<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 1999.
REGISTRATION NO. 333-68345
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
VIGNETTE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<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)
---------------
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)
---------------
COPIES TO:
JAY K. HACHIGIAN ALAN DEAN
BRIAN K. BEARD DAVIS POLK & WARDWELL
ANTHONY M. ALLEN 450 LEXINGTON AVENUE
GUNDERSON DETTMER STOUGH NEW YORK, NEW YORK 10017
VILLENEUVE FRANKLIN & HACHIGIAN, LLP (212) 450-4000
8911 CAPITAL OF TEXAS HIGHWAY, SUITE
4240
AUSTIN, TEXAS 78759
(512) 342-2300
---------------
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. [_]
---------------
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 January 12, 1999
Shares
[LOGO OF VIGNETTE APPEARS HERE]
COMMON STOCK
-----------
VIGNETTE CORPORATION IS OFFERING SHARES AND THE SELLING STOCKHOLDERS
ARE OFFERING SHARES. THIS IS OUR INITIAL PUBLIC OFFERING AND NO
PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE ANTICIPATE
THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$ AND $ PER SHARE.
-----------
WE HAVE FILED AN APPLICATION
FOR THE COMMON STOCK TO
BE QUOTED ON THE
NASDAQ NATIONAL MARKET UNDER
THE SYMBOL "VIGN."
-----------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
-----------
PRICE $ A SHARE
-----------
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<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY STOCKHOLDERS
-------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
Total........................... $ $ $ $
</TABLE>
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.
Vignette Corporation has granted the underwriters the right to purchase up to
an additional shares to cover over-allotments. Morgan Stanley & Co.
Incorporated expects to deliver the shares to purchasers on , 1999.
-----------
MORGAN STANLEY DEAN WITTER
HAMBRECHT & QUIST
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
, 1999
<PAGE>
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 4
Special Note Regarding Forward-
Looking Statements................. 13
Use of Proceeds..................... 14
Dividend Policy..................... 14
Capitalization...................... 15
Dilution............................ 16
Selected Consolidated Financial
Data............................... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 18
</TABLE>
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PAGE
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<S> <C>
Business............................ 28
Management.......................... 45
Certain Transactions................ 54
Principal and Selling Stockholders.. 57
Description of Capital Stock........ 59
Shares Eligible for Future Sale..... 62
Underwriters........................ 64
Legal Matters....................... 66
Experts............................. 66
Additional Information.............. 66
Index to Consolidated 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. In this prospectus, the
"Company," "Vignette," "we," "us," and "our" refer to Vignette Corporation and
its subsidiaries.
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.
Until , 1999 (25 days after the date of this prospectus), all dealers
that buy, sell or trade in the common stock, whether or not participating in
this offering, may be required to deliver a prospectus. This delivery
requirement is in addition to the dealers' obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
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
Vignette is a leading provider of Internet Relationship Management software
products and services. Our Internet Relationship Management solutions, which
represent a new category of enterprise applications, are designed to enable
businesses to build sustainable online customer relationships and increase Web-
based revenues and market share. Our StoryServer 4 application platform
integrates advanced content management, lifecycle personalization and decision
support tools to allow our clients to engage their Web site visitors with
personalized interactions that stimulate buying and strengthen customer
loyalty. Our Vignette Syndication Server platform, which we formally announced
in October 1998 and expect to ship in the first quarter of 1999, is designed to
enable 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
will enable our clients to establish super-distribution networks on the
Internet to extend online reach and increase Web-based revenue opportunities.
We complement our products with a professional services organization that
offers strategic planning, project management and implementation services.
To date, we have licensed the StoryServer software platform to more than 160
clients worldwide in a variety of industries including retail, financial
services, telecommunications, technology and media. Our customers include Bank
One, Bay Networks, Chicago Tribune, Lands' End, National Semiconductor, Preview
Travel, and Ziff Davis Publishing. Since shipping our first products in 1997,
we have received 11 awards for our industry leadership and product capabilities
including Best Products/Best Private Company from The Red Herring magazine and
the Editor's Choice Award from Seybold Publications.
All information in this prospectus relating to the number of shares of our
common stock, options or warrants is based upon information as of November 30,
1998. For a more complete discussion regarding our capital stock and other
related matters, see "Capitalization," "Underwriters," "Management--Employee
Benefit Plans" and Note 3 of Notes to Consolidated Financial Statements.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered.... shares (including shares by Vignette and
shares by the selling stockholders)
Common stock to be
outstanding after
the offering........... shares
Use of proceeds......... For working capital and general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National VIGN
Market symbol..........
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the financial data for our business. The
consolidated statement of operations data for the year ended December 31, 1996
include results of operations for the period from December 19, 1995, our
inception date, through December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
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1996 1997 1997 1998
------- ------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenue.......................... $ -- $ 3,024 $ 1,716 $ 9,511
Gross profit........................... -- 1,549 1,018 3,422
Total operating expenses............... 3,688 9,192 5,494 19,920
Loss from operations................... (3,688) (7,643) (4,476) (16,498)
Net loss............................... (3,626) (7,474) (4,388) (16,294)
Pro forma basic net loss per share..... $ (1.19) $ (1.84)
Shares used in computing pro forma
basic net loss per share.............. 6,259 8,861
</TABLE>
The following table presents our summary consolidated balance sheet at
September 30, 1998, which has been adjusted for the conversion of Vignette
preferred stock outstanding as of September 30, 1998 into 8,098,872 shares of
common stock and our sale of shares of our common stock in this offering at
an assumed public offering price of $ per share and the application of the
estimated net proceeds. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 12,397 $
Working capital.................................. 5,468
Total assets..................................... 19,447
Long-term debt, less current portion............. 2,013
Redeemable convertible preferred stock........... 27,758
Total stockholders' equity (deficit)............. (23,206)
</TABLE>
3
<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. Additional risks that we do not yet know of or that we currently think
are immaterial may also impair our business operations. 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 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
Our Limited Operating History; Expected Future Losses
Vignette was founded in December 1995 and has a limited operating history.
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 and $16.3 million for the
nine months ended September 30, 1998. As of September 30, 1998, we had an
accumulated deficit of $27.4 million. We have not achieved profitability and
we expect to incur net losses for the foreseeable future. To date, we have
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."
Potential Fluctuations in Our Quarterly Financial Results; Seasonality
As a result of our limited operating history, we cannot forecast operating
expenses based on our historical results. Accordingly, we base our expenses in
part on future revenue projections. Most of our expenses are fixed in the
short term and we may not be able to quickly reduce spending if our revenues
are lower than we had projected. Our ability to forecast accurately our
quarterly revenue is limited because our software products have a long sales
cycle that makes it difficult to predict the quarter in which sales will
occur. We would expect our business, operating results and financial condition
to be materially adversely affected if our revenues do not meet our
projections and that net losses in a given quarter would be even greater than
expected.
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 Internet Relationship
Management solutions;
. The mix of product license and services revenue, as well as the mix of
products licensed;
. 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.
4
<PAGE>
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 limited historical financial data, 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.
Dependence on 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. For example, in five
of the last seven quarters in the period ended September 30, 1998, we had at
least one customer that accounted for at least 10% of total revenue in such
quarter. We do not believe that the loss of any particular customer would have
an adverse effect on our business. However, our operating results could be
materially adversely affected if we were unable to complete one or more
substantial license sales in any future period.
Risks Associated with Our Revenue Recognition Policy
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. As a result, small delays in customer orders or product
implementations can cause significant variability in our license revenues and
operating results for any particular period.
Dependence on Our StoryServer Product Line
We currently derive all of our revenues from the license and related
upgrades, professional services and support of our StoryServer software
products, and 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.
Dependence on Successful Introduction of Vignette Syndication Server
We formally announced Vignette Syndication Server in October 1998 and we
plan to ship Vignette Syndication Server to clients in the first quarter of
1999. This will be 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. We expect that our future
financial performance will depend significantly on the successful development,
introduction and market acceptance of Vignette Syndication Server and the
related tools that we plan to develop. Market acceptance of Vignette
Syndication Server will depend on a market developing for Internet syndication
products and services and the commercial adoption of 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
customer performance needs or expectations when shipped or that it will be
free of significant software defects or bugs. If Vignette Syndication Server
does not meet customer needs or expectations, for whatever reason, upgrading
or enhancing the product could be costly and time consuming.
5
<PAGE>
Need to Develop Our Sales and Distribution Capabilities
We will need to expand our direct and indirect sales operations in order to
increase market awareness of our products and generate increased revenue. 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 expand our relationships with value-added resellers, systems
integrators and other third-party resellers to build an indirect sales
channel. We cannot be certain that we will be successful in these efforts. In
addition, we will need to manage potential conflicts between our direct sales
force and third-party reselling efforts.
Risks Relating to Our Lengthy Sales and Implementation Cycle
Selling Internet Relationship Management software requires us to educate
potential clients regarding the use and benefits of Internet Relationship
Management applications. As a result, our software products have a long sales
cycle that makes it difficult to predict the quarter in which sales may fall.
In addition, the implementation of our products requires a significant
commitment of resources by our clients, third-party professional services
organizations or our professional services organization. In many cases, we
recognize a substantial portion of the revenue from product sales upon
implementation of our product. Delays in product implementation could cause
significant variability in our license revenues and operating results for any
particular period.
Risks Associated with the Development of Our Professional Services
Organization
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 educate third-
party resellers on how to use our products. 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 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, our services
costs have been significantly higher than our services revenue, and we expect
that trend to continue for the foreseeable future. We cannot be certain that
our services business will ever achieve profitability. 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. We cannot be certain that we can attract or
retain a sufficient number of the highly qualified services personnel that our
business needs.
Risks of Rapid Change in Internet Relationship Management Technology
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. 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 Internet Relationship
Management 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 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.
6
<PAGE>
Intense Competition for Internet Relationship Management Software
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.
Our principal competitors include: in-house development efforts by potential
clients or partners; other vendors of software that directly address elements
of Internet Relationship Management, such as BroadVision; and developers of
software that address only certain technology components of Internet
Relationship Management (e.g., content management), such as Inso Corporation.
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."
Privacy Concerns May Adversely Affect Sales of Our Products
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
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.
Risks Associated with Our International Operations
We received 3% and 18% of our total revenue in 1997 and the nine months
ended September 30, 1998, respectively, through 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
7
<PAGE>
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. 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;
. Political and economic instability.
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.
Failure to Properly Manage Growth Could Adversely Affect Our Business
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. In addition, we are moving to new headquarters facilities
in December 1998, which we expect will be a disruptive, time consuming and
expensive process.
Loss of Key Personnel Could Adversely Affect Our Business
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."
Risks Associated with the Year 2000 Problem
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 have conducted the first phases of a Year 2000 readiness review for the
current versions of our products. The review includes assessment,
implementation (including remediation, upgrading and replacement of certain
product versions), validation testing, and contingency planning. We continue
to respond to customer questions about prior versions of our products on a
case-by-case basis.
We have largely completed all phases of this plan, except for contingency
planning, for the current versions of our products. As a result, all current
versions 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. We have not tested our products on all platforms or all versions of
operating
8
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systems that we currently support. 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:
(a) correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
(b) 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;
(c) 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;
(d) 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
(e) recognize year 2000 as a leap year.
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. 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 have initiated an assessment of our material internal IT
systems, including both our own software products and third-party software and
hardware technology, but we have not initiated an assessment of our non-IT
systems. We expect to complete testing of our IT systems in 1998. To the
extent that we are not able to test the technology provided by third-party
vendors, we are seeking assurances from vendors that their systems are Year
2000 Compliant. 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. 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 customers. Our current or future customers may incur significant
expenses to achieve Year 2000 compliance. If our customers 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 customers 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. See
"--Dependence on Use 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,
results of operations, 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
9
<PAGE>
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.
Risk of Software Defects; Product Liability
Complex software products such as ours often contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. Despite internal testing and testing by current and potential
customers, our current and future products may contain serious defects,
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.
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, 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 Reliance on Third-Party Software
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. For instance, we license GroupLens Express from Net
Perceptions, Inc. for certain personalization functionality in StoryServer 4.
The agreement expires in October 1999, but it is renewed automatically unless
either party gives 60 days notice prior to the renewal date. If we cannot
maintain licenses to key third-party software, such as GroupLens Express,
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."
Risk of 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. We believe our current revenue recognition policies and practices are
materially consistent with these statements. However, full implementation
guidelines for this standard have not yet been issued. Once available, our
current revenue accounting practices may need to change and such changes could
materially adversely affect our future revenue and earnings. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Limited Protection of Proprietary Technology; Risks of Infringement
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We are not currently
involved in any intellectual property litigation. We may, however, 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. 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.
Others asserting rights against us could force us to defend ourselves or our
clients against alleged infringement of intellectual property rights. We could
incur substantial costs to prosecute or defend any such litigation and
intellectual property litigation could force 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.
10
<PAGE>
Control of Vignette by Existing Stockholders
On completion of this offering, executive officers and directors and their
affiliates will beneficially own, in the aggregate, approximately % of our
outstanding common stock. As a result, these stockholders will be able to
exercise control over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions,
which could delay or prevent someone from acquiring or merging with us. See
"Principal and Selling Stockholders."
Anti-Takeover Provisions in Our Charter Documents and Delaware Law
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."
RISKS RELATED TO THE INTERNET INDUSTRY
Dependence on Use of the Internet for Commerce
Our future success depends heavily on the Internet being accepted and widely
used for commerce. 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. If Internet commerce does not continue
to grow or grows more slowly than expected for any of these reasons, our
business, operating results and financial condition would be materially
adversely affected. 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.
Risks Associated with the New Market for Internet Relationship Management
Software
The market for Internet Relationship Management software 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. Enterprises that have already invested substantial
resources in other methods of conducting business may be reluctant or slow to
adopt a new approach that may replace, limit or compete with their existing
systems. Similarly, individuals have established patterns of purchasing goods
and services. They may be reluctant to alter those patterns. They may also
resist providing the personal data necessary to support our existing and
potential product uses. Any of these factors could inhibit the growth of
online business generally and the market's acceptance of our products and
services in particular. Accordingly, we cannot be certain that a viable market
for our products will emerge or be sustainable.
11
<PAGE>
Increasing Government Regulation of the Internet May Threaten Our Business
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. 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. If enacted, such laws, rules or regulations could limit the
market for our products and services, which could materially adversely affect
our business, financial condition and operating results.
The United States government also regulates the export of encryption
technology, which our products incorporate. 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. 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.
RISKS RELATED TO THE OFFERING
Potential Volatility of Our Stock Price
Prior to this offering, you could not buy or sell our common stock publicly.
An active public market for our common stock may not develop or be sustained
after the offering. Although the initial public offering price was determined
based on several factors, the initial offering price may vary from the market
price after the offering. The market price of the common stock may fluctuate
significantly in response to a number of factors as listed below, some of
which are beyond our control. See "Underwriters."
. Quarterly variations in 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;
. Future sales of common stock; and
. Stock market price and volume fluctuations, which are particularly common
among highly volatile securities of Internet and software companies.
Risk of 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.
Our Future Capital Needs and the Risks Associated with Our Inability to
Obtain Additional Financing
We expect the net proceeds from this offering, cash on hand, cash
equivalents and commercial credit facilities to meet our working capital and
capital expenditure needs for at least the next 12 months. After that, we may
need to raise additional funds and we cannot be certain that we would be able
to obtain additional financing on favorable terms, if at all. 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
12
<PAGE>
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,"
"Dilution" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE
Sales of a substantial number of shares of common stock after the offering
could adversely affect the market price of the common stock by potentially
introducing a large number of sellers of our common stock into a market in
which the common stock price is already volatile, thus driving the common
stock price down. In addition, the sale of these shares could impair our
ability to raise capital through the sale of additional equity securities. On
completion of this offering, we will have shares of common stock
outstanding or subject to currently exercisable options, and shares if the
underwriters over-allotment option is exercised in full. The shares sold
in this offering, and shares if the underwriter's over-allotment option is
exercised in full, will be freely tradable without restriction or further
registration under the Federal securities laws unless purchased by
"affiliates" of Vignette as that term is defined in Rule 144. The remaining
11,476,133 shares of common stock outstanding on completion of the offering
will be "restricted securities" as that term is defined in Rule 144.
Stockholders holding more than % of the outstanding common stock and
currently exercisable options to purchase common stock have executed lock-up
agreements that limit their ability to sell common stock. These stockholders
have agreed not to sell or otherwise dispose of any shares of common stock for
a period of at least 180 days after the date of this prospectus without the
prior written approval of Morgan Stanley & Co. Incorporated. When the lock-up
agreements expire, these shares and the shares underlying the options will
become eligible for sale, in some cases only pursuant to the volume, manner of
sale and notice requirements of Rule 144. See "Management--Employee Benefits
Plans" and "Shares Eligible for Future Sale."
YOU WILL EXPERIENCE IMMEDIATE DILUTION
The initial public offering price is expected to be substantially higher
than the book value per share of the outstanding common stock immediately
after the offering. Accordingly, if you purchase common stock in the offering,
you will incur immediate dilution of approximately $ in the book value
per share of the common stock from the price you pay for the common stock.
This calculation assumes that you purchased the common stock for $ per
share.
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 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 any future results, levels of activity, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, those listed under "Risk Factors" and
elsewhere in this prospectus.
This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. 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 such terms or other
comparable terminology. These statements are only predictions. Actual events
or results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined under
"Risk Factors." These factors may cause our actual results to differ
materially from any forward-looking statement. See "Special Note Regarding
Forward-Looking Statements."
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform such statements to
actual results.
13
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of common
stock we are offering will be approximately $ million at an assumed initial
public offering price of $ share and after deducting estimated offering
expenses of $ and underwriting discounts and commissions payable by
Vignette. If the underwriters' over-allotment option is exercised in full, we
estimate that such net proceeds will be approximately $ million. We will not
receive any of the proceeds from the sale of shares of common stock by the
selling stockholders. The primary purposes of this offering are to obtain
additional working capital, create a public market for our common stock,
facilitate our future access to public capital markets and provide liquidity
to existing stockholders.
We intend to use the proceeds of the offering received by it for working
capital and general corporate purposes. Although we may use a portion of the
net proceeds to acquire technology or businesses that are complementary to our
business, there are no current plans in this regard. 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 its common stock or
other securities and does not anticipate paying cash dividends in the
foreseeable future. Our lines of credit currently prohibit the payment of
dividends.
14
<PAGE>
CAPITALIZATION
Unless otherwise specifically stated, the information in this prospectus has
been adjusted to reflect the conversion of all outstanding shares of preferred
stock into common stock on the completion of the offering, but does not take
into account the possible issuance of additional shares of common stock to the
underwriters pursuant to their right to purchase additional shares to cover
overallotments.
The following table sets forth our capitalization as of September 30, 1998.
The pro forma information reflects (1) the filing of an amendment to our
Amended and Restated Certificate of Incorporation to provide for authorized
capital stock of 80,000,000 shares of common stock and 10,000,000 shares of
undesignated preferred stock and (2) the conversion of all shares of preferred
stock outstanding as of September 30, 1998 into 8,098,872 shares of common
stock on completion of this offering. The pro forma as adjusted information
reflects the sale of the shares of common stock offered hereby (assuming an
initial public offering price of $ per share) and the application of the net
proceeds from this offering. The outstanding share information excludes
1,962,394 shares of common stock issuable on exercise of outstanding options
as of September 30, 1998 with a weighted exercise price of $3.38 per share,
7,500 shares of common stock issuable upon exercise of an outstanding warrant
at an exercise price of $1.00 per share, and 158,708 shares of common stock
reserved for issuance under our stock plans as of September 30, 1998. 863,040
shares of common stock were reserved for issuance under our stock plans as of
September 30, 1998. The outstanding share information also excludes 520,516
shares of Series H Preferred Stock sold on November 30, 1998 and 45,926 shares
of common stock issuable upon exercise of warrants issued on December 3, 1998
at an exercise price of $16.33 per share. 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," "Management--Employee Benefits Plans"
and Note 3 of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
--------------------------------
PRO
FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term debt, less current portion........... $ 2,013 $ 2,013 $
Redeemable convertible preferred stock, $0.01
par value, 5,984,982 shares authorized,
5,977,482 issued and outstanding, actual; no
shares authorized, issued and outstanding, pro
forma and pro forma as adjusted............... 27,758 --
Stockholders' equity (deficit):
Convertible preferred stock, $0.01 par value,
2,256,022 shares authorized, 2,121,390 issued
and outstanding, actual; no shares
authorized, issued and outstanding, pro forma
and pro forma as adjusted.................... 21 --
Preferred stock, $0.01 par value, no shares
authorized, issued or outstanding, actual;
10,000,000 shares authorized pro forma and
pro forma as adjusted, no shares issued or
outstanding, pro forma and pro forma as
adjusted..................................... -- --
Common stock, $0.01 par value, 16,500,000
shares authorized, 2,862,078 shares issued
and outstanding (net of 77,820 treasury
shares), actual; 80,000,000 shares
authorized, 10,960,950 shares issued and
outstanding, pro forma; 80,000,000 shares
authorized, issued and outstanding, pro
forma as adjusted............................ 29 110
Additional paid-in capital.................... 4,707 32,405
Notes receivable for purchase of common stock. (182) (182)
Deferred stock compensation................... (382) (382)
Accumulated deficit........................... (27,399) (27,399)
-------- -------- ----
Total stockholders' equity (deficit)........... (23,206) 4,552
-------- -------- ----
Total capitalization........................... $ 6,565 $ 6,565 $
======== ======== ====
</TABLE>
15
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of September
30, 1998, giving effect to the conversion of all shares of preferred stock
outstanding as of September 30, 1998 into common stock on the closing of this
offering, was $4,552,000, or approximately $.42 per share. "Pro forma net
tangible book value" per share represents the amount of our total tangible
assets less total liabilities, divided by 10,960,950 shares of common stock
outstanding after giving effect to the conversion of the preferred stock
outstanding as of September 30, 1998 into common stock. After giving effect to
the issuance and sale of shares of common stock offered hereby at an
assumed initial public offering price of $ per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses payable by Vignette, the pro forma net tangible book value of
Vignette as of September 30, 1998 would have been $ , or $ per share.
This represents an immediate increase in pro forma net tangible book value of
$ per share to existing stockholders and an immediate dilution in net
tangible book value of $ per share to new investors. Investors
participating in this offering will incur immediate, substantial dilution. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $
Pro forma net tangible book value per share as of September 30,
1998.............................................................. $.42
Increase in pro forma net tangible book value per share
attributable to new investors.....................................
----
Pro forma net tangible book value per share after offering...........
----
Dilution per share to new investors.................................. $
====
</TABLE>
The following table summarizes on a pro forma basis, giving effect to the
conversion of all outstanding shares of preferred stock into common stock on
the closing of this offering, as of September 30, 1998, the difference between
the existing stockholders and the purchasers of shares of common stock in this
offering at an assumed initial public offering price of $ per share with
respect to the number of shares of common stock purchased from us, the total
consideration paid and the average price paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 10,960,950 % $32,230,000 % $2.94
New investors..............
---------- ----- ----------- -----
Total.................... 100.0% $ 100.0% $
========== ===== =========== =====
</TABLE>
Sales by the selling stockholders in this offering will reduce the number of
shares held by existing stockholders to , which represent % of the total
number of shares of common stock outstanding after this offering, or
shares, which represent % assuming the underwriters' over-allotment option is
exercised in full, and will increase the number of shares held by new
investors to shares, which represent %, of the total number of shares of
common stock outstanding after this offering, or shares which represent %
assuming the underwriters' over-allotment option is exercised in full. See
"Principal and Selling Stockholders."
As of September 30, 1998, there were approximately 1,962,394 shares subject
to outstanding options at a weighted exercise price of approximately $3.38 per
share; 158,708 shares reserved for issuance under our stock plans; and 7,500
shares of common stock issuable on exercise of an outstanding warrant at an
exercise price of $1.00 per share. 863,040 shares were reserved for issuance
under our stock plans as of November 30, 1998. In addition, on November 30,
1998, we sold 520,516 shares of Series H Preferred Stock at $16.33 per share
and, on December 3, 1998, reserved 45,926 shares of common stock for issuance
on exercise of warrants issued on that date at an exercise price of $16.33 per
share. To the extent outstanding options and warrants are exercised, there
will be further dilution to new investors. See "Management--Employee Benefits
Plans."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the 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 and 1997 and the
consolidated balance sheet data at December 31, 1996 and 1997 are derived from
audited consolidated financial statements included elsewhere in this
prospectus. The consolidated statements of operations data for the nine months
ended September 30, 1997 and 1998, and the consolidated balance sheet data at
September 30, 1998 are derived from unaudited consolidated financial
statements included elsewhere in this prospectus and, in our opinion, include
all adjustments consisting solely of normal recurring accruals which are
necessary to present fairly the data for such period. Historical results are
not necessarily indicative of future results and the results for interim
periods are not necessarily indicative of results to be expected for the
entire year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
-------------------- ---------------------
1996 1997 1997 1998
--------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERA-
TIONS DATA:
Revenue:
Product license.................. $ -- $ 1,943 $ 1,179 $ 5,152
Services......................... -- 1,081 537 4,359
--------- --------- --------- ----------
Total revenue..................... -- 3,024 1,716 9,511
Cost of revenue:
Product license.................. -- 37 24 510
Services......................... -- 1,438 674 5,579
--------- --------- --------- ----------
Total cost of revenue............. -- 1,475 698 6,089
--------- --------- --------- ----------
Gross profit...................... -- 1,549 1,018 3,422
Operating expenses:
Research and development......... 892 2,895 1,906 4,840
Sales and marketing.............. 428 4,964 2,870 9,398
General and administrative....... 503 1,333 718 3,451
Write-off of acquired in-process
research and development........ 1,865 -- -- 2,089
Amortization of deferred stock
compensation.................... -- -- -- 142
--------- --------- --------- ----------
Total operating expenses.......... 3,688 9,192 5,494 19,920
--------- --------- --------- ----------
Loss from operations.............. (3,688) (7,643) (4,476) (16,498)
Other income, net................. 62 169 88 204
--------- --------- --------- ----------
Net loss.......................... $ (3,626) $ (7,474) $ (4,388) $ (16,294)
========= ========= ========= ==========
Basic net loss per share.......... $ (11.33) $ (8.22) $ (4.79) $ (11.74)
========= ========= ========= ==========
Shares used in computing basic net
loss per share................... 320 909 917 1,388
Pro forma basic net loss per
share............................ $ (1.19) $ (1.84)
========= ==========
Shares used in computing pro forma
basic net loss per share......... 6,259 8,861
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER
31, AS OF
---------------- SEPTEMBER 30,
1996 1997 1998
------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 1,863 $ 6,865 $ 12,397
Working capital................................ 1,583 4,255 5,468
Total assets................................... 2,229 8,499 19,447
Long-term debt and capital lease obligations,
less current portion.......................... 198 833 2,013
Redeemable convertible preferred stock......... 3,458 13,458 27,758
Total stockholders' equity (deficit)........... (1,770) (9,248) (23,206)
</TABLE>
17
<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 Internet Relationship Management
software products and services, a new category of enterprise solutions
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. From December 1995 through December 1996, we devoted our efforts
principally to raising capital, research and development activities, and
establishing markets for our products. As a result, we were considered a
"development stage enterprise" during this period. Beginning in January 1997,
we actively began selling our products. To date, we have developed and
released several versions of our StoryServer product and have sold our
products and services to over 160 clients. We market and sell our products
worldwide primarily through our direct sales force. Our principal office is in
Austin, Texas, and we also have offices in Atlanta, Georgia; Boston,
Massachusetts; Chicago, Illinois; Dallas, Texas; Newport Beach, California;
New York, New York; San Mateo, California; Valencia, California; Hamburg,
Germany; London, England; and Sydney, Australia.
