<PAGE>

     As filed with the Securities and Exchange Commission on July 27, 1999
                                                      Registration No. 333-

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                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                ---------------
                                   FORM S-1
                            REGISTRATION STATEMENT

                                     Under
                          the Securities Act of 1933

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

                               INTERWOVEN, INC.
            (Exact name of Registrant as specified in its charter)

         Delaware                    7372                    94-3221352
     (State or other          (Primary standard           (I.R.S. employer
     jurisdiction of      industrial classification     identification no.)
     incorporation or            code number)
      organization)

                               Interwoven, Inc.
                     1195 West Fremont Avenue, Suite 2000
                              Sunnyvale, CA 94087
                                (408) 774-2000
  (Address, including zip code, and telephone number, including area code, of
                   Registrant's principal executive offices)
                                ---------------
                                David M. Allen
                            Chief Financial Officer
                               Interwoven, Inc.
                     1195 West Fremont Avenue, Suite 2000
                              Sunnyvale, CA 94087
                                (408) 774-2000
(Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
                                ---------------
                                  Copies to:

       Matthew P. Quilter, Esq.                Mark A. Bertelsen, Esq.
         Horace L. Nash, Esq.                   Jose F. Macias, Esq.
         Darren L. Nunn, Esq.                    Jon C. Avina, Esq.
        William L. Hughes, Esq.           WILSON SONSINI GOODRICH & ROSATI
          FENWICK & WEST LLP                  Professional Corporation
         Two Palo Alto Square                    650 Page Mill Road
      Palo Alto, California 94306            Palo Alto, California 94304
            (650) 494-0600                         (650) 493-9300
                                ---------------
   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, 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, 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 of 1933, 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. [_]
                                ---------------
                        CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
                                             Proposed Maximum
 Title Of Each Class Of Securities To Be    Aggregate Offering    Amount Of
                Registered                       Price(1)      Registration Fee
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<S>                                         <C>                <C>
Common Stock, $.001 par value par share..      $50,000,000         $13,900
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
    registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
                                ---------------
   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 which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
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 it is not soliciting offers to buy these   +
+securities in any state where the offer or sale is not permitted.             +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                   SUBJECT TO COMPLETION, DATED JULY 27, 1999

                                      Shares
                       [LOGO OF INTERWOVEN APPEARS HERE]
                                  Common Stock

                                   ---------

  Prior to this offering, there has been no public market for our common stock.
The initial public offering price is expected to be between $  and $  per
share. We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "IWOV."

  The underwriters have an option to purchase a maximum of      additional
shares to cover over-allotments of shares.

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

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

  Delivery of the shares of common stock will be made on or about    , 1999.

  Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Credit Suisse First Boston

                             BancBoston Robertson Stephens

                                                           Dain Rauscher Wessels
                                             a division of Dain Rauscher
                                                     Incorporated

                   The date of this prospectus is     , 1999.
<PAGE>

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

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                      Page
                                      ----
<S>                                   <C>
Prospectus Summary..................    3
Risk Factors........................    5
Special Note Regarding Forward-
 Looking Statements.................   13
Use of Proceeds.....................   14
Dividend Policy.....................   14
Capitalization......................   15
Dilution............................   16
Selected Financial Data.............   17
Management's Discussion and Analysis
 of Financial Condition and Results
 of Operations......................   18
Business............................   27
</TABLE>
<TABLE>
<CAPTION>
                                   Page
                                   ----
<S>                                <C>
Management.......................   41
Related Party Transactions.......   52
Principal Stockholders...........   54
Description of Capital Stock.....   56
Shares Eligible for Future Sale..   60
Underwriting.....................   62
Notice to Canadian Residents.....   64
Legal Matters....................   65
Experts..........................   65
Where You Can Find Additional
 Information.....................   65
Index to Financial Statements....  F-1
</TABLE>

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

   You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.

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

   Interwoven(R), TeamSite(R), OpenDeploy(TM) and SmartContext(TM) are our
trademarks. This prospectus also contains trademarks of other companies and
organizations.

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

   Unless otherwise indicated, all information contained in this prospectus
assumes:

  .  that the underwriters will not exercise their over-allotment option;

  .  the completion of a 2-for-3 reverse stock split immediately prior to
     consummation of this offering;

  .  the conversion of each outstanding share of our preferred stock into
     two-thirds of a share of common stock, except for Series B Preferred
     Stock, each share of which shall be converted into 0.702205 shares of
     common stock;

  .  no exercise of outstanding warrants to purchase shares of our preferred
     stock prior to the consummation of this offering; and

  .  our reincorporation from California to Delaware prior to consummation of
     this offering.

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

                     Dealer Prospectus Delivery Obligation

   Until     , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
<PAGE>

                               PROSPECTUS SUMMARY

   This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in the offering. You should read the
entire prospectus carefully. You should read this summary together with the
more detailed information and our financial statements and notes appearing
elsewhere in this prospectus.

                                   Interwoven

   Interwoven is a leading provider of web content management solutions. Our
products are specifically designed to help companies rapidly and efficiently
build, maintain and extend mission-critical web sites and eBusiness
applications. Our principal product, TeamSite, combines the functions of
content management, version control, workflow and application development in an
open, standards-based platform that allows large numbers of contributors across
an enterprise to add web content in a well-managed manner.

   As leading companies demonstrate success on the Internet, business leaders
are seeking to capitalize on new business opportunities, reach a broader
customer base and reduce overall operating costs by moving their businesses to
the web. To accomplish this, companies are making significant investments to
develop and deploy eBusiness initiatives. IDC estimates that spending on
software applications and services for e-commerce will grow from $7.8 billion
in 1998 and $53.8 billion 2002.

   The competitive online environment is driving companies to deploy complex
web sites that offer enhanced user experiences. These web sites can contain
hundreds of thousands of content-rich web pages, and this content has been
increasing in volume and complexity. In addition, today's web sites must be
updated frequently by numerous contributors throughout an enterprise. Web teams
find it difficult to manage the increasing complexity, volume and variability
of this content. At the same time, the large number of web authoring tools and
web application servers has contributed to the increasing technological
complexity involved in developing and maintaining web sites. These trends have
created a need for content management solutions that can accommodate this
increasing volume of web content, leverage existing information technology
investments and allow more contributors to add content to a web site. IDC
estimates that the market in which we participate, which they refer to as the
web development life-cycle management software market, will grow from $76.4
million in 1998 to $1.6 billion in 2003.

   Interwoven's content management platform assists customers in accelerating
their time-to-web by enabling multiple eBusiness applications to be developed
in parallel. Our products lower web operating costs by reducing a company's
dependence on highly paid web professionals and the time required to test and
approve new content. The scalability of our products also allows customers to
manage hundreds of thousands of web files and enables hundreds of employees
throughout the enterprise to contribute web content. In addition, our software
platform's open, standards-based architecture enables businesses to take
advantage of existing investments in information technology and web content
and, at the same time, to easily integrate new technologies and applications.

   We market and sell our software products and services primarily through a
direct sales force in North America. To date, we have licensed our software
products to over 75 customers, including AltaVista, Best Buy, Cisco Systems,
FedEx, The Gap, GeoCities, TCI, the U.S. Department of Education, USWeb/CKS and
Viacom/Nickelodeon.

   We were incorporated in California in March 1995 and intend to reincorporate
in Delaware immediately prior to this offering. Our principal executive offices
are located at 1195 West Fremont Avenue, Suite 2000, Sunnyvale, California
94087 and our telephone number is (408) 774-2000. Our World Wide Web address is
www.interwoven.com. The information on our web site does not constitute a part
of this prospectus.

                                       3
<PAGE>

                                  The Offering

<TABLE>
 <C>                                                  <S>
 Common stock offered................................    shares
 Common stock to be outstanding after this offering..    shares
 Use of proceeds..................................... For general corporate
                                                      purposes, including
                                                      working capital. See "Use
                                                      of Proceeds."
 Proposed Nasdaq National Market symbol.............. IWOV
</TABLE>

   The number of shares of our common stock to be outstanding immediately after
this offering is based on the number of shares outstanding as of June 30, 1999,
but does not include:

  .  944,980 shares issuable upon exercise of options outstanding at June 30,
     1999 under our stock option plans and 3,684,034 shares available for
     future issuance under those plans;

  .  300,000 shares available for future issuance under our employee stock
     purchase plan;

  .  72,071 shares issuable upon exercise of outstanding warrants; and

  .  11,772 shares issuable upon exercise of warrants issued after June 30,
     1999.

                             Summary Financial Data

                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                    Years Ended December        Six Months
                                             31,              Ended June 30,
                                   -------------------------  ----------------
                                    1996     1997     1998     1998     1999
                                   -------  -------  -------  -------  -------
<S>                                <C>      <C>      <C>      <C>      <C>
Statement of Operations Data:
Revenues.......................... $   --   $   168  $ 4,003  $   886  $ 5,004
Gross profit......................     --        73    2,670      536    3,456
Total operating expenses..........     520    2,933    9,165    3,011    9,838
Loss from operations..............    (520)  (2,860)  (6,495)  (2,475)  (6,382)
Net loss..........................    (510)  (2,948)  (6,344)  (2,418)  (6,228)
Net loss per share:
  Basic and diluted............... $ (0.22) $ (1.36) $ (2.85) $ (1.25) $ (3.66)
  Weighted average shares--basic
   and diluted....................   2,282    2,356    2,633    2,404    3,435
Pro forma net loss per share:
  Basic and diluted...............                   $ (0.74)          $ (0.44)
  Weighted average shares--basic
   and diluted....................                     8,530            14,000
</TABLE>

<TABLE>
<CAPTION>
                                                           As of June 30, 1999
                                                           ---------------------
                                                            Actual   As Adjusted
                                                           --------  -----------
<S>                                                        <C>       <C>
Balance Sheet Data:
Cash and cash equivalents................................. $ 25,203    $
Working capital...........................................   22,634
Total assets..............................................   29,948
Total stockholders' equity (deficit)......................  (21,155)
</TABLE>

   See Note 1 of Notes to Financial Statements for a description of the method
that we used to compute our basic and diluted net loss per share and pro forma
basic and diluted net loss per share.

   The adjusted balance sheet data gives effect to the sale of the shares of
common stock that we are offering under this prospectus at an assumed initial
public offering price of $      per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses. See
"Use of Proceeds" and "Capitalization."

                                       4
<PAGE>

                                  RISK FACTORS

   You should carefully consider the risks described below before buying shares
in this offering. The risks and uncertainties described below are not the only
risks we face. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may impair our business operations. If any of
the following risks actually occur, our business, results of operations and
financial condition could be seriously harmed, the trading price of our common
stock could decline and you may lose all or part of your investment.

We have a limited operating history which makes it difficult to evaluate our
business.

   We were incorporated in March 1995 and have a limited operating history. We
are still in the early stages of our development, which makes the evaluation of
our business operations and our prospects difficult. We shipped our first
product in May 1997. Since that time, we have derived substantially all of our
revenues from licensing our TeamSite product and related services. Before
buying our common stock, you should consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, particularly those companies whose businesses depend on the Internet.
These risks and difficulties, as they apply to us in particular, include:

  .  potential fluctuations in operating results and uncertain growth rates;

  .  limited market acceptance of our products;

  .  concentration of our revenues in a single product;

  .  our dependence on a small number of orders for most of our revenue;

  .  our need to expand our direct sales forces and indirect sales channels;

  .  our need to manage rapidly expanding operations; and

  .  our need to attract and train qualified personnel.

We must significantly increase our license revenues if we are to achieve
profitability.

   We have incurred net losses in each quarter since our inception and expect
net losses to increase. We incurred net losses of approximately $510,000 in
1996, $2.9 million in 1997, $6.3 million in 1998 and $6.2 million for the six
months ended June 30, 1999. As of June 30, 1999, we had an accumulated deficit
of $21.2 million. To compete effectively, we will be required to continue to
invest aggressively to expand our sales and marketing, research and
development, and professional services organizations. Therefore, we will need
to significantly increase our revenues, particularly license revenues, to
achieve profitability. We cannot predict when we will become profitable, if at
all.

Our operating results fluctuate widely and are difficult to predict.

   In the past, our quarterly operating results have fluctuated significantly,
and we expect them to continue to fluctuate in the future. Our sales cycle,
from initial evaluation to delivery of software, can vary significantly from
customer to customer, and is typically between three and nine months. In
addition, our products are typically shipped when orders are received, so
license backlog at the beginning of any quarter in the past has represented
only a small portion of expected license revenues for that quarter. Moreover,
we typically recognize a substantial percentage of revenues in the last month
of the quarter, frequently in the last week or even the last days of the
quarter. As a result, the delay or cancellation of any large orders can result
in a significant shortfall from anticipated revenues. These factors make
license revenues in any quarter difficult to forecast. Since our expenses are
relatively fixed in the near term, any shortfall from anticipated revenues,
could result in significant variations in operating results from quarter to
quarter and harm to our business. The factors that could affect our quarterly
operating results include:

  .  the size of customer orders and the timing of product and service
     deliveries;

                                       5
<PAGE>

  .  variability in the mix of products and services sold;

  .  our ability to retain our current customers and attract new customers;

  .  the amount and timing of operating costs relating to expansion of our
     business, including our planned international expansion;

  .  the announcement or introduction of new products or services by us or
     our competitors;

  .  our ability to attract and retain personnel, particularly management,
     engineering and sales personnel and technical consultants;

  .  our ability to upgrade and develop our systems and infrastructure to
     accommodate our growth; and

  .  costs related to acquisition of technologies or businesses.

   As a result of these and other factors, we believe that period-to-period
comparisons of our results of operations may not be meaningful and should not
be relied upon as indicators of our future performance. It is possible that in
some future periods our results of operations may not meet or exceed the
expectations of public market analysts and investors. If this occurs, the price
of our common stock is likely to decline.

   Our quarterly results often depend on a small number of large orders.

   We derive a significant portion of our license revenues in each quarter from
a small number of relatively large orders. For example, in the first and second
quarters of 1999, our top five customers accounted for 41% and 30%,
respectively, of the total revenue in such quarter. We expect that we will
continue to depend upon a small number of large orders for a significant
portion of our license revenues. As a result, our operating results could
suffer if any large orders are delayed or cancelled in any future period.

   We face significant competition, which could make it difficult to acquire
and retain customers now and in the future.

   The market for web content management solutions is competitive and we expect
this competition to persist and to intensify in the future. Competitive
pressures may seriously harm our business and quarterly and annual results of
operations. Our competitors include:

  .  potential customers engaged in in-house development efforts;

  .  vendors of software that directly address elements of web content
     management, such as Vignette; and

  .  developers of software that address some aspects of web content
     management.

   We face potential competition from companies such as Microsoft and IBM that
may decide in the future to enter our market. Many of existing and potential
competitors have longer operating histories greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. Many of these companies can also leverage extensive
customer bases and adopt aggressive pricing policies to gain market share.
Potential competitors may bundle their products in a manner that may discourage
users from purchasing our products. Barriers to entering the web content
management software market are relatively low.



                                       6
<PAGE>

The market for our products is new and customers may not accept our products.

   The market for web content management software is new and rapidly evolving,
and the size and potential growth of this new market and the direction of its
development are uncertain. We have licensed our products to a small number of
customers. 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 invested substantial resources in
other methods of conducting business over the Internet may be reluctant to
adopt a new approach that may replace, limit or compete with their existing
systems. Any of these factors could inhibit the growth and market acceptance of
our products and services in particular. Accordingly, we cannot be certain that
a viable market for our products will emerge, or if it does emerge, that it
will be sustainable.

Our lengthy sales cycle could adversely affect our revenue growth.

   Because our software products impact a large number of departments within an
enterprise and are implemented in conjunction with strategic business
initiatives, our customers typically commit significant time and resources to
comparing and evaluating our products, internal solutions and other
commercially available applications. These evaluations require us to expend
substantial time, effort and money educating them about the value of our
products and services. The time between initial contact with a potential
customer and the ultimate sale typically ranges between three and nine months
and can vary significantly from customer to customer. To reduce our sales
cycle, we must establish a large number of referenceable customers. Failure to
establish a significant base of referenceable customers will significantly
inhibit our ability to shorten our sales cycle. As a result of our lengthy
sales cycle, we have only a limited ability to forecast the timing and size of
specific sales. Any delay in completing, or failure to complete, sales in a
particular quarter or fiscal year could harm our business and cause our
operating results to vary significantly.

We rely heavily on sales of one product.

