VIGNETTE CORP, S-1/A, 1999-11-23

VIGNETTE CORP
S-1/A, 1999-11-23
PREPACKAGED SOFTWARE

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As filed with the Securities and Exchange Commission on November 23, 1999.

Registration No. 333-91085
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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AMENDMENT NO. 1

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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VIGNETTE CORPORATION
(Exact Name of Registrant as Specified in its Charter)

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<S> <C> <C>
Delaware 7372 74-2769415
(State or Other Jurisdiction
of (Primary Standard Industrial (I.R.S. Employer
Incorporation or
Organization) Classification Code Number) Identification Number)
</TABLE>

901 South Mopac Expressway
Austin, Texas 78746
(512) 306-4300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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GREGORY A. PETERS
President and
Chief Executive Officer
Vignette Corporation
901 South Mopac Expressway
Austin, Texas 78746
(512) 306-4300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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Copies to:
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<S> <C>
BRIAN K. BEARD ALAN DEAN
ANTHONY M. ALLEN Davis Polk & Wardwell
Gunderson Dettmer Stough 450 Lexington Avenue
Villeneuve Franklin & Hachigian, LLP New York, New York 10017
8911 Capital of Texas Highway, Suite 4240 (212) 450-4000
Austin, Texas 78759
(512) 342-2300
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed Proposed
Amount maximum aggregate Amount of
Title of Each Class of to be offering price offering registration
Securities to be Registered registered per share(1) amount fee (2)
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value.................... 1,437,500 $165.16 $237,417,500 $68,591
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</TABLE>
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(1) Estimated solely for the purpose of computing the aggregate offering
amount pursuant to Rule 457(c).

(2) Registration fee previously paid upon the filing of the initial
registration statement covering 1,413,925 shares.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such Section 8(a), may determine.

- -------------------------------------------------------------------------------
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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)

Issued November 23, 1999

2,500,000 Shares

[LOGO OF VIGNETTE APPEARS HERE]

COMMON STOCK

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Vignette Corporation is offering 1,841,000 shares and the selling stockholders
are offering 659,000 shares.

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Vignette Corporation's common stock is listed on the Nasdaq National Market
under the symbol "VIGN." On November 22, 1999, the reported last sale price of
the common stock on the Nasdaq National Market was $175 3/4 per share. After
giving effect to our two-for-one stock split, which is payable on December 1,
1999, the reported last sale price of the common stock on November 22, 1999,
would have been $87 7/8 per share.

-----------

Investing in the common stock involves risks. See "Risk Factors" beginning on
page 5.

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PRICE $ A SHARE

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<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions Vignette Stockholders
-------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
Total........................... $ $ $ $
</TABLE>

Vignette Corporation has granted the underwriters the right to purchase up to
an additional 375,000 shares to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 1999.

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MORGAN STANLEY DEAN WITTER

HAMBRECHT & QUIST

DAIN RAUSCHER WESSELS

U.S. BANCORP PIPER JAFFRAY

, 1999
<PAGE>

TABLE OF CONTENTS

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Page
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Prospectus Summary.................. 3
Risk Factors........................ 5
Special Note Regarding Forward-
Looking Statements................. 16
Use of Proceeds..................... 17
Dividend Policy..................... 17
Price Range of Common Stock......... 17
Capitalization...................... 18
Dilution............................ 19
Selected Consolidated Financial
Data............................... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
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Page
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Business............................ 32
Management.......................... 50
Certain Transactions................ 59
Principal and Selling Stockholders.. 62
Description of Capital Stock........ 64
Shares Eligible for Future Sale..... 66
Underwriters........................ 67
Legal Matters....................... 69
Experts............................. 69
Additional Information.............. 69
Index to Financial Statements....... F-1
</TABLE>

Our principal executive offices are located at 901 South Mopac Expressway,
Austin, Texas 78746 and our telephone number is (512) 306-4300. Our World Wide
Web site address is www.vignette.com. The information in the Web site is not
incorporated by reference into this prospectus.

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We and the selling stockholders are offering to
sell shares of common stock and seeking offers to buy shares of common stock
only in jurisdictions where offers and sales are permitted. The information
contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any
sale of the common stock.

All information in this prospectus relating to the number of shares of our
common stock, options or warrants is based upon information as of September
30, 1999, assuming a two-for-one forward split of our common stock to be
effected in the form of a stock dividend payable on December 1, 1999. Except
as otherwise indicated, the information in this prospectus assumes that the
underwriters' over-allotment option is not exercised.

2
<PAGE>

PROSPECTUS SUMMARY

You should read this summary together with the more detailed information and
our consolidated financial statements and notes appearing elsewhere in this
prospectus.

VIGNETTE

We are a leading global provider of e-Business software products and
services. e-Business software is a new category of enterprise solutions that
enable businesses to increase Web-based revenues and market share by developing
and managing online customer relationships.

Our StoryServer 4 application platform integrates three key capabilities that
allow our clients to engage their Web site visitors with personalized
interactions that stimulate buying and strengthen customer loyalty. Our content
management capabilities are designed to increase the efficiency of team based
Web-site production. Our personalization capabilities adapt the sites'
presentation, navigation and content based on customers' preferences and
actions. Our decision support capabilities allow businesses to analyze customer
preferences, examine demographic segmentation and determine the popularity of
individual products and services.

We have further enhanced our solution set with two platforms, Vignette
Syndication Server and Vignette Multi-Channel Server, to provide additional
functionality to our clients. Vignette Syndication Server, which shipped in the
first quarter of 1999, enables a business to distribute its electronic goods
and services outside of its own Web site through a network of reseller,
affiliate, and partner Web sites, or its "Customer Chain." The capabilities of
Vignette Syndication Server are designed to enable our clients to establish
distribution networks on the Internet to reach more potential customers and
increase Web-based revenue opportunities.

Vignette Multi-Channel Server, expected to be shipped in the first half of
2000, will expand these opportunities by providing a mix of personalized and
automated communication between businesses and their online customers using
multiple media, including telephone, pager, e-mail, fax, Web, wireless, network
printer, or mail. By providing this additional level of customer service, our
clients will be able to increase customer satisfaction and loyalty.

We complement our products with a professional services organization that
offers a range of services including strategic planning, project management and
implementation services. We designed these services to improve our clients'
competitive position, shorten time-to-market and reduce project implementation
risk. We believe that our ability to successfully deliver an integrated
solution to our clients provides us with a significant competitive advantage in
the market for e-Business software products and services.

To date, we have licensed the StoryServer platform to more than 390 clients
worldwide in a variety of industries including retail, financial services,
telecommunications, technology, media and entertainment. Our clients include
American Express, AT&T, Bank One, Charles Schwab and Company, Chicago Tribune,
Lands' End, Merrill Lynch, National Semiconductor, Nokia, Preview Travel,
Siebel Systems, Snap.com, StarMedia Network, Sun Microsystems and
TheStreet.com. Since shipping our first products in 1997, we have received
numerous awards for our industry leadership and product capabilities, including
the Crossroads A-list Award and Red Herring Magazine's Top 50 Public Companies
and Best Product Award.

3
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THE OFFERING

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<S> <C>
Common stock offered by:
Vignette................................. 1,841,000 shares
Selling stockholders..................... 659,000 shares
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Total................................... 2,500,000 shares
=================
Common stock to be outstanding after the
offering.................................. 58,377,054 shares
</TABLE>

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<C> <S>
Use of proceeds.............................. For working capital and general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol................ VIGN

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SUMMARY CONSOLIDATED FINANCIAL DATA

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<CAPTION>
As of September 30, 1999
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Actual As Adjusted
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(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents........................... $ 73,702 $ 204,680
Working capital..................................... 51,858 182,836
Total assets........................................ 132,064 285,983
Long-term debt and capital lease obligation, less
current portion.................................... 8 8
Total stockholders' equity.......................... 84,324 238,243
</TABLE>

The as adjusted column above reflects:

. our sale of 1,841,000 shares of our common stock at an assumed public
offering price of $87.88 per share and the application of the estimated
net proceeds of $153.7 million;

. the proceeds from the exercise of options to purchase 267,600 shares of
common stock by certain selling stockholders for an aggregate purchase
price of $221,000; and

. the purchase of preferred stock of Vitessa, Inc. for approximately $22.9
million in cash on October 21, 1999.

4
<PAGE>

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 prospectus, including our financial
statements and the related notes.

Risks Related to Our Business

We Expect to Incur Future Losses

We incurred net losses of $3.6 million for the year ended December 31, 1996,
$7.5 million for the year ended December 31, 1997, $26.2 million for the year
ended December 31, 1998, and $36.9 million for the nine months ended September
30, 1999. As of September 30, 1999, we had an accumulated deficit of $74.1
million. We have not achieved profitability and we expect to incur net losses
for the foreseeable future. To date, we have primarily funded our operations
from the sale of equity securities and have not generated cash from
operations. We expect to continue to incur significant product development,
sales and marketing, and administrative expenses and, as a result, we will
need to generate significant revenues to achieve and maintain profitability.
Although our revenues have grown significantly in recent quarters, we cannot
be certain that we can sustain these growth rates or that we will achieve
sufficient revenues for profitability. If we do achieve profitability, we
cannot be certain that we can sustain or increase profitability on a quarterly
or annual basis in the future. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Our Limited Operating History Makes Financial Forecasting Difficult

Vignette was founded in December 1995 and has a limited operating history.
As a result of our limited operating history, we cannot forecast operating
expenses based on our historical results. Accordingly, we base our forecast
for expenses in part on future revenue projections. Most of our expenses are
fixed in the short term and we may not be able to quickly reduce spending if
our revenues are lower than we had projected. Our ability to forecast
accurately our quarterly revenue is limited because our software products have
a long sales cycle that makes it difficult to predict the quarter in which we
will be able to recognize revenue, and because of the variability of client
demand for professional services. We would expect our business, operating
results and financial condition to be materially adversely affected if our
revenues do not meet our projections and that net losses in a given quarter
would be even greater than expected.

We Expect Our Quarterly Revenues and Operating Results to Fluctuate

Our revenues and operating results are likely to vary significantly from
quarter to quarter. A number of factors are likely to cause these variations,
including:

. Demand for our products and services;

. The timing of sales of our products and services;

. The timing of customer orders and product implementations;

. Unexpected delays in introducing new products and services;

. Increased expenses, whether related to sales and marketing, product
development or administration;

. Changes in the rapidly evolving market for e-Business solutions;

. 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;

5
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.The mix of domestic and international sales; and

.Costs related to possible acquisitions of technology or businesses.

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 our future performance.

We plan to increase our operating expenses to expand our sales and marketing
operations, develop new distribution channels, fund greater levels of research
and development, broaden professional services and support and improve
operational and financial systems. If our revenues do not increase along with
these expenses, our business, operating results or financial condition could
be materially adversely affected and net losses in a given quarter would be
even greater than expected.

Although we have a limited operating history, we believe that our quarterly
operating results may experience seasonal fluctuations. For instance,
quarterly results may fluctuate based on our clients' calendar year budgeting
cycles, slow summer purchasing patterns in Europe and our compensation
policies that tend to compensate sales personnel, typically in the latter half
of the year, for achieving annual quotas.

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

We derive a significant portion of our software license revenues in each
quarter from a small number of relatively large orders. Although we do not
believe that the loss of any particular client would have an adverse effect on
our business, our operating results could be materially adversely affected if
we were unable to complete one or more substantial license sales in any future
period. For example, in five of the last eleven quarters in the period ended
September 30, 1999, we had at least one client that accounted for at least 10%
of total revenue in such quarter.

We Depend on Increased Business from Our Current and New Clients and If We
Fail to Grow Our Client Base or Generate Repeat Business, Our Operating
Results Could Be Harmed

If we fail to grow our client base or generate repeat and expanded business
from our current and new clients, our business and operating results would be
seriously harmed. Many of our clients initially make a limited purchase of our
products and services for pilot programs. Some of these clients may not choose
to purchase additional licenses to expand their use of our products. Our
business model depends on the expanded use of our products and services within
our clients' organizations.

In addition, as we introduce new versions of our products or new products,
our current clients may not require the functionality of our new versions or
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 clients elect not to renew their
maintenance agreements, our services revenue could be significantly adversely
affected.

Our Operating Results May Be Adversely Affected By Small Delays in Client
Orders or Product Implementations

Small delays in client 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 these cases, our revenue
recognition policy requires us to substantially complete the implementation of
our product before we can recognize software license revenue, and any end of
quarter delays in product implementation could materially adversely affect
operating results for that quarter.

6
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In Order to Increase Market Awareness of Our Products and Generate Increased
Revenue, We Need to Expand Our Sales and Distribution Capabilities

We must expand our direct and indirect sales operations to increase market
awareness of our products and services and generate increased revenue. We
cannot be certain that we will be successful in these efforts. We have
recently expanded our direct sales force and plan to hire additional sales
personnel. Our products and services require a sophisticated sales effort
targeted at the senior management of our prospective clients. New hires will
require training and take time to achieve full productivity. We cannot be
certain that our recent hires will become as productive as necessary or that
we will be able to hire enough qualified individuals in the future. We also
plan to continue to expand our relationships with value-added resellers,
systems integrators and other third-party resellers to build an indirect sales
channel. In addition, we will need to manage potential conflicts between our
direct sales force and third-party reselling efforts.

Our Failure To Obtain and Maintain The Support Of Third Party e-Business
Consultants May Limit Our Ability To Penetrate Our Markets

A significant portion of our sales are influenced by the recommendations of
our products made by systems integrators, consulting firms and other third
parties that help develop and deploy e-Business applications for our clients.
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 software license and service revenue.

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

We have a long sales cycle because we generally need to educate potential
clients regarding the use and benefits of e-Business solutions. Our long sales
cycle makes it difficult to predict the quarter in which sales may occur. In
addition, since we recognize the majority of our revenue from product sales
upon implementation of our product, the timing of product implementation could
cause significant variability in our software license revenues and operating
results for any particular period. The implementation of our products requires
a significant commitment of resources by our clients, 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 Develop A Profitable Professional Services
Organization, Which Could Affect Both Our Operating Results and Our Ability to
Assist Our Clients With the Implementation of Our Products

We cannot be certain that we can attract or retain a sufficient number of
the highly qualified services personnel that our business needs. Although we
have recently achieved profitability in our services business, we cannot be
certain that we will be able to sustain or increase profitability. Clients
that license our software typically 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 on
our ability to provide our clients with these services and to attract and
educate third-party consultants and service providers to provide similar
services. As a result, we plan to increase the number of service personnel to
meet these needs. New services personnel will require training and education
and take time to reach full productivity. To meet our needs for services
personnel, we may also need to use more costly third-party service providers
and consultants to supplement our own professional services organization. We
expect our services revenue to increase in absolute dollars as we continue to
provide consulting and training services that complement our products and as
our installed base of clients grows. To date, services costs related to
professional services have exceeded, or have been substantially equal to,
professional services-related revenue. Although we expect that our
professional services-related revenue will exceed professional services-
related costs in future periods, we cannot be certain that this will occur. We
generally bill our clients for our services on a "time and materials" basis.
However, from time to time we enter into fixed-price contracts for services.
On occasion, the costs of providing the services have exceeded our fees from
these contracts and, from time to time, we may misprice future contracts to
our detriment. In addition, competition for qualified services personnel with
the appropriate Internet specific knowledge is intense. We are in a new market
and there is a limited number of people who have acquired the skills needed to
provide the services that our clients demand.

7
<PAGE>

We May Be Unable To Attract Necessary Third Party Service Providers, Which
Could Affect Our Ability To Provide Support, Consulting And Implementation
Services For Our Products

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

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

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

. Expenses associated with customizing products for foreign countries;

. Protectionist laws and business practices that favor local competition;

. Dependence on local vendors;

. Multiple, conflicting and changing governmental laws and regulations;

. Longer sales cycles;

. Difficulties in collecting accounts receivable;

. Foreign currency exchange rate fluctuations; and

. Political and economic instability.

We received 16% of our total revenue in the nine months ended September 30,
1999, from software licenses and services sold to clients located outside of
the United States. We expect international revenue to account for a
significant percentage of total revenue in the future and we believe that we
must continue to expand our international sales activities in order to be
successful. Our international sales growth will be limited if we are unable to
establish additional foreign operations, expand international sales channel
management and support organizations, hire additional personnel, customize
products for local markets, develop relationships with international service
providers and establish relationships with additional distributors and third
party integrators. In that case, our business, operating results and financial
condition could be materially adversely affected. Even if we are able to
successfully expand international operations, we cannot be certain that we
will be able to maintain or increase international market demand for our
products.

To date, a majority of our international revenues and costs have been
denominated in foreign currencies. We believe that an increasing portion of
our international revenues and costs will be denominated in foreign currencies
in the future. In addition, although we cannot predict the potential
consequences to our business as a result of the adoption of the Euro as a
common currency in Europe, the transition to the Euro presents a number of
risks, including increased competition from European firms as a result of
pricing transparency. To date, we have not engaged in any foreign exchange
hedging transactions and we are therefore subject to foreign currency risk.

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

We have expanded our operations rapidly since inception. We intend to
continue to expand in the foreseeable future to pursue existing and potential
market opportunities. This rapid growth places a significant demand on
management and operational resources. In order to manage growth effectively,
we must implement and improve our operational systems, procedures and controls
on a timely basis. If we fail to implement and improve these systems, our
business, operating results and financial condition will be materially
adversely affected.

8
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We May Be Adversely Affected If We Lose Key Personnel

Our success depends largely on the skills, experience and performance of
some key members of our management. If we lose one or more of these key
employees, our business, operating results and financial condition could be
materially adversely affected. In addition, our future success will depend
largely on our ability to continue attracting and retaining highly skilled
personnel. Like other software companies, we face intense competition for
qualified personnel, particularly in the Austin, Texas area. We cannot be
certain that we will be successful in attracting, assimilating or retaining
qualified personnel in the future. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Management."

We Have Relied and Expect to Continue to Rely on Sales of Our StoryServer
Product Line for Our Revenue

We currently derive substantially all of our revenues from the license and
related upgrades, professional services and support of our StoryServer
software products. We expect that we will continue to depend on revenue
related to new and enhanced versions of our StoryServer product line for at
least the next several quarters. We cannot be certain that we will be
successful in upgrading and marketing our products or that we will
successfully develop and market new products and services. If we do not
continue to increase revenue related to our existing products or generate
revenue from new products and services, our business, operating results and
financial condition would be materially adversely affected.

Our Future Revenue is Dependent Upon Our Ability to Successfully Market Our
Vignette Syndication Server

We expect that our future financial performance will depend significantly on
revenue from Vignette Syndication Server and the related tools that we plan to
develop, which is subject to significant risks. We began shipping Vignette
Syndication Server to clients in the first quarter of 1999. This is the first
version of a new product designed for a new market opportunity. There are
significant risks inherent in a product introduction such as Vignette
Syndication Server. Market acceptance of Vignette Syndication Server will
depend on a market developing for Internet syndication products and services
and the commercial adoption of the standards on which Vignette Syndication
Server is based. We cannot be certain that either will occur. We cannot be
certain that Vignette Syndication Server will meet client performance needs or
expectations or that it will be free of significant software defects or bugs.
If Vignette Syndication Server does not meet client needs or expectations, for
whatever reason, upgrading or enhancing the product could be costly and time
consuming.

If We are Unable to Meet the Rapid Changes in e-Business 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 client demands 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 or new industry standards 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 clients. Internet commerce technology,
particularly e-Business software technology, is complex and new products and
product enhancements can require long development and testing periods. Any
delays in developing and releasing enhanced or new products could have a
material adverse effect on our business, operating results and financial
condition.

We Face Intense Competition for e-Business Software, Which Could Make it
Difficult to Acquire and Retain Clients Now and in the Future

The Internet software market is intensely competitive. Our clients'
requirements and the technology available to satisfy those requirements
continually change. We expect competition to persist and intensify in the
future.

9
<PAGE>

Our principal competitors include: in-house development efforts by potential
clients or partners; other vendors of software that directly address e-
Business solutions, such as BroadVision; and developers of point solution
software that address only certain technology components of e-Business
solutions (e.g., content management), such as Interwoven.

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

Competitive pressures may make it difficult for us to acquire and retain
clients 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. See "Business--Competition."

We Must Successfully Integrate Our Recent Acquisition of Diffusion, Inc.

We acquired Diffusion, Inc. on June 30, 1999. Our failure to successfully
address the risks associated with our acquisition of Diffusion could have a
material adverse affect on our ability to develop and market products based on
Diffusion's technology. In particular, we are developing Vignette Multi-
Channel Server based on Diffusion's technology and will be devoting
significant resources to product development, sales and marketing relating to
this product. The success of this acquisition will depend on our ability to:

. Successfully integrate and manage Diffusion's operations;

. Retain Diffusion's software developers; and

. Develop and market products, such as Vignette Multi-Channel Server,
based on Diffusion's technology.

We May Find it Difficult to Integrate Potential Future Acquisitions Which
Could Disrupt Our Business, Dilute Stockholder Value and Adversely Affect Our
Operating Results

We may acquire other businesses in the future, which would complicate our
management's tasks. We may need to integrate widely dispersed operations that
have different and unfamiliar corporate cultures. These integration efforts
may not succeed or may distract management's attention from existing business
operations. Our failure to successfully manage future acquisitions could
seriously harm our business. Also, our existing stockholders would be diluted
if we financed the acquisitions by issuing equity securities.

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

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

10
<PAGE>

Community, have adopted such legislation or regulatory requirements. The
United States may adopt similar legislation or regulatory requirements. If
consumer privacy concerns are not adequately addressed, our business,
financial condition and operating results could be materially adversely
affected.

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

We May Be Adversely Impacted by the Year 2000 and Other Information
Technology Issues

The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example,
software with date-sensitive functions that is not Year 2000 compliant may not
be able to distinguish whether "00" means 1900 or 2000, which may result in
failures or the creation of erroneous results. We are subject to potential
Year 2000 problems affecting our products, our internal systems and the
systems of our suppliers and customers, any of which could have a material
adverse effect on our business, operating results and financial condition.

We have conducted a Year 2000 readiness review for the current versions of
our products. The review included assessment, implementation (including
remediation, upgrading and replacement of certain product versions),
validation testing, and contingency planning. We continue to respond to client
questions about prior versions of our products on a case-by-case basis.

We have completed all phases of this plan, except for contingency planning,
for the current versions of our products. As a result, we believe all current
versions of our products are Year 2000 compliant, when configured and used in
accordance with the related documentation, and provided that the underlying
operating system of the host machine and any other software used with or in
the host machine or our products are also Year 2000 compliant. We tested our
products on all platforms or all versions of operating systems that we
currently support and found no significant exceptions. The initial release of
StoryServer 4 required a patch to fix a minor error in a third-party product
included in StoryServer 4. We have provided the patch on our Web site in order
to be Year 2000 compliant.

We have tested software obtained from third parties, including licensed
software, shareware, and freeware, that is incorporated into our products, and
we are seeking assurances from our vendors that licensed software is Year 2000
compliant. To date, we believe all critical software that we have obtained
from third parties is Year 2000 compliant. Despite testing by us and by
current and potential clients, and assurances from developers of products
incorporated into our products, our products may contain undetected errors or
defects associated with Year 2000 date functions. Known or unknown errors or
defects in our products could result in delay or loss of revenue, diversion of
development resources, damage to our reputation, or increased service and
warranty costs, any of which could materially adversely affect our business,
operating results, or financial condition. Some commentators have predicted
significant litigation regarding Year 2000 compliance issues, and we are aware
of such lawsuits against other software vendors. Because of the unprecedented
nature of such litigation, it is uncertain whether or to what extent we may be
affected by it.

Our internal systems include both our information technology, or IT, and
non-IT systems. We hired a third party consulting group to provide an
assessment of our material internal IT systems, including both our own
software products and third-party software and hardware technology, and our
non-IT systems. The completion of testing yielded no significant exceptions
for our critical internal systems to be Year 2000 compliant. To the extent
that we were not able to test the technology provided by third-party vendors,
we are seeking assurances from vendors that their systems are Year 2000
compliant. As a result of testing, we are not currently aware of

11
<PAGE>

any material operational issues or costs associated with preparing our
internal IT and non-IT systems for the Year 2000. However, we may experience
material unanticipated problems and costs caused by undetected errors or
defects in the technology used in our internal IT and non-IT systems.

We do not currently have any information concerning the Year 2000 compliance
status of our clients. Our current or future clients may incur significant
expenses to achieve Year 2000 compliance. If our clients are not Year 2000
compliant, they may experience material costs to remedy problems, or they may
face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential clients could have for
purchases of our products and services. As a result, our business, operating
results or financial condition could be materially adversely affected. See
"Risks Related to the Internet Industry--Our Performance Will Depend on the
Growth of the Internet for Commerce."

We have funded our Year 2000 plan from available cash and have not
separately accounted for these costs in the past. To date, these costs have
not been material. We will incur additional costs related to the Year 2000
plan for administrative personnel to manage the project, outside contractor
assistance, technical support for our products, product engineering and
customer satisfaction. In addition, we may experience material problems and
costs with Year 2000 compliance that could adversely affect our business,
operating results and financial condition.

We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our
critical operations. The cost of developing and implementing such a plan may
itself be material. Finally, we are also subject to external forces that might
generally affect industry and commerce, such as utility or transportation
company Year 2000 compliance failures and related service interruptions.

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
clients, our current and future products may contain serious defects,
including Year 2000 errors. 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.

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

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

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

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

12
<PAGE>

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

In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We could incur
substantial costs to prosecute or defend any such litigation. Although we are
not currently involved in any intellectual property litigation, we may be a
party to litigation in the future to protect our intellectual property or as a
result of an alleged infringement of other's intellectual property, forcing 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; and

. Redesign those products or services that incorporate such technology.

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

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

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

. 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;

. 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. See
"Management--Employee Benefit Plans" and "Description of Capital Stock--Anti-
takeover Effects of Provisions of the Certificate of Incorporation, Bylaws and
Delaware Law."

Our Financial Results Could be Adversely Affected by Changes in Accounting
Standards

The American Institute of Certified Public Accountants issued Statement of
Position 97-2, Software Revenue Recognition, in October 1997 and amended it by
Statement of Position 98-4. We adopted these statements effective January 1,
1998. The adoption of SOP 97-2 and 98-4 did not have a material impact on our
financial statements. In December 1998, the AICPA issued SOP 98-9 which
further amended SOP 97-2 and 98-4. We do not expect that the adoption of SOP
98-9 will have a material adverse affect on our future revenue and earnings.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

13
<PAGE>

Risks Related to the Internet Industry

Our Performance Will Depend on the Growth of the Internet for Commerce

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

Our Performance Will Depend on the New Market for e-Business Solutions

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

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

As Internet commerce evolves, we expect that federal, state or foreign
agencies will adopt regulations covering issues such as user privacy, pricing,
content and quality of products and services. If enacted, such laws, rules or
regulations could limit the market for our products and services, which could
materially adversely affect our business operating results and financial
condition. Although many of these regulations may not apply to our business
directly, we expect that laws regulating the solicitation, collection or
processing of personal/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.

14
<PAGE>

Risks Related to the Securities Markets

Our Stock Price Has Been and May Continue to 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;

. Changes in financial estimates by securities analysts;

. Changes in market valuations of Internet software companies;

. Announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;

. Loss of a major client or failure to complete significant license
transactions;

. Additions or departures of key personnel;

. Sales of equity securities in the future; and

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

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

In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert
management's attention and resources, which could have a material adverse
effect on our business, operating results and financial condition.

We May Be Unable to Meet Our Future Capital Requirements

We expect the net proceeds from this offering, our recent initial public
offering, cash on hand, cash equivalents, and commercial credit facilities to
meet our working capital and capital expenditure needs for the foreseeable
future. We may need to raise additional funds for other purposes and we cannot
be certain that we would be able to obtain additional financing on favorable
terms, if at all. Further, if we issue equity securities, stockholders may
experience additional dilution or the new equity securities may have rights,
preferences or privileges senior to those of existing holders of common stock.
If we cannot raise funds, if needed, on acceptable terms, we may not be able
to develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements, which could
have a material adverse effect on our business, operating results and
financial condition. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

Future Sales of Our Common Stock Could Cause the Price of Our Shares to
Decline

Upon completion of this offering, we will have 58,377,054 shares of common
stock outstanding. Substantially all of these shares will be transferable
either without restriction or registration under the Securities Act of 1933,
as amended, or pursuant to the volume and other limitations of Rule 144
promulgated under the Securities Act. Following this offering, resales of a
substantial number of shares of common stock into the public market could
cause the price of our common stock to decline.

Approximately 7,826,000 shares of common stock are subject to lock-up
agreements between the holders of those shares and the representatives of the
underwriters, pursuant to which the holders have agreed not to offer, sell,
contract to sell or grant any option to purchase or otherwise dispose of
common stock until 90 days after the date of the final prospectus, subject to
limited exceptions. Following the expiration of this period, substantially all
of the shares subject to the lock-up agreements will become available for
immediate resale in the public market subject to the limitations of Rule 144.

15
<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute forward-
looking statements. These statements relate to future events or our future
financial performance and involve known and unknown risks, uncertainties and
other factors that may cause our or our industry's actual results, levels of
activity, performance, or achievements to be materially different from those
expressed or implied by any forward-looking statements. Some of these factors
are listed under "Risk Factors" and elsewhere in this prospectus. In some
cases, you can identify forward-looking statements by terminology such as
"may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of these
terms or other comparable terminology. These statements are only predictions.
Actual events or results may differ materially. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of those
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform them to actual
results.

16
<PAGE>

USE OF PROCEEDS

We estimate that our net proceeds from the sale of the 1,841,000 shares of
common stock we are offering will be approximately $153.7 million after
deducting underwriting discounts and commissions and estimated offering
expenses of $800,000 payable by us. If the underwriters' over-allotment option
is exercised in full, we estimate that such net proceeds will be approximately
$185.2 million. We will not receive any of the proceeds from the sale of
shares of common stock by the selling stockholders.

We intend to use the proceeds we receive from the offering for working
capital and general corporate purposes. We continuously evaluate and discuss
acquisitions and strategic investments. We may use a portion of the net
proceeds of this offering to acquire technology or businesses, or make
strategic investments in businesses, that are complementary to our business.
Pending such uses, we plan to invest the net proceeds in short-term, interest-
bearing, investment grade securities.

DIVIDEND POLICY

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. Our lines of credit currently prohibit the payment of cash
dividends.

PRICE RANGE OF COMMON STOCK

Our common stock is traded on the Nasdaq National Market under the symbol
"VIGN." Public trading of the common stock commenced on February 19, 1999.
Prior to that, there was no public market for the common stock. The following
table sets forth, for the periods indicated, the high and low sale price per
share of the common stock on the Nasdaq National Market, as adjusted for the
two-for-one forward split of our common stock payable on December 1, 1999.

<TABLE>
<CAPTION>
High Low
------ ------
Year Ended December 31, 1999:
<S> <C> <C>
First Quarter (from February 19, 1999).................... $44.00 $19.91
Second Quarter............................................ 52.56 21.31
Third Quarter............................................. 45.25 26.19
Fourth Quarter (through November 22, 1999)................ 92.75 44.63
</TABLE>

As of September 30, 1999, there were approximately 302 holders of record of
our common stock. On November 22, 1999, the last sale price reported on the
Nasdaq National Market for our common stock was $87.88 per share.

17
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 1999,
on an actual basis and on an as adjusted basis to give effect to:

. our sale of 1,841,000 shares of our common stock at an assumed public
offering price of $87.88 per share and the application of the estimated
net proceeds of $153.7 million; and

. the proceeds from the exercise of options to purchase 267,600 shares of
common stock by certain selling stockholders for an aggregate purchase
price of $221,000.

The outstanding share information excludes 14,157,704 shares of common stock
issuable upon exercise of outstanding options as of September 30, 1999 with a
weighted average exercise price of $9.97 per share, 180,716 shares of common
stock issuable upon exercise of warrants at an exercise price of $4.15 per
share and 7,564,184 shares of common stock reserved for issuance under our
stock plans as of September 30, 1999. This table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements and the Notes
thereto. See "Use of Proceeds" and "Management--Employee Benefit Plans."

<TABLE>
<CAPTION>
As of September 30, 1999
---------------------------
Actual As Adjusted
----------- --------------
(in thousands, except
share and per share data)
<S> <C> <C>
Long-term debt and capital lease obligation, less
current portion................................... $ 8 $ 8
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000
shares authorized actual and as adjusted, no
shares issued and outstanding actual and as
adjusted......................................... -- --
Common stock, $0.01 par value, 80,000,000 shares
authorized, 56,268,454 shares issued and
outstanding (net of 208,749 treasury shares),
actual; 80,000,000 shares authorized, 58,377,054
issued and outstanding, as adjusted.............. 563 583
Additional paid-in capital........................ 169,869 323,768
Warrants to purchase common stock................. 169 169
Notes receivable for purchase of common stock..... (75) (75)
Deferred stock compensation....................... (12,139) (12,139)
Accumulated other comprehensive loss.............. 85 85
Accumulated deficit............................... (74,148) (74,148)
----------- ------------
Total stockholders' equity......................... 84,324 238,243
----------- ------------
Total capitalization............................... $ 84,332 $ 238,251
=========== ============
</TABLE>

18
<PAGE>

DILUTION

The net tangible book value of our common stock as of September 30, 1999 was
$63.0 million, or approximately $1.12 per share. "Net tangible book value" per
share represents the amount of our total tangible assets less total
liabilities, divided by 56,268,454 shares of common stock outstanding as of
September 30, 1999. After giving effect to the receipt of the net proceeds
from our sale of 1,841,000 shares of our common stock at an assumed public
offering price of $87.88 per share, and the proceeds from the exercise of
options to purchase 267,600 shares of common stock by certain selling
stockholders for an aggregate purchase price of approximately $221,000, our
net tangible book value at September 30, 1999 would have been $216.9 million,
or $3.72 per share. This represents an immediate increase in net tangible book
value of $2.60 per share to existing stockholders and an immediate dilution in
net tangible book value of $84.16 per share to new investors. The following
table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Assumed public offering price per share........................... $87.88
Net tangible book value per share as of September 30, 1999....... $1.12
Increase in net tangible book value per share attributable to new
investors....................................................... 2.60
-----
Net tangible book value per share after offering.................. 3.72
------
Dilution per share to new investors............................... $84.16
======
</TABLE>

As of September 30, 1999, there were approximately 14,157,704 shares subject
to outstanding options at a weighted exercise price of approximately $9.97 per
share; 180,716 shares of common stock issuable on exercise of warrants at an
exercise price of $4.15 per share; and 7,564,184 shares were reserved for
issuance under our stock plans as of September 30, 1999. To the extent
outstanding options and warrants are exercised, there will be further dilution
to new investors. See "Management--Employee Benefit Plans."