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 basis or on a fixed-price schedule. 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 the product license fee. 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 net losses in each fiscal quarter since inception
and, as of September 30, 1998, had an accumulated deficit of $27.4 million. We
anticipate that our operating expenses will increase substantially in future
quarters as we increase 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. Accordingly, we expect to incur additional losses for the
foreseeable future. In addition, our limited operating history makes the
prediction of future results of operations difficult and, accordingly, there
can be no assurance that we will achieve or sustain revenue growth or
profitability.
18
<PAGE>
We had 219 full-time employees at September 30, 1998, up from 79 and 26 at
December 31, 1997 and 1996, respectively. 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 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, financial condition and operating results.
RESULTS OF OPERATIONS
REVENUE
Total revenue increased from $1.7 million for the nine months ended
September 30, 1997 to $9.5 million for the nine months ended September 30,
1998. 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 the nine
months ended September 30, 1997 and 1998. Our total revenue in 1997 was $3.0
million. 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 from $1.2 million for the
nine months ended September 30, 1997 to $5.2 million for the nine months ended
September 30, 1998, representing 69% and 54% 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. Product license revenue was
$1.9 million in 1997, representing 64% of total revenue in 1997.
Services. Services revenue increased from $537,000 for the nine months ended
September 30, 1997 to $4.4 million for the nine months ended September 30,
1998, representing 31% and 46% of total revenue, respectively. Services
revenue from professional services fees increased from $479,000 for the nine
months ended September 30, 1997 to $3.5 million for the nine months ended
September 30, 1998. Services revenue from maintenance and support agreements
increased from $58,000 for the nine months ended September 30, 1997 to
$841,000 for the nine months ended September 30, 1998. 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. In 1997, we recognized
$1.1 million in services revenue, representing 36% of total revenue. Of this
amount, professional services fees accounted for $941,000 and maintenance and
support agreements accounted for $140,000.
We expect that professional services-related revenue will increase in
absolute dollars in the future to the extent that additional clients license
our products and as we expand both our capacity for the delivery of
professional services as well as the scope of our professional services
offerings. We expect that services revenue from maintenance and support
agreements will increase in absolute dollars in the future due to the
maintenance components of new and existing license agreements.
COST OF REVENUE
Product License. Product license costs consist of expenses we incurred to
manufacture, package and distribute our products and related documentation and
costs of licensing third-party software incorporated into our products.
Product license costs increased from $24,000 for the nine months ended
September 30, 1997 to $510,000 for the nine months ended September 30, 1998,
representing 2% and 10% of product license revenue, respectively. The increase
in absolute dollars and as a percentage of product license revenue during the
nine months ended September 30, 1998 was primarily attributable to the fact
that we entered into an OEM license with Net Perceptions
19
<PAGE>
for its GroupLens Express software that allows us to embed certain
personalization functionality into StoryServer. Product license costs were
$37,000 in 1997, representing 2% of product license revenue. 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 telephone support staffs, as well as
third-party contractor expenses. Services costs increased from $674,000 for
the nine months ended September 30, 1997 to $5.6 million for the nine months
ended September 30, 1998, representing 126% and 128% 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. To date,
our services costs have been significantly higher than our services revenue,
and we expect that trend to continue for the foreseeable future as we continue
to expand our professional services organization. Services costs related to
professional services increased from $630,000 for the nine months ended
September 30, 1997 to $5.3 million for the nine months ended September 30,
1998, representing 132% and 149% of professional services-related revenue.
Services costs related to maintenance and support agreements increased from
$44,000 for the nine months ended September 30, 1997 to $328,000 for the nine
months ended September 30, 1998. Services costs were $1.4 million in 1997,
representing 133% of services revenue, substantially all of which were amounts
associated with professional services.
We expect services costs to increase in the future in absolute dollars to
the extent that we continue to generate new clients and associated product
license and services revenue. 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.
OPERATING EXPENSES
Research and Development. Research and development expenses consist
primarily of personnel costs to support product development. Research and
development expenses increased from $1.9 million for the nine months ended
September 30, 1997 to $4.8 million for the nine months ended September 30,
1998, representing 111% and 51% of total revenue, respectively. Research and
development expenses increased from $892,000 in 1996 to $2.9 million in 1997.
The increase in absolute dollars in these periods was due to increases in
internal engineering personnel.
We believe that continued investment in research and development is critical
to attaining our strategic objectives, and, as a result, we expect research
and development expenses to increase significantly in absolute dollars in
future periods. To date, 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 from $2.9 million for the nine months
ended September 30, 1997 to $9.4 million for the nine months ended September
30, 1998, representing 167% and 99% 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 from $428,000 in 1996 to $5.0 million
in 1997. 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.
We believe these expenses will continue to increase in future periods as we
expect to continue to expand our sales and marketing efforts. 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.
20
<PAGE>
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 from $718,000 for the
nine months ended September 30, 1997 to $3.5 million for the nine months ended
September 30, 1998, representing 42% and 36% of total revenue, respectively.
General and administrative expenses increased from $503,000 in 1996 to $1.3
million in 1997. 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.
We believe general and administrative expenses will increase in absolute
dollars as we expect to add personnel to support our expanding operations,
incur additional costs related to the growth of our business, and assume the
responsibilities of a public company.
Write-off of Acquired In-Process Research and Development. During May 1998,
we 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 191,022 shares
of our Series G Preferred Stock valued at $2.0 million. The in-process
research and development effort related to the development of a visual
development tool using graphical user interface, or GUI, technology that we
did not possess. 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: 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
products; multiple Internet browser recognition capabilities; standardized
documentation; and automated testing capabilities. There existed a significant
amount of uncertainty surrounding the successful development and completion of
the research and development acquired. This was our first attempt to develop
GUI-based technology. 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 was significant, which increased the uncertainty surrounding its
successful development. At the time of the transaction, we estimated that an
additional 90 person months or $900,000 would be required to complete the new
GUI-based technology tool, including the key elements described above. As of
September 30, 1998, we had actually incurred 80 person months or $800,000 and
estimated that an additional 25 person months would be required to meet a
targeted release in the first quarter of 1999. If we are not successful in
completing the development within the contemplated timeframe, we believe that
although sales of StoryServer to less sophisticated customers may be delayed,
it will not have a significant adverse effect on our results of operations.
Substantially all of the $2.1 million purchase price was allocated to the
acquired in-process research and development effort based upon the following:
we assigned no value to the developed product as we do not intend to sell,
support or enhance such product and we believe it has no alternative future
use; the $2.0 million value ascribed to the 191,022 shares of the Company's
Series G Preferred Stock was based on the value per share received from the
issuance of Series F Preferred Stock, which occurred in April 1998; and
further, the allocation of substantially all of the $2.1 million purchase
price was determined to be reasonable based on our estimate of costs we would
incur if we had performed this effort internally. We determined that the value
of the consideration given and the estimate of costs we would incur if we had
performed this effort internally represented the most appropriate bases for
determining the value of the acquired in-process research and development,
because we are developing the new GUI-based technology tool to complement the
current product portfolio and help facilitate sales of other products to
customers with less sophisticated information technology departments. We do
not believe that the incremental impact on future revenues or profit margins
from the sale of the new GUI-based technology tool is an appropriate measure
for the value of the acquired in-process research and development as the
amount of revenues and profit margins from sales of the new GUI-based
technology tool was not the sole determining factor for management's decision
to invest in the acquired in-process research and development. Management
believed that the impact that the new GUI-based technology tool would have on
sales of our other
21
<PAGE>
products should also be considered. Management believes that such impact is
most appropriately measured by the value of the consideration given and the
estimated replacement cost.
During July 1996, we acquired from CNET certain software and related
intellectual property rights for 1,865,000 shares of our Series C Preferred
Stock valued at approximately $1.9 million. CNET was using the software
technology for internal Website production purposes and not selling or
marketing the technology. This software technology provided us with the basis
for development of our initial product, StoryServer. At the time of
acquisition, the software technology lacked many key elements essential to the
ultimate product that we would market and sell, such as an enhanced user
interface, expansion to additional database platforms, an automated install
feature, and automated testing capabilities. A significant amount of
uncertainty surrounded the successful development of StoryServer. At the time
the software technology was acquired, we were still in the formation stage
and, we were unproven in our ability to successfully develop and market any
software product. Also, a significant amount of technical risk existed, as the
viability of the intended StoryServer product would be jeopardized if we 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 the Netscape browser, Sybase, Oracle
and Informix software, and adding quality assurance test suites. In addition,
there was additional risk associated with the Internet marketplace, since it
was still in its infancy as far as being a viable commercial medium. We
incurred approximately an additional 45 person months or $500,000 to complete
the key elements and the development of the product, which was completed in
December 1996. Due to the level of uncertainty surrounding the successful
development of the acquired in-process research and development at the time of
acquisition and the inability to accurately forecast a revenue stream and
profit margin from expected sales of the intended StoryServer product, we
believed that the most appropriate determination of the value of the acquired
in-process research and development was the amount of consideration given.
Accordingly, all of the approximately $1.9 million purchase price was
allocated to acquired in-process research and development efforts.
Amortization of Deferred Stock Compensation. In 1998, we recorded total
deferred stock compensation of $524,000 in connection with stock options
granted during 1998. Such amount is being amortized over the vesting periods
of the applicable options, resulting in amortization of $142,000 for the nine
months ended September 30, 1998. These amounts represent 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.
OTHER INCOME, NET
Other income, net consists of interest income and expense and gain or loss
on disposals of equipment. Other income, net increased from $88,000 for the
nine months ended September 30, 1997 to $204,000 for the nine months ended
September 30, 1998. 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 for the period. Other income net increased from
$62,000 in 1996 to $169,000 in 1997. 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 for the period. Proceeds
from the private sale of equity securities in 1997 and in the nine months
ended September 30, 1998 caused cash and short-term investment balances in
these periods to be higher than the comparable prior periods.
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 seven quarters. This data has been derived from unaudited
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 the prospectus. The consolidated results of operations
for any quarter are not necessarily indicative of the results for any future
period.
22
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1997 1997 1997 1997 1998 1998 1998
--------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenue:
Product license........ $ 249 $ 402 $ 528 $ 764 $ 1,293 $ 1,629 $ 2,230
Services............... 7 75 455 544 958 1,293 2,108
------- ------- ------- ------- ------- ------- -------
Total revenue........... 256 477 983 1,308 2,251 2,922 4,338
------- ------- ------- ------- ------- ------- -------
Cost of revenue:
Product license........ 3 8 13 13 25 219 266
Services............... 111 174 389 764 850 1,867 2,862
------- ------- ------- ------- ------- ------- -------
Total cost of revenue... 114 182 402 777 875 2,086 3,128
------- ------- ------- ------- ------- ------- -------
Gross profit............ 142 295 581 531 1,376 836 1,210
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 539 630 737 989 1,112 1,867 1,861
Sales and marketing.... 516 919 1,435 2,094 1,677 3,324 4,397
General and
administrative........ 157 202 359 615 698 1,134 1,619
Write-off of acquired
in-process research
and development....... -- -- -- -- -- 2,089 --
Amortization of
deferred stock
compensation.......... -- -- -- -- 6 68 68
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 1,212 1,751 2,531 3,698 3,493 8,482 7,945
------- ------- ------- ------- ------- ------- -------
Loss from operations.... (1,070) (1,456) (1,950) (3,167) (2,117) (7,646) (6,735)
Other income, net....... 8 6 74 81 38 25 141
------- ------- ------- ------- ------- ------- -------
Net loss................ $(1,062) $(1,450) $(1,876) $(3,086) $(2,079) $(7,621) $(6,594)
======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL
REVENUE:
Revenue:
Product license........ 97% 84% 54% 59% 58% 56% 51%
Services............... 3 16 46 41 42 44 49
------- ------- ------- ------- ------- ------- -------
Total revenue........... 100 100 100 100 100 100 100
------- ------- ------- ------- ------- ------- -------
Cost of revenue:
Product license........ 1 2 1 1 1 7 6
Services............... 44 36 40 58 38 64 66
------- ------- ------- ------- ------- ------- -------
Total cost of revenue... 45 38 41 59 39 71 72
------- ------- ------- ------- ------- ------- -------
Gross profit............ 55 62 59 41 61 29 28
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 210 132 75 76 49 64 43
Sales and marketing.... 202 193 146 160 75 114 101
General and
administrative........ 61 42 37 47 31 39 37
Write-off of acquired
in-process research
and development....... -- -- -- -- -- 72 --
Amortization of
deferred stock
compensation.......... -- -- -- -- -- 2 2
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 473 367 258 283 155 291 183
------- ------- ------- ------- ------- ------- -------
Loss from operations.... (418) (305) (199) (242) (94) (262) (155)
Other income, net....... 3 1 8 6 2 1 3
------- ------- ------- ------- ------- ------- -------
Net loss................ (415)% (304)% (191)% (236)% (92)% (261)% (152)%
======= ======= ======= ======= ======= ======= =======
</TABLE>
Our total revenue has increased in each quarter following commercial release
of our StoryServer software in January 1997. The increase in each quarter is
due to the increase in the number of customers resulting from increased market
awareness and acceptance of our software, expansion of our sales organization,
including the establishment of European sales operations in November 1997, and
increased maintenance and support and service revenues reflecting the growth
in the installed base of product licenses.
Cost of revenue has increased each quarter in conjunction with our increases
in total revenue. Product license costs were higher in the quarters ended June
30, 1998 and September 30, 1998 primarily due to the fact that we entered into
an OEM license with Net Perceptions in the quarter ended June 30, 1998.
Services costs increased during the quarter ended December 31, 1997 due to
increased services performed by our staff and increased usage of third-party
consultants. Services costs increased during the quarters ended June 30, 1998
and September 30, 1998 due to increased usage of third-party consultants and
salaries and related costs for increased professional service personnel in
each period.
23
<PAGE>
Operating expenses have generally increased in absolute dollars each quarter
as we have increased staffing in sales and marketing, product development and
general and administrative functions. During the quarter ended June 30, 1998,
we purchased in-process research and development from RandomNoise for $2.1
million, which was immediately expensed to acquired in-process research and
development. Sales and marketing expenses increased in the quarter ended
December 31, 1997 due to the sales staff achieving sales quotas for the year
ended 1997, which resulted in sales commissions and incentives being paid in
the fourth quarter. Sales and marketing expenses increased during the quarter
ended June 30, 1998 due to increased travel and presales costs in conjunction
with increased client sales efforts in the period, costs incurred for the
recruitment of additional sales and marketing staff and increases in sales and
marketing personnel. Sales and marketing expenses increased during the quarter
ended September 30, 1998 due to increases in sales and marketing personnel and
our increased marketing program expenditures.
As a result of our limited operating history, we cannot forecast operating
expenses based on historical results. Accordingly, we base our 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 its software products, which
makes it difficult to predict the quarter in which license sales 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.
We expect our revenues and operating results may 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;
. 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 Internet Relationship
Management solutions;
. The mix of product license and services revenue, as well as the mix of
products licensed;
. 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 future performance.
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 it has a limited operating history, we believe that 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 September 30, 1998, we had net operating loss and research and
development carryforwards of approximately $22.8 million and $352,000,
respectively. The net operating loss and credit carryforwards will
24
<PAGE>
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 the deferred tax asset because of the uncertainty regarding its
realization. Our accounting for deferred taxes under Statement of Financial
Accounting Standards No. 109 involves the evaluation of a number of factors
concerning the realizability of our deferred tax assets. In concluding that a
full valuation allowance was required, 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.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, we have funded our operations and met our capital
expenditure requirements through the private sale of equity securities,
totaling $27.7 million, net through September 30, 1998. Cash used in operating
activities was $1.5 million, $4.9 million, and $9.7 million in 1996, 1997, and
the nine months ended September 30, 1998, respectively. The $9.7 million of
cash used in operating activities for the nine months ended September 30, 1998
includes an increase in client accounts receivables of approximately $4.3
million from December 31, 1997. This increase is directly attributable to
increased client contracts signed at the close of the quarter ended September
30, 1998 containing immediate invoicing terms.
To date, our investing activities have consisted primarily of capital
expenditures totaling $318,000, $694,000 and $1.0 million in 1996, 1997, and
the nine months ended September 30, 1998, respectively, to acquire property
and equipment, mainly computer hardware and software, for our growing employee
base. We expect that our capital expenditures will increase as our employee
base grows. At September 30, 1998, we did not have any material commitments
for capital expenditures.
At September 30, 1998, we had $12.4 million in cash and cash equivalents and
$5.5 million in working capital. Net cash provided by financing activities in
1996, 1997 and the first nine months of 1998 were $3.7 million, $10.6 million
and $16.3 million, respectively. We have a $3.0 million revolving line of
credit and a $2.0 million equipment line of credit with Imperial Bank that
each bear interest at the bank's prime rate plus 0.75%. At September 30, 1998,
$1.5 million and $1.2 million are outstanding under the revolving and
equipment lines of credit, respectively. Our lines of credit are secured by
all of our tangible and intangible personal property. We are currently in
compliance with all related financial covenants and restrictions.
On November 30, 1998, we completed the sale of 520,516 shares of Series H
Preferred Stock at a price of $16.33 per share for aggregate consideration of
approximately $8,500,000. The Series H Preferred Stock is convertible into
520,516 shares of common stock upon completion of this offering, subject to
adjustment upwards under certain provisions of our Fourth Amended and Restated
Certificate of Incorporation.
In addition, on December 3, 1998, we entered into agreements with Comdisco,
Inc. providing for available credit of up to $5 million over a period of 36
months at an interest rate of 12% per year, an equipment lease line of $1.25
million over a period of 36 months at an interest rate of 7.5% per year and
the issuance to Comdisco, Inc. of warrants to purchase 45,926 shares of Series
H Preferred Stock at an exercise price of $16.33 per share. The line of credit
with Comdisco, Inc. is secured by our receivables, equipment, fixtures,
inventory and all other tangible property and is subordinated to our
indebtedness to Imperial Bank. The warrants will expire three years from the
date of this offering. In addition, Comdisco, Inc. has the right to purchase
additional warrants in the event we increase our equipment lease line or fail
to repay our credit line by the maturity date.
We believe that the net proceeds of this offering, together with cash on
hand, cash equivalents, short-term investments and commercial credit
facilities will be sufficient to meet our working capital requirements for at
least the next 12 months. Thereafter, we may require additional funds to
support our working capital requirements or for other purposes and may seek to
raise such additional funds through public or private equity
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financings or 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.
RECENT ACCOUNTING PRONOUNCEMENTS
SOP 97-2 and SOP 98-4 provide guidance for recognizing revenue on software
transactions and supercede SOP 91-1. The adoption of SOP 97-2 and SOP 98-4 did
not have a material impact on our financial results. However, full
implementation guidelines for this standard have not yet been issued. Once
available, our current revenue accounting practices may need to change and
such changes could affect our future revenue and earnings. Effective January
1, 1998, we adopted Statement of Financial Accounting Standard No. 130,
Reporting Comprehensive Income, or FAS 130. FAS 130 requires disclosures of
total non-stockholder changes in equity in interim periods and additional
disclosures of components of non-stockholder changes in equity on an annual
basis. In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information, or FAS 131. FAS 131 is effective for the
year ended December 31, 1998. We expect that the implementation of this
standard will not have a material effect on its financial disclosures.
YEAR 2000 COMPLIANCE
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 have conducted the first phases of a Year 2000 readiness review for the
current versions of our products. The review includes 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 customer questions about prior versions of
our products on a case-by-case basis.
We have largely 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:
(a) correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
(b) 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;
(c) 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;
(d) 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
(e) recognize year 2000 as a leap year. We have not tested our products
on all platforms or all versions of operating systems that we currently
support.
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
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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 have initiated an assessment of our material internal
IT systems (including both our own software products and third-party software
and hardware technology) but we have not initiated an assessment of our non-IT
systems. We expect to complete testing of our IT systems in 1998. To the
extent that we are 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 customers. 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 customers 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. See
"Risk Factors--Dependence on Use 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 its products, product engineering and
customer satisfaction. We may experience material problems and costs with Year
2000 compliance that could adversely affect its business, results of
operations 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.
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BUSINESS
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
We are a leading global provider of Internet Relationship Management
software products and services, a new category of enterprise solutions
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 Internet Relationship
Management 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 Internet Relationship
Management 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 11 awards for our industry leadership and product capabilities
including Best Products/Best Private Company from The Red Herring magazine and
the Editor's Choice Award from Seybold Publications.
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 will further
enhance our solution set with Vignette Syndication Server, a new software
platform formally announced in October 1998 and expected to be shipped in the
first quarter of 1999. We designed Vignette Syndication Server to enable
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 will enable our
clients to extend their online reach and increase Web-based revenue
opportunities. 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. Our ability to successfully deliver an integrated
solution to our clients provides us with a significant competitive advantage
in the market for Internet Relationship Management 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 its Internet Relationship Management
platform, development tools and professional services. To date, we have
licensed the StoryServer software platform to more than 160 clients worldwide
in a variety of industries including retail, financial services,
telecommunications, technology and media. Our clients include Bank One, Bay
Networks, Chicago Tribune, Lands' End, National Semiconductor, Preview Travel
and Ziff Davis Publishing.
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
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approximately 69 million in 1997 to 320 million in 2002. IDC also estimates
that revenue generated from Internet commerce will exceed $400 billion by
2002. 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. For instance, 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- 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- and
commerce-based businesses have begun to use the percentage of Web site
visitors that actually transact 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 current 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.
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
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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 Internet Relationship Management Solutions
As online business models evolve and the amount of business transacted on
the Web increases, enterprises are seeking new Internet 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 Internet Relationship Management software solutions to
help them manage their online customer relationships. Businesses realize that
Internet Relationship Management solutions, like other enterprise solutions,
are mission-critical and pose significant technological challenges that
require large resource commitments. For example, early adopters of Internet
Relationship Management 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 Internet
Relationship Management, 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 Internet Relationship Management, rather than point products and
toolkits. A fully integrated Internet Relationship Management 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 requirements demand an
Internet Relationship Management solution that supports advanced content
management and syndication, personalization and decision support capabilities.
THE VIGNETTE SOLUTION
We are a leading global provider of Internet Relationship Management
software products and services specifically designed to enable businesses to
enhance the value of their Web-based relationships, maximize the
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return on their Internet-related investments and capitalize on the substantial
growth of the Internet as a new business channel. Our Internet Relationship
Management 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. Vignette Syndication Server, formally
announced in October 1998, will extend our application platform to enable our
clients to create and manage Customer Chains. 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
Internet Relationship Management solutions, thereby increasing our clients'
return on their Internet investments.
We believe our comprehensive, integrated Internet Relationship Management
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 Internet Relationship
Management 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 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 significant 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 Internet
Relationship Management 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 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 Internet Relationship Management
solutions quickly and cost effectively, thereby increasing online revenues and
market share.
Increased Operational Control of Internet Applications at a Lower Effective
Cost. Our Internet Relationship Management 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
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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 which 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
Internet Relationship Management solutions. To achieve this objective, we have
adopted the following strategies:
Maintain Leadership in Internet Relationship Management Solutions
Market. Our industry-leading Internet Relationship Management solutions enable
enterprises to build and 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. With our recently announced Vignette Syndication Server, we will
offer 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. In the future, we intend to
maintain our leadership position by developing new Internet Relationship
Management products and services to help businesses generate new online
revenue opportunities.
Expand Sales Channels to Drive Market Penetration. We are working to
increase customer adoption of its solutions by expanding its direct sales
operations and its 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 a
multi-channel sales effort will broaden customer awareness of our products and
will allow us to effectively target a wide variety of industries that would
benefit from our solutions.
Expand International Presence. We believe that there will be significant
international opportunities for our products and services and continue to
expand our global marketing and distribution efforts to address the range of
markets and applications for our Internet Relationship Management 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 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 Internet Relationship Management solutions. We are extending our
direct 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 intend to offer similar high-
quality professional services capabilities through third-party alliances and
are currently focused on the development of relationships with VARs and
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 Internet Relationship Management solutions and create
opportunities to sell new or enhanced products to clients.
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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 and our recently announced
Vignette Syndication Server that is designed to enable businesses to create
and manage Customer Chains. 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 Internet Available July 1998.
Relationship Management applications. Runs First version of
on Sun Solaris or Windows NT servers and StoryServer shipped in
supports Oracle, Sybase, Informix and January 1997.
Microsoft SQL databases.
. Vignette Syndication Designed to enable businesses to create and Anticipated first quarter
Server manage Customer Chains - the distribution 1999.
and resale of online products and services
through reseller, affiliate and partner Web
sites.
TOOLS
. Production Center Designed for team-based project and content Shipped with StoryServer
management. Allows authors, editors, 4 in July 1998. First
designers, developers and business managers version shipped in
to work collaboratively in the production September 1997.
of the Internet Relationship Management
application and Web site.
. 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 Anticipated first half of
reduce the time to deploy critical Web 1999.
business applications by simplifying
programming and permitting a wider range of
users to develop Internet Relationship
Management applications.
. Distribution Center Enables a business manager to create online Anticipated first quarter
build-to-order products for affiliates and 1999.
manage the distribution of those products
across affiliated Web sites.
</TABLE>
Platforms
StoryServer 4. StoryServer 4 is an Internet Relationship Management
application 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.
Vignette Syndication Server. In October 1998, we formally announced Vignette
Syndication Server and plans to ship the product in early 1999. Vignette
Syndication Server is designed to enable businesses to create and manage
integrated Customer Chains. The Vignette Syndication Server operates on the
same platforms as StoryServer 4 and requires StoryServer 4 to syndicate
content but not to receive content. There can be no assurance that we will be
successful in developing and marketing Vignette Syndication Server or our
related tools on a timely basis or that Vignette Syndication Server will
achieve commercial acceptance.
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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. In the first half of 1999, we plan to introduce and ship
Development Center, a visual environment for building Internet applications.
Development Center is being designed to reduce the time to deploy Internet
Relationship Management solutions by simplifying programming and permitting a
wider range of users to develop Internet Relationship Management applications.
Distribution Center. Distribution Center, expected to be shipped in the
first quarter of 1999 as part of Vignette Syndication Server, is being
designed to enable business managers to develop online products and content
for distribution to resellers, affiliates and partners in their Customer
Chains. Distribution Center is also being designed to allow these managers to
create and manage the business rules and relationships associated with each of
the resellers, affiliates and partners in their Customer Chains.
VIGNETTE PROFESSIONAL SERVICES
The Vignette Professional Services, or VPS, organization is integral to our
ability to provide our clients with an innovative and comprehensive Internet
Relationship Management solution. VPS has over 100 staff years of combined
software project management experience. VPS helps clients define, design and
rapidly implement successful Internet businesses with innovative Internet
Relationship Management 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
initial 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 provides our services through our
VPS practices in San Francisco, California; Austin, Texas; Boston,
Massachusetts; New York, New York; and London, England.
We currently offer our customers a broad spectrum of services across the
design, implementation and ongoing support stages of an Internet Relationship
Management system deployment including the following:
. strategic business consultation;
. needs analysis;
. architectural analysis and performance planning;
. Internet Relationship Management 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 Internet Relationship
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Management application 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 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 across the three
stages of an Internet Relationship Management system deployment:
[GRAPHIC APPEARS HERE]
Vignette has established complementary relationships with several service
partners including Pencom, WebWorks, Perficient, Octane, North American Media
Engines, as well as a number of leading graphic design firms and 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, Vignette had licensed versions of its products to over 160 clients.
Chicago Tribune and Preview Travel accounted for approximately 13% and 11%,
respectively, of our total revenue for 1997. No one client accounted for more
than 10% of the total revenue for the nine months ended September 30, 1998.
Vignette's clients represent a broad spectrum of enterprises within diverse
sectors, including financial services, health, education and government,
media, retail, services, technology and telecommunications.