   Since 1997, we have generated substantially all of our revenues from
licenses of, and services related to, our TeamSite product. We believe that
revenues generated from TeamSite will continue to account for a large portion
of our revenues for the foreseeable future. A decline in the price of TeamSite
or our inability to increase license sales of TeamSite would seriously harm our
business and operating results. In addition, our future financial performance
will depend upon the successful development, introduction and customer
acceptance of enhanced versions of TeamSite and future products. Our business
could be harmed if we fail to deliver the enhancements or products that
customers want.

We depend on our direct sales force to generate revenues.

   We sell our products primarily through our direct sales force, and we intend
to continue to invest significant resources to expand our direct sales force.
We believe that there is significant competition for direct sales personnel
with the advanced sales skills and technical knowledge we need. Some of our
competitors may have greater resources to hire such personnel. Our inability to
hire experienced and competent sales personnel, or our failure to retain them,
would harm our business. Furthermore, because we depend on our direct sales
force, any turnover in our sales force can significantly harm our operating
results. Such turnover tends to slow sales efforts until replacement personnel
can be recruited and trained to become productive. See "--We must attract and
retain qualified personnel."

We must develop our indirect sales channel.

   To date, we have sold our products principally through our direct sales
organization. By relying primarily on a direct sales model, we may miss sales
opportunities that might be available through other sales channels, such as
domestic and international resellers. Our ability to achieve revenue growth and
to increase worldwide sales in the future will depend in large part upon our
success in expanding and maintaining relationships with

                                       7
<PAGE>

existing system integrators and Internet professional services firms and
establishing relationships with additional firms. Although we are currently
investing and plan to continue to invest significant resources to develop these
relationships, we may not be able to build an indirect channel that will be
able to market our products effectively and will be qualified to provide timely
and cost-effective customer support and services. In addition, we may not be
able to manage conflicts across our various sales channels, and our focus on
increasing sales through our indirect channel may divert management resources
and attention from direct sales.

We must implement and improve our operational systems on a timely basis to
manage our growth properly.

   We have expanded our operations rapidly since inception. We intend to
continue to expand our systems for 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 in a timely manner, our business will be seriously harmed.

We may experience difficulties in introducing new products and upgrades in a
timely manner.

   The market for our products is marked by rapid technological change,
frequent new product introductions and Internet-related technology
enhancements, uncertain product life cycles, changes in customer demands and
evolving industry standards. We expect to add new content management
functionality to our product offerings by internal development, and possibly by
acquisition. Content management technology is complex, and new products or
product enhancements can require long development and testing periods. Any
delays in developing and releasing new products could harm our business. New
products or upgrades may not be released according to schedule or may contain
defects when released. Either situation could result in adverse publicity, loss
of sales, delay in market acceptance of our products or customer claims against
us, any of which could harm our business. If we do not develop, license or
acquire new software products, or deliver enhancements to existing products on
a timely and cost-effective basis, our business will be harmed.

Our products might not be compatible with all major platforms, which could
inhibit sales.

   Our products currently operate on the Microsoft Windows NT and Sun Solaris
operating systems. In addition, our products are required to interoperate with
leading web content authoring tools and web application servers. We must,
therefore, continually modify and enhance our products to keep pace with
changes in these applications and operating systems. If our products were to be
incompatible with a new operating system or web application that achieved
sufficient market penetration, our business would be harmed. In addition,
uncertainties related to the timing and nature of new product announcements,
introductions or modifications by vendors of operating systems, browsers, back-
office applications, and other Internet-related applications, could also harm
our business.

There are risks associated with international operations.

   To date, we have derived all of our revenues from sales to North American
customers. We plan to expand our international operations in the future. There
are many barriers to competing successfully in the international arena,
including:

  .  costs of customizing products for foreign countries;

  .  restrictions on the use of software encryption technology;

  .  dependence on local vendors;

  .  compliance with multiple, conflicting and changing governmental laws and
     regulations;

  .  longer sales cycles; and

  .  import and export restrictions and tariffs.

                                       8
<PAGE>

Due to all of the foregoing, we cannot assure you that we will be able to
market, sell and deliver our products and services in international markets.

It is important for us to establish and maintain strategic relationships.

   To offer products and services to a larger customer base our direct sales
force depends on strategic partnerships and marketing alliances to obtain
customer leads, referrals and distribution. If we are unable to maintain our
existing strategic relationships or fail to enter into additional strategic
relationships, we will have to devote substantially more resources to the sale
and marketing of our products and services. We would also lose anticipated
customer introductions and co-marketing benefits. Our success depends in part
on the success of our strategic partners and their ability to market our
products and services successfully. In addition, our strategic partners may not
regard us as significant for their own businesses. Therefore, they could reduce
their commitment to us or terminate their respective relationships with us,
pursue other partnerships or relationships, or attempt to develop or acquire
products or services that compete with our products and services. Even if we
succeed in establishing these relationships, they may not result in additional
customers or revenues.

We must attract and retain qualified personnel.

   Our success depends on our ability to attract and retain qualified,
experienced employees. We face substantial competition for experienced
engineering, sales and consulting personnel in the market in which we compete.
Many of our competitors for experienced personnel have greater financial and
other resources than we do. We compete for personnel with Internet service
companies, software vendors, consulting and professional services companies. In
addition, our customers generally purchase consulting and implementation
services. While we have recently established relationships with some third-
party service providers, we continue to be the primary provider of these
services. It is difficult and expensive to recruit, train and retain qualified
personnel to perform these services, and we may from time to time have
inadequate levels of staffing to perform these services. As a result, our
growth could be limited due to our lack of capacity to provide such services,
or we could experience deterioration in service levels or decreased customer
satisfaction, any of which would harm our business.

We depend on growth in our services revenues to increase our total revenues.

   Our services revenues represent a significant component of our total
revenues. Services revenues represented 21% of total revenues for 1998 and 35%
of total revenues for the six months ended June 30, 1999. We anticipate that
services revenues will continue to represent a significant percentage of total
revenues in the future. To a large extent, the level of services revenues
depends upon our ability to license products which generate follow-on services
revenue. Additionally, services revenues growth depends on ongoing renewals of
maintenance and service contracts. Moreover, if third-party organizations such
as systems integrators become proficient in installing or servicing our
products, our services revenues could decline. Our ability to increase services
revenues will depend in large part on our ability to increase the capacity of
our professional services organization, including our ability to recruit, train
and retain a sufficient number of qualified personnel.

We might not be able to protect and enforce our intellectual property rights.

   We depend upon our proprietary technology, and rely on a combination of
patent, copyright and trademark laws, trade secrets, confidentiality procedures
and contractual provisions to protect it. We currently do not have any issued
United States or foreign patents, but have applied for one U.S. patent. It is
possible that a patent will not issue from our currently pending patent
application or any future patent application we may file. We have also
restricted customer access to our source code and required all employees to
enter into confidentiality and invention assignment agreements. Despite our
efforts to protect our proprietary technology, unauthorized parties may attempt
to copy aspects of our products or to obtain and use information that we regard
as proprietary. In addition, the laws of some foreign countries do not protect
our proprietary rights as effectively as the laws of

                                       9
<PAGE>

the United States, and we expect that it will become more difficult to monitor
use of our products as we increase our international presence. In addition,
third parties may claim that our products infringe theirs.

Our failure to deliver defect-free software could result in losses and negative
publicity.

   Our software products are complex and have in the past and may in the future
contain defects or failures that may be detected at any point in the product's
life. We have discovered software defects in the past in certain of our
products after their release and we may experience delays or lost revenue to
correct such defects in the future. Despite our testing, defects and errors may
still be found in new or existing products, resulting in delayed or lost
revenues, loss of market share, failure to achieve acceptance, reduced customer
satisfaction, diversion of development resources and damage to our reputation.
As has occurred in the past, new releases of products or product enhancements
may require us to provide additional services under our maintenance contracts
to ensure proper installation and implementation. Moreover, third parties may
develop and spread computer viruses that may damage the functionality of our
software products. Any damage to or interruption in performance of our software
could also harm to our business.

Defects or errors in our products may result in product liability claims.

   Because customers rely on our products for business critical processes, any
significant defects or errors in our products or services might result in tort
or warranty claims. It is possible that the limitation of liability provisions
in our contracts may not be effective as a result of existing or future
federal, state or local laws or ordinances or unfavorable judicial decisions.
We have not experienced any such product liability claims to date, but we could
in the future. Further, although we maintain errors and omissions insurance,
such insurance coverage may not be adequate to cover us. A successful product
liability claim could harm our business. Defending a product liability suit,
regardless of its merits, could entail substantial expense and require the time
and attention of key management personnel.

Potential Year 2000 problems could harm our business.

   We may experience reduced sales of products as customers and potential
customers put a priority on correcting Year 2000 problems and therefore defer
purchases of our products until later in 2000. Accordingly, demand for our
products may be particularly volatile and unpredictable for the remainder of
1999 and early 2000.

   Our products are generally integrated into enterprise systems involving
sophisticated hardware and complex software products, which may not be Year
2000 compliant. We may in the future be subject to claims based on Year 2000
problems in other parties' products, Year 2000 problems alleged to be found in
our products, Year 2000 related issues arising from the integration of multiple
products within an overall system, or other similar claims. We also need to
ensure Year 2000 compliance of our own internal computer and other systems, to
continue testing our software products, to audit the Year 2000 compliance
status of our suppliers and business partners, and to conduct a legal audit. We
have not conducted a comprehensive Year 2000 investigation of our internal
systems and do not intend to do so. The total cost of Year 2000 compliance may
be material and may harm our business.

Past and future acquisitions might harm our business.

   In July 1999, we acquired Lexington Software Associates, Inc., a software
consulting company, to help support our existing customer base and to help
attract and retain new customers. We may be unable to integrate this company
into ours successfully, and our business may not benefit as expected. As part
of our business strategy, we may seek to acquire or invest in additional
businesses, products or technologies that we feel could complement or expand
our business. If we identify an appropriate acquisition opportunity, we might
be unable to negotiate the terms of that acquisition successfully, finance it,
or integrate it into our existing business and operations. We may also be
unable to select, manage or absorb any future acquisitions successfully.
Further, the

                                       10
<PAGE>

negotiation of potential acquisitions, as well as the integration of an
acquired business, would divert management time and other resources. We may
have to use a substantial portion of our available cash, including proceeds of
this offering, to consummate an acquisition. On the other hand, if we
consummate acquisitions through an exchange of our securities, our stockholders
could suffer significant dilution. In addition, we cannot assure you that any
particular acquisition, even if successfully completed, will ultimately benefit
our business.

If widespread Internet adoption does not continue, or if the Internet cannot
accommodate continued growth, our business will be harmed.

   Acceptance of our products depends upon continued adoption of the Internet
for commerce. As is typical in the case of an emerging industry characterized
by rapidly changing technology, evolving industry standards and frequent new
product and service introductions, demand for and acceptance of recently
introduced e-commerce enabling products and services are subject to a high
level of uncertainty. To the extent that businesses do not consider the
Internet a viable commercial medium, our customer base may not grow. In
addition, critical issues concerning the commercial use of the Internet remain
unresolved and may affect the growth of Internet use. The adoption of the
Internet for commerce, communications and access to content, particularly by
those who have historically relied upon alternative methods, generally requires
understanding and acceptance of a new way of conducting business and exchanging
information. In particular, companies that have already invested substantial
resources in other means of conducting commerce and exchanging information may
be particularly reluctant or slow to adopt a new, Internet-based strategy that
may render their existing infrastructure obsolete. If the use of the Internet
fails to develop or develops more slowly than expected, our business may be
seriously harmed.

   To the extent that there is an increase in Internet use, an increase in
frequency of use or an increase in the required bandwidth of users, the
Internet infrastructure may not be able to support the demands placed upon it.
In addition, the Internet could lose its viability as a commercial medium due
to delays in development or adoption of new standards or protocols required to
handle increased levels of Internet activity. Changes in, or insufficient
availability of, telecommunications or similar services to support the Internet
also could result in slower response times and could adversely impact use of
the Internet generally. If use of the Internet does not continue to grow or
grows more slowly than expected, or if the Internet infrastructure, standards,
protocols or complementary products, services or facilities do not effectively
support any growth that may occur, our business would be seriously harmed.

There is substantial risk that future regulations could be enacted that either
directly restrict our business or indirectly impact our business by limiting
the growth of Internet commerce.

   As Internet commerce evolves, we expect that federal, state or foreign
agencies will adopt new legislation or regulations covering issues such as user
privacy, pricing, content and quality of products and services. If enacted,
such laws, rules or regulations could indirectly harm us to the extent that it
impacts our customers and potential customers. We cannot predict if or how any
future legislation or regulations would impact our business. Although many of
these regulations may not apply to our business directly, we expect that laws
regulating or affecting commerce on the Internet could indirectly harm our
business.

Our existing stockholders control a majority of our stock.

   Immediately after the closing of this offering, approximately  % of our
outstanding capital stock will be owned by our directors and executive officers
or their affiliated entities. As a result, these stockholders, acting together,
would be able to control all matters requiring approval by the stockholders,
including the election of all directors and approval of significant corporate
transactions.

                                       11
<PAGE>

We have various mechanisms in place to discourage takeover attempts.

   Certain provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a change in control. These provisions include:

  .  authorizing the issuance of "blank check" preferred stock that could be
     issued by our board of directors to increase the number of outstanding
     shares and thwart a takeover attempt;

  .  providing for the election of only one-third of our directors at each
     annual meeting of stockholders;

  .  limitations on who may call special meetings of stockholders;

  .  prohibiting stockholder action by written consent, thereby requiring all
     stockholder actions to be taken at a meeting of our stockholders; and

  .  establishing advance notice requirements for nominations for election to
     the board of directors or for proposing matters that can be acted upon
     by stockholders at stockholder meetings.

   In addition, Section 203 of the Delaware General Corporations Law and our
stock incentive plans may discourage, delay or prevent a change in control of
us. See "Description of Capital Stock--Anti-Takeover Provisions."

Our stock price may be volatile because our shares have not been publicly
traded before.

   There has not previously been a public market for our common stock. We
cannot predict the extent to which investor interest in Interwoven will lead to
the development of a trading market or how liquid that market might become. The
initial public offering price for our shares will be determined by negotiations
between us and the representatives of the underwriters and may not be
indicative of prices that will prevail in the trading market. The trading price
of our common stock could be subject to wide fluctuations in response to
factors such as those described in the risk factor "Our operating results
fluctuate widely and are difficult to predict."

   In addition, the stock markets generally, and the Nasdaq National Market and
technology companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. The trading prices of many technology
companies' stock are at or near historical highs and these trading prices and
multiples are substantially above historic levels. These trading prices and
multiples may not be sustained. These broad market and industry factors may
seriously impact the market price of our common stock, regardless of our actual
operating performance.

Purchasers in this offering will incur immediate and substantial dilution.

   The initial public offering price of our common stock will be substantially
higher than the book value per share of the outstanding common stock. As a
result, if we were liquidated for book value immediately following this
offering, each stockholder purchasing in this offering would receive less than
they paid for their common stock. To the extent that outstanding options to
purchase our common stock are exercised, or options or warrants reserved for
issuance are issued and exercised, each stockholder purchasing in this offering
will experience further substantial dilution.

Our stock price could be affected by more shares becoming available for sale.

   Sales of a substantial number of shares of common stock after this offering
could adversely affect the market price of our common stock and could impair
our ability to raise capital through the sale of additional equity securities.
For a description of the shares of our common stock that are eligible for
future sale, see "Shares Eligible for Future Sale."

                                       12
<PAGE>

               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

   Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. In some cases, you can identify forward-looking statements
by terms such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential," "continue" or the negative of
these terms or other comparable terminology. The forward-looking statements
contained in this prospectus involve known and unknown risks, uncertainties and
other factors that may cause industry trends or our actual results, level of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by these statements. These factors include, among others, those listed
under "Risk Factors" and elsewhere in this prospectus.

   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 these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus.

                                       13
<PAGE>

                                USE OF PROCEEDS

   We estimate that we will receive net proceeds of approximately $    from the
sale of     shares of our common stock ($    if the underwriters' over-
allotment option is exercised in full) at an assumed initial public offering
price of $     per share and after deducting estimated underwriting discounts
and commissions and estimated offering expenses. 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 from this offering for working capital and
general corporate requirements. We may use the proceeds for acquisitions of
technologies, product lines or businesses that are complementary to our
business. We have no current acquisition plans. Pending such uses, we plan to
invest the net proceeds in short-term to medium-term interest-bearing,
investment grade securities. Management will have broad discretion over the
allocation of the net proceeds from this offering.

                                DIVIDEND POLICY

   We have never declared or paid cash dividends on our common stock or other
securities, and we do not anticipate paying a cash dividend in the foreseeable
future. Our lines of credit currently prohibit the payment of dividends.