19
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto, the
unaudited Condensed Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and other financial data included elsewhere in this prospectus.
Consolidated statement of operations data for the year ended December 31, 1996
include results of operations for the period from December 19, 1995, the date
of our inception, through December 31, 1996. The consolidated statement of
operations data for the years ended December 31, 1996, 1997 and 1998 and the
consolidated balance sheet data at December 31, 1997 and 1998 are derived from
audited consolidated financial statements included elsewhere in this
prospectus. The consolidated balance sheet data at December 31, 1996 is
derived from audited consolidated financial statements not included in this
prospectus. The consolidated statement of operations data for the nine months
ended September 30, 1998 and 1999 and the consolidated balance sheet data at
September 30, 1999 are derived from unaudited condensed consolidated financial
statements included elsewhere in this prospectus. In the opinion of
management, the unaudited statement of operations data shown for the nine
month periods ended September 30, 1998 and 1999 and the unaudited balance
sheet data as of September 30, 1999 have been prepared on the same basis as
the audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for such
periods.

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenue:
Product license............... $ -- $ 1,943 $ 8,584 $ 5,152 $ 24,562
Services...................... -- 1,081 7,621 4,359 23,681
------- ------- -------- -------- --------
Total revenue.................. -- 3,024 16,205 9,511 48,243
Cost of revenue:
Product license............... -- 37 964 510 1,930
Services...................... -- 1,438 9,340 5,579 19,968
------- ------- -------- -------- --------
Total cost of revenue.......... -- 1,475 10,304 6,089 21,898
------- ------- -------- -------- --------
Gross profit................... -- 1,549 5,901 3,422 26,345
Operating expenses:
Research and development...... 892 2,895 6,962 4,840 10,231
Sales and marketing........... 428 4,964 15,880 9,398 28,819
General and administrative.... 503 1,333 4,864 3,451 5,986
Purchased in-process research
and development, acquisition-
related and other charges.... 1,865 -- 2,089 2,089 15,183
Amortization of deferred stock
compensation................. -- -- 2,475 867 4,118
Amortization of intangibles... -- -- -- -- 898
------- ------- -------- -------- --------
Total operating expenses....... 3,688 9,192 32,270 20,645 65,235
------- ------- -------- -------- --------
Loss from operations........... (3,688) (7,643) (26,369) (17,223) (38,890)
Other income, net.............. 62 169 172 204 2,039
------- ------- -------- -------- --------
Net loss....................... $(3,626) $(7,474) $(26,197) $(17,019) $(36,851)
======= ======= ======== ======== ========
Basic net loss per share....... $ (2.88) $ (2.09) $ (4.60) $ (3.86) $ (.86)
======= ======= ======== ======== ========
Shares used in computing basic
net loss per share............ 1,260 3,576 5,698 4,410 42,866
Pro forma basic net loss per
share......................... $ (.73) $ (.75)
======== ========
Shares used in computing pro
forma basic net loss per
share......................... 35,808 48,954
</TABLE>

<TABLE>
<CAPTION>
As of
As of December 31, September 30,
-------------------------- -------------
1996 1997 1998 1999
------- ------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents............ $ 1,863 $ 6,865 $ 12,242 $ 73,702
Working capital...................... 1,583 4,255 3,757 51,858
Total assets......................... 2,229 8,499 22,781 132,064
Long-term debt and capital lease
obligation, less current portion.... 198 833 758 8
Redeemable convertible preferred
stock............................... 3,458 13,458 36,258 --
Total stockholders' equity (deficit). (1,770) (9,248) (30,767) 84,324
</TABLE>

20
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in
such forward-looking statements. See "Special Note Regarding Forward-Looking
Statements."

Overview

Vignette is a leading global provider of e-Business software products and
services. Our products and services are designed to enable businesses to build
sustainable online customer relationships, increase the returns on their
Internet-related investments and capitalize on Internet business
opportunities. We were founded in December 1995. To date, we have developed
and released several versions of our StoryServer product and have sold our
products and services to over 390 clients. We market and sell our products
worldwide primarily through our direct sales force.

We derive our revenue from the sale of software product licenses and from
professional consulting, maintenance and support services. Product license
revenue is recognized when persuasive evidence of an agreement exists, the
product has been delivered, we have no remaining significant obligations with
regard to implementation, the license fee is fixed or determinable and
collection of the fee is probable. Services revenue consists of fees from
professional services and from maintenance and telephone support. Professional
services include integration of software, application development, training
and software installation. We bill professional services fees either on a
time-and-materials or on a fixed-price basis. We recognize professional
services fees billed on a time-and-materials basis as the services are
performed. We recognize professional services fees on fixed-price service
arrangements on the completion of specific contractual milestone events, or
based on an estimated percentage of completion as work progresses. Our clients
typically purchase maintenance agreements annually, and we price maintenance
agreements based on a percentage of our current product list price. We price
telephone support based on differing levels of support. Clients purchasing
maintenance agreements receive unspecified product upgrades and electronic,
Web-based technical support, while purchasers of support contracts receive
additional telephone support. We recognize revenue from maintenance and
support agreements ratably over the term of the agreement, typically one year.
We record cash receipts from clients and billed amounts due from clients in
excess of revenue recognized as deferred revenue. The timing and amount of
cash receipts from clients can vary significantly depending on specific
contract terms and can therefore have a significant impact on the amount of
deferred revenue in any given period.

Cost of revenue consists of costs to manufacture, package and distribute our
products and related documentation, as well as personnel and other expenses
related to providing professional services. Since our inception, we have
incurred substantial costs to develop our technology and products, to recruit
and train personnel for our engineering, sales and marketing and professional
services departments, and to establish an administrative organization. As a
result, we have incurred significant losses since inception and, as of
September 30, 1999, we had an accumulated deficit of approximately $74.1
million. We believe our success depends on further increasing our client base
and on growth in the emerging e-Business solutions market. Accordingly, we
intend to continue to invest heavily in sales, marketing, professional
services, research and development and in our operational and financial
systems. Furthermore, we expect to continue to incur substantial operating
losses at least through the third quarter of 2000, and our expected increase
in operating expenses will require significant increases in revenues before we
become profitable.

We had 542 full-time employees at September 30, 1999, up from 310 at
December 31, 1998. This rapid growth places a significant demand on our
management and operational resources. In order to manage growth effectively,
we must implement and improve our operational systems, procedures and controls
on a timely basis. In addition, we expect that future expansion will continue
to challenge our ability to hire, train, motivate, and manage our employees.
Competition is intense for highly qualified technical, sales and marketing and
management personnel. If our total revenue does not increase relative to our
operating expenses, our management

21
<PAGE>

systems do not expand to meet increasing demands, we fail to attract,
assimilate and retain qualified personnel, or our management otherwise fails
to manage our expansion effectively, there would be a material adverse effect
on our business, operating results and financial condition.

Effective June 30, 1999, Vignette acquired Diffusion, Inc., a developer of
multi-channel information delivery solutions, in exchange for 786,542 shares
of Vignette common stock. The total cost of the acquisition, including
transaction costs, was approximately $31.2 million. The acquisition was
accounted for as a purchase business combination. Accordingly, the results of
operations of Diffusion have been included with our results of operations for
periods subsequent to the date of acquisition, and the acquired net assets
were recorded at their estimated fair values at the effective date of the
acquisition. Upon the closing of the acquisition on June 30, 1999, we incurred
a one-time charge totaling $15.2 million for the write-off of in-process
research and development, acquisition-related expenses and integration costs.

Results of Operations For The Nine Months Ended September 30, 1999 and
September 30, 1998

Revenue

Total revenue increased 407% to $48.2 million in the nine months ended
September 30, 1999 from $9.5 million in the nine months ended September 30,
1998. This increase was attributable to an increase in our client base, which
grew from 152 at the end of the third quarter of 1998 to 393 at the end of the
third quarter of 1999, an increase in the average deal size of new client
orders and follow-on orders from existing clients. Although our total revenue
has increased in recent periods, we cannot be certain that total revenue will
grow in future periods or that it will grow at similar rates as in the past.

Product License. Product license revenue increased 377% to $24.6 million in
the nine months ended September 30, 1999 from $5.2 million in the nine months
ended September 30, 1998, representing 51% and 54% of total revenue,
respectively. The increase in absolute dollars was due to increases in the
number of clients and the average deal size of new client orders resulting
from growing market acceptance of our StoryServer product line over the prior
year period, as well as increased follow-on orders from existing clients.
Product license revenue decreased as a percentage of total revenue during the
nine months ended September 30, 1999 due to the higher growth in services
revenue during the same period.

Services. Services revenue increased 443% to $23.7 million in the nine
months ended September 30, 1999 from $4.4 million in the nine months ended
September 30, 1998, representing 49% and 46% of total revenue, respectively.
Services revenue from professional services fees continue to be the primary
component of total services revenue, representing 40% of total revenues in the
nine months ended September 30, 1999 as compared to 37% in the nine months
ended September 30, 1998. During the nine months ended September 30, 1999,
services revenue from professional services fees increased 446% compared to
the nine months ended September 30, 1998. Services revenue from maintenance
and support agreements increased 432% in the nine months ended September 30,
1999 compared to the nine months ended September 30, 1998. The increase in all
types of services revenue was primarily driven by the increase in the number
of clients and the sale of product licenses, which generally include or lead
to contracts to perform professional services and purchases of software
maintenance and technical support service agreements.

Services revenue increased as a percentage of total revenue during the nine
months ended September 30, 1999 due to the expansion of our services
capabilities through the hiring of additional services personnel. We believe
that growth in our product license sales depends on our ability to provide our
clients with support, training, consulting and implementation services and
educating third-party resellers on how to implement our products. As a result,
we continued to expand our professional services organization throughout the
first nine months of fiscal 1999 and intend to continue expanding our
professional services organization for the foreseeable future. We do not
believe that services revenue will continue to increase as a percentage of
total revenue.

Cost of Revenue

Product License. Product license costs consist of expenses we incur to
manufacture, package and distribute our products and related documentation and
costs of licensing third-party software incorporated into

22
<PAGE>

our products. Product license costs increased to $1.9 million in the nine
months ended September 30, 1999 from $510,000 in the nine months ended
September 30, 1998, representing 8% and 10% of product license revenue,
respectively. The increase in absolute dollars was principally a result of
both product license sales growth and royalties paid to third party vendors
for technology embedded in our product offerings. Product license costs
decreased as a percentage of product license revenue primarily because
significant product license revenue growth outpaced increases in product
license costs in addition to a higher average sales price in 1999 relative to
1998. We expect product license costs to increase in the future in absolute
dollar terms due to additional clients licensing our products and the
acquisition of OEM licenses to third party technology that we may choose to
embed in our product offerings.

Services. Services costs include salary expense and other related costs for
our professional service, maintenance and customer support staffs, as well as
third-party contractor expenses. Service costs increased to $20.0 million in
the nine months ended September 30, 1999 from $5.6 million in the nine months
ended September 30, 1998, representing 84% and 128% of services revenue,
respectively. The increase in absolute dollars resulted from rapidly expanding
our services organization. The overall improvement in services gross profit
margin reflects increased leverage from the productivity of support, training,
consulting and implementation activities. We expect services costs to increase
in the future in absolute dollars to the extent that services revenues
increase. We expect services costs as a percentage of services revenue to
decrease over time. Services costs as a percentage of services revenue can be
expected to vary significantly from period to period depending on the mix of
services we provide, whether such services are provided by us or third-party
contractors, and overall utilization rates.

Professional services-related costs increased to $18.6 million in the nine
months ended September 30, 1999 from $5.3 million in the nine months ended
September 30, 1998, representing 97% and 149% of professional services-related
revenue, respectively. To date, services costs related to professional
services have exceeded, or have been substantially equal to, professional
service-related revenue. Although we expect our professional service-related
revenue will exceed professional service-related costs in future periods, we
cannot be certain when this will occur. Maintenance and support-related costs
increased to $1.4 million in the nine months ended September 30, 1999 from
$328,000 in the nine months ended September 30, 1998, representing 30% and 39%
of maintenance and support-related revenue, respectively.

Operating Expenses

Research and Development. Research and development expenses consist
primarily of personnel costs to support product development. Research and
development expenses increased to $10.2 million in the nine months ended
September 30, 1999 from $4.8 million in the nine months ended September 30,
1998, representing 21% and 51% of total revenue, respectively. The increase in
absolute dollars was due to the increase in engineering personnel and to the
expansion of our product offerings. The decrease in research and development
as a percentage of total revenue resulted primarily because significant
revenue growth outpaced increases in research and development expenditures. We
believe that continued investment in research and development is critical to
maintaining a competitive advantage, and, as a result, we expect research and
development expenses to increase in absolute dollars in future periods.
Software development costs that were eligible for capitalization in accordance
with Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, were
insignificant during the periods presented. Accordingly, all software
development costs have been expensed in the period incurred.

Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and other related costs for sales and marketing personnel, sales
commissions, travel, public relations and marketing materials and tradeshows.
Sales and marketing expenses increased to $28.8 million in the nine months
ended September 30, 1999 from $9.4 million in the nine months ended September
30, 1998, representing 60% and 99% of total revenue, respectively. Sales and
marketing expenses increased in absolute dollars due to a significant increase
in sales and marketing personnel, increased marketing program expenditures as
well as higher commissions resulting from the absolute dollar growth in our
bookings. The decrease in sales and marketing expenses as a

23
<PAGE>

percentage of total revenue resulted primarily because significant revenue
growth outpaced increases in sales and marketing expenditures. We believe
these expenses will continue to increase in absolute dollars in future periods
as we expect to continue to expand our sales and marketing efforts to promote
further growth. We also anticipate that sales and marketing expenses may
fluctuate as a percentage of total revenue from period to period as new sales
personnel are hired and begin to achieve productivity and the timing of new
product releases.

General and Administrative. General and administrative expenses consist
primarily of salaries and other related costs for operations and finance
employees, legal and accounting services and certain facilities-related
expenses. General and administrative expenses increased to $6.0 million in the
nine months ended September 30, 1999 from $3.5 million in the nine months
ended September 30, 1998, representing 12% and 36% of total revenue,
respectively. The increase in absolute dollars for these periods was due to
increased personnel and facility expenses necessary to support our expanding
operations. General and administrative expenses decreased as a percentage of
total revenue primarily because significant revenue growth outpaced increases
in general and administrative expenditures. We believe general and
administrative expenses will increase in absolute dollars as we expect to
increase staffing and infrastructure expenses to support our continued growth.

Purchased In-Process Research and Development, Acquisition-Related and Other
Charges. In connection with our acquisition of Diffusion, we incurred one-time
acquisition costs and integration-related charges, which include costs
associated with product integration, cross training, and other merger-related
costs. Additionally, a portion of the purchase price was allocated to in-
process research and development based upon an independent third party
appraisal and expensed upon the consummation of the transaction. These related
charges totaled $15.2 million for the nine months ended September 30, 1999.

Included in the acquired net assets of Diffusion was in-process research and
development efforts related to the development of Diffusion Server 4.0.
Diffusion Server 4.0 was expected to expand the delivery capabilities, user
features and functionality of the existing Diffusion Server 3.0 multi-channel
platform as well as add new components. We intended to re-work the acquired
technology and integrate it with Vignette's products.

A significant amount of uncertainty existed surrounding the successful
development and completion of the research and development acquired, which was
estimated to be 88% complete at the date of the acquisition. We were uncertain
of our ability to complete the development of a new product within a timeframe
acceptable to the market and ahead of competitors. Additionally, the amount of
development required to enable the acquired in-process research and
development to be compatible with StoryServer is significant. The results of
the in-process research and development effort at the time of purchase had not
progressed to a stage where they met technological feasibility as they lacked
many key elements including standardized implementation capabilities and a
scalable and extensible architecture.

We assigned values of $11.6 million to in-process research and development
and $6.3 million to existing core technology based upon a modified discounted
cash flow model. We based the cash flow projections for revenue on the
projected incremental increase in revenue that we expected to receive from the
completed acquired in-process research and development. Diffusion expected
revenue to commence with its product's release in December 1999 and continue
throughout its economic life of five years. We deducted estimated operating
expenses from estimated revenue to arrive at estimated pre-tax cash flows.
Projected operating expenses included cost of goods sold, selling general and
administrative expense, and research and development expense. We estimated
operating expenses as a percent of revenue based on Diffusion's historical
results for the fiscal years ended December 31, 1996 to 1998. Projected
results for the fiscal years ended December 31, 1999 to 2001 were also used in
combination with past operating results and industry averages. We also
deducted capital charges, or cash flow attributable to other assets such as
working capital and assembled workforce, from pre-tax operating income to
isolate the cash flow solely attributable to the in-process research and
development. Income taxes were then deducted to arrive at after-tax cash
flows. We discounted the after-tax cash flow projections using a risk-adjusted
rate of return of 23%. In using the discounted model, we excluded the costs to
complete the in-process technology from the research and development expense
for 1999, and we reflected the percentage completion of the in-process
research and development in each year's projected cash flow.

24
<PAGE>

During May 1998, Vignette acquired from RandomNoise, Inc. certain in-process
research and development effort, a developed product and an insignificant
amount of equipment in exchange for $2.1 million, consisting of $100,000 in
cash and 751,660 shares of our Series G Preferred Stock valued at $2.0
million. Substantially all of the purchase price was allocated to in-process
research and development and expensed upon the consummation of the
transaction. These related charges totaled $2.1 million for the nine months
ended September 30, 1998.

Amortization of Deferred Stock Compensation. We have recorded deferred
compensation for the difference between the exercise price of certain stock
option grants and the deemed fair value of our common stock at the time of
such grants. We are amortizing this amount over the vesting periods of the
applicable options, resulting in amortization expense of $4.1 million and
$867,000 for the nine months ended September 30, 1999 and 1998, respectively.

Amortization of Intangibles. In conjunction with our acquisition of
Diffusion, effective June 30, 1999, the purchase price amounts allocated to
acquired technology of $6.3 million and workforce of $900,000 are being
amortized over a five-year period. The excess of cost over fair value of net
assets acquired of $15.1 million is being amortized over a seven-year period.

Other Income, Net

Other income, net consists of interest income and expense and gain or loss
on disposals of equipment. Other income, net increased to $2.0 million in the
nine months ended September 30, 1999 from $204,000 in the nine months ended
September 30, 1998. The increase was due to interest income earned from cash
balances on hand as a result of our recent initial public offering in February
1999.

Results of Operations For The Years Ended December 31, 1998, December 31,
1997, and December 31, 1996

Revenue

Total revenue increased to $16.2 million in 1998 from $3.0 million in 1997.
This increase was attributable to an increase in our client base resulting in
substantial growth in product license and services revenue. No one client
accounted for greater than 10% of total revenue during 1998. Two clients
accounted for 24% of total revenue in 1997. We did not have any revenue in
1996, as we were in the development stage.

Product License. Product license revenue increased to $8.6 million in 1998
from $1.9 million in 1997, representing 53% and 64% of total revenue,
respectively. The increase in product license revenue in absolute dollars was
due primarily to an increase in the number of clients resulting from growing
market acceptance of our StoryServer product after the release of StoryServer
3 in September 1997. Product license revenue decreased as a percentage of
total revenue due to the increase in services revenue during the same period.
We first began shipping our products in January 1997.

Services. Services revenue increased to $7.6 million in 1998 from $1.1
million in 1997, representing 47% and 36% of total revenue, respectively.
Services revenue from professional services fees increased to $6.2 million in
1998 from $941,000 in 1997. Services revenue from maintenance and support
agreements increased to $1.4 million in 1998 from $140,000 in 1997. The
increase in all types of services revenue was due primarily to an increase in
the number of clients and sale of product licenses, which generally include or
lead to contracts to perform professional services and purchases of software
maintenance and technical support service agreements.

Services revenue increased as a percentage of total revenue in 1998 due to
the expansion of our services capabilities by hiring additional services
personnel. We believe that growth in our product license sales depends on our
ability to provide our clients with support, training, consulting and
implementation services and educating third-party resellers on how to
implement our products. As a result, we invested to expand our professional
services organization in 1998.

25
<PAGE>

Cost of Revenue

Product License. Product license costs increased to $964,000 in 1998 from
$37,000 in 1997, representing 11% and 2% of product license revenue,
respectively. The increase in absolute dollars and as a percentage of product
license revenue in 1998 was primarily attributable to the fact that we entered
into an OEM license with Net Perceptions for its GroupLens Express software
that allows us to embed certain personalization functionality into
StoryServer.

Services. Services costs increased to $9.3 million in 1998 from $1.4 million
in 1997, representing 123% and 133% of services revenue, respectively. The
increase in dollar amount was primarily due to startup costs incurred in
connection with beginning and expanding our professional services
organization, and to a lesser extent, the increase in the number of product
license clients, which generally require our professional services.

Services costs related to professional services increased to $8.8 million in
1998 from $1.4 million in 1997, representing 143% and 144% of professional
services-related revenue. Services costs related to maintenance and support
agreements increased to $510,000 in 1998 from $84,000 in 1997, representing
35% and 60% of maintenance and support-related revenue, respectively.

Operating Expenses

Research and Development. Research and development expenses increased to
$7.0 million in 1998 from $2.9 million in 1997, representing 43% and 96% of
total revenue, respectively. Research and development expenses increased to
$2.9 million in 1997 from $892,000 in 1996. The increase in absolute dollars
in these periods was due to increases in internal engineering personnel.

Sales and Marketing. Sales and marketing expenses increased to $15.9 million
in 1998 from $5.0 million in 1997, representing 98% and 164% of total revenue,
respectively. The increase in absolute dollars was due to a significant
increase in sales and marketing personnel and our increased marketing program
expenditures. Sales and marketing expenses increased to $5.0 million in 1997
from $428,000 in 1996. The increase was due to a substantial increase in sales
and marketing personnel and the commencement of the sales and marketing of our
products in January 1997.

General and Administrative. General and administrative expenses increased to
$4.9 million in 1998 from $1.3 million in 1997, representing 30% and 44% of
total revenue, respectively. General and administrative expenses increased to
$1.3 million in 1997 from $503,000 in 1996. The increase in absolute dollars
for these periods was due to increased personnel and facility expenses
necessary to support our expanding operations and, to a lesser extent, costs
related to the establishment of European operations in November 1997.

Purchased In-Process Research and Development, Acquisition-Related and Other
Charges. Charges related to our May 1998 acquisition of RandomNoise, Inc.
totaled $2.1 million for the year ended 1998. During July 1996, we acquired
from CNET certain software and related intellectual property rights for
7,338,630 shares of our Series C Preferred Stock valued at approximately $1.9
million. All of the approximately $1.9 million purchase price was allocated to
acquired in-process research and development efforts.

Amortization of Deferred Stock Compensation. For the year ended 1998, we
recognized amortization expense of $2.5 million.

Other Income, Net

Other income, net increased to $172,000 in 1998 from $169,000 in 1997. The
slight increase was due to a $272,000 increase in interest income earned from
cash balances on hand in 1998 over 1997, partially offset by a $63,000
increase in loss on disposals of equipment and a $206,000 increase in interest
expense in 1998 over 1997. Proceeds from the private sale of equity securities
in 1997 and 1998 caused cash and short-term investment balances in 1997 and
1998 to be higher than the comparable prior periods. Other income, net
increased to $169,000 in 1997 from $62,000 in 1996. The increase was due to
increased interest income earned from cash balances on hand, partially offset
by loss on disposals of equipment and increased interest expense in 1997
compared to 1996.

26
<PAGE>

Quarterly Results

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

<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------------
Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- --------- -------- --------- -------- --------- -------- ---------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue:
Product license........ $ 764 $ 1,293 $ 1,629 $ 2,230 $ 3,432 $ 4,623 $ 7,575 $12,364
Services............... 544 958 1,293 2,108 3,262 4,509 7,298 11,874
------- ------- ------- ------- ------- ------- -------- -------
Total revenue........... 1,308 2,251 2,922 4,338 6,694 9,132 14,873 24,238
------- ------- ------- ------- ------- ------- -------- -------
Cost of revenue:
Product license........ 13 25 219 266 454 419 734 777
Services............... 764 850 1,867 2,862 3,761 4,469 5,765 9,734
------- ------- ------- ------- ------- ------- -------- -------
Total cost of revenue... 777 875 2,086 3,128 4,215 4,888 6,499 10,511
------- ------- ------- ------- ------- ------- -------- -------
Gross profit............ 531 1,376 836 1,210 2,479 4,244 8,374 13,727
------- ------- ------- ------- ------- ------- -------- -------
Operating expenses:
Research and
development........... 989 1,112 1,867 1,861 2,122 2,725 2,992 4,514
Sales and marketing.... 2,094 1,677 3,324 4,397 6,482 6,553 10,027 12,239
General and
administrative........ 615 698 1,134 1,619 1,413 1,611 1,738 2,637
Purchased in-process
research and
development,
acquisition-related
and other charges..... -- -- 2,089 -- -- -- 14,690 493
Amortization of
deferred stock
compensation.......... -- 16 499 352 1,608 1,669 1,288 1,161
Amortization of
intangibles........... -- -- -- -- -- -- -- 898
------- ------- ------- ------- ------- ------- -------- -------
Total operating
expenses............... 3,698 3,503 8,913 8,229 11,625 12,558 30,735 21,942
------- ------- ------- ------- ------- ------- -------- -------
Loss from operations.... (3,167) (2,127) (8,077) (7,019) (9,146) (8,314) (22,361) (8,215)
Other income (expense),
net.................... 81 38 25 141 (32) 376 834 829
------- ------- ------- ------- ------- ------- -------- -------
Net loss................ $(3,086) $(2,089) $(8,052) $(6,878) $(9,178) $(7,938) $(21,527) $(7,386)
======= ======= ======= ======= ======= ======= ======== =======
As a Percentage of Total
Revenue:
Revenue:
Product license........ 59% 58% 56% 51% 51% 51% 51% 51%
Services............... 41 42 44 49 49 49 49 49
------- ------- ------- ------- ------- ------- -------- -------
Total revenue........... 100 100 100 100 100 100 100 100
------- ------- ------- ------- ------- ------- -------- -------
Cost of revenue:
Product license........ 1 1 7 6 7 5 5 3
Services............... 58 38 64 66 56 49 39 40
------- ------- ------- ------- ------- ------- -------- -------
Total cost of revenue... 59 39 71 72 63 54 44 43
------- ------- ------- ------- ------- ------- -------- -------
Gross profit............ 41 61 29 28 37 46 56 57
------- ------- ------- ------- ------- ------- -------- -------
Operating expenses:
Research and
development........... 76 49 64 43 31 30 20 19
Sales and marketing.... 160 75 114 102 97 71 67 50
General and
administrative........ 47 31 39 37 21 18 11 11
Purchased in-process
research and
development,
acquisition-related
and other charges..... -- -- 71 -- -- -- 99 2
Amortization of
deferred stock
compensation.......... -- 1 17 8 24 18 9 5
Amortization of
intangibles........... -- -- -- -- -- -- -- 4
------- ------- ------- ------- ------- ------- -------- -------
Total operating
expenses............... 283 156 305 190 173 137 206 91
------- ------- ------- ------- ------- ------- -------- -------
Loss from operations.... (242) (95) (276) (162) (136) (91) (150) (34)
Other income (expense),
net.................... 6 2 1 3 (1) 4 5 4
------- ------- ------- ------- ------- ------- -------- -------
Net loss................ (236)% (93)% (275)% (159)% (137)% (87)% (145)% (30)%
======= ======= ======= ======= ======= ======= ======== =======
</TABLE>

27
<PAGE>

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

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

. Demand for our products and services;

. The timing of sales of our products and services;

. The timing of customer orders and product implementations;

. Unexpected delays in introducing new products and services;

. Increased expenses, whether related to sales and marketing, product
development or administration;

. Changes in the rapidly evolving market for e-Business solutions;

. 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; and

. Costs related to possible acquisitions of technology or businesses.

We plan to increase our operating expenses to expand sales and marketing
operations, develop new distribution channels, fund greater levels of research
and development, broaden professional services and support and improve
operational and financial systems. If our revenues do not increase along with
these expenses, our business, operating results or financial condition could
be materially adversely affected and net losses in a given quarter would be
even greater than expected.

Although we have a limited operating history, we believe that our quarterly
operating results may experience seasonal fluctuations. For instance,
quarterly results may fluctuate based on client calendar year budgeting
cycles, slow summer purchasing patterns in Europe and our compensation
policies that tend to compensate sales personnel, typically in the latter half
of the year, for achieving annual quotas.

Net Operating Losses and Tax Credit Carryforwards

As of December 31, 1998, we had net operating loss and research and
development carryforwards of approximately $27.0 million and $560,000,
respectively. The net operating loss and credit carryforwards will expire at
various dates, beginning 2011, if not utilized. The Tax Reform Act of 1986
imposes substantial restrictions on the utilization of net operating losses
and tax credits in the event of an "ownership change" of a corporation. Our
ability to utilize net operating loss carryforwards on an annual basis will be
limited as a result of a prior "ownership change" in connection with private
sales of equity securities. We have provided a full valuation allowance on our
net deferred tax assets, which include net operating loss and research and
development carryforwards, because of the uncertainty regarding their
realization. Our accounting for deferred taxes under Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, involves the
evaluation of a number of factors concerning the realizability of our deferred
tax assets. In concluding that a full valuation allowance was required,
management primarily considered such factors as our history of operating
losses and expected future losses and the nature of our deferred tax assets.
See Note 6 of Notes to Consolidated Financial Statements.

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<PAGE>

Liquidity and Capital Resources

Since our inception, we have funded our operations and met our capital
expenditure requirements through the sale of equity securities.

Cash used in operating activities was $3.7 million and $9.7 million for the
nine months ended September 30, 1999 and 1998, respectively. The decrease in
cash used in operating activities was due primarily to changes in operating
working capital. Cash used in operating activities was $17.2 million, $4.9
million and $1.5 million in 1998, 1997, and 1996, respectively. The $17.2
million of cash used in operating activities for the year ended December 31,
1998 includes an increase in client accounts receivables of approximately $6.8
million from December 31, 1997. This increase is directly attributable to
increased client contracts signed at the close of the quarter ended
December 31, 1998 containing immediate invoicing terms.

Our investing activities have consisted of capital expenditures totaling
$5.4 million and $1.0 million for the nine months ended September 30, 1999 and
1998, respectively, and $2.2 million, $694,000 and $318,000 in 1998, 1997 and
1996, respectively, to acquire property and equipment, mainly computer
hardware and software, for our growing employee base. In addition, during the
nine months ended September 30, 1999, our investing activities included
purchases of equity securities totaling $4.0 million for strategic investments
in other e-commerce companies. We expect that our capital expenditures will
continue to increase as our employee base grows.

Net cash provided by financing activities for the nine months ended
September 30, 1999 and 1998 was $74.4 million and $16.3 million, respectively.
The increase was due primarily to the receipt of proceeds from our initial
public offering, partially offset by $2.7 million in payments made in April
1999 to retire all outstanding debt. Net cash provided by financing activities
in 1998, 1997 and 1996 were $24.8 million, $10.6 million and $3.7 million,
respectively.

At September 30, 1999, we had $73.7 million in cash and cash equivalents and
$51.9 million in working capital. We have agreements with Comdisco, Inc.
providing for available credit of up to $5.0 million over a period of 36
months at an interest rate of 12% per year and an equipment lease line of
$1.25 million over a period of 36 months at an interest rate of 7.5% per year.
The line of credit with Comdisco, Inc. is secured by our receivables,
equipment, fixtures, inventory and all other tangible property. We are
currently in compliance with all related financial covenants and restrictions.

In October 1999, we purchased equity securities of Vitessa (formerly
ECDirect) in exchange for $22.9 million in cash. The investment represents a
15% ownership position in Vitessa, and provides a strategic partnership in
which Vignette will integrate Vitessa's core technology for distributed e-
commerce into Vignette's e-Business applications.

In November 1999, we entered into an option agreement to acquire all of the
outstanding stock of a privately held software design firm for approximately
$25.0 million in stock and cash. We paid $1.0 million in cash to the company
in return for the option, exercisable until December 31, 1999, and for the
company's agreement not to solicit offers or enter into discussions regarding
a sale of the company to another buyer. We have the right to extend the option
until January 31, 2000 by paying an additional $1.0 million. If we elect to
exercise the option before the expiration date and can enter into a definitive
agreement with the company, the option price will be applied to the purchase
price. We will forfeit any cash payments made if we do not elect to exercise
the option or do not enter into a definitive agreement, except as a result of
certain circumstances such as a breach of the option agreement by the company.

Based on our current operating plan, management believes that our net
proceeds from this offering, together with cash on hand, cash equivalents,
short-term investments and commercial credit facilities will be sufficient to
meet our cash requirements for the foreseeable future, including working
capital requirements and planned capital expenditures. We may require
additional funds for other purposes and may seek to raise such additional
funds through public and private equity financings from other sources. There
can be no assurance that additional financing will be available at all or
that, if available, such financing will be obtainable on terms favorable to us
or that any additional financing will not be dilutive.