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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 Time Inc. New Media
Bank One Tribune Media Services
Ceridian The Trip.Com
Citicorp World Media Online
First Chicago Ziff Davis Publishing
Interactive Investor International RETAIL
Massachusetts Mutual Life Insurance Bookcraft
Company Lands' End
The Mutual Life Insurance Company Wherehouse Entertainment
of New York Whole Foods
New York Life Insurance Company SERVICES
PaineWebber American Business Information
RBC Dominion (Royal Bank of Canada)
Atevo
HEALTH, EDUCATION, AND GOVERNMENT Browning-Ferris Services
American Medical Association DHL Worldwide Express
City of San Carlos EDS
Columbia University Forrester Research
The Family Education Co. Hoover's
Kaplan Education Centers Intelliquest
National Cancer Institute Lufthansa Executive Network
United Healthcare Services PECO Energy
USDA Graduate School
Preview Travel
MEDIA TECHNOLOGY
Bertelsmann Advanced Micro Devices
CBS Sportsline Bay Networks
Chicago Tribune Cendant Software Online Services
City Online BV Emprise Corporation
CNET Excite
Deseret News Publishing I3S
Direct Medical Knowledge National Semiconductor
Electronic Newsstand Seagate Technology
Guardian Newspapers Siemens Business Communication
Hollywood Online Systems
The Houston Chronicle Sun Microsystems
IDG Corporation Sybase
iVillage TELECOMMUNICATIONS
Lycos Ameritech
Mecklermedia Corporation AT&T
On Health Networks British Telecom
Orlando Sentinel Nokia
Playboy Enterprises Sonera
Road Runner Group Sprint
The Seattle Times
Simon & Schuster
Spiegel Online
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CASE STUDIES
The following case studies illustrate the use of StoryServer by three of our
clients.
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 Internet Relationship
Management system 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 Internet Relationship Management application. 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 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 Internet Relationship Management 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
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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 region. It has
rapidly deployed dozens of local properties, and 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 Internet
Relationship Management systems into the market 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 Internet Relationship
Management. 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
extremely scalable and high-performance Web page delivery, the Vignette
solution provides an efficient architecture for clients to build and deploy
highly scalable Internet Relationship Management 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. We plan to further enhance the system's rapid application
development capabilities in early
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1999 with our Development Center tool, a visual data modeling and drag-
and-drop application builder tool that will take 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.
. 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 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 forthcoming Vignette Syndication Server will
utilize 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
("packages"), business rules for governing affiliate relationships
("subscriptions") and automated remote management services for managing its
content within its 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,
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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 authorizing 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.
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.
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 application server 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, Informix 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 are building our forthcoming
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.
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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. We generally use Java to develop client programs, where we can
benefit from the rapid development capabilities and heterogeneous platform
support capabilities of Java. We actively support our Java products on Sun
Solaris, Windows 95, Windows NT, and Macintosh platforms, and continuously
evaluate new platforms as justified by the business. We generally use C++ for
server programs, because of our high scalability and performance requirements.
RESEARCH AND DEVELOPMENT
We have made substantial investments in research and development through
both internal development and technology acquisition. 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 for
the nine months ended September 30, 1998 were approximately $2.8 million, $2.9
million and $6.9 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 of
Rapid Technological Change."
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, 1998, the direct sales force consisted
of 48 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
customers for our products. A broad mix of programs are used to accomplish
these goals, including market research, product and strategy updates with
industry analysts, public relations activities, 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 customers that include brochures, data sheets,
white papers, presentations and demonstrations.
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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 customers 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)
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
designing and developing applications by both Vignette and our customers. Key
strategic platform alliances to date have included strategic relationships
with 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.
Technology Alliances
To assure that our products are compatible with the latest technology, we
have formed technology alliances with many of the leading technology companies
serving the Web. Vignette and its partners exchange marketing and sales
information, sales leads, and technology integration practices. Our technology
alliance categories include: e-commerce transactions; ad management; site
traffic and 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.
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 design 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 Internet Relationship Management products is intensely
competitive, subject to rapid technological change and significantly affected
by new product introduction 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
Internet Relationship Management, such as BroadVision; and developers of point
solution
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software that address only certain technology components of Internet
Relationship Management (e.g., content management), such as Inso Corporation.
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 license fees from new or existing customers and professional
service fee revenues from 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--Our
Market is Highly Competitive."
PROPRIETARY RIGHTS AND LICENSING
Our success and ability to compete is dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret, and copyright 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 one patent and have a single patent application and nine trademark
applications pending in the United States. 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
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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--
Limited Protection of Proprietary Technology; Risks 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 GroupLens Express from Net Perceptions for certain personalization
functionality in StoryServer. The agreement expires in October 1999, but it is
renewed automatically unless either party gives 60 days notice prior to the
renewal date. 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 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, 1998, we had a total of 219 employees. Of the total
employees, 69 were in engineering, 72 in sales and marketing, 48 in
professional services and 30 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 25,000 square feet of office space,
substantially all of which is under a three-year lease expiring December 31,
2000. We have an additional facility in Austin, Texas, of approximately 12,000
square feet which is under a six-month sub-lease expiring in December 1998. We
are relocating and consolidating our operations in December 1998 to a new
facility in Austin, Texas. The new facility consists of approximately 79,000
square feet under a five-year lease with expansion options. We have also
leased offices for sales and support personnel in Atlanta, Georgia; Boston,
Massachusetts; Chicago, Illinois; Dallas, Texas; Newport Beach, California;
New York, New York; San Mateo, California; Valencia, California; and Sydney,
Australia.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of Vignette as of November 30, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gregory A. Peters....... 38 Chief Executive Officer, President, and Director
Ross B. Garber.......... 32 Co-founder, Chairman of the Board and Director
Neil Webber............. 36 Co-founder, Chief Technology Officer and Director
Sherry A. Atherton...... 39 Vice President, Engineering and Customer Support
Pany Christoforou....... 41 Vice President, Europe
William R. Daniel....... 42 Vice President, Business Development
Bradley V. Husick....... 34 Vice President, Global Network Development
Peter T. Klante......... 35 Vice President, Marketing
Jack F. Lynch........... 37 Vice President, Finance and Operations and Secretary
Philip C. Powers........ 39 Vice President, Professional Services
Michael J. Vollman...... 41 Vice President, North American Sales and Professional Services
Robert E. Davoli(2)..... 50 Director
Steven G.
Papermaster(1)......... 40 Director
John D. Thornton(1)(2).. 33 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Gregory A. Peters has served as our Chief Executive Officer, President, and
director of the Company 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.
Ross B. Garber co-founded Vignette in December 1995 and has served as a
director since that time. From December 1995 to June 1998, he served as our
Chief Executive Officer and President. Since June 1998, Mr. Garber has served
as Chairman of the Board. From July 1994 to December 1995, Mr. Garber served
as Director of Worldwide Channel Sales with DAZEL Corporation, a client/server
software company. From 1990 to July 1994, he served as Director of Business
Development with Epoch Systems, a client/server software company. He received
a Bachelor of Arts degree in Finance from the University of Massachusetts,
Amherst.
Neil Webber co-founded Vignette in December 1995 and has served as a
director since that time. He has served as our Chief Technology Officer since
February 1997, served as our Vice President, Development from December 1995 to
February 1997 and served as our Secretary from December 1995 to September
1998. Previously, Mr. Webber served as Chief Architect at DAZEL Corporation, a
client/server software company, from January 1995 to October 1995. From
November 1993 to January 1995, he served as a System Architect at IBM. Prior
to that, Mr. Webber held various positions at Epoch Systems, a client/server
software company, from March 1987 to November 1993. Mr. Webber received a
Bachelor of Science degree in Computer Science and Engineering from
Massachusetts Institute of Technology.
45
<PAGE>
Sherry A. Atherton has served as our Vice President, Engineering and
Customer Support since February 1997. From June 1995 to February 1997, Ms.
Atherton managed the enterprise engineering, program management, and technical
publications groups at Documentum, Inc., a document management company. From
May 1992 to June 1995, she held several management positions in engineering at
Sybase, Inc., a database company. Ms. Atherton received a Honours Bachelor of
Mathematics degree from the University of Waterloo.
Pany Christoforou is an employee of Protege Software Limited ("Protege"), a
U.K. based company in the business of assisting U.S. companies establish their
European operations and, pursuant to our agreement with Protege, has served as
our Vice President, Europe since January 1998 when we opened our European
operation. From September 1997 to December 1997, he served as European General
manager for Webline Communications Corp., a developer of solutions for
customer interaction organizations. From December 1992 to August 1997, he
served as U.K. General Manager for Neuron Data, a supplier of business rules
automation software. Prior to that time, Mr. Christoforou spent four years as
salesman and divisional manager at Ingres, a database company. He received a
Bachelor of Science degree in Mathematics from Hatfield Polytechnic.
William R. Daniel has served as our Vice President, Business Development
since November 1998. 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.
Bradley V. Husick has served as our Vice President, Global Network
Development since November 1998 and served as our Vice President, Business
Development from June 1997 to November 1998. Before joining Vignette, Mr.
Husick was a co-founder of NetGravity, Inc., an Internet ad management
software provider. After leaving NetGravity, Mr. Husick worked as a self-
employed consultant from November 1996 to June 1997. From September 1995 to
November 1996, he served as Vice President of Marketing and Business
Development for NetGravity. From April 1993 to August 1995, Mr. Husick served
as Vice President of Marketing for Clement Mok Designs, an interactive design
firm, where he also served as Director of Marketing for CMCD, Inc., a CD-ROM
publishing company affiliated with Clement Mok Designs. From May 1991 to March
1993, Mr. Husick served as Group Product Manager for Macromedia, a multimedia
software company. Mr. Husick received a Bachelor of Science in Astrophysics
with honors from Rice University and a Master of Business Administration with
honors from Columbia University.
Peter T. Klante has served as our Vice President, Marketing since May 1998.
From May 1996 to April 1998, Mr. Klante served as Vice President of Worldwide
Marketing for Fulcrum Technologies, a provider of knowledge management and
information retrieval solutions. From March 1994 to April 1996, he was at
Lotus Development where he served as the senior director of the Notes Product
Group and prior to that as the Marketing Director for the Notes Companion
Products. From January 1993 to February 1994, Mr. Klante served as Vice
President of the Client/Server Business Unit for Cognos, Inc., an application
development and business intelligence software company. Mr. Klante received a
Bachelor of Mathematics degree from the University of Waterloo.
Jack F. Lynch has served as our Vice President, Operations since July 1997
and as our Vice President, Finance and Operations and Secretary since
September 1998. From March 1993 to July 1997, Mr. Lynch served as Controller
of Trilogy Software, Inc., a sales force automation software company. In
addition, Mr. Lynch previously served in various financial capacities with
Legent Corporation (formerly Goal Systems, Inc.), a systems software company,
Litel Telecommunications and Andersen Consulting, and is a veteran of the
United States Marine Corps. He received a Bachelor in Science in Accounting
and Business Administration from the University of Kansas and a Masters of
Business Administration from Ohio State University.
46
<PAGE>
Philip C. Powers has served as our Vice President, Professional Services
since August 1998. From February 1997 to August 1998 he served as Vice
President, Worldwide Professional Services at Tivoli Systems, Inc., a
client/server software company. From January 1981 to February 1997 he held
several management roles at IBM which most recently included Director of
Worldwide Channel Marketing for IBM's software group and Director of Worldwide
Marketing, LAN systems for IBM's personal software products division. Mr.
Powers received a Bachelor of Arts in Marketing and Business Management from
the University of Dayton.
Michael J. Vollman has served as our Vice President, North American
Operations since April 1998 and as our Vice President, North American Sales
and Professional Services since September 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.
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
several privately held companies. He joined Austin Ventures from McKinsey &
Co., where he served clients in the U.S. 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.
BOARD OF DIRECTORS
We currently have authorized seven directors. Upon the completion of the
offering, the terms of the office of the Board of Directors will be divided
into three classes: Class I, whose term will expire at the annual meeting of
the stockholders to be held in 1999; Class II, whose term will expire at the
annual meeting of stockholders to be held in 2000; and Class III, whose term
will expire at the annual meeting of the stockholders to be held in 2001. The
Class I directors are Ross B. Garber and Steven G. Papermaster, the Class II
directors are Neil Webber and 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.
47
<PAGE>
Board Committees. The Audit Committee consists of Mr. Thornton and Mr.
Papermaster. 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, employee directors will also be able to participate in
our 1998 Equity Incentive Plan and non-employee directors will receive
periodic option grants under our 1998 Non-Employee Director Stock Option Plan.
In August 1998, Mr. Papermaster was granted an option to purchase 25,000
shares of our common stock at an exercise price of $9.50 per share subject to
a four year vesting schedule in connection with his appointment to the Board.
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.
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
ANNUAL COMPENSATION AWARDS
-------------------- --------------------
NUMBER OF SECURITIES OTHER
SALARY BONUS UNDERLYING OPTIONS COMPENSATION(2)
---------- --------- -------------------- ---------------
<S> <C> <C> <C> <C>
Gregory A. Peters....... $115,625 $ 18,750 593,845 $22,298
President and Chief Ex-
ecutive Officer(1)
Ross B. Garber.......... 130,000 38,844 103,600 227
Chairman of the
Board(1)
Neil Webber............. 120,000 23,094 25,000 251
Chief Technology Offi-
cer
Sherry A. Atherton...... 124,062 20,000 34,180 263
Vice President,
Engineering
Michael J. Vollman...... 178,297 86,250 195,541 61,304
Vice President, North
American Operations
Peter T. Klante......... 125,804 17,500 105,105 44,249
Vice President, Market-
ing
</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 $44,073 in relocation expenses.
48
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the fiscal
year ended December 31, 1998 to each of the Named Executive Officers. No stock
appreciation rights were granted during such fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM (4)
OPTIONS TO EMPLOYEES IN PRICE (3) EXPIRATION ---------------------
GRANTED (1) FISCAL 1997 (2) ($/SHARE) DATE 5% 10%
----------- ---------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gregory A. Peters....... 239,230 8.27% $ 2.09 5/31/06 $ 238,723 $ 571,784
354,615 12.26 2.09 5/31/06 353,864 847,566
Ross B. Garber.......... 103,600 3.58 0.42 3/31/06 20,775 49,760
Neil Webber............. 25,000 0.86 0.42 3/31/06 5,013 12,008
Sherry A. Atherton...... 34,180 1.18 0.42 4/20/06 6,854 16,417
Michael J. Vollman...... 105,105 3.63 0.42 2/11/06 21,077 50,483
35,035 1.21 0.42 4/20/06 7,026 16,828
30,401 1.05 7.00 8/2/06 101,606 243,364
25,000 0.86 12.50 12/20/06 149,205 357,372
Peter T. Klante......... 105,105 3.63 0.42 3/31/06 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 an aggregate of 2,892,025 options 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.
49
<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 UNEXERCISED
UNDERLYING IN-THE-
NUMBER OF UNEXERCISED OPTIONS AT MONEY OPTIONS AT
SHARES DECEMBER 31, 1998(2) DECEMBER 31, 1998(3)
ACQUIRED VALUE ------------------------- ----------------------
NAME ON EXERCISE REALIZED (1) VESTED UNVESTED VESTED UNVESTED
- ---- ----------- ------------ ------ ------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Gregory A. Peters....... 0 -- 0 593,845 $ 0 $ 6,775,771
Ross B. Garber.......... 103,600 $23,828 0 0 0 0
Neil Webber............. 0 -- 0 0 0 0
Sherry A. Atherton...... 34,180 23,242 0 0 0 0
Michael J. Vollman...... 140,140 95,295 0 55,401 0 222,607
Peter T. Klante......... 105,105 71,471 0 0 0 0
</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 the fair market value of our common stock at the end of 1998
($13.50 per share), less the exercise price payable for such shares.
CHANGE OF CONTROL 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. Except for
Gregory A. Peters, none of our executive officers have employment agreements
with us, and their employment may be terminated at any time. 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' relocating 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 after the offering at a price per share higher than the price
for the offering, then Mr. Peters will fully vest in his option shares.
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.
50
<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 our stockholders will also be asked to approve the
adoption of the plan. We have reserved 1,000,000 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 the date of this offering will
also be 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 1,000,000 shares. As of January 1, 1999, no
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.
51
<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 will also be asked to approve the adoption of
the plan. We have reserved 750,000 shares of common stock for issuance under
the Employee Stock Purchase Plan. As of January 1 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, 750,000 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 15 and August 15 each calendar year. However, the first offering
period will commence on the effective date of the offering and end on August
15, 2001. Purchases of common stock will occur on February 14 and August 14
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 will begin on the
effective date of this offering and end on August 14, 1999. No more than 2,000
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. In the case
of the first offering period, the price per share under the plan will be 85%
of the price offered to the public in the offering. 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 Directors Option Plan
Our 1999 Non-Employee Director Option Plan was adopted by the Board of
Directors on September 9, 1998, and our stockholders will also be asked to
approve 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 250,000 shares of common stock has been authorized for issuance
under the 1999 Non-Employee Director Option Plan. No shares have been issued
yet under the 1999 Non-Employee Director Option Plan.
52
<PAGE>
The compensation committee of the Board of Directors will make any
administrative determinations under the 1999 Non-Employee Director Option
Plan.
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 the effective date of this offering will receive at that
time an option grant for 25,000 shares of common stock. 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 2,500 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.
53
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH DIRECTORS AND OFFICERS
In February 1996, we raised additional capital to finance its operations
through the sale of 400,000 shares of Series A Preferred Stock to the
following stockholders for $1.00 per share:
<TABLE>
<CAPTION>
SHARES OF
SERIES A AGGREGATE
PREFERRED STOCK CONSIDERATION
--------------- -------------
<S> <C> <C>
Austin Ventures IV-A, L.P. ....................... 80,697.5 $ 80,697.50
Austin Ventures IV-B, L.P. ....................... 169,302.5 169,302.50
Sigma Partners III, L.P. ......................... 125,250 125,250.00
Sigma Associates III, L.P. ....................... 22,800 22,800.00
Sigma Investors III, L.P. ........................ 1,950 1,950.00
--------- ------------
Total........................................... 400,000 $ 400,000.00
========= ============
</TABLE>
In February, June and July 1996, we raised additional capital to finance its
operations through the sale of an aggregate of 1,853,182 shares of Series B
Preferred Stock to the following stockholders for $1.65 per share:
<TABLE>
<CAPTION>
SHARES OF
SERIES B AGGREGATE
PREFERRED STOCK CONSIDERATION
--------------- -------------
<S> <C> <C>
Austin Ventures IV-A, L.P. ...................... 302,249 $ 498,710.85
Austin Ventures IV-B, L.P. ...................... 634,115 1,046,289.75
Sigma Partners III, L.P. ........................ 503,841 831,337.65
Sigma Associates III, L.P. ...................... 92,054 151,889.10
Sigma Investors III, L.P. ....................... 10,923 18,022.95
CNET, Inc. ...................................... 310,000 511,500.00
--------- -------------
Total.......................................... 1,853,182 $3,057,750.00
========= =============
</TABLE>
In July 1996, we sold 1,865,000 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.
In June and July 1997, we raised additional capital to finance its
operations through the sale of 837,265 shares and 40,496 shares, respectively,
of Series E Preferred Stock, to the following stockholders for $4.24 per
share:
<TABLE>
<CAPTION>
SHARES OF
SERIES E AGGREGATE
PREFERRED STOCK CONSIDERATION
--------------- -------------
<S> <C> <C>
Austin Ventures IV-A, L.P. ...................... 143,570 $ 608,736.80
Austin Ventures IV-B, L.P. ...................... 301,207 1,277,117.68
Sigma Partners III, L.P. ........................ 339,590 1,439,861.60
Sigma Associates III, L.P. ...................... 84,042 356,338.08
Sigma Investors III, L.P. ....................... 9,352 39,652.48
------- -------------
Total.......................................... 877,761 $3,721,706.64
======= =============
</TABLE>
54
<PAGE>
On April 21, 1998, we loaned $58,858.80 to Michael J. Vollman, Vice
President, North American Operations in connection with Mr. Vollman's exercise
of an option to purchase 140,140 shares of common stock. Mr. Vollman issued a
promissory note to us bearing interest at the rate of 5.70% per annum, which
note is secured by a pledge of the shares acquired and is payable in full by
April 21, 1999. 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 the Company bearing interest at the rate of 5.70% per
annum, which note is payable in full by December 31, 1998. The largest
aggregate amount of indebtedness outstanding and the amount outstanding on
November 30, 1998 under each loan was approximately $50,450 and $60,910,
respectively.
In April 1998, we raised additional capital to finance its operations
through the sale of 167,144 shares of Series F Preferred Stock to the
following stockholders for $10.47 per share:
<TABLE>
<CAPTION>
SHARES OF
SERIES F AGGREGATE
PREFERRED STOCK CONSIDERATION
--------------- -------------
<S> <C> <C>
Austin Ventures IV-A, L.P. ...................... 30,830 $ 322,790.10
Austin Ventures IV-B, L.P. ...................... 64,681 677,210.07
Sigma Partners III, L.P. ........................ 56,182 588,225.54
Sigma Associates III, L.P. ...................... 13,904 145,574.88
Sigma Investors III, L.P. ....................... 1,547 16,197.09
------- -------------
Total.......................................... 167,144 $1,749,997.68
======= =============
</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. In addition, pursuant to the Stockholder's Agreement dated April 22,
1998, the holders of Series F Preferred Stock and certain holders of Series E
Preferred Stock have a right to purchase up to 10% of the shares of common
stock in this offering subject to certain limitations. On September 25, 1998
Messrs. Thornton and Davoli each were granted an option to purchase 25,000
shares of our common stock at an exercise price of $12.50 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.
In August 1998, Mr. Papermaster, one of our directors, was granted an option
to purchase 25,000 shares of our common stock at an exercise price of $9.50
per share subject to a four year vesting schedule in connection with his
appointment to the Board. See "Management--Employee Benefit Plans."
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.
55
<PAGE>
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, 1998, and is automatically renewable for successive 12-month
periods. 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 is
entitled, at its option, to convert up to 55% of a portion of the management
fees into our fully paid voting stock at a price of $10.25 per share.
Pany Christouforou, an employee of Protege, has served as our Vice
President, Europe pursuant to the professional services agreement between us
and Protege since January 1998.
56
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to us regarding
beneficial ownership of our common stock as of November 30, 1998, and as
adjusted to reflect the sale of shares offered hereby and the conversion of
all outstanding shares of preferred stock into shares of common stock, by (a)
each person who is known by us to own beneficially more than five percent of
our common stock, (b) each of our directors, (c) each of our executive
officers and (d) all current executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE NUMBER OF OWNED AFTER
THE OFFERING SHARES THE OFFERING (2)
NAME AND ADDRESS OF --------------------- BEING ------------------------
BENEFICIAL OWNER(1) NUMBER PERCENT (3) OFFERED NUMBER PERCENT (3)
------------------- --------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Funds affiliated with
Austin Ventures(4) .... 2,132,574 18.58% %
114 West Seventh Street
1300 Norwood Tower
Austin, TX 78701
Sigma Entities(5) ...... 1,261,435 10.99
2884 Sand Hill Road,
Suite 121
Menlo Park, CA 94025
CNET, Inc. ............. 1,176,186 10.25
150 Chestnut Street
San Francisco, CA 94111
Adobe Ventures II, L.P.
....................... 567,209 4.94
One Bush Street
San Francisco, CA 94104
Charles River
Entities(6)............ 898,569 7.83
1000 Winter Street,
Suite 3300
Waltham, MA 02154
Gregory A. Peters(7).... 603,396 5.00
Ross B. Garber(8)....... 816,497 7.11
Neil Webber(9).......... 807,000 7.02
Sherry A. Atherton...... 107,005 *
Pany Christoforou(10)... 20,000 *
William R. Daniel(11)... 90,000 *
Bradley V. Husick....... 119,186 1.04
Peter T. Klante......... 105,105 *
Jack F. Lynch........... 96,226 *
Philip C. Powers(12).... 70,000 *
Michael J. Vollman(13).. 170,541 1.48
Robert E. Davoli(5)..... 1,286,435 11.19
Steven G.
Papermaster(14)........ 25,000 *
John D. Thornton(4)..... 2,157,574 18.76
All directors and
executive officers as a
group (13 persons)(15). 6,473,965 52.29%
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of common stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment
power with respect to securities. 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.
57
<PAGE>
(2) Assumes no exercise of the underwriters' over-allotment option. See
"Underwriters."
(3) Percentage of beneficial ownership is based on 11,476,133 shares of
common stock outstanding as of November 30, 1998 (assuming conversion of
all outstanding shares of preferred stock into common stock), and
shares of common stock outstanding after the completion of this offering.
The number of shares of common stock beneficially owned includes the
shares issuable pursuant to stock options that are exercisable within 60
days of November 30, 1998. 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 shares of common stock being offered for sale by
Vignette in this offering.
(4) Includes 577,385.5 shares held by Austin Ventures IV-A, L.P. and
1,211,348.5 shares held by Austin Ventures IV-B, L.P. Also includes
327,466 shares held by Austin Ventures V, L.P. and 16,374 shares held by
Austin Ventures V Affiliates Fund, L.P. Mr. Thornton, a director of the
Company, 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 25,000 shares.
(5) Includes 1,024,863 shares held by Sigma Partners III, L.P., 212,800
shares held by Sigma Associates III, L.P. and 23,772 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. Amount shown for
Mr. Davoli includes options immediately exercisable for 25,000 shares.
(6) Includes 801,329 shares held by Charles River Partnership VIII, a limited
partnership and 1,729 shares held by Charles River VIII-A LLC.
(7) Includes options immediately exercisable for 593,845 shares.
(8) Includes 23,810 shares owned by Hailey Garber and 23,810 shares owned by
Harrison Garber.
(9) Includes options immediately exercisable for 25,000 shares.
(10) Includes options immediately exercisable for 20,000 shares.
(11) Includes options immediately exercisable for 90,000 shares.
(12) Includes options immediately exercisable for 70,000 shares.
(13) Includes options immediately exercisable for 30,401 shares.
(14) Includes options immediately exercisable for 25,000 shares.
(15) Includes options immediately exercisable for 904,246 shares of common
stock.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
On the closing of this offering, our authorized capital stock will consist
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 November 30, 1998, there were 2,856,745 shares of common stock
outstanding that were held of record by approximately 150 stockholders. As of
November 30, 1998, there are 2,165,062 shares of common stock subject to
outstanding options, all of which are currently exercisable. There will be
shares of common stock outstanding (assuming no exercise of the underwriters'
over-allotment option and assuming no exercise after November 30, 1998 of
outstanding options) after giving effect to the sale of the shares of common
stock to the public offered hereby and the conversion of our preferred stock
into common stock at a one-to-one ratio. 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."
PREFERRED STOCK
On the closing of this offering, 10,000,000 shares of preferred stock will
be authorized and no shares will be 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 Amended and Restated Certificate of Incorporation to be effective on the
closing of this offering provides that the Board of Directors will be 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 Amended and
Restated Certificate of Incorporation also provides that, effective on the
closing of this offering, all stockholder actions must be effected at a duly
called meeting and not by a consent in writing. Further, provisions of the
Bylaws and the Amended and Restated Certificate of Incorporation provide that
the stockholders may amend the Bylaws or certain provisions of the Amended and
Restated Certificate of Incorporation only with the affirmative vote of 75% of
our capital stock. These provisions of the Amended and Restated Certificate of
Incorporation and Bylaws could discourage potential acquisition proposals and
could delay or prevent a change in control of Vignette. These provisions are
59
<PAGE>
intended to enhance the likelihood of continuity and stability in the
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--Anti-Takeover Provisions in Our Charter Documents and
Delaware Law."
Delaware Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless: (1) prior to such date, the board of directors
of the corporation approved either the business combination or the transaction
that resulted in the stockholder becoming an interested stockholder; (2) on
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (3) on or subsequent
to such date, the business combination is approved by the board of directors
and authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (1) any merger or
consolidation involving the corporation and the interested stockholder; (2)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (3) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (4) any transaction involving the corporation that has the effect
of increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or (5) the
receipt by the interested stockholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the
corporation. In general, Section 203 defines an interested stockholder as any
entity or person beneficially owning 15% or more of the outstanding voting
stock of the corporation and any entity or person affiliated with or
controlling or controlled by such entity or person.