                                       14
<PAGE>

                                 CAPITALIZATION

   The following table sets forth the following information, as of June 30,
1999:
  .  our actual capitalization;
  .  our pro forma capitalization after giving effect to the conversion of
     all outstanding shares of preferred stock into shares of common stock
     upon the closing of this offering; and
  .  our pro forma as adjusted capitalization to give effect to the sale of
         shares of common stock offered hereby at an assumed initial public
     offering price of $   per share, less the estimated underwriting
     discounts and commissions and estimated offering expenses.

<TABLE>
<CAPTION>
                                                        June 30, 1999
                                                -------------------------------
                                                            Pro      Pro Forma
                                                 Actual    Forma    As Adjusted
                                                --------  --------  -----------
                                                 (in thousands, except share
                                                            data)
<S>                                             <C>       <C>       <C>
Debt and leases, long-term..................... $  1,000  $  1,000     $
Mandatorily redeemable convertible preferred
 stock, 18,763,092 shares authorized,
 18,455,184 shares issued and outstanding,
 actual; no shares authorized, issued or
 outstanding, pro forma and pro forma as
 adjusted......................................   45,276       --
Stockholders' equity (deficit):
  Preferred stock, $0.001 par value, no shares
   authorized, issued or outstanding, actual;
   5,000,000 shares authorized, no shares
   issued or outstanding, pro forma and pro
   forma as adjusted...........................      --        --       --
  Common stock, $0.001 par value, 26,666,667
   shares authorized, 6,230,590 shares issued
   and outstanding, actual; 75,000,000 shares
   authorized, 18,642,241 shares issued and
   outstanding, pro forma;     shares issued
   and outstanding, pro forma as adjusted......        6        19
  Additional paid-in capital...................    9,483    54,746
  Notes receivable for purchase of common
   stock.......................................     (202)     (202)
  Deferred stock-based compensation............   (6,130)   (6,130)
  Accumulated deficit..........................  (24,312)  (24,312)
                                                --------  --------     ----
    Total stockholders' equity (deficit).......  (21,155)   24,121
                                                --------  --------     ----
      Total capitalization..................... $ 25,121  $ 25,121     $
                                                ========  ========     ====
</TABLE>

   The table excludes:

  .  944,980 shares of issuable upon options outstanding at June 30, 1999
     under our stock option plans and 3,684,034 shares available for future
     issuance under those plans;

  .  300,000 shares available for future issuance under our employee stock
     purchase plan;

  .  72,071 shares issuable upon exercise of outstanding warrants;

  .  249,667 shares issuable upon exercise of outstanding options issued
     after June 30, 1999; and

  .  11,772 shares issuable upon exercise of outstanding warrants issued
     after June 30, 1999.

                                       15
<PAGE>

                                    DILUTION

   The pro forma net intangible book value of our common stock as of June 30,
1999, after giving effect to the conversion of all outstanding shares of
preferred stock into common stock, was $24.1 million, or approximately $1.94
per share. Pro forma net tangible book value per share represents the amount of
our total tangible assets less total liabilities, divided by the number of
shares of common stock outstanding. Assuming our sale of       shares of common
stock offered at an assumed initial public offering price of $   per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses, our pro forma net tangible book value as of June 30, 1999
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 June 30, 1999... $1.94
  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, as of June 30, 1999,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by the new investors purchasing shares in this offering. We
have assumed an initial public offering price of $   per share, and we have not
deducted estimated underwriting discounts and commissions and estimated
offering expenses in our calculations.

<TABLE>
<CAPTION>
                                 Shares Purchased  Total Consideration  Average
                                ------------------ -------------------   Price
                                  Number   Percent   Amount    Percent Per Share
                                ---------- ------- ----------- ------- ---------
<S>                             <C>        <C>     <C>         <C>     <C>
Existing stockholders.......... 18,642,291      %  $39,603,609      %    $2.12
New investors..................
                                ----------   ---   -----------   ---     -----
  Total........................              100%                100%
                                ==========   ===   ===========   ===     =====
</TABLE>

   The foregoing discussion and table assume no exercise of any outstanding
stock options. The exercise of stock options outstanding under our stock option
plans having an exercise price less than the offering price would increase the
dilutive effect to new investors.

                                       16
<PAGE>

                            SELECTED FINANCIAL DATA

   The following selected financial data should be read in conjunction with,
and is qualified by reference to, the Financial Statements and Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial data included elsewhere in this prospectus.

   The statement of operations data for the years ended December 31, 1996, 1997
and 1998 and the balance sheet data at December 31, 1997 and 1998, are derived
from and are qualified by reference to audited financial statements included
elsewhere in this prospectus. The balance sheet data at December 31, 1996 is
derived from audited financial statements not included in this prospectus. The
statement of operations data for the six months ended June 30, 1998 and 1999,
and the balance sheet data at June 30, 1999 are derived from unaudited
financial statements included elsewhere in this prospectus and, in the 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            Six Months
                                          December 31,         Ended June 30,
                                     ------------------------  ----------------
                                      1996    1997     1998     1998     1999
                                     ------  -------  -------  -------  -------
                                     (in thousands, except per share data)
<S>                                  <C>     <C>      <C>      <C>      <C>
Statement of Operations Data:
Revenues:
 License ..........................  $  --   $    84  $ 3,176  $   624  $ 3,258
 Services .........................     --        84      827      262    1,746
                                     ------  -------  -------  -------  -------
 Total revenues....................     --       168    4,003      886    5,004
                                     ------  -------  -------  -------  -------
Cost of revenues:
 License...........................     --       --        59      --       119
 Services..........................     --        95    1,274      350    1,429
                                     ------  -------  -------  -------  -------
 Total cost of revenues............     --        95    1,333      350    1,548
                                     ------  -------  -------  -------  -------
Gross profit.......................     --        73    2,670      536    3,456
Operating expenses:
 Research and development..........     328      884    1,797      735    1,701
 Sales and marketing...............     101    1,519    4,817    1,357    5,225
 General and administrative........      91      530    1,739      572    1,244
 Amortization of deferred stock-
  based compensation...............     --       --       812      347    1,668
                                     ------  -------  -------  -------  -------
 Total operating expenses..........     520    2,933    9,165    3,011    9,838
                                     ------  -------  -------  -------  -------
Loss from operations...............    (520)  (2,860)  (6,495)  (2,475)  (6,382)
Other income (expense), net........      10      (88)     151       57      154
                                     ------  -------  -------  -------  -------
Net loss...........................  $ (510) $(2,948) $(6,344) $(2,418) $(6,228)
                                     ======  =======  =======  =======  =======
Net loss per share:
 Basic and diluted.................  $(0.22) $ (1.36) $ (2.85) $ (1.25) $ (3.66)
 Weighted average shares--basic and
  diluted..........................   2,282    2,356    2,633    2,404    3,435
Pro forma net loss per share:
 Basic and diluted.................                   $ (0.74)          $ (0.44)
 Weighted average shares--basic and
  diluted..........................                     8,530            14,000
</TABLE>

<TABLE>
<CAPTION>
                                                   December 31,
                                                ---------------------  June 30,
                                                1996   1997    1998      1999
                                                ----  ------  -------  --------
                                                       (in thousands)
<S>                                             <C>   <C>     <C>      <C>
Balance Sheet Data:
Cash and cash equivalents...................... $ 17  $1,019  $ 9,022  $25,203
Working capital................................ (208)    792    8,844   22,634
Total assets...................................   92   1,384   13,908   29,948
Total stockholders' deficit.................... (525) (3,734) (10,752) (21,155)
</TABLE>

   See Note 1 of Notes to Financial Statements for a discussion regarding
computation and presentation of pro forma basic and diluted net loss per share
and shares used in computing pro forma basic and diluted net loss per share.

                                       17
<PAGE>

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

   The following discussion and analysis of the financial condition and results
of operations should be read in conjunction with "Selected Financial Data" and
our Financial Statements and Notes appearing elsewhere in this prospectus. This
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. The actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including, but not limited to, those set forth under "Risk Factors"
and elsewhere in this prospectus.

OVERVIEW

   Interwoven was incorporated in March 1995 to provide software products and
services for web content management. Designed specifically for the web, our
products allow large teams of people across an enterprise to contribute and
edit web content on a collaborative basis, reducing the time-to-web for
critical eBusiness initiatives. From March 1995 through March 1997, we were a
development stage company conducting research and development for our initial
products. In May 1997, we shipped the first version of our principal product,
TeamSite. We have subsequently developed and released enhanced versions of
TeamSite and have introduced related products. As of June 30, 1999, we had sold
our products and services to over 75 customers. We market and sell our products
primarily through a direct sales force and augment our sales efforts through
relationships with systems integrators and other strategic partners. We are
headquartered in Sunnyvale, California and maintain additional offices in the
metropolitan areas of Atlanta, Boston, Chicago, Los Angeles, Seattle and
Washington, D.C. Our revenues to date have been derived exclusively from
accounts in North America. In May 1999, we opened an office in the United
Kingdom.

   We derive revenues from the license of our software products and from
services we provide to our customers. To date, we have derived virtually all of
our license revenues from licenses of TeamSite. License revenues are recognized
when persuasive evidence of an agreement exists, the product has been
delivered, no significant post-delivery obligations remain, the license fee is
fixed or determinable and collection of the fee is probable. Services revenues
consist of professional services and maintenance fees. Professional services
primarily consist of software installation and integration, business process
consulting and training. We generally bill our professional services customers
on a time and materials basis and recognize revenues as the services are
performed. Maintenance agreements are typically priced based on a percentage of
the product license fee, and typically have a one-year term that is renewable
annually. Services provided to customers under maintenance agreements include
technical product support and an unspecified number of product upgrades as
released by us during the term of a maintenance agreement. Revenues from
maintenance support agreements are recognized ratably over the term of the
agreement.

   Since inception, we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our engineering,
sales and marketing and services organizations, and to establish an
administrative organization. As a result, we have incurred net losses in each
quarter since inception and, as of June 30, 1999, had an accumulated deficit of
$21.2 million. We anticipate that our cost of services revenues and operating
expenses will increase substantially in future quarters as we grow our services
organization to support an increased level and expanded number of services
offered, increase our sales and marketing operations, develop new distribution
channels, fund greater levels of research and development, and improve
operational and financial systems. Accordingly, we expect to incur additional
losses for the foreseeable future as we continue to expand our operations. 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 profitability.

   On July 1, 1999, we acquired Lexington Software Associates, Inc. As a result
of this acquisition, we have substantially increased our professional services
organization. The Lexington Software acquisition added 18 employees to the 118
employees we had as of June 30, 1999. See Note 9 of Notes to Financial
Statements.

                                       18
<PAGE>

Results of Operations

   The following table lists, for the periods indicated, each line as a
percentage of total revenues:

<TABLE>
<CAPTION>
                                         Years Ended      Six Months Ended
                                        December 31,          June 30,
                                        ----------------  -------------------
                                         1997     1998      1998       1999
                                        -------   ------  --------   --------
<S>                                     <C>       <C>     <C>        <C>
Revenues:
  License..............................      50%     79%        70%        65%
  Services.............................      50      21         30         35
                                        -------   -----   --------   --------
    Total revenues.....................     100     100        100        100
                                        -------   -----   --------   --------
Cost of revenues:
  License..............................     --        1        --           2
  Services.............................      57      32         40         29
                                        -------   -----   --------   --------
    Total cost of revenues.............      57      33         40         31
                                        -------   -----   --------   --------
Gross profit...........................      43      67         60         69
                                        -------   -----   --------   --------
Operating expenses:
  Research and development.............     526      45         83         34
  Sales and marketing..................     904     120        153        104
  General and administrative...........     315      43         65         25
  Amortization of deferred stock-based
   compensation........................     --       20         39         33
                                        -------   -----   --------   --------
    Total operating expenses...........   1,745     228        340        196
                                        -------   -----   --------   --------
Loss from operations...................  (1,702)   (161)      (280)      (127)
Other income (expense), net............     (52)      4          6          3
                                        -------   -----   --------   --------
Net loss...............................  (1,754)%  (157)%     (274)%     (124)%
                                        =======   =====   ========   ========
</TABLE>

Six Months Ended June 30, 1998 and 1999

 Revenues

   Total revenues increased 456% from $900,000 for the six months ended June
30, 1998 to $5.0 million for the six months ended June 30, 1999. This increase
was attributable to greater market acceptance of our products and services
after their introduction in 1997 and an increase in the number of sales and
marketing staff, resulting in an increased number of customers.

   License. License revenues increased 429% from $624,000 for the six months
ended June 30, 1998 to $3.3 million for the six months ended June 30, 1999.
License revenues represented 70% and 65% of total revenues, respectively, in
those periods. The increase in license revenues reflected growing market
acceptance of our products, an expanded direct sales force, and an increase in
average size of new customer contracts.

   Services. Services revenues increased 549% from $262,000 for the six months
ended June 30, 1998 to $1.7 million for the six months ended June 30, 1999.
Services revenues represented 30% and 35% of total revenues, respectively, in
those periods. The increase in services revenues reflected an increase in both
professional services and maintenance fees generated from an expanded number of
customers who licensed our products.

 Cost of Revenues

   License. Cost of license revenues includes expenses incurred to manufacture,
package and distribute software products and related documentation, as well as
costs of licensing third-party software sold in conjunction with our software
products. Cost of license revenues was not significant for the six months ended
June 30, 1998 and increased to $119,000 for the six months ended June 30, 1999.
Cost of license revenues

                                       19
<PAGE>

represented 4% of license revenues in the six months ended June 30, 1999. The
increase in cost of license revenues primarily reflected increased sales of
third-party products sold in conjunction with our software products. Cost of
license revenues may fluctuate from period to period as we sell higher or lower
numbers of third-party products.

   Services. Cost of services revenues consists primarily of salary and related
costs of our professional services, training, maintenance and support staffs,
as well as subcontractor expenses. Cost of services revenues increased 300%
from $350,000 for the six months ended June 30, 1998 to $1.4 million for the
six months ended June 30, 1999. Cost of services revenues represented 134% and
82% of services revenues, respectively, in those periods. This increase in
dollar amounts was primarily due to an increase in the number of staff and
subcontractors used to provide services to our expanded customer base.

   We expect our cost of services revenues to increase in dollar amounts as a
result of the increased staffing of our professional services organization due
to our acquisition of Lexington Software and through our continued expansion of
our services staff and consulting organizations. Since services revenues have
substantially lower margins than license revenues, this expansion would reduce
our gross margins if our license revenues were not to increase significantly.
We expect cost of services revenues as a percentage of services revenues to
vary from period to period depending on the mix of services we provide, whether
such services are performed by our staff or subcontractors, and the overall
utilization rates of professional services staff.

 Gross Profit

   Gross profit increased 553% from $536,000 for the six months ended June 30,
1998 to $3.5 million for the six months ended June 30, 1999. Gross profit
represented 60% and 69% of total revenues, respectively, in those periods. This
increase in dollar amounts reflects increased license and services revenues
from a growing customer base. We expect gross profit as a percentage of total
revenues to fluctuate from period to period as a result of changes in the
relative proportion of license and services revenues.

 Operating Expenses

   Research and Development. Research and development expenses consist
primarily of personnel and related costs to support product development.
Research and development expenses increased 131% from $735,000 for the six
months ended June 30, 1998 to $1.7 million for the six months ended June 30,
1999, representing 83% and 34% of total revenues, respectively, in those
periods. This increase in dollar amounts was due to increases in the number of
product development personnel. We believe that continued investment in research
and development is critical to our strategic objectives, and we expect that the
dollar amounts of research and development expenses will increase significantly
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 related costs for sales and marketing personnel, sales
commissions, travel and marketing programs. Sales and marketing expenses
increased 271% from $1.4 million for the six months ended June 30, 1998 to $5.2
million for the six months ended June 30, 1999, representing 153% and 104% of
total revenues, respectively, in those periods. This increase in dollar amounts
was due to increases in the number of our sales and marketing personnel, higher
sales commissions and increased marketing activities. We expect to continue to
invest heavily in sales and marketing in order to expand our customer base and
increase brand awareness. We also anticipate that the percentage of total
revenues represented by sales and marketing expenses will fluctuate from period
to period primarily depending on when we hire new sales personnel, the timing
of new marketing programs and the levels of revenues in each period.

   General and Administrative. General and administrative expenses consist
primarily of salaries and related costs for accounting, human resources, legal
and other administrative functions, as well as provisions for doubtful
accounts. General and administrative expenses increased 110% from $572,000 for
the six months

                                       20
<PAGE>

ended June 30, 1998 to $1.2 million for the six months ended June 30, 1999,
representing 65% and 25% of total revenues, respectively. This increase in
dollar amounts was due to additional staffing of these functions to support
expanded operations during this same period. We expect general and
administrative expenses to increase in dollar amounts in 1999 as we add
personnel to support expanding operations, incur additional costs related to
the growth of our business, and assume the reporting requirements of a public
company.