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<PAGE>

Recent Accounting Pronouncements

In December 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 98-9, Software Revenue Recognition, which amends SOP 97-2 and SOP 98-
4. We are required to adopt SOP 98-9 in the year ended December 31, 2000. We
do not expect such adoption will have a significant effect on our results of
operations.

In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. We adopted
SOP 98-1 effective January 1, 1999. Such adoption did not have a significant
effect on our results of operations.

In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities. In June
1999, the FASB issued Statement of Financial Accounting Standards No. 137,
Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133, which defers for one year the
effective date of Statement 133. As a result of the deferral provisions of
Statement 137, Statement 133 is now effective for our fiscal year 2001. We do
not anticipate that the adoption of Statement 133 will have a significant
effect on our results of operations or financial position because of our
minimal use of derivatives.

Year 2000 Compliance

We have conducted a Year 2000 readiness review for the current versions of
our products. The review included assessment and implementation, which
includes remediation, upgrading and replacement of certain product versions,
as well as validation testing, and contingency planning. We continue to
respond to client questions about prior versions of our products on a case-by-
case basis.

We have completed all phases of our plan, except for contingency planning,
with respect to the current versions of all of our products. As a result, the
current versions of each of our products are "Year 2000 Compliant," as defined
below, when configured and used in accordance with the related documentation,
and provided that the underlying operating system of the host machine and any
other software used with or in the host machine or our products are also Year
2000 Compliant. The initial release of StoryServer 4 required a patch to fix a
minor error in a third-party product included in StoryServer 4. We have
provided the patch on our Web site in order to be Year 2000 Compliant.

We have defined "Year 2000 Compliant" as the ability to:

. correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;

. function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;

. where appropriate, respond to two-digit date input in a way that
resolves the ambiguity as to century in a disclosed, defined, and
predetermined manner;

. if the date elements in interfaces and data storage specify the century,
store and provide output of date information in ways that are
unambiguous as to century; and

. recognize year 2000 as a leap year.

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<PAGE>

We have tested software obtained from third parties (licensed software,
shareware, and freeware) that is incorporated into our products, and are
seeking assurances from our vendors that licensed software is Year 2000
Compliant. To date, we believe all critical software that we have obtained
from third parties is Year 2000 Compliant. Despite testing by us and by
current and potential clients, and assurances from developers of products
incorporated into our products, our products may contain undetected errors or
defects associated with Year 2000 date functions. Known or unknown errors or
defects in our products could result in delay or loss of revenue, diversion of
development resources, damage to our reputation, or increased service and
warranty costs, any of which could materially adversely affect our business,
operating results, or financial condition. Some commentators have predicted
significant litigation regarding Year 2000 compliance issues, and we are aware
of such lawsuits against other software vendors. Because of the unprecedented
nature of such litigation, it is uncertain whether or to what extent we may be
affected by it.

Vignette's internal systems include both our information technology, or IT,
and non-IT systems. We obtained a third-party consulting group to provide an
assessment of our material internal IT systems, including both our own
software products and third-party software and hardware technology, and our
non-IT systems. The completion of testing yielded no significant exceptions
for our critical internal systems to be Year 2000 Compliant. To the extent
that we were not able to test the technology provided by third-party vendors,
we are seeking assurances from such vendors that their systems are Year 2000
Compliant. Although we are not currently aware of any material operational
issues or costs associated with preparing our internal IT and non-IT systems
for the Year 2000, we may experience material unanticipated problems and costs
caused by undetected errors or defects in the technology used in our internal
IT and non-IT systems.

We do not currently have any information concerning the Year 2000 compliance
status of our clients. Our current and potential clients may incur significant
expenses to achieve Year 2000 compliance. If our clients are not Year 2000
compliant, they may experience material costs to remedy problems, or they may
face litigation costs. In either case, Year 2000 issues could reduce or
eliminate budgets that current or potential clients could have for purchases
of our products and services. As a result, our business, results of operations
or financial condition could be materially adversely affected.

We have funded our Year 2000 plan from available cash and have not
separately accounted for these costs in the past. To date, these costs have
not been material. We will incur additional costs related to the Year 2000
plan for administrative personnel to manage the project, outside contractor
assistance, technical support for our products, product engineering and
customer satisfaction. We may experience material problems and costs with Year
2000 compliance that could adversely affect our business, results of
operations and financial condition.

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<PAGE>

BUSINESS

Overview

We are a leading global provider of e-Business software products and
services. Our e-Business solutions are designed to enable businesses to build
sustainable online customer relationships, increase the returns on their
Internet-related investments and capitalize on Internet business
opportunities. Our e-Business solutions allow businesses to create and manage
Internet business channels that are designed to attract, engage and retain
online customers. By using Vignette's solutions, our clients can build e-
Business applications that are intended to convert more Web site visitors into
long-term customers and generate opportunities for increased Web-based revenue
and market share. Since shipping our first products in 1997, we have received
numerous awards for our industry leadership and product capabilities,
including the Crossroads A-list Award and Red Herring Magazine's Top 50 Public
Companies and Best Product Award.

Our StoryServer 4 application platform incorporates an enterprise-class
architecture and leading-edge Internet technology that enables companies to
develop, deploy and manage advanced online businesses that increase Internet-
based revenue opportunities and permit superior relationship management on the
Web. Through the integration of advanced content management, lifecycle
personalization and decision support tools, StoryServer 4 allows our clients
to engage their Web site visitors with personalized interactions that provide
value and convenience to stimulate buying and ongoing customer loyalty. We
also provide a set of tools built for the StoryServer 4 platform that enables
both business and technical managers to interact with customers through the
Web site and efficiently control the operation of the site.

We have further enhanced our solution set with two platforms designed to
offer additional functionality to our clients, Vignette Syndication Server and
Vignette Multi-Channel Server. Vignette Syndication Server enables businesses
to build and manage value-added distribution networks whereby a company can
distribute its electronic goods and services outside of its own Web site
through a network of reseller, affiliate, and partner Web sites, or its
"Customer Chain." These super-distribution capabilities have enabled our
clients to extend their online reach and increase Web-based revenue
opportunities. Vignette Multi-Channel Server, formally announced in July 1999
and expected to be shipped in the first half of 2000, will expand these
opportunities by furthering the ability of businesses to communicate with
their online customers using multiple media, including telephone, pager, e-
mail, fax, Web, wireless, network printer, or mail. By providing this
additional level of customer service, our clients will be able to increase
customer satisfaction and loyalty.

We complement our products with a professional services organization that
offers a range of services including strategic planning, project management
and implementation. We designed these services to improve our clients'
competitive position, shorten time-to-market and reduce project implementation
risk. We believe that our ability to successfully deliver an integrated
solution to our clients provides us with a significant competitive advantage
in the market for e-Business software products and services.

We market our products and services globally through our direct sales force,
resellers and systems integrators to businesses seeking to enhance the value
of their Web-based relationships, maximize the return on their Internet-
related investments and capitalize on the substantial growth of the Internet
as a new marketing and distribution channel. We also leverage strategic
alliances with a number of technology and Internet organizations to increase
the penetration and market acceptance of our e-Business software and
professional services. To date, we have licensed the StoryServer platform to
more than 390 clients worldwide in a variety of industries including retail,
financial services, telecommunications, technology, media and entertainment.
Our clients include American Express, AT&T, Bank One, Charles Schwab and
Company, Chicago Tribune, Lands' End, Merrill Lynch, National Semiconductor,
Nokia, Preview Travel, Siebel Systems, Snap.com, StarMedia Network, Sun
Microsystems and TheStreet.com.

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<PAGE>

Industry Background

The emergence and acceptance of the Internet and the World Wide Web has
fundamentally changed the way that consumers and businesses communicate,
obtain information, purchase goods and transact business. International Data
Corporation, or IDC, estimates that the number of Internet users worldwide
will grow from approximately 142 million in 1998 to 502 million in 2003. IDC
also estimates that revenue generated from Internet commerce will exceed $1.3
trillion by 2003. As the Internet has become more accessible, functional and
widely used, it has emerged as a primary business channel alongside the
telephone, paper-based communication and face-to-face interaction. Businesses
are increasingly using the Web as both a marketing tool and distribution
channel to communicate and conduct business with partners, customers and
employees.

Origins of Online Business

The growth in the number of Internet users, as well as the open nature of
the Internet, has led many businesses to seek new ways to take advantage of
this global platform. The earliest business use of the Internet was the
creation of informational Web sites, which typically involved merely
reformatting existing marketing materials to create an online brochure. This
simple use of the Internet to present static information was quickly
supplanted by the first generation of electronic commerce businesses. The
introduction of new technology enabled businesses to create Web sites for
online publishing, which were financed by advertising, and electronic catalog
businesses where hard goods such as books or computers could be sold. These
Internet businesses focused on developing a basic advertising and transaction
infrastructure rather than capitalizing on the unique aspects of Internet
commerce. In addition, these first generation online businesses were based on
traditional, physical world business models and were differentiated only by
wider selection and lower prices. Success for these businesses was measured by
the total amount of Web site traffic.

Advertising-based and transaction-based Internet business models have been
successful in generating online transactions. However, as the number of
companies attempting to conduct business online has increased, the Web has
become a highly competitive business environment in which customers have a
large number of easily accessible choices, eroding customer loyalty. As a
result, it is becoming increasingly difficult for businesses on the Internet
to reach their target audiences, build customer loyalty and differentiate
themselves from their competitors using business strategies taken from the
physical world. Consequently, online businesses are finding it increasingly
expensive to locate and attract the right types of Web site visitors and
increasingly difficult to convert these visitors into profitable and long-term
customers.

Evolution of Online Business

As the next generation of online business models evolve, companies are
changing the ways they measure their success online. Both advertising-based
and transaction-based businesses have begun to use the percentage of Web site
visitors that actually convert from browsing a site to transacting business,
or the conversion rate, as the key gauge of their effectiveness in attracting
and retaining loyal customers out of their total Web site visitor population.
According to Forrester Research, the estimated average conversion rate for
first-time visitors to an electronic commerce Web site is 2.7%, a rate similar
to unsolicited direct mailings. To address this problem, businesses are
beginning to focus their strategies on increasing online conversion rates by
more effectively engaging a new type of "connected customer." Connected
customers are individuals who place more value on information convenience,
online advisory services and improved access to products and services, than on
price and physical geographic location.

To capture the connected customer, businesses must focus on developing and
executing a new set of online strategies to build long-term customer
relationships and strengthen customer loyalty. To attract connected customers,
businesses must provide users with more relevant and targeted experiences each
time they interact with the company online. To achieve this objective,
businesses must provide potential customers with greater information
convenience, online advisory services and improved access to products and
services.

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<PAGE>

For the connected customer, information convenience means having all of the
data necessary to make a decision at one Web site. As a result, businesses are
finding it necessary to broaden their Web offerings beyond their own products
and services. Many online businesses are acquiring rich, third-party content
and product lines that allow them to deliver highly interactive, topical
portals that provide the convenience of one-stop shopping. For example, an
online stock brokerage firm might license daily industry news, company
analyses, and financial planning articles to provide their customers with a
complete set of financial management information on a single Web site.

Increasingly, businesses must also offer online advisory services to provide
the expertise the customer needs to make an informed purchasing decision. For
example, an online travel agency might add advisory services that help
vacation travelers perform extensive pre-purchase research on their favorite
destinations. Through highly personalized services based on the collection and
analysis of customer profiles, businesses can enhance the lifetime value of
each customer, increase customer switching costs and create strong competitive
barriers.

Businesses also are extending their online reach to engage potential
customers in more online locations than just their own Web sites. To increase
Web-based revenues, businesses need to maximize not only the number of
visitors and customers coming to their own Web sites, but also their total
online reach across their entire Customer Chain. For example, a business that
sells books online needs to reach not only the buyers that come to its own Web
site, but also visitors to other book-related sites, such as locations
dedicated to authors, book reviews and literature. In effect, it is as
necessary for businesses to create broad distribution and reseller
relationships online as it is in the physical world in order to have as many
points of contact with the customer as possible. The creation of such a super-
distribution model forms an instantaneous, worldwide distribution system. The
Internet has made it possible for all companies to have a worldwide online
distribution system, a system that was previously available only to large
companies that could afford to build out such a network in the physical world.

Need for Comprehensive e-Business Solutions

As online business models evolve and the amount of business transacted on
the Web increases, enterprises are seeking new e-Business solutions that will
enable them to develop, maintain and leverage relationships with customers and
affiliates. Much as companies adopted Enterprise Resource Planning software in
the late-1980s to manage back-office operations and Sales Force Automation
software in the mid-1990s to manage front-office operations, many businesses
are now searching for e-Business solutions to help them manage their online
customer relationships. Businesses realize that e-Business solutions, like
other enterprise solutions, are mission-critical and pose significant
technological challenges that require large resource commitments. For example,
early adopters of e-Business strategies, such as Amazon.com, built in-house
solutions that required significant custom development, evaluation,
implementation and integration of disparate technologies and platforms.
Companies building these solutions internally face long development cycles,
high ongoing maintenance costs, and limited functionality and scalability.

Accelerated adoption of the Internet as a business channel is driving
businesses to seek enterprise software providers that have the expertise to
deliver solutions that minimize their time to market and maximize the value of
their Internet investment. To date, software providers have focused on
developing applications that managed discrete portions of a comprehensive e-
Business solutions, such as transaction management, catalog tools,
collaborative filtering/personalization, authoring, site management and
application development. Today, however, businesses are increasingly demanding
an integrated package of platforms, tools and applications that address all
aspects of e-Business, rather than point products and toolkits. A fully
integrated e-Business solution must include the ability to attract, engage and
retain customers and understand their needs and preferences via a direct
relationship through a company's Web site. This solution also must enable
companies to create and manage Customer Chains, value-added distribution
networks whereby a company can distribute its electronic goods and services
outside of its own Web site through a network of reseller, affiliate and
partner Web sites. These solutions must be able to transcend the traditional
boundaries of the Internet as an information delivery

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<PAGE>

mechanism. These requirements demand an e-Business solution that supports
advanced content management and syndication, personalization and decision
support capabilities.

The Vignette Solution

We are a leading global provider of e-Business software products and
services specifically designed to enable businesses to enhance the value of
their Web-based relationships, maximize the return on their Internet-related
investments and capitalize on the substantial growth of the Internet as a new
business channel. Our e-Business solutions enable businesses to create and
manage Internet business channels that are designed to attract, engage and
retain online customers. We believe our solutions allow our clients to
increase their online effectiveness and improve customer conversion rates,
resulting in opportunities for greater Web-based revenues and market share.
Our integrated solution set includes an enterprise-class Internet application
platform, as well as a set of tools for business and technical managers to
interact with customers through the Web site and control its operation.

We have extended our application platform with Vignette Syndication Server
and with the introduction of Vignette Multi-Channel Server, expected to be
shipped in the first half of 2000. Vignette Syndication Server enables our
clients to create and manage Customer Chains. Vignette Multi-Channel Server is
designed to enable businesses to personalize and automate communication with
their online customers using multiple media, including telephone, pager, e-
mail, fax, Web, wireless, network printer, or mail. We are focused on
continuing to develop and extend our product and service offerings to provide
our clients with a comprehensive means for building, managing and delivering
sophisticated e-Business applications, thereby increasing our clients' return
on their Internet investments.

We believe our comprehensive, integrated e-Business solutions represent a
fundamentally new approach to doing business on the Internet and provide our
clients with the following benefits:

Higher Customer Conversion and Retention Rates. Our products and services
enable our clients to use the Internet as a channel to build profitable, long-
term customer relationships and to use those relationships to create new
marketing opportunities to drive revenue growth. Businesses that use our
solutions can develop Internet applications that interact, as opposed to
solely transact, with Web visitors. For instance, our e-Business software
platform incorporates unique lifecycle personalization technology that allows
our clients to create personalized Web experiences that engage visitors and
encourage return visits through tailored, customized interactions. We believe
that these personalized experiences enhance customer loyalty, satisfaction and
retention, resulting in higher conversion rates. By creating Internet
applications that are designed to appeal to new customers and promote long-
term, online customer relationships, businesses are better positioned to
capture increased online revenues.

Increased Revenue Opportunities Through a More Flexible Business Model. Our
solutions are designed to enable our clients to pursue a broad range of
business opportunities that enhance Web-based revenues, such as co-branding,
multiple Web site production and super-distribution. Our clients have obtained
partner license fees in return for co-branding their Web sites with partner
logos, content and navigation. For example, a major portal provider has co-
branded its destination with over 100 Internet service providers, or ISPs,
with each version of the Web site targeted specifically for that ISP's
customer base. In return, this portal receives royalty payments from each ISP
with very little actual cost to produce the branded Web site. Our multiple Web
site production capabilities have enabled a major online news provider to use
a small team to create over 200 online community Web sites that are specific
to urban areas in and around their local community. Each community has its own
Web site that contains local advertising and content. The news provider was
able to generate increased advertising revenue from these localized Web sites.

Rapid Time To Market. Businesses using our solutions can develop e-Business
applications more rapidly than most other third-party or in-house
alternatives. As a result, our solutions permit businesses to expand their
existing online business and enter into new online markets on an accelerated
time frame. Clients benefit from our component-based application architecture
that maximizes content and application reusability and Web site performance.
Many of our clients take an integrated approach to the construction and
delivery of their

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relationship management applications. Our professional services organization
provides these clients with business strategy consulting, project management
and application development implementation. Our integrated approach to
delivering our products and services permits our clients to deploy e-Business
applications quickly and cost-effectively, thereby increasing online revenues
and market share.

Increased Operational Control of Internet Applications at a Lower Effective
Cost. Our e-Business solutions permit clients to manage their Internet
business channels more efficiently and with greater control than most in-house
or other third-party alternatives. Our product features also dramatically
reduce the amount of labor and capital expenditure required to operate and
maintain sites on the Internet. Our solutions incorporate: (a) content
management capabilities designed to increase the efficiency of team-based Web
site production, enhance application developer productivity and reduce
maintenance costs; (b) decision support capabilities that allow businesses to
analyze customer preferences, examine demographic segmentation and determine
the popularity of individual products and services; and (c) a scalable
application server platform that is capable of handling a very large number of
Web site visitors with optimized performance while substantially curtailing
Web server hardware expenditures. Our products and services provide clients
with greater operational control and compelling cost advantages in operating
and maintaining their Web sites, as well as in the cost of customer
acquisition and retention.

Strategy

Our objective is to enhance our position as a leading global provider of e-
Business solutions. To achieve this objective, we have adopted the following
strategies:

Maintain Leadership in the e-Business Solutions Market. Our industry-leading
solutions for e-Business applications enable enterprises to build and rapidly
deploy effective online businesses. Our StoryServer 4 application platform
allows businesses to maximize their online potential by offering relevant
products and services to the appropriate customer audience, thereby increasing
customer conversion rates and strengthening customer loyalty. Our Vignette
Syndication Server offers a platform for creating a new category of easily-
deployed, enterprise applications that will enable businesses of any size to
achieve instantaneous, online distribution of their products and services
across an extensive network of reseller, affiliate and partner Web sites. With
our recently announced Vignette Multi-Channel Server, we will offer a platform
for creating automated and personalized customer communication using multiple
media. We intend to maintain our leadership position by developing new e-
Business software products and services that will help businesses generate new
online revenue opportunities.

Expand Sales Channels to Drive Market Penetration. We are working to
increase customer adoption of our solutions by expanding our direct sales
operations and our indirect sales channels through additional relationships
and strategic alliances with key systems integrators, value-added resellers,
or VARs, and original equipment manufacturers, or OEMs. We believe that by
establishing these relationships with key e-commerce partners, we can target a
broader client base and help our clients more rapidly deploy powerful
e-Business applications.

Expand International Presence. We believe that there will be significant
international opportunities for our products and services and that we will
continue to expand our global marketing and distribution efforts to address
the range of markets and applications for our e-Business solutions. We plan to
continue aggressive expansion of our international presence by adding direct
sales personnel and increasing our indirect sales channels to fully capitalize
on international market opportunities. We have opened sales offices in
Hamburg, Germany; London, England; Paris, France; Singapore; and in Melbourne
and Sydney, Australia and intend to continue our expansion throughout Europe,
Asia and those regions where businesses and other institutional clients are
using distributed networks and the Internet to create sales opportunities.

Leverage Professional Services Capabilities. We have established successful
relationships with our clients by serving as an advisor in developing and
deploying e-Business applications. We are extending our direct

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professional services capabilities to provide an expanded set of services to
address such areas as online business strategy, project management and
application development. In addition, we offer similar high-quality
professional services capabilities through third-party alliances and are
currently focused on the development of relationships with VARs and
Global/National systems integrators. By offering our clients a full range of
professional services on a global basis, we believe we can broaden market
awareness about the advantages of our e-Business solutions and create
opportunities to sell new or enhanced products to clients.

Products

Our integrated solution set includes an enterprise-class Internet
application platform, tools for both business and technical managers to
interact with customers through the Web site, our Vignette Syndication Server
that is designed to enable businesses to create and manage Customer Chains and
our recently announced Vignette Multi-Channel Server that is designed to
enable businesses to personalize and automate customer communication using
multiple media. The following table summarizes our current and future
products:

<TABLE>
<CAPTION>
Category Features Shipment Dates
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Platforms
. StoryServer 4 Designed to develop and manage e-Business Available July 1998.
applications. Runs on Sun Solaris or First version of
Windows NT servers and supports Oracle, StoryServer shipped in
Sybase and Microsoft SQL databases. January 1997.
. Vignette Syndication Designed to enable businesses to create and First version shipped in
Server manage Customer Chains - the distribution February 1999.
and resale of online products and services
through reseller, affiliate and partner Web
sites.
. Vignette Multi-Channel Designed to enable businesses to Anticipated first half of
Server personalize and automate communication with 2000.
their online customers using multiple
media, including telephone, pager, e-mail,
fax, Web, wireless, network printer, or
mail.
Tools
. Production Center Designed for team-based project and content Shipped with StoryServer
management. Allows authors, managers, 4 in July 1998. First
editors, designers, developers and business version shipped in
to work collaboratively in the production September 1997.
of their e-Business applications.
. Business Center Enables business managers to analyze and
report on Web site visitor demographics and Shipped with StoryServer
behavior data. 4 in July 1998.
. Development Center A visual development tool designed to Shipped with StoryServer
reduce the time to deploy critical Web 4 in April 1999.
business applications by simplifying
programming and permitting a wider range of
users to develop e-Business applications.
</TABLE>

Platforms

StoryServer 4. StoryServer 4 is an e-Business software platform that enables
our clients to create and manage customer relationships online. StoryServer 4
incorporates three key capabilities: advanced content management, lifecycle
personalization and decision support. StoryServer 4 enables businesses to
create and manage mission critical Internet applications that attract, engage
and retain online customers. We believe that StoryServer 4 increases Web site
visitor conversion rates and strengthens customer loyalty, resulting in higher
Web-based revenues for our clients.

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Vignette Syndication Server. Vignette Syndication Server is designed to
enable businesses to create and manage integrated Customer Chains. Vignette
Syndication Server operates on the same platforms as StoryServer 4 and
requires StoryServer 4 to syndicate content but not to receive content.

Vignette Multi-Channel Server. In July 1999 in connection with our
acquisition of Diffusion, Inc., a leader in multi-channel information delivery
solutions, we announced the development of Vignette Multi-Channel Server. We
plan to ship this product in the first half of 2000. Vignette Multi-Channel
Server is designed to enable businesses to personalize and automate customer
communication using multiple media.

Tools

Production Center. Production Center provides an environment for team-based
project and content management by centralizing the elements of content
application development and deployment. This tool allows authors, editors,
designers, developers and business managers to work collaboratively. With
Production Center, each type of user involved in content development and
deployment is dedicated a different area of the desktop application.

Business Center. Business Center enables business managers to analyze and
report on visitor demographic and behavior data collected by StoryServer 4.
This tool allows business managers to gain an in-depth understanding of the
needs and preferences of their Web site visitors and customers. With this
knowledge, managers can improve the design of and visitor interaction with the
Web site, thereby increasing conversion rates and revenues.

Development Center. Development Center is a visual environment for building
Internet applications. Development Center is designed to reduce the time to
deploy e-Business applications by simplifying programming and permitting a
wider range of users to develop e-Business applications.

Vignette Professional Services

The Vignette Professional Services, or VPS, organization is integral to our
ability to provide our clients with an innovative and comprehensive e-Business
solution. VPS has over 200 staff years of combined software project management
experience. VPS helps clients plan, design and rapidly implement successful
Internet businesses with innovative e-Business applications. VPS focuses its
consulting services on influencing the client's ability to understand and
build online relationships with their customers. The goals of the VPS
organization are to mitigate client implementation risks, improve the time to
market and integrity of the solution and provide competitive advantages to and
share best practices with client project teams. We charge for our services on
either a time and materials basis or on a fixed fee basis, and provide our
services through our VPS practices in San Francisco, California; Austin,
Texas; Boston, Massachusetts; New York, New York; Chicago, Illinois; Atlanta,
Georgia; Bellevue, Washington; Denver, Colorado; London, England; Hamburg,
Germany; Singapore; and Sydney, Australia.

We currently offer our customers a broad spectrum of services across the
design, implementation and ongoing support stages of an e-Business solution
deployment including the following:

. strategic business consultation;

. needs analysis;

. architectural analysis and performance planning;

. project management;

. technical site design;

. development and deployment;

. software integration; and

. client education and training.

In the design stage, VPS provides a variety of services that help ensure
that the client and VPS understand the client's business objectives and
determine the technical requirements of the e-Business solution

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implementation. In the implementation stage, we utilize our Site Development
Methodology to ensure that the project is well managed. At this stage, VPS's
extensive experience with Web site design reduces technical project risk and
ensures proper integration of any third-party software. Finally, VPS offers
comprehensive basic and advanced education and training to enable a client's
internal team to seamlessly assume control over ongoing support of the Web
site.

The following graphic depicts the services that we provide during the three
stages of a system deployment:

[GRAPHIC APPEARS HERE]

We have established complementary relationships with several service partners
including Agency.com, Andersen Consulting, Cambridge Technology Partners, CSC
Consulting, debis Systemhaus, IBM, KPMG, Oracle, Perficient,
PricewaterhouseCoopers, Sapient, Scient, Viant Corporation and Web Connections,
as well as a number of leading graphic design firms and other business
integrators. These partners provide VPS with a substantial network of
expertise, as well as the ability to lead large and complex projects and
deliver a complete solution.

Clients

To date, we have licensed versions of our products to over 390 clients. Our
clients represent a broad spectrum of enterprises within diverse sectors,
including financial services, health, education and government, media, retail,
services, technology, telecommunications and entertainment.

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The following is a partial list of our clients that have purchased licenses
and/or services from us and that we believe are representative of our overall
client base.
Financial Services
Allianz
American Express
Bank One
Baan
Ceridian
Charles Schwab and Company
Chase Manhattan Bank
CheckFree
Citicorp
Egg Financial Services
First Chicago
First Union National
Interactive Investor International
Massachusetts Mutual Life Insurance
Company
Merrill Lynch
Morningstar
The Mutual Life Insurance Company of
New York
NASD
New York Life Insurance Company
PaineWebber
PeoplesBank
Postbank
PricewaterhouseCoopers
RBC Dominion (Royal Bank of Canada)
TheStreet.com
Zacks

Health, Education, and Government
American Medical Association
Asymetrix
City of San Carlos
Columbia University
The Family Education Co.
HealthPartners, Inc.
Kaplan Education Centers
Lifescape.com
National Cancer Institute
United Healthcare Services
USDA Graduate School

Media
Bertelsmann
The Bureau of National Affairs
CBS Broadcasting
CBS Sportsline
Chicago Tribune
City Online BV
CNET
Deseret News Publishing
Direct Medical Knowledge
E! Online
EHow, Inc.
Electronic Newsstand
Encyclopaedia Britannica
The E.W. Scripps, Co.
The Guardian
The Houston Chronicle
IDG Corporation
The Industry Standard
iVillage, Inc.
La Republica
Lycos
Mecklermedia Corporation
On Health Networks
Orlando Sentinel
Playboy Enterprises
Que Pasa.com
Road Runner Group
R.R. Donnelley & Sons
The Seattle Times
Simon & Schuster
Spiegel Online
StarMedia Network
Time Inc. New Media
Tribune Media Services
World Media Online
Ziff Davis Publishing

Retail
Amway Corporation
Beyond.com
Bookcraft
Brain.com
BuyDirect, Inc.
Checkout.com
Holiday Channel Santa.com
Inc.com
Lands' End
Living.com
Oakley
Stationary Office
Wherehouse Entertainment
Whole Foods

Services
American Business Information
Atevo
Browning-Ferris Services

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Daimler Chrysler
Deutsche Post
DHL Worldwide Express
EDS
FedEx
Forrester Research
Hoover's
Intelliquest
Lufthansa Executive Network
PECO Energy
Preview Travel
Shell
The Trip.com
Volvo

Technology
Advanced Micro Devices
Bay Networks
Cendant Software Online Services
Compaq Computer Corporation
Emprise Corporation
Excite, Inc.
Headland Digital Media
Hewlett-Packard
I3S
Ingram Micro, Inc.
Juniper Networks
Motorola
National Semiconductor
Sabre Technology
Seagate Technology
Siebel Systems
Siemens Business Communication
Systems
Sun Microsystems
Sybase
Tpuppy.com
Vantive
Xircom

Telecommunications
Ameritech
AT&T
British Telecom
Interpath
Nokia
Sonera
Sprint Corp.
Telstra
US West

Entertainment
Cablevision (CSC Holdings)
Children's Television Network
Hollywood Online
LAUNCH Media
Turner Entertainment Group

Case Studies

The following case studies illustrate the issues faced by three
representative clients in deploying e-Business applications, and the benefits
derived from developing and deploying these applications using StoryServer.

Online Travel Services Company

A highly successful online travel services company selling an increasingly
commoditized product faced intense competition from two large online
competitors. The firm elected to focus its business on vacation travelers who
make highly considered purchases and need value-added travel planning
assistance before making purchasing decisions. To increase its revenue targets
and customer conversion rates, the firm needed an e-Business solution that
delivered interactive travel planning assistance to facilitate vacation
purchases through its Web site. Such a system would have to handle a multi-
million member customer base and support tens of thousands of personalized
visitor sessions each day. In addition, to meet the firm's application goals,
the system also would have to automatically integrate a series of travel-
related resources licensed and syndicated from other Web sites, and integrate
this content within the firm's travel planning application. An internally
built system would have been too expensive, and most packaged solutions did
not provide an application architecture that would accommodate the necessary
content flexibility or deliver adequate system performance.

The travel services firm deployed StoryServer and worked with VPS to launch
a major new version of their Web site in less than six months. The firm was
first to market with a Web-based vacation travel planning service that
integrated syndicated travel guide content and delivered it as an integral
part of their e-Business applications. The firm was immediately able to
process significantly more visitor sessions because Web server utilization
dropped from 90% to 10%. By reducing Web server utilization, the firm was able
to delay significant planned hardware expenditures. StoryServer also enabled
the firm to reduce its time to deployment for new versions of

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the travel planning application, creating significant advantages over its
online competitors. The firm's marketing staff is now considering additional
syndication arrangements to further increase the customer value of the travel
planning application. StoryServer provided the company with an e-Business
solution that significantly increased its customer conversion rates.

Financial Services Company

A major retail banking company planned an extensive Internet banking
initiative in which the Internet would become a primary business channel for
its retail customers. The bank's existing Web site was a simple system that
allowed customers to check account balances and read information about its
banking products. The bank needed to position the new version of its Web site
as a daily financial gateway that would assist customers with loan selection,
college planning, house purchases and managing personal stock portfolios. The
problem was that the bank's existing Web systems were designed as either a
means of delivering simple brochure content, or as Web-enabled front ends on
top of its proprietary transaction systems. Neither of these systems by
themselves could create an integrated advisory experience that would
reasonably engage clients on a daily basis and allow the bank to better retain
customers. The bank's new Web-based business required an Internet application
platform that could deliver a set of highly interactive, content-rich
applications to a large, diverse population of customers, and be managed on a
real-time basis by the bank's marketing managers. The bank knew that its
competitors were working on a similar project, and that time to market was
critical in order to increase market share and establish itself as an Internet
banking leader.

The bank selected Vignette's StoryServer product as the strategic technology
platform for the future of its relationship-based banking business on the Web.
By engaging VPS, the bank was able to meet its application functional
requirements and launch dates, going online within months of its investment in
the Vignette solution. The bank's new Web site delivers a broad personal
banking experience, offering planning tools for products and services ranging
from money management to auto loans to insurance, as well as an individual
investor portfolio management system. In addition, the Web site delivers a
news and research section that syndicates daily investor information from the
Dow Jones news service. The success of this venture recently resulted in the
bank's new parent deciding to invest in another deployment of StoryServer for
its next generation retail banking Web site due to be launched early next
year.

Worldwide Provider of News and Information

A major news and information publishing company planned on entering the
online regional communities business to compete with CitySearch and
Microsoft's Sidewalk. The company's business plan called for a major regional
Web site accompanied by up to 250 local community Web sites targeted to reach
the local online communities. Existing technologies made delivering multiple
online communities cost-prohibitive because the cost of producing and managing
each new Web site outweighed the revenue potential. The company needed a
platform that would enable it to rapidly and cost-effectively deliver new
online services across dozens of regional Web sites, target local businesses
as advertisers and let local community leaders as well as staff editors
produce editorial content while controlling the overall production of each
property at a central location. Likewise, the development team needed a highly
scalable application architecture that would allow new online properties to be
designed and deployed using reusable applications and content yet allow each
online community Web site to uniquely interact with its visitors on topics of
local interest.