REGISTRATION RIGHTS
After this offering, the holders of approximately 10,115,500 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. In addition,
the holders of registration rights have agreed not to
60
<PAGE>
exercise such rights for at least 180 days after the offering without the
prior written consent of Morgan Stanley & Co. Incorporated.
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.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
On completion of this offering, we will have shares of common stock
outstanding. Of this amount, the shares offered hereby will be available
for immediate sale in the public market as of the date of this prospectus.
Approximately 9,043,000 additional shares will be available for sale in the
public market following the expiration of 180-day lockup agreements with our
representatives or representatives of the underwriters, subject in some cases
to compliance with the volume and other limitations of Rule 144.
<TABLE>
<CAPTION>
DAYS AFTER DATE OF APPROXIMATE SHARES
THIS PROSPECTUS ELIGIBLE FOR FUTURE SALE COMMENT
------------------ ------------------------ -------
<S> <C> <C>
On Effectiveness........ Freely tradable shares sold in offering and shares
salable under Rule 144(k) that are not subject to
180-day lockup
9,043,000 Lockup released; shares salable under Rule 144,
180 days................ 144(k) or 701
Thereafter.............. 2,433,000 Restricted securities held for one year or less
</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 (a) 1% of the then outstanding shares of common stock which will be
approximately shares immediately after the offering, or (b) 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 an
affiliate of Vignette 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. Prior to this
offering, there has been no public market for the common stock, and there can
be no assurance that a significant public market for the common stock will
develop or be sustained after the offering. 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 directors, executive officers, stockholders with registration rights
and certain other stockholders have agreed pursuant to the Underwriting
Agreement and other agreements that we will not sell any common stock without
the prior consent of Morgan Stanley & Co. Incorporated for a period of 180
days from the date of this prospectus, except that we may, without such
consent, grant options and sell shares pursuant to our stock plans.
Any of our employees or consultants who purchased his or her shares pursuant
to a written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of the date of this prospectus, the holders of options
exercisable into approximately 2,255,062 shares of common stock will be
eligible to sell their shares on the expiration of the 180-day lockup period,
or subject in certain cases to vesting of such options.
We intend to file a registration statement on Form S-8 under the Securities
Act to register shares of common stock issued or reserved for issuance under
our stock plans within 180 days after the date of this prospectus, thus
permitting the resale of such shares by nonaffiliates in the public market
without restriction under the Securities Act. We intend to register these
shares on Form S-8, along with options that have not been issued under our
stock plans as of the date of this prospectus.
62
<PAGE>
In addition, after this offering, the holders of approximately 10,511,500
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, except for shares
purchased by affiliates of Vignette, becoming freely tradable without
restriction under the Securities Act immediately on the effectiveness of such
registration. See "Description of Capital Stock--Registration Rights."
63
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, the underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Hambrecht & Quist LLC and Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated are acting as representatives, have
severally agreed to purchase, and we and the selling stockholders have agreed
to sell to them an aggregate of 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 Wessels..............................................
---
Total............................................................
===
</TABLE>
The underwriters are offering the shares 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 hereby 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 hereby, other than
those covered by the over-allotment option described below, if any such shares
are taken.
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 hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
underwriters may allow, and such dealers may reallow, a concession not in
excess of $ a share to other underwriters or to certain other 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.
Pursuant to the underwriting agreement, 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 additional shares of common stock at the
public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The underwriters may exercise such option solely
for the purpose of covering over-allotments, if any, made in connection with
the offering of the shares of common stock offered hereby. To the extent such
option is exercised, each underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of common stock as the number set forth next to such
underwriter's name in the preceding table bears to the total number of shares
of common stock set forth next to the names of all underwriters in the
preceding table. If the underwriter's over-allotment option is exercised in
full, the total price to public would be $ , the total underwriters'
discounts and commissions would be $ , and the total proceeds to us would be
$ .
At our request, the underwriters have reserved up to shares of common
stock to be issued by us and offered hereby for sale, at the public offering
price, to our directors, officers, employees, business associates and
64
<PAGE>
related persons. The number of shares of common stock available for sale to
the general public will be reduced to the extent such individuals purchase
such reserved shares. Any reserved shares which are not so purchased will be
offered by the underwriters to the general public on the same basis as the
other shares offered hereby.
We, the directors, officers and certain other of our stockholders have each
agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, during the period ending 180 days
after the date of this prospectus, we will not, directly or indirectly (1)
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 (whether such shares or any such
securities are then owned by such person or are thereafter acquired directly
from the Company), or (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of common stock, whether any such transaction described in clause
(1) or (2) above is to be settled by delivery of common stock or such other
securities, in cash or otherwise. The restrictions described in this paragraph
do not apply to (a) the sale to the underwriters of the shares of common stock
under the underwriting agreement, (b) 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 of which the
underwriters have been advised in writing, (c) 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 (d) 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.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have submitted an application to have our common stock approved for
quotation on the Nasdaq National Market under the symbol "VIGN."
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.
We, the selling stockholders and the underwriters have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act.
In April 1998, we sold shares of our Series F Preferred Stock in a private
placement. In this private placement, Hambrecht & Quist California purchased
42,980 shares of Series F Preferred Stock, which are convertible into 42,980
shares of common stock, for approximately $450,000 and H&Q Vignette Investors
L.P. purchased 100,287 shares of Series F Preferred Stock, which are
convertible into 100,287 shares of common stock, for approximately $1.1
million. Hambrecht & Quist California and H&Q Vignette Investors, L.P.
purchased these shares on the same terms as the other investors in the private
placement. Hambrecht & Quist LLC, one of the underwriters in this offering, is
wholly owned by Hambrecht & Quist California. H&Q Vignette Investors, L.P. is
a California limited partnership with two general partners. One of the general
partners is a wholly owned subsidiary of Hambrecht & Quist California and the
other is a limited liability company of which two of the three members are
employees of Hambrecht & Quist LLC. In addition, approximately half of the
65
<PAGE>
limited partners of H&Q Vignette Investors, L.P. are employees of Hambrecht &
Quist LLC or directors of Hambrecht & Quist Group, the parent corporation of
Hambrecht & Quist California.
In November 1998, we sold shares of our Series H Preferred Stock in a
private placement. In this private placement, Morgan Stanley Dean Witter
Equity Funding, Inc., or MSDW Equity Funding, purchased 91,856 shares of
Series H Preferred Stock, which are convertible into 91,856 shares of common
stock (subject to adjustment), for approximately $1,500,000. MSDW Equity
Funding purchased these shares on the same terms as the other investors in the
private placement. Morgan Stanley & Co. Incorporated, one of the underwriters
in this offering, and MSDW Equity Funding are both wholly owned subsidiaries
of Morgan Stanley Dean Witter & Co.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the shares of
common stock. Consequently, the public offering price for the shares of common
stock will be determined by negotiations between Vignette, the selling
stockholders and the representatives of the underwriters. Among the factors to
be considered in determining the public offering price will be our record of
operations, our current financial position and future prospects, the
experience of our management, sales, earnings and certain of our other
financial and operating information in recent periods, the price-earnings
ratios, price-sales ratios, market prices of securities and certain financial
and operating information of companies engaged in activities similar to ours.
The estimated public offering price range set forth on the cover page of this
prospectus is subject to change as a result of market conditions and other
factors.
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 for the years ended December 31, 1996 and 1997, as set
forth in their report, which is included in this prospectus. Our consolidated
financial statements are included in this prospectus in reliance on their
report, given on their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a Registration Statement on Form S-1 under the Securities Act with
respect to the common stock offered hereby. 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 offered hereby, reference is
made 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 to which this
prospectus refers are not necessarily complete; in each instance where a copy
of such contract or document has been filed as an exhibit to the Registration
Statement, reference is made to the copy of the contract or document that has
been filed. Each such statement is qualified in all respects by such reference
to such exhibit. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the Commission'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 Commission. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission at http://www.sec.gov.
66
<PAGE>
We intend to provide our stockholders with annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports containing unaudited consolidated financial data
for the first three quarters of each year.
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.
67
<PAGE>
VIGNETTE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Changes in Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit)................................. F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Vignette Corporation
We have audited the accompanying consolidated balance sheets of Vignette
Corporation and Subsidiary as of December 31, 1996 and 1997, the related
consolidated statements of operations, changes in redeemable convertible
preferred stock and stockholders' equity (deficit) and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 Subsidiary at December 31, 1996 and 1997, and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Austin, Texas
March 13, 1998
F-2
<PAGE>
VIGNETTE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA REDEEMABLE
CONVERTIBLE PREFERRED
STOCK AND
DECEMBER 31, STOCKHOLDERS' EQUITY AT
----------------- SEPTEMBER 30, SEPTEMBER 30, 1998
1996 1997 1998 (NOTE 10)
------- -------- ------------- -----------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 1,863 $ 6,865 $ 12,397
Accounts receivable,
net of allowance of
$-0- in 1996, $37 in
1997, and $151 in
1998................. -- 650 4,983
Note receivable from
employee............. -- -- 89
Prepaid expenses and
other................ 63 196 881
------- -------- --------
Total current
assets............. 1,926 7,711 18,350
Property and equipment:
Equipment............. 44 71 80
Computers and
purchased software... 258 834 1,823
Furniture and
fixtures............. 16 16 16
Leasehold
improvements......... -- 50 --
------- -------- --------
318 971 1,919
Accumulated
depreciation......... (41) (227) (964)
------- -------- --------
277 744 955
Other assets.......... 26 44 142
------- -------- --------
Total assets........ $ 2,229 $ 8,499 $ 19,447
======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable...... $ 215 $ 433 $ 879
Accrued expenses...... 86 1,785 6,280
Deferred revenue...... -- 1,163 4,835
Current portion of
capital lease
obligation........... 21 23 13
Current portion of
long-term debt....... 21 24 674
Other current
liabilities.......... -- 28 201
------- -------- --------
Total current
liabilities........ 343 3,456 12,882
Capital lease
obligation, less
current portion........ 30 7 --
Long-term debt, less
current portion........ 168 826 2,013
------- -------- --------
Total liabilities... 541 4,289 14,895
Redeemable convertible
preferred stock........ 3,458 13,458 27,758 $ --
Stockholders' equity
(deficit):
Convertible preferred
stock................ 19 19 21 --
Common stock--$.01 par
value; 16,500,000
shares authorized;
1,715,220 shares in
1996, 1,774,922
shares in 1997,
2,862,078 shares in
1998; 10,960,950
shares on a pro forma
basis (net of
treasury shares of
71,860 in 1997 and
77,820 in 1998 and on
a pro forma basis)
issued and
outstanding.......... 17 18 29 110
Additional paid-in
capital.............. 1,820 1,818 4,707 32,405
Notes receivable for
purchase of common
stock................ -- -- (182) (182)
Deferred stock
compensation......... -- -- (382) (382)
Accumulated deficit... (3,626) (11,103) (27,399) (27,399)
------- -------- -------- --------
Total stockholders'
equity (deficit)... (1,770) (9,248) (23,206) $ 4,552
------- -------- -------- ========
Total liabilities
and stockholders'
equity (deficit)... $ 2,229 $ 8,499 $ 19,447
======= ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
VIGNETTE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
---------------- ---------------------
1996 1997 1997 1998
------- ------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Product license..................... $ -- $ 1,943 $ 1,179 $ 5,152
Services............................ -- 1,081 537 4,359
------- ------- --------- ----------
Total revenue......................... -- 3,024 1,716 9,511
Cost of revenue:
Product license..................... -- 37 24 510
Services............................ -- 1,438 674 5,579
------- ------- --------- ----------
Total cost of revenue................. -- 1,475 698 6,089
------- ------- --------- ----------
Gross profit.......................... -- 1,549 1,018 3,422
Operating expenses:
Research and development............ 892 2,895 1,906 4,840
Sales and marketing................. 428 4,964 2,870 9,398
General and administrative.......... 503 1,333 718 3,451
Write-off of acquired in-process
research and development........... 1,865 -- -- 2,089
Amortization of deferred stock
compensation....................... -- -- -- 142
------- ------- --------- ----------
Total operating expenses.............. 3,688 9,192 5,494 19,920
------- ------- --------- ----------
Loss from operations.................. (3,688) (7,643) (4,476) (16,498)
Other income (expenses):
Interest income..................... 71 245 147 424
Interest expense.................... (9) (47) (30) (128)
Other............................... -- (29) (29) (92)
------- ------- --------- ----------
62 169 88 204
------- ------- --------- ----------
Net loss.............................. $(3,626) $(7,474) $ (4,388) $ (16,294)
======= ======= ========= ==========
Basic net loss per share.............. $(11.33) $ (8.22) $ (4.79) $ (11.74)
======= ======= ========= ==========
Shares used in computing basic net
loss per share....................... 320 909 917 1,388
Pro forma basic net loss per share.... $ (1.19) $ (1.84)
======= ==========
Shares used in computing pro forma
basic net loss per share............. 6,259 8,861
</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>
<CAPTION>
REDEEMABLE CONVER-
TIBLE PREFERRED STOCK
---------------------
NUMBER OF
SHARES VALUE
---------------------
<S> <C> <C>
Stock options
exercised...... -- $ --
Issuance of
Series A stock. 400,000 400
Series A
issuance costs. -- --
Issuance of
Series B stock. 1,853,182 3,058
Series B
issuance costs. -- --
Issuance of
Series C stock. -- --
Series C
issuance costs. -- --
Stock grants.... -- --
Net loss........ -- --
----------- ---------
Balance at
December 31,
1996........... 2,253,182 3,458
Exercise of
Series D
warrant........ -- --
Issuance of
Series E stock. 2,358,492 10,000
Series E
issuance costs. -- --
Stock options
exercised...... -- --
Repurchase of
unvested stock. -- --
Compensation
expense from
stock options
granted........ -- --
Net loss........ -- --
Foreign currency
translation
adjustment..... -- --
----------- ---------
Balance at
December 31,
1997........... 4,611,674 13,458
Issuance of
Series F stock. 1,365,808 14,300
Series F
issuance costs. -- --
Issuance of
Series G stock. -- --
Series G
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... -- --
Net loss........ -- --
Foreign currency
translation
adjustment,
cumulative
translation
loss of $5 at
September 30,
1998........... -- --
----------- ---------
Balance at
September 30,
1998
(unaudited).... 5,977,482 $27,758
=========== =========
Pro forma
redeemable
convertible
preferred stock
and
stockholders'
equity at
September 30,
1998 (Note 10)
(unaudited).... -- $ --
=========== =========
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------------------------------------------------
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE
--------------- ----------------- ADDITIONAL FOR PURCHASE DEFERRED TOTAL
NUMBER OF NUMBER OF PAID- OF COMMON STOCK ACCUMULATED STOCKHOLDERS'
SHARES VALUE SHARES VALUE IN CAPITAL STOCK COMPENSATION DEFICIT EQUITY (DEFICIT)
--------- ----- ----------- ----- ---------- ------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock options
exercised...... -- $ -- 1,715,120 $ 17 $ 19 $ -- $ -- $ -- $ 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. 1,865,000 19 -- -- 1,846 -- -- -- 1,865
Series C
issuance costs. -- -- -- -- (25) -- -- -- (25)
Stock grants.... -- -- 100 -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- (3,626) (3,626)
--------- ----- ----------- ----- ---------- ------------ ------------ ----------- ----------------
Balance at
December 31,
1996........... 1,865,000 19 1,715,220 17 1,820 -- -- (3,626) (1,770)
Exercise of
Series D
warrant........ 65,368 -- -- -- 107 -- -- -- 107
Issuance of
Series E stock. -- -- -- -- -- -- -- -- --
Series E
issuance costs. -- -- -- -- (126) -- -- -- (126)
Stock options
exercised...... -- -- 131,562 1 23 -- -- -- 24
Repurchase of
unvested stock. -- -- (71,860) -- (11) -- -- -- (11)
Compensation
expense from
stock options
granted........ -- -- -- -- 5 -- -- -- 5
Net loss........ -- -- -- -- -- -- -- (7,474) (7,474)
Foreign currency
translation
adjustment..... -- -- -- -- -- -- -- (3) (3)
--------- ----- ----------- ----- ---------- ------------ ------------ ----------- ----------------
Balance at
December 31,
1997........... 1,930,368 19 1,774,922 18 1,818 -- -- (11,103) (9,248)
Issuance of
Series F stock. -- -- -- -- -- -- -- -- --
Series F
issuance costs. -- -- -- -- (54) -- -- -- (54)
Issuance of
Series G stock. 191,022 2 -- -- 1,998 -- -- -- 2,000
Series G
issuance costs. -- -- -- -- (14) -- -- -- (14)
Stock options
exercised...... -- -- 1,093,116 11 436 (192) -- -- 255
Repurchase of
unvested stock. -- -- (5,960) -- (1) -- -- -- (1)
Deferred stock
compensation
related to
stock options.. -- -- -- -- 524 -- (524) -- --
Amortization of
deferred stock
compensation... -- -- -- -- -- -- 142 -- 142
Payments
received on
notes
receivable for
purchase of
common stock... -- -- -- -- -- 10 -- -- 10
Net loss........ -- -- -- -- -- -- -- (16,294) (16,294)
Foreign currency
translation
adjustment,
cumulative
translation
loss of $5 at
September 30,
1998........... -- -- -- -- -- -- -- (2) (2)
--------- ----- ----------- ----- ---------- ------------ ------------ ----------- ----------------
Balance at
September 30,
1998
(unaudited).... 2,121,390 $ 21 2,862,078 $ 29 $ 4,707 $(182) $(382) $(27,399) $(23,206)
========= ===== =========== ===== ========== ============ ============ =========== ================
Pro forma
redeemable
convertible
preferred stock
and
stockholders'
equity at
September 30,
1998 (Note 10)
(unaudited).... -- $ -- 10,960,950 $110 $32,405 $(182) $(382) $(27,399) $ 4,552
========= ===== =========== ===== ========== ============ ============ =========== ================
</TABLE>
See accompanying notes.
F-5
<PAGE>
VIGNETTE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- -----------------
1996 1997 1997 1998
------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................. $(3,626) $(7,474) $(4,388) $(16,294)
Adjustment to reconcile net loss to cash
used in operating activities:
Depreciation............................ 41 198 122 737
Noncash compensation expense............ -- 5 -- 142
Acquired in-process research and
development............................ 1,865 -- -- 2,000
Loss on disposal of fixed assets........ -- 29 29 101
Changes in operating assets and
liabilities:
Accounts receivable, net.............. -- (650) (735) (4,333)
Note receivable from employee......... -- -- -- (89)
Prepaid expenses and other assets..... (88) (151) (22) (783)
Accounts payable...................... 215 218 (6) 446
Accrued expenses...................... 86 1,700 852 4,495
Deferred revenue...................... -- 1,163 1,147 3,672
Other liabilities..................... -- 28 -- 173
------- ------- ------- --------
Net cash used in operating
activities......................... (1,507) (4,934) (3,001) (9,733)
INVESTING ACTIVITIES
Purchase of property and equipment........ (318) (694) (539) (1,049)
------- ------- ------- --------
Net cash used in investing
activities......................... (318) (694) (539) (1,049)
FINANCING ACTIVITIES
Proceeds from long-term debt and capital
lease obligation......................... 279 701 299 1,837
Payments on long-term debt and capital
lease obligation......................... (40) (62) (30) (17)
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...... -- 107 107 --
Proceeds from issuance of Series E
Convertible Preferred Stock, net......... -- 9,874 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 common stock.... 16 24 19 265
Payments for repurchase of unvested common
stock.................................... -- (11) -- (1)
------- ------- ------- --------
Net cash provided by financing
activities......................... 3,668 10,633 10,269 16,316
Effect of exchange rate changes on cash
and cash equivalents..................... -- (3) -- (2)
------- ------- ------- --------
Net increase in cash and cash equivalents. 1,843 5,002 6,729 5,532
Cash and cash equivalents at beginning of
year or period........................... 20 1,863 1,863 6,865
------- ------- ------- --------
Cash and cash equivalents at end of year
or period................................ $ 1,863 $ 6,865 $ 8,592 $ 12,397
======= ======= ======= ========
Supplemental disclosure of cash flow
information:
Interest paid........................... $ 7 $ 48 $ 29 $ 128
======= ======= ======= ========
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
SEPTEMBER 30, 1998
(INFORMATION WITH RESPECT TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. BUSINESS
Vignette Corporation, or "the Company" is a global provider of Internet
Relationship Management 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
Interim Financial Information
The financial information for the nine months ended September 30, 1997 and
1998 is unaudited but includes all adjustments, consisting only of normal
recurring adjustments, which the Company considers necessary for a fair
presentation of the financial position, operating results and cash flows for
the period. Results for the nine months ended September 30, 1998 are not
necessarily indicative of the results for the entire year.
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, our current revenue
accounting practices may need to change and such changes could affect our
future revenues and earnings.
F-7
<PAGE>
VIGNETTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 September 30, 1998, all software development
costs have been expensed.
Advertising Costs
The Company expenses advertising costs as incurred. These expenses were
approximately $1,000 and $158,000 for the years ended December 31, 1996 and
1997, respectively, and $-0- and $50,000 for the nine months ended September
30, 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 or for nine
months ended September 30, 1997.
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).
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
F-8
<PAGE>
VIGNETTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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............................ 117
Write-off of uncollectible accounts................................ (3)
------
Balance at September 30, 1998 (unaudited).......................... $ 151
======
</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 nine months ended
September 30, 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 September 30, 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.
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 NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- -------------------
1996 1997 1997 1998
------- ------- -------- ---------
<S> <C> <C> <C> <C>
Net loss................................ $(3,626) $(7,474) $ (4,388) $ (16,294)
======= ======= ======== =========
Basic:
Weighted-average shares of common stock
outstanding........................... 1,658 1,766 1,777 2,372
Weighted-average shares of common stock
subject to repurchase................. (1,338) (857) (860) (984)
------- ------- -------- ---------
Shares used in computing basic net loss
per share............................. 320 909 917 1,388
======= ======= ======== =========
Basic net loss per share............... $(11.33) $ (8.22) $ (4.79) $ (11.74)
======= ======= ======== =========
Pro forma:
Shares used above...................... 909 1,388
Pro forma adjustment to reflect
weighted effect of assumed conversion
of convertible preferred stock........ 5,350 7,473
------- ---------
Shares used in computing pro forma
basic net loss per share.............. 6,259 8,861
======= =========
Pro forma basic net loss per share..... $ (1.19) $ (1.84)
======= =========
</TABLE>
F-9
<PAGE>
VIGNETTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Loss
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, Reporting Comprehensive Income. SFAS 130 requires
disclosure of total non-stockholder changes in equity in interim periods and
additional disclosures of the components of non-stockholder changes in equity
on an annual basis. Total comprehensive loss was as follows (in thousands):
<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- -----------------
1996 1997 1997 1998
------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss............................... $(3,626) $(7,474) $(4,388) $(16,294)
Foreign currency translation loss...... -- (3) -- (2)
------- ------- ------- --------
Comprehensive loss..................... $(3,626) $(7,477) $(4,388) $(16,296)
======= ======= ======= ========
</TABLE>
Segments
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131). SFAS 131 is effective for the
year ending December 31, 1998. The Company expects that implementation of this
standard will not have a material effect on its financial disclosures.
Financial Presentation
Certain reclassifications have been made to prior periods' financial
statements to conform to the December 31, 1997 presentation.
3. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Summary of Preferred Stock
As of September 30, 1998, there were 8,500,000 shares authorized to be
designated as preferred stock. The seven classes of preferred stock designated
as of September 30, 1998 are as follows (258,996 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.............. $.01 407,500 400,000 $ 1.00 cash
Series B.............. $.01 1,853,182 1,853,182 1.65 cash
Series E.............. $.01 2,358,492 2,358,492 4.24 cash
Series F.............. $.01 1,365,808 1,365,808 10.47 cash
--------- ---------
5,984,982 5,977,482
========= =========
Convertible preferred
stock:
Series C.............. $.01 1,865,000 1,865,000 $ 1.00 technology
Series D.............. $.01 200,000 65,368 1.65 cash
Series G.............. $.01 191,022 191,022 10.47 technology
--------- ---------
2,256,022 2,121,390
========= =========
</TABLE>
F-10
<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 and F 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% $13,879
April 22, 2006 75% 20,819
April 22, 2007 100% 27,758
</TABLE>
The Company's preferred stock has the following characteristics at September
30, 1998:
<TABLE>
<CAPTION>
DESCRIPTION DIVIDEND FEATURES LIQUIDATION PREFERENCE CONVERSION FEATURES REDEMPTION FEATURES
- ----------- ----------------- ---------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Series A Cumulative at an $1.00 per One for one subject $1.00 per share
annual rate of share plus to certain plus accrued and
$.06 per share accrued and antidilution unpaid dividends
beginning unpaid adjustments, as
January 1, 1999 dividends (1) defined
payable upon
liquidation or
conversion
Series B Cumulative at an $1.65 per One for one subject $1.65 per share
annual rate of share plus to certain plus accrued and
$.10 per share accrued and antidilution unpaid dividends
beginning unpaid adjustments, as
January 1, 1999 dividends (1) defined
payable upon
liquidation or
conversion
Series C Cumulative at an $1.00 per One for one subject None
annual rate of share plus to certain
$.06 per share accrued and antidilution
beginning unpaid adjustments, as
January 1, 1999 dividends (1) defined
payable upon
liquidation or
conversion
Series D Non-cumulative $1.65 per One for one subject None
at the same rate share plus to certain
as dividends accrued and antidilution
paid on common unpaid adjustments, as
stock payable dividends defined
upon liquidation
or conversion
Series E Cumulative at an $4.24 per One for one subject $4.24 per share
annual rate of share plus to certain plus accrued and
$.254 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 $10.47 per One for one subject $10.47 per share
annual rate of share plus to certain plus accrued and
$.628 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 $10.47 per One for one subject None
share plus to certain
accrued and antidilution
unpaid adjustments, as
dividends defined
</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.
F-11
<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 authorized under the Plan were 5,061,000 at September 30, 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 $524,000
in connection with stock options granted during the nine months ended
September 30, 1998. Such amount is being amortized over the vesting periods of
the applicable options, resulting in amortization of $142,000 for the nine
months ended September 30, 1998. These amounts represent the difference
between the exercise price of 1,693,544 of stock options grants and the deemed
fair value of the Company's common stock at the time of such grants which
ranged from $.42 to $2.09 per share and $.55 to $2.25 per share, respectively.
A summary of the Company's stock option activity and related information
through September 30, 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.......................... 2,002,599 .0125 - .17 .04
Exercised........................ (1,715,120) .0125 - .17 .02
Canceled......................... -- -- --
----------
Options outstanding--December 31,
1996.............................. 287,479 .10 - .17 .16
Granted.......................... 1,268,352 .17 - .42 .32
Exercised........................ (131,562) .17 - .42 .18
Canceled......................... (318,020) .17 - .42 .20
----------
Options outstanding--December 31,
1997.............................. 1,106,249 .10 - .42 .33
Granted.......................... 2,106,206 .42 - 12.50 3.18
Exercised........................ (1,093,116) .17 - 12.50 .42
Canceled......................... (156,945) .17 - 2.09 .40
----------
Options outstanding, September 30,
1998 (unaudited).................. 1,962,394 .10 - 12.50 3.38
==========
Options available for grant at
December 31, 1997................. 2,323,688
==========
Options available for grant at Sep-
tember 30, 1998 (unaudited)....... 158,708
==========
</TABLE>
F-12
<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, 1997:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS WEIGHTED-AVERAGE
OUTSTANDING AND EXERCISABLE REMAINING CONTRACTUAL LIFE WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES AT DECEMBER 31, 1997 (IN YEARS) EXERCISE PRICE
------------------------ --------------------------- -------------------------- ----------------
<S> <C> <C> <C>
$.10
to
$.24 431,461 6.8 $.20
$ .42 674,788 7.6 $.42
---------
1,106,249
=========
</TABLE>
A total of 872,900 shares were unvested at December 31, 1997 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 NINE MONTHS
DECEMBER 31, ENDED
--------------- SEPTEMBER 30,
1996 1997 1998
------- ------- -------------
(UNAUDITED)
<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 $.03 $.04
Exercise price less than fair value of stock
on date of grant........................... -- -- $.66
</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 NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- -------------------
1996 1997 1997 1998
------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Pro forma stock-based compensation
expense............................ $ 1 $ 11 $ 8 $ 51
Pro forma net loss.................. $(3,627) $(7,485) $ (4,396) $ (16,345)
Pro forma basic net loss per share.. -- $ (1.20) -- $ (1.84)
</TABLE>
Warrants
In connection with the issuance of Series A Redeemable Convertible Preferred
Stock in February 1996, the Company also issued a warrant to purchase 7,500
shares of Series A Redeemable Convertible Preferred Stock at $1.00 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 65,368 shares of Series D Convertible Preferred Stock
was granted to a Board member at $1.65 per share during 1996. The warrant was
exercised in 1997.