   Amortization of Deferred Stock-Based Compensation. In 1998 and the first six
months of 1999, we recorded deferred stock-based compensation of $1.9 million
and $6.7 million in connection with stock options granted during 1998 and 1999,
respectively. 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. Amortization of deferred stock-based compensation was
$347,000 and $1.7 million for the six months ended June 30, 1998 and 1999,
respectively. We expect per quarter amortization related to these options of
approximately $1.0 million during the remainder of 1999, between $500,000 and
$750,000 during 2000, between $270,000 and $400,000 during 2001 and between
$130,000 and $250,000 during 2002.

 Other Income (Expense), Net

   Other income (expense), net, consists of primarily interest income and
expenses. Other income (expense), net, increased from $57,000 for the six
months ended June 30, 1998 to $154,000 for the six months ended June 30, 1999
due to higher average cash balances.

 Income Taxes

   As of June 30, 1999, we had approximately $10.8 million of federal and $1.7
million of state net operating loss carryforwards available to reduce future
taxable income, expiring in 2015 and 2010 for federal and state tax purposes,
respectively. Under the Tax Reform Act of 1986, the amounts of and benefits
from net operating loss carryforwards may be impaired or limited in certain
circumstances. Events which cause limitation in the amount of net operating
losses that we may utilize in any one year include, but are not limited to, a
cumulative ownership change of more than 50%, as defined, over a three year
period. 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 factors such as our history of
operating losses and expected future losses and the nature of our deferred tax
assets. See Note 5 of Notes to Financial Statements.

Years Ended December 31, 1996, 1997 and 1998

 Revenues

   We had no revenues in 1996. Total revenues increased from $168,000 in 1997
to $4.0 million in 1998. This increase was attributable to greater market
acceptance of our software products after their introduction in 1997 and an
increase in the number of sales and marketing staff, resulting in an increased
number of customers.

   License. License revenues increased from $84,000 in 1997 to $3.2 million in
1998. License revenues represented 50% and 79% of total revenues, respectively,
in those periods. The increase in license revenues reflected a growing market
acceptance of our software products, an expanded direct sales force, and an
increase in average size of new customer contracts.

   Services. Services revenues increased from $84,000 in 1997 to $827,000 in
1998. Services revenues represented 50% and 21% of total revenues,
respectively, in those periods. The increase in services revenues reflected an
increase in both professional services and maintenance fees generated from an
expanded number of customers who licensed our products.

                                       21
<PAGE>

 Cost of Revenues

   License. We had no cost of license revenues in 1996 or 1997. Cost of license
revenues in 1998 was $59,000 and represented 2% of license revenues in 1998.
The increase in cost of license revenues primarily reflects increased sales of
third-party products sold in conjunction with our software products.

   Services. We had no cost of services revenues in 1996. Cost of services
revenues increased from $95,000 in 1997 to $1.3 million in 1998. Cost of
services revenues represented 113% and 154% of services revenues, respectively,
in those periods. This increase was primarily due to an increase in the number
of services personnel and subcontractors used to provide services to our
expanded customer base.

 Gross Profit

   Gross profit increased from $73,000 in 1997 to $2.7 million in 1998,
representing 43% and 67% of total revenues, respectively, in those periods.
This increase reflected increased license and services revenues from a growing
customer base.

 Operating Expenses

   Research and Development. Research and development expenses increased from
$328,000 in 1996 to $884,000 in 1997 and $1.8 million in 1998. Research and
development expenses represented 526% and 45% of total revenues in 1997 and
1998, respectively. This increase in dollar amounts was due to increases in the
number of product development personnel.

   Sales and Marketing. Sales and marketing expenses increased from $101,000 in
1996 to $1.5 million in 1997 and $4.8 million in 1998. Sales and marketing
expenses represented 904% and 120% of total revenues in 1997 and 1998,
respectively. This increase in dollar amounts was due to increases in sales and
marketing personnel, higher sales commissions and increased marketing
activities.

   General and Administrative. General and administrative expenses increased
from $91,000 in 1996 to $530,000 in 1997 and $1.7 million in 1998, representing
315% and 43% of total revenues in 1997 and 1998, respectively. This increase in
dollar amounts was due to additional staffing of these functions to support
expanded operations during this same period.

   Amortization of Deferred Stock-Based Compensation. In 1998 we recorded
deferred stock-based compensation of $1.9 million, $812,000 of which was
amortized in 1998.

 Other Income (Expense), Net

   Other income (expense), net, decreased from $10,000 in 1996 to ($88,000) in
1997 and increased to $151,000 in 1998. The decrease from 1996 to 1997
reflected increased interest expense on promissory notes issued in conjunction
with the sale of our preferred stock. The increase from 1997 to 1998 was due to
increased interest income earned from cash balances on hand as a result of
sales of our preferred stock in March, October, November and December 1998,
partially offset by increased interest expense.

                                       22
<PAGE>

Quarterly Results of Operations

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

<TABLE>
<CAPTION>
                                             Three Months Ended
                          ----------------------------------------------------------
                          March 31, June 30,  Sept. 30, Dec. 31,  March 31, June 30,
                            1998      1998      1998      1998      1999      1999
                          --------- --------  --------- --------  --------- --------
                                               (in thousands)
<S>                       <C>       <C>       <C>       <C>       <C>       <C>
Statement of Operations
 Data:
Revenues:
  License...............    $ 187   $   437    $   946  $ 1,606    $ 1,360  $ 1,898
  Services..............       44       218        277      288        742    1,004
                            -----   -------    -------  -------    -------  -------
   Total revenues.......      231       655      1,223    1,894      2,102    2,902
                            -----   -------    -------  -------    -------  -------
Cost of revenues:
  License...............      --        --          19       40         15      104
  Services..............       75       275        441      483        549      880
                            -----   -------    -------  -------    -------  -------
   Total cost of
    revenues............       75       275        460      523        564      984
                            -----   -------    -------  -------    -------  -------
   Gross profit.........      156       380        763    1,371      1,538    1,918
                            -----   -------    -------  -------    -------  -------
Operating expenses:
  Research and
   development..........      282       453        492      570        779      922
  Sales and marketing...      473       884      1,603    1,857      2,287    2,938
  General and
   administrative.......      185       387        563      604        598      646
  Amortization of
   deferred stock-based
   compensation.........      151       196        217      248        640    1,028
                            -----   -------    -------  -------    -------  -------
   Total operating
    expenses............    1,091     1,920      2,875    3,279      4,304    5,534
                            -----   -------    -------  -------    -------  -------
Loss from operations....     (935)   (1,540)    (2,112)  (1,908)    (2,766)  (3,616)
Other income, net.......        4        53         32       62         65       89
Net loss................    $(931)  $(1,487)   $(2,080) $(1,846)   $(2,701) $(3,527)
                            =====   =======    =======  =======    =======  =======
</TABLE>

<TABLE>
<CAPTION>
                                             Three Months Ended
                          --------------------------------------------------------
                          March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
                            1998      1998     1998      1998     1999      1999
                          --------- -------- --------- -------- --------- --------
<S>                       <C>       <C>      <C>       <C>      <C>       <C>
As a Percentage of Total
 Revenues:
Revenues:
  License...............      81%       67%      77%       85%      65%       65%
  Services..............      19        33       23        15       35        35
                            ----      ----     ----      ----     ----      ----
   Total revenues.......     100       100      100       100      100       100
                            ----      ----     ----      ----     ----      ----
Cost of revenues:
  License...............     --        --         2         2        1         4
  Services..............      32        42       36        26       26        30
                            ----      ----     ----      ----     ----      ----
   Total cost of
    revenues............      32        42       38        28       27        34
                            ----      ----     ----      ----     ----      ----
   Gross profit.........      68        58       62        72       73        66
                            ----      ----     ----      ----     ----      ----
Operating expenses:
  Research and
   development..........     122        69       40        30       37        32
  Sales and marketing...     205       135      131        98      109       101
  General and
   administrative.......      80        59       46        32       28        22
  Amortization of
   deferred stock-based
   compensation.........      65        30       18        13       30        35
                            ----      ----     ----      ----     ----      ----
   Total operating
    expenses............     472       293      235       173      204       190
                            ----      ----     ----      ----     ----      ----
Loss from operations....    (404)     (235)    (173)     (101)    (131)     (124)
Other income, net.......       2         8        3         3        3         3
Net loss................    (402)%    (227)%   (170)%    ( 98)%   (128)%    (121)%
                            ====      ====     ====      ====     ====      ====
</TABLE>


                                       23
<PAGE>

   Our license and services revenues have grown in each of the six quarters in
the period ended June 30, 1999, except that our license revenues declined in
the three month period ended March 31, 1999 from that in the three month period
ended December 31, 1998. This decline reflected the unusually high revenues in
the prior period, due in part to certain large license sales in that period. In
addition, many companies that license enterprise-scale software products to
large customers experience seasonal declines in the first fiscal quarter
following the end of their fiscal year. Because of our limited operating
history, we do not know whether this pattern was responsible for the declines
in the three months ended March 31, 1999, or whether it will apply to future
quarterly results. As a general matter, we depend on sales to a relatively few
large customers. As a result, our revenues are subject to period-to-period
fluctuations reflecting the impact of a few large sales.

   Increased services revenues beginning in the three month period ended March
31, 1999 reflect an increase in both professional services and maintenance fees
generated from an expanded number of customers which had licensed our products
in prior periods, and an increase in the number of professional services staff
and a higher effective staff utilization rate.

Liquidity and Capital Resources

   Since inception, we have funded our operations through private sales of
equity securities. We raised a total of $37.0 million, net of offering costs,
from the issuance of preferred stock. At June 30, 1999, our sources of
liquidity consisted of $25.2 million in cash and cash equivalents and $22.6
million in working capital. We have a $3.0 million line of credit and a $1.5
million equipment line of credit with Silicon Valley Bank, each of which bear
interest at the bank's prime rate, which was 7.75% at June 30, 1999, plus
0.25%. At June 30, 1999, the line of credit was unused and $1.5 million was
outstanding under the equipment line of credit. The lines of credit are secured
by all of our tangible and intangible assets. We are currently in compliance
with all related financial covenants and restrictions.

   Net cash used in operating activities was $2.7 million in 1997 and $6.0
million in 1998. Net cash used in operating activities in 1997 and 1998
reflected net losses and, to a lesser extent, accounts receivable, offset in
part by increases in accrued liabilities. Net cash used in operating activities
was $2.2 million in the six months ended June 30, 1999. Net cash used in
operating activities reflected increasing net losses offset in part by
reductions in accounts receivable and increases in accounts payable.

   From inception, our investing activities have consisted primarily of
purchases of property and equipment, principally computer hardware and software
for our growing number of employees. Capital expenditures, including those
under capital leases, totaled $138,000, $1.7 million and $561,000 in 1997, 1998
and the six months ended June 30, 1999, respectively. We expect that capital
expenditures will increase with our anticipated growth in operations,
infrastructure and personnel. We do not expect to incur significant costs to
make our products or internal information systems Year 2000 compliant because
we believe such products and information systems are designed to function
properly through and beyond year 2000.

   Net cash provided by financing activities in 1997, 1998 and the first six
months of 1999 was $3.9 million, $15.8 million and $18.9 million, respectively.
Net cash provided by financing activities reflected primarily the proceeds of
issuances of preferred stock in each of these periods, and, in 1998, included
proceeds from a bank line of credit.

   We believe that the net proceeds of this offering, together with cash and
cash equivalents, and funds available under existing 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 financing or from other
sources. There can be no assurance that additional financing will be available
on acceptable terms, if at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable 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, financial condition and operating results.

                                       24
<PAGE>

Recent Accounting Pronouncements

   In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities" ("SFAS No. 133"). SFAS 133 is effective for all fiscal quarters
beginning with the quarter ending June 30, 2000. SFAS 133 establishes
accounting and reporting standards of derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
We will adopt SFAS No. 133 in the quarter ending June 30, 2000 and do not
expect such adoption to have an impact on our results of operations, financial
position or cash flows.

Qualitative and Quantitative Disclosures About Market Risk

   We develop products in the United States and market our products in North
America, and, to a lesser extent in Europe. As a result, our financial results
could be affected by factors such as changes in foreign currency exchange rates
or weak economic conditions in foreign markets. Since all of our revenue is
currently denominated in U.S. Dollars, a strengthening of the Dollar could make
our products less competitive in foreign markets. Our interest income and
expense is sensitive to changes in the general level of U.S. interest rates,
particularly since the majority of our financial investments are short-term.
Due to the short-term nature of our financial investments, we believe that
there is not a material risk exposure.

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 a Year 2000 readiness review for the current and prior
versions of our products. The review includes assessment, implementation
(including remediation, upgrading and replacement of certain product versions),
validation testing and contingency planning.

   We have largely completed all phases of our plan, except for contingency
planning, with respect to the current and prior versions of all of our
products. As a result, the current and prior versions of each of its 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 the Company's products are also Year 2000 compliant.

   We define "Year 2000 compliant" as the ability to: (i) correctly handle date
information needed for the December 31, 1999 to January 1, 2000 date change;
(ii) 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; (iii) 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; (iv) store and provide output of
date information in ways that are unambiguous as to century if the date
elements in interfaces and data storage specify the century; and (v) recognize
year 2000 as a leap year. We have not tested our products on all platforms or
all versions of operating systems that it currently supports.

   We are testing software obtained from third parties (licensed software,
shareware, and freeware) that is incorporated into our products or sold in
conjunction with our products, and have assurances from our vendors that
licensed software is Year 2000 compliant. Despite our testing, 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, or liability from our customers, any
of which could seriously harm our business.

   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.

                                       25
<PAGE>

   Our internal systems include both its information technology ("IT") and non-
IT systems. We have initiated an assessment of our business critical internal
IT systems (including both our own software products and third party software
and hardware technology) but have not initiated an assessment of our non-IT
systems. We expect to complete testing of our IT systems in 1999. 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 unanticipated problems and costs caused by
undetected errors or defects in the technology used in our internal IT and non-
IT systems.

   We currently have only limited information concerning the Year 2000
compliance status of our customers. As is the case with other similarly
situated software companies, if our current or future customers fail to achieve
Year 2000 compliance or if they divert technology expenditures (especially
technology expenditures that were reserved for enterprise software) to address
Year 2000 compliance problems, our business could be harmed.

   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 expect to 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 harm its business.

   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 and do not anticipate the need to do so. 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.

                                       26
<PAGE>

                                    BUSINESS

   The following discussion contains forward-looking statements that involve
assumptions, uncertainties and risks. Actual outcomes may differ from those
anticipated in these forward-looking statements in significant ways, as a
result of factors such as those set forth under "Risk Factors" and elsewhere in
this prospectus.

Overview

   Interwoven is a leading provider of web content management solutions. Our
flagship product, TeamSite, is an open, standards-based enterprise platform
designed to help customers develop, maintain and extend large, mission-critical
web sites. TeamSite combines the functions of content management, version
control, workflow and application development in a single platform that allows
large numbers of contributors across an enterprise to add web content in a
well-managed manner. By using our products, businesses can accelerate their
time-to-web, lower web operating costs, establish a differentiated presence on
the web and attract and retain customers. Currently, we have over 75 customers
operating in a broad range of industries. Our customers include AltaVista, Best
Buy, Cisco Systems, FedEx, The Gap, GeoCities, TCI, the U.S. Department of
Education, USWeb/CKS and Viacom/Nickelodeon.

Industry Background

   The use of the Internet to communicate and conduct business is increasing
rapidly. Companies are accelerating their movement to the Internet to
capitalize on new business opportunities, reach broader consumer audiences and
reduce operational costs. Forrester Research estimates that the business-to-
consumer e-commerce market will grow from $7.8 billion in 1998 to $108 billion
in 2003. In addition, International Data Corporation, or IDC, estimates that
the business-to-business e-commerce market will grow from $24.9 billion in 1998
to $632.9 billion in 2003.

   Migrating to the Web. As leading companies demonstrate revenue growth and
achieve competitive advantage by using the Internet, chief executives and other
senior corporate decision makers are realizing that web-based business
applications, or eBusiness initiatives, are critical for the success of their
businesses. As a result, many companies are developing eBusiness applications
to enable them to market and sell products and services to consumers online,
offer web-based customer self-service programs, implement business-to-business
supply chain management solutions and migrate other operational functions
online. IDC estimates that spending on software applications and services for
e-commerce alone will grow from $7.8 billion in 1998 to $53.8 billion by 2002.

