |   |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Product license                          |  |                                                   | 618    |   |               |   | 428          |  |   | 476           |   |  |              | 210    |   |               |   | 717    |              |  |   | 495           |   |  |   | 573    |   |  |   | 763    |  
|Amortization of acquired technology      |  |                                                   | 1,254  |   |               |   | 1,254        |  |   | 1,254         |   |  |              | 1,254  |   |               |   | 1,254  |              |  |   | 1,254         |   |  |   | 1,254  |   |  |   | 1,254  |  
|Services                                 |  |                                                   | 15,554 |   |               |   | 14,338       |  |   | 15,967        |   |  |              | 16,018 |   |               |   | 15,554 |              |  |   | 15,131        |   |  |   | 15,292 |   |  |   | 14,423 |  
|                                         |  |                                                   |        |   |               |   |              |  |   |               |   |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Total cost of revenue                    |  |                                                   | 17,426 |   |               |   | 16,020       |  |   | 17,697        |   |  |              | 17,482 |   |               |   | 17,525 |              |  |   | 16,880        |   |  |   | 17,119 |   |  |   | 16,440 |  
|                                         |  |                                                   |        |   |               |   |              |  |   |               |   |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Gross profit                             |  |                                                   | 35,234 |   |               |   | 27,527       |  |   | 30,321        |   |  |              | 30,106 |   |               |   | 35,053 |              |  |   | 32,422        |   |  |   | 31,679 |   |  |   | 30,456 |  
|Operating expenses:                      |  |                                                   |        |   |               |   |              |  |   |               |   |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Research and development                 |  |                                                   | 8,045  |   |               |   | 7,318        |  |   | 7,754         |   |  |              | 7,873  |   |               |   | 8,355  |              |  |   | 8,509         |   |  |   | 8,757  |   |  |   | 8,392  |  
|Sales and marketing                      |  |                                                   | 18,550 |   |               |   | 14,064       |  |   | 15,454        |   |  |              | 13,973 |   |               |   | 16,974 |              |  |   | 17,655        |   |  |   | 18,099 |   |  |   | 17,464 |  
|General and administrative               |  |                                                   | 4,753  |   |               |   | 4,833        |  |   | 4,784         |   |  |              | 5,194  |   |               |   | 4,231  |              |  |   | 4,569         |   |  |   | 4,642  |   |  |   | 4,498  |  
|Business restructuring charges           |  |                                                   | 37     |   |               |   | 43           |  |   | (53           | ) |  |              | (107   | ) |               |   | (84    | )            |  |   | (32           | ) |  |   | 292    |   |  |   | (25    | )
|Amortization of intangible assets        |  |                                                   | 846    |   |               |   | 846          |  |   | 846           |   |  |              | 846    |   |               |   | 907    |              |  |   | 938           |   |  |   | 938    |   |  |   | 938    |  
|                                         |  |                                                   |        |   |               |   |              |  |   |               |   |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Total operating expenses                 |  |                                                   | 32,231 |   |               |   | 27,104       |  |   | 28,785        |   |  |              | 27,779 |   |               |   | 30,383 |              |  |   | 31,639        |   |  |   | 32,728 |   |  |   | 31,267 |  
|                                         |  |                                                   |        |   |               |   |              |  |   |               |   |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Income (loss) from operations            |  |                                                   | 3,003  |   |               |   | 423          |  |   | 1,536         |   |  |              | 2,327  |   |               |   | 4,670  |              |  |   | 783           |   |  |   | (1,049 | ) |  |   | (811   | )
|Other income, net                        |  |                                                   | 3,434  |   |               |   | 2,894        |  |   | 2,634         |   |  |              | 2,883  |   |               |   | 2,793  |              |  |   | 2,769         |   |  |   | 2,368  |   |  |   | 2,683  |  
|                                         |  |                                                   |        |   |               |   |              |  |   |               |   |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Income before provision for income taxes |  |                                                   | 6,437  |   |               |   | 3,317        |  |   | 4,170         |   |  |              | 5,210  |   |               |   | 7,463  |              |  |   | 3,552         |   |  |   | 1,319  |   |  |   | 1,872  |  
|Provision for income taxes               |  |                                                   | (6,521 | ) |               |   | 274          |  |   | 130           |   |  |              | 426    |   |               |   | 648    |              |  |   | 274           |   |  |   | 461    |   |  |   | 504    |  
|                                         |  |                                                   |        |   |               |   |              |  |   |               |   |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Net income                               |  | $                                                 | 12,958 |   |               | $ | 3,043        |  | $ | 4,040         |   |  | $            | 4,784  |   |               | $ | 6,815  |              |  | $ | 3,278         |   |  | $ | 858    |   |  | $ | 1,368  |  
|                                         |  |                                                   |        |   |               |   |              |  |   |               |   |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Basic net income per common share (1)    |  | $                                                 | 0.50   |   |               | $ | 0.11         |  | $ | 0.14          |   |  | $            | 0.17   |   |               | $ | 0.23   |              |  | $ | 0.11          |   |  | $ | 0.03   |   |  | $ | 0.05   |  
|                                         |  |                                                   |        |   |               |   |              |  |   |               |   |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Diluted net income per common share (1)  |  | $                                                 | 0.49   |   |               | $ | 0.11         |  | $ | 0.14          |   |  | $            | 0.16   |   |               | $ | 0.23   |              |  | $ | 0.11          |   |  | $ | 0.03   |   |  | $ | 0.05   |  
|                                         |  |                                                   |        |   |               |   |              |  |   |               |   |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  