No amount was allocated to the value of the warrants and no compensation
expense was recorded by the Company as such amounts were not significant.
Reserved Shares of Common Stock
At September 30, 1998, the Company had reserved 8,106,372 shares of its
common stock for issuance upon conversion of its various series of preferred
stock and exercise of its warrants. At September 30, 1998, another 2,126,302
shares of common stock were reserved for issuance under the Company's 1995
Stock Option/Stock Issuance Plan.
F-13
<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,
-------------- SEPTEMBER 30,
1996 1997 1998
------ ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Bank line of credit of $3,000--outstanding
principal balance payable in thirty-six
equal monthly installments beginning
December 1998. Line bears interest at prime
+ .75% and is due monthly. ................ $ 189 $ -- $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 1,187
----- ------- ------
189 850 2,687
Less current portion........................ (21) (24) (674)
----- ------- ------
Long-term portion........................... $ 168 $ 826 $2,013
===== ======= ======
Available for future borrowings............. $2,150 $2,313
======= ======
</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, 1997 are as
follows (in thousands):
<TABLE>
<S> <C>
1998.................................... $ 24
1999.................................... 283
2000.................................... 283
2001.................................... 260
----
$850
====
</TABLE>
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, 1996 and 1997 and at
September 30, 1998 are the following assets held under capital leases (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Property and equipment......................... $ 65 $ 65 $ 65
Less accumulated depreciation.................. (10) (31) (65)
------ ------ -----
$ 55 $ 34 $ --
====== ====== =====
</TABLE>
Future minimum lease payments for assets under capital leases at December
31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998.................................................................. $25
1999.................................................................. 8
---
Total minimum lease payments.......................................... 33
Less amount representing interest..................................... (3)
---
Present value of net minimum lease payments........................... 30
Less current maturities............................................... 23
---
Long-term obligation.................................................. $ 7
===
</TABLE>
F-14
<PAGE>
VIGNETTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LEASE COMMITMENTS (CONTINUED)
The Company leases its office facilities and office equipment under various
operating lease agreements. Future minimum payments as of December 31, 1997
(which includes commitments for new space for corporate headquarters which is
expected to be occupied in December 1998), under these leases, are as follows
(in thousands):
<TABLE>
<S> <C>
1998.................................. $1,467
1999.................................. 1,781
2000.................................. 1,588
2001.................................. 1,120
2002.................................. 1,171
Thereafter............................ 976
------
$8,103
======
</TABLE>
Rent expense for the years ended December 31, 1996 and 1997 and for the nine
months ended September 30, 1998 was $95,000, $263,000 and $931,000,
respectively.
6. INCOME TAXES
As of December 31, 1997, the Company had net operating loss and research and
development credit carryforwards of approximately $9,770,000 and $92,000,
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.
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, 1996 and 1997 and as of
September 30, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1996 1997 1998
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciable assets........................ $ (4) $ (19) $ --
Other..................................... -- (9) (22)
------- ------- -------
(4) (28) (22)
Deferred tax assets:
Depreciable assets........................ -- -- 128
Tax carryforwards......................... 724 3,704 8,775
Software development costs................ 614 383 211
Accrued liabilities and other............. 12 92 384
------- ------- -------
1,350 4,179 9,498
------- ------- -------
Net deferred tax assets..................... 1,346 4,151 9,476
Valuation allowance for net deferred tax
assets..................................... (1,346) (4,151) (9,476)
------- ------- -------
Net deferred taxes.......................... $ -- $ -- $ --
======= ======= =======
</TABLE>
F-15
<PAGE>
VIGNETTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES (CONTINUED)
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 $5,325,000 during the nine months ended September 30, 1998.
Undistributed earnings of the Company's foreign subsidiary were immaterial
as of December 31, 1997. 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,
--------------- NINE MONTHS ENDED
1996 1997 SEPTEMBER 30, 1998
------ ------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
Federal statutory rate.................. (34.0)% (34.0)% (34.0)%
State taxes, net of federal benefit..... (3.0) (3.0) (2.5)
In-process research and development..... -- -- 4.4
Change in valuation allowance........... 37.0 37.0 32.6
Other................................... -- -- (.5)
------ ------ -----
0 % 0 % 0 %
====== ====== =====
</TABLE>
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 191,022
shares of the Company's Series G Convertible Preferred Stock valued at $10.47
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 $10.47 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 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 $1,000,000 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
F-16
<PAGE>
VIGNETTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 40 person months or $800,000 in costs
related to development of the acquired in-process research and development and
estimates that approximately 25 person months or $250,000 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 1,865,000 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 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.
8. EMPLOYEE 401(K) PLAN
In 1997, the Company established a voluntary defined contribution retirement
plan (the "401(k) Plan") qualifying under Section 401(k) of the Internal
Revenue Code of 1986. The Company made no contributions in the year ended
December 31, 1997 or in the nine months ended September 30, 1998.
F-17
<PAGE>
VIGNETTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
---------------- ---------------------
1996 1997 1997 1998
------- ------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
United States
Domestic........................ $ -- $ 2,948 $ 1,716 $ 7,753
Other........................... -- 76 -- 301
------- ------- --------- ----------
Total United States........... -- 3,024 1,716 8,054
Europe............................ -- -- -- 1,457
------- ------- --------- ----------
Total revenue................. $ -- $ 3,024 $ 1,716 $ 9,511
======= ======= ========= ==========
Net loss:
United States..................... $(3,626) $(7,447) $ (4,388) $ (16,085)
Europe............................ -- (27) -- (209)
------- ------- --------- ----------
Total......................... $(3,626) $(7,474) $ (4,388) $ (16,294)
======= ======= ========= ==========
Identifiable assets:
United States..................... $ 2,229 $ 8,417 $ 17,995
Europe............................ -- 82 1,452
------- ------- ----------
Total......................... $ 2,229 $ 8,499 $ 19,447
======= ======= ==========
</TABLE>
10. SUBSEQUENT EVENTS
On September 9, 1998, the Board of Directors approved, subject to
stockholder approval, an amendment to the articles of incorporation to change
the number of authorized shares to 80,000,000 shares of common stock and
10,000,000 shares of preferred stock upon the closing of the offering.
On November 30, 1998, the Company issued 520,516 shares of Series H
Redeemable Convertible Preferred Stock for approximately $8,500,000 in cash.
On December 2, 1998, the Board of Directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public. If the Offering is consummated under the terms presently anticipated,
all of the currently outstanding preferred stock as of November 30, 1998 will
convert to 8,619,388 shares of common stock. Unaudited pro forma stockholders'
equity as adjusted for the conversion of the 8,098,872 shares of preferred
stock outstanding as of September 30, 1998 is set forth in the accompanying
Consolidated Balance Sheet and Consolidated Statements of Changes in
Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit).
In addition, on December 2, 1998, the Company entered into agreements with
Comdisco, Inc. providing for available credit of up to $5 million over a
period of 36 months at an interest rate of 12% per year, an equipment lease
line of $1.25 million and the issuance to Comdisco, Inc. of warrants to
purchase 45,926 shares of Series H Preferred Stock at an exercise price of
$16.33 per share.
F-18
<PAGE>
[Logo of The Red Herring magazine, with the words "DIGITAL UNIVERSE TOP 100
COMPANIES," "Best Overall" and "Best Products;" graphic reading "UPSIDE'S 1998
HOT 100 PRIVATE COMPANIES;" graphic reading "SEYBOLD PUBLICATIONS 97 EDITORS'
AWARD."]
OUR AWARDS CAN'T DELIVER THE SOLUTIONS THAT BUILD ONLINE RELATIONSHIPS AND
MAXIMIZE WEB-BASED REVENUES, BUT OUR PRODUCTS CAN.
At Vignette, we realize that it takes more than awards to help businesses
build their online revenues. It takes a commitment to industry leadership as
well as top-notch products and services continuously provided to outstanding
clients. At Vignette, we take those commitments seriously. And yes, we'll
continue to take the awards.
Customers include: [Logos of National Semiconductor, Bank One, Bay Networks,
ZDNet, CBS Sports Line, Chicago Tribune, Lands' End, Citibank, CNET, Preview
Travel, AMD and Pathfinder]
<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....................................................... $
NASD fee...................................................................
Nasdaq National Market listing fee.........................................
Printing and engraving expenses............................................
Legal fees and expenses....................................................
Accounting fees and expenses...............................................
Blue sky fees and expenses.................................................
Transfer agent fees........................................................
Miscellaneous fees and expenses............................................
----
Total.................................................................... $
====
</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 Company 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 5,377,157 shares of
common stock at exercise prices ranging from $.0125 to $12.50 per share to
employees, consultants and directors pursuant to its 1995 Stock
Option/Stock Issuance Plan.
II-1
<PAGE>
2. From inception through September 30, 1998, the Registrant issued and
sold an aggregate of 2,939,798 shares of its common stock to employees,
consultants and directors for aggregate consideration of approximately
$532,886 pursuant to exercises of options granted under its 1995 Stock
Option/Stock Issuance Plan.
3. In February 1996, the Registrant issued and sold 400,000 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
1,853,182 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 1,865,000 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 65,368
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 2,358,492 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 1,365,808 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 191,022 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 520,516 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 45,926
shares of its Series H Preferred Stock at an exercise price of $16.33 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 Form of Underwriting Agreement.
3.1+ Certificate of Incorporation of the Registrant, as amended to date.
3.2* Form of Amended and Restated Certificate of Incorporation to be
filed on the closing of the offering made hereby.
3.3+ Bylaws of the Registrant.
3.4+ Form of Bylaws to be filed on the closing of the offering made
hereby.
4.1+ Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2 Specimen common stock certificate.
4.3+ Sixth Amended and Restated Stockholders Agreement dated November
30, 1998.
4.4+ Fifth Amended and Restated Registration Rights Agreement dated
November 30, 1998.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1+ Form of Indemnification Agreements.
10.2+ 1995 Stock Option/Stock Issuance Plan and forms of agreements
thereunder.
10.3 1999 Equity Incentive Plan.
10.4 Employee Stock Purchase Plan.
10.5 1999 Non-Employee Directors Option Plan.
10.6+ Security and Loan Agreement dated March 24, 1998 between the
Registrant and Imperial Bank.
10.7+ Lease Agreement dated June 20, 1996 between the Registrant and
David B. Barrow, Jr.
10.8+ First Supplement to Lease Agreement dated November 4, 1997 between
Registrant and 3410 Far West, Ltd.
10.9+ Second Supplement to Lease Agreement dated February 23, 1998
between Registrant and 3410 Far West, Ltd.
10.10+ Office Lease Agreement dated August 4, 1998 between Registrant and
B.O. III, Ltd.
10.11+** "Prism" Development and Marketing Agreement dated July 19, 1996
between the Registrant and CNET, Inc.
10.12+** Letter Amendment to "Prism" Development and Marketing Agreement
between the Registrant and CNET, Inc. dated August 15, 1998 and
attachments thereto.
10.13+** Software License Agreement dated April 6, 1998 between Registrant
and Net Perceptions, Inc.
10.14+** StoryServer Q2 Volume Purchase Agreement between Registrant and
Tribune Interactive Inc.
10.15+** Protege Software (Holdings) Confidential Professional Services
Agreement dated November 15, 1997.
10.16+ Subordinated Loan and Security Agreement dated December 3, 1998
between Registrant and Comdisco, Inc.
10.17+ Master Lease Agreement dated December 3, 1998 between Registrant
and Comdisco, Inc.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Counsel. Reference is made to Exhibit 5.1.
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
* To be filed by amendment.
** Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Securities and
Exchange Commission.
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 12TH DAY OF JANUARY, 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 January 12, 1999
______________________________________ Officer and Director
GREGORY A. PETERS (Principal Executive
Officer)
Jack F. Lynch* Vice President, Finance January 12, 1999
______________________________________ and Operations (Principal
JACK F. LYNCH Financial and Accounting
Officer) and Secretary
Ross B. Garber* Chairman of the Board and January 12, 1999
______________________________________ Director
ROSS B. GARBER
Neil Webber* Chief Technology Officer January 12, 1999
______________________________________ and Director
NEIL WEBBER
Robert E. Davoli* Director January 12, 1999
______________________________________
ROBERT E. DAVOLI
Steven G. Papermaster* Director January 12, 1999
______________________________________
STEVEN G. PAPERMASTER
John D. Thornton* Director January 12, 1999
______________________________________
JOHN D. THORNTON
</TABLE>
/s/ Gregory A. Peters
*By: _______________________
GREGORY A. PETERS
ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION
---------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+ Certificate of Incorporation of the Registrant, as amended to date.
3.2* Form of Amended and Restated Certificate of Incorporation to be
filed on the closing of the offering made hereby.
3.3+ Bylaws of the Registrant.
3.4+ Form of Bylaws to be filed on the closing of the offering made
hereby.
4.1+ Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2 Specimen common stock certificate.
4.3+ Sixth Amended and Restated Stockholders Agreement dated November
30, 1998.
4.4+ Fifth Amended and Restated Registration Rights Agreement dated
November 30, 1998.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1+ Form of Indemnification Agreements.
10.2+ 1995 Stock Option/Stock Issuance Plan and forms of agreements
thereunder.
10.3 1999 Equity Incentive Plan.
10.4 Employee Stock Purchase Plan.
10.5 1999 Non-Employee Directors Option Plan.
10.6+ Security and Loan Agreement dated March 24, 1998 between the
Registrant and Imperial Bank.
10.7+ Lease Agreement dated June 20, 1996 between the Registrant and
David B. Barrow, Jr.
10.8+ First Supplement to Lease Agreement dated November 4, 1997 between
Registrant and 3410 Far West, Ltd.
10.9+ Second Supplement to Lease Agreement dated February 23, 1998
between Registrant and 3410 Far West, Ltd.
10.10+ Office Lease Agreement dated August 4, 1998 between Registrant and
B.O. III, Ltd.
10.11+** "Prism" Development and Marketing Agreement dated July 19, 1996
between the Registrant and CNET, Inc.
10.12+** Letter Amendment to "Prism" Development and Marketing Agreement
between the Registrant and CNET, Inc. dated August 15, 1998 and
attachments thereto.
10.13+** Software License Agreement dated April 6, 1998 between Registrant
and Net Perceptions, Inc.
10.14+** StoryServer Q2 Volume Purchase Agreement between Registrant and
Tribune Interactive Inc.
10.15+** Protege Software (Holdings) Confidential Professional Services
Agreement dated November 15, 1997.
10.16+ Subordinated Loan and Security Agreement dated December 3, 1998
between Registrant and Comdisco, Inc.
10.17+ Master Lease Agreement dated December 3, 1998 between Registrant
and Comdisco, Inc.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Counsel. Reference is made to Exhibit 5.1.
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
* To be filed by amendment.
** Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT 1.1
_______________ SHARES
VIGNETTE CORPORATION
COMMON STOCK, $0.01 PAR VALUE
UNDERWRITING AGREEMENT
__________, 1999
<PAGE>
_____________, 1999
Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Vignette Corporation, a Delaware corporation (the "COMPANY"), proposes to
issue and sell to the several Underwriters named in Schedule II hereto (the
"UNDERWRITERS"), and certain shareholders of the Company (the "SELLING
SHAREHOLDERS") named in Schedule I hereto severally propose to sell to the
several Underwriters, an aggregate of _______________ shares of the Common
Stock, $0.01 par value of the Company (the "FIRM SHARES"), of which
_____________ shares are to be issued and sold by the Company and _____________
shares are to be sold by the Selling Shareholders, each Selling Shareholder
selling the number of shares set forth opposite such Selling Shareholder's name
in Schedule I hereto.
The Company also proposes to issue and sell to the several Underwriters not
more than an additional ______________ shares of its Common Stock, $0.01 par
value (the "ADDITIONAL SHARES") if and to the extent that you, as managers of
the offering, shall have determined to exercise, on behalf of the Underwriters,
the right to purchase such shares of common stock granted to the Underwriters in
Section 3 hereof. The Firm Shares and the Additional Shares are hereinafter
collectively referred to as the "SHARES." The shares of Common Stock, $0.01 par
value of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "COMMON STOCK." The
Company and the Selling Shareholders are hereinafter sometimes collectively
referred to as the "SELLERS."
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes
1
<PAGE>
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "PROSPECTUS."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference herein to the
term "REGISTRATION STATEMENT" shall be deemed to include such Rule 462
Registration Statement.
Morgan Stanley & Co. Incorporated ("MORGAN STANLEY") has agreed to reserve
a portion of the Shares to be purchased by it under this Agreement for sale to
the Company's directors, officers, employees and business associates and other
parties related to the Company (collectively, "PARTICIPANTS"), as set forth in
the Prospectus under the heading "Underwriters" (the "DIRECTED SHARE PROGRAM").
The Shares to be sold by Morgan Stanley pursuant to the Directed Share Program
are hereinafter referred to as the "DIRECTED SHARES". Any Directed Shares not
orally confirmed for purchase by any Participants by the end of the business day
on which this Agreement is executed will be offered to the public by the
Underwriters as set forth in the Prospectus.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by
the Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and (iii)
the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in
this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus
2
<PAGE>
based upon information relating to any Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use
therein.
(c) The Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority
to own its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned
directly by the Company, free and clear of all liens, encumbrances,
equities or claims.
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock (including the Shares to be sold by
the Selling Shareholders) outstanding prior to the issuance of the
Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable.
(h) The Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and
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the issuance of such Shares will not be subject to any preemptive or
similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this
Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or
to which any of the properties of the Company or any of its subsidiaries
is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or any statutes,
regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement that are not described or
filed as required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
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(n) The Company and its subsidiaries (i) are in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (ii are in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(o) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(p) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company or to require the Company to include such securities with the
Shares registered pursuant to the Registration Statement.
(q) Except as described in the Registration Statement (exclusive
of any amendments or supplements thereto subsequent to the date of this
Agreement), the Company has not sold, issued or distributed any shares
of Common Stock during the six-month period preceding the date hereof,
including any sales pursuant to Rule 144A under, or Regulation D or S
of, the Securities Act, other than shares issued pursuant to employee
benefit plans, qualified stock option plans or other employee
compensation plans or pursuant to outstanding options, rights or
warrants.
(r) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company
and its subsidiaries have not incurred any material liability or
obligation, direct or contingent, nor entered into any material
transaction not in the
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ordinary course of business; (ii the Company has not purchased any of
its outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (ii there has not been any
material change in the capital stock, short-term debt or long-term debt
of the Company and its consolidated subsidiaries, except in each case as
described in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(s) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings
by the Company and its subsidiaries, in each case except as described in
the Prospectus.
(t) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade
names currently employed by them in connection with the business now
operated by them, and neither the Company nor any of its subsidiaries
has received any notice of infringement of or conflict with asserted
rights of others with respect to any of the foregoing which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(u) No material labor dispute with the employees of the Company or
any of its subsidiaries exists, except as described in the Prospectus,
or, to the knowledge of the Company, is imminent; and the Company is not
aware of any existing, threatened or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or
contractors that would have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
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(v) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which they are engaged; neither the Company nor any such subsidiary
has been refused any insurance coverage sought or applied for; and
neither the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole, except as described in the Prospectus.
(w) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received
any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the Company and its
subsidiaries, taken as a whole, except as described in the Prospectus.
(x) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset
accountability; (ii access to assets is permitted only in accordance
with management's general or specific authorization; and (iv the
recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences.
(y) The Registration Statement, the Prospectus and any preliminary
prospectus comply, and any amendments or supplements thereto will
comply, with any applicable laws or regulations of any jurisdiction in
which the Prospectus or any preliminary prospectus, as amended or
supplemented, if applicable, is distributed in connection with the
Directed Share Program.
(z) No consent, approval, authorization or order of, or
qualification with any governmental body or agency; other than those
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obtained, is required in connection with the offering of the Directed
Shares in any jurisdiction where the Directed Shares are being offered.
(aa) The Company has not offered, or caused Morgan Stanley to
offer, Shares to any person pursuant to the Directed Share Program with
the specific intent to unlawfully influence (i) a customer or supplier
of the Company to alter the customer's or supplier's level or type of
business with the Company, or (ii) a trade journalist or publication to
write or publish favorable information about the Company or its
products.
2. Representations and Warranties of the Selling Shareholders. Each of
the Selling Shareholders represents and warrants to and agrees with each of the
Underwriters that:
(a) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder.
(b) The execution and delivery by such Selling Shareholder of, and
the performance by such Selling Shareholder of its obligations under,
this Agreement, the Irrevocable Power of Attorney and Custody Agreement
signed by such Selling Shareholder, ____________, as Custodian and
____________ and ____________, as Attorneys-in-Fact, relating to the
deposit of the Shares to be sold by such Selling Shareholder and
appointing certain individuals as such Selling Shareholder's attorneys-
in-fact to the extent set forth therein, relating to the transactions
contemplated hereby and by the Registration Statement (the "CUSTODY
AGREEMENT") will not contravene any provision of applicable law, or any
agreement or other instrument binding upon such Selling Shareholder or
any judgment, order or decree of any governmental body, agency or court
having jurisdiction over such Selling Shareholder, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by such
Selling Shareholder of its obligations under this Agreement or the
Custody Agreement of such Selling Shareholder, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(c) Such Selling Shareholder has, and on the Closing Date will have,
valid title to the Shares to be sold by such Selling Shareholder and the
legal right and power, and all authorization and approval required by
law, to enter into this Agreement, the Custody Agreement and to sell,
transfer and deliver the Shares to be sold by such Selling Shareholder.
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<PAGE>
(d) The Shares to be sold by such Selling Shareholder pursuant to
this Agreement have been duly authorized and are validly issued, fully
paid and non-assessable.
(e) The Custody Agreement has been duly authorized, executed and
delivered by such Selling Shareholder and are valid and binding
agreements of such Selling Shareholder.
(f) Delivery of the Shares to be sold by such Selling Shareholder
pursuant to this Agreement will pass title to such Shares free and clear
of any security interests, claims, liens, equities and other
encumbrances.
(g) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this paragraph 2 do not
apply to statements or omissions in the Registration Statement or the
Prospectus based upon information relating to any Underwriter furnished
to the Company in writing by such Underwriter through you expressly for
use therein.
3. Agreements to Sell and Purchase. Each Seller, severally and not
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at $______ a share (the "PURCHASE
PRICE") the number of Firm Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
number of Firm Shares to be sold by such Seller as the number of Firm Shares set
forth in Schedule II hereto opposite the name of such Underwriter bears to the
total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to _______________
Additional Shares at the Purchase Price. If you, on behalf of the Underwriters,
elect to exercise such option, you shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the
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<PAGE>
number of Additional Shares to be purchased by the Underwriters and the date
on which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 5 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule II hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
Each Seller hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period ending 180
days after the date of the Prospectus, (i) 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 (ii) 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, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Shares to be sold
hereunder, (B) the issuance by the Company of shares of Common Stock upon the
exercise of an option or warrant or the conversion of a security outstanding on
the date hereof of which the Underwriters have been advised in writing, (C)
transactions by any person other than the Company relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the offering of the Shares or (D) issuances of shares of Common
Stock or options to purchase shares of Common Stock pursuant to the Company's
employee benefit plans as in existence on the date hereof and consistent with
past practices. In addition, each Selling Shareholder, agrees that, without the
prior written consent of Morgan Stanley on behalf of the Underwriters, it will
not, during the period ending 180 days after the date of the Prospectus, make
any demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock.
4. Terms of Public Offering. The Sellers are advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become
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effective as in your judgment is advisable. The Sellers are further advised by
you that the Shares are to be offered to the public initially at $___ a share
(the "PUBLIC OFFERING PRICE") and to certain dealers selected by you at a price
that represents a concession not in excess of $____ a share under the Public
Offering Price, and that any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of $___ a share, to any Underwriter or to
certain other dealers.
5. Payment and Delivery. Payment for the Firm Shares to be sold by each
Seller shall be made to such Seller in Federal or other funds immediately
available in New York City against delivery of such Firm Shares for the
respective accounts of the several Underwriters at 10:00 a.m., New York City
time, on ____________, 1999, or at98, as shall be designated in writing by you.
The time and date of such payment are hereinafter referred to as the "CLOSING
DATE."
Payment for any Additional Shares shall be made to the Company in Federal
or other funds immediately available in New York City against delivery of such
Additional Shares for the respective accounts of the several Underwriters at
10:00 a.m., New York City time, on the date specified in the notice described in
Section 3 or at such other time on the same or on such other date, in any event
not later than _______, 1999, as shall be designated in writing by you. The
time and date of such payment are hereinafter referred to as the "OPTION CLOSING
DATE."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of the
Sellers to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 3:00 pm (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
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(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction of
the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of the
Company, to the effect set forth in Section 6 above and to the effect that the
representations and warranties of the Company contained in this Agreement are
true and correct as of the Closing Date and that the Company has complied with
all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an opinion
of Gunderson Dettmer Stough Villeneuve Franklin & Hachigan, LLP, outside counsel
for the Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact
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business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires
such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(ii) each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock (including the Shares to be
sold by the Selling Shareholders) outstanding prior to the issuance of
the Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable;
(v) all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and are owned directly by the
Company, free and clear of all liens, encumbrances, equities or claims;
(vi) the Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms
of this Agreement, will be validly issued, fully paid and non-
assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
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(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or, to the best of such
counsel's knowledge, any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the Company and
its subsidiaries, taken as a whole, or, to the best of such counsel's
knowledge, any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Company or any subsidiary,
and no consent, approval, authorization or order of, or qualification
with, any governmental body or agency is required for the performance by
the Company of its obligations under this Agreement, except such as may
be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares;
(ix) the statements (A) in the Prospectus under the captions
"Risk Factors", "Certain Transactions", "Description of Capital Stock"
and "Underwriters" and (B) in the Registration Statement in Items 14 and
15, in each case insofar as such statements constitute summaries of the
legal matters, documents or proceedings referred to therein, fairly
present the information called for with respect to such legal matters,
documents and proceedings and fairly summarize the matters referred to
therein;
(x) after due inquiry, such counsel does not know of any legal
or governmental proceedings pending or threatened to which the Company
or any of its subsidiaries is a party or to which any of the properties
of the Company or any of its subsidiaries is subject that are required
to be described in the Registration Statement or the Prospectus and are
not so described or of any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;
(xi) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended;
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(xii) all after due inquiry, such counsel does not know of any
notices received by either the Company or any of its subsidiaries of
infringement of or conflict with asserted rights of others with respect
to any material patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names currently
employed by the Company and its subsidiaries in connection with the
business now operated by them, which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in
any material adverse change in the condition, financial or otherwise, or
in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole; and
(xiii) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and schedules
and other financial and statistical data included therein as to which
such counsel need not express any opinion) comply as to form in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder, (B) has no reason to believe
that (except for financial statements and schedules and other financial
and statistical data as to which such counsel need not express any
belief) the Registration Statement and the prospectus included therein
at the time the Registration Statement became effective contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading and (C) has no reason to believe that (except for
financial statements and schedules and other financial and statistical
data as to which such counsel need not express any belief) the
Prospectus contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading;
(d) The Underwriters shall have received on the Closing Date an opinion
of Gunderson Dettmer Stough Villeneuve Franklin & Hachigan, LLP, counsel for the
Selling Shareholders, dated the Closing Date, to the effect that:
(i) this Agreement has been duly authorized, executed and
delivered by or on behalf of each of the Selling Shareholders;
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(ii) the execution and delivery by each Selling Shareholder of,
and the performance by such Selling Shareholder of its obligations
under, this Agreement and the Custody Agreement of such Selling
Shareholder will not contravene any provision of applicable law, or, to
the best of such counsel's knowledge, any agreement or other instrument
binding upon such Selling Shareholder or, to the best of such counsel's
knowledge, any judgment, order or decree of any governmental body,
agency or court having jurisdiction over such Selling Shareholder, and
no consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by such
Selling Shareholder of its obligations under this Agreement or the
Custody Agreement of such Selling Shareholder, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with offer and sale of the Shares;
(iii) each of the Selling Shareholders has valid title to the
Shares to be sold by such Selling Shareholder and the legal right and
power, and all authorization and approval required by law, to enter into
this Agreement and the Custody Agreement of such Selling Shareholder and
to sell, transfer and deliver the Shares to be sold by such Selling
Shareholder;
(iv) the Custody Agreement of each Selling Shareholder has been
duly authorized, executed and delivered by such Selling Shareholder and
is a valid and binding agreement of such Selling Shareholder; and
(v) delivery of the Shares to be sold by each Selling
Shareholder pursuant to this Agreement will pass title to such Shares
free and clear of any security interests, claims, liens, equities and
other encumbrances.