   Moving Online Successfully. To compete online and to capitalize on Internet
revenue opportunities, businesses must rapidly build a differentiated presence
on the web and continuously maintain and extend that presence. Since first-
mover advantage is amplified on the web, companies must deploy high quality
eBusiness applications quickly to create an online brand and establish a loyal
base of customers. Accelerating time-to-web is essential to attracting
customers and generating revenue opportunities. In addition, to retain
customers, a company must differentiate its web site from competing sites by
offering rich, accurate and relevant content. Once customers discover value in
a web site, they may be less likely to visit competing web sites. Web site
reliability is also important since customers are only a click away from
competitors' sites and may lose patience with an incomplete or non-functioning
web site. Moreover, poor quality web sites can easily damage a business' online
brand.

   Evolving Web Sites. As a result of this competitive environment and the
available online business opportunities, web sites have rapidly evolved from
simple online corporate brochures to complex online storefronts. Early web
sites contained relatively limited content, consisting primarily of static text
and simple graphics. This content was infrequently updated and web sites
required only a few developers to build and maintain them. Today, companies are
seeking to differentiate their online presence and to become leaders on the
Internet by transforming their businesses into sophisticated eBusinesses
featuring content-rich web sites. In

                                       27
<PAGE>

many cases, the content on these web sites must be updated on a daily or hourly
basis to meet consumer expectations and to exploit emerging business
opportunities. For example, a large online retailer may need to showcase tens
of thousands of products through the use of graphic images and product
descriptions. All of this information must be continuously refreshed as
products are introduced or discontinued and as descriptive product information
is revised. As the volume of web content has grown and sophisticated eBusiness
applications have emerged, the responsibility for the development and
management of web content has shifted from a few developers in small web teams
to many contributors working in different departments across the enterprise.
Furthermore, the large number of web authoring tools and web application
servers required by these applications have contributed to the increasing
technological complexity involved in developing these web sites.

   Managing Web Content. Web content, such as high-resolution graphics, audio
segments, video clips, hyperlinked text, embedded applets and executable code,
is the basis for every web page and most eBusiness applications. IDC estimates
that the number of web pages will grow from 925 million in 1998 to 13.1 billion
in 2003. In addition, complex eBusiness initiatives may contain hundreds of
thousands of web pages. This dramatic growth in content has created a strong
need for content management solutions. These solutions must be highly automated
to accommodate the volume, complexity and variability of this web content. In
addition, such solutions must leverage existing investments in information
technology, be highly scalable, and enable the participation of increasing
numbers of content contributors. IDC estimates that the market in which we
participate, which they refer to as the web development life-cycle management
software market, will grow from $76.4 million in 1998 to $1.6 billion in 2003.

   Market Opportunity. Until recently, businesses have attempted to satisfy
their content management needs through in-house or third-party solutions. In-
house solutions are proprietary, expensive and can be difficult to maintain,
which can increase the risk of delaying the launch of important eBusiness
initiatives. For example, in-house solutions can require extensive re-
engineering each time a new web authoring tool or eBusiness application is
introduced. Businesses that have utilized third-party solutions have typically
turned to workgroup or publishing applications. Workgroup applications are
typically designed for simple sites supported by small groups of developers.
They generally do not scale to support large numbers of contributors or the
increasing complexity and volume of web content. Using these solutions may also
impair a company's ability to deliver up-to-date and accurate web content.
Similarly, publishing applications effectively address the needs of only a
limited segment of the eBusiness community. Publishing applications are often
proprietary, and therefore do not accommodate many popular industry web tools
or delivery systems. In addition to not allowing large numbers of contributors
to add content, many current third-party solutions do not allow web teams to
work on applications in parallel or easily integrate new web technologies,
thereby slowing the deployment of eBusiness initiatives.

                                       28
<PAGE>

The Interwoven Solution

   Interwoven provides a leading, open content management platform for enabling
eBusiness applications across the enterprise. Our products are specifically
designed to help customers rapidly and efficiently build, maintain and extend
mission-critical web sites and eBusiness initiatives.

   [chart appears here]
          [TEAMSITE GRAPHIC UNDER INTERWOVEN SOLUTION HEADING (p. 29)]
  A four-layer graphical representation of TeamSite. The top layer consists of
five rectangles. The rectangle on the far left reads "Corporate Web Sites." The
next rectangle to the right reads "Customer Relationship Management." The next
rectangle to the right reads "Electronic Commerce." The next rectangle to the
right reads "Knowledge Management." The next rectangle to the right reads
"Global Supply Chain." The layer immediately below the top layer reads "Web
Servers/Web Application Servers/1:1 & eCommerce," and a description to the left
of the layer reads "Delivery Systems." The next layer down reads "TeamSite,"
and a description to the left of the layer reads "Content Management." The
bottom layer reads "Web Contributors/Content Creation Tools/Repositories," and
a description to the left of the layer reads "Knowledge Sources."


   Our products offer customers the following primary benefits:

   Accelerate eBusiness Revenue Opportunities. Our products enable customers to
migrate their businesses to the web rapidly, thereby increasing their ability
to generate more revenues and compete more effectively. Today, the volume and
complexity of content and the number of eBusiness applications continue to grow
so rapidly that it can be difficult for web teams to meet web site development
schedules. Our products enable customers to develop and deploy multiple
eBusiness applications in parallel. This approach allows companies to complete
their eBusiness initiatives more rapidly than alternative methods that require
companies to develop eBusiness applications sequentially. In addition, our
products allow content contributors to quality assure modifications as new
content is added or code is developed, which significantly reduces testing
time.

   Reduce Cost of Web Operations. Complex web sites can consist of up to
hundreds of thousands of pages containing both static and dynamic content from
departments throughout the enterprise. As a result, these sites can be
expensive to deploy and manage. Our products lower the costs of web operations
primarily by reducing the dependency on specialized web development personnel
and improving web operating efficiency through automated web development
workflow processes. This reduces the time required to assemble, test and
validate new content. In addition, our open, standards-based products support
evolving web standards and are compatible with third-party web authoring tools
and web application servers that adhere to open standards. As a result,
businesses can productively leverage their existing information technology
infrastructure.

   Create Highly Differentiated Web Sites. To attract and retain online
customers, today's leading web sites continuously enhance their users' online
experience. Businesses seek to achieve this by integrating new web technologies
and refreshing content frequently. The open, standards-based architecture of
our products facilitates the rapid integration of new web technologies and the
parallel development of multiple eBusiness applications, such as global supply
chain management, customer relationship management, knowledge management and e-
commerce applications. In addition, our highly scalable solution promotes
accurate and relevant content by coordinating the collaborative efforts of
hundreds of contributors.

   Improve Web Site Quality. Protecting brand and image online has become
critical for companies doing business on the Internet. Non-functioning or poor
quality sites can significantly harm a business' online brand. With our
solution, companies can create reliable, high-quality web sites. Our
development platform offers comprehensive testing of the entire web site as a
site is built, updated or extended. In addition, our products promote
individual accountability, and faster and more accurate authoring, by enabling
all web developers and content contributors to control their own portion of the
quality assurance and test process. This improves a site's overall quality. By
maintaining quality control through sophisticated workflow processes, our
solution also ensures that no unauthorized or unapproved content or application
is deployed to the site.

                                       29
<PAGE>

The Interwoven Strategy

   Our goal is to establish our solution as the platform of choice for web
content management across the enterprise. To achieve this goal, we intend to
pursue the following key strategies:

   Extend Our Position as a Leading Provider of Content Management
Solutions. We intend to extend our leadership in content management solutions
by continuing to offer a comprehensive, easy-to-use web development platform.
Our feature-rich platform addresses our customers' complete eBusiness life-
cycle needs as they build, maintain and extend their web sites. We intend to
expand our leadership position by introducing enhanced web content management
solutions that assist our customers in accelerating their eBusiness
initiatives, and aggressively increasing our sales and marketing efforts.

   Become the Preferred Web Development Platform for Industry-Leading Internet
Technology Vendors. We intend to increase demand for our products among
industry-leading Internet technology vendors by providing a robust web
development platform to complement their own eBusiness production applications.
Unlike existing closed-architecture or proprietary solutions, the open,
standards-based architecture of our products allows us to easily integrate our
products with those of industry-leading technology providers. This is
attractive to Internet technology vendors because it expands their markets and
eliminates costly integration and customization. We intend to continue to
strengthen our existing relationships with vendors such as Allaire, ATG,
BroadVision, IBM, InterWorld, Microsoft and Netscape. We also intend to enter
into additional relationships with other leading technology providers,
including additional reseller relationships. We believe our products can become
widely adopted as a standard web development platform across Internet
technology vendors.

   Expand Relationships with Systems Integrators and Internet Professional
Services Firms. We have begun establishing relationships with leading systems
integrators, such as Andersen Consulting, and Internet professional services
firms, such as USWeb/CKS Group. Our existing relationships with the leading
systems integrators and Internet professional services firms have allowed us to
expand our market reach and increase our access to senior decision makers.
Companies often leverage the expertise of systems integrators and Internet
professional services firms to deliver and implement eBusiness applications.
These firms have significant influence on a customer's technology selection,
and their recommendations represent significant endorsements. We intend to
continue to expand and build additional relationships with key systems
integrators and Internet professional services firms.

   Extend our Standards-Based Technology Leadership. Our products can be
integrated rapidly and cost-effectively by our customers, Internet technology
vendors and Internet professional services providers. In addition, our products
have been designed to meet the demanding openness and scalability required for
Internet software platforms. Our open architecture enables support for web
authoring tools and web application servers that adhere to industry standards.
The scalability of our products allows customers to manage hundreds of
thousands of web files as well as enable hundreds of employees throughout the
enterprise to contribute web content. We intend to continue to invest
significantly in research and development to increase the functionality of our
products. We also intend to continue to actively participate in the promotion
of industry standards, such as XML.

   Increase International Sales. As the Internet adoption rate accelerates
overseas, we believe that significant international market demand will exist
for content management solutions, especially in Europe and Asia. We intend to
devote significant resources to penetrate international markets. To that end,
we have begun expanding our overseas direct and indirect sales channels and our
international marketing presence. We have recently opened an office in the
United Kingdom, and intend to open offices in Asia during the next twelve
months.

                                       30
<PAGE>

Products and Services

   Our product line consists of TeamSite, our web content management platform,
and OpenDeploy, our web content replication and syndication solution. We
license our products on a per-server and per-user basis. We also provide
services that include professional services, maintenance and support.

<TABLE>
 <C>      <S>           <C>
  Product Description   Server Platforms
</TABLE>

 TeamSite 3.1    Server-based content management             . Sun Solaris
                 application                                 . Windows NT
                 . allows numerous developers and
                   contributors to add content to a web
                   site
                 . interoperates with leading web
                   authoring and web application servers
                 . supports parallel eBusiness application
                   development and deployment
                 . offers real-time testing capability and
                   sophisticated workflow processes
                 . offers comprehensive file and whole-
                   site versioning scheme

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

   TeamSite      Server-based content templating             . Sun Solaris
   Templating    application                                 . Windows NT
                 . allows content contribution using
                   standard templates
                 . promotes participation from non-
                   technical contributors
                 . allows contribution through standard
                   web browsers
                 . licensed in conjunction with TeamSite

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

   TeamSite      Reporting and auditing application          . Sun Solaris
   Global        . allows administrators to monitor system   . Windows NT
   Report          activity
   Center        . delivers sophisticated reporting and
                   auditing functionality
                 . licensed in conjunction with TeamSite

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

 OpenDeploy 3.0  Content replication and distribution        . Sun Solaris
                 application                                 . Windows NT
                 . transfers content among multiple web      . IBM AIX
                   servers simultaneously                    . Silicon
                 . enables automated scheduling of web         Graphics IRIX
                   site updates
                 . ensures conformity of web site roll-out
                 . offers secure and transactional content
                   deployment over the Internet

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

 TeamSite -- Content Management

   Our flagship product, TeamSite, is an enterprise platform designed to
develop, maintain and extend large, mission-critical web sites. TeamSite
combines the functions of web content management, version control, workflow and
application development in a single platform. TeamSite allows large numbers of
contributors across the enterprise to add web content in a well-managed manner.

     Web Content Management. TeamSite is designed to version, manage and
  control all web content. It provides a scalable platform that supports
  parallel, distributed content contribution across the enterprise. TeamSite
  is an open, standards-based platform that is compatible with leading web
  authoring creation tools and web application servers, allowing businesses
  to leverage existing investments in information technology systems, content
  and expertise. This enables a faster time-to-web for eBusiness initiatives.

                                       31
<PAGE>

     Workflow. Increasing the number of contributors and developers who can
  contribute to a company's web site is challenging. TeamSite is designed for
  a diverse group of users, including non-technical and technical
  contributors. TeamSite extends the number of web contributors that can
  easily participate in building and contributing content to the web site
  through robust workflow solutions to guide overall web operations, approval
  and site release management processes.

     Web Application Development. TeamSite provides programmers with a
  software development platform that accommodates their choice of development
  tools. TeamSite's versioning features also allow programmers to track code
  modifications. Using TeamSite, programmers can also build, install and test
  the developed code in real-time within the context of the entire web site.

   The open, standards-based architecture of TeamSite enables businesses to
implement TeamSite without significant changes to existing web content or
systems architecture, resulting in rapid implementation. Additionally,
TeamSite's file-system structure and server-based design enable businesses to
use complementary best-of-breed solutions, such as their preferred web
authoring tools, web application servers and other web-based technologies.
TeamSite currently operates on Sun Solaris and Microsoft Windows NT operating
systems. TeamSite was first shipped in May 1997. We first shipped the current
version of TeamSite, TeamSite 3.1, in May 1999.

   We also sell products in conjunction with TeamSite that extend TeamSite's
functionality. TeamSite Templating is a server-based application that allows
TeamSite contributors to contribute web content using standard templates,
thereby eliminating the need for contributors to be familiar with HTML or
client-side applications. Global Report Center enables TeamSite administrators
to generate reports on web operations activity.

 OpenDeploy -- Content Replication and Syndication

   Our OpenDeploy application transfers content from development to production
web servers. OpenDeploy offers content replication and syndication capability
across distributed networks of web production servers. OpenDeploy automates the
process of synchronizing web sites through the precise replication of content
and enables companies to distribute web content to web hosting facilities
within the company, or across the extended enterprise, for maximum
availability, reduced latency and failover support. Customers using OpenDeploy
can also automate the scheduled deployment of content. We believe that
OpenDeploy provides the most effective method for distribution and integration
of dynamic content across web sites.

   OpenDeploy is typically integrated with TeamSite by our customers, but it
may be used on a stand-alone basis. OpenDeploy encrypts content for secure
transfer over TCP/IP. The version of OpenDeploy shipped within the United
States uses 128-bit SSL encryption. Due to U.S. export regulations, the
international version does not utilize encryption. OpenDeploy operates on Sun
Solaris, Microsoft Windows NT, IBM AIX and Silicon Graphics IRIX operating
systems. We first shipped OpenDeploy in January 1998. The current version of
OpenDeploy 3.0, was first shipped in May 1999.

 Interwoven Services

   Our services organization consists of 41 professional employees who utilize
a comprehensive methodology to deliver our content management solutions to
customers. These services professionals configure each solution they deliver to
meet the specific needs of the customer. We sell our services in conjunction
with licenses of our software products and include:

  .needs analysis and web operations strategy;

  .software installation and configuration support;

  .project management;

  .workflow mapping;

                                       32
<PAGE>

  .content and web site release management; and

  .education and training.

   In addition to professional services, we offer various levels of product
maintenance to our customers. Maintenance services are typically subject to an
annual, renewable contract and are typically priced as a percentage of product
license fees. Customers under maintenance contracts receive technical product
support and product upgrades as they are released throughout the life of the
maintenance contracts.

Technology

   We believe that our technology offers our clients and partners a highly
scalable web content management solution that is implemented through an open,
standards-based architecture. Our products are specifically designed for the
web. Our customers typically use our technology as the platform for their
enterprise-wide web operations.

 Content Management Process. The following graph illustrates how TeamSite
 manages content:


                                  [Insert Graph]
                [FLOW DIAGRAM UNDER TECHNOLOGY HEADING (p. 33)]
  A flow chart representing the Content Management Process. The flow chart
consists of several icons, each containing a graphic of cascading pages of
paper. The icon on the far left is rectangular and reads "Initial Edition." The
next icon to the right is rectangular and reads "Edition 1." The next icon to
the right is rectangular and reads "Edition 2." Three arrows lead to the right
from this icon to three vertically aligned circular icons labeled "Workareas."
Three arrows lead to the right from these circular icons to a rectangular icon
which reads "Staging Area." The next icon to the right is rectangular and reads
"Edition 3."