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



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##### Table of Contents

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                         |  |                    |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |  
|---------------------------------------- |  | ------------------ | - |  | ------------- | - |  | ------------ | - |  | ------------- | - |  | ------------ | - |  | ------------- | - |  | ------------ | - |  | ------------- | -
|                                         |  | Three Months Ended |  
|                                         |  | Dec. 31,2007       |   |  | Sept. 30,2007 |   |  | June 30,2007 |   |  | March 31,2007 |   |  | Dec. 31,2006 |   |  | Sept. 30,2006 |   |  | June 30,2006 |   |  | March 31,2006 |  
|As a Percentage of Total Revenue:        |  |                    |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |  
|Revenue:                                 |  |                    |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |  
|Product license                          |  | 34                 | % |  | 19            | % |  | 30           | % |  | 32            | % |  | 37           | % |  | 33            | % |  | 31           | % |  | 33            | %
|Services                                 |  | 66                 |   |  | 81            |   |  | 70           |   |  | 68            |   |  | 63           |   |  | 67            |   |  | 69           |   |  | 67            |  
|                                         |  |                    |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |  
|Total revenue                            |  | 100                |   |  | 100           |   |  | 100          |   |  | 100           |   |  | 100          |   |  | 100           |   |  | 100          |   |  | 100           |  
|Cost of revenue:                         |  |                    |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |  
|Product license                          |  | 1                  |   |  | 1             |   |  | 1            |   |  | 0             |   |  | 1            |   |  | 1             |   |  | 1            |   |  | 2             |  
|Amortization of acquired technology      |  | 2                  |   |  | 3             |   |  | 3            |   |  | 3             |   |  | 2            |   |  | 2             |   |  | 3            |   |  | 3             |  
|Services                                 |  | 30                 |   |  | 33            |   |  | 33           |   |  | 34            |   |  | 30           |   |  | 31            |   |  | 31           |   |  | 30            |  
|                                         |  |                    |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |  
|Total cost of revenue                    |  | 33                 |   |  | 37            |   |  | 37           |   |  | 37            |   |  | 33           |   |  | 34            |   |  | 35           |   |  | 35            |  
|                                         |  |                    |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |  
|Gross profit                             |  | 67                 |   |  | 63            |   |  | 63           |   |  | 63            |   |  | 67           |   |  | 66            |   |  | 65           |   |  | 65            |  
|Operating expenses:                      |  |                    |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |  
|Research and development                 |  | 15                 |   |  | 17            |   |  | 16           |   |  | 17            |   |  | 16           |   |  | 17            |   |  | 18           |   |  | 18            |  
|Sales and marketing                      |  | 35                 |   |  | 32            |   |  | 32           |   |  | 29            |   |  | 32           |   |  | 36            |   |  | 37           |   |  | 37            |  
|General and administrative               |  | 9                  |   |  | 11            |   |  | 10           |   |  | 11            |   |  | 8            |   |  | 9             |   |  | 10           |   |  | 10            |  
|Business restructuring charges           |  |                   |   |  |              |   |  |             |   |  | (1            | ) |  |             |   |  |              |   |  |             |   |  |              |  
|Amortization of intangible assets        |  | 2                  |   |  | 2             |   |  | 2            |   |  | 2             |   |  | 2            |   |  | 2             |   |  | 2            |   |  | 2             |  
|                                         |  |                    |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |  
|Total operating expenses                 |  | 61                 |   |  | 62            |   |  | 60           |   |  | 58            |   |  | 58           |   |  | 64            |   |  | 67           |   |  | 67            |  
|                                         |  |                    |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |  
|Income (loss) from operations            |  | 6                  |   |  | 1             |   |  | 3            |   |  | 5             |   |  | 9            |   |  | 2             |   |  | (2           | ) |  | (2            | )
|Other income, net                        |  | 7                  |   |  | 7             |   |  | 6            |   |  | 6             |   |  | 5            |   |  | 5             |   |  | 5            |   |  | 6             |  
|Income before provision for income taxes |  | 13                 |   |  | 8             |   |  | 9            |   |  | 11            |   |  | 14           |   |  | 7             |   |  | 3            |   |  | 4             |  
|Provision for income taxes               |  | (12                | ) |  | 1             |   |  | 1            |   |  | 1             |   |  | 1            |   |  | 1             |   |  | 1            |   |  | 1             |  
|                                         |  |                    |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |  
|Net income                               |  | 25                 | % |  | 7             | % |  | 8            | % |  | 10            | % |  | 13           | % |  | 6             | % |  | 2            | % |  | 3             | %
|                                         |  |                    |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |   |  |              |   |  |               |  



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