(e) The Underwriters shall have received on the Closing Date an opinion
of Davis Polk & Wardwell, counsel for the Underwriters, dated the Closing Date,
covering the matters referred to in Sections 6, 6, 6 (but only as to the
statements in the Prospectus under "Underwriters") and 6 above.
With respect to Section 6 above, Gunderson Dettmer Stough Villeneuve
Franklin & Hachigan, LLP and Davis Polk &
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Wardwell may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification, except as
specified. With respect to Section 6 above, Gunderson Dettmer Stough Villeneuve
Franklin & Hachigan, LLP may rely upon an opinion or opinions of counsel for any
Selling Shareholders and, with respect to factual matters and to the extent such
counsel deems appropriate, upon the representations of each Selling Shareholder
contained herein and in the Custody Agreement of such Selling Shareholder and in
other documents and instruments; provided that (A) each such counsel for the
Selling Shareholders is satisfactory to your counsel, (B) a copy of each opinion
so relied upon is delivered to you and is in form and substance satisfactory to
your counsel, (C) copies of such Custody Agreements and of any such other
documents and instruments shall be delivered to you and shall be in form and
substance satisfactory to your counsel and (D) Gunderson Dettmer Stough
Villeneuve Franklin & Hachigan, LLP shall state in their opinion that they are
justified in relying on each such other opinion.
The opinions of Gunderson Dettmer Stough Villeneuve Franklin & Hachigan,
LLP described in Sections 6 and 6 above (and any opinions of counsel for any
Selling Shareholder referred to in the immediately preceding paragraph) shall be
rendered to the Underwriters at the request of the Company or one or more of the
Selling Shareholders, as the case may be, and shall so state therein.
(f) The Underwriters shall have received, on each of the date hereof and
the Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to the Underwriters, from Ernst
& Young LLP, independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus; provided
that the letter delivered on the Closing Date shall use a "cut-off date" not
earlier than the date hereof.
(g) The "lock-up" agreements, each substantially in the form of Exhibit A
hereto, between you and certain shareholders, officers and directors of the
Company relating to sales and certain other dispositions of shares of Common
Stock or certain other securities, delivered to you on or before the date
hereof, shall be in full force and effect on the Closing Date.
17
<PAGE>
(h) The Nasdaq National Market shall have approved the Common Stock for
listing, subject only to official notice of issuance.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the delivery to you on the Option Closing Date of such
documents as you may reasonably request with respect to the good standing of the
Company, the due authorization and issuance of the Additional Shares and other
matters related to the issuance of the Additional Shares.
7. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, four signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 7 below, as many copies of the Prospectus and any supplements and
amendments thereto or to the Registration Statement as you may reasonably
request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on
18
<PAGE>
behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending December 31, 1999 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) To place stop transfer orders on any Directed Shares that have
been sold to Participants subject to the three month restriction on sale,
transfer, assignment, pledge or hypothecation imposed by NASD Regulation,
Inc. under its Interpretative Material 2110-1 on free-riding and
withholding to the extent necessary to ensure compliance with the three
month restrictions.
(g) To comply with all applicable securities and other laws, rules
and regulations in each foreign jurisdiction in which the Directed Shares
are offered in connection with the Directed Share Program.
8. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Sellers agree to
pay or cause to be paid all expenses incident to the performance of their
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel, the Company's accountants and counsel for the
Selling Shareholders in connection with the registration and delivery of the
Shares under the Securities Act and all other fees or expenses in connection
with the preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the mailing
and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or Legal Investment memorandum in connection with the offer and sale of the
Shares
19
<PAGE>
under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 7 hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to the
Common Stock and all costs and expenses incident to listing the Shares on the
Nasdaq National Market, (vi) the cost of printing certificates representing the
Shares, (vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the marketing of
the offering of the Shares, including, without limitation, expenses associated
with the production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and the
cost of any aircraft chartered in connection with the road show, (ix) all fees
and disbursements of counsel incurred by the Underwriters in connection with the
Directed Share Program and stamp duties, similar taxes or duties or other taxes,
if any, incurred by the Underwriters in connection with the Directed Share
Program, and (x) all other costs and expenses incident to the performance of the
obligations of the Sellers hereunder for which provision is not otherwise made
in this Section. It is understood, however, that except as provided in this
Section, Section 9 entitled "Indemnity and Contribution," and the last paragraph
of Section 12 below, the Underwriters will pay all of their costs and expenses,
including fees and disbursements of their counsel, stock transfer taxes payable
on resale of any of the Shares by them and any advertising expenses connected
with any offers they may make.
The provisions of this Section shall not supersede or otherwise affect any
agreement that the Sellers may otherwise have for the allocation of such
expenses among themselves.
9. Indemnity and Contribution. (a) The Sellers, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim)
20
<PAGE>
caused by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein; provided that with
respect to any amount due an indemnified person under this paragraph (a), each
Selling Shareholder shall be liable only to the extent of the net proceeds
received by such Selling Shareholder from the sale of such Selling Shareholder's
Shares.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Selling Shareholders, the directors of the
Company, the officers of the Company who sign the Registration Statement and
each person, if any, who controls the Company or any Selling Shareholder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 9 or 9(b), such person (the "INDEMNIFIED PARTY")
shall promptly notify the person against whom such indemnity may be sought (the
"INDEMNIFYING PARTY") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified
21
<PAGE>
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the fees and expenses of
more than one separate firm (in addition to any local counsel) for all
Underwriters and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act, (ii) the fees and expenses of more than one separate firm (in addition to
any local counsel) for the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either such Section and (iii) the fees and expenses of more than
one separate firm (in addition to any local counsel) for all Selling
Shareholders and all persons, if any, who control any Selling Shareholder within
the meaning of either such Section, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Underwriters and such control persons of any Underwriters, such firm shall be
designated in writing by Morgan Stanley. In the case of any such separate firm
for the Company, and such directors, officers and control persons of the
Company, such firm shall be designated in writing by the Company. In the case of
any such separate firm for the Selling Shareholders and such control persons of
any Selling Shareholders, such firm shall be designated in writing by the
persons named as attorneys-in-fact for the Selling Shareholders under the
Custody Agreement. The indemnifying party shall not be liable for any settlement
of any proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and
22
<PAGE>
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in Section 9 or 9(b) is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then each indemnifying party
under such paragraph, in lieu of indemnifying such indemnified party thereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (i) in such proportion as
is appropriate to reflect the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party or parties on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause 99 above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause 99
above but also the relative fault of the indemnifying party or parties on the
one hand and of the indemnified party or parties on the other hand in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Sellers on the one hand and the Underwriters
on the other hand in connection with the offering of the Shares shall be deemed
to be in the same respective proportions as the net proceeds from the offering
of the Shares (before deducting expenses) received by each Seller and the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover of the Prospectus, bear to the
aggregate Public Offering Price of the Shares. The relative fault of the
Sellers on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Sellers or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
Underwriters' respective obligations to contribute pursuant to this Section 9
are several in proportion to the respective number of Shares they have purchased
hereunder, and not joint.
(e) The Sellers and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 9. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by
23
<PAGE>
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 9 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this Section 9
and the representations, warranties and other statements of the Company and the
Selling Shareholders contained in this Agreement shall remain operative and in
full force and effect regardless of (i) any termination of this Agreement, (ii
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, any Selling Shareholder or any person controlling
any Selling Shareholder, or the Company, its officers or directors or any person
controlling the Company and (ii acceptance of and payment for any of the Shares.
10. Directed Share Program Indemnification. (a) The Company agrees to
indemnify and hold harmless Morgan Stanley and each person, if any, who controls
Morgan Stanley within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act ("Morgan Stanley Entities"), from and against any
and all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) (i) caused by any untrue statement or
alleged untrue statement of a material fact contained in any material prepared
by or with the consent of the Company for distribution to Participants in
connection with the Directed Share Program or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) caused by the
failure of any Participant to pay for and accept delivery of Directed Shares
that the Participant agreed to purchase; or (iii) related to, arising out of, or
in connection with the Directed Share Program, other than losses, claims,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross negligence of
Morgan Stanley Entities.
(b) In case any proceeding (including any governmental investigation)
shall be instituted involving any Morgan Stanley Entity in respect of which
indemnity may be sought pursuant to Section 10(a), the Morgan Stanley Entity
24
<PAGE>
seeing indemnity, shall promptly notify the Company in writing and the Company,
upon request of the Morgan Stanley Entity, shall retain counsel reasonably
satisfactory to the Morgan Stanley Entity to represent the Morgan Stanley Entity
and any others the Company may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any Morgan Stanley Entity shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Morgan Stanley Entity unless (i) the Company shall have agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Company and the Morgan
Stanley Entity and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. The
Company shall not, in respect of the legal expenses of the Morgan Stanley
Entities in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Morgan Stanley Entities. Any such
separate firm for the Morgan Stanley Entities shall be designated in writing by
Morgan Stanley. The Company shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the Company agrees to
indemnify the Morgan Stanley Entities from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time a Morgan Stanley Entity shall have requested the Company to
reimburse it for fees and expenses of counsel as contemplated by the second and
third sentences of this paragraph, the Company agrees that it shall be liable
for any settlement of any proceeding effected without its written consent if (i)
such settlement is entered into more than 30 days after receipt by the Company
of the aforesaid request and (ii) the Company shall not have reimbursed the
Morgan Stanley Entity in accordance with such request prior to the date of such
settlement. The Company shall not, without the prior written consent of Morgan
Stanley, effect any settlement of any pending or threatened proceeding in
respect of which any Morgan Stanley Entity is or could have been a party and
indemnity could have been sought hereunder by such Morgan Stanley Entity, unless
such settlement includes an unconditional release of the Morgan Stanley Entities
from all liability on claims that are the subject matter of such proceeding.
(c) To the extent the indemnification provided for in Section 10 is
unavailable to a Morgan Stanley Entity or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then the Company in lieu of
indemnifying the Morgan Stanley Entity thereunder, shall contribute to the
amount paid or payable by the Morgan Stanley Entity as a result of such losses,
claims, damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Morgan Stanley Entities on the other hand from the offering of the Directed
Shares or (ii) if the allocation provided by clause 10 above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 10 above but also the relative fault of
the Company on the one hand and of the Morgan
25
<PAGE>
Stanley Entities on the other hand in connection with any statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Morgan Stanley Entities on the other hand
in connection with the offering of the Directed Shares shall be deemed to be in
the same respective proportions as the net proceeds from the offering of the
Directed Shares (before deducting expenses) and the total underwriting discounts
and commissions received by the Morgan Stanley Entities for the Directed Shares,
bear to the aggregate Public Offering Price of the Directed Shares. If the loss,
claim, damage or liability is caused by an untrue or alleged untrue statement of
a material factor the omission or alleged omission to state a material fact, the
relative fault of the Company on the one hand and the Morgan Stanley Entities on
the other hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement or the omission or alleged omission
relates to information supplied by the Company or by the Morgan Stanley Entities
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(d) The Company and the Morgan Stanley Entities agree that it would not be
just or equitable if contribution pursuant to this Section 10 were determined by
pro rata allocation (even if the Morgan Stanley Entities were treated as one
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 10. The amount
paid or payable by the Morgan Stanley Entities as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by the Morgan Stanley
Entities in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 10, no Morgan Stanley Entity
shall be required to contribute any amount in excess of the amount by which the
total price at which the Directed Shares distributed to the public were offered
to the public exceeds the amount of any damages that such Morgan Stanley Entity
has otherwise been required to pay. The remedies provided for in this Section 10
are not exclusive and shall not limit any rights or remedies which may otherwise
be available to any indemnified party at law or in equity.
(e) The indemnity and contribution provisions contained in this Section 10
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any
26
<PAGE>
Morgan Stanley Entity or the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of the
Directed Shares.
11. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii trading of any securities
of the Company shall have been suspended on any exchange or in any over-the-
counter market, (ii a general moratorium on commercial banking activities in New
York shall have been declared by either Federal or New York State authorities or
(iv there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in your judgment, is
material and adverse and (b) in the case of any of the events specified in
clauses 11 through 11, such event, singly or together with any other such event,
makes it, in your judgment, impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus.
12. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule II bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 12 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If, on
the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased, and arrangements satisfactory to you, the Company and
the Selling Shareholders for
27
<PAGE>
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Shareholders. In any such
case either you or the relevant Sellers shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and in the Prospectus or
in any other documents or arrangements may be effected. If, on the Option
Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased, the non-defaulting Underwriters shall have
the option to (i) terminate their obligation hereunder to purchase Additional
Shares or (ii) purchase not less than the number of Additional Shares that such
non-defaulting Underwriters would have been obligated to purchase in the absence
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of any Seller to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Sellers will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
13. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
14. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
15. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
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Very truly yours,
VIGNETTE CORPORATION
By:
---------------------------------
Name:
Title:
The Selling Shareholders named in
Schedule I hereto, acting severally
By:
---------------------------------
Attorney-in-Fact
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated
Acting severally on behalf of themselves
and the several Underwriters named in
Schedule II hereto.
By: Morgan Stanley & Co. Incorporated
By:
-------------------------------------
Name:
Title:
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SCHEDULE I
NUMBER OF FIRM SHARES
SELLING SHAREHOLDER TO BE SOLD
- --------------------------------------- ----------------------------
Ross Garber............................
Neil Webber............................
----------------------------
Total:............................ ============================
I-1
<PAGE>
SCHEDULE II
NUMBER OF FIRM
SHARES
UNDERWRITER TO BE PURCHASED
- ------------------------------------ --------------------
Morgan Stanley & Co. Incorporated.....
Hambrecht & Quist LLC.................
Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated...........
----------------------------
Total:............................ ============================
II-1
<PAGE>
EXHIBIT A
[FORM OF LOCK-UP LETTER]
, 1998
Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated ("MORGAN
STANLEY") proposes to enter into an Underwriting Agreement (the "UNDERWRITING
AGREEMENT") with Vignette Corporation, a Delaware corporation (the "COMPANY"),
providing for the public offering (the "PUBLIC OFFERING") by the several
Underwriters, including Morgan Stanley (the "UNDERWRITERS"), of shares (the
"SHARES") of the Common Stock (par value $0.01 per share) of the Company (the
"COMMON STOCK").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the final prospectus relating
to the Public Offering (the "PROSPECTUS"), (1) 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 (2) 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, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing
A-1
<PAGE>
sentence shall not apply to transactions relating to shares of Common Stock or
other securities acquired in open market transactions after the completion of
the Public Offering. In addition, the undersigned agrees that, without the prior
written consent of Morgan Stanley on behalf of the Underwriters, the undersigned
will not, during the period commencing on the date hereof and ending 180 days
after the date of the Prospectus, make any demand for or exercise any right with
respect to, the registration of any shares of Common Stock or any security
convertible into or exercisable or exchangeable for Common Stock.
The undersigned understands that each Institutional Investor (as defined on
Exhibit A hereto) will sign a letter in substantially the same form as this
letter. The undersigned also understands that Morgan Stanley will not consent to
releasing any such Institutional Investor from the restrictions of such letter,
except for transfers to affiliates of such person as defined in Rule 405 under
the Securities Act of 1933 or distributions by such person to its shareholders,
partners or limited partners where each transferee and each person receiving the
distribution has agreed to substantially identical restrictions on transfer.
The undersigned understands that the consents to transfers and distributions
permitted by this paragraph may be granted in Morgan Stanley's sole discretion.
The undersigned understands that whether or not the Public Offering
actually occurs depends on a number of factors, including market conditions, and
that any Public Offering will only be made pursuant to an Underwriting
Agreement, the terms of which are subject to negotiation between the Company,
the Underwriters and any selling stockholders.
The agreements in this letter shall terminate on April 1, 1999 if the
Public Offering has not been priced prior to April 1, 1999.
Very truly yours,
--------------------------------------
(Name)
--------------------------------------
(Address)
A-2
<PAGE>
EXHIBIT A
For purposes of the foregoing Lock-Up Letter, the following entities shall
constitute "Institutional Investors":
45th Parallel LLC
Adobe Ventures II, LP
Almanori Limited
ATGF II
Attractor Dearborn Partners LP
Attractor Institution LP
Attractor LP
Austin Ventures IV-A, LP
Austin Ventures IV-B, LP
Austin Ventures V Affiliates Fund, LP
Austin Ventures V, LP
Axa U.S. Growth Fund, LLC
Charles River Partnership VIII
Charles River VIII-A LLC
CNET, Inc.
Double Black Diamond II LLC
East Peak Partners
Goldman, Sachs & Co. Verwaltungs GmbH
GS Capital Partners II Offshore, LP
GS Capital Partners II, LP
H&Q Vignette Investors, LP
Hambrecht & Quist California
Litton Master Trust
Multinvest LLC
Olympus Executive Fund, L.P.
Olympus Growth Fund II, L.P.
Parallel Capital I LLC
Phoenix Leasing Incorporated
Pivotal Partners, L.P.
Ralph H. Cechettini 1995 Trust
RandomNoise, Inc.
Sigma Associates III, LP
Sigma Investors III, LP
Sigma Partners III, LP
The Goldman Sachs Group, LP
U.S. Growth Fund Partners CV
Vendome Capital LLC
A-3
<PAGE>
EXHIBIT 4.2
COMMON STOCK
$.01 PAR VALUE
VIGNETTE CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This certifies that _______________________ is the record holder
of ___________ fully paid and nonassessable shares of common stock of Vignette
Corporation, a Delaware corporation (hereinafter referred to as the
"Corporation"), transferable on the books of the Corporation in person or by
duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the transfer agent and
registered by the registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
/s/ Gregory A. Peters
Dated: ----------------------------------------
President and Chief Executive Officer
/s/ Jack F. Lynch
----------------------------------------
Vice President, Finance and Operations
and Secretary
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
-------------------------------
AUTHORIZED SIGNATURE
<PAGE>
VIGNETTE CORPORATION
The Corporation will furnish without charge to each stockholder who so
requests, a copy of the designations, powers, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof of the Corporation and the qualifications, limitations or restrictions
of such preferences and/or rights. Such requests may be made to the secretary of
the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM as tenants in common UNIT GIFT MIN ACT_______________ Custodian__________________________
TEN ENT as tenants by the entireties (Cust) (Minor)
JT TEN as joint tenants with right of Under Uniform Gifts to Minors Act
survivorship and not as tenants in common ___________________________________________________
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
_______________________________________________ shares of the stock represented
by the written Certificate, and do hereby irrevocably constitute and appoint
_____________________________________________________________ Attorney to
transfer the said stock on the books of the written named Corporation with full
power of substitution in the premises.
Dated:
-----------------------------
--------------------------------------
Signature
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER
SIGNATURE GUARANTEED:
By
----------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
<PAGE>
EXHIBIT 10.3
Vignette Corporation
1999 Equity Incentive Plan
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. INTRODUCTION................................................ 1
ARTICLE 2. ADMINISTRATION.............................................. 1
2.1 Committee Composition......................................... 1
2.2 Committee Responsibilities.................................... 1
2.3 Committee for Non-Officer Grants.............................. 1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS................................. 2
3.1 Basic Limitation.............................................. 2
3.2 Annual Increase in Shares..................................... 2
3.3 Additional Shares............................................. 2
3.4 Dividend Equivalents.......................................... 2
ARTICLE 4. ELIGIBILITY................................................. 2
4.1 Incentive Stock Options....................................... 2
4.2 Other Grants.................................................. 3
ARTICLE 5. OPTIONS..................................................... 3
5.1 Stock Option Agreement........................................ 3
5.2 Number of Shares.............................................. 3
5.3 Exercise Price................................................ 3
5.4 Exercisability and Term....................................... 3
5.6 Modification or Assumption of Options......................... 3
5.7 Buyout Provisions............................................. 4
ARTICLE 6. PAYMENT FOR OPTION SHARES................................... 4
6.1 General Rule.................................................. 4
6.2 Surrender of Common Stock..................................... 4
6.3 Exercise/Sale................................................. 4
6.4 Exercise/Pledge............................................... 4
6.5 Promissory Note............................................... 5
6.6 Other Forms of Payment........................................ 5
ARTICLE 7. STOCK APPRECIATION RIGHTS................................... 5
7.1 SAR Agreement................................................. 5
7.2 Number of Shares.............................................. 5
7.3 Exercise Price................................................ 5
7.4 Exercisability and Term....................................... 5
7.5 Exercise of SARs.............................................. 5
7.6 Modification or Assumption of SARs............................ 6
i
<PAGE>
ARTICLE 8. RESTRICTED SHARES........................................... 6
8.1 Restricted Stock Agreement.................................... 6
8.2 Payment for Awards............................................ 6
8.3 Vesting Conditions............................................ 6
8.4 Voting and Dividend Rights.................................... 6
ARTICLE 9. STOCK UNITS................................................. 7
9.1 Stock Unit Agreement.......................................... 7
9.2 Payment for Awards............................................ 7
9.3 Vesting Conditions............................................ 7
9.4 Voting and Dividend Rights.................................... 7
9.5 Form and Time of Settlement of Stock Units.................... 7
9.6 Death of Recipient............................................ 7
9.7 Creditors' Rights............................................. 8
ARTICLE 10. CHANGE IN CONTROL.......................................... 8
10.1 Effect of Change in Control.................................. 8
10.2 Involuntary Termination...................................... 8
ARTICLE 11. PROTECTION AGAINST DILUTION................................ 8
11.1 Adjustments.................................................. 8
11.2 Dissolution or Liquidation................................... 9
11.3 Reorganizations.............................................. 9
ARTICLE 12. DEFERRAL OF AWARDS......................................... 9
ARTICLE 13. AWARDS UNDER OTHER PLANS................................... 10
ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES................... 10
14.1 Effective Date............................................... 10
14.2 Elections to Receive NSOs, Restricted Shares or Stock Units.. 10
14.3 Number and Terms of NSOs, Restricted Shares or Stock Units... 10
ARTICLE 15. LIMITATION ON RIGHTS....................................... 10
15.1 Retention Rights............................................. 10
15.2 Stockholders' Rights......................................... 11
15.3 Regulatory Requirements...................................... 11
ARTICLE 16. WITHHOLDING TAXES.......................................... 11
16.1 General...................................................... 11
16.2 Share Withholding............................................ 11
ARTICLE 17. FUTURE OF THE PLAN......................................... 11
17.1 Term of the Plan............................................. 11
17.2 Amendment or Termination..................................... 11
ii
<PAGE>
ARTICLE 18. LIMITATION ON PAYMENTS..................................... 12
18.1 Scope of Limitation.......................................... 12
18.2 Basic Rule................................................... 12
18.3 Reduction of Payments........................................ 12
18.4 Overpayments and Underpayments............................... 13
18.5 Related Corporations......................................... 13
ARTICLE 19. DEFINITIONS................................................ 13
iii
<PAGE>
Vignette Corporation
1999 Equity Incentive Plan
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board to be effective as of the date of
the IPO. The purpose of the Plan is to promote the long-term success of the
Corporation and the creation of stockholder value by (a) encouraging Employees,
Outside Directors and Consultants to focus on critical long-range objectives,
(b) encouraging the attraction and retention of Employees, Outside Directors and
Consultants with exceptional qualifications and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased
stock ownership. The Plan seeks to achieve this purpose by providing for Awards
in the form of Restricted Shares, Stock Units, Options (which may constitute
incentive stock options or nonstatutory stock options) or stock appreciation
rights.
The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Corporation, who shall be appointed by the Board. In addition, the
composition of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange Commission may
establish for administrators acting under plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Exchange Act; and
(b) Such requirements as the Internal Revenue Service may establish
for outside directors acting under plans intended to qualify for exemption
under Section 162(m)(4)(C) of the Code.
2.2 Committee Responsibilities. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Awards, (c) interpret the Plan and (d) make all other
decisions relating to the operation of the Plan. The Committee may adopt such
rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons.
2.3 Committee for Non-Officer Grants. The Board may also appoint a
secondary committee of the Board, which shall be composed of one or more
directors of the Corporation who need not satisfy the requirements of Section
2.1. Such secondary committee may administer the Plan with respect to Employees
and Consultants who are not considered officers or directors
<PAGE>
of the Corporation under Section 16 of the Exchange Act, may grant Awards under
the Plan to such Employees and Consultants and may determine all features and
conditions of such Awards. Within the limitations of this Section 2.3, any
reference in the Plan to the Committee shall include such secondary committee.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Shares of Common Stock issued pursuant to the Plan
may be authorized but unissued shares or treasury shares. The aggregate number
of Options, SARs, Stock Units and Restricted Shares awarded under the Plan shall
not exceed (a) [_________], plus shares remaining available for issuance under
the Predecessor Plan, plus (b) the additional shares of Common Stock described
in Sections 3.2 and 3.3. The limitation of this Section 3.1 shall be subject to
adjustment pursuant to Article 11.
3.2 Annual Increase in Shares. As of January 1 of each year, commencing
with the year 1999 and ending with the year 2002, the aggregate number of
Options, SARs, Stock Units and Restricted Shares that may be awarded under the
Plan shall automatically increase by a number equal to the lesser of (a) 5% of
the total number of shares of Common Stock then outstanding or (b) 1,000,000
shares.
3.3 Additional Shares. If Restricted Shares or shares of Common Stock
issued upon the exercise of Options are forfeited (including any options
incorporated from the Predecessor Plan), then such shares of Common Stock shall
again become available for Awards under the Plan. If Stock Units, Options or
SARs are forfeited or terminate for any other reason before being exercised,
then the corresponding shares of Common Stock shall again become available for
Awards under the Plan. If Stock Units are settled, then only the number of
shares of Common Stock (if any) actually issued in settlement of such Stock
Units shall reduce the number available under Section 3.1 and the balance shall
again become available for Awards under the Plan. If SARs are exercised, then
only the number of shares of Common Stock (if any) actually issued in settlement
of such SARs shall reduce the number available under Section 3.1 and the balance
shall again become available for Awards under the Plan. The foregoing
notwithstanding, the aggregate number of shares of Common Stock that may be
issued under the Plan upon the exercise of ISOs shall not be increased when
Restricted Shares or other shares of Common Stock are forfeited.