The client chose Vignette because StoryServer offered a complete end-to-end
solution for hosting multiple Web sites from a single platform and content
base, and automating content management so that the control over the
production of each property was centralized. Using StoryServer, the company
was able to build a broad base of advertising slots and maximize the revenue
potential of each Web site without the expense of running each property
individually. The production team now produces enhanced application
functionality from a central location for the various Web sites. At the same
time, community leaders retain control over their own presentation, navigation
and content. As a result, the company has been able to increase its market
share position for interactive community Web sites in its regions. It has
rapidly deployed dozens of local properties, and

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established a fixed-cost business model that limits the growth in developer,
producer and editor headcount required to support the opportunity.

Technology

We believe our advanced technology enables our clients, partners and
consultants to build, deliver and manage enterprise-class e-Business
applications in less time, at lower cost and with better business results than
existing alternatives.

Product Architecture

We believe that we have developed a unique architecture for meeting the
technical demands of applications designed for e-Business. By emphasizing an
application architecture based on content management, a lifecycle
personalization model that effectively accommodates both Web customer
acquisition and retention, and a patented design for scalable and high-
performance Web page delivery, the Vignette solution provides an efficient
architecture for clients to build and deploy scalable e-Business applications
quickly and cost-effectively. We believe that this architecture also provides
a strong foundation on which we can develop future products.

Content Management. We have developed proprietary content management
technology designed to manage the high volume of dynamic interactions that
occur between many concurrent Web site visitors and the relationship
management application. The content management system provides three key
functions:

. Content Abstraction Services. Allow application developers to build and
deploy applications that can access and manage any type of content, such
as relational data, flat files, or XML (Extensible Markup Language) data
through a single Application Programming Interface, or API, model. This
simplifies application development and significantly reduces time-to-
deployment by uncoupling decisions about storage repositories and data
formats from application logic and protects existing database repository
investments. Our Development Center tool, a visual data modeling and
drag-and-drop application builder tool, takes further advantage of these
content abstraction services.

. Automated Asset Management. Provides a broad set of functionality for
managing and automating most tasks associated with managing content
assets, including production team access control, asset-specific
workflow, version control, launch and expiration scheduling, and visual
project management.

. Content Components. Greatly enhance the template-based approach to
Internet application development. Components allow Internet applications
to be built and operated in an object-oriented fashion, with components
serving as the building blocks for dynamic assembly and adaptive
navigation. Unlike other products that require complex programming to
support interactivity, StoryServer 4 provides native support for
interactive content components. This approach eliminates the problem of
inflexible application structures associated with existing template-
based dynamic architectures.

Lifecycle Personalization. Our lifecycle personalization services are
designed to help clients substantially increase their conversion rates and
increase the lifetime value of the typical online customer by managing
relationships through their complete lifecycle. These services, which are
described below, enable clients to personalize Web experiences by adapting the
site's presentation, navigation and content based on implicitly observed
behavior and explicitly stated preferences as the relationship evolves over a
number of interactions from anonymous visitor to well-known customer. We
believe that our approach requires less time and effort to deploy and
maintain, and requires substantially less investment in Web server hardware
than competing alternatives.

Our lifecycle personalization tools consist of five primary components,
which when utilized in combination with content management functions, enable
clients and partners to develop applications that are effective for both
online customer acquisition and customer retention.

. Presentation Agent for System Targeting. Automatically adapts the
application's presentation to accommodate a new, anonymous visitor's
environment to present content that is suited to the visitor's browser
capabilities, operating system, and local language.

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. Matching Agent for Behavior Targeting. As a new visitor becomes familiar
with the site, the Matching Agent uses observations about a visitor's
behavior on the Web site to infer the visitor's interest and to adapt
navigation and content to observed affinities. With the Matching Agent,
businesses can implement targeted merchandising over the Web without
requiring visitors to explicitly divulge information about themselves.

. Recommendation Agent for Needs Targeting. The Recommendation Agent is
utilized when visitors become sufficiently familiar with the site to
facilitate targeted suggestions. The Recommendation Agent recommends
content to a visitor that others with similar tastes found interesting.

. Personal Pages for Customization. Useful at the well-known stage, the
site can offer the capability for visitors to define personal pages that
are explicitly tailored to their needs each time they return to the
site.

. Open Profiling Services. Open Profiling Services manage and populate a
centralized repository of visitor profile and content information. This
feature provides a visitor registry for storing visitor information, a
content catalog for creating taxonomy of content on the Web site for use
in personalization, and an Observation Manager that observes, tracks and
records visitor behavior and preferences without impacting site
performance.

Syndication Services. The Vignette Syndication Server utilizes a proprietary
set of technologies that allows customers to build online reseller channels
through affiliate Web sites. Vignette Syndication Server allows the creation
of these channels by using a logical set of content, or packages, business
rules for governing affiliate relationships, or subscriptions, and automated
remote management services for managing content within affiliate Web sites.
These proprietary services have been based on the emerging Information and
Content Exchange, or ICE, specification standard for content syndication,
which is an XML-based specification being jointly developed by Vignette and
over seventy other companies including Microsoft, Sun Microsystems and Adobe.
None of the companies involved in the development of the ICE specification
have any proprietary rights with respect to the technology. Although there is
no obligation on the part of Vignette, the initial member of the authoring
group, to continue developing ICE for the World Wide Web Consortium, or W3C,
it is Vignette's intention to continue to assist in the development and use of
the ICE protocol. We believe that by fostering the creation and adoption of an
open standard for content syndication, and being the first company to provide
proprietary value-added services in the delivery of a product that embodies
these concepts, we will be able to quickly establish technology leadership in
this arena.

Multi-Channel Services. Vignette Multi-Channel Server is designed to extend
the Web beyond the Web site. It will enhance e-Business applications with the
ability to automatically reach out to the customer via e-mail, pager,
telephones, and other communication media. An open architecture allows dynamic
integration of new communication options, such as wireless Internet cell
phones and palmtop organizers. Patented adapative reasoning technology within
the server extends the Vignette platform with closed loop interaction that can
be tailored based on customer profile as well as target device
characteristics. Communication initiated by the server, as well as responses
by the customer, can be monitored and tracked. Vignette Multi-Channel Server
originated from technology obtained through the acquisition of Diffusion.
Development efforts are currently underway to more fully integrate this
technology into the Vignette platform.

Scalability and Performance

We believe that one of our key technological strengths is StoryServer 4's
ability to deliver industry-leading Web page delivery performance and
scalability while running on low-cost Web server hardware. Internet
applications that are built with competing products that dynamically generate
Web pages can be significantly slower (depending on the server configuration)
than first generation static Web sites. This degrades the overall Web site
experience for the site visitor, lowers the visitor's interest in returning to
the Web site, reduces the client's ability to handle large visitor traffic
volumes, and creates a requirement for the client to significantly increase
Web server capital equipment expenditures.

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StoryServer 4's ability to deliver unique performance characteristics is
achieved using three techniques:

. A patented caching mechanism is integrated with the product's content
component architecture and allows applications to deliver dynamically
generated and personalized Web pages at speeds nearly equivalent to the
performance of static Web page delivery.

. Integration of this patented caching mechanism with our personalization
technologies, so highly personalized Web pages can be delivered without
the cost and real-time delay of significant transactional computation
required by other solutions attempting to offer personalization
capabilities.

. The ability to distribute server-side application components of the
platform product across multiple physical Web servers allows high-end
sites to scale up performance and gain increased system availability as
a result.

Adherence to Industry Standards

We have invested significant resources in developing our architecture to
comply with widely accepted commercial software industry standards for
building large scale Internet applications. Our products use SQL (Structured
Query Language) for accessing RDBMSs (Relational Database Management Systems),
HTTP (Hypertext Transfer Protocol) for Internet access, NSAPI (Netscape
Application Programming Interface) for access to Netscape's Internet servers,
ISAPI (Information Server Application Programming Interface) for access to
Microsoft's Internet servers, and XML for representing and processing content.
Adherence to these industry standards provides compatibility with existing
applications, enables ease of modification and reduces the need for software
to be rewritten, thus protecting the client's investment. Furthermore, our
products can be operated in conjunction with RDBMSs provided by Oracle,
Microsoft or Sybase, utilizing their native, high-performance interfaces.

We have focused our investments in particular on developing our architecture
to comply with XML, a recently approved standard for data representation being
adopted by the industry. Software systems that are XML-compliant provide
customers with the ability to reduce application development time, easily
integrate with legacy enterprise systems, and build applications that span the
business processes of the company, its suppliers, distributors and customers.
We believe that our rapid adoption of XML and our leadership position in
building applications based on XML will allow us to further our technology
leadership as this standard becomes the de facto data representation model for
enterprise applications delivery. Specifically, we first introduced XML
services in the 3.2 release of StoryServer and built our Vignette Syndication
Server on top of an XML-based protocol known as ICE. We continue to invest in
XML technologies and participate as a member of the W3C standards committee,
with representation on the W3C Advisory Committee.

We develop most of our software in Java or C++, two widely accepted standard
programming languages for developing object-oriented applications. We choose
whichever language is best suited to the requirements of a particular
component.

Research and Development

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

The majority of our research and development activity has been directed
towards feature extensions to our family of products. This development
consists primarily of adding new competitive product features and additional
tools and products as we expand into new markets.

Our research and development expenditures, including the write-off of
acquired in-process research and development, for fiscal 1996, 1997 and 1998
and for the nine months ended September 30, 1999 were

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approximately $2.8 million, $2.9 million, $9.1 million and $25.4 million,
respectively. We expect that we will continue to commit significant resources
to research and development in the future. All research and development
expenses have been expensed as incurred. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

The market for our products and services is characterized by rapid
technological change, frequent new product introductions and enhancements,
evolving industry standards, and rapidly changing customer requirements. The
introduction of products incorporating new technologies and the emergence of
new industry standards could render existing products obsolete and
unmarketable. Our future success will depend in part on our ability to
anticipate changes, enhance our current products, develop and introduce new
products that keep pace with technological advancements and address the
increasingly sophisticated needs of our customers. See "Risk Factors--Risks
Related to Our Business--If We are Unable to Meet the Rapid Changes in e-
Business Technology Our Existing Products Could Become Obsolete."

Sales and Marketing

We market our products primarily through our direct sales force and also
intend to expand our indirect sales through additional relationships with
systems integrators, VARs and OEMs. We generate leads from a variety of
sources, including businesses seeking partners to develop interactive
marketing and selling applications. Initial sales activities typically include
a demonstration of our product capabilities followed by one or more detailed
technical reviews. As of September 30, 1999, the direct sales force consisted
of 96 sales executives and support personnel.

We seek to establish partnerships with major industry vendors that will add
value to our products and expand distribution opportunities. We also pursue
marketing agreements with premier content authoring vendors, site usage
analysis vendors and vertically aligned Web server vendors.

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

Strategic Alliances

A critical element of our sales strategy is to establish strategic alliances
to assist us in marketing, selling and developing customer applications, as
well as to increase product interoperability within the industry. This
approach is intended to increase the number of personnel available to perform
application design and development services for our clients and provide
additional marketing expertise and technical expertise in certain vertical
industry segments. These alliances fall into four categories: (a) the
Information & Content Exchange alliance, (b) platform alliances, (c) e-
commerce and technology alliances and (d) design alliances.

Information and Content Exchange Alliance. To facilitate the adoption of
Web-based content syndication technologies in the marketplace, we co-founded
the ICE working group to create an industry-standard protocol for enabling
cross-Website syndication capabilities. In January 1998, we formed the ICE
Authoring Group comprising 12 additional companies: Adobe, CNET, Firefly,
Hollinger International, Microsoft, National Semiconductor, Net Perceptions,
News Internet Services, Preview Travel, Sun Microsystems (JavaSoft), Tribune
Media Services and Ziff Davis. In support of this protocol creation, we have
also co-founded the ICE Advisory Council comprising over 70 companies that
provide input and feedback to the Authoring Group during the creation of the
protocol.

Platform Alliances. To ensure that our products are based on industry
standards and take advantage of current and emerging technologies, we
emphasize strategic platform alliances. The benefits of this approach include
enabling us to focus on our core competencies, reducing time to market and
simplifying the task of

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designing and developing applications by both Vignette and our customers. Key
strategic platform alliances to date have included strategic relationships
with IBM, provider of industry-leading e-Business software; Sun Microsystems,
developer of the Java language; Oracle and Sybase, providers of industry-
standard relational databases; and Hewlett-Packard, a leading Internet server
hardware manufacturer.

e-Commerce and Technology Alliances. To assure that our products are
compatible with the latest e-commerce and technology trends, we have formed
alliances with many of the leading companies serving the Web. Vignette and its
partners exchange marketing and sales information, sales leads, and technology
integration practices. Our e-commerce and technology alliance categories
include: e-commerce transactions; ad management; site traffic management;
multi-lingual site support and translations; personalization; operations
management; security; information architecture and navigation; high value
content loading and maintenance and building online communities.
Representative alliance partners include Vitessa for e-commerce transactions,
BizRate.com for consumer reporting and iSyndicate for Web content syndication.

Design Alliances. Our prospective customers often retain the services of Web
design firms. These companies' primary business is to provide design services
rather than software resale. However, many are regarded as thought leaders in
the field and have influence over technology choices for the customer. We have
established relationships with 36 of these design firms.

Our strategy is to establish additional alliances as new technologies and
standards emerge, although no assurance can be given that we will be
successful in establishing such alliances.

Competition

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

Many of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do and
thus may be able to respond more quickly to new or changing opportunities,
technologies and customer requirements. Also, many current and potential
competitors have wider name recognition and more extensive customer bases that
could be leveraged, thereby gaining market share to our detriment. Such
competitors may be able to undertake more extensive promotional activities,
adopt more aggressive pricing policies, and offer more attractive terms to
purchasers than we can. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or
with third parties to enhance their products. Accordingly, it is possible that
new competitors or alliances among competitors may emerge and rapidly acquire
significant market share.

Such competition could materially and adversely affect our ability to obtain
revenues from either license or service fees from new or existing customers on
terms favorable to us. Further, competitive pressures may require us to reduce
the price of our software. In either case, our business, operating results and
financial condition would be materially and adversely affected. There can be
no assurance that we will be able to compete successfully with existing or new
competitors or that competition will not have a material adverse effect on our
business, financial condition and operating results. See "Risk Factors--Risks
Related to Our Business--We Face Intense Competition for e-Business Software
Which Could Make it Difficult to Acquire and Retain Clients Now and in the
Future."

Proprietary Rights and Licensing

Our success and ability to compete is dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a

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combination of patent, trademark, trade secret, and copyright law and
contractual restrictions to protect the proprietary aspects of our technology.
These legal protections afford only limited protection for our technology. We
presently own two patents and have two patent applications pending in the
United States. We have one registered trademark in the United States, seven
pending trademark applications in the United States, six registered trademarks
in foreign countries, and 38 pending trademark applications in foreign
countries. We seek to protect our source code for our software, documentation
and other written materials under trade secret and copyright laws. We license
our software pursuant to signed license or "shrinkwrap" agreements, which
impose certain restrictions on the licensee's ability to utilize the software.
Finally, we seek to avoid disclosure of our intellectual property by requiring
employees and consultants with access to our proprietary information to
execute confidentiality agreements with us and by restricting access to our
source code. Due to rapid technological change, we believe that factors such
as the technological and creative skills of our personnel, new product
developments and enhancements to existing products are more important than the
various legal protections of our technology to establishing and maintaining a
technology leadership position.

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

To date, we have not been notified that our products infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement with respect to our current or future
products. We expect that developers of Web-based commerce software products
will increasingly be subject to infringement claims as the number of products
and competitors in our industry segment grows and as the functionality of
products in different segments of the software industry increasingly overlaps.
Any such 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."

We integrate third-party software into our products. This third-party
software may not continue to be available on commercially reasonable terms. We
license RSA BSAFE software under a perpetual license agreement for security
functionality in our StoryServer software. We license software from Net
Perceptions for certain personalization functionality in our StoryServer
software. We license the Autonomy KnowledgeBuilder product for the development
of certain concept and keyword search functionality. The agreement expires in
October 2001, but it is renewed automatically for successive one-year terms
unless one party gives six months notice prior to the renewal date. We license
the Vitessa Internet Product Code and related technology for product
identification and related functions in an e-commerce environment. The
agreement continues in force indefinitely, but may be terminated for any
reason upon 90 days notice, provided such termination may not occur before
October 2002. In addition, we license RogueWave Software to provide embedded
low-level C++ utility functions in its software under a perpetual license
agreement accompanied by annual maintenance renewals. If we cannot

48
<PAGE>

maintain licenses to this third-party software, shipments of our products
could be delayed until equivalent software could be developed or licensed and
integrated into our products, which could materially adversely affect our
business, operating results and financial condition.

Employees

As of September 30, 1999, we had a total of 542 employees. Of the total
employees, 136 were in engineering, 169 in sales and marketing, 175 in
professional services and 62 in finance and administration. Our future success
will depend in part on our ability to attract, retain and motivate highly
qualified technical and management personnel, for whom competition is intense.
From time to time we also employ independent contractors to support our
professional services, product development, sales, marketing and business
development organizations. Our employees are not represented by any collective
bargaining unit, and we have never experienced a work stoppage. We believe our
relations with our employees are good.

Properties

Our headquarters are currently located in a leased facility in Austin,
Texas, consisting of approximately 97,000 square feet under a five-year lease
with expansion options. We have also leased offices in Alexandria, Virginia;
Atlanta, Georgia; Bellevue, Washington; Bethesda, Maryland; Boston,
Massachusetts; Chicago, Illinois; Dallas, Texas; Denver, Colorado; Fairfax,
Virginia; Mountain View, California; Newport Beach, California; New York, New
York; Oakbrook, Illinois; Redwood City, California; San Mateo, California;
Valencia, California; Hamburg, Germany; London, England; Paris, France;
Singapore; and Melbourne and Sydney, Australia.

Legal Proceedings

We are not a party to any material legal proceedings.

49
<PAGE>

MANAGEMENT

Executive Officers and Directors

The following table sets forth certain information regarding the executive
officers and directors of Vignette as of October 31, 1999.

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Gregory A. Peters.......... 39 Chief Executive Officer, President, and Director
William R. Daniel.......... 43 Senior Vice President, Products
Joel G. Katz............... 36 Chief Financial Officer and Secretary
Calvin B. Killen........... 48 Senior Vice President, Engineering
Philip C. Powers........... 40 Senior Vice President, Professional Services
Richard L. Schwartz........ 45 Vice President, Emerging Technology
Michael J. Vollman......... 42 Senior Vice President, Sales and Services
Robert E. Davoli(2)........ 51 Director
Joseph A. Marengi.......... 46 Director
Steven G. Papermaster(1)... 41 Director
John D. Thornton(1)(2)..... 34 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2)Member of Compensation Committee

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

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

Joel G. Katz has served as our Chief Financial Officer and Secretary since
April 1999. From December 1990 to April 1999, Mr. Katz served as Chief
Financial Officer and Secretary of Harbinger Corporation, an e-commerce
software and services company. From December 1985 to December 1990, Mr. Katz
held various financial positions at Arthur Andersen, a professional services
organization, where he was a certified public accountant. Mr. Katz received
his Bachelor of Business Administration in Accounting with honors from the
University of Georgia.

Calvin B. Killen has served as our Senior Vice President, Engineering since
August 1999. From 1974 to August 1999, Mr. Killen held various positions at
IBM, most recently as Vice President of Development. Mr. Killen received a
Bachelor of Science in Engineering and a Master of Science in Engineering from
Purdue University.

Philip C. Powers has served as our Senior Vice President, Professional
Services since September 1999 and as our Vice President, Professional Services
from August 1998 to September 1999. From February 1997 to August 1998 he
served as Vice President, Worldwide Professional Services at Tivoli Systems,
Inc., a

50
<PAGE>

client/server software company. From January 1981 to February 1997 he held
several management roles at IBM which most recently included Director of
Worldwide Channel Marketing for IBM's software group and Director of Worldwide
Marketing, LAN systems for IBM's personal software products division. Mr.
Powers received a Bachelor of Arts in Marketing and Business Management from
the University of Dayton.

Richard L. Schwartz has served as our Vice President, Emerging Technology
since July 1999. From October 1995 to June 1999, Mr. Schwartz held several
management roles, which most recently included Chairman and Chief Technology
Officer, at Diffusion, Inc., an Internet-based customer relationship
management company acquired by Vignette. Prior to that, he was Senior Vice
President and Chief Technology Officer of Borland, International. Mr. Schwartz
is co-creator of the Paradox database application, and co-founder of Ansa
Software, acquired by Borland International in 1987. He was a Senior Computer
Scientist at SRI International prior to starting Ansa Software. Mr. Schwartz
holds a Ph.D in Computer Science from the University of California, Los
Angeles.

Michael J. Vollman has served as our Senior Vice President, Sales and
Services since September 1999, our Vice President, North American Sales and
Professional Services from September 1998 to August 1999, and our Vice
President, North American Operations from April 1998 to August 1998. Mr.
Vollman joined Vignette in February 1998 as Vice President, Professional
Services and served in that capacity until April 1998. From February 1997 to
January 1998, Mr. Vollman served as Practice Director within the Central
Region Consulting Business for Oracle Corporation, an enterprise database
company. From June 1985 to January 1997, he served in various account
leadership and business development roles for Electronic Data Systems, an
information technology services company. He received a Bachelor of Science
degree in Computer Science from Lawrence Technological University and a Master
of Business Administration in Marketing from the University of Michigan.

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

Joseph A. Marengi has served as director of Vignette since July 1999. Mr.
Marengi, who is a Senior Vice President with Dell Computer Corporation
reporting to the Office of the Chief Executive Officer, is responsible for the
Dell Americas units serving enterprise, large corporate and medium-sized
business customers. Prior to joining Dell in July 1997, Mr. Marengi worked
with Novell, Inc., most recently serving as President and Chief Operating
Officer. He joined Novell in 1989, beginning as director of the Eastern region
and moving through successive promotions to become executive vice president of
worldwide sales and field operations. Mr. Marengi received a Bachelor of Arts
in Public Administration from the University of Massachusetts, Boston, and a
master's degree in Management from the University of Southern California.

Steven G. Papermaster has served as a director of Vignette since September
1998. Mr. Papermaster has served as the Chairman of Powershift Group, a
technology venture development group, since 1996. Mr. Papermaster was the
Founder, Chairman and Chief Executive Officer of BSG Corporation, a system
integration company, from 1987 to 1996. Mr. Papermaster also founded
Enterprise Technology Institute in 1990. He received his Bachelor of Arts in
Finance from the University of Texas at Austin.

John D. Thornton has served as a director of Vignette since February 1996.
Mr. Thornton is a General Partner of Austin Ventures, a venture capital firm,
where he has been employed since 1991. Mr. Thornton serves as a director of
Garden.com, an e-commerce gardening company and Mission Critical Software, an
enterprise software company, as well as several privately held companies. He
joined Austin Ventures from McKinsey & Co., where he served clients in the
United States and Europe. He received a Bachelor of Arts with honors from
Trinity University and a Master of Business Administration from the Stanford
Graduate School of Business.

51
<PAGE>

Board of Directors

We currently have authorized seven directors. The terms of the office of the
Board of Directors are divided into three classes: Class I, whose term will
expire at the annual meeting of the stockholders to be held in 2000; Class II,
whose term will expire at the annual meeting of stockholders to be held in
2001; and Class III, whose term will expire at the annual meeting of the
stockholders to be held in 2002. The Class I directors are Joseph A. Marengi
and Steven G. Papermaster, the Class II director is Robert E. Davoli, and the
Class III directors are Gregory A. Peters and John D. Thornton. At each annual
meeting of stockholders after the initial classification, the successors to
directors whose term will then expire will be elected to serve from the time
of election and qualification until the third annual meeting following
election. This classification of the Board of Directors may have the effect of
delaying or preventing changes in control or management of Vignette. Each
officer serves at the discretion of the Board of Directors. There are no
family relationships among any of our directors or officers.

Board Committees. The Audit Committee consists of Mr. Papermaster and Mr.
Thornton. The Audit Committee makes recommendations to the Board of Directors
regarding the selection of independent accountants, reviews the results and
scope of audit and other services provided by our independent accountants and
reviews and evaluates our audit and control functions. The Compensation
Committee consists of Mr. Davoli and Mr. Thornton. The Compensation Committee
makes recommendations regarding our stock plans and makes decisions concerning
salaries and incentive compensation for our employees.

Director Compensation. Directors currently do not receive any cash
compensation from Vignette for their services as members of the Board of
Directors, although members are reimbursed for actual and reasonable out of
pocket expenses in connection with attendance at Board of Directors and
Committee meetings. Directors are eligible to participate in our stock plans,
and beginning in 1998, non-employee and employee directors will also be able
to participate in our 1999 Equity Incentive Plan and non-employee directors
will receive periodic option grants under our 1999 Non-Employee Director Stock
Option Plan. In August 1998, Mr. Papermaster was granted an option to purchase
98,372 shares of our common stock at an exercise price of $2.42 per share
subject to a four year vesting schedule in connection with his appointment to
the Board. In August 1999, Mr. Marengi was granted a fully vested option to
purchase 50,000 shares of our common stock at an exercise price of $24.00
under our 1999 Equity Incentive Plan. See "--Employee Benefit Plans."

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee is currently or has been,
at any time since the formation of Vignette, an officer or employee of
Vignette. No member of the Compensation Committee serves as a member of the
Board of Directors or compensation committee of any entity that has one or
more executive officers serving as a member of our Board or Compensation
Committee.

52
<PAGE>

Executive Compensation

The following table sets forth information with respect to compensation for
the fiscal year ended December 31, 1998 paid by us for services by our Chief
Executive Officer and our five other highest-paid executive officers whose
total salary and bonus for such fiscal year exceeded $100,000, collectively
referred to below as the Named Executive Officers:

<TABLE>
<CAPTION>
Long-Term
Compensation
--------------------
Awards
--------------------
Annual Compensation
-------------------- Number of Securities Other
Salary Bonus Underlying Options Compensation(2)
---------- --------- -------------------- ---------------
<S> <C> <C> <C> <C>
Gregory A. Peters....... $ 93,558 $ 18,750 2,336,742 $22,298
President and Chief
Executive Officer(1)

Michael J. Vollman...... 117,404 86,250 769,438 61,304
Senior Vice President,
Sales and Services

Ross B. Garber.......... 130,000 38,844 407,658 227
Former Chairman of the
Board(1)

Neil Webber............. 120,000 23,094 98,372 251
Former Chief Technology
Officer

Sherry A. Atherton...... 124,062 20,000 134,496 263
Former Vice President,
Engineering

Peter T. Klante......... 81,731 17,500 413,580 44,249
Former Vice President,
Marketing
</TABLE>
- --------
(1) Mr. Garber served as Chief Executive Officer of Vignette until June 1998.
Mr. Peters became President and Chief Executive Officer effective June
1998 at an annual salary of $175,000.

(2) Includes cost of term life insurance and relocation expenses. The amount
for Mr. Peters includes $22,067 in relocation expenses. The amount for Mr.
Vollman includes $60,893 in relocation expenses. The amount for Mr. Klante
includes $44,073 in relocation expenses.

53
<PAGE>

Option Grants in Last Fiscal Year

The following table sets forth each grant of stock options during the fiscal
year ended December 31, 1998 to each of the Named Executive Officers. No stock
appreciation rights were granted during such fiscal year.

<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------
Potential
Realizable Value
at Assumed Annual
Percent of Rates of Stock
Number of Total Options Price
Securities Granted to Appreciation for
Underlying Employees in Exercise Option Term(4)
Options Fiscal Price(3) Expiration -----------------
Granted(1) 1998(2) ($/share) Date 5% 10%
---------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gregory A. Peters....... 941,354 8.27% $0.54 5/31/06 $238,723 $571,784
1,395,388 12.26 0.54 5/31/06 353,864 847,566
Michael J. Vollman...... 413,582 3.63 0.11 2/11/06 21,077 50,483
137,860 1.21 0.11 4/20/06 7,026 16,828
119,626 1.05 1.78 8/2/06 101,606 243,364
98,372 0.86 3.18 12/20/06 149,205 357,372
Ross B. Garber.......... 407,658 3.58 0.11 3/31/06 20,775 49,760
Neil Webber............. 98,372 0.86 0.11 3/31/06 5,013 12,008
Sherry A. Atherton...... 134,496 1.18 0.11 4/20/06 6,854 16,417
Peter T. Klante......... 413,580 3.63 0.11 4/20/06 21,077 50,483
</TABLE>
- --------
(1) Each of the options listed in the table is immediately exercisable. The
shares purchasable thereunder are subject to repurchase by Vignette at the
original exercise price paid per share upon the optionee's cessation of
service prior to vesting in such shares. The repurchase right lapses and
the optionee vests as to 25% of the option shares upon completion of one
year of service from the date of grant and the balance in a series of
equal quarterly installments over the next three years of service
thereafter. The option shares will vest upon an acquisition of Vignette by
merger or asset sale, unless our repurchase right with respect to the
unvested option shares is transferred to the acquiring entity. The option
shares will also vest should the optionee's employment or service be
involuntarily terminated within 18 months following an acquisition of
Vignette by merger or asset sale. Each of the options has an eight year
term, subject to earlier termination in the event of the optionee's
cessation of service with Vignette.

(2) Based on options to purchase an aggregate of 11,706,468 shares granted to
our employees under the 1995 Stock Option/Stock Issuance Plan during the
12 months ended December 31, 1998.

(3) The exercise price was equal to the fair market value of our common stock
as valued by the Board of Directors on the date of grant. The exercise
price may be paid in cash, in shares of our common stock valued at fair
market value on the exercise date or through a cashless exercise procedure
involving a same-day sale of the purchased shares. We may also finance the
option exercise by lending the optionee sufficient funds to pay the
exercise price for the purchased shares, together with any federal and
state income tax liability incurred by the optionee in connection with
such exercise.

(4) The potential realizable value is calculated based on the term of the
option at the time of grant (eight years). Stock price appreciation of 5%
and 10% is assumed pursuant to rules promulgated by the Securities and
Exchange Commission and does not represent our prediction of our stock
price performance. The potential realizable values at 5% and 10%
appreciation are calculated by assuming that the exercise price on the
date of grant appreciates at the indicated rate for the entire term of the
option and that the option is exercised at the exercise price and sold on
the last day of its term at the appreciated price.

54
<PAGE>

Option Values

The following table sets forth for each of the Named Executive Officers
options exercised and the number and value of securities underlying
unexercised options that are held by the Named Executive Officers as of
December 31, 1998.

<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Number of December 31, December 31,
Shares 1998(2) 1998(3)
Acquired on Value ---------------- ------------------
Exercise Realized(1) Vested Unvested Vested Unvested
----------- ----------- ------ --------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Gregory A. Peters.. -- -- -- 2,336,742 -- $20,957,913
Michael J. Vollman. 551,442 $95,295 -- 217,998 -- 1,545,674
Ross B. Garber..... 407,658 70,448 -- -- -- --
Neil Webber........ -- -- -- 98,372 -- 924,034
Sherry A. Atherton. 134,496 23,242 -- -- -- --
Peter T. Klante.... 413,580 71,471 -- -- -- --
</TABLE>
- --------
(1) Equal to the fair market value of the purchased shares on the option
exercise date, less the exercise price paid for such shares.
(2) The options are immediately exercisable for all the option shares, but any
shares purchased under those options will be subject to repurchase by
Vignette, at the original exercise price paid per share, upon the
optionee's cessation of service with Vignette, prior to the vesting in
such shares. The heading "Vested" refers to shares no longer subject to
repurchase; the heading "Unvested" refers to shares subject to repurchase
as of December 31, 1998.
(3) Based on a price of $9.50 per share less the exercise price payable for
such shares.

Change of Control and Involuntary Termination Arrangements

The compensation committee of the Board of Directors, as the administrator
of the 1999 Equity Incentive Plan, can provide for accelerated vesting of the
shares of common stock subject to outstanding options held by any executive
officer or director of Vignette in connection with certain changes in control
of Vignette. The accelerated vesting may be conditioned on the termination of
the individual's employment following the change in control event. We entered
into an agreement with Mr. Peters, our President and Chief Executive Officer,
as of April 30, 1998, which provides that Mr. Peters will be paid a salary of
$175,000 and will be eligible for a bonus of $75,000. We agreed to pay Mr.
Peters' relocation expenses up to $75,000 plus the taxes that would be due.
The agreement also provides that Mr. Peters will receive a severance payment
in the amount of six months of base salary if Mr. Peters' employment is
involuntarily terminated without cause and one year of base salary plus target
bonus if Mr. Peters' employment is involuntarily terminated without cause
following certain changes in control of Vignette. If Mr. Peters' employment is
involuntarily terminated following certain changes in control of Vignette, the
letter agreement provides that his option share vesting will accelerate as if
he had remained employed for two additional years. However, if a change in
control occurs at a price per share higher than $9.50 per share, then Mr.
Peters will fully vest in his option shares. In addition, Mr. Katz, our Chief
Financial Officer, Mr. Killen, our Senior Vice President of Engineering, and
Mr. Schwartz, our Vice President, Emerging Technology, are each entitled to a
severance payment in the amount of six months of base salary if the officer's
employment is involuntarily terminated without cause.

Executive Bonus Plan

We have adopted a bonus program pursuant to which selected officers and
other full-time employees are eligible for annual cash bonuses based upon
Vignette achieving specified objectives. For 1999, an officer's target bonus
will be awarded based upon Vignette achieving revenue targets. For Mr. Peters,
the 1999 bonus will be awarded based on Vignette meeting customer bookings
targets and other objectives to be determined by the compensation committee of
the Board of Directors. For sales employees, bonuses are based on customer
bookings and operating margin objectives.