   Collaboration Through Work Areas, Staging Areas and Editions. TeamSite
provides a virtual work area for each contributor. A virtual work area is a
local, desktop web site representation that appears to a contributor as a
complete, fully-functioning web site. This provides web developers and
contributors the ability to see changes instantaneously in the development
environment as they would appear in the actual production site. This approach
improves quality by promoting individual accountability, allowing web
developers to discover costly bugs and helping web contributors prevent
deployment of inaccurate content to the production site. Users submit revised
content from work areas to a common staging area, a pre-production version of
the web site which consolidates web site changes. After the consolidated
changes in the staging area are approved, the next edition of the production
site can be authorized and deployed. This content management process makes
site-level rollbacks, site recovery and site audits possible.

   Content and Whole Site Versioning. TeamSite not only allows versioning of
all files from each contributor's work area, but also allows versioning of all
content within each staging area and whole-site edition. This comprehensive
versioning scheme allows customers to record all file modifications and capture
complete histories of all web files and whole-site editions. TeamSite Global
Report can then be used to audit and report on all historical changes made to a
company's web files and sites.

   Concurrent Development and Templating. Through its branching technology,
TeamSite supports multiple contributors working on a single project, as well as
multiple teams working on many projects simultaneously. A development branch
typically consists of many work areas connected to one staging area. These
branches, for

                                       33
<PAGE>

example, might separately represent a company's intranet and extranet sites.
When required, the content within these independent branches can be
synchronized. Our TeamSite Templating product enables non-technical content
contributors to add content through pre-approved style templates. This allows a
corporate look and feel policy to be enforced.

 Product Features

   Open Architecture. Our architecture is based on open industry standards to
support our customers' heterogeneous environments. As a result, TeamSite also
integrates with best-of-breed content authoring and delivery systems. This
approach allows content contributors to use their favorite web authoring tools.
For example, a graphics designer may use Adobe Photoshop, a layout expert may
use Macromedia Dreamweaver, and a non-technical contributor may use Microsoft
Office 2000 to add content to a site. In addition, TeamSite's browser interface
has been developed primarily in Java and JavaScript.

   Project Management and Workflow. TeamSite allows customers to manage web
development tasks through workflow processes, such as task assignment, resource
scheduling, routing and approval and other customer tasks. This enables
TeamSite users to build, enforce and automate the business processes necessary
to maintain high-quality web sites.

   Ease of Use. Our SmartContext Editing component provides non-technical
business users with a simple and efficient interface for contributing content
as they browse through the web site. With SmartContext Editing, non-technical
contributors are only required to be familiar with a web browser. For technical
contributors, TeamSite offers an easy to use, but sophisticated, file version
comparison and merging tool.

   Deployment and Content Syndication. OpenDeploy allows customers to deploy
content to numerous web sites through a single transaction to ensure consistent
site roll-outs. In addition, it can be used to automatically deploy and run
application programs as well as replicate content from relational databases.
OpenDeploy can also be used in a fully encrypted mode for the secure deployment
of content over the Internet.

 Scalability, Performance and Availability

   Scalability and Performance. The TeamSite server uses multi-threaded object-
oriented technology for user and file management requirements. The TeamSite
server has been shown to deliver performance and scalability comparable to
native network file systems. For scalability and performance, our server
programs are generally programmed in C++. In addition, OpenDeploy can
distribute content to a single or to multiple production web servers
simultaneously. This content replication functionality meets the requirements
for the most demanding web sites that often located in geographically dispersed
servers.

   Availability. Our open design also promotes reliability and availability by
allowing customers to employ their normal data backup, transport and recovery
tools. In addition, our back-end repository is designed to provide fault-
tolerance, error detection and data recovery. Critical data is duplicated,
providing the necessary redundancy for data recovery to minimize the potential
for data loss.

 Industry Standards

   Open to All Files, Tools and Applications. TeamSite's hybrid design, which
uses file system and database interfaces, enables TeamSite to manage file
content, application code and relational metadata. Unlike proprietary, closed
implementations, our products are developed to accommodate the industry leading
Internet technologies through industry standards, such as XML, Java and other
evolving industry standards. The TeamSite server presents its content through
popular file volume management systems such as Unix Network File System and
Microsoft Windows Network File System. The server implementation consists of
layered services, including low level operating system kernel drivers, through
high level application layers.

   eXtensible Markup Language. XML provides customers the ability to integrate
new applications and data with other XML-compliant technologies and legacy
applications. Together with such companies as Microsoft

                                       34
<PAGE>

and IBM, we are a sponsoring member of OASIS, an industry association promoting
XML standards. Our products use and support XML, and promote XML for data and
content exchange.

Strategic Alliances

   To extend our market reach and increase our sales opportunities, we have
established relationships with leading technology partners and IT service
providers.

   Technology Partners. We work closely with two types of Internet technology
vendors: web authoring tool and web application server providers. Web authoring
tools, such as Macromedia's Dreamweaver, Microsoft's Office 2000, and Adobe's
Photoshop, provide the content that we manage. Web application servers, such as
Allaire's ColdFusion, ATG's Dynamo, BroadVision's One-to-One Commerce, IBM's
Net.Commerce and Microsoft's SiteServer, distribute the content managed by our
platform over the Internet. By combining our development platform with these
and other leading web authoring tools and web application servers, our partners
can offer their customers an end-to-end web solution. In some instances, we
further increase the value of our partners' products to their customers by
developing specific product interfaces. For example, we have developed
interface offerings for products offered by BroadVision and ATG. In turn, we
benefit from our partners' market reach and extensive customer relationships.
Our partners sometimes refer their customers to us or resell our products
directly.

   IT Service Providers. We have worked with a number of leading systems
integrators, including Andersen Consulting, Computer Sciences Corporation, EDS
and Ernst & Young, and Internet professional services firms, including iXL,
Ogilvy Interactive and USWeb/CKS. These firms are strategic to our business
because of their knowledgeable technical resources and extensive customer
relationships across many industries. Our prospective customers frequently
retain the services of systems integrator and Internet professional services
firms for the delivery and implementation of eBusiness applications. In many
cases, these services firms will recommend a content management solution as
part of the eBusiness application they deliver. We intend to devote significant
resources to develop these relationships further.

                                       35
<PAGE>

Customers

   Our products and services are marketed and sold to a diverse group of
customers operating in a broad range of industries. Our customers include both
established companies migrating their operations online and new companies
formed specifically to deliver products and services over the Internet. These
customers typically consider the web and their web operations to be critical
to their future success.

   As of June 30, 1999, over 75 companies had licensed our products. In 1998
Cisco Systems accounted for 13% of our total revenues. The following table is
a representative list of our customers:

<TABLE>
   Technology                                    Consulting Services                 Media/Entertainment
   ----------                                    -------------------                 -------------------
   <S>                                           <C>                                 <C>
   AltaVista                                     Dahlin, Smith & White               AIM Technologies, Inc.
   Cisco Systems                                 DynaMind                            CondeNet
   Documentum                                    Hill Holiday                        Discovery
   Doublebill.com                                iXL                                 Educational Testing
   Electronic Arts                               USWeb/CKS                              Services
   GeoCities                                                                         Los Angeles Times
   Hitachi                                       Retail                              Mpath
   How 2 HQ                                      ------                              Quokka Sports
   TechRepublic                                  Best Buy                            Sega
   Nortel Networks                               The Gap                             Viacom/Nickelodeon
   Sun Microsystems                              Walgreens
   Tivoli                                                                            Industrial/Transportation
   Xerox                                         Financial Services                  -------------------------
                                                 ------------------                  Boeing
   Telecommunications/Utilities                  AG Edwards                          Clorox
   ----------------------------                  BancTec                             FedEx
   Alltel                                        Barclays Global                     Ford Motor
   Interpath                                     John Hancock                        United Air Lines
   Salt River                                    First American Financial            Yellow Services
   Telia                                          Corporation                        W.W. Grainger
   TCI                                           Minnesota Mutual

   Government                                    Health
   ----------                                    ------
   U.S. Department of Education                  Blue Cross California
   U.S. Postal Service                           Kaiser
                                                 Pacific Care
</TABLE>

Customer Case Studies

   The following case studies exemplify eBusiness initiatives that have
utilized our products:

   Educational Testing Service. Educational Testing Service, the world's
largest private educational measurement organization, annually administers
almost 11 million tests in 180 countries worldwide. Since 1996, ETS has been
using the Internet to provide a cost-effective, self-service source of updated
information for its international customer base. ETS has moved much of its
traditional business to the web in order to reduce operating costs and improve
customer service. Its multiple web sites provide information on admission to
colleges and universities, test registration and preparation, financial aid
planning and services, to hundreds of thousands of students, parents and
educators each year.

   Educational Testing Service uses TeamSite to support its online business
initiatives, such as online registration for exams, free online practice exams
and preparatory information, as well as direct sales of its products.



                                      36
<PAGE>

   Nortel Networks. Nortel Networks, with 1998 revenues of $17.6 billion and
75,000 employees worldwide, is a leader in telephony and IP-based data,
[wireline and] wireless networking equipment. Nortel has been using TeamSite
for over 18 months to manage and control globally dispersed content
contributors for six different web sites. Nortel's customers include public and
private enterprises and institutions, Internet service providers, local, long-
distance, cellular and PCS communications companies, cable television carriers,
and utilities. Nortel uses TeamSite to deploy content to its corporate web
site, e-commerce systems, and a dynamic personalized customer portal. The
content for these sites is developed and managed by Nortel Networks marketing
teams, service teams, and external agencies but is centrally controlled and
supported through TeamSite. The staff required to manage this initiative is
kept to a minimum by leveraging TeamSite's ability to distribute web publishing
responsibilities to many contributors. Nortel also uses TeamSite to control and
support the web operations of its international divisions.

   Today, web contributors from four continents participate in the development
of six multilingual web sites for Nortel, which translates content into many
languages including Chinese, Japanese, French, Spanish and others.

   AltaVista. AltaVista is a leading media and commerce network that integrates
unique technology, products and services. AltaVista seeks to deliver best-of-
breed results by integrating content and functionality from both within the
AltaVista network and through external partners. AltaVista has chosen
Interwoven TeamSite as its global content management platform.

   Since its foundation four years ago, AltaVista has provided its loyal base
of web users a broad range of Internet services. As part of its infrastructure
requirement, AltaVista required a robust scalable platform to support its
dynamic environment. AltaVista chose TeamSite as its content management
platform. Demonstrating its ease of implementation, AltaVista installed and
implemented TeamSite in less than one week.

   TechRepublic. TechRepublic offers a free web service that provides career
insight, community interaction and customized information to information
technology executives and strategists, network administrators, support training
and other enterprise computing professionals. Its web site provides ready
access to critical information through personalized news, analysis and original
content written by outstanding contributors from throughout the profession.
TechRepublic selected TeamSite to develop and manage its rapidly changing web
site.

   Since TechRepublic offers articles and information which must be published
and frequently updated by contributors who work remotely. This content is
routed through a series of editors for revision and approval before the content
is finally deployed to the site. With near-constant updates, TechRepublic
required a content management solution with intuitive and robust workflow
functionality and as easy remote access. TeamSite provided TechRepublic with an
ideal solution to its workflow problem. TeamSite also uses our OpenDeploy to
provide secure, rules-based web content replication across multiple servers and
distribution over the Internet.

Sales and Marketing

   To date, we have sold our products and services primarily through our direct
sales force in North America and Europe. As of June 30, 1999, we had 30
professionals in our direct sales force, of which 28 were located in the United
States and 2 were in Europe. We intend to increase the size of our direct sales
force and establish additional sales offices domestically and internationally.
In May 1999, we opened our first international sales office in the United
Kingdom to support the management of direct and indirect sales channels in
Europe.

   We are also aggressively developing our indirect sales channel by expanding
our relationships with leading Internet technology vendors, Internet
professional services firms and systems integrators that recommend and, when
appropriate, resell our products. For example, BroadVision and USWeb/CKS
currently resell our products.


                                       37
<PAGE>

   We believe that demand is increasing for content management solutions such
as those we sell. We may not be able to expand our sales and marketing staff,
either domestically or internationally, to take advantage of any increase in
demand for those solutions. Our failure to expand our sales and marketing
organization or other distribution channels could materially adversely affect
our business. See "Risk Factors--We must attract and retain qualified
personnel."

Research and Development

   We invest significantly in research and development to enhance our current
products, and develop new products. Our research and development expenses were
$884,000 in 1997, $1.8 million in 1998 and $1.7 million for the six months
ended June 30, 1999. We expect that we will increase our product development
expenditures substantially in the future. As of June 30, 1999, approximately 25
employees were engaged in research and development activities and we plan to
continue to hire additional engineers to further our research and development
activities. Our business could be harmed if we were not able to hire and retain
the required number of engineers. See "Risk Factors--We must attract and retain
qualified personnel."

   We may fail to complete our product development efforts within our
anticipated schedules, and even if completed, the products developed may not
have the features necessary to make them successful in the marketplace. Future
delays or problems in the development or marketing of product enhancements or
new products could harm our business. See "Risk Factors--We may experience
difficulties in introducing new products and upgrades in a timely manner."

Competition

   The market for content management solutions is rapidly emerging and is
characterized by intense competition. We expect existing competition and
competition from new market entrants to increase dramatically. A growing number
of companies are vying to provide web content management solutions. In this
market, new products are frequently introduced and existing products are often
enhanced. In addition, new companies, or alliances among existing companies,
may be formed that may rapidly achieve a significant market position.

   Potential customers may have developed in-house solutions which might make
it more difficult for us to sell products to them. We compete with third-party
content management solution providers, primarily Vignette, and, to a lesser
extent, with workgroup solutions, and content publishing application providers.
We may face increased competition from these providers in the future. Other
potential competitors include client/server software vendors which are
developing or extending existing products which address our market. In
addition, although we currently partner with a number of companies that provide
complementary products such as web tools, enterprise document repositories and
web servers, they may introduce competitive products in the future. Other large
software companies, such as Microsoft and IBM, may also introduce competitive
products. Many of our existing and potential competitors have greater
technical, marketing and financial resources than we do.

   We believe that competitive factors in the web content management industry
include:

  .  the quality, scalability and reliability of software;

  .  functionality that enables a broad base of contributors to add and
     modify web content;

  .  interoperability with all leading web authoring tools and web
     application servers based on industry standards;

  .  ability to provide advanced workflow functionality;

  .  the ability to leverage existing information technology infrastructure;
     and

  .  adherence to emerging industry standards, including XML.

   We believe our products compete favorably on each of these factors.


                                       38
<PAGE>

Proprietary Rights and Licensing

   Our success depends upon our ability to maintain the proprietary aspects of
our technology and operate without infringing 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. We seek to protect our source code for our software, documentation
and other written materials under trade secret and copyright laws. We currently
do not have any issued United States or foreign patents, but we have applied
for one U.S. patent. It is possible that a patent will not issue from our
currently pending patent application. These legal protections afford only
limited protection for our technology. Our license agreements impose certain
restrictions on our customers' ability to utilize our software. We also seek to
protect 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. There can be no assurance
that all employees or consultants have signed or could sign such agreements.
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 equally as important as 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 seriously harm 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 seriously harm 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 by us with respect to our current or future
products. We expect that developers of web-based commerce software products
will increasingly be subject to infringement claims as the number of products
and competitors in our industry segment grows and as the functionality of
products in different segments of the software industry increasingly overlaps.
Any such claims, with or without merit, could be time-consuming to defend,
result in costly litigation, divert management's attention and resources, cause
product shipment delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to us or at all. A successful infringement claim
against us and our inability to license the infringed technology or develop or
license technology with comparable functionality could seriously harm our
business, financial condition and operating results. See "Risk Factors--We
might not be able to protect and enforce our intellectual property rights."

Employees

   As of July 23, 1999, we had a total of 145 employees, including 60 in sales
and marketing, 28 in research and development, 41 in professional services and
16 in administration and finance. Of these employees, 143 were located in the
United States and 2 were located in the United Kingdom. None of our employees
is represented by a collective bargaining agreement, nor have we experienced
any work stoppage. We consider our relations with our employees to be good.

   Our future operating results depend in significant part on the continued
service of our key technical, sales and senior management personnel. Other than
as described in "Management--Employment and Severance

                                       39
<PAGE>

Agreements," none of these individuals is bound by an employment agreement. Our
future success also depends on our continuing ability to attract and retain
highly qualified technical, sales and senior management personnel. Competition
for these personnel is intense, and we may not be able to retain our key
technical, sales and senior management personnel or attract these personnel in
the future. We have experienced difficulty in recruiting qualified technical,
sales and senior management personnel, and we expect to experience these
difficulties in the future. If we are unable to hire and retain qualified
personnel in the future, this inability could seriously harm our business.