3.4 Dividend Equivalents. Any dividend equivalents paid or credited under
the Plan shall not be applied against the number of Restricted Shares, Stock
Units, Options or SARs available for Awards, whether or not such dividend
equivalents are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 Incentive Stock Options. Only Employees who are common-law employees
of the Corporation, a Parent or a Subsidiary shall be eligible for the grant of
ISOs. In addition, an Employee who owns more than 10% of the total combined
voting power of all classes of outstanding stock of the Corporation or any of
its Parents or Subsidiaries shall not be eligible for
2
<PAGE>
the grant of an ISO unless the requirements set forth in Section 422(c)(6) of
the Code are satisfied.
4.2 Other Grants. Only Employees, Outside Directors and Consultants shall
be eligible for the grant of Restricted Shares, Stock Units, NSOs or SARs.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the
Corporation. Such Option shall be subject to all applicable terms of the Plan
and may be subject to any other terms that are not inconsistent with the Plan.
The Stock Option Agreement shall specify whether the Option is an ISO or an NSO.
The provisions of the various Stock Option Agreements entered into under the
Plan need not be identical. Options may be granted in consideration of a
reduction in the Optionee's other compensation. A Stock Option Agreement may
provide that a new Option will be granted automatically to the Optionee when he
or she exercises a prior Option and pays the Exercise Price in the form
described in Section 6.2.
5.2 Number of Shares. Each Stock Option Agreement shall specify the
number of shares of Common Stock subject to the Option and shall provide for the
adjustment of such number in accordance with Article 11. Options granted to any
Optionee in a single fiscal year of the Corporation shall not cover more than
1,000,000 shares of Common Stock, except that Options granted to a new Employee
in the fiscal year of the Corporation in which his or her service as an Employee
first commences shall not cover more than 1,250,000 shares of Common Stock. The
limitations set forth in the preceding sentence shall be subject to adjustment
in accordance with Article 11.
5.3 Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a share of Common Stock on the
date of grant and the Exercise Price under an NSO shall in no event be less than
85% of the Fair Market Value of a share of Common Stock on the date of grant.
In the case of an NSO, a Stock Option Agreement may specify an Exercise Price
that varies in accordance with a predetermined formula while the NSO is
outstanding.
5.4 Exercisability and Term. Each Stock Option Agreement shall specify
the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service. Options may be awarded in
combination with SARs, and such an Award may provide that the Options will not
be exercisable unless the related SARs are forfeited.
5.5 Modification or Assumption of Options. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of
3
<PAGE>
outstanding options (whether granted by the Corporation or by another issuer) in
return for the grant of new options for the same or a different number of shares
and at the same or a different exercise price. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee, alter or
impair his or her rights or obligations under such Option.
5.6 Buyout Provisions. The Committee may at any time (a) offer to buy out
for a payment in cash or cash equivalents an Option previously granted or (b)
authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price of shares of Common Stock
issued upon exercise of Options shall be payable in cash or cash equivalents at
the time when such shares of Common Stock are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made
in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.
6.2 Surrender of Common Stock. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, shares of Common Stock that are already owned
by the Optionee. Such shares of Common Stock shall be valued at their Fair
Market Value on the date when the new shares of Common Stock are purchased under
the Plan. The Optionee shall not surrender, or attest to the ownership of,
shares of Common Stock in payment of the Exercise Price if such action would
cause the Corporation to recognize compensation expense (or additional
compensation expense) with respect to the Option for financial reporting
purposes.
6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable, all
or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Corporation) an irrevocable direction to
a securities broker approved by the Corporation to sell all or part of the
shares of Common Stock being purchased under the Plan and to deliver all or part
of the sales proceeds to the Corporation.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Corporation) an irrevocable direction to
pledge all or part of the shares of Common Stock being purchased under the Plan
to a securities broker or lender approved by the Corporation, as security for a
loan, and to deliver all or part of the loan proceeds to the Corporation.
4
<PAGE>
6.5 Promissory Note. To the extent that this Section 6.5 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Corporation) a full-recourse promissory
note. However, the par value of the shares of Common Stock being purchased
under the Plan, if newly issued, shall be paid in cash or cash equivalents.
6.6 Other Forms of Payment. To the extent that this Section 6.6 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS.
7.1 SAR Agreement. Each grant of a SAR under the Plan shall be evidenced
by an SAR Agreement between the Optionee and the Corporation. Such SAR shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan. The provisions of the various
SAR Agreements entered into under the Plan need not be identical. SARs may be
granted in consideration of a reduction in the Optionee's other compensation.
7.2 Number of Shares. Each SAR Agreement shall specify the number of
shares of Common Stock to which the SAR pertains and shall provide for the
adjustment of such number in accordance with Article 11. SARs granted to any
Optionee in a single calendar year shall in no event pertain to more than
1,000,000 shares of Common Stock, except that SARs granted to a new Employee in
the fiscal year of the Corporation in which his or her service as an Employee
first commences shall not pertain to more than 1,250,000 shares of Common Stock.
The limitations set forth in the preceding sentence shall be subject to
adjustment in accordance with Article 11.
7.3 Exercise Price. Each SAR Agreement shall specify the Exercise Price.
A SAR Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the SAR is outstanding.
7.4 Exercisability and Term. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may be
awarded in combination with Options, and such an Award may provide that the SARs
will not be exercisable unless the related Options are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. A SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
7.5 Exercise of SARs. Upon exercise of a SAR, the Optionee (or any person
having the right to exercise the SAR after his or her death) shall receive from
the Corporation (a) shares of Common Stock, (b) cash or (c) a combination of
shares of Common Stock and cash, as the
5
<PAGE>
Committee shall determine. The amount of cash and/or the Fair Market Value of
shares of Common Stock received upon exercise of SARs shall, in the aggregate,
be equal to the amount by which the Fair Market Value (on the date of surrender)
of the shares of Common Stock subject to the SARs exceeds the Exercise Price.
If, on the date when an SAR expires, the Exercise Price under such SAR is less
than the Fair Market Value on such date but any portion of such SAR has not been
exercised or surrendered, then such SAR shall automatically be deemed to be
exercised as of such date with respect to such portion.
7.6 Modification or Assumption of SARs. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Corporation or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of an SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.
ARTICLE 8. RESTRICTED SHARES.
8.1 Restricted Stock Agreement. Each grant of Restricted Shares under the
Plan shall be evidenced by a Restricted Stock Agreement between the recipient
and the Corporation. Such Restricted Shares shall be subject to all applicable
terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical.
8.2 Payment for Awards. Subject to the following sentence, Restricted
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash equivalents,
full-recourse promissory notes, past services and future services. To the
extent that an Award consists of newly issued Restricted Shares, the Award
recipient shall furnish consideration with a value not less than the par value
of such Restricted Shares in the form of cash, cash equivalents or past services
rendered to the Corporation (or a Parent or Subsidiary), as the Committee may
determine.
8.3 Vesting Conditions. Each award of Restricted Shares may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Stock Agreement. A
Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events.
8.4 Voting and Dividend Rights. The holders of Restricted Shares awarded
under the Plan shall have the same voting, dividend and other rights as the
Corporation's other stockholders. A Restricted Stock Agreement, however, may
require that the holders of Restricted Shares invest any cash dividends received
in additional Restricted Shares. Such additional Restricted Shares shall be
subject to the same conditions and restrictions as the Award with respect to
which the dividends were paid.
6
<PAGE>
ARTICLE 9. STOCK UNITS.
9.1 Stock Unit Agreement. Each grant of Stock Units under the Plan shall
be evidenced by a Stock Unit Agreement between the recipient and the
Corporation. Such Stock Units shall be subject to all applicable terms of the
Plan and may be subject to any other terms that are not inconsistent with the
Plan. The provisions of the various Stock Unit Agreements entered into under
the Plan need not be identical. Stock Units may be granted in consideration of
a reduction in the recipient's other compensation.
9.2 Payment for Awards. To the extent that an Award is granted in the
form of Stock Units, no cash consideration shall be required of the Award
recipients.
9.3 Vesting Conditions. Each Award of Stock Units may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events.
9.4 Voting and Dividend Rights. The holders of Stock Units shall have no
voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under
the Plan may, at the Committee's discretion, carry with it a right to dividend
equivalents. Such right entitles the holder to be credited with an amount equal
to all cash dividends paid on one share of Common Stock while the Stock Unit is
outstanding. Dividend equivalents may be converted into additional Stock Units.
Settlement of dividend equivalents may be made in the form of cash, in the form
of shares of Common Stock, or in a combination of both. Prior to distribution,
any dividend equivalents which are not paid shall be subject to the same
conditions and restrictions as the Stock Units to which they attach.
9.5 Form and Time of Settlement of Stock Units. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) shares of Common Stock or
(c) any combination of both, as determined by the Committee. The actual number
of Stock Units eligible for settlement may be larger or smaller than the number
included in the original Award, based on predetermined performance factors.
Methods of converting Stock Units into cash may include (without limitation) a
method based on the average Fair Market Value of shares of Common Stock over a
series of trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting
conditions applicable to the Stock Units have been satisfied or have lapsed, or
it may be deferred to any later date. The amount of a deferred distribution may
be increased by an interest factor or by dividend equivalents. Until an Award
of Stock Units is settled, the number of such Stock Units shall be subject to
adjustment pursuant to Article 11.
9.6 Death of Recipient. Any Stock Unit Award that becomes payable after
the recipient's death shall be distributed to the recipient's beneficiary or
beneficiaries. Each recipient of a Stock Unit Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Corporation. A beneficiary designation may be changed by filing
the prescribed form with the Corporation at any time before the Award
recipient's death. If no beneficiary was designated or if no designated
beneficiary survives the
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Award recipient, then any Stock Unit Award that becomes payable after the
recipient's death shall be distributed to the recipient's estate.
9.7 Creditors' Rights. A holder of Stock Units shall have no rights other
than those of a general creditor of the Corporation. Stock Units represent an
unfunded and unsecured obligation of the Corporation, subject to the terms and
conditions of the applicable Stock Unit Agreement.
ARTICLE 10. CHANGE IN CONTROL
10.1 Effect of Change in Control. In the event of any Change in Control,
each outstanding Award shall automatically accelerate so that each such Award
shall, immediately prior to the effective date of the Change in Control, become
fully exercisable for all of the shares of Common Stock at the time subject to
such Award and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding Award shall not so accelerate
if and to the extent such Award is, in connection with the Change in Control,
either to be assumed by the successor corporation (or parent thereof) or to be
replaced with a comparable Award for shares of the capital stock of the
successor corporation (or parent thereof). The determination of Award
comparability shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
10.2 Involuntary Termination. In addition, in the event that the Award is
assumed by the successor corporation (or parent thereof) and the Participant
experiences an Involuntary Termination within eighteen months following a Change
in Control, each outstanding Award shall automatically accelerate so that each
such Award shall, immediately prior to the effective date of the Involuntary
Termination, become fully exercisable for all of the shares of Common Stock at
the time subject to such Award and may be exercised for any or all of those
shares as fully-vested shares of Common Stock.
ARTICLE 11. PROTECTION AGAINST DILUTION.
11.1 Adjustments. In the event of a subdivision of the outstanding shares
of Common Stock, a declaration of a dividend payable in shares of Common Stock,
a declaration of a dividend payable in a form other than shares of Common Stock
in an amount that has a material effect on the price of shares of Common Stock,
a combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a lesser number of shares of Common Stock, a
recapitalization, a spin-off or a similar occurrence, the Committee shall make
such adjustments as it, in its sole discretion, deems appropriate in one or more
of:
(a) The number of Options, SARs, Restricted Shares and Stock Units
available for future Awards under Article 3;
(b) The limitations set forth in Sections 5.2 and 8.2;
(c) The number of shares of Common Stock covered by each outstanding
Option and SAR;
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(d) The Exercise Price under each outstanding Option and SAR; or
(e) The number of Stock Units included in any prior Award which has
not yet been settled.
Except as provided in this Article 11, a Participant shall have no rights by
reason of any issue by the Corporation of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
11.2 Dissolution or Liquidation. To the extent not previously exercised or
settled, Options, SARs and Stock Units shall terminate immediately prior to the
dissolution or liquidation of the Corporation.
11.3 Reorganizations. In the event that the Corporation is a party to a
merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for (a) the
continuation of the outstanding Awards by the Corporation, if the Corporation is
a surviving corporation, (b) the assumption of the outstanding Awards by the
surviving corporation or its parent or subsidiary, (c) the substitution by the
surviving corporation or its parent or subsidiary of its own awards for the
outstanding Awards, (d) full exercisability or vesting and accelerated
expiration of the outstanding Awards or (e) settlement of the full value of the
outstanding Awards in cash or cash equivalents followed by cancellation of such
Awards.
ARTICLE 12. DEFERRAL OF AWARDS.
The Committee (in its sole discretion) may permit or require a
Participant to:
(a) Have cash that otherwise would be paid to such Participant as a
result of the exercise of an SAR or the settlement of Stock Units credited
to a deferred compensation account established for such Participant by the
Committee as an entry on the Corporation's books;
(b) Have shares of Common Stock that otherwise would be delivered to
such Participant as a result of the exercise of an Option or SAR converted
into an equal number of Stock Units; or
(c) Have shares of Common Stock that otherwise would be delivered to
such Participant as a result of the exercise of an Option or SAR or the
settlement of Stock Units converted into amounts credited to a deferred
compensation account established for such Participant by the Committee as
an entry on the Corporation's books. Such amounts shall be determined by
reference to the Fair Market Value of such shares of Common Stock as of the
date when they otherwise would have been delivered to such Participant.
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A deferred compensation account established under this Article 12 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Corporation. Such an
account shall represent an unfunded and unsecured obligation of the Corporation
and shall be subject to the terms and conditions of the applicable agreement
between such Participant and the Corporation. If the deferral or conversion of
Awards is permitted or required, the Committee (in its sole discretion) may
establish rules, procedures and forms pertaining to such Awards, including
(without limitation) the settlement of deferred compensation accounts
established under this Article 12.
ARTICLE 13. AWARDS UNDER OTHER PLANS.
The Corporation may grant awards under other plans or programs. Such
awards may be settled in the form of shares of Common Stock issued under this
Plan. Such shares of Common Stock shall be treated for all purposes under the
Plan like shares of Common Stock issued in settlement of Stock Units and shall,
when issued, reduce the number of shares of Common Stock available under
Article 3.
ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
14.1 Effective Date. No provision of this Article 14 shall be effective
unless and until the Board has determined to implement such provision.
14.2 Elections to Receive NSOs, Restricted Shares or Stock Units. An
Outside Director may elect to receive his or her annual retainer payments and/or
meeting fees from the Corporation in the form of cash, NSOs, Restricted Shares
or Stock Units, or a combination thereof, as determined by the Board. Such
NSOs, Restricted Shares and Stock Units shall be issued under the Plan. An
election under this Article 14 shall be filed with the Corporation on the
prescribed form.
14.3 Number and Terms of NSOs, Restricted Shares or Stock Units. The
number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner determined by the Board. The terms
of such NSOs, Restricted Shares or Stock Units shall also be determined by the
Board.
ARTICLE 15. LIMITATION ON RIGHTS.
15.1 Retention Rights. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Corporation and its Parents, Subsidiaries
and Affiliates reserve the right to terminate the service of any Employee,
Outside Director or Consultant at any time, with or without cause, subject to
applicable laws, the Corporation's certificate of incorporation and by-laws and
a written employment agreement (if any).
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15.2 Stockholders' Rights. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any shares of
Common Stock covered by his or her Award prior to the time when a stock
certificate for such shares of Common Stock is issued or, if applicable, the
time when he or she becomes entitled to receive such shares of Common Stock by
filing any required notice of exercise and paying any required Exercise Price.
No adjustment shall be made for cash dividends or other rights for which the
record date is prior to such time, except as expressly provided in the Plan.
15.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Corporation to issue shares of Common
Stock under the Plan shall be subject to all applicable laws, rules and
regulations and such approval by any regulatory body as may be required. The
Corporation reserves the right to restrict, in whole or in part, the delivery of
shares of Common Stock pursuant to any Award prior to the satisfaction of all
legal requirements relating to the issuance of such shares of Common Stock, to
their registration, qualification or listing or to an exemption from
registration, qualification or listing.
ARTICLE 16. WITHHOLDING TAXES.
16.1 General. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Corporation for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Corporation shall not
be required to issue any shares of Common Stock or make any cash payment under
the Plan until such obligations are satisfied.
16.2 Share Withholding. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Corporation withhold all or a portion of any shares of Common Stock that
otherwise would be issued to him or her or by surrendering all or a portion of
any shares of Common Stock that he or she previously acquired. Such shares of
Common Stock shall be valued at their Fair Market Value on the date when taxes
otherwise would be withheld in cash.
ARTICLE 17. FUTURE OF THE PLAN.
17.1 Term of the Plan. The Plan, as set forth herein, shall become
effective as of the date of the IPO. The Plan shall remain in effect until it
is terminated under Section 17.2, except that no ISOs shall be granted on or
after the 10/th/ anniversary of the later of (a) the date when the Board adopted
the Plan or (b) the date when the Board adopted the most recent increase in the
number of shares of Common Stock available under Article 3 which was approved by
the Corporation's stockholders.
17.2 Amendment or Termination. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Corporation's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the
Plan after the termination thereof. The termination of the Plan, or any
amendment thereof, shall not affect any Award previously granted under the Plan.
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ARTICLE 18. LIMITATION ON PAYMENTS.
18.1 Scope of Limitation. This Article 18 shall apply to an Award only if:
(a) The independent auditors most recently selected by the Board
(the "Auditors") determine that the after-tax value of such Award to the
Participant, taking into account the effect of all federal, state and local
income taxes, employment taxes and excise taxes applicable to the
Participant (including the excise tax under Section 4999 of the Code), will
be greater after the application of this Article 18 than it was before the
application of this Article 18; or
(b) The Committee, at the time of making an Award under the Plan or
at any time thereafter, specifies in writing that such Award shall be
subject to this Article 18 (regardless of the after-tax value of such Award
to the Participant).
If this Article 18 applies to an Award, it shall supersede any contrary
provision of the Plan or of any Award granted under the Plan.
18.2 Basic Rule. In the event that the Auditors determine that any payment
or transfer by the Corporation under the Plan to or for the benefit of a
Participant (a "Payment") would be nondeductible by the Corporation for federal
income tax purposes because of the provisions concerning "excess parachute
payments" in Section 280G of the Code, then the aggregate present value of all
Payments shall be reduced (but not below zero) to the Reduced Amount. For
purposes of this Article 18, the "Reduced Amount" shall be the amount, expressed
as a present value, which maximizes the aggregate present value of the Payments
without causing any Payment to be nondeductible by the Corporation because of
Section 280G of the Code.
18.3 Reduction of Payments. If the Auditors determine that any Payment
would be nondeductible by the Corporation because of Section 280G of the Code,
then the Corporation shall promptly give the Participant notice to that effect
and a copy of the detailed calculation thereof and of the Reduced Amount, and
the Participant may then elect, in his or her sole discretion, which and how
much of the Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Payments equals the Reduced Amount)
and shall advise the Corporation in writing of his or her election within 10
days of receipt of notice. If no such election is made by the Participant
within such 10-day period, then the Corporation may elect which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
notify the Participant promptly of such election. For purposes of this Article
18, present value shall be determined in accordance with Section 280G(d)(4) of
the Code. All determinations made by the Auditors under this Article 18 shall
be binding upon the Corporation and the Participant and shall be made within 60
days of the date when a Payment becomes payable or transferable. As promptly as
practicable following such determination and the elections hereunder, the
Corporation shall pay or transfer to or for the benefit of the Participant such
amounts as are then due to him or her under the Plan and shall promptly pay or
transfer to or for the benefit of the Participant in the future such amounts as
become due to him or her under the Plan.
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18.4 Overpayments and Underpayments. As a result of uncertainty in the
application of Section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Corporation which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Corporation could have
been made (an "Underpayment"), consistent in each case with the calculation of
the Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the
Corporation or the Participant which the Auditors believe has a high probability
of success, determine that an Overpayment has been made, such Overpayment shall
be treated for all purposes as a loan to the Participant which he or she shall
repay to the Corporation, together with interest at the applicable federal rate
provided in Section 7872(f)(2) of the Code; provided, however, that no amount
shall be payable by the Participant to the Corporation if and to the extent that
such payment would not reduce the amount which is subject to taxation under
Section 4999 of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Underpayment shall promptly be paid or
transferred by the Corporation to or for the benefit of the Participant,
together with interest at the applicable federal rate provided in Section
7872(f)(2) of the Code.
18.5 Related Corporations. For purposes of this Article 18, the term
"Corporation" shall include affiliated corporations to the extent determined by
the Auditors in accordance with Section 280G(d)(5) of the Code.
ARTICLE 19. DEFINITIONS.
19.1 "Affiliate" means any entity other than a Subsidiary, if the
Corporation and/or one or more Subsidiaries own not less than 50% of such
entity.
19.2 "Award" means any award of an Option, an SAR, a Restricted Share or a
Stock Unit under the Plan.
19.3 "Board" means the Corporation's Board of Directors, as constituted
from time to time.
19.4 "Change in Control" shall mean:
(a) The consummation of a merger or consolidation of the Corporation
with or into another entity or any other corporate reorganization, if more
than 50% of the combined voting power of the continuing or surviving
entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who were not
stockholders of the Corporation immediately prior to such merger,
consolidation or other reorganization;
(b) The sale, transfer or other disposition of all or substantially
all of the Corporation's assets;
(c) A change in the composition of the Board, as a result of which
fewer than two-thirds of the incumbent directors are directors who either
(i) had
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been directors of the Corporation on the date 24 months prior to the date
of the event that may constitute a Change in Control (the "original
directors") or (ii) were elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the aggregate of the
original directors who were still in office at the time of the election or
nomination and the directors whose election or nomination was previously so
approved; or
(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing at
least 50% of the total voting power represented by the Corporation's then
outstanding voting securities. For purposes of this Paragraph (d), the term
"person" shall have the same meaning as when used in Sections 13(d) and
14(d) of the Exchange Act but shall exclude (i) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Corporation or of a Parent or Subsidiary and (ii) a corporation owned
directly or indirectly by the stockholders of the Corporation in
substantially the same proportions as their ownership of the common stock
of the Corporation.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Corporation's incorporation or to create a holding
company that will be owned in substantially the same proportions by the persons
who held the Corporation's securities immediately before such transaction.
19.5 "Code" means the Internal Revenue Code of 1986, as amended.
19.6 "Committee" means a committee of the Board, as described in
Article 2.
19.7 "Common Stock" means the common stock of the Corporation.
19.8 "Consultant" means a consultant or adviser who provides bona fide
services to the Corporation, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.
19.9 "Corporation" means Vignette Corporation, a Delaware corporation.
19.10 "Employee" means a common-law employee of the Corporation, a Parent,
a Subsidiary or an Affiliate.
19.11 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
19.12 "Exercise Price," in the case of an Option, means the amount for
which one share of Common Stock may be purchased upon exercise of such Option,
as specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
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19.13 "Fair Market Value" means the market price of shares of Common
Stock, determined by the Committee in good faith on such basis as it deems
appropriate. Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in The Wall Street Journal.
-----------------------
Such determination shall be conclusive and binding on all persons.
19.14 "Involuntary Termination" means the termination of the Service of
any individual which occurs by reason of:
(a) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(b) such individual's voluntary resignation following (A) a change
in his or her position with the Corporation which materially reduces his or
her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
bonus or incentive programs) or (C) a relocation of such individual's place
of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without the
individual's consent.
19.15 "IPO" means the initial offering of Common Stock to the public
pursuant to a registration statement filed by the Corporation with the
Securities and Exchange Commission.
19.16 "ISO" means an incentive stock option described in Section 422(b) of
the Code.
19.17 "Misconduct" means the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee or Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).
19.18 "NSO" means a stock option not described in Sections 422 or 423 of
the Code.
19.19 "Option" means an ISO or NSO granted under the Plan and entitling
the holder to purchase shares of Common Stock.
19.20 "Optionee" means an individual or estate who holds an Option or SAR.
19.21 "Outside Director" shall mean a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.1.
19.22 "Parent" means any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, if each of the
corporations other than the
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Corporation owns stock possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Parent on a date after the adoption of
the Plan shall be considered a Parent commencing as of such date.
19.23 "Participant" means an individual or estate who holds an Award.
19.24 "Plan" means this Vignette Corporation 1999 Equity Incentive Plan,
as amended from time to time.
19.25 "Predecessor Plan" means the Corporation's existing 1995 Stock
Option/Stock Issuance Plan.
19.26 "Restricted Share" means a Common Share awarded under the Plan.
19.27 "Restricted Stock Agreement" means the agreement between the
Corporation and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Share.
19.28 "SAR" means a stock appreciation right granted under the Plan.
19.29 "SAR Agreement" means the agreement between the Corporation and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
19.30 "Stock Option Agreement" means the agreement between the Corporation
and an Optionee that contains the terms, conditions and restrictions pertaining
to his or her Option.
19.31 "Stock Unit" means a bookkeeping entry representing the equivalent
of one Common Share, as awarded under the Plan.
19.32 "Stock Unit Agreement" means the agreement between the Corporation
and the recipient of a Stock Unit which contains the terms, conditions and
restrictions pertaining to such Stock Unit.
19.33 "Subsidiary" means any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
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EXHIBIT 10.4
VIGNETTE CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
TABLE OF CONTENTS
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Page
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SECTION 1. PURPOSE OF THE PLAN................................................1
SECTION 2. ADMINISTRATION OF THE PLAN.........................................1
(a) Committee Composition................................................1
(b) Committee Responsibilities...........................................1
SECTION 3. ENROLLMENT AND PARTICIPATION.......................................1
(a) Offering Periods.....................................................1
(b) Accumulation Periods.................................................1
(c) Enrollment...........................................................1
(d) Duration of Participation............................................2
(e) Applicable Offering Period...........................................2
SECTION 4. EMPLOYEE CONTRIBUTIONS.............................................2
(a) Frequency of Payroll Deductions......................................2
(b) Amount of Payroll Deductions.........................................2
(c) Changing Withholding Rate............................................3
(d) Discontinuing Payroll Deductions.....................................3
(e) Limit on Number of Elections.........................................3
SECTION 5. WITHDRAWAL FROM THE PLAN...........................................3
(a) Withdrawal...........................................................3
(b) Re-Enrollment After Withdrawal.......................................3
SECTION 6. CHANGE IN EMPLOYMENT STATUS........................................3
(a) Termination of Employment............................................3
(b) Leave of Absence.....................................................3
(c) Death................................................................4
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES...............................4
(a) Plan Accounts........................................................4
(b) Purchase Price.......................................................4
(c) Number of Shares Purchased...........................................4
(d) Available Shares Insufficient........................................4
(e) Issuance of Common Stock.............................................5
(f) Unused Cash Balances.................................................5
(g) Stockholder Approval.................................................5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.....................................5
(a) Five Percent Limit...................................................5
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(b) Dollar Limit.........................................................6
SECTION 9. RIGHTS NOT TRANSFERABLE............................................6
SECTION 10. NO RIGHTS AS AN EMPLOYEE...........................................7
SECTION 11. NO RIGHTS AS A STOCKHOLDER.........................................7
SECTION 12. SECURITIES LAW REQUIREMENTS........................................7
SECTION 13. STOCK OFFERED UNDER THE PLAN.......................................7
(a) Authorized Shares....................................................7
(b) Anti-Dilution Adjustments............................................7
(c) Reorganizations......................................................7
SECTION 14. AMENDMENT OR DISCONTINUANCE........................................8
SECTION 15. DEFINITIONS........................................................8
(a) Accumulation Period..................................................8
(b) Board................................................................8
(c) Code.................................................................8
(d) Committee............................................................8
(e) Common Stock.........................................................8
(f) Corporation..........................................................8
(g) Compensation.........................................................8
(h) Corporate Reorganization.............................................8
(i) Eligible Employee....................................................9
(j) Exchange Act.........................................................9
(k) Fair Market Value....................................................9
(l) IPO..................................................................9
(m) Offering Period......................................................9
(n) Participant..........................................................9
(o) Participating Corporation............................................9
(p) Plan.................................................................9
(q) Plan Account........................................................10
(r) Purchase Price......................................................10
(s) Subsidiary..........................................................10
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VIGNETTE CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board on September 9, 1998, to be effective as
of the date of the IPO. The purpose of the Plan is to provide Eligible
Employees with an opportunity to increase their proprietary interest in the
success of the Corporation by purchasing Common Stock from the Corporation on
favorable terms and to pay for such purchases through payroll deductions. The
Plan is intended to qualify under Section 423 of the Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Corporation, who shall be appointed by the Board.