55
<PAGE>

Employee Benefit Plans

1999 Equity Incentive Plan

Our 1999 Equity Incentive Plan was adopted by the Board of Directors on
September 9, 1998 and subsequently approved by our stockholders. We have
reserved 2,000,000 shares of common stock for issuance under the 1999 Equity
Incentive Plan. Any shares not yet issued under our 1995 Stock Option/Stock
Issuance Plan as of February 18, 1999, the date of the initial public
offering, are available for grant under the 1999 Equity Incentive Plan. As of
January 1 of each year, commencing with the year 2000, the number of shares
reserved for issuance under the 1999 Equity Incentive Plan will be increased
automatically by 5% of the total number of shares of common stock then
outstanding or, if less, by 3,934,940 shares. As of September 30, 1999,
879,756 options had been granted under the 1999 Equity Incentive Plan. Under
the 1999 Equity Incentive Plan, the eligible individuals are: employees, non-
employee members of the Board of Directors and consultants. The types of
awards that may be made under the 1999 Equity Incentive Plan are options to
purchase shares of common stock, stock appreciation rights, restricted shares
and stock units. Options may be incentive stock options that qualify for
favorable tax treatment for the optionee under Section 422 of the Internal
Revenue Code of 1986 or nonstatutory stock options not designed to qualify for
such favorable tax treatment. With limited restrictions, if shares awarded
under the 1999 Equity Incentive Plan or the 1995 Stock Option/Stock Issuance
Plan are forfeited, then those shares will again become available for new
awards under the 1999 Equity Incentive Plan.

The compensation committee of our Board of Directors administers the 1999
Equity Incentive Plan. The committee has the complete discretion to make all
decisions relating to the interpretation and operation of the 1999 Equity
Incentive Plan, including the discretion to determine which eligible
individuals are to receive any award, determine the type, number, vesting
requirements and other features and conditions of each award.

The exercise price for incentive stock options granted under the 1999 Equity
Incentive Plan may not be less than 100% of the fair market value of the
common stock on the option grant date. The exercise price for non-qualified
options granted under the 1999 Equity Incentive Plan may not be less than 85%
of the fair market value of the common stock on the option grant date. The
exercise price may be paid in cash or in outstanding shares of common stock.
The exercise price may also be paid by using a cashless exercise method, a
pledge of shares to a broker or promissory note. The purchase price for newly
issued restricted shares awarded under the 1999 Equity Incentive Plan may be
paid in cash, by promissory note or the rendering of past or future services.

The committee may reprice options and may modify, extend or assume
outstanding options and stock appreciation rights. The committee may accept
the cancellation of outstanding options or stock appreciation rights in return
for the grant of new options or stock appreciation rights. The new option or
right may have the same or a different number of shares and the same or a
different exercise price.

Upon certain defined events causing a change in control of Vignette, an
option or other award under the 1999 Equity Incentive Plan will become fully
exercisable or fully vested if the option or award is not assumed by the
surviving corporation or its parent or if the surviving corporation or its
parent does not substitute another award on substantially the same terms. An
option or award will become fully exercisable or fully vested if the holder's
employment or service is involuntarily terminated within 18 months following
the change in control. Change in control includes:

. a merger or consolidation of Vignette after which Vignette's then
current stockholders own less than 50% of the surviving corporation,

. sale of all or substantially all of the assets of Vignette,

. a proxy contest that results in replacement of more than one-third of
the Board of Directors over a 24-month period or

. an acquisition of 50% or more of Vignette's outstanding stock by a
person other than by a person related to Vignette, such as a corporation
owned by the stockholders of Vignette.

56
<PAGE>

In the event of a merger or other reorganization, the agreement of merger or
reorganization may provide that outstanding options and other awards under the
1999 Equity Incentive Plan shall be assumed by the surviving corporation or
its parent, shall be continued by us if we are a surviving corporation, shall
have accelerated vesting and then expire early, or shall be cancelled for a
cash payment.

The Board may amend or terminate the 1999 Equity Incentive Plan at any time.
If the Board amends the plan, stockholder approval of the amendment will be
sought only if required by an applicable law. The 1999 Equity Incentive Plan
will continue in effect indefinitely unless the Board decides to terminate the
plan earlier.

Employee Stock Purchase Plan

The Board of Directors adopted our Employee Stock Purchase Plan on September
9, 1998, and our stockholders approved the adoption of the plan. We have
reserved 1,500,000 shares of common stock for issuance under the Employee
Stock Purchase Plan. As of January 1 of each year, the number of shares
reserved for issuance under the Employee Stock Purchase Plan will be increased
automatically by 2% of the total number of shares of common stock outstanding
or, if less, 1,500,000 shares. The Employee Stock Purchase Plan is intended to
qualify under Section 423 of the Internal Revenue Code. Two overlapping
offering periods each with a duration of 24 months will commence on February
25 and August 25 of each calendar year. Purchases of common stock will occur
on February 24 and August 24 of each calendar year during an offering period.
The Employee Stock Purchase Plan will be administered by the compensation
committee of the Board of Directors. Each of our employees is eligible to
participate if he or she is employed by us for at least 20 hours per week and
for more than five months per year.

The Employee Stock Purchase Plan permits each eligible employee to purchase
common stock through payroll deductions. Each employee's payroll deductions
may not exceed 15% of the employee's cash compensation. The initial period
during which payroll deductions will be accumulated began on the effective
date of our initial public offering and ended on August 24, 1999. No more than
4,000 shares may be purchased on any purchase date. The price of each share of
common stock purchased under the Employee Stock Purchase Plan will be 85% of
the lower of (A) the fair market value per share of common stock on the date
immediately before the first date of the applicable offering period or (B) the
fair market value per share of common stock on the purchase date. Employees
may end their participation in the Employee Stock Purchase Plan at any time.
Participation ends automatically upon termination of employment with Vignette.

In the event of a change in control of Vignette, the Employee Stock Purchase
Plan will end and shares will be purchased with the payroll deductions
accumulated to date by participating employees. The Board of Directors may
amend or terminate the Employee Stock Purchase Plan at any time. If the Board
increases the number of shares of common stock reserved for issuance under the
Employee Stock Purchase Plan, it must seek the approval of our stockholders.

1999 Non-Employee Director Option Plan

Our 1999 Non-Employee Director Option Plan was adopted by the Board of
Directors on September 9, 1998, and our stockholders approved the adoption of
the plan. Under the 1999 Non-Employee Director Option Plan, non-employee
members of the Board of Directors will be eligible for automatic option
grants.

A maximum of 500,000 shares of common stock has been authorized for issuance
under the 1999 Non-Employee Director Option Plan. As of September 30, 1999, no
options have been issued under the 1999 Non-Employee Director Option Plan.

The compensation committee of the Board of Directors will make any
administrative determinations under the 1999 Non-Employee Director Option
Plan.

57
<PAGE>

The exercise price for options granted under the 1999 Non-Employee Director
Option Plan may be paid in cash or in outstanding shares of common stock.
Options may also be exercised on a cashless basis through the same-day sale of
the purchased shares.

Each individual who first joins the Board of Directors as a non-employee
director on or after February 19, 1999, the effective date of our initial
public offering, will receive at that time an option grant for 50,000 shares
of common stock. Mr. Marengi, who joined our Board of Directors in July 1999,
received a fully vested option grant for 50,000 shares of common stock at an
exercise price of $24.00 per share. In addition, at each annual stockholders'
meeting, beginning in 2000, each non-employee director will automatically be
granted at that meeting, whether or not he or she is standing for re-election
at that particular meeting, a stock option to purchase 5,000 shares of common
stock. Each option will become exercisable for 25% of the shares after one
year of Board service and in a series of equal quarterly installments over the
next three years of service thereafter. Each option will have an exercise
price equal to the fair market value of the common stock on the automatic
grant date. Each option will have a maximum term of ten years, but will
terminate earlier if the optionee ceases to be a member of the Board of
Directors. Each option will fully vest automatically upon a change in control.

The Board of Directors may amend or modify the 1999 Non-Employee Director
Option Plan at any time. The 1999 Non-Employee Director Option Plan will
terminate on September 8, 2008, unless the Board of Directors decides to
terminate the plan sooner.

1999 Supplemental Stock Option Plan

Our 1999 Supplemental Stock Option Plan was adopted by the Board of
Directors on July 1, 1999. We have reserved 8,000,000 shares of common stock
for issuance under the plan. As of September 30, 1999, options to purchase
2,273,710 shares of common stock had been granted under the 1999 Supplemental
Stock Option Plan. Nonstatutory stock options may be granted under the 1999
Supplemental Stock Option Plan to employees and consultants. Officers may not
participate in the 1999 Supplemental Stock Option Plan. With limited
restrictions, if options expire under the 1999 Supplemental Stock Option Plan,
then those shares will again become available for new option grants under the
1999 Supplemental Stock Option Plan.

The 1999 Supplemental Stock Option Plan may be administered by a committee
of our board. The committee has the complete discretion to make all decisions
relating to the interpretation and operation of the 1999 Supplemental Stock
Option Plan, including the discretion to determine which eligible individuals
are to receive any award, determine the number, vesting requirements and other
features and conditions of each award.

The exercise price for options granted under the 1999 Supplemental Stock
Option Plan may not be less than 85% of the fair market value of the common
stock on the option grant date. The exercise price may be paid in cash or in
outstanding shares of common stock. The exercise price may also be paid by
using a cashless exercise method, a pledge of shares to a broker or promissory
note.

The committee may reprice options and may modify, extend or assume
outstanding options. The committee may accept the cancellation of outstanding
options in return for the grant of new options. The new option may have the
same or a different number of shares and the same or a different exercise
price.

Options granted under the 1999 Supplemental Stock Option Plan are eligible
for the same accelerated vesting provisions upon a change in control of
Vignette, as such term is defined in the 1999 Equity Incentive Plan, as are
options granted under the 1999 Equity Incentive Plan. In the event of a merger
or other reorganization, the agreement of merger or reorganization may provide
that outstanding options and other awards under the 1999 Supplemental Stock
Option Plan shall be assumed by the surviving corporation or its parent, shall
be continued by us if we are a surviving corporation, shall have accelerated
vesting and then expire early, or shall be cancelled for a cash payment.

The Board may amend or terminate the 1999 Supplemental Stock Option Plan at
any time. The 1999 Supplemental Stock Option Plan will continue in effect
indefinitely unless the Board decides to terminate the plan earlier.

58
<PAGE>

CERTAIN TRANSACTIONS

All outstanding shares of preferred stock were converted to common stock on
the close of our initial public offering. The following information has been
adjusted for the two-for-one forward split of our common stock payable on
December 1, 1999.

Transactions with Directors and Officers

In February 1996, we raised additional capital to finance our operations
through the sale of 1,573,970 shares of Series A Preferred Stock to the
following stockholders for approximately $.26 per share:

<TABLE>
<CAPTION>
Shares of
Series A Aggregate
Preferred Stock Consideration
--------------- -------------
<S> <C> <C>
Austin Ventures IV-A, L.P. ....................... 317,538 $ 80,697
Austin Ventures IV-B, L.P. ....................... 666,194 169,303
Sigma Partners III, L.P. ......................... 492,850 125,250
Sigma Associates III, L.P. ....................... 89,716 22,800
Sigma Investors III, L.P. ........................ 7,672 1,950
--------- --------
Total......................................... 1,573,970 $400,000
========= ========
</TABLE>

In February, June and July 1996, we raised additional capital to finance our
operations through the sale of an aggregate of 7,292,154 shares of Series B
Preferred Stock to the following stockholders for approximately $.42 per
share:

<TABLE>
<CAPTION>
Shares of
Series B Aggregate
Preferred Stock Consideration
--------------- -------------
<S> <C> <C>
Austin Ventures IV-A, L.P. ....................... 1,189,330 $ 498,711
Austin Ventures IV-B, L.P. ....................... 2,495,204 1,046,290
Sigma Partners III, L.P. ......................... 1,982,584 831,337
Sigma Associates III, L.P. ....................... 362,226 151,889
Sigma Investors III, L.P. ........................ 42,980 18,023
CNET, Inc. ....................................... 1,219,830 511,500
--------- ----------
Total......................................... 7,292,154 $3,057,750
========= ==========
</TABLE>

In July 1996, we sold 7,338,630 shares of Series C Preferred Stock, to CNET,
Inc. in exchange for certain intellectual property rights as set forth in the
Stock Purchase Agreement dated July 19, 1996. In connection with the sale we
entered into the Prism Development and Marketing Agreement, or the Prism
Agreement, with CNET dated July 19, 1996 whereby CNET licensed certain
intellectual property rights surrounding its "Prism" technology. Pursuant to
the Prism Agreement, we agreed to license certain of our products royalty free
on a limited number of CNET Web sites and both parties agreed to share in
product enhancements. Pursuant to the Amended and Restated Stockholders'
Agreement, dated as of July 19, 1996, Halsey M. Minor became one of our
directors. Mr. Minor resigned from our Board of Directors in September 1998.
Mr. Minor currently serves as Chairman and Chief Executive Officer of CNET,
Inc.

59
<PAGE>

In June and July 1997, we raised additional capital to finance our
operations through the sale of 3,294,580 shares and 159,344 shares,
respectively, of Series E Preferred Stock, to the following stockholders for
approximately $1.08 per share:

<TABLE>
<CAPTION>
Shares of
Series E Aggregate
Preferred Stock Consideration
--------------- -------------
<S> <C> <C>
Austin Ventures IV-A, L.P. ....................... 564,938 $ 608,737
Austin Ventures IV-B, L.P. ....................... 1,185,228 1,277,118
Sigma Partners III, L.P. ......................... 1,336,264 1,439,862
Sigma Associates III, L.P. ....................... 330,698 356,338
Sigma Investors III, L.P. ........................ 36,796 39,652
--------- ----------
Total......................................... 3,453,924 $3,721,707
========= ==========
</TABLE>

On April 21, 1998, we loaned $58,858.80 to Michael J. Vollman, Senior Vice
President, Sales and Services in connection with Mr. Vollman's exercise of an
option to purchase 551,442 shares of common stock. Mr. Vollman issued a
promissory note to us bearing interest at the rate of 5.70% per annum, which
note was secured by a pledge of the shares acquired and was paid in full. On
April 24, 1998, we loaned Mr. Vollman $60,000 for the purchase of Mr.
Vollman's residence in the Austin area. Mr. Vollman issued a promissory note
to Vignette bearing interest at the rate of 5.70% per annum, which note has
been paid in full.

In April 1998, we raised additional capital to finance our operations
through the sale of 657,696 shares of Series F Preferred Stock to the
following stockholders for approximately $2.67 per share:

<TABLE>
<CAPTION>
Shares of
Series F Aggregate
Preferred Stock Consideration
--------------- -------------
<S> <C> <C>
Austin Ventures IV-A, L.P. ....................... 121,314 $ 322,790
Austin Ventures IV-B, L.P. ....................... 254,514 677,210
Sigma Partners III, L.P. ......................... 221,072 588,226
Sigma Associates III, L.P. ....................... 54,710 145,575
Sigma Investors III, L.P. ........................ 6,086 16,197
------- ----------
Total......................................... 657,696 $1,749,998
======= ==========
</TABLE>

Pursuant to the Stockholders' Agreement, dated as of February 5, 1996, John
D. Thornton and Robert E. Davoli joined our Board of Directors. Mr. Thornton
is a General Partner of AV Partners IV, L.P., which is the General Partner of
Austin Ventures IV-A, L.P. and Austin Ventures IV-B, L.P. Mr. Davoli is a
General Partner of Sigma Management III, L.P., which is the General Partner of
Sigma Partners III, L.P., Sigma Associates III, L.P. and Sigma Investors III,
L.P. On September 25, 1998 Messrs. Thornton and Davoli each were granted an
option to purchase 98,372 shares of our common stock at an exercise price of
$3.18 per share subject to a four year vesting schedule in connection with
their service as members of the Board. See "Principal and Selling
Stockholders" for more information regarding securities held by these
purchasers.

In August 1998, CNET and Vignette amended the Prism Agreement to provide
that CNET's and NBC Multimedia's jointly owned subsidiary, Snap! LLC, may use
an undefined number of copies of StoryServer for (a) Snap!'s Internet sites
accessible through www.snap.com and (b) for certain Snap! LLC co-branded
sites. Such amendment also provides that if CNET no longer holds a 50% or more
ownership interest in Snap! LLC, any subsequent copies installed and used
after that time must be purchased from us. In consideration, CNET assigned to
Vignette all rights and title to and interest in U.S. Patent No. 5,740,430,
issued on April 14, 1998, "Method and apparatus for server-independent caching
of dynamically-generated customized pages," and provided $100,000 of
advertising on CNET's Web site for our use.

60
<PAGE>

In June 1999, we loaned $500,000 to William R. Daniel, Senior Vice
President, Products, for the purchase of Mr. Daniel's residence in the Austin
area. Mr. Daniel issued a non-interest bearing promissory note to us, which
was secured by the deed of trust on the residence and stock pledge of any
options exercised at time of exercise. The loan is repayable upon the sale of
Mr. Daniel's residence or pledged stock.

Indemnification

Our Certificate of Incorporation limits the liability of our directors for
monetary damages arising from a breach of their fiduciary duty as directors,
except to the extent otherwise required by the Delaware General Corporation
Law. Such limitation of liability does not affect the availability of
equitable remedies such as injunctive relief or rescission.

Our Bylaws provide that we shall indemnify our directors and officers to the
fullest extent permitted by Delaware law, including any circumstances in which
indemnification is otherwise discretionary under Delaware law. We have also
entered into indemnification agreements with our officers and directors
containing provisions that may require us, among other things, to indemnify
such officers and directors against certain liabilities that may arise by
reason of their status or service as directors or officers, other than
liabilities arising from willful misconduct of a culpable nature, to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance if
available on reasonable terms.

We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent
and disinterested outside directors on the Board of Directors, and will
continue to be on terms no less favorable to us than could be obtained from
unaffiliated third parties.

Protege Software Professional Services Agreement

In November 1997, we and Protege Software (Holdings) Limited, or Protege,
entered into a professional services agreement under which Protege agreed to
perform certain professional services for our European subsidiary, Vignette
Europe Ltd. Protege provides Vignette Europe with its back-office and
administrative functions such as payroll, invoicing and accounting. In
addition, Protege provides general consulting services to Vignette Europe.
These services include assisting Vignette Europe with the development of its
business plans, implementation of its marketing strategy, localization of its
products and organization of training courses and seminars regarding our
products. The professional services agreement between us and Protege expires
on December 31, 1999. It may be terminated by either party, without cause, on
three months' written notice. Protege is in the business of providing similar
services to technology companies seeking to establish European operations.

Under the terms of the professional services agreement between us and
Protege, we agreed to pay Protege, in addition to its costs of providing the
services, management fees for the operations of Vignette Europe. Protege was
entitled, at its option, to convert up to 55% of a portion of the management
fees earned prior to December 31, 1998 into our fully paid voting stock at a
price of $2.61 per share. In March 1999, Protege exercised its option and
converted approximately $251,000 of management fees into 96,440 shares of
common stock.

Pany Christoforou, an employee of Protege, has served as our Vice President,
Europe pursuant to the professional services agreement between us and Protege
since January 1998.

61
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information known to us regarding
beneficial ownership of our common stock as of September 30, 1999, and as
adjusted to reflect the sale of shares offered hereby. In accordance with the
rules of the Securities and Exchange Commission, beneficial ownership includes
voting or investment power with respect to securities and includes the shares
issuable pursuant to stock options that are exercisable within 60 days of
September 30, 1999. Shares issuable pursuant to stock options are deemed
outstanding for computing the percentage of the person holding such options
but are not outstanding for computing the percentage of any other person. The
number of shares of common stock outstanding after this offering includes
1,841,000 shares of common stock being offered for sale by Vignette in this
offering. The percentage of beneficial ownership for the following table is
based on 56,268,454 shares of common stock outstanding as of September 30,
1999, and 58,377,054 shares of common stock outstanding after the completion
of this offering assuming no exercise of the underwriters' over-allotment
option. Unless otherwise indicated, the address for each listed stockholder
is: c/o Vignette Corporation, 901 South Mopac Expressway, Austin, Texas 78746.
To our knowledge, except as indicated in the footnotes to this table and
pursuant to applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all shares of common
stock.

<TABLE>
<CAPTION>
Shares Shares
Beneficially Owned Beneficially Owned
Before Number of After
the Offering Shares the Offering(1)
Name and Address of ------------------ Being ------------------
Beneficial Owner Number Percent Offered Number Percent
- ------------------- ---------- ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Gregory A. Peters(2)........... 2,376,954 4.06% 237,600 2,139,354 3.54%
William R. Daniel(3)........... 456,588 * 30,000 426,588 *
Joel G. Katz(4)................ 354,144 * -- 354,144 *
Calvin B. Killen............... 400,000 * -- 400,000 *
Philip C. Powers(5)............ 411,366 * -- 411,366 *
Richard L. Schwartz............ 321,654 * -- 321,654 *
Michael J. Vollman(6).......... 832,070 1.47 83,200 748,870 1.28
Neil Webber.................... 2,583,516 4.58 308,200 2,275,316 3.89
Robert E. Davoli(7)............ 4,103,856 7.29 -- 4,103,856 7.03
Joseph A. Marengi(8)........... 50,000 * -- 50,000 *
Steven G. Papermaster(9)....... 98,372 * -- 98,372 *
John D. Thornton(10)........... 1,924,540 3.41 -- 1,924,540 3.29
All directors and executive
officers as a group
(11 persons)(11).............. 11,329,544 18.55% 350,800 10,978,744 17.45%
</TABLE>
- --------
*Represents beneficial ownership of less than 1% of the outstanding shares
of common stock.
(1) Assumes no exercise of the underwriters' over-allotment option. See
"Underwriters."

(2) Includes options immediately exercisable for 2,336,742 shares.

(3) Includes options immediately exercisable for 354,142 shares.

(4) Includes options immediately exercisable for 354,144 shares.

(5) Includes options immediately exercisable for 309,142 shares.

(6) Includes options immediately exercisable for 217,998 shares.

(7) Includes 3,199,258 shares held by Sigma Partners III, L.P., 664,282
shares held by Sigma Associates III, L.P. and 74,202 shares held by Sigma
Investors III, L.P. Mr. Davoli, one of our directors, is a General
Partner of Sigma Management III, L.P., which is the general partner of
Sigma Partners III, L.P., Sigma Associates III, L.P. and Sigma Investors
III, L.P. Mr. Davoli disclaims beneficial ownership of the shares held by
Sigma Partners III, L.P., Sigma Associates III, L.P. and Sigma Investors
III, L.P. except to the extent of his pecuniary interest therein arising
from his general partnership interest in Sigma Partners III, L.P.

62
<PAGE>

(8) Includes options immediately exercisable for 50,000 shares.

(9) Includes options immediately exercisable for 98,372 shares.

(10) Includes 441,262 shares held by Austin Ventures IV-A, L.P. and 925,766
shares held by Austin Ventures IV-B, L.P., 250,264 shares held by Austin
Ventures V, L.P., 64,430 shares held by Austin Ventures V Affiliates
Fund, L.P. Mr. Thornton, one of our directors, is a general partner of
AV Partners IV, L.P., which is the general partner of Austin Ventures
IV-A, L.P. and Austin Ventures IV-B, L.P., and is a general partner of
AV Partners V, L.P., which is the general partner of Austin Ventures V,
L.P. and Austin Ventures V Affiliates Fund, L.P. Mr. Thornton disclaims
beneficial ownership of the shares held by Austin Ventures IV-A, L.P.,
Austin Ventures IV-B, L.P., Austin Ventures V, L.P. and Austin Ventures
V Affiliates Fund, L.P. except to the extent of his pecuniary interest
therein arising from his partnership interest in AV Partners IV, L.P. or
AV Partners V, L.P., as the case may be. Amount shown for Mr. Thornton
includes options immediately exercisable for 98,372 shares.

(11) Includes options immediately exercisable for 3,818,912 shares.

63
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 80,000,000 shares of common stock,
$0.01 par value, and 10,000,000 shares of preferred stock, $0.01 par value.

Common Stock

As of September 30, 1999, there were 56,268,454 shares of common stock
outstanding that were held of record by approximately 302 stockholders. As of
September 30, 1999, there were 14,157,704 shares of common stock subject to
outstanding options, 10,666,202 of which are currently exercisable. There will
be 58,377,054 shares of common stock outstanding (assuming no exercise of the
underwriters' over-allotment option and assuming no exercise after September
30, 1999 of outstanding options) after giving effect to the sale of the shares
of common stock to the public offered hereby. The holders of common stock are
entitled to one vote per share on all matters to be voted on by the
stockholders. Subject to preferences that may be applicable to any outstanding
preferred stock, the holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of the
liquidation, dissolution, or winding up of Vignette, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and nonassessable, and the shares of common stock to be issued on
completion of this offering will be fully paid and nonassessable. See
"Dividend Policy."

On November 4, 1999, we announced a two-for-one forward split of our common
stock to be effected in the form of a stock dividend payable on December 1,
1999. Purchasers of shares of common stock in this offering will not be
entitled to receive the stock dividend. The information relating to the number
of shares our common stock, options or warrants as of September 30, 1999
assumes a two-for-one stock split.

Preferred Stock

Our certificate of incorporation authorizes 10,000,000 shares of preferred
stock and no shares are outstanding. The Board of Directors has the authority
to issue the preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further
vote or action by the stockholders. The issuance of preferred stock may have
the effect of delaying, deferring or preventing a change in control of
Vignette without further action by the stockholders and may adversely affect
the voting and other rights of the holders of common stock. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others. At present, we have no plans to issue any of the preferred
stock.

Anti-takeover Effects of Provisions of the Certificate of Incorporation,
Bylaws and Delaware Law

Certificate of Incorporation and Bylaws. Our certificate of incorporation
provides that the Board of Directors is divided into three classes of
directors, with each class serving a staggered three-year term. The
classification system of electing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of
Vignette and may maintain the incumbency of the Board of Directors, as the
classification of the Board of Directors generally increases the difficulty of
replacing a majority of the directors. The certificate of incorporation also
provides that all stockholder actions must be effected at a duly called
meeting and not by a consent in writing. Further, provisions of our bylaws and
the certificate of incorporation provide that the stockholders may amend the
bylaws or certain provisions of the certificate of incorporation only with the
affirmative vote of 75% of our capital stock. These provisions of the
certificate of incorporation and bylaws could discourage potential acquisition
proposals and could delay or prevent a change in control of Vignette. These
provisions are intended to enhance the likelihood of continuity and stability
in the

64
<PAGE>

composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage certain types of transactions that may
involve an actual or threatened change of control of Vignette. These
provisions are designed to reduce our vulnerability to an unsolicited
acquisition proposal. The provisions also are intended to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for our shares
and, as a consequence, they also may inhibit fluctuations in the market price
of our shares that could result from actual or rumored takeover attempts. Such
provisions also may have the effect of preventing changes in our management.
See "Risk Factors--Risks Related to Our Business--Anti-Takeover Provisions in
Our Charter Documents and Delaware Law Could Prevent or Delay a Change in
Control of Our Company."

Delaware Takeover Statute. We are subject to Section 203 of the Delaware
General Corporation Law, or DGCL Section 203, which regulates corporate
acquisitions. DGCL Section 203 prevents certain Delaware corporations,
including those whose securities are listed for trading on the Nasdaq National
Market, from engaging, under certain circumstances in a "business combination"
with any "interested stockholder" for three years following the date that such
stockholder became an interested stockholder. For purposes of DGCL
Section 203, a "business combination" includes, among other things, a merger
or consolidation involving Vignette and the interested stockholder and the
sale of more than ten percent (10%) of Vignette's assets. In general, DGCL
Section 203 defines an "interested stockholder" as any entity or person
beneficially owning 15% or more the outstanding voting stock of Vignette and
any entity or person affiliated with or controlling or controlled by such
entity or person. A Delaware corporation may "opt out" of DGCL Section 203
with an express provision in its original certificate of incorporation or an
express provision in its certificate of incorporation or bylaws resulting from
amendments approved by the holders of at least a majority of the corporation's
outstanding voting shares. We have not "opted out" of the provisions of DGCL
Section 203.

Registration Rights

After this offering, the holders of up to approximately 42,000,000 shares of
common stock and rights to acquire common stock will be entitled to certain
rights with respect to the registration of such shares under the Securities
Act. Under the terms of the agreement between us and the holders of such
registrable securities, if we propose to register any of our securities under
the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, such holders are entitled to
notice of such registration and are entitled to include shares of such common
stock therein. Additionally, such holders are also entitled to certain demand
registration rights pursuant to which they may require us on up to four
occasions to file a registration statement under the Securities Act at our
expense with respect to our shares of common stock, and we are required to use
our best efforts to effect such registration. Further, holders may require us
to file an unlimited number of additional registration statements on Form S-3
at our expense. All of these registration rights are subject to certain
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares included in such registration and our
right not to effect a requested registration within six months following an
offering of our securities, including the offering made hereby.

Transfer Agent and Registrar

The Transfer Agent and Registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C., and its telephone number is (214) 965-2235.

65
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have approximately 58,377,054
shares of common stock outstanding. Substantially all of these shares will be
transferable either without restriction or registration under the Securities
Act of 1933 or under Rule 144. Approximately 7,826,000 additional shares will
be available for sale in the public market following the expiration of 90-day
lockup agreements with the representatives of the underwriters or us, subject
in some cases to compliance with the volume and other limitations of Rule 144.
We estimate that additional shares of common stock will be available for sale
in the public market as follows:

<TABLE>
<CAPTION>
Days after Date of Approximate Shares
this Prospectus Eligible for Future Sale Comment
------------------ ------------------------ -------
<C> <C> <S>
Upon Effectiveness...... 50,551,054 Freely tradable shares and
shares salable under
Rule 144 that are not
subject to 90-day lockup
7,826,000 Lockup released; shares
90 days................. salable under Rule 144
</TABLE>

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
one year is entitled to sell within any three-month period commencing 90 days
after the date of this prospectus a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of common stock
(approximately 583,771 shares immediately after the offering) or (ii) the
average weekly trading volume during the four calendar weeks preceding such
sale, subject to the filing of a Form 144 with respect to such sale. A person
(or persons whose shares are aggregated) who is not deemed to have been our
affiliate at any time during the 90 days immediately preceding the sale who
has beneficially owned his or her shares for at least two years is entitled to
sell such shares pursuant to Rule 144(k) without regard to the limitations
described above. Persons deemed to be affiliates must always sell pursuant to
Rule 144, even after the applicable holding periods have been satisfied.

We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Any future sale of
substantial amounts of the common stock in the open market may adversely
affect the market price of the common stock offered hereby.

We, our executive officers and the selling stockholders have agreed pursuant
to the Underwriting Agreement and other agreements that they will not sell any
common stock without the prior consent of Morgan Stanley & Co. Incorporated
for a period of 90 days from the date of this prospectus (the "90-day Lockup
Period"), except that we may, without such consent, grant options and sell
shares pursuant to our stock plans.

In addition, after this offering, the holders of up to approximately
42,000,000 shares of common stock will be entitled to certain rights with
respect to registration of such shares under the Securities Act. Registration
of such shares under the Securities Act would result in such shares becoming
freely tradable without restriction under the Securities Act (except for
shares purchased by our affiliates) immediately upon the effectiveness of such
registration. See "Description of Capital Stock--Registration Rights."

66
<PAGE>

UNDERWRITERS

Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Hambrecht & Quist LLC, Dain Rauscher
Incorporated, and U.S. Bancorp Piper Jaffray Inc. are acting as
representatives, have severally agreed to purchase, and we and the selling
stockholders have agreed to sell to them an aggregate of 2,500,000 shares of
common stock. The number of shares of common stock that each underwriter has
agreed to purchase is set forth opposite its name below:

<TABLE>
<CAPTION>
Number
Name of Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..................................
Hambrecht & Quist LLC..............................................
Dain Rauscher Incorporated.........................................
U.S. Bancorp Piper Jaffray Inc. ...................................
---------
Total.......................................................... 2,500,000
=========
</TABLE>

The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and the selling stockholders and subject to
prior sale. The underwriting agreement provides that the obligations of the
several underwriters to pay for and accept delivery of the shares of common
stock offered by this prospectus are subject to the approval of certain legal
matters by their counsel and to certain other conditions. The underwriters are
obligated to take and pay for all of the shares of common stock offered by
this prospectus, if any such shares are taken. However, the underwriters are
not required to take or pay for the shares covered by the underwriters over-
allotment option described below.

The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page of this prospectus and part to certain dealers at a price that
represents a concession not in excess of $ a share under the public
offering price. Any underwriter may allow, and such dealers may reallow, a
concession not in excess of $ a share to other underwriters or to certain
dealers. After the initial offering of the shares of common stock, the
offering price and other selling terms may from time to time be varied by the
representatives of the underwriters.

We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of 375,000
additional shares of common stock at the public offering price set forth on
the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise this option solely for the purpose
of covering over-allotments, if any, made in connection with the offering of
the shares of common stock offered by this prospectus. To the extent the
option is exercised, each underwriter will become obligated, subject to
certain conditions, to purchase about the same percentage of the additional
shares of common stock as the number listed next to the underwriter's name in
the preceding table bears to the total number of shares of common stock listed
next to the names of all underwriters in the preceding table. If the
underwriters' option is exercised in full, the total price to the public would
be $ , the total underwriters' discounts and commissions would be
$ , and the total proceeds to us would be $ .

We, our executive officers and the selling stockholders have each agreed
that, without the prior written consent of Morgan Stanley & Co. Incorporated
on behalf of the underwriters, each of us will not, during the period ending
90 days after the date of this prospectus:

. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or

. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock,

67
<PAGE>

whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.

The restrictions described in the previous paragraph do not apply to:

. the sale of shares to the underwriters of the shares of common stock
under the underwriting agreement;

. the issuance by Vignette of shares of common stock upon the exercise of
an option or a warrant or the conversion of a security outstanding on
the date of this prospectus which is described in the prospectus;

. transactions by any person other than Vignette relating to shares of
common stock or other securities acquired in open market transactions
after the completion of the offering of the shares of common stock; or

. issuances of shares of common stock or options to purchase shares of
common stock pursuant to our employee benefit plans as in existence on
the date of the prospectus and consistent with past practices.

In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering, if the syndicate repurchases
previously distributed shares of common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities, and may end any of these activities at any time.