Facilities

   Our principal office occupies approximately 27,500 square feet in Sunnyvale,
California, under a lease that expires in May 2003. In addition, we also lease
sales and service offices in the metropolitan areas of Atlanta, Boston,
Chicago, London, Los Angeles, Seattle and Washington, D.C. In July, we moved
our services organization to expanded facilities located in approximately
12,600 square feet in Sunnyvale, California. Our lease for this facility
expires in December 2000. We believe that our existing facilities will not be
adequate for our current needs. We are currently in the process of locating
additional office space for expansion or relocation of our principal offices.
There can be no assurance that suitable additional or alternative space will be
available in the future on commercially reasonable terms.

Legal Proceedings

   We are not a party to any material legal proceedings. We could become
involved in litigation from time to time relating to claims arising out of our
ordinary course of business.

                                       40
<PAGE>

                                   MANAGEMENT

Executive Officers and Directors

   The following table presents information regarding our executive officers
and directors as of June 30, 1999.

<TABLE>
<CAPTION>
Name                         Age                     Position
----                         ---                     --------
<S>                          <C> <C>
Martin W. Brauns............ 39  President, Chief Executive Officer and Director
Peng T. Ong................. 36  Chairman of the Board and Vice President of
                                 Professional Services
David M. Allen.............. 40  Vice President and Chief Financial Officer
Michael A. Backlund......... 44  Vice President of Sales
Jeffrey E. Engelmann........ 37  Vice President of Business Development
Jack S. Jia................. 36  Vice President of Engineering
Jozef Ruck.................. 47  Vice President of Marketing
Kathryn C. Gould............ 49  Director
Mark W. Saul................ 37  Director
Mark C. Thompson............ 41  Director
Ronald E.F. Codd............ 43  Director
</TABLE>

   Martin W. Brauns has served as our President, Chief Executive Officer and
member of the Board of Directors since March 1998. Before joining Interwoven
Mr. Brauns served as President and Chief Operating Officer of Sqribe
Technologies, Inc., a software company from July 1997 to November 1997. From
March 1996 to June 1997 Mr. Brauns served in a number of positions, including
most recently as Vice President of North American Sales, at Informix Software,
Inc., a software company. From 1992 to January 1996, Mr. Brauns served as Vice
President of Worldwide Sales of Adaptec Inc., a hardware and software
manufacturer. Mr. Brauns holds a Bachelor of Science in international business
and a Master of Business Administration from San Jose State University.

   Peng T. Ong is our founder, Chairman of our Board of Directors and Vice
President of Professional Services. Prior to founding Interwoven, Mr. Ong was a
founder of Electric Classifieds, Inc., an Internet classifieds company, and its
Chief Architect from March 1994 to May 1995. From 1994 to December 1995, he
served as a consultant to Illustra Information Technologies, Inc., a software
company. Mr. Ong holds a Bachelor of Science in electrical engineering from the
University of Texas at Austin and a Master of Science in computer science from
the University of Illinois at Urbana-Champaign.

   David M. Allen has served as our Vice President and Chief Financial Officer
since joining Interwoven in March 1999. Before joining Interwoven Mr. Allen
served as Vice President and Chief Financial Officer of Object Systems
Integrators, Inc., a telecommunications network management company, from July
1996 to March 1999. From 1985 to July 1996, he served in a number of positions,
including most recently as Vice President and Chief Financial Officer, at
Telecommunications Techniques Corporation, a communications test equipment
manufacturing company. Mr. Allen holds a Bachelor of Science in accounting from
the University of Maryland.

   Michael A. Backlund has served as our Vice President of Worldwide Sales
since joining Interwoven in May 1998. From January 1997 to May 1998, Mr.
Backlund served in a number of positions at Computer Associates International,
a software company, including most recently as Vice President of Divisional
Sales. Prior to joining Interwoven, he was a founder of CMS Communications,
Inc., a telecommunications equipment company, and served in a number of
capacities from August 1986 to December 1996, including most recently as Vice
President of Sales and Marketing. Mr. Backlund holds a Bachelor of Arts and a
Master of Arts in economics from the University of Southern California.

   Jeffrey E. Engelmann has served as our Vice President of Business
Development since joining Interwoven in January 1999. Before joining Interwoven
Mr. Engelmann served as Executive Operations Officer of the Internet division
of IBM. From 1991 to December 1997, he served in a number of development,
consulting and

                                       41
<PAGE>

sales positions within IBM, including most recently as Business Unit Executive
of eBusiness Solution Sales. Mr. Engelmann holds a Bachelor of Science in
chemical engineering and an Bachelor of Arts in computer science from the
University of Wisconsin at Madison.

   Jack S. Jia has served in a variety of positions, including most recently as
our Vice President of Engineering, since joining Interwoven in January 1997.
Prior to joining Interwoven, Mr. Jia was a founder of V-Max America, Inc., a
computer distribution company, and served as the Chief Executive Officer from
June 1993 to October 1998. From May 1995 to January 1997, he served as a
Project Manager at Silicon Graphics, Inc., a computer systems company, and from
January 1993 to May 1995, he served in a number of senior engineering positions
at Sun Microsystems, Inc., a computer systems company. Mr. Jia holds a Bachelor
of Science in electrical engineering and a Master of Science in computer
science from the Northern Jiao-Tong University, Beijing, a Master of Science in
electrical engineering from Polytechnic University of New York, and a Master of
Business Administration from Santa Clara University.

   Jozef Ruck has served as our Vice President of Marketing since joining
Interwoven in March 1999. From April 1997 to April 1999, Mr. Ruck served in a
number of positions at Genesys Telecommunications Laboratories, a call center
software company, including most recently as Vice President of Customer
Marketing. From September 1994 to March 1997, he served in a number of
positions, including most recently as Western Region Sales Director, at Network
Appliance, Inc., a data storage company. Mr. Ruck holds a Bachelor of Science
in mechanical engineering from Oregon State University and a Master of Business
Administration from Santa Clara University.

   Kathryn C. Gould has been one of our directors since March 1998. She is a
founder of Foundation Capital, a venture capital firm, and has been a member
since December 1995. Since 1989, Ms. Gould has been a general partner of
Merrill, Pickard, Anderson & Eyre, a venture capital firm. Ms. Gould also
serves as a director of Documentum, Inc., a publicly held web-based software
application developer. Ms. Gould holds a Bachelor of Science in physics from
the University of Toronto and a Master of Business Administration from the
University of Chicago.

   Mark W. Saul has been one of our directors since July 1997. Since June 1996,
Mr. Saul has served as President and Chief Executive Officer and Chairman of
the Board of Acuity Corporation, a web-based customer interaction solutions
company. From May 1995 to May 1996, Mr. Saul was Vice President of Marketing
for Network Appliance, Inc. From March 1994 to May 1995, he served as Vice
President of World Wide Field Operations of Minerva Systems, Inc., a video
technology company. Mr. Saul holds a Bachelor of Arts in history and a Bachelor
of Science in engineering from Stanford University and a Master of Business
Administration from the Harvard Business School.

   Mark C. Thompson has been one of our directors since July 1999. Since 1988,
Mr. Thompson has served in a number of positions with Charles Schwab since
1988, a financial services center, including most recently Senior Vice
President and Executive Purchaser. Mr. Thompson holds a Master of Arts in media
from Stanford University.

   Ronald E.F. Codd is expected to begin serving as a member of our Board of
Directors after the completion of this offering. Mr. Codd has served as
President, Chief Executive Officer and a director of Momentum Business
Applications, Inc., a publicly held software company, since January 1999. From
September 1991 to December 1998, he served as Senior Vice President, Finance
and Administration, Chief Financial Officer and Secretary of PeopleSoft, Inc.,
an enterprise software developer and marketer. Mr. Codd also serves on the
board of directors of each of Adept Technology, Inc., a publicly held robotics
manufacturer, Information Advantage, Inc., a publicly held enterprise software
developer and marketer, and Intraware, Inc., a publicly held provider of
business to business ecommerce-based services. Mr. Codd holds a Bachelor of
Science in accounting from the University of California at Berkeley and a
Master of Management from the J.L. Kellogg Graduate School of Management
(Northwestern University).

     There are no family relationships among any of our directors or officers.

                                       42
<PAGE>

Board Composition

   We currently have six directors. Our amended and restated certificate of
incorporation, which will become effective upon the closing of this offering,
states that our board of directors will be divided into three classes: Class I,
the term for which will expire at the annual meeting of stockholders to be held
in 2000, Class II, the term for which will expire at the annual meeting of
stockholders to be held in 2001, and Class III, the term for which will expire
at the annual meeting of stockholders to be held in 2002. At each annual
meeting of stockholders after the initial classification, the successors to
directors whose terms have expired will be elected to serve from the time of
election and qualification until the third annual meeting following election.
The Class I directors are Messrs. Brauns and Saul; the Class II directors are
Mr. Peng and Ms. Gould; and the Class III directors will be Messrs. Thompson
and Codd.

   In addition, our bylaws, as they will be effective upon the closing of this
offering, provide that the authorized number of directors may be changed only
by resolution of the board of directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the total number of directors.

   This classification of the board of directors may have the effect of
delaying or preventing a change in control. See "Description of Capital Stock--
Anti-Takeover Provisions."

Board Committees

   Our board of directors has a compensation committee and an audit committee.

   Compensation Committee. The current members of our compensation committee
are Mr. Saul and Ms. Gould. The compensation committee reviews and makes
recommendations to our board concerning salaries and incentive compensation for
our officers and employees. The compensation committee also administers our
stock plans.

   Audit Committee. The current members of our audit committee are Messrs. Codd
and Thompson. Our audit committee reviews and monitors our financial statements
and accounting practices, makes recommendations to our board regarding the
selection of independent auditors and reviews the results and scope of the
audit and other services provided by our independent auditors.

Compensation Committee Interlocks and Insider Participation

   Except for Mr. Brauns' participation on the compensation committee from May
1998 to July 1999, none of the members of the compensation committee has at any
time since our formation been an officer or employee of Interwoven. No
executive officer of Interwoven currently serves, or in the past has served, as
a member of the board of directors or compensation committee of any entity that
has one or more executive officers serving on our board or compensation
committee. Prior to the creation of our compensation committee, all
compensation decisions were made by our full board. Neither Mr. Brauns nor Mr.
Peng participated in discussions by our board with respect to decisions bearing
on this respective compensation.

Director Compensation

   Our directors receive no cash compensation for their services as directors
but are reimbursed for their reasonable expenses in attending board and board
committee meetings.

   Each eligible director who is not our employee and who becomes a member of
our board on or after the completion of this offering will be granted an option
to purchase 20,000 shares of common stock under our 1999 Equity Incentive Plan,
unless that director has previously received an option grant before the
effective date. Mr. Codd and Mr. Thompson will each be granted an option to
purchase 20,000 shares of Common Stock under our 1998 Stock Option Plan before
the effective date. Ms. Gould and Mr. Saul will each be granted an option to
purchase 10,000 shares of Common Stock under the 1999 Equity Incentive Plan on
the effective date

                                       43
<PAGE>

of this offering. Immediately following each annual meeting of our
stockholders, each eligible director will automatically be granted an
additional option to purchase 10,000 shares under the plan if the director has
served continuously as a member of the board for at least one year. The options
will have 10-year terms and will terminate three months following the date the
director ceases to be one of our directors or consultants or 12 months if the
termination is due to death or disability. All options granted under the plan
will be fully vested and immediately exercisable as of the date of grant.

Executive Compensation

   The following table presents compensation information for 1998 paid to or
accrued by each person serving as our chief executive officer in 1998 and each
of our four other most highly compensated executive officers whose salary and
bonus for 1998 was more than $100,000.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                 Long Term
                                 Annual Compensation        Compensation Awards
                            ------------------------------ ---------------------
                                                 Other     Restricted Securities
Name and Principal                               Annual      Stock    Underlying
Positions                    Salary   Bonus   Compensation   Award     Options
------------------          -------- -------- ------------ ---------- ----------
<S>                         <C>      <C>      <C>          <C>        <C>
Martin W. Brauns........... $206,119 $100,000     $320     1,333,333       --
 President and Chief
  Executive Officer

Steven Farber..............   93,060      --       --            --        --
 President and Chief
  Executive Officer

John Chang.................  134,186   67,167      960           --     46,666
 Vice President of
  Marketing

Peng T. Ong................  114,315  125,000      --            --        --
 Chairman and Vice
  President of Professional
  Services

Michael A. Backlund........   80,826  100,000      --            --    156,666
 Vice President of Sales

Jack S. Jia................  104,988    3,000      960           --     96,666
 Vice President of
  Engineering
</TABLE>

   Mr. Farber's employment with us terminated as of August 1, 1998. Mr. Chang's
employment with us terminated as of March 31, 1999. The amounts listed under
the column captioned "Other Annual Compensation" represent payments in lieu of
health insurance premiums paid by us.

                             Option Grants in 1998

   The following table presents the grants of stock options under our 1996
Stock Option Plan and 1998 Stock Option Plan during 1998 to each person serving
as our chief executive officer and each of the persons listed in the Summary
Compensation Table.

   All options granted under the 1996 plan and 1998 plan are immediately
exercisable and are either incentive stock options or nonqualified stock
options. We have a right to repurchase the shares issued upon exercise of these
options at the original purchase price if they are unvested at the time the
grantee terminates employment with us. This repurchase right generally lapses
as to 25% of the shares on the first anniversary of the date of grant and the
remainder expire ratably over a 36-month period thereafter. We have also
granted nonqualified stock options that do not contain a repurchase right or
contain repurchase terms that are negotiated between the optionee and us.
Options expire 10 years from the first date of employment. Options were granted
at an exercise price equal to the fair market value of our common stock, as
determined by our board, on the date of grant. In 1998, we granted to our
employees and consultants options to purchase a total of 824,425 shares of our
common stock.

                                       44
<PAGE>

   Potential realizable values in the following table are computed by

  .  multiplying the number of shares of common stock subject to a given
     option by $    per share;

  .  assuming that the aggregate stock value derived from that calculation
     compounds at the annual 0%, 5% or 10% rates shown in the table for the
     entire 10 year term of the option; and

  .  subtracting from that result the aggregate option exercise price.

The 5% and 10% assumed annual rates of stock price appreciation are required by
the rules of the Securities and Exchange Commission and do not represent our
estimate or projection of future common stock prices.

<TABLE>
<CAPTION>
                                       Individual Grants
                         ---------------------------------------------
                                                                        Potential Realizable
                                                                          Value at Assumed
                         Number of   Percent of                         Annual Rates of Stock
                         Securities Total Options                        Price Appreciation
                         Underlying  Granted to   Exercise                 for Option Term
                          Options     Employees     Price   Expiration -----------------------
Name                      Granted      in 1998    Per Share    Date      0%      5%      10%
----                     ---------- ------------- --------- ---------- ------- ------- -------
<S>                      <C>        <C>           <C>       <C>        <C>     <C>     <C>
Martin W. Brauns........      --         -- %       $ --          --      $       $       $
Steven Farber...........      --         --           --          --
John Chang..............   46,666        5.7         0.18      3/5/08
Peng T. Ong.............      --         --           --          --
Michael A. Backlund.....  156,666       19.0         0.21     5/26/08
Jack S. Jia.............   23,333        2.8         0.18      3/5/08
                           13,333        1.6         0.18      5/7/08
                           60,000        7.3         0.21    10/15/08
</TABLE>

   Aggregate Option Exercises in 1998 and Option Values at December 31, 1998

   The following table presents the number of shares acquired and the value
realized upon exercise of stock options during 1998 and the number of shares of
common stock subject to "exercisable" and "unexercisable" stock options held as
of December 31, 1998 by each of the persons listed in the Summary Compensation
Table. Also presented are values of "in-the-money" options, which represent the
positive difference between the exercise price of each outstanding stock option
and an assumed initial public offering price of $  per share. Each of these
options was exercisable immediately upon grant, subject to our right to
repurchase the option shares at the exercise price upon termination of the
optionee's employment. The repurchase right generally expires as to 25% of the
shares on the first anniversary of the date of grant and the remainder expires
ratably over a 30-month period thereafter.