(b) Committee Responsibilities. The Committee shall interpret the Plan and
make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) Offering Periods. While the Plan is in effect, two overlapping
Offering Periods shall commence in each calendar year. The Offering Periods
shall consist of the 24-month periods commencing on each February 15 and August
15, except that the first Offering Period shall commence on the date of the IPO
and end on April 30, 2000.
(b) Accumulation Periods. While the Plan is in effect, two Accumulation
Periods shall commence in each calendar year. The Accumulation Periods shall
consist of the six-month periods commencing on each February 15 and August 15,
except that the first Accumulation Period shall commence on the date of the IPO
and end on August 14, 2001.
(c) Enrollment. Any individual who, on the day prior to the first day of
an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Corporation at the prescribed location not later than one
business day prior to the commencement of such Offering Period.
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(d) Duration of Participation. Once enrolled in the Plan, a Participant
shall continue to participate in the Plan until he or she ceases to be an
Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end
of the Accumulation Period in which his or her employee contributions were
discontinued under Section 4(d) or 8(b). A Participant who discontinued
employee contributions under Section 4(d) or withdrew from the Plan under
Section 5(a) may again become a Participant, if he or she then is an Eligible
Employee, by following the procedure described in Subsection (c) above. A
Participant whose employee contributions were discontinued automatically under
Section 8(b) shall automatically resume participation at the beginning of the
earliest Accumulation Period ending in the next calendar year, if he or she then
is an Eligible Employee.
(e) Applicable Offering Period. For purposes of calculating the Purchase
Price under Section 7(b), the applicable Offering Period shall be determined as
follows:
(i) Once a Participant is enrolled in the Plan for an Offering Period,
such Offering Period shall continue to apply to him or her until the earliest of
(A) the end of such Offering Period, (B) the end of his or her participation
under Subsection (d) above or (C) re-enrollment for a subsequent Offering Period
under Paragraph (ii) or (iii) below.
(ii) In the event that the Fair Market Value of the Common Stock on the
last trading day before the commencement of the Offering Period for which the
Participant is enrolled is higher than on the last trading day before the
commencement of any subsequent Offering Period, the Participant shall
automatically be re-enrolled for such subsequent Offering Period.
(iii) Any other provision of the Plan notwithstanding, the Corporation (at
its sole discretion) may determine prior to the commencement of any new Offering
Period that all Participants shall be re-enrolled for such new Offering Period.
(iv) When a Participant reaches the end of an Offering Period but his or
her participation is to continue, then such Participant shall automatically be
re-enrolled for the Offering Period that commences immediately after the end of
the prior Offering Period.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) Frequency of Payroll Deductions. A Participant may purchase shares of
Common Stock under the Plan solely by means of payroll deductions. Payroll
deductions, as designated by the Participant pursuant to Subsection (b) below,
shall occur on each payday during participation in the Plan.
(b) Amount of Payroll Deductions. An Eligible Employee shall designate on
the enrollment form the portion of his or her Compensation that he or she elects
to have withheld for
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the purchase of Common Stock. Such portion shall be a whole percentage of the
Eligible Employee's Compensation, but not less than 1% nor more than 15% or such
lesser percentage established by the Committee from time to time.
(c) Changing Withholding Rate. If a Participant wishes to change the rate
of payroll withholding, he or she may do so by filing a new enrollment form with
the Corporation at the prescribed location at any time. The new withholding
rate shall be effective as soon as reasonably practicable after such form has
been received by the Corporation. The new withholding rate shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% nor
more than 15%.
(d) Discontinuing Payroll Deductions. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Corporation at the prescribed location at any time.
Payroll withholding shall cease as soon as reasonably practicable after such
form has been received by the Corporation. (In addition, employee contributions
may be discontinued automatically pursuant to Section 8(b).) A Participant who
has discontinued employee contributions may resume such contributions by filing
a new enrollment form with the Corporation at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Corporation.
(e) Limit on Number of Elections. No Participant shall make more than one
election under Subsection (c) or (d) above during any Accumulation Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) Withdrawal. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Corporation at the prescribed location at
any time before the last day of an Accumulation Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) Re-Enrollment After Withdrawal. A former Participant who has withdrawn
from the Plan shall not be a Participant until he or she re-enrolls in the Plan
under Section 3(c). Re-enrollment may be effective only at the commencement of
an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) Termination of Employment. Termination of employment as an Eligible
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 5(a). (A transfer from one Participating
Corporation to another shall not be treated as a termination of employment.)
(b) Leave of Absence. For purposes of the Plan, employment shall not be
deemed to terminate when the Participant goes on a military leave, a sick leave
or another bona fide leave of
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absence, if the leave was approved by the Corporation in writing. Employment,
however, shall be deemed to terminate 90 days after the Participant goes on a
leave, unless a contract or statute guarantees his or her right to return to
work. Employment shall be deemed to terminate in any event when the approved
leave ends, unless the Participant immediately returns to work.
(c) Death. In the event of the Participant's death, the amount credited to
his or her Plan Account shall be paid to a beneficiary designated by him or her
for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Corporation at
the prescribed location before the Participant's death.
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) Plan Accounts. The Corporation shall maintain a Plan Account on its
books in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. Amounts credited to Plan Accounts shall not be
trust funds and may be commingled with the Corporation's general assets and
applied to general corporate purposes. No interest shall be credited to Plan
Accounts.
(b) Purchase Price. The Purchase Price for each share of Common Stock
purchased at the close of an Accumulation Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last trading day
in such Accumulation Period; or
(ii) 85% of the Fair Market Value of such share on the last trading day
before the commencement of the applicable Offering Period (as determined under
Section 3(e)) or, in the case of the first Offering Period under the Plan, 85%
of the price at which one share of Common Stock is offered to the public in the
IPO.
(c) Number of Shares Purchased. As of the last day of each Accumulation
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Common Stock calculated in accordance with this Subsection (c),
unless the Participant has previously elected to withdraw from the Plan in
accordance with Section 5(a). The amount then in the Participant's Plan Account
shall be divided by the Purchase Price, and the number of shares that results
shall be purchased from the Corporation with the funds in the Participant's Plan
Account. The foregoing notwithstanding, no Participant shall purchase more than
2,000 shares of Common Stock with respect to any Accumulation Period nor more
than the amounts of Common Stock set forth in Sections 8(b) and 13(a). The
Committee may determine with respect to all Participants that any fractional
share, as calculated under this Subsection (c), shall be (i) rounded down to the
next lower whole share or (ii) credited as a fractional share.
(d) Available Shares Insufficient. In the event that the aggregate number
of shares that all Participants elect to purchase during an Accumulation Period
exceeds the maximum number of shares remaining available for issuance under
Section 13(a), then the number of shares
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to which each Participant is entitled shall be determined by multiplying the
number of shares available for issuance by a fraction, the numerator of which is
the number of shares that such Participant has elected to purchase and the
denominator of which is the number of shares that all Participants have elected
to purchase.
(e) Issuance of Common Stock. Certificates representing the shares of
Common Stock purchased by a Participant under the Plan shall be issued to him or
her as soon as reasonably practicable after the close of the applicable
Accumulation Period, except that the Committee may determine that such shares
shall be held for each Participant's benefit by a broker designated by the
Committee (unless the Participant has elected that certificates be issued to him
or her). Shares may be registered in the name of the Participant or jointly in
the name of the Participant and his or her spouse as joint tenants with right of
survivorship or as community property. The Committee may impose such
restrictions on the transfer or resale of issued shares as it may deem
advisable.
(f) Unused Cash Balances. An amount remaining in the Participant's Plan
Account that represents the Purchase Price for any fractional share shall be
carried over in the Participant's Plan Account to the next Accumulation Period.
Any amount remaining in the Participant's Plan Account that represents the
Purchase Price for whole shares that could not be purchased by reason of
Subsection (c) above, Section 8(b) or Section 13(a) shall be refunded to the
Participant in cash, without interest.
(g) Stockholder Approval. Any other provision of the Plan notwithstanding,
no shares of Common Stock shall be purchased under the Plan unless and until the
Corporation's stockholders have approved the adoption of the Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) Five Percent Limit. Any other provision of the Plan notwithstanding,
no Participant shall be granted a right to purchase Common Stock under the Plan
if such Participant, immediately after his or her election to purchase such
Common Stock, would own stock possessing more than 5% of the total combined
voting power or value of all classes of stock of the Corporation or any parent
or Subsidiary of the Corporation. For purposes of this Subsection (a), the
following rules shall apply:
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he or she
has a right or option to purchase under this or any other plan; and
(iii) Each Participant shall be deemed to have the right to purchase
2,000 shares [post-split] of Common Stock under this Plan with respect to each
Accumulation Period.
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(b) Dollar Limit. Any other provision of the Plan notwithstanding, no
Participant shall purchase Common Stock with a Fair Market Value in excess of
the following limit:
(i) In the case of Common Stock purchased during an Offering Period
that commenced in the current calendar year, the limit shall be equal to (A)
$25,000 minus (B) the Fair Market Value of the Common Stock that the Participant
previously purchased in the current calendar year (under this Plan and all other
employee stock purchase plans of the Corporation or any parent or Subsidiary of
the Corporation).
(ii) In the case of Common Stock purchased during an Offering Period
that commenced in the immediately preceding calendar year, the limit shall be
equal to (A) $50,000 minus (B) the Fair Market Value of the Common Stock that
the Participant previously purchased (under this Plan and all other employee
stock purchase plans of the Corporation or any parent or Subsidiary of the
Corporation) in the current calendar year and in the immediately preceding
calendar year.
(iii) In the case of Common Stock purchased during an Offering Period
that commenced in the second preceding calendar year, the limit shall be equal
to (A) $75,000 minus (B) the Fair Market Value of the Common Stock that the
Participant previously purchased (under this Plan and all other employee stock
purchase plans of the Corporation or any parent or Subsidiary of the
Corporation) in the current calendar year and in the two preceding calendar
years.
For purposes of this Subsection (b), the Fair Market Value of Common Stock shall
be determined in each case as of the beginning of the Offering Period in which
such Common Stock is purchased. Employee stock purchase plans not described in
section 423 of the Code shall be disregarded. If a Participant is precluded by
this Subsection (b) from purchasing additional Common Stock under the Plan, then
his or her employee contributions shall automatically be discontinued and shall
resume at the beginning of the earliest Accumulation Period ending in the next
calendar year (if he or she then is an Eligible Employee).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's interest
in any Common Stock or moneys to which he or she may be entitled under the Plan,
shall not be transferable by voluntary or involuntary assignment or by operation
of law, or in any other manner other than by beneficiary designation or the laws
of descent and distribution. If a Participant in any manner attempts to
transfer, assign or otherwise encumber his or her rights or interest under the
Plan, other than by beneficiary designation or the laws of descent and
distribution, then such act shall be treated as an election by the Participant
to withdraw from the Plan under Section 5(a).
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SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Corporation for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Corporations or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares of Common Stock that he or she may have a right to purchase under the
Plan until such shares have been purchased on the last day of the applicable
Accumulation Period.
SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Common Stock shall not be issued under the Plan unless the
issuance and delivery of such shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder, state
securities laws and regulations, and the regulations of any stock exchange or
other securities market on which the Corporation's securities may then be
traded.
SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) Authorized Shares. The aggregate number of shares of Common Stock
available for purchase under the Plan shall be 750,000 subject to adjustment
pursuant to this Section 13. In addition, the number of shares of Common Stock
available for purchase under the Plan shall automatically increase by the lesser
of (i) 2% of the total number of shares of Common Stock outstanding or (ii)
750,000 shares on January 1, 2000, January 1, 2001, and January 1, 2002.
(b) Anti-Dilution Adjustments. The aggregate number of shares of Common
Stock offered under the Plan, the number of shares by which the share reserve is
to increase each calendar year, the 2,000-share limitation described in Section
7(c) and the price of shares that any Participant has elected to purchase shall
be adjusted proportionately by the Committee for any increase or decrease in the
number of outstanding shares of Common Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Corporation, the distribution of the shares of a Subsidiary to the
Corporation's stockholders or a similar event.
(c) Reorganizations. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period and Accumulation Period then in progress shall terminate and
shares shall be purchased pursuant to Section 7, unless the Plan is assumed by
the surviving corporation or its parent corporation pursuant to the
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<PAGE>
plan of merger or consolidation. The Plan shall in no event be construed to
restrict in any way the Corporation's right to undertake a dissolution,
liquidation, merger, consolidation or other reorganization.
SECTION 14. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan at
any time and without notice. Except as provided in Section 13, any increase in
the aggregate number of shares of Common Stock to be issued under the Plan shall
be subject to approval by a vote of the stockholders of the Corporation. In
addition, any other amendment of the Plan shall be subject to approval by a vote
of the stockholders of the Corporation to the extent required by an applicable
law or regulation.
SECTION 15. DEFINITIONS.
(a) "Accumulation Period" means a six-month period during which
contributions may be made toward the purchase of Common Stock under the Plan, as
determined pursuant to Section 3(b).
(b) "Board" means the Board of Directors of the Corporation, as constituted
from time to time.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a committee of the Board, as described in Section 2.
(e) "Common Stock" means the common stock of the Corporation.
(f) "Corporation" means Vignette Corporation, a Delaware corporation.
(g) "Compensation" means (i) the total compensation paid in cash to a
Participant by a Participating Corporation, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.
(h) "Corporate Reorganization" means:
(i) The consummation of a merger or consolidation of the Corporation
with or into another entity or any other corporate reorganization; or
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(ii) The sale, transfer or other disposition of all or substantially
all of the Corporation's assets or the complete liquidation or dissolution of
the Corporation.
(i) "Eligible Employee" means any employee of a Participating Corporation
if his or her customary employment is for more than five months per calendar
year and for more than 20 hours per week. The foregoing notwithstanding, an
individual shall not be considered an Eligible Employee if his or her
participation in the Plan is prohibited by the law of any country which has
jurisdiction over him or her or if he or she is subject to a collective
bargaining agreement that does not provide for participation in the Plan.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(k) "Fair Market Value" means the market price of Common Stock, determined
by the Committee as follows:
(i) If the Common Stock was traded on the Nasdaq National Market on
the date in question, then the Fair Market Value shall be equal to the last-
transaction price quoted for such date by the Nasdaq National Market;
(ii) If the Common Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; or
(iii) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such basis as
it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal or as reported
-----------------------
directly to the Corporation by Nasdaq or a stock exchange. Such determination
shall be conclusive and binding on all persons.
(l) "IPO" means the initial offering of Common Stock to the public pursuant
to a registration statement filed by the Corporation with the Securities and
Exchange Commission.
(m) "Offering Period" means a 24-month period with respect to which the
right to purchase Common Stock may be granted under the Plan, as determined
pursuant to Section 3(a).
(n) "Participant" means an Eligible Employee who elects to participate in
the Plan, as provided in Section 3(c).
(o) "Participating Corporation" means (i) the Corporation and (ii) each
present or future Subsidiary designated by the Committee as a Participating
Corporation.
(p) "Plan" means this Vignette Corporation Employee Stock Purchase Plan, as
it may be amended from time to time.
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(q) "Plan Account" means the account established for each Participant
pursuant to Section 7(a).
(r) "Purchase Price" means the price at which Participants may purchase
Common Stock under the Plan, as determined pursuant to Section 7(b).
(s) "Subsidiary" means any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
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EXHIBIT 10.5
Vignette Corporation
1999 Non-Employee Directors Option Plan
<PAGE>
VIGNETTE CORPORATION
1999 NON-EMPLOYEE DIRECTORS OPTION PLAN
ARTICLE 1. PURPOSE OF THE PLAN
The Plan is intended to promote the interests of the Corporation by
providing the non-employee members of the Board with the opportunity to acquire
a proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in the service of the
Corporation.
ARTICLE 2. ADMINISTRATION
The terms and conditions of each automatic option grant (including
the timing and pricing of the option grant) shall be determined by the express
terms and conditions of the Plan, and neither the Board nor any committee of the
Board shall exercise any discretionary functions with respect to option grants
made pursuant to the Plan.
ARTICLE 3. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the
Plan and shall be drawn from either the Corporation's authorized but unissued
shares of Common Stock or from reacquired shares of Common Stock, including
shares repurchased by the Corporation on the open market. The number of shares
of Common Stock reserved for issuance over the term of the Plan shall be fixed
at 250,000 shares.
B. Should one or more outstanding options under this Plan expire or
terminate for any reason prior to exercise in full, then the shares subject to
the portion of each option not so exercised shall be available for subsequent
option grant under the Plan. In addition, should the exercise price of an
outstanding option under the Plan be paid with shares of Common Stock, then the
number of shares of Common Stock available for issuance under the Plan shall be
reduced by the net number of shares of Common Stock actually issued to the
holder of such option.
C. Should any change be made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
for which automatic option grants are to be subsequently made to each newly-
elected or continuing non-employee Board member under the Plan, and (iii) the
number and/or class of securities and price per share in effect under each
option outstanding under the Plan. The adjustments to the outstanding options
shall be made by the Board in a manner which shall preclude the enlargement or
dilution of rights and benefits under such options and shall be final, binding
and conclusive.
<PAGE>
ARTICLE 4. ELIGIBILITY
The individuals eligible to receive automatic option grants pursuant
to the provisions of this Plan shall be limited to (i) those individuals serving
as non-employee Board members on the Effective Date and (ii) those individuals
who are first elected or appointed as non-employee Board members after the
Effective Date, whether through appointment by the Board or election by the
Corporation's stockholders. A non-employee Board member shall not be eligible to
receive the initial automatic option grant if such individual has previously
been in the employ of the Corporation (or any parent or subsidiary). However, a
non-employee Board member shall be eligible to receive one or more annual option
grants, whether or not he or she has previously been in the employ of the
Corporation (or any parent or subsidiary). Each non-employee Board member
eligible to participate in the Plan pursuant to the foregoing criteria is hereby
designated an Eligible Director.
ARTICLE 5. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Date. Option grants shall be made on the dates specified
----------
below:
- Each individual who first becomes an Eligible Director on or
after the Effective Date, whether through election by the Corporation's
stockholders or appointment by the Board, shall automatically be granted,
at the time of such initial election or appointment, a non-statutory option
to purchase 25,000 shares of Common Stock.
- On the date of each Annual Meeting, beginning with the 2000
Annual Meeting, each Eligible Director who serves on the Board at the time
of that Annual Meeting, whether or not standing for re-election, shall
automatically be granted a non-statutory option to purchase 2,500 shares of
Common Stock. An Eligible Director who resigns effective at an Annual
Meeting shall not be eligible to be granted a non-statutory option at that
time.
There shall be no limit on the number of such annual 2,500-share
option grants any one Eligible Director may receive over his or her period of
continued Board service.
B. Exercise Price. The exercise price per share of Common Stock
--------------
subject to each automatic option grant shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the automatic grant
date.
C. Payment.
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The exercise price shall become immediately due upon exercise of the
option and shall be payable in one of the alternative forms specified below:
(i) full payment in cash or check made payable to the
Corporation's order; or
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(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's earnings for
financial-reporting purposes and valued at Fair Market Value on the Exercise
Date (as such term is defined below); or
(iii) full payment in a combination of shares of Common
Stock held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial-reporting purposes and valued at Fair
Market Value on the Exercise Date and cash or check payable to the Corporation's
order; or
(iv) full payment through a broker-dealer sale and
remittance procedure pursuant to which the non-employee Board member (i) shall
provide irrevocable written instructions to a Corporation-designated brokerage
firm to effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the purchased
shares and (ii) shall concurrently provide written directives to the Corporation
to deliver the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction.
For purposes of this Section 5.C, the Exercise Date shall be the date
on which written notice of the option exercise is delivered to the Corporation.
Except to the extent the sale and remittance procedure specified above is used,
payment of the exercise price for the purchased shares must accompany the
exercise notice.
D. Exercisability/Vesting. Each automatic grant shall become
----------------------
exercisable for 25% of the option shares upon the optionee's completion of one
year of Board service and for the balance of the option shares in a series of
equal quarterly installments over the next three years upon the optionee's
completion of each six-month period of Board service thereafter.
Exercisability of the option shall be subject to acceleration as
provided in Section 5.G and Article 6. In no event, however, shall the option
become exercisable for any additional option shares after the Optionee's
cessation of Board service.
E. Option Term. Each automatic grant under the Plan shall have a
-----------
maximum term of ten (10) years measured from the automatic grant date.
F. Non-Transferability. During the lifetime of the Optionee, each
-------------------
automatic option grant shall be exercisable only by the Optionee and shall not
be assignable or transferable by the Optionee other than a transfer of the
option effected by will or by the laws of descent and distribution following
Optionee's death.
G. Effect of Termination of Board Service.
--------------------------------------
1. Should the Optionee cease to serve as a Board member for
any reason (other than death) while holding one or more automatic option grants
under the Plan, then such individual shall have a twelve (12)-month period
following the date of such cessation of Board service in which to exercise each
such option for any or all of the option shares for which
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the option is exercisable at the time of his or her cessation of Board service.
Each such option shall immediately terminate and cease to be outstanding, at the
time of such cessation of Board service, with respect to any option shares for
which the option is not otherwise at that time exercisable.
2. Should the Optionee die while serving as a Board member or
within twelve (12) months after cessation of Board service, then any automatic
option grant held by the Optionee at the time of death may subsequently be
exercised, for the option shares for which the option is exercisable at the time
of his or her cessation of Board service (less any option shares purchased by
the Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution.
The right to exercise each such option shall lapse upon the expiration of the
twelve (12)-month period measured from the date of the Optionee's cessation of
service.
3. In no event shall any automatic grant under this Plan remain
exercisable after the expiration date of the maximum ten (10)-year option term.
Upon the expiration of the applicable post-service exercise period under
subparagraphs 1 through 3 above or (if earlier) upon the expiration of the
maximum ten (10)-year option term, the automatic grant shall terminate and cease
to be outstanding for any option shares for which the option was not exercisable
at the time of the Optionee's cessation of Board service.
H. Stockholder Rights. The holder of an automatic option grant
------------------
shall have none of the rights of a stockholder with respect to any shares
subject to such option until such individual shall have exercised the option and
paid the exercise price for the purchased shares.
I. Remaining Terms. The remaining terms and conditions of each
---------------
automatic option grant shall be as set forth in the form Stock Option Agreement
approved for use under the Plan.
ARTICLE 6. SPECIAL ACCELERATION EVENTS
A. In the event of any Change in Control, the shares of Common Stock
at the time subject to each outstanding option but not otherwise fully
exercisable shall automatically accelerate in full so that each such option
shall, immediately prior to the specified effective date for the Change in
Control, become fully exercisable for all of the shares of Common Stock at the
time subject to that option. Immediately following the consummation of the
Change in Control, each automatic option grant under the Plan shall terminate
and cease to be outstanding, except to the extent assumed by the successor
corporation or its parent company.
B. The automatic option grants outstanding under the Plan shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
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ARTICLE 7. AMENDMENT OF THE PLAN AND AWARDS
The Board has complete and exclusive power and authority to amend or
modify the Plan (or any component thereof) in any or all respects whatsoever.
However, no such amendment or modification shall adversely affect rights and
obligations with respect to options at the time outstanding under the Plan,
unless the affected Optionees consent to such amendment. Stockholder approval
shall be obtained to the extent required by applicable law.
ARTICLE 8. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective on the Effective Date. One or more
automatic option grants may be made under the Plan at any time on or after the
Effective Date.
B. The Plan shall terminate upon the earlier of (i) September 8, 2008
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or (ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options granted under the Plan.
If the date of termination is determined under clause (i) above, then all option
grants outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the agreements evidencing those
option grants.
ARTICLE 9. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants under the Plan shall be used for general corporate
purposes.
ARTICLE 10. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under
the Plan and the issuance of Common Stock upon the exercise of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of the Nasdaq National Market or any Stock Exchange on which the Common Stock is
then listed for trading.
ARTICLE 11. NO IMPAIRMENT OF RIGHTS
Neither the action of the Corporation in establishing the Plan nor any
provision of the Plan shall be construed or interpreted so as to affect
adversely or otherwise impair the right of
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the Corporation or the stockholders to remove any individual from the Board at
any time in accordance with the provisions of applicable law.
ARTICLE 12. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the Plan
may not be assigned, encumbered or otherwise transferred by any Optionee.
B. The provisions of the Plan relating to the exercise of options
shall be governed by the laws of the State of Delaware, as such laws are applied
to contracts entered into and performed in such State.
C. The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, whether by Change
in Control or otherwise, and the Optionees, the legal representatives of their
respective estates, their respective heirs or legatees and their permitted
assignees.
ARTICLE 13. DEFINITIONS
Annual Meeting: the annual meeting of the Corporation's stockholders.
Board: the Corporation's Board of Directors.
Code: the Internal Revenue Code of 1986, as amended.
Common Stock: shares of the Corporation's common stock.
Corporation: Vignette Corporation, a Delaware corporation.
Change in Control: a change in ownership or control of the
Corporation effected through either of the following transactions:
a. the consummation of a merger or consolidation of the
Corporation with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the
continuing or surviving entity's securities outstanding immediately after
such merger, consolidation or other reorganization is owned by persons who
were not stockholders of the Corporation immediately prior to such merger,
consolidation or other reorganization;
b. the sale, transfer or other disposition of all or
substantially all of the Corporation's assets;
c. a change in the composition of the Board, as a result of
which fewer than one-third of the incumbent directors are directors who
either (i) had been directors of the Corporation on the date 24 months
prior to the date of the event that may constitute a Change in Control (the
"original directors") or
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(ii) were elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the aggregate of the original
directors who were still in office at the time of the election or
nomination and the directors whose election or nomination was previously so
approved;
d. any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly
or indirectly, of securities of the Corporation representing at least 50%
of the total voting power represented by the Corporation's then outstanding
voting securities. For purposes of this Paragraph (d), the term "person"
shall have the same meaning as when used in sections 13(d) and 14(d) of the
1934 Act but shall exclude (i) a trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation or of a Parent
or Subsidiary and (ii) a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions as
their ownership of the Common Stock of the Corporation; or
e. a transaction shall not constitute a Change in Control if its
sole purpose is to change the state of the Corporation's incorporation or
to create a holding company that will be owned in substantially the same
proportions by the persons who held the Corporation's securities
immediately before such transaction.
Effective Date: the date on which the Underwriting Agreement is
executed and the initial public offering price of the Common Stock is
established.
Fair Market Value: the Fair Market Value per share of Common Stock
determined in accordance with the following provisions:
a. If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
b. If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
c. For purposes of any option grants made on the date of
execution of the Underwriting Agreement, the Fair Market Value shall be
deemed to
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be equal to the price per share at which the Common Stock is sold in the
initial public offering pursuant to the Underwriting Agreement.
1934 Act: the Securities Exchange Act of 1934, as amended.
Optionee: any person to whom an option is granted under the Plan.
Plan: this Vignette Corporation 1999 Non-Employee Directors Option
Plan.
Stock Exchange: either the American Stock Exchange or the New York
Stock Exchange.
Underwriting Agreement: the agreement between the Corporation and the
underwriter or underwriters managing the initial public offering of the Common
Stock.
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EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Vignette Europe Limited, organized under the laws of the United Kingdom.
Vignette Australia Pty Limited (ACN 084718801), organized under the laws
of Australia.
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 13, 1998 in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-68345) and related Prospectus of
Vignette Corporation for the registration of shares of its common stock.
/s/ Ernst & Young LLP
Austin, Texas
January 11, 1999