From time to time, certain of the underwriters have provided, and may
continue to provide, investment banking services to us.

We, the selling stockholders and the underwriters have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act.

68
<PAGE>

LEGAL MATTERS

The validity of the common stock offered hereby will be passed on for us by
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Austin, Texas.
Certain legal matters in connection with the offering will be passed on for
the underwriters by Davis Polk & Wardwell, New York, New York.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, as set forth in their report. We
have included our consolidated financial statements in the prospectus in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.

Ernst & Young LLP, independent auditors, have audited the financial
statements of Diffusion, Inc. at December 31, 1998 and 1997, and for each of
the two years in the period ended December 31, 1998, as set forth in their
report. The financial statements of Diffusion, Inc. have been included in this
prospectus in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the SEC, a registration statement on Form S-1 under the
Securities Act with respect to the common stock. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement. For further information
with respect to Vignette and the common stock, we refer you to the
registration statement and the exhibits and schedules filed as a part of the
registration statement. Statements contained in this prospectus concerning the
contents of any contract or any other document are not necessarily complete.
If a contract or document has been filed as an exhibit to the registration
statement, we refer you to the copy of the contract or document that has been
filed. Each statement in this prospectus relating to a contract or document
filed as an exhibit is qualified in all respects by the filed exhibit. The
registration statement, including exhibits and schedules thereto, may be
inspected without charge at the SEC's principal office in Washington, D.C.,
and copies of all or any part thereof may be obtained from such office after
payment of fees prescribed by the SEC. We also file reports, proxy statements
and other information with the SEC. You may read and copy any materials we
file with the SEC at the SEC's public reference room located at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for more information about the public reference room. The SEC maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC at
http://www.sec.gov.

Our logo and certain titles and logos of our products mentioned in this
prospectus are either (1) our trademarks or (2) trademarks that have been
licensed to us. Each trademark, trade name or service mark of any other
company appearing in this prospectus belongs to its holder.

69
<PAGE>

VIGNETTE CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Vignette Corporation
Annual Financial Statements
Report of Independent Auditors.......................................... F-2
Consolidated Balance Sheets at December 31, 1997 and 1998............... F-3
Consolidated Statements of Operations for the three years ended December
31, 1998............................................................... F-4
Consolidated Statements of Changes in Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit) for the three years ended
December 31, 1998...................................................... F-5
Consolidated Statements of Cash Flows for the three years ended December
31, 1998............................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Interim Financial Statements
Condensed Consolidated Balance Sheet at September 30, 1999 (Unaudited).. F-22
Condensed Consolidated Statements of Operations for the nine months
ended September 30, 1999 and 1998 (Unaudited).......................... F-23
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998 (Unaudited).......................... F-24
Notes to Condensed Consolidated Financial Statements (Unaudited)........ F-25
Pro Forma Condensed Consolidated Financial Statements
Unaudited Pro Forma Condensed Consolidated Statements of Operations for
the year ended December 31, 1998 and nine months ended September 30,
1999................................................................... F-30
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements............................................................. F-32

Diffusion, Inc. (An Acquired Business of Vignette Corporation)
Financial Statements
Report of Independent Auditors.......................................... F-33
Balance Sheets at December 31, 1998 and 1997 and June 30, 1999
(Unaudited)............................................................ F-34
Statements of Operations for the years ended December 31, 1998 and 1997
and for the six months ended June 30, 1999 (Unaudited) and 1998
(Unaudited)............................................................ F-35
Statements of Shareholders' Equity for the years ended December 31, 1998
and 1997............................................................... F-36
Statements of Cash Flows for the years ended December 31, 1998 and 1997
and for the six months ended June 30, 1999 (Unaudited) and 1998
(Unaudited)............................................................ F-37
Notes to Financial Statements........................................... F-38
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Vignette Corporation

We have audited the accompanying consolidated balance sheets of Vignette
Corporation and Subsidiaries as of December 31, 1998 and 1997, the related
consolidated statements of operations, changes in redeemable convertible
preferred stock and stockholders' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Vignette
Corporation and Subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.

Austin, Texas
January 14, 1999, except for Note
10, as to which the date is
December 1, 1999

- -------------------------------------------------------------------------------

The foregoing report is in the form that will be signed upon the completion
of the two-for-one forward stock split payable on December 1, 1999 that is to
be effected in the form of a stock dividend by the Company as described in
Note 10 to the consolidated financial statements.

/s/ Ernst & Young LLP

Austin, Texas

November 22, 1999

F-2
<PAGE>

VIGNETTE CORPORATION

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

<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 6,865 $ 12,242
Accounts receivable, net of allowance of $37 in 1997 and
$297 in 1998............................................ 650 7,488
Note receivable from employee............................ -- 110
Prepaid expenses and other............................... 196 280
-------- --------
Total current assets................................... 7,711 20,120
Property and equipment:
Equipment................................................ 71 111
Computers and purchased software......................... 834 2,704
Furniture and fixtures................................... 16 63
Leasehold improvements................................... 50 159
-------- --------
971 3,037
Accumulated depreciation................................. (227) (1,283)
-------- --------
744 1,754
Other assets............................................... 44 907
-------- --------
Total assets........................................... $ 8,499 $ 22,781
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................................... $ 433 $ 589
Accrued expenses......................................... 1,785 7,501
Deferred revenue......................................... 1,163 6,092
Current portion of capital lease obligation.............. 23 7
Current portion of long-term debt........................ 24 1,895
Other current liabilities................................ 28 279
-------- --------
Total current liabilities.............................. 3,456 16,363
Capital lease obligation, less current portion............. 7 --
Long-term debt, less current portion....................... 826 758
-------- --------
Total liabilities...................................... 4,289 17,121
Redeemable convertible preferred stock..................... 13,458 36,258
Warrant to purchase redeemable convertible preferred stock. -- 169
Stockholders' equity (deficit):
Convertible preferred stock.............................. 38 42
Common stock--$.01 par value; 33,446,991 shares
authorized; 6,984,186 shares in 1997, 11,353,700 shares
in 1998 (net of treasury shares of 141,382 in 1997 and
169,498 in 1998) issued and outstanding................. 70 114
Additional paid-in capital............................... 1,747 12,753
Notes receivable for purchase of common stock............ -- (172)
Deferred stock compensation.............................. -- (6,196)
Accumulated other comprehensive loss..................... (3) (11)
Accumulated deficit...................................... (11,100) (37,297)
-------- --------
Total stockholders' equity (deficit)................... (9,248) (30,767)
-------- --------
Total liabilities and stockholders' equity (deficit)... $ 8,499 $ 22,781
======== ========
</TABLE>

See accompanying notes.

F-3
<PAGE>

VIGNETTE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Revenue:
Product license.................................. $ -- $ 1,943 $ 8,584
Services......................................... -- 1,081 7,621
------- ------- --------
Total revenue...................................... -- 3,024 16,205
Cost of revenue:
Product license.................................. -- 37 964
Services......................................... -- 1,438 9,340
------- ------- --------
Total cost of revenue.............................. -- 1,475 10,304
------- ------- --------
Gross profit....................................... -- 1,549 5,901
Operating expenses:
Research and development......................... 892 2,895 6,962
Sales and marketing.............................. 428 4,964 15,880
General and administrative....................... 503 1,333 4,864
Write-off of acquired in-process research and
development..................................... 1,865 -- 2,089
Amortization of deferred stock compensation...... -- -- 2,475
------- ------- --------
Total operating expenses........................... 3,688 9,192 32,270
------- ------- --------
Loss from operations............................... (3,688) (7,643) (26,369)
Other income (expenses):
Interest income.................................. 71 245 517
Interest expense................................. (9) (47) (253)
Other............................................ -- (29) (92)
------- ------- --------
62 169 172
------- ------- --------
Net loss........................................... $(3,626) $(7,474) $(26,197)
======= ======= ========
Basic net loss per share........................... $ (2.88) $ (2.09) $ (4.60)
======= ======= ========
Shares used in computing basic net loss per share.. 1,260 3,576 5,698
Pro forma basic net loss per share................. $ (0.73)
========
Shares used in computing pro forma basic net loss
per share......................................... 35,808
</TABLE>

See accompanying notes.

F-4
<PAGE>

VIGNETTE CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share data)

<TABLE>
<S> <C> <C> <C>
<CAPTION>
Redeemable Conver-
tible Preferred Stock
--------------------------
Number of
Shares Value Warrant
---------- ------- -------
<S> <C> <C> <C>
Stock options
exercised...... -- $ -- $ --
Issuance of
Series A stock. 1,573,970 400 --
Series A
issuance costs. -- -- --
Issuance of
Series B stock. 7,292,154 3,058 --
Series B
issuance costs. -- -- --
Issuance of
Series C stock. -- -- --
Series C
issuance costs. -- -- --
Stock grants.... -- -- --
Comprehensive
loss:
Net loss........ -- -- --
Total
comprehensive
loss........... -- -- --
---------- ------- -----
Balance at
December 31,
1996........... 8,866,124 3,458 --
Exercise of
Series D
warrant........ -- -- --
Issuance of
Series E stock. 9,280,494 10,000 --
Series E
issuance costs. -- -- --
Stock options
exercised...... -- -- --
Repurchase of
unvested stock. -- -- --
Compensation
expense from
stock options
granted........ -- -- --
Comprehensive
loss:
Net loss........ -- -- --
Foreign
currency
translation
adjustment..... -- -- --
Total
comprehensive
loss........... -- -- --
---------- ------- -----
Balance at
December 31,
1997........... 18,146,618 13,458 --
Issuance of
Series F stock. 5,374,336 14,300 --
Series F
issuance costs. -- -- --
Issuance of
Series G stock. -- -- --
Series G
issuance costs. -- -- --
Issuance of
Series H stock
and warrant.... 2,048,176 8,500 169
Series H
issuance costs. -- -- --
Stock options
exercised...... -- -- --
Repurchase of
unvested stock. -- -- --
Deferred stock
compensation
related to
stock options.. -- -- --
Amortization of
deferred stock
compensation... -- -- --
Payments
received on
notes
receivable for
purchase of
common stock... -- -- --
Comprehensive
loss:
Net loss........ -- -- --
Foreign
currency
translation
adjustment,
cumulative
translation
loss of $(11)
at December
31, 1998....... -- -- --
Total
comprehensive
loss...........
---------- ------- -----
Balance at
December 31,
1998........... 25,569,130 $36,258 $169
========== ======= =====
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stockholders' Equity (Deficit)
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
Convertible Notes
Preferred Stock Common Stock Receivable Accumulated
--------------- ------------------ Additional for Purchase Deferred Other Total
Number of Number of Paid- of Common Stock Comprehensive Accumulated Stockholders'
Shares Value Shares Value in Capital Stock Compensation Loss Deficit Equity (Deficit)
--------- ----- ----------- ------ ---------- ------------ ------------ ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock options
exercised...... -- $ -- 6,748,884 $ 67 $ (31) $ -- $ -- $ -- $ -- $ 36
Issuance of
Series A stock. -- -- -- -- -- -- -- -- -- --
Series A
issuance costs. -- -- -- -- (18) -- -- -- -- (18)
Issuance of
Series B stock. -- -- -- -- -- -- -- -- -- --
Series B
issuance costs. -- -- -- -- (2) -- -- -- -- (2)
Issuance of
Series C stock. 7,338,630 37 -- -- 1,828 -- -- -- -- 1,865
Series C
issuance costs. -- -- -- -- (25) -- -- -- -- (25)
Stock grants.... -- -- 392 -- -- -- -- -- -- --
Comprehensive
loss:
Net loss........ -- -- -- -- -- -- -- -- (3,626) (3,626)
---------------
Total
comprehensive
loss........... -- -- -- (3,626)
--------- ----- ----------- ------ ---------- ------------ ------------ ------------- ----------- ---------------
Balance at
December 31,
1996........... 7,338,630 37 6,749,276 67 1,752 -- -- -- (3,626) (1,770)
Exercise of
Series D
warrant........ 257,218 1 -- -- 106 -- -- -- -- 107
Issuance of
Series E stock. -- -- -- -- -- -- -- -- -- --
Series E
issuance costs. -- -- -- -- (126) -- -- -- -- (126)
Stock options
exercised...... -- -- 517,674 5 19 -- -- -- -- 24
Repurchase of
unvested stock. -- -- (282,764) (2) (9) -- -- -- -- (11)
Compensation
expense from
stock options
granted........ -- -- -- -- 5 -- -- -- -- 5
Comprehensive
loss:
Net loss........ -- -- -- -- -- -- -- -- (7,474) (7,474)
Foreign
currency
translation
adjustment..... -- -- -- -- -- -- -- (3) -- (3)
---------------
Total
comprehensive
loss........... -- -- -- -- -- -- -- -- -- (7,477)
--------- ----- ----------- ------ ---------- ------------ ------------ ------------- ----------- ---------------
Balance at
December 31,
1997........... 7,595,848 38 6,984,186 70 1,747 -- -- (3) (11,100) (9,248)
Issuance of
Series F stock. -- -- -- -- -- -- -- -- -- --
Series F
issuance costs. -- -- -- -- (54) -- -- -- -- (54)
Issuance of
Series G stock. 751,660 4 -- -- 1,996 -- -- -- -- 2,000
Series G
issuance costs. -- -- -- -- (14) -- -- -- -- (14)
Issuance of
Series H stock
and warrant.... -- -- -- -- -- -- -- -- -- --
Series H
issuance costs. -- -- -- -- (29) -- -- -- -- (29)
Stock options
exercised...... -- -- 4,425,746 44 441 (192) -- -- -- 293
Repurchase of
unvested stock. -- -- (56,232) -- (5) -- -- -- -- (5)
Deferred stock
compensation
related to
stock options.. -- -- -- -- 8,671 -- (8,671) -- -- --
Amortization of
deferred stock
compensation... -- -- -- -- -- -- 2,475 -- -- 2,475
Payments
received on
notes
receivable for
purchase of
common stock... -- -- -- -- -- 20 -- -- -- 20
Comprehensive
loss:
Net loss........ -- -- -- -- -- -- -- -- (26,197) (26,197)
Foreign
currency
translation
adjustment,
cumulative
translation
loss of $(11)
at December
31, 1998....... -- -- -- -- -- -- -- (8) -- (8)
---------------
Total
comprehensive
loss........... (26,205)
--------- ----- ----------- ------ ---------- ------------ ------------ ------------- ----------- ---------------
Balance at
December 31,
1998........... 8,347,508 $ 42 11,353,700 $114 $12,753 $(172) $(6,196) $ (11) $(37,297) $(30,767)
========= ===== =========== ====== ========== ============ ============ ============= =========== ===============
</TABLE>

See accompanying notes.

F-5
<PAGE>

VIGNETTE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Operating activities
Net loss........................................... $(3,626) $(7,474) $(26,197)
Adjustment to reconcile net loss to cash used in
operating activities:
Depreciation..................................... 41 198 1,068
Noncash compensation expense..................... -- 5 2,475
Acquired in-process research and development..... 1,865 -- 2,000
Loss on disposal of fixed assets................. -- 29 101
Other noncash items.............................. -- -- 4
Changes in operating assets and liabilities:
Accounts receivable, net....................... -- (650) (6,838)
Note receivable from employee.................. -- -- (110)
Prepaid expenses and other assets.............. (88) (151) (783)
Accounts payable............................... 215 218 156
Accrued expenses............................... 86 1,700 5,716
Deferred revenue............................... -- 1,163 4,929
Other liabilities.............................. -- 28 251
------- ------- --------
Net cash used in operating activities........ (1,507) (4,934) (17,228)
Investing activities
Purchase of property and equipment................. (318) (694) (2,179)
------- ------- --------
Net cash used in investing activities........ (318) (694) (2,179)
Financing activities
Proceeds from long-term debt and capital lease
obligation........................................ 279 701 1,837
Payments on long-term debt and capital lease
obligation........................................ (40) (62) (56)
Proceeds from issuance of Series A Convertible
Preferred Stock, net.............................. 382 -- --
Proceeds from issuance of Series B Convertible
Preferred Stock, net.............................. 3,056 -- --
Series C Convertible Preferred Stock issuance
costs............................................. (25) -- --
Proceeds from exercise of Series D Convertible
Preferred Stock warrant........................... -- 107 --
Proceeds from issuance of Series E Convertible
Preferred Stock, net.............................. -- 9,874 --
Proceeds from issuance of Series F Convertible
Preferred Stock, net.............................. -- -- 14,246
Series G Convertible Preferred Stock issuance cost. -- -- (14)
Proceeds from issuance of Series H Convertible
Preferred Stock, net.............................. -- -- 8,471
Proceeds from exercise of stock options............ 16 24 312
Payments for repurchase of unvested common stock... -- (11) (5)
------- ------- --------
Net cash provided by financing activities.... 3,668 10,633 24,791
Effect of exchange rate changes on cash and cash
equivalents....................................... -- (3) (7)
------- ------- --------
Net increase in cash and cash equivalents.......... 1,843 5,002 5,377
Cash and cash equivalents at beginning of year..... 20 1,863 6,865
------- ------- --------
Cash and cash equivalents at end of year .......... $ 1,863 $ 6,865 $ 12,242
======= ======= ========
Supplemental disclosure of cash flow information:
Interest paid.................................... $ 7 $ 48 $ 250
======= ======= ========
Noncash activities:
Convertible preferred stock issued to acquire in-
process research and development................ $ 1,865 $ -- $ 2,000
======= ======= ========
</TABLE>

See accompanying notes.

F-6
<PAGE>

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998

1. Business

Vignette Corporation, or "the Company" is a global provider of e-Business
software products and services, a new category of enterprise solutions
designed to enable businesses to build sustainable online customer
relationships, increase returns on their Internet-related investments and
capitalize on Internet business opportunities. The consolidated financial
statements include the accounts of the Company and its wholly-owned foreign
subsidiary. All material intercompany accounts and transactions have been
eliminated in consolidation.

The Company was incorporated in Delaware on December 19, 1995. Operations
for the period from December 19, 1995 to December 31, 1995 were not
significant.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates, and such
differences could be material to the financial statements.

Revenue Recognition

Revenue from license fees and from sales of software products is recognized
when persuasive evidence of an agreement exists, delivery of the product has
occurred, no significant Company obligations with regard to implementation
remain, the fee is fixed or determinable and collectibility is probable.

Services revenue is primarily comprised of revenue from consulting fees,
maintenance agreements and training. Services revenue from consulting and
training billed on a time and materials basis is recognized as performed.
Services revenue on fixed price service arrangements is recognized upon
completion of specific contractual milestone events, or based on an estimated
percentage of completion as work progresses. Maintenance agreements include
the right to unspecified upgrades on an if-and-when available basis.
Maintenance revenue is deferred and recognized on a straight-line basis as
services revenue over the life of the related agreement, which is typically
one year.

Customer advances and billed amounts due from customers in excess of revenue
recognized are recorded as deferred revenue.

The Company adopted Statement of Position 97-2, Software Revenue
Recognition, or SOP 97-2, and Statement of Position 98-4, Deferral of the
Effective Date of a Provision of SOP 97-2, Software Revenue Recognition, or
SOP 98-4, as of January 1, 1998. SOP 97-2 and SOP 98-4 provide guidance for
recognizing revenue on software transactions and supersede SOP 91-1. The
adoption of SOP 97-2 and SOP 98-4 did not have a material impact on the
Company's financial results. However, full implementation guidelines for this
standard have not yet been issued. Once available, the current revenue
accounting practices may need to change and such changes could affect the
Company's future revenues and earnings.

In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9, Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions. SOP 98-9 amends SOP 98-4 to
extend the deferral of the application of certain passages of SOP 97-2
provided by SOP 98-4 through fiscal years beginning on or before March 15,
1999. All other provisions of SOP 98-9 are effective for

F-7
<PAGE>

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2. Summary of Significant Accounting Policies (continued)

transactions entered into in fiscal years beginning after March 15, 1999. The
Company believes that the adoption of SOP 98-9 will not have a material effect
on the Company's results of operations or financial condition.

Cash Equivalents

Cash equivalents consist primarily of cash deposits and investments with
original maturities of ninety days or less when purchased.

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation.
Depreciation of property and equipment is computed using the straight-line
method over the useful lives of the assets (generally 1.5 to 3 years).
Amortization of assets recorded under capital leases is computed using the
straight-line method over the shorter of the asset's useful life or the term
of the lease and such amortization is included with depreciation expense.

Research and Development

Research and development expenditures are expensed to operations as
incurred. Statement of Financial Accounting Standards No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,
requires capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion
of a working model. Costs incurred by the Company between completion of the
working model and the point at which the product is ready for general release
have been insignificant. Through December 31, 1998, all software development
costs have been expensed.

Advertising Costs

The Company expenses advertising costs as incurred. These expenses were
approximately $1,000, $158,000 and $85,000 for the years ended December 31,
1996, 1997 and 1998, respectively.

Income Taxes

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
This Statement prescribes the use of the liability method whereby deferred tax
asset and liability account balances are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

Foreign Currency Transactions

For the Company's foreign subsidiary, the functional currency has been
determined to be the local currency, and therefore, assets and liabilities are
translated at year end or period end exchange rates, and income statement
items are translated at average exchange rates prevailing during the year or
period. Such translation adjustments are recorded in aggregate as a component
of stockholders' equity. Gains and losses from foreign currency denominated
transactions are included in other income (expense) and are not material. No
foreign operations existed for the year ended December 31, 1996.

Stock-Based Compensation

FASB Statement No. 123, Accounting for Stock-Based Compensation, (SFAS 123)
prescribes accounting and reporting standards for all stock-based compensation
plans, including employee stock options. As allowed by SFAS 123, the Company
has elected to continue to account for its employee stock-based compensation
in accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25).

F-8
<PAGE>

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2. Summary of Significant Accounting Policies (continued)

Concentration of Credit Risk

Financial instruments which potentially subject the Company to
concentrations of credit risk consist of short-term investments and trade
receivables. The Company's short-term investments, which are included in cash
and cash equivalents for reporting purposes, are placed with high credit
quality financial institutions and issuers. The Company performs periodic
credit evaluations of its customers' financial condition and generally does
not require collateral. The following table summarizes the changes in
allowance for doubtful accounts for trade receivables (in thousands):

<TABLE>
<S> <C>
Balance at January 1, 1996......................................... $ --
Additions charged to costs and expenses............................ --
Write-off of uncollectible accounts................................ --
------
Balance at December 31, 1996....................................... --
Additions charged to costs and expenses............................ 92
Write-off of uncollectible accounts................................ (55)
------
Balance at December 31, 1997....................................... 37
Additions charged to costs and expenses............................ 273
Write-off of uncollectible accounts................................ (13)
------
Balance at December 31, 1998....................................... $ 297
======
</TABLE>

Customers A and B accounted for 13% and 11%, respectively, of the Company's
total revenue for the year ended December 31, 1997. No customers accounted for
more than 10% of the Company's total revenue during the years ended December
31, 1996 and 1998.

Net Loss Per Share

The Company follows the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share (SFAS 128). Basic net loss per share is
computed by dividing net loss available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted net
loss per share has not been presented as the effect of the assumed exercise of
stock options, warrants and contingently issued shares is antidilutive due to
the Company's net loss.

The Company's historical capital structure is not indicative of its
prospective structure due to the automatic conversion of all shares of
convertible preferred stock and redeemable convertible preferred stock into
common stock concurrent with the closing of the Company's anticipated initial
public offering. Accordingly, a pro forma calculation assuming the conversion
of all outstanding shares as of December 31, 1998 of convertible preferred
stock and redeemable convertible preferred stock into common stock upon the
Company's initial public offering using the if-converted method from their
respective dates of issuance is presented.

F-9
<PAGE>

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2. Summary of Significant Accounting Policies (continued)

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

<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Net loss........................................ $(3,626) $(7,474) $(26,197)
======= ======= ========
Basic:
Weighted-average shares of common stock
outstanding................................... 6,524 6,950 9,802
Weighted-average shares of common stock subject
to repurchase................................. (5,264) (3,374) (4,104)
------- ------- --------
Shares used in computing basic net loss per
share......................................... 1,260 3,576 5,698
======= ======= ========
Basic net loss per share....................... $ (2.88) $ (2.09) $ (4.60)
======= ======= ========
Pro forma:
Shares used above.............................. 5,698
Pro forma adjustment to reflect weighted effect
of assumed conversion of convertible preferred
stock......................................... 30,110
--------
Shares used in computing pro forma basic net
loss per share................................ 35,808
========
Pro forma basic net loss per share............. $ (0.73)
========
</TABLE>

Segments

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

Derivative Instruments and Hedging Activities

In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on results of
operations or the financial position of the Company.

F-10
<PAGE>

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. Redeemable Convertible Preferred Stock and Stockholders' Equity

Summary of Preferred Stock

As of December 31, 1998, there were 35,414,460 shares authorized to be
designated as preferred stock. The eight classes of preferred stock designated
as of December 31, 1998 are as follows (704,342 shares remain undesignated):

<TABLE>
<CAPTION>
Shares Issued Consideration per
Shares and Share Received on
Par Value Designated Outstanding Issuance
--------- ---------- ------------- -----------------
<S> <C> <C> <C> <C>
Redeemable convertible
preferred stock:
Series A.............. $.01 1,603,488 1,573,970 $ .26 cash
Series B.............. $.01 7,292,160 7,292,154 .42 cash
Series E.............. $.01 9,280,524 9,280,494 1.08 cash
Series F.............. $.01 5,374,372 5,374,336 2.67 cash
Series H.............. $.01 2,282,264 2,048,176 4.15 cash
---------- ----------
25,832,808 25,569,130
========== ==========
Convertible preferred
stock:
Series C.............. $.01 7,338,662 7,338,630 $ .26 technology
Series D.............. $.01 786,988 257,218 .42 cash
Series G.............. $.01 751,660 751,660 2.67 technology
---------- ----------
8,877,310 8,347,508
========== ==========
</TABLE>

F-11
<PAGE>

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. Redeemable Convertible Preferred Stock and Stockholders' Equity (continued)

Each holder of Series A, B, E, F and H Preferred Stock may elect to require
the Company to redeem on or after the dates specified below, and in the
amounts specified below, any such shares which were purchased by the
stockholder, net of any shares previously redeemed, plus any accrued and
unpaid dividends:

<TABLE>
<CAPTION>
Percentage of Shares
Acquired Which May Redemption
Mandatory Redemption Date be Redeemed Amount
------------------------- -------------------- --------------
(in thousands)
<S> <C> <C>
April 22, 2005 50% $18,129
April 22, 2006 75% 27,194
April 22, 2007 100% 36,258
</TABLE>

The Company's preferred stock has the following characteristics at December
31, 1998:

<TABLE>
<CAPTION>
Description Dividend Features Liquidation Preference Conversion Features Redemption Features
- ----------- ----------------- ---------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Series A Cumulative at an $.26 per share One for one subject $.26 per share
annual rate of plus accrued to certain plus accrued and
$.02 per share and unpaid antidilution unpaid dividends
beginning dividends (1) adjustments, as
January 1, 1999 defined
payable upon
liquidation or
conversion
Series B Cumulative at an $.42 per share One for one subject $.42 per share
annual rate of plus accrued to certain plus accrued and
$.03 per share and unpaid antidilution unpaid dividends
beginning dividends (1) adjustments, as
January 1, 1999 defined
payable upon
liquidation or
conversion
Series C Cumulative at an $.26 per share One for one subject None
annual rate of plus accrued to certain
$.02 per share and unpaid antidilution
beginning dividends (1) adjustments, as
January 1, 1999 defined
payable upon
liquidation or
conversion
Series D Non-cumulative $.42 per share One for one subject None
at the same rate plus accrued to certain
as dividends and unpaid antidilution
paid on common dividends adjustments, as
stock payable defined
upon liquidation
or conversion
Series E Cumulative at an $1.08 per One for one subject $1.08 per share
annual rate of share plus to certain plus accrued and
$.07 per share accrued and antidilution unpaid dividends
beginning June unpaid adjustments, as
6, 2000 payable dividends (1) defined
upon liquidation
or conversion
Series F Cumulative at an $2.67 per One for one subject $2.67 per share
annual rate of share plus to certain plus accrued and
$.16 per share accrued and antidilution unpaid dividends
beginning April unpaid adjustments, as
22, 2001 payable dividends (1) defined
upon liquidation
or conversion
Series G Same as Series D $2.67 per One for one subject None
share plus to certain
accrued and antidilution
unpaid adjustments, as
dividends defined
Series H Cumulative at an $4.15 per One for one subject $4.15 per share
annual rate of share plus to certain plus accrued and
$.25 per share accrued and antidilution unpaid dividends
beginning unpaid adjustments, as
November 30, dividends (1) defined (2)
2001 payable
upon liquidation
or conversion
</TABLE>
- --------
(1) In addition to the liquidation preference amount shown, the preferred
stockholder also participates on a pro rata basis with common stockholders
in the liquidation of additional proceeds, if any, as specified by the
preferred stock agreement.
(2) The Series H Preferred Stock price of $4.15 per share is subject to
certain downward adjustments, through an adjustment in the shares of
common stock issuable upon conversion, in the event that the Company does
not complete a public offering at a price per share approximately 25%
higher than the price paid by the Series H preferred stockholders. The
adjustments can reduce the per share value of the Series H Preferred Stock
to as low as $2.67 per share.

F-12
<PAGE>

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. Redeemable Convertible Preferred Stock and Stockholders' Equity (continued)

Voting Rights

Each share of common stock has one voting right. Each series of redeemable
convertible preferred stock and convertible preferred stock have voting rights
equal to the number of common shares into which all shares of a particular
series of preferred stock could then be converted.

Stock Option/Stock Issuance Plan

The Company has a 1995 Stock Option/Stock Issuance Plan (the "Plan") whereby
employees, members of the Board of Directors, and independent advisors may be
granted options to purchase shares of the Company's common stock or may be
issued shares of the Company's common stock directly. Options are immediately
exercisable subject to a repurchase agreement. 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. Options for 23,849,672 shares were authorized under the Plan at
December 31, 1998. Stock issuances may be for purchase or as a bonus for
services rendered to the Company.

Upon certain events, the Company has repurchase rights for unvested shares
equal to the original exercise price. The Company also has the right of first
refusal for any proposed disposition of shares issued under the Plan.

In 1998, the Company recorded total deferred stock compensation of
$8,671,000 in connection with stock options granted during the year ended
December 31, 1998. This amount represents the difference between the exercise
price of stock options grants for 8,497,206 shares of common stock and the
deemed fair value of the Company's common stock at the time of such grants
which ranged from $.11 to $3.31 per share and $.15 to $6.61 per share,
respectively. Such amount is being amortized over the vesting periods of the
applicable options, resulting in amortization of $2,475,000 for the year ended
December 31, 1998.

A summary of the Company's stock option activity and related information
through December 31, 1998 follows:

<TABLE>
<CAPTION>
Range of Weighted-
Number of Exercise Average
Shares Prices Exercise Price
---------- ----------- --------------
<S> <C> <C> <C>
Options outstanding--January 1, 1996. -- $ -- $ --
Granted............................ 7,880,078 .01 - .05 .01
Exercised.......................... (6,748,884) .01 - .05 .01
Canceled........................... --
----------
Options outstanding--December 31,
1996................................ 1,131,194 .03 - .05 .04
Granted............................ 4,990,806 .05 - .11 .08
Exercised.......................... (517,674) .05 - .11 .05
Canceled........................... (1,251,374) .05 - .11 .05
----------
Options outstanding--December 31,
1997................................ 4,352,952 .03 - .11 .09
Granted............................ 11,706,468 .11 - 3.31 1.45
Exercised.......................... (4,425,746) .05 - 3.18 .12
Canceled........................... (792,520) .05 - 2.42 .20
----------
Options outstanding, December 31,
1998................................ 10,841,154 .03 - 3.31 1.55
==========
Options available for grant at
December 31, 1998................... 1,316,214
==========
</TABLE>

F-13
<PAGE>

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. Redeemable Convertible Preferred Stock and Stockholders' Equity (continued)

The following is a summary of options outstanding and exercisable as of
December 31, 1998:

<TABLE>
<CAPTION>
Number of Options Weighted-Average
Outstanding and Exercisable Remaining Contractual Life Weighted-Average
Range of Exercise Prices at December 31, 1998 (in years) Exercise Price
------------------------ --------------------------- -------------------------- ----------------
<S> <C> <C> <C>
$.03 to $.07 451,908 6.0 $ .05
$ .11 1,997,052 7.2 $ .11
$ .54 2,846,282 7.5 $ .53
$1.28 to $1.78 908,906 7.8 $1.69
$2.42 1,036,224 7.8 $2.42
$3.18 to $3.31 3,600,782 8.0 $3.18
----------
10,841,154 7.6 $1.55
==========
</TABLE>

A total of 5,197,446 shares of outstanding common stock were unvested at
December 31, 1998 and may be repurchased by the Company should vesting
requirements not be fulfilled.

Pro forma information regarding net loss is required by Statement No. 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using a minimum value option
pricing model with the following assumptions:
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate............................. 6% 6% 6%
Weighted-average expected life of the options....... 4 years 4 years 4 years
Dividend rate....................................... 0% 0% 0%
Assumed volatility.................................. 0% 0% 0%
Weighted average fair value of options granted:
Exercise price equal to fair value of stock on
date of grant.................................... $.01 $.02 $1.10
Exercise price less than fair value of stock on
date of grant.................................... -- -- $ .89
</TABLE>

For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands, except per share data):

<TABLE>
<CAPTION>
Year ended
December 31,
--------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Pro forma stock-based compensation expense...... $ 1 $ 11 $ 259
Pro forma net loss.............................. $(3,627) $(7,485) $(26,456)
Pro forma basic net loss per share.............. $ (2.88) $ (2.10) $ (4.65)
</TABLE>

Stock Plans

In September 1998, the Board of Directors adopted the 1999 Equity Incentive
Plan ("1999 Plan") subject to stockholder approval. Under the 1999 Plan, the
eligible individuals are: employees, non-employee members of the Board of
Directors and consultants. The types of awards that may be made under the 1999
Plan are options to purchase shares of common stock, stock appreciation
rights, restricted shares and stock units. The Company has reserved 2,000,000
shares for issuance under the 1999 Plan subject to stockholder approval. As of
December 31, 1998, stockholder approval had not yet occurred and, accordingly,
no options had been granted under the 1999 Plan.

F-14
<PAGE>

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. Redeemable Convertible Preferred Stock and Stockholders' Equity (continued)

In September 1998, the Board of Directors adopted the Employee Stock
Purchase Plan ("ESPP") subject to stockholder approval. The Company has
reserved 1,500,000 shares of common stock for issuance under the ESPP subject
to stockholder approval. As of January 1 each year, the number of shares
reserved for issuance under the ESPP will be increased automatically to 2% of
the total number of shares of common stock outstanding or, if less, 1,500,000
shares. As of December 31, 1998, stockholder approval had not yet occurred
and, accordingly, no options had been granted under the ESPP.

In September 1998, the Board of Directors adopted the 1999 Non-Employee
Directors Option Plan subject to stockholder approval. Under the 1999 Non-
Employee Directors Option Plan, non-employee members of the Board of Directors
will be eligible for automatic option grants. A maximum of 500,000 shares of
common stock has been authorized for issuance under the 1999 Non-Employee
Directors Option Plan subject to stockholder approval. As of December 31,
1998, stockholder approval had not yet occurred and, accordingly, no options
had been granted under the 1999 Non-Employee Directors Option Plan.

Warrants

In connection with the issuance of Series A Redeemable Convertible Preferred
Stock in February 1996, the Company also issued a warrant to purchase 29,512
shares of Series A Redeemable Convertible Preferred Stock at $.26 per share to
a corporation. The warrant is exercisable at any time before the later to
occur of March 2006 or five years after a Qualified Public Offering, as that
term is defined.

A warrant to purchase 257,218 shares of Series D Convertible Preferred Stock
was granted to a Board member at $.42 per share during 1996. The warrant was
exercised in 1997.

No amount was allocated to the value of the above warrants as such amounts
were not significant.

In December 1998, the Company entered into agreements with a company
providing for available credit of up to $5 million and an equipment lease line
of $1.25 million. In connection with such agreements, the Company issued a
warrant to the company to purchase 180,716 shares of Series H Redeemable
Convertible Preferred Stock at an exercise price of $4.15. The Company valued
the warrant at $169,000 using the Black-Scholes model, an assumed volatility
of 51%, a risk-free interest rate of 6%, a weighted-average expected life of 1
year, and a dividend rate of 0%.

Reserved Shares of Common Stock

At December 31, 1998, the Company had reserved 34,126,866 shares of its
common stock for issuance upon conversion of its various series of preferred
stock and exercise of its warrants. At December 31, 1998, another 12,157,368
shares of common stock were reserved for issuance under the Company's 1995
Stock Option/Stock Issuance Plan.

F-15
<PAGE>

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. Long-term Debt

Long-term debt consisted of the following (in thousands):

<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------ -------
<S> <C> <C>
Bank line of credit of $8,000--outstanding principal
balance payable upon maturity in December 1999. Line bears
interest at prime + .75% and is due monthly. ............. $ -- $ 1,500
Bank line of credit of $2,000--outstanding principal
balance payable monthly in thirty-six equal installments
beginning December 1998. Line bears interest at prime +
.75% and is due monthly. ................................. 850 1,153
Subordinated line of credit of $5,000 from a company--
outstanding principal balance payable monthly in thirty
equal installments beginning six months after the
execution of an Advanced Request, as defined. Line bears
interest at 12% and is due monthly........................ -- --
Lease financing credit of $1,250 from a company--
outstanding principal balance payable monthly in thirty-
six equal installments beginning upon execution of an
Equipment Schedule under the Master Lease Agreement, as
defined. Line bears interest at 7.5% and is due monthly... -- --
------ -------
850 2,653
Less current portion....................................... (24) (1,895)
------ -------
Long-term portion.......................................... $ 826 $ 758
====== =======
Available for future borrowings............................ $2,150 $13,597
====== =======
</TABLE>

The borrowings under the lines of credit are collateralized by all tangible
and intangible property of the Company.

The aggregate maturities of long-term debt at December 31, 1998 are as
follows (in thousands):

As of December 31, 1997 and 1998, all of the Company's outstanding long-term
debt has a variable interest rate and, accordingly, the Company believes the
carrying value of the long-term debt approximates its fair value.

5. Lease Commitments

The Company has financed the acquisition of certain computers and equipment
through sale-leaseback transactions which are accounted for as financings.
Included in property and equipment at December 31, 1997 and 1998 are the
following assets held under capital leases (in thousands):

<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Property and equipment........................................ $ 65 $ 65
Less accumulated depreciation................................. (31) (65)
----- ------
$ 34 $ --
===== ======
</TABLE>

F-16
<PAGE>

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. Lease Commitments (continued)

Future minimum lease payments for assets under capital leases at December
31, 1998 are $7,000 all of which is due to be paid by December 31, 1999.

The Company leases its office facilities and office equipment under various
operating lease agreements. Future minimum payments as of December 31, 1998,
under these leases, are as follows (in thousands):

<TABLE>
<S> <C>
1999.................................. $2,058
2000.................................. 1,943
2001.................................. 1,957
2002.................................. 2,015
2003.................................. 1,847
Thereafter............................ --
------
$9,820
======
</TABLE>

Rent expense for the years ended December 31, 1996, 1997 and 1998 was
$95,000, $263,000 and $1,512,000, respectively.

6. Income Taxes

As of December 31, 1998, the Company had net operating loss and research and
development credit carryforwards of approximately $27,023,000 and $560,000,
respectively. The net operating loss and credit carryforwards will expire at
various dates, beginning in 2011, if not utilized.

The Tax Reform Act of 1986 imposes substantial restrictions on the
utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation. The Company's utilization of the net
operating losses will be subject to a substantial annual limitation due to an
"ownership change" resulting from the sales of private equity securities. The
annual limitation may result in the expiration of net operating losses before
utilization.

F-17
<PAGE>

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. Income Taxes (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, 1997 and 1998 are as
follows (in thousands):

<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
------- --------
<S> <C> <C>
Deferred tax liabilities:
Depreciable assets...................................... $ (19) $ --
Other................................................... (9) (47)
------- --------
(28) (47)
Deferred tax assets:
Depreciable assets...................................... -- 118
Deferred revenue........................................ -- 1,143
Tax carryforwards....................................... 3,704 10,558
Software development costs.............................. 383 153
Amortization of deferred stock compensation............. -- 918
Accrued liabilities and other........................... 92 440
------- --------
4,179 13,330
------- --------
Net deferred tax assets................................... 4,151 13,283
Valuation allowance for net deferred tax assets........... (4,151) (13,283)
------- --------
Net deferred taxes........................................ $ -- $ --
======= ========
</TABLE>

The Company has established a valuation allowance equal to the net deferred
tax asset due to uncertainties regarding the realization of deferred tax
assets based on the Company's lack of earnings history. The valuation
allowance increased by approximately $2,805,000 during the year ended December
31, 1997 and $9,132,000 during the year ended December 31, 1998.

Undistributed earnings of the Company's foreign subsidiary were immaterial
as of December 31, 1998. Those earnings are considered to be permanently
reinvested and, accordingly, no provision for U.S. federal and/or state income
taxes has been provided thereon.

The Company's provision for income taxes differs from the expected tax
benefit amount computed by applying the statutory federal income tax rate of
34% to income before income taxes as a result of the following:

<TABLE>
<CAPTION>
Year ended
December 31,
---------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate.. (34.0)% (34.0)% (34.0)%
State taxes, net of
federal benefit........ (3.0) (3.0) (2.7)
In-process research and
development............ -- -- 2.7
Change in valuation
allowance.............. 37.0 37.0 34.8
Other................... -- -- (.8)
----- ----- -----
0 % 0 % 0 %
===== ===== =====
</TABLE>

F-18
<PAGE>

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7. Acquired In-Process Research and Development

During May 1998, the Company acquired from RandomNoise, Inc. certain in-
process research and development effort, a developed product and an
insignificant amount of equipment in exchange for $100,000 in cash and 751,660
shares of the Company's Series G Convertible Preferred Stock valued at $2.67
share or $2,000,000. Substantially all of the $2,100,000 purchase price was
allocated to the acquired in-process research and development efforts based
upon the following: (i) the Company assigned no value to the developed product
as the Company does not intend to sell, support or enhance such product and
the Company believes it has no alternative future use; (ii) the $2.67 per
share ascribed to the Company's Series G Convertible Preferred Stock was based
on the value per share received from the issuance of Series F Redeemable
Convertible Preferred Stock, which occurred in April 1998; and (iii) the
allocation of the entire $2,100,000 purchase price was determined to be
reasonable based on the Company's estimate of costs it would incur if it had
performed this effort internally.

The in-process research and development effort relates to the development of
visual development tool technology using graphical user interface ("GUI")
technology not present in the developed product acquired from RandomNoise and
not possessed by the Company and at the time of purchase the results of the
in-process research and development effort had not progressed to a stage where
they met technological feasibility. At the time of the transaction, the
Company estimated that an additional 90 person months or $900,000 in costs
would be required to complete the beta version of the new GUI-based technology
tool, which is expected to be released in February 1999. The additional person
months were required to add certain key elements, including: the ability to
integrate with database oriented dynamic publishing systems; database
interfacing capabilities; enhanced and consistent application performance;
memory requirements consistent with those of the Company's other product;
multiple Internet browser recognition capabilities; standardized
documentation; and automated testing capabilities. As this was the Company's
first attempt to develop GUI-based technology, at the time of the transaction
there existed a significant amount of uncertainty as to the Company's ability
to complete the development of a new product within a timeframe acceptable to
the market and ahead of competitors. Additionally, the amount of development
required to enable the acquired in-process research and development to be
compatible with the Company's primary product was significant, which increased
the uncertainty surrounding its successful development. If the Company is not
successful in completing the development within the contemplated timeframe,
the Company believes that although sales of its primary product to certain
customers may be delayed, it will not have a significant adverse effect on the
Company's results from operations.

The Company has incurred approximately 92 person months or $920,000 in costs
related to development of the acquired in-process research and development and
estimates that approximately 13 person months or $130,000 in costs will be
required to complete the development. The Company currently anticipates
releasing the completed product in the first quarter of 1999.

During July 1996, the Company acquired from CNET, certain software and
related intellectual property rights for 7,338,630 shares of the Company's
Series C Convertible Preferred Stock valued at $1,865,000. At the time the
software technology was acquired, a significant amount of uncertainty
surrounded the successful development of the product as the Company was still
in its formation stage and was unproven in its ability to successfully develop
and market any software product. Also, a significant amount of technical risk
existed, as the viability of the intended product would be jeopardized if the
Company were not successful in programming a user interface, programming an
installation and configuration capability, porting the software to operate on
more recent versions or additional platforms such as Netscape browser, Sybase,
Oracle and Informix database software, and adding quality assurance test
suites. These key elements were subsequently developed by the Company and led
to a beta product released in December 1996. All of the $1,865,000 purchase
price was allocated to acquired in-process research and development efforts.

F-19
<PAGE>

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Employee 401(k) Plan

In 1997, the Company established a voluntary defined contribution retirement
plan qualifying under Section 401(k) of the Internal Revenue Code of 1986. The
Company made no contributions in the years ended December 31, 1997 and 1998.

9. Segments of Business and Geographic Area Information

The Company considers its business activities to constitute a single
segment.

A summary of the Company's operations by geographic area follows (in
thousands):

<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Revenue:
United States
Domestic..................................... $ -- $ 2,948 $ 12,471
Other........................................ -- 76 522
------- ------- --------
Total United States........................ -- 3,024 12,993
Europe and Australia........................... -- -- 3,212
------- ------- --------
Total revenue.............................. $ -- $ 3,024 $ 16,205
======= ======= ========
Net loss:
United States.................................. $(3,626) $(7,447) $(25,756)
Europe and Australia........................... -- (27) (441)
------- ------- --------
Total...................................... $(3,626) $(7,474) $(26,197)
======= ======= ========
Identifiable assets:
United States.................................. $ 8,417 $ 20,486
Europe and Australia........................... 82 2,295
------- --------
Total...................................... $ 8,499 $ 22,781
======= ========
</TABLE>

10. Subsequent Stock Splits

On December 2, 1998, the Company's Board of Directors approved a 1.9674701-
for-1 stock split of common and preferred stock. Such stock split was also
approved by a majority of the Company's stockholders on February 16, 1999. All
common and preferred stock information has been adjusted to reflect the stock
split as if such split had taken place at the inception of the Company.

In November 1999, the Company announced a two-for-one forward stock split to
be effected in the form of a stock dividend. Stockholders will receive one
additional share for every share of Vignette common stock held on the record
date of November 15, 1999. These shares are expected to be payable after
market close on December 1, 1999. All Vignette common stock, preferred stock,
and per share information has been adjusted to reflect the stock dividend as
if such stock dividend had taken place at the inception of the Company.

11. Subsequent Events (Unaudited)

During the nine months ended September 30, 1999, the Company recorded
additional deferred stock compensation in the amount of approximately $13.0
million representing the difference between the exercise price of stock option
grants for approximately 1,082,872 shares of common stock and the deemed fair
value of the Company's common stock at the time of such grants. Such amount
will be amortized over the vesting periods of the applicable options.

F-20
<PAGE>

VIGNETTE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Initial Public Offering

In February 1999, the Company completed an initial public offering in which
the Company sold 8,560,000 shares of its common stock for net proceeds to the
Company of $73.9 million. Upon closing of the initial public offering, each
outstanding share of the Company's Redeemable Convertible Preferred Stock and
Convertible Preferred Stock was automatically converted into one share of
common stock of the Company resulting in the issuance of 33,916,638 shares of
common stock.

Business Combination

Effective June 30, 1999, Vignette acquired 100 percent of the outstanding
stock and assumed all outstanding stock options of Diffusion, Inc.
("Diffusion"), a developer of multi-channel information delivery solutions, in
exchange for 786,542 shares of Vignette common stock. The total cost of the
acquisition, including transaction costs, was approximately $31.2 million.

Supplemental Stock Option Plan

On July 1, 1999, the Company's Board of Directors adopted the 1999
Supplemental Stock Option Plan ("1999 Supplemental Plan"). Under the 1999
Supplemental Plan, the eligible individuals are employees and consultants.
Officers may not participate in the 1999 Supplemental Plan. The type of award
that may be made under the 1999 Supplemental Plan is nonstatutory stock
options. With limited restrictions, if options expire under the 1999
Supplemental Plan, then those shares will again become available for new
option grants under the 1999 Supplemental Plan. The Company has reserved
8,000,000 shares for issuance under the 1999 Supplemental Plan.

Investment

In October 1999, the Company purchased equity securities of Vitessa
(formerly ECDirect) in exchange for $22.9 million in cash. The investment
represents a 15% ownership position in Vitessa, and provides a strategic
partnership in which Vignette will integrate Vitessa's core technology for
distributed e-commerce into Vignette's e-Business applications.

F-21
<PAGE>

VIGNETTE CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)

<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 73,702
Accounts receivable, net....................................... 23,502
Prepaid expenses and other..................................... 2,386
--------
Total current assets......................................... 99,590
Property and equipment, net...................................... 5,493
Intangibles, net................................................. 15,380
Acquired technology.............................................. 5,985
Other assets..................................................... 5,616
--------
Total assets................................................. $132,064
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.......................... $ 16,579
Deferred revenue............................................... 29,728
Current portion of long-term debt and capital lease obligation. 274
Other current liabilities...................................... 1,151
--------
Total current liabilities.................................... 47,732
Long-term debt and capital lease obligation, less current
portion......................................................... 8
--------
Total liabilities............................................ 47,740
Stockholders' equity............................................. 84,324
--------
Total liabilities and stockholders' equity................... $132,064
========
</TABLE>

See accompanying notes.

F-22
<PAGE>

VIGNETTE CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
Revenue:
Product license.......................................... $ 24,562 $ 5,152
Services................................................. 23,681 4,359
-------- --------
Total revenue.............................................. 48,243 9,511
Cost of revenue:
Product license.......................................... 1,930 510
Services................................................. 19,968 5,579
-------- --------
Total cost of revenue...................................... 21,898 6,089
Gross profit............................................... 26,345 3,422
Operating expenses:
Research and development................................. 10,231 4,840
Sales and marketing...................................... 28,819 9,398
General and administrative............................... 5,986 3,451
Purchased in-process research and development,
acquisition-related and other charges................... 15,183 2,089
Amortization of deferred stock compensation.............. 4,118 867
Amortization of intangibles.............................. 898 --
-------- --------
Total operating expenses................................... 65,235 20,645
-------- --------
Loss from operations....................................... (38,890) (17,223)
Other income, net.......................................... 2,039 204
-------- --------
Net loss................................................... $(36,851) $(17,019)
======== ========
Basic net loss per share................................... $ (0.86) $ (3.86)
======== ========
Shares used in computing basic net loss per share.......... 42,866 4,410
======== ========
</TABLE>

See accompanying notes.

F-23
<PAGE>

VIGNETTE CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
Operating activities
Net loss................................................... $(36,851) $(17,019)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 1,807 737
Non cash compensation expense............................. 4,118 867
Amortization of intangibles............................... 898 --
Purchased in-process research and development,
acquisition-related and other charges.................... 14,512 2,000
Loss on disposal of fixed assets.......................... -- 101
Changes in operating assets and liabilities net of effects
from purchase of business:
Accounts receivable, net.................................. (15,899) (4,333)
Prepaid expenses and other assets......................... (2,341) (872)
Accounts payable and accrued expenses..................... 6,436 4,941
Deferred revenue.......................................... 22,919 3,672
Other liabilities......................................... 729 173
-------- --------
Net cash used in operating activities.................... (3,672) (9,733)
Investing activities
Purchase of property and equipment......................... (5,368) (1,049)
Purchase of business, net of cash acquired................. 56 --
Purchase of equity securities.............................. (4,025) --
-------- --------
Net cash used in investing activities.................... (9,337) (1,049)
Financing activities
Proceeds from issuance of common stock, net................ 73,914 --
Proceeds from issuance of series F convertible preferred
stock, net................................................ -- 14,246
Payments for series G convertible preferred stock issuance
costs..................................................... -- (14)
Proceeds from long-term debt and capital lease obligation.. -- 1,837
Payments on long-term debt and capital lease obligation.... (2,734) (17)
Proceeds from exercise of stock options.................... 3,163 265
Proceeds from repayment of shareholder notes receivable.... 59 --
Payments for repurchase of unvested common stock........... (8) (1)
-------- --------
Net cash provided by financing activities................ 74,394 16,316
Effect of exchange rate on cash and cash equivalents....... 75 (2)
-------- --------
Net increase in cash and cash equivalents.................. 61,460 5,532
Cash and cash equivalents at beginning of period........... 12,242 6,865
-------- --------
Cash and cash equivalents at end of period................. $ 73,702 $ 12,397
======== ========
</TABLE>

Supplemental schedule for noncash investing and financing activities:

Effective June 30, 1999, the Company purchased all of the outstanding
capital stock of Diffusion, Inc. in exchange for 786,542 shares of the
Company's common stock. In conjunction with the acquisition, the fair value of
assets acquired and liabilities assumed were as follows:

<TABLE>
<S> <C>
Fair value of assets acquired....................................... $34,503
Liabilities assumed................................................. (3,269)
-------
Fair value of common stock issued and transaction costs............. $31,234
=======
</TABLE>

See accompanying notes.

F-24
<PAGE>

VIGNETTE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 1999

1. General and Basis of Financial Statements

The unaudited interim condensed consolidated financial statements include
the accounts of Vignette Corporation and its wholly-owned subsidiaries
(collectively, the "Company" or "Vignette"). All material intercompany
accounts and transactions have been eliminated in consolidation.

The financial statements included herein reflect all adjustments, consisting
only of normal recurring adjustments, which in the opinion of management are
necessary to fairly state the Company's financial position, results of
operations and cash flows for the periods presented. These financial
statements should be read in conjunction with the Company's consolidated
financial statements and notes thereto for the year ended December 31, 1998,
which are contained in the Company's Registration Statement filed on Form S-1,
as amended, on February 18, 1999 (File No. 333-68345) as well as with other
documents filed with the Securities and Exchange Commission. The results of
operations for the nine-month periods ended September 30, 1999 and 1998 are
not necessarily indicative of results that may be expected for any other
interim period or for the full fiscal year.

2. Net Loss Per Share

Basic net loss per share is based on the weighted effect of all common
shares issued and outstanding and is calculated by dividing net loss available
to common stockholders by the weighted average shares outstanding during the
period. Diluted net loss per share is calculated by dividing net loss
available to common stockholders by the weighted average number of common
shares used in the basic net loss per share calculation plus the number of
common shares that would be issued assuming conversion of all potentially
dilutive common shares outstanding. Diluted net loss per share has not been
presented as the effect of the assumed exercise of stock options, warrants and
contingently issued shares is antidilutive due to the Company's net loss for
the indicated period.

The Company's historical capital structure is not indicative of its
prospective structure due to the automatic conversion of all shares of
convertible preferred stock and redeemable convertible preferred stock into
common stock concurrent with the closing of the Company's recent initial
public offering. Accordingly, a pro forma calculation assuming the conversion
of all outstanding shares as of September 30, 1999 and 1998 of convertible
preferred stock and redeemable convertible preferred stock into common stock
upon the Company's initial public offering using the if-converted method from
their respective dates of issuance is presented below.

F-25
<PAGE>

VIGNETTE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
Net loss............................................... $(36,851) $(17,019)
======== ========
Basic:
Shares used in computing basic net loss.............. 42,866 4,410
======== ========
Basic net loss per share............................. $ (0.86) $ (3.86)
======== ========
Pro forma:
Shares used above.................................... 42,866 4,410
Pro forma adjustment to reflect weighted effect of
assumed conversion of convertible preferred stock... 6,088 29,334
-------- --------
Shares used in computing pro forma basic net loss per
share............................................... 48,954 33,744
======== ========
Pro forma basic net loss per share................... $ (0.75) $ (0.50)
======== ========
</TABLE>

3. Comprehensive Loss

The components of comprehensive loss are as follows (in thousands):

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
Net loss................................................ $(36,851) $(17,019)
Foreign currency translation adjustments................ 75 (2)
-------- --------
Comprehensive loss...................................... $(36,776) $(17,021)
======== ========
</TABLE>

4. Business Combinations

The acquisition was accounted for as a purchase business combination.
Accordingly, the results of operations of Diffusion have been included with
those of the Company for periods subsequent to the date of acquisition, and
the effective date of the acquisition. The following table presents the
allocation of the purchase price (in thousands):

<TABLE>
<S> <C>
In-process research and development................................ $11,600
Acquired technology................................................ 6,300
Workforce.......................................................... 900
Excess of cost over fair value of net assets acquired.............. 15,063
Net fair value of tangible assets acquired and liabilities assumed. (2,629)
-------
$31,234
=======
</TABLE>

F-26
<PAGE>

VIGNETTE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Included in the acquired net assets of Diffusion was in-process research and
development efforts related to the development of Diffusion Server 4.0.
Diffusion Server 4.0 was expected to expand the delivery capabilities, user
features and functionality of the existing Diffusion Server 3.0 multi-channel
platform as well as add new components. The Company intends to re-work the
acquired technology and integrate it with Vignette's products.

A significant amount of uncertainty existed surrounding the successful
development and completion of the research and development acquired, which was
estimated to be 88% complete at the date of the acquisition. The Company was
uncertain of its ability to complete the development of a new product within a
timeframe acceptable to the market and ahead of competitors. Additionally, the
amount of development required to enable the acquired in-process research and
development to be compatible with StoryServer was significant. The results of
the in-process research and development effort at the time of purchase had not
progressed to a stage where they met technological feasibility as they lacked
many key elements including standardized implementation capabilities and a
scalable and extensible architecture.

The Company assigned values of $11.6 million to in-process research and
development and $6.3 million to existing core technology based upon a modified
discounted cash flow model. The Company based the cash flow projections for
revenue on the projected incremental increase in revenue that the Company
expected to receive from the completed acquired in-process research and
development. Diffusion expected revenue to commence with the product's release
in December 1999 and continue throughout its economic life of five years. The
Company deducted estimated operating expenses from estimated revenue to arrive
at estimated pre-tax cash flows. Projected operating expenses included cost of
goods sold, selling general and administrative expense, and research and
development expense. The Company estimated operating expenses as a percent of
revenue based on Diffusion's historical results for the fiscal years ended
December 31, 1996 to 1998. Projected results for the fiscal years ended
December 31, 1999 to 2001 were also used in combination with past operating
results and industry averages. The Company also deducted capital charges, or
cash flow attributable to other assets such as working capital and assembled
workforce, from pre-tax operating income to isolate the cash flow solely
attributable to the in-process research and development. Income taxes were
then deducted to arrive at after-tax cash flows. The Company discounted the
after-tax cash flow projections using a risk-adjusted rate of return of 23%.
In using the discounted model, the Company excluded the costs to complete the
in-process technology from the research and development expense for 1999, and
the Company reflected the percentage completion of the in-process research and
development in each year's projected cash flow.

In connection with the transaction, the Company has incurred charges
totaling $15.2 million for the write-off of in-process research and
development (based upon an independent third party appraisal), acquisition-
related expenses and integration costs in the consolidated statement of
operations for the nine months ended September 30, 1999. The amounts allocated
to acquired technology and workforce were determined based upon a valuation
performed by an independent third party appraiser and are being amortized over
a five-year period. The excess of cost over fair value of net assets acquired
is being amortized over a seven-year period.

The unaudited pro forma combined results of operations of Vignette and
Diffusion for the nine months ended September 30, 1999 and 1998 after giving
effect to certain pro forma adjustments are as follows (in thousands, except
per share data):

<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
Revenue................................................. $ 48,676 $ 10,420
Operating loss.......................................... (29,203) (24,137)
Net loss................................................ (27,148) (23,795)
Basic net loss per share................................ $ (0.63) $ (4.60)
</TABLE>

F-27
<PAGE>

VIGNETTE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. Subsequent Events

In November 1999, the Company announced a two-for-one forward stock split to
be effected in the form of a stock dividend. Stockholders will receive one
additional share for every share of Vignette common stock held on the record
date of November 15, 1999. These shares are expected to be payable after
market close on December 1, 1999. All Vignette common stock, preferred stock
and per share information has been adjusted to reflect the stock dividend as
if such stock dividend had taken place at the inception of the Company.

F-28
<PAGE>

UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION

Effective June 30, 1999, Vignette Corporation ("Vignette" or the "Company")
acquired 100 percent of the outstanding stock and assumed all outstanding
stock options of Diffusion, Inc. ("Diffusion"), a provider of multi-channel
information delivery solutions, in exchange for 786,542 shares of Vignette
common stock. The total cost of the acquisition, including transaction costs,
was approximately $31.2 million. The acquisition was accounted for as a
purchase business combination.

Attached are unaudited pro forma condensed statements of operations for
Vignette Corporation for the year ended December 31, 1998 and for the nine
months ended September 30, 1999, including related notes thereto. These
statements, including the weighted average number of shares used in the
calculation of the pro forma per share data, assume the acquisition had been
consummated on January 1, 1998. A condensed balance sheet at June 30, 1999,
which reflects the acquisition as of the effective date of June 30, 1999, is
included in the Company's Form 10-Q filed on August 13, 1999.

The unaudited pro forma condensed statements of operations are based on the
historical financial statements of the Company as of September 30, 1999 and
Diffusion as of June 30, 1999. The operations of Diffusion for the period from
July 1, 1999 through September 30, 1999 have been included in the Vignette
historical financial statements. They are not necessarily indicative of the
combined entity's operations had the acquisition actually occurred on the
dates indicated, nor are they necessarily indicative of future operations. The
pro forma adjustments and the assumptions on which they are based are
described in the accompanying notes to the unaudited pro forma condensed
statements of operations.

These unaudited pro forma condensed statements of operations are based on
and should be read in conjunction with the historical consolidated financial
statements and related notes thereto of the Company for the year ended
December 31, 1998 and the nine months ended September 30, 1999 and the
financial statements and notes thereto of Diffusion for the year ended
December 31, 1998 and the six months ended June 30, 1999.

F-29
<PAGE>

VIGNETTE CORPORATION

UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS

For the Year Ended December 31, 1998
(in thousands, except per share data)

<TABLE>
<CAPTION>
Pro Forma
Vignette Diffusion Adjustments Pro Forma
Historical Historical (Note 2) Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Product license................ $ 8,584 $ 752 $ -- $ 9,336
Services....................... 7,621 330 -- 7,951
-------- ------- ------- --------
Total revenue.................... 16,205 1,082 -- 17,287
Cost of revenue:
Product license................ 964 43 -- 1,007
Services....................... 9,340 175 -- 9,515
-------- ------- ------- --------
Total cost of revenue............ 10,304 218 -- 10,522
Gross profit..................... 5,901 864 -- 6,765
Operating expenses:
Research and development....... 6,962 1,795 -- 8,757
Sales and marketing............ 15,880 3,529 -- 19,409
General and administrative..... 4,864 1,268 -- 6,132
Purchased in-process research
and development, acquisition-
related and other
charges....................... 2,089 -- -- 2,089
Amortization of deferred stock
compensation.................. 2,475 -- -- 2,475
Amortization of intangibles.... -- -- 3,547 (a) 3,547
-------- ------- ------- --------
Total operating expenses......... 32,270 6,592 3,547 42,409
-------- ------- ------- --------
Loss from operations............. (26,369) (5,728) (3,547) (35,644)
Other income, net................ 172 174 -- 346
-------- ------- ------- --------
Net loss......................... $(26,197) $(5,554) $(3,547) $(35,298)
======== ======= ======= ========
Basic net loss per share......... $ (4.60) $ (5.47)
======== ========
Shares used in computing basic
net loss per share.............. 5,698 6,456
======== ========
</TABLE>

See accompanying notes.

F-30
<PAGE>

VIGNETTE CORPORATION

UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS

For The Nine Months Ended September 30, 1999
(in thousands, except per share data)

<TABLE>
<CAPTION>
Pro Forma
Vignette Diffusion Adjustments Pro Forma
Historical Historical (Note 2) Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Product license................ $ 24,562 $ 190 $ -- $ 24,752
Services....................... 23,681 243 -- 23,924
-------- ------- ------- --------
Total revenue.................... 48,243 433 -- 48,676
Cost of revenue:
Product license................ 1,930 6 -- 1,936
Services....................... 19,968 80 -- 20,048
-------- ------- ------- --------
Total cost of revenue............ 21,898 86 -- 21,984
Gross profit..................... 26,345 347 -- 26,692
Operating expenses:
Research and development....... 10,231 876 -- 11,107
Sales and marketing............ 28,819 1,827 -- 30,646
General and administrative..... 5,986 1,344 -- 7,330
Purchased in-process research
and development, acquisition-
related and other charges..... 15,183 -- (15,183)(b) --
Amortization of deferred stock
compensation.................. 4,118 -- -- 4,118
Amortization of intangibles.... 898 -- 1,796 (a) 2,694
-------- ------- ------- --------
Total operating expenses......... 65,235 4,047 (13,387) 55,895
-------- ------- ------- --------
Loss from operations............. (38,890) (3,700) 13,387 (29,203)
Other income, net................ 2,039 16 -- 2,055
-------- ------- ------- --------
Net loss......................... $(36,851) $(3,684) $13,387 $(27,148)
======== ======= ======= ========
Basic net loss per share......... $ (0.86) $ (0.63)
======== ========
Shares used in computing basic
net loss per share.............. 42,866 43,366
======== ========
</TABLE>

See accompanying notes.

F-31
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS

1. General

The Company accounted for the acquisition of Diffusion, Inc. as a purchase
business combination. The accompanying unaudited pro forma condensed financial
statements reflect an aggregate purchase price of approximately $31.2 million,
consisting of the fair value of common stock issued ($30.9 million) as well as
transaction costs ($313,000). The following table presents the allocation of
the purchase price (in thousands):

The allocation of in-process research and development, acquired technology
and workforce was based upon an independent valuation.

2. Unaudited Pro Forma Condensed Statements of Operations

The accompanying unaudited pro forma condensed statements of operations have
been prepared as if the acquisition was consummated as of January 1, 1998. Pro
forma adjustments were made to reflect the:

(a) Amortization of acquired intangibles, with amortization periods of
five years for amounts allocated to acquired technology and workforce and
seven years for the excess of cost over fair value of net assets acquired.

(b) Exclusion of the one-time impact for the write-off of in-process
research and development, acquisition-related expenses and integration
costs recorded by the Company in connection with the acquisition.

F-32
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Diffusion, Inc.

We have audited the accompanying balance sheets of Diffusion, Inc. as of
December 31, 1998 and 1997, and the related statements of operations,
shareholders' 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Diffusion, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming Diffusion,
Inc. will continue as a going concern. As more fully described in Note 1, the
Company has incurred operating losses since inception and has insufficient
cash and cash equivalents on hand at December 31, 1998 to fund its operations
for the next fiscal year. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification
of liabilities that may result from the outcome of this uncertainty.

/s/ Ernst & Young LLP

Palo Alto, California
February 27, 1999

F-33
<PAGE>

DIFFUSION, INC.

BALANCE SHEETS
(in thousands, except number of shares)

<TABLE>
<CAPTION>
December 31,
----------------- June 30,
1998 1997 1999
-------- ------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 1,864 $ 1,118 $ 30
Short-term investments........................ 998 998 --
Accounts receivable, net of allowance of $24
and $22 at December 31, 1998 and 1997........ 212 196 115
Prepaid expenses and other current assets..... 149 191 332
-------- ------- --------
Total current assets........................ 3,223 2,503 477
Property and equipment, net..................... 240 442 156
Other assets.................................... 19 125 19
-------- ------- --------
$ 3,482 $ 3,070 $ 652
======== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................. $ 221 $ 367 $ 661
Accrued compensation.......................... 377 297 351
Deferred revenue.............................. 209 228 643
Other accrued liabilities..................... 427 264 264
Current portion of capital lease obligations.. 233 264 174
-------- ------- --------
Total current liabilities................... 1,467 1,420 2,093
Long-term portion of capital lease obligations.. 130 229 82
Commitments
Shareholders' equity (deficit):
Redeemable convertible preferred stock: no par
value; 14,000,000 shares authorized,
designated Series A; 3,161,500 shares issued
and outstanding at December 31, 1998 and
1997, at amounts paid in (aggregate
liquidation preference of $1,581); Series B;
3,075,000 shares issued and outstanding at
December 31, 1998 and 1997, at amounts paid
in (aggregate liquidation preference of
$4,505); Series C; 2,857,144 shares issued
and outstanding at December 31, 1998 and
1997, at amounts paid in (aggregate
liquidation preference of $5,100); Series D;
3,375,870 shares issued and outstanding at
December 31, 1998 (none in 1997), at amounts
paid in (aggregate liquidation preference of
$(6,042)).................................... 17,094 11,088 17,094
Common stock: no par value; 25,000,000 shares
authorized; 3,574,928 and 3,435,712 shares
issued and outstanding at December 31, 1998
and 1997..................................... 278 266 336
Shareholder notes receivable.................. (218) (218) --
Accumulated deficit........................... (15,269) (9,715) (18,953)
-------- ------- --------
Shareholders' equity (deficit).................. 1,885 1,421 (1,523)
-------- ------- --------
$ 3,482 $ 3,070 $ 652
======== ======= ========
</TABLE>

See accompanying notes.

F-34
<PAGE>

DIFFUSION, INC.

STATEMENTS OF OPERATIONS
(in thousands)

<TABLE>
<CAPTION>
Six months
Years ended ended
December 31, June 30,
---------------- ----------------
1998 1997 1999 1998
------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C>
Net revenues:
Product revenues......................... $ 752 $ 479 $ 190 $ 550
Service revenues......................... 330 83 243 143
------- ------- ------- -------
Total net revenues......................... 1,082 562 433 693
Costs and expenses:
Costs of revenues........................ 218 297 86 173
Research and development................. 1,795 1,629 876 882
Sales and marketing...................... 3,529 3,324 1,827 1,735
General and administrative............... 1,268 1,478 1,344 677
------- ------- ------- -------
Total costs and expenses................... 6,810 6,728 4,133 3,467
------- ------- ------- -------
Loss from operations....................... (5,728) (6,166) (3,700) (2,774)
Other income, net.......................... 174 178 16 60
------- ------- ------- -------
Net loss................................... $(5,554) $(5,988) $(3,684) $(2,714)
======= ======= ======= =======
</TABLE>

See accompanying notes.

F-35
<PAGE>

DIFFUSION, INC.

STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
Redeemable
Convertible
Preferred Stock Common Stock Shareholder Total
------------------ ---------------- Notes Accumulated Shareholders'
Shares Amount Shares Amount Receivable Deficit Equity
---------- ------- --------- ------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of December
31, 1996............... 6,236,500 $ 6,022 1,885,978 $ 30 $ -- $ (3,727) $2,325
Issuance of Series C
redeemable convertible
preferred stock, net
of $34 issuance costs. 2,857,144 5,066 -- -- -- -- 5,066
Issuance of common
stock to lessors...... -- -- 16,500 3 -- -- 3
Exercise of common
stock options......... -- -- 180,234 30 (15) -- 15
Issuance of common
stock in exchange for
shareholder notes
receivable............ -- -- 1,353,000 203 (203) -- --
Net loss............... -- -- -- -- -- (5,988) (5,988)
---------- ------- --------- ---- ----- -------- ------
Balances as of December
31, 1997............... 9,093,644 11,088 3,435,712 266 (218) (9,715) 1,421
Issuance of Series D
redeemable convertible
preferred stock, net
of issuance costs of
$37................... 3,375,870 6,006 -- -- -- -- 6,006
Exercise of common
stock options......... -- -- 139,216 12 -- -- 12
Net loss............... -- -- -- -- -- (5,554) (5,554)
---------- ------- --------- ---- ----- -------- ------
Balances as of December
31, 1998............... 12,469,514 $17,094 3,574,928 $278 $(218) $(15,269) $1,885
========== ======= ========= ==== ===== ======== ======
</TABLE>

See accompanying notes.

F-36
<PAGE>

DIFFUSION, INC.

STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Six months
Years ended ended
December 31, June 30,
----------------- ----------------
1998 1997 1999 1998
-------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net loss................................. $ (5,554) $(5,988) $(3,684) $(2,714)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.......... 355 398 137 204
Changes in operating assets and
liabilities:
Accounts receivable.................. (16) (196) 97 (302)
Prepaid expenses and other current
assets.............................. 42 (135) (183) 66
Accounts payable..................... (146) 157 440 (101)
Accrued compensation................. 80 242 (26) 90
Deferred revenue..................... (19) 228 434 48
Other accrued liabilities............ 163 253 (163) 117
-------- ------- ------- -------
Net cash used in operating
activities........................ (5,095) (5,041) (2,948) (2,592)
-------- ------- ------- -------
Investing activities
Capital expenditures..................... -- (127) (53) --
Purchases of available-for-sale
securities.............................. (14,663) (502) -- --
Sale of available-for-sale securities.... 14,663 -- 998 --
Proceeds from repayment of shareholder
notes receivable........................ -- -- 218 --
Other assets............................. 106 (60) -- 107
-------- ------- ------- -------
Net cash provided by (used in)
investing activities.............. 106 (689) 1,163 107
-------- ------- ------- -------
Financing activities
Principal payments under capital lease
obligations............................. (283) (208) (107) (108)
Proceeds from issuance of common stock... 12 18 58 6
Net proceeds from issuance of preferred
stock................................... 6,006 5,066 -- 6,006
-------- ------- ------- -------
Net cash provided by (used in)
financing activities.............. 5,735 4,876 (49) 5,904
-------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents............................. 746 (854) (1,834) 3,419
Cash and cash equivalents at beginning of
period.................................. 1,118 1,972 1,864 1,118
-------- ------- ------- -------
Cash and cash equivalents at end of
period.................................. $ 1,864 $ 1,118 $ 30 $ 4,537
======== ======= ======= =======
Supplemental disclosure of cash flow
information
Cash paid for interest................... $ 38 $ 43 $ 14 $ 21
======== ======= ======= =======
Supplemental schedule of noncash
investing and financing activities
Property and equipment acquired under
capital lease obligations............... $ 153 $ 308 $ -- $ 30
======== ======= ======= =======
Issuance of common stock in exchange for
shareholder notes receivable............ $ -- $ 218 $ -- $ --
======== ======= ======= =======
</TABLE>

See accompanying notes.

F-37
<PAGE>

DIFFUSION, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 1998

1. Summary of the Company and Significant Accounting Policies

The Company

Diffusion, Inc. (the "Company") was incorporated on April 20, 1995. The
Company is a provider of Customer Relationship Management ("CRM") solutions
for automating personalized, closed-loop interactions between an enterprise
and its customers. The Diffusion CRM System is an "electronic relationship
manager" that delivers appropriate information such as transaction occurrence
and status to specific individuals via their preferred media: email, fax,
pager, phone, Web, or printer.

The Company is subject to a number of risks associated with companies in a
similar stage of development, including dependence on key employees for
technology development and support, volatility of the software industry,
potential competition from larger more established companies, the successful
development and marketing of its products, and the ability to obtain adequate
financing to support its growth.

At December 31, 1998, the Company has incurred an accumulated deficit of
approximately $15,269,000. The Company will require additional financing to
fund ongoing operations and to meet existing repayment obligations for 1998.
While the Company plans to obtain additional financing to meet these needs,
the additional financing sources have not yet been identified. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty. See Note 8.

Interim Financial Statements

In the opinion of management, the unaudited interim financial statements at
June 30, 1999 and for the six months ended June 30, 1999 and 1998 include all
adjustments, consisting only of normal recurring accruals, necessary to
present fairly the Company's financial position at June 30, 1999, and results
of operations and cash flows for the six months ended June 30, 1999 and 1998.
Results for the six months ended June 30, 1999 are not necessarily indicative
of the results to be expected for the entire year.

Use of Estimates

Research and Development

Research and development expenditures are charged to operations as incurred.
Statement of Financial Accounting Standard No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between the
completion of the working model and the point at which the product is ready
for general release have been insignificant. Accordingly, all research and
development costs have been charged to operations as incurred.

Revenue Recognition

The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants' Statement of Position No. 97-2, "Software
Revenue Recognition" ("SOP 97-2"), as amended by Statement of Position 98-4,
"Deferral of the Effective Date of a Provision of SOP 97-2." The Company
derives

F-38
<PAGE>

DIFFUSION, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

revenue from the sale of software licenses, post-contract support ("support"),
and other services. Support includes telephone technical support, bug fixes,
and rights to upgrades on a when-and-if-available basis. Services range from
installation, training, and basic postimplementation consulting to meet
specific customer needs.

Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant Company
obligations with regard to implementation remain, the fee is fixed or
determinable, and collectibility is probable. Revenue allocable to support is
recognized on a straight-line basis over the period support is provided and
revenue allocable to the software services is recognized as the services are
performed.

Cash Equivalents and Short-Term Investments

Cash equivalents and short-term investments consist of money market funds
and U.S. government obligations. For purposes of the accompanying statement of
cash flows, the Company considers all such liquid instruments with an original
maturity date of three months or less to be cash equivalents.

Available-for-Sale Securities

Management determines the appropriate classification of marketable debt
securities ("securities") at the time of purchase. At December 31, 1998 and
1997, the Company's securities are classified as available-for-sale and
consist of money market funds and short-term investments. The amortized cost
of these investments approximates their fair value. Fair values for investment
securities are based on quoted market prices. All marketable securities
available-for-sale mature within one year of date of purchase. Unrealized
gains and losses are not material, and have, therefore, not been shown
separately. Gross realized gains and losses on sales of available-for-sale
securities were immaterial.

Depreciation and Amortization

The Company records property and equipment at cost and calculates
depreciation using the straight-line method over the estimated useful lives of
the assets, generally two years. Equipment held under capital leases is
amortized on a straight-line basis over the shorter of the lease term or the
lives of the respective assets, generally two years.

Stock-Based Compensation

As permitted under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), the Company accounts for employee stock option
grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant and, accordingly, recognizes no compensation expense for the
employee stock option grants.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist of cash investments. The Company's cash
investments generally consist of money market funds with qualified financial
institutions, commercial paper issued by companies with strong credit ratings,
and U.S. government obligations.

F-39
<PAGE>

DIFFUSION, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Revenues from distributors and customers representing 10% or more of total
revenue during fiscal 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Customer:
A................................................................ 47% --
B................................................................ -- 52%
C................................................................ -- 17%
D................................................................ -- 17%
</TABLE>

Comprehensive Income

As of January 1, 1998, the Company adopted Financial Accounting Standards
Board's Statement No. 130, "Reporting Comprehensive Income" ("Statement 130").
Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components. Comprehensive loss is the same as net
loss for all periods presented as there are no adjustments reported in
shareholders' equity which are to be included in the computation. Accordingly,
the adoption of this statement had no impact on the Company's net loss or
shareholders' equity.

Recently Issued Accounting Standards

In March 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires companies to
capitalize certain qualifying computer software costs which are incurred
during the application development stage and amortize them over the software's
estimated useful life. The Company is required to adopt SOP 98-1 effective
January 1, 1999. The Company does not currently expect the adoption of SOP 98-
1 to be material to its consolidated financial position or results of
operations.

In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9
requires use of the "residual method" for recognition of revenue when vendor-
specific objective evidence (VSOE) exists for undelivered elements but does
not exist for delivered elements of a software arrangement. The Company will
be required to comply with the provisions of SOP 98-9 for transactions entered
into beginning January 1, 2000.

2. Property and Equipment

Property and equipment consist of the following:

<TABLE>
<CAPTION>
December 31,
-------------
1998 1997
------ ------
(in
thousands)
<S> <C> <C>
Computer hardware and software................................ $ 941 $ 799
Office furniture and fixtures................................. 243 232
------ ------
1,184 1,031
Less accumulated depreciation and amortization................ 944 589
------ ------
$ 240 $ 442
====== ======
</TABLE>

As of December 31, 1998 and 1997, property and equipment includes amounts
held under capital leases of $937,000 and $784,000 and related allowance for
amortization of $887,000 and $490,000, respectively.

F-40
<PAGE>

DIFFUSION, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

3. Commitments

Leases

The Company leases its principal office under a noncancelable operating
lease agreement that expires in October 1999. In 1997 and 1996, the Company
entered into a $500,000 and $700,000 equipment lease line of credit,
respectively. In total, approximately $243,000 and $396,000 remained available
at December 31, 1998 and 1997, respectively. The borrowings under the form of
notes payable bear interest of approximately 8% and are secured by
substantially all of the assets held by the Company.

As of December 31, 1998, minimum lease payments under all noncancelable
lease agreements were as follows:

<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(in thousands)
<S> <C> <C>
Year ended December 31,
1999..................................................... $252 $140
2000..................................................... 106 --
2001..................................................... 30 --
---- ----
Total minimum lease payments............................... 388 $140
====
Less amount representing interest.......................... 25
----
Present value of minimum lease payments.................... 363
Less current portion....................................... 233
----
Long-term capital lease obligations........................ $130
====
</TABLE>

Rent expense was approximately $229,000, $196,000, and $608,000 for the
years ended December 31, 1998 and 1997, and for the period from inception
(April 20, 1995) to December 31, 1998, respectively.

4. Shareholders' Equity

Redeemable Convertible Preferred Stock

Each share of Series A, B, C, and D preferred stock is convertible into
common stock at the exchange rate in effect at the time of conversion,
currently one-to-one, and is subject to appropriate adjustment for common
stock splits, stock dividends, and similar transactions. Conversion is
automatic upon the closing of an initial public offering of common stock in
which the aggregate gross proceeds to the Company are at least $15,000,000
with a minimum offering price of $5.00 per share.

Each holder of Series A, B, C, and D preferred stock is entitled to the
number of votes equal to the number of shares of common stock into which such
preferred stock are convertible.

Each holder of preferred stock is entitled to receive, when and as declared
by the board of directors, noncumulative dividends at the annual rate of
$0.04, $0.12, $0.15, and $0.14 per share of Series A, B, C, and D preferred
stock, respectively, payable in preference and priority to any payment of any
dividend on common stock.

In the event of liquidation, the holders of preferred stock are entitled to
a liquidation preference equal to $0.50, $1.47, $1.79, and $1.79 for all
Series A, B, C, and D preferred stock, respectively, plus all declared but

F-41
<PAGE>

DIFFUSION, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

4. Shareholders' Equity (continued)

unpaid dividends for each outstanding share of Series A, B, C, and D preferred
stock, respectively; then their pro rata share (determined as if all
outstanding shares of preferred stock are converted to common stock) until
aggregate distributions on each outstanding share of Series A, B, C, and D
preferred stock total $1.13, $3.30, $4.02, and $4.03 per share, respectively.
Any remaining assets shall be distributed on a pro rata basis among the
holders of the common stock.

At any time after October 6, 2001, the holders of not less than 75% of the
preferred stock then outstanding may elect, by written notice to the Company,
to have the outstanding Series A, B, C, and D preferred stock redeemed, in
whole or in part, by paying in cash $0.50, $1.47, $1.79, and $1.79 per share,
respectively, for the preferred stock then outstanding (appropriately adjusted
for any dilution), plus an amount equal to all declared and unpaid dividends
on the outstanding shares of Series A, B, C, and D preferred stock.

Common Stock

In October 1995, under a stock purchase agreement, the Company issued
1,722,000 common shares to an employee and founder of the Company at a price
of $0.0116 per share; 75% of these shares are subject to repurchase rights
which expire ratably over the 48 months following the date of the stock
purchase agreement. Upon termination of service, any unvested shares may be
repurchased by the Company at the issuance price. At December 31, 1998 and
1997, 269,063 and 591,938 shares were subject to repurchase, respectively.

In January 1997, under a stock purchase agreement, the Company issued
1,353,000 common shares to an employee of the Company at a price of $0.15 per
share in exchange for a promissory note bearing interest at not less than
5.63% per annum. Following the date of the stock purchase agreement, 92% of
these shares are subject to repurchase rights which expire ratably over 44
months. A further 82,350 shares were issued upon immediate exercise of an
option granted in September 1997 at a price of $0.18 per share; 75% of these
shares are subject to repurchase rights which expire ratably over the 36
months following the date of the stock purchase agreement. These shares were
also issued in exchange for a promissory note. Upon termination of service,
any unvested shares may be repurchased by the Company at the issuance price.
At December 31, 1998 and 1997, 515,239 and 874,063 shares were subject to
repurchase.

The Company has reserved 12,469,514 shares of its common stock for issuance
upon conversion of its Series A, B, C, and D preferred stock, and 3,544,636
common shares for issuance under the option plans.

Stock Option Plans

As discussed in Note 1, the Company has elected to follow Accounting
Principals Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its employee stock
options because, as discussed below, the alternative fair value accounting
provided for under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("Statement 123"), requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
when the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.

During 1997, the Company adopted the 1997 Stock Option Plan (the "1997
Plan"). Under the 1997 Plan, up to 1,800,000 shares of the Company's common
stock may be granted to eligible participants.

During 1995, the Company adopted the 1995 General Stock Option Plan (the
"1995 Plan"). Under the 1995 Plan, up to 1,102,500 shares of the Company's
common stock may be granted to eligible participants. Also during 1995, the
Company adopted the 1995 Executive Stock Option Plan (the "Executive Plan,"
altogether known as the "Plans"). Under the Executive Plan, up to 2,214,000
shares of the Company's common stock may be granted to directors and/or
executive officers of the Company. Under the Plans, options to purchase common

F-42
<PAGE>

DIFFUSION, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

4. Shareholders' Equity (continued)

stock may be granted at no less than 85% of the fair value on the date of the
grant (110% of fair value in certain instances), as determined by the board of
directors. Options generally are immediately exercisable, subject to
repurchase rights of the Company, which lapse over a 48-month period, and have
a maximum term of 10 years.

Pro forma information regarding net income (loss) is required by Statement
123, which also requires that the information be determined as if the Company
has accounted for its employee stock options granted subsequent to December
31, 1994 under the fair value method of that Statement. The fair value of
these options was estimated at the date of grant using the minimum value
method option pricing model with the following weighted-average assumptions
for 1996 and 1997, respectively: risk-free interest rates of 5.0% to 6.3% a
dividend yield of 0%, and a weighted-average expected life of the option of
four years.

The effect of applying Statement 123 to the Company's stock option awards
did not result in pro forma net loss that was materially different from
historical amounts reported. Therefore, such pro forma information is not
separately presented herein. Future pro forma net income/loss results may be
materially different from actual amounts reported.

A summary of activity under the Plans is as follows:

<TABLE>
<CAPTION>
Shares Weighted-
Available Average
for Options Price Per Exercise
Grant Outstanding Share Price
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1996..... 1,329,614 1,887,386 $0.03-$0.15 $0.07
Additional shares authorized,
net of reductions............. 647,086 -- -- --
Options granted................ (1,439,750) 1,439,750 $0.15-$0.18 $0.18
Options exercised.............. -- (180,234) $0.15-$0.18 $0.17
Options canceled............... 638,700 (638,700) $0.15-$0.18 $0.18
---------- ---------
Balance at December 31, 1997..... 1,175,650 2,508,202 $0.03-$0.18
Options granted................ (1,320,813) 1,320,813 $0.18 $0.18
Options exercised.............. -- (139,216) $0.05-$0.18 $0.09
Options canceled............... 956,401 (956,401)
---------- ---------
Balance at December 31, 1998..... 811,238 2,733,398 $0.03-$0.18
========== =========
<CAPTION>
1998 1997
----------------------- ---------------------
Weighted- Weighted-
Average Average
Options Price Options Price
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Exercisable at end of year....... 2,733,398 $ 0.12 2,508,202 $0.10
========== ========= =========== =====
Weighted-average fair value of
options granted during the year. $ 0.04 $0.04
========= =====
</TABLE>

Exercise prices for options outstanding as of December 31, 1998 ranged from
$0.05 to $0.18. The weighted-average remaining contractual life of those
options is 8 years. Options subject to repurchase by the Company total 48,857
and 84,809 at December 31, 1998 and 1997, respectively.

5. Employee Benefit Plans

The Company has a 401(k) plan which stipulates that all full-time employees
can elect to contribute to the 401(k) plan, subject to certain limitations, up
to 18% of salary on a pretax basis. The Company has the option to provide
matching contributions but has not done so to date.

F-43
<PAGE>

DIFFUSION, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

6. Income Taxes

As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $14,200,000. The Company also had federal
research and development tax credit carryforwards of approximately $200,000.
The net operating loss and credit carryforwards will expire at various dates
beginning on 2010 through 2018, if not utilized.

Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of
the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in expiration of net operating losses and credits before
utilization.

As of December 31, 1998 and 1997, the Company had deferred tax assets of
approximately $6,100,000 and $3,800,000, respectively. The net deferred tax
asset has been fully offset by a valuation allowance. The valuation allowance
for deferred tax assets increased by approximately $2,300,000 during the year
ended December 31, 1997. Deferred tax assets primarily relate to net operating
loss carryforwards.

7. Year 2000 Issue (Unaudited)

Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries in order
to distinguish 21st century dates from 20th century dates. As a result,
computer systems and/or software used by many companies will need to be
upgraded to comply with Year 2000 requirements. Significant uncertainty exists
concerning the potential effects associated with this issue. Although the
Company believes that its products and services are Year 2000 compliant, there
can be no assurance that Year 2000 errors or defects will not be discovered in
the Company's current and future products or services. Any failure by the
Company to make its products Year 2000 compliant could result in a decrease in
revenue and an increase in the allocation of resources to address Year 2000
problems without additional revenue commensurate with such dedication of
resources, or an increase in litigation costs relating to losses suffered by
the Company's customers due to such Year 2000 problems.

The Company has conducted a preliminary assessment of its internal
information technology ("IT") and non-IT systems to identify the systems that
could be affected by the Year 2000 issue. Based on this preliminary
assessment, the Company currently has no reason to believe that its IT and
non-IT systems are not Year 2000 compliant. The Company intends to continue to
assess the Year 2000 compliance of its internal systems.

To date, the Company has not made any material expenditures related to the
Year 2000 compliance of its internal information technology systems and the
Company does not currently anticipate spending any material amounts for Year
2000 remediation. There can be no assurance that Year 2000 errors or defects
will not be discovered in the Company's internal IT and non-IT systems. In the
event Year 2000 errors or defects are discovered in the Company's internal IT
and non-IT systems and the Company is not able to remedy such errors or
defects in a timely manner or the cost to remedy such errors or defects is
significant, there would be a material adverse effect on the Company's
business, results of operation, or financial condition.

The Company relies on third-party vendors and service providers for various
products and services. There can be no assurance that third parties' failure
to ensure Year 2000 compliance would not have an adverse impact on the
Company's financial condition or results of operations.

The Company currently does not have a specific contingency plan intended to
mitigate the effects of any potential Year 2000 disruption. However, the
Company would formulate such a plan in the future, if necessary.

F-44
<PAGE>

DIFFUSION, INC.

NOTES TO FINANCIAL STATEMENTS--(Concluded)

8. Subsequent Event (Unaudited)

On June 30, 1999, Vignette Corporation ("Vignette") acquired 100 percent of
the outstanding stock and assumed all outstanding stock options of the Company
in exchange for 786,542 shares of Vignette common stock. The total cost of the
acquisition, including transaction costs, was approximately $31.2 million. The
acquisition was accounted for as a purchase business combination.

F-45
<PAGE>

[LOGO OF VIGNETTE APPEARS HERE]

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.

<TABLE>
<S> <C>
SEC Registration fee.................................................. $ 68,591
NASD fee.............................................................. 25,173
Nasdaq National Market listing fee.................................... 17,500
Printing and engraving expenses....................................... 200,000
Legal fees and expenses............................................... 250,000
Accounting fees and expenses.......................................... 100,000
Blue sky fees and expenses............................................ 15,000
Transfer agent fees................................................... 2,500
Miscellaneous fees and expenses....................................... 121,236
--------
Total............................................................. $800,000
========
</TABLE>

Item 14. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended, referred to below as the Securities Act. Article VII, Section 6,
of the Registrant's Bylaws provides for mandatory indemnification of its
directors and officers and permissible indemnification of employees and other
agents to the maximum extent permitted by the Delaware General Corporation
Law. The Registrant's Certificate of Incorporation provides that, pursuant to
Delaware law, its directors shall not be liable for monetary damages for
breach of the directors' fiduciary duty as directors to the Registrant and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief
will remain available under Delaware law. In addition, each director will
continue to be subject to liability for breach of the director's duty of
loyalty to the Registrant for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision also does not affect a director's responsibilities under
any other law, such as the federal securities laws or state or federal
environmental laws. The Registrant has entered into Indemnification Agreements
with its officers and directors, a form of which is attached as Exhibit 10.1
hereto and incorporated herein by reference. The Indemnification Agreements
provide the Registrant's officers and directors with further indemnification
to the maximum extent permitted by the Delaware General Corporation Law.
Reference is made to the Underwriting Agreement contained in Exhibit 1.1
hereto, which contains provisions indemnifying officers and directors of the
Registrant against certain liabilities.

Item 15. Recent Sales of Unregistered Securities

Since inception, the Registrant has issued and sold the following
securities:

1. The Registrant granted stock options to purchase 24,577,352 shares of
common stock at exercise prices ranging from $.005 to $3.31 per share to
employees, consultants and directors pursuant to its various stock option
plans through February 18, 1999.

II-1
<PAGE>

2. From its inception through December 31, 1998 the Registrant issued and
sold an aggregate of 11,692,304 shares of its common stock to employees,
consultants and directors for aggregate consideration of approximately
$569,495 pursuant to exercises of options granted under its various stock
option plans.

3. In February 1996, the Registrant issued and sold 1,573,970 shares of
its Series A Preferred Stock for an aggregate purchase price of $400,000 to
a group of investors pursuant to a Stock Purchase Agreement.

4. In February, June and July 1996, the Registrant issued and sold
7,292,154 shares of its Series B Preferred Stock for an aggregate purchase
price of approximately $3,057,750 to CNET, Inc. pursuant to a Stock
Purchase Agreement.

5. In July 1996, the Registrant issued and sold 7,338,630 shares of its
Series C Preferred Stock and for technology valued at approximately
$1,865,000 to CNET, Inc. pursuant to a Stock Purchase Agreement.

6. In December 1996, the Registrant issued a warrant to purchase 257,218
shares of its Series D Preferred Stock to James Treybig. In August 1997,
this warrant was exercised in full for an aggregate purchase price of
approximately $107,857.

7. In June and July 1997, the Registrant issued and sold 9,280,494 shares
of its Series E Preferred Stock for an aggregate purchase price of
approximately $10,000,006 to a group of investors pursuant to Stock
Purchase Agreements.

8. In April 1998, the Registrant issued and sold 5,374,336 shares of its
Series F Preferred Stock for an aggregate purchase price of approximately
$14,300,010 to a group of investors pursuant to a Stock Purchase Agreement.

9. In May 1998, the Registrant issued and sold 751,660 shares of its
Series G Preferred Stock valued at approximately $2,000,000 to RamdomNoise,
Inc. for technology pursuant to a Stock Purchase Agreement.

10. In November 1998, the Registrant issued and sold 2,048,176 shares of
its Series H Preferred Stock for an aggregate purchase price of
approximately $8,500,000 to a group of investors pursuant to a Stock
Purchase Agreement.

11. In December 1998, the Registrant issued warrants to purchase 180,716
shares of its Series H Preferred Stock at an exercise price of $4.15 per
share to Comdisco, Inc. in connection with a loan and equipment lease.

The issuances described in Items 15(1) and (2) were deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
under the Securities Act or Section 4(2) of the Securities Act. The issuances
of the securities described in Items 15(3)-(11) were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of such Act
as transactions by an issuer not involving any public offering. In addition,
the recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates issued in such transactions.
All recipients had adequate access, through their relationships with the
Registrant, to information about the Registrant.

II-2
<PAGE>

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE>
<CAPTION>
Exhibit No Description
---------- -----------
<C> <S>
1.1/1/ Form of Underwriting Agreement.
2.1/3/ Agreement between Registrant and Diffusion, Inc. dated May 10,
1999.
3.1/2/ Certificate of Incorporation of the Registrant, as amended to date.
3.3/2/ Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1, 3.2 and 4.3.
4.2/2/ Specimen common stock certificate.
4.3/2/ Fifth Amended and Restated Registration Rights Agreement dated
November 30, 1998.
5.1/1/ Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1/2/ Form of Indemnification Agreements.
10.2/2/ 1995 Stock Option/Stock Issuance Plan and forms of agreements
thereunder.
10.3/2/ 1999 Equity Incentive Plan.
10.4/2/ Employee Stock Purchase Plan.
10.5/2/ 1999 Non-Employee Directors Option Plan.
10.6/2/ Security and Loan Agreement dated March 24, 1998 between the
Registrant and Imperial Bank.
10.7/2/ Lease Agreement dated June 20, 1996 between the Registrant and
David B. Barrow, Jr.
10.8/2/ First Supplement to Lease Agreement dated November 4, 1997 between
Registrant and 3410 Far West, Ltd.
10.9/2/ Second Supplement to Lease Agreement dated February 23, 1998
between Registrant and 3410 Far West, Ltd.
10.10/2/ Office Lease Agreement dated August 4, 1998 between Registrant and
B.O. III, Ltd.
10.11/2/ "Prism" Development and Marketing Agreement dated July 19, 1996
between the Registrant and CNET, Inc.
10.12/2/ Letter Amendment to "Prism" Development and Marketing Agreement
between the Registrant and CNET, Inc. dated August 15, 1998 and
attachments thereto.
10.13/2/ Software License Agreement dated April 6, 1998 between Registrant
and Net Perceptions, Inc.
10.14/2/ StoryServer Q2 Volume Purchase Agreement between Registrant and
Tribune Interactive Inc.
10.15/2/ Protege Software (Holdings) Confidential Professional Services
Agreement dated November 15, 1997.
10.16/2/ Subordinated Loan and Security Agreement dated December 3, 1998
between Registrant and Comdisco, Inc.
10.17/2/ Master Lease Agreement dated December 3, 1998 between Registrant
and Comdisco, Inc.
21.1/5/ Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
23.2 Consent of Independent Auditors.
23.3 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-5).
27.1/4/ Financial Data Schedule.
</TABLE>
- --------

(1) To be filed by amendment.

(2) Incorporated by reference to our Registration Statement on Form S-1 (File
No. 333-68345).

(3) Incorporated by reference to the Registrant's Form 8-K filed on July 15,
1999 (File No. 000-25375).

(4) Incorporated by reference to the Registrant's 10-Q filed on November 15,
1999 (File No. 000-25375).

(5) Previously filed.

II-3
<PAGE>

(b) Financial Statement Schedules

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

Item 17. Undertakings

The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate
of Incorporation or the Bylaws of the Registrant, the Underwriting Agreement,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance on Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Austin, State of Texas, on this 22nd day of November, 1999.

Vignette Corporation

/s/ Gregory A. Peters
By: _________________________________
Gregory A. Peters
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:

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

<S> <C> <C>
/s/ Gregory A. Peters President, Chief Executive November 22, 1999
______________________________________ Officer and Director
Gregory A. Peters (Principal Executive
Officer)

/s/ Joel G. Katz* Chief Financial Officer November 22, 1999
______________________________________ (Principal Financial and
Joel G. Katz Accounting Officer)
and Secretary

/s/ Robert E. Davoli* Director November 22, 1999
______________________________________
Robert E. Davoli

/s/ Steven G. Papermaster* Director November 22, 1999
______________________________________
Steven G. Papermaster
/s/ John D. Thornton* Director November 22, 1999
______________________________________
John D. Thornton
/s/ Joseph A. Marengi* Director November 22, 1999
______________________________________
Joseph A. Marengi
* /s/ Gregory A. Peters Director November 22, 1999
___________________________________
Gregory A. Peters
Attorney-in-fact
</TABLE>

II-5
<PAGE>

INDEX TO EXHIBITS

(1) To be filed by amendment.

(2) Incorporated by reference to our Registration Statement on Form S-1 (File
No. 333-68345).

(3) Incorporated by reference to the Registrant's Form 8-K filed on July 15,
1999 (File No. 000-25375).

(4) Incorporated by reference to the Registrant's 10-Q filed on November 15,
1999 (File No. 000-25375).

(5) Previously filed.

<PAGE>

EXHIBIT 23.1

Consent of Independent Auditors

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 14, 1999 (except for Note 10 as to which the
date is December 1, 1999), in Amendment No. 1 to the Registration Statement
(Form S-1) and related Prospectus of Vignette Corporation for the registration
of shares of its common stock.

Austin, Texas
December , 1999

- -------------------------------------------------------------------------------

The foregoing consent is in the form that will be signed upon the completion
of the two-for-one forward stock split payable on December 1, 1999 that is to
be effected in the form of a stock dividend by the Company as described in
Note 10 to the consolidated financial statements.

/s/ Ernst & Young LLP

Austin, Texas

November 22, 1999

<PAGE>

EXHIBIT 23.2

Consent of Independent Auditors

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 27, 1999 with respect to the financial
statements of Diffusion, Inc. included in Amendment No. 1 to the Registration
Statement (Form S-1) and related Prospectus of Vignette Corporation for the
registration of shares of its common stock.

/s/ Ernst & Young LLP

Palo Alto, California

November 22, 1999