<TABLE>
<CAPTION>
                                                   Number of Securities         Value of Unexercised
                          Number of               Underlying Unexercised       In-the-Money Options at
                           Shares              Options at December 31, 1998       December 31, 1998
                         Acquired on  Value   ------------------------------- -------------------------
Name                      Exercise   Realized Exercisable(1) Unexercisable(1) Exercisable Unexercisable
----                     ----------- -------- -------------- ---------------- ----------- -------------
<S>                      <C>         <C>      <C>            <C>              <C>         <C>
Martin W. Brauns........       --      $--           --              --          $            $
Steven Farber...........   130,666                   --              --
John Chang..............       --
Peng T. Ong.............       --       --           --              --
Michael A. Backlund.....       --       --       156,666             --
Jack S. Jia.............                --        28,747         130,919
</TABLE>
---------------------
(1) Options granted under our stock option plans are generally exercisable
    immediately but the shares acquired upon exercise are subject to lapsing
    rights of repurchase at the exercise price. The heading "exercisable"
    refers to shares as to which our right of repurchase has lapsed. The
    heading "unexercisable" refers to shares that we still have the right to
    repurchase upon termination of the optionee's employment.

                                       45
<PAGE>

Employee Benefit Plans

   1996 Stock Option Plan. As of June 30, 1999, options to purchase 25,000
shares of common stock were outstanding under the 1996 Stock Option Plan and
options to purchase 616,574 shares had been exercised and remain subject to our
repurchase right. No additional options may be granted under this plan. Options
granted under the stock option plan are subject to terms substantially similar
to those described below with respect to options granted under the 1999 Equity
Incentive Plan.
   1998 Stock Option Plan. As of June 30, 1999, options to purchase 919,980
shares of common stock were outstanding under the 1998 Stock Option Plan,
options to purchase 784,034 shares remained available for issuance and options
to purchase 1,001,119 shares had been exercised and remain subject to our
repurchase right. No additional options may be granted under this plan. Options
granted under the stock option plan are subject to terms substantially similar
to those described below with respect to options granted under the 1999 Equity
Incentive Plan.

   1999 Equity Incentive Plan. The board has adopted the 1999 Equity Incentive
Plan and reserved 2,900,000 shares of common stock to be issued under this
plan. In addition, shares under the 1998 Stock Option Plan not issued or
subject to outstanding grants on the date of this prospectus and any shares
issued under these plans that are forfeited or repurchased by us or that are
issuable upon exercise of options that expire or become unexercisable for any
reason without having been exercised in full will be available for grant and
issuance under the equity incentive plan. Shares will again be available for
grant and issuance under the equity incentive plan that:

  .  are subject to issuance upon exercise of an option granted under the
     equity incentive plan that cease to be subject to the option for any
     reason other than exercise of the option;

  .  have been issued upon the exercise of an option granted under the equity
     incentive plan that are subsequently forfeited or repurchased by us at
     the original purchase price;

  .  are subject to an award granted pursuant to a restricted stock purchase
     agreement under the equity incentive plan that are subsequently
     forfeited or repurchased by us at the original issue price; or

  .  are subject to stock bonuses granted under the equity incentive plan
     that terminates without shares being issued.

   This plan will become effective on the consummation of this offering and
will terminate after 10 years, unless it is terminated earlier by our board.
The plan will authorize the award of options, restricted stock awards and stock
bonuses. No person will be eligible to receive more than 1,000,000 shares in
any calendar year under the plan other than a new employee who will be eligible
to receive no more than 1,500,000 shares in the calendar year in which the
employee commences employment.

   The plan will be administered by our compensation committee, all of the
members of which are "non-employee directors" under applicable federal
securities laws and "outside directors" as defined under applicable federal tax
laws. The compensation committee will have the authority to construe and
interpret the plan, grant awards and make all other determinations necessary or
advisable for the administration of the plan. Also, our non-employee directors
are entitled to receive automatic annual grants of fully vested options to
purchase shares of our common stock, as described under "Management--Director
Compensation."

   The plan will provide for the grant of both incentive stock options that
qualify under Section 422 of the Internal Revenue Code and nonqualified stock
options. Incentive stock options may be granted only to our employees or
employees of our parent or subsidiary, if any. All other awards other than
incentive stock options may be granted to employees, officers, directors,
consultants, independent contractors and advisors of ours or of our parent or
subsidiary, if any, provided the consultants, independent contractors and
advisors render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction. The exercise price of incentive
stock options must be at least equal to the fair market value of our common
stock on the date of grant. The exercise price of incentive stock options
granted to 10% stockholders must be at least equal to 110% of that value. The
exercise price of nonqualified stock options must be at least equal to 85% of
the fair market value of our common stock on the date of grant.

                                       46
<PAGE>

   Options may be exercisable only as they vest or may be immediately
exercisable with the shares issued subject to our right of repurchase that
lapses as the shares vest. In general, options will vest over a four-year
period. The maximum term of options granted under the plan is 10 years.

   Awards granted under the plan may not be transferred in any manner other
than by will or by the laws of descent and distribution. They may be exercised
during the lifetime of the optionee only by the optionee. The compensation
committee could determine otherwise and provide for these provisions in the
award agreement, but only with respect to awards that are not incentive stock
options. Options granted under the plan generally may be exercised for a period
of time after the termination of the optionee's service to us or to our parent
or subsidiary, if any. Options will generally terminate immediately upon
termination of employment for cause.

   The purchase price for restricted stock will be determined by our
compensation committee. Stock bonuses may be issued for past services or may be
awarded upon the completion of certain services or performance goals.

   If we are dissolved or liquidated or have a "change in control" transaction,
outstanding awards may be assumed or substituted by the successor corporation,
if any. In the discretion of the compensation committee the vesting of these
awards may accelerate upon one of these transactions.

   1999 Employee Stock Purchase Plan. The board has adopted the 1999 Employee
Stock Purchase Plan and has reserved 300,000 shares for issuance under this
plan.This plan will become effective one business day after consummation of
this offering. On each January 1, the aggregate number of shares reserved for
issuance under this plan will increase automatically by a number of shares
equal to 1% of our outstanding shares on December 31 of the preceding year. The
aggregate number of shares reserved for issuance under the plan may not exceed
3,000,000 shares. The plan will be administered by our compensation committee,
which will have the authority to construe and interpret the plan.

   Employees generally will be eligible to participate in the plan if they are
employed ten days before the beginning of an offering period and they are
customarily employed by us, or our parent or any subsidiaries that we
designate, for more than 20 hours per week and more than five months in a
calendar year and are not, and would not become as a result of being granted an
option under the plan, 5% stockholders of us or our designated parent or
subsidiaries.

   Under the plan, eligible employees will be permitted to acquire shares of
our common stock through payroll deductions. Eligible employees may select a
rate of payroll deduction between 2% and 15% of their compensation and are
subject to maximum purchase limitations. Participation in the plan will end
automatically upon termination of employment for any reason.

   Each offering period under the plan will be for two years and consist of
four six-month purchase periods. The first offering period is expected to begin
on the first business day on which price quotations for our common stock are
available on the Nasdaq National Market. Offering periods and purchase periods
will begin on February 1 and August 1 of each year. However, because the first
day on which price quotations for our common stock will be available on the
Nasdaq National Market may not be February 1 or August 1, the length of the
first offering period may be more or less than two years, and the length of the
first purchase period may be more or less than six months.

   The plan will provide that, in the event of our proposed dissolution or
liquidation, each offering period that commenced prior to the closing of the
proposed event shall continue for the duration of the offering period, provided
that the compensation committee may fix a different date for termination of the
plan. The purchase price for our common stock purchased under the plan is 85%
of the lesser of the fair market value of our

                                       47
<PAGE>

common stock on the first day of the applicable offering period or the last day
of the applicable purchase period. The compensation committee will have the
power to change the duration of offering periods without stockholder approval,
if the change is announced at least 15 days prior to the beginning of the
affected offering period.

   The plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code. Rights granted under the plan will
not be transferable by a participant other than by will or the laws of descent
and distribution.

   The plan will terminate 10 years from its inception, unless it is terminated
earlier under the terms of the plan. The board will have the authority to
amend, terminate or extend the term of the plan, except that no action may
adversely affect any outstanding shares previously purchased under the plan.
Except for the automatic annual increase of shares described above, stockholder
approval is required to increase the number of shares that may be issued or to
change the terms of eligibility under the plan. The board may make amendments
to the plan as it determines to be advisable if the financial accounting
treatment for the plan is different from the financial accounting treatment in
effect on the date the plan was adopted by the board.

   401(k) Plan. We sponsor a defined contribution plan intended to qualify
under Section 401 of the Internal Revenue Code, or a 401(k) plan. All employees
are generally eligible to participate and may enter the plan as of the first
day of each calendar month. Participants may make pre-tax contributions to the
plan of up to 15% of their eligible earnings, subject to a statutorily
prescribed annual limit. Each participant is fully vested in his or her
contributions and the investment earnings. Contributions to the plan by the
participants or by us, and the income earned on these contributions, are
generally not taxable to the participants until withdrawn. Contributions by us,
if any, are generally deductible by us when made. Participant and company
contributions are held in trust as required by law. Individual participants may
direct the trustee to invest their accounts in authorized investment
alternatives.

Employment and Severance Agreements

   Mr. Brauns, our President and Chief Executive Officer, entered into an
employment agreement with us in February 1998. This agreement establishes Mr.
Brauns' annual base salary of $250,000 and eligibility for benefits and bonuses
tied to our revenues. This agreement also provides for his election to the
Board of Directors as a condition of employment. This agreement continues until
it is terminated upon written notice by Mr. Brauns or by us. If his employment
is terminated by us for cause or if he voluntarily elects to terminate his
employment, we must pay his salary and other benefits through the date of his
termination. If his employment is terminated by us without cause or if he
terminates his employment under certain circumstances, we must pay his benefits
through the date of his termination and his salary for up to 12 additional
months after this date, unless Mr. Brauns is employed full-time by another
employer.

   Under this agreement, Mr. Brauns agreed to purchase 1,333,333 shares of
common stock at an exercise price of $0.18 per share. The shares purchased by
Mr. Brauns are subject to our right to repurchase the shares upon termination
of his employment. Our repurchase right expires ratably over a 48 month period.
Our repurchase right also expires as to all of the shares in the event that we
merge or consolidate with another entity or sell all or substantially all of
our assets.

   In connection with this stock purchase, we agreed to loan Mr. Brauns the
entire purchase price. This loan has been repaid in full. See "Related Party
Transactions--Loans to Executive Officers."

   Mr. Ong's offer letter, dated February 29, 1996, provided for an salary of
$48,000 commencing on March 1, 1996. Mr. Ong's employment is at will and may be
terminated at any time, with or without formal cause.

                                       48
<PAGE>

   Mr. Allen's offer letter, dated February 12, 1999, provides for an initial
salary of $140,000 commencing on March 3, 1999 and eligibility for an incentive
bonus of $35,000. The offer letter also provides for reimbursement for certain
relocation expenses. Mr. Allen received options to purchase 186,667 shares of
our common stock at an exercise price of $0.39 per share under the 1998 Stock
Option Plan, of which options to purchase 46,667 shares vest on March 3, 2000
and the remainder will vest ratably over a 36 month period thereafter. Half of
the unvested portion of these options will vest if we sell the company. Mr.
Allen's employment is at will and may be terminated at any time, with or
without formal cause.

   Mr. Backlund's offer letter, dated May 1, 1998, provides for an initial
salary of $135,000 commencing on May 26, 1999 and eligibility for an incentive
bonus of up to $100,000. The offer letter also provides for reimbursement for
certain relocation expenses. Mr. Backlund received options to purchase 156,667
shares of our common stock at an exercise price of $0.21 per share under the
1996 Stock Option Plan, of which options to purchase 39,167 shares vest on May
26, 1999 and the remainder will vest ratably over a 36 month period thereafter.
On January 28, 1999, Mr. Backlund received options to purchase an additional
66,667 shares of our common stock as a result of meeting certain revenue
objectives in 1998. Mr. Backlund's employment is at will and may be terminated
at any time, with or without formal cause.

   Mr. Engelmann's offer letter, dated December 11, 1998, provides for an
initial salary of $130,000 commencing on January 18, 1999 and eligibility for
an incentive bonus of up to $40,000. The offer letter also provides for
reimbursement for certain relocation expenses. Pursuant to the offer letter,
Mr. Engelmann purchased 183,333 shares of our common stock at the price of
$0.39 per share. The shares purchased by Mr. Engelmann are subject to our right
to repurchase all of the shares of common stock upon termination of his
employment. Our right to repurchase his shares at the original purchase price
upon termination lapses with respect to 45,833 shares on January 18, 2000, and
expires ratably as to the remaining shares over a 36 month period. The
repurchase right will expire as to half of the shares of common stock subject
to repurchase at any given time if we are acquired. If we terminate Mr.
Engelmann's employment without cause, we must pay him an amount equal to two
months base salary. Pursuant to the offer letter, on January 28, 1999, Mr.
Engelmann purchased an additional 86,667 shares of our common stock, subject to
attainment of certain individual and corporate objectives, and subject to the
same repurchase rights as described above. We loaned Mr. Engelmann $105,300
pursuant to a partial recourse secured promissory note representing the
purchase price for his shares, due in five years or earlier in the event of our
initial public offering, acquisition or Mr. Engelmann's termination of
employment, and bearing interest at the rate of 6% per year. Mr. Engelmann's
employment is at will and may be terminated at any time, with or without formal
cause.

   Mr. Jia's offer letter, dated January 6, 1997, provides for an initial
salary of $70,000 commencing January 27, 1997. Mr. Jia received options to
purchase 60,000 shares of our common stock at an exercise price of $0.09 per
share under the 1996 Stock Option Plan, of which options to purchase 15,000
shares vested on January 28, 1998 and the remainder will vest ratably over a 36
month period thereafter. Mr. Jia's employment is at will and may be terminated
at any time, with or without formal cause.

   Mr. Ruck's offer letter, dated February 18, 1999, provides for an initial
salary of $140,000 commencing March 15, 1999 and eligibility for an incentive
bonus of up to $60,000. Pursuant to the offer letter, Mr. Ruck purchased
320,000 shares of our common stock at the price of $0.39 per share. The shares
purchased by Mr. Ruck are subject to our right to repurchase all of the shares
of common stock upon termination of his employment. Our right to repurchase his
shares upon termination lapses with respect to 53,333 on March 15, 2000, and
expires ratably as to the remaining shares over a 36 month period. If we
terminate Mr. Ruck's employment without cause, within his first year of
employment, our right to repurchase his common stock will be limited to 160,000
shares. If we do not exercise our right to repurchase unvested shares, Mr. Ruck
may purchase the unvested shares at cost. On March 18, 1999, Mr. Ruck purchased
an additional 50,000 shares of our common stock, subject to the attainment of
certain individual and corporate objectives, and subject to the same repurchase
rights as described above. Also, pursuant to his offer letter, we loaned Mr.
Ruck $96,200 pursuant to a partial recourse secured promissory note
representing the purchase price for his shares, due in five

                                       49
<PAGE>

years or earlier in the event of our initial public offering, acquisition, or
Mr. Ruck's termination of employment, and bearing interest at the rate of 6%
per year. The loan will be recourse with respect to interest and a combination,
as determined by mutual agreement between the parties, of recourse and non-
recourse for the principal. Mr. Ruck's employment is at will and may be
terminated at any time, with or without formal cause.

   Mr. Chang's offer letter, dated January 20, 1997, provides for an initial
salary of $125,000 commencing February 3, 1997 and eligibility for incentive
bonus of up to $125,000. Mr. Chang received options to purchase 120,000 shares
of our common stock at an exercise price of $0.09 per share under the 1996
Stock Option Plan, of which 30,000 shares vested upon February 10, 1998 and the
remainder will vest ratably over a 36 month period thereafter. On April 13,
1998, we granted to Mr. Chang options to purchase an additional 46,667 shares
of our common stock, subject to the attainment of certain individual and
corporate objectives.

   Mr. Chang entered into a Confidential Separation Agreement and Release with
us in November 1998. This agreement establishes the terms and conditions of the
termination of his employment with us. Under the agreement, Mr. Chang's
employment was terminated as of March 31, 1999. In addition, the agreement
provides that we pay Mr. Chang $11,500 per month, plus a bonus of $64,167. Mr.
Chang's options to purchase common stock continued to vest through March 31,
1999.

   Mr. Farber's offer letter, dated June 14, 1997, provides for an initial
salary of $120,000. Mr. Farber received options to purchase 320,000 shares of
our common stock at an exercise price of $0.18 per share under the 1996 Stock
Option Plan, of which 80,000 shares vested on June 16, 1998 and the remainder
will vest ratably over a 36 month period thereafter.

   Mr. Farber entered into a Confidential Separation Agreement and Release with
us in February 1998. This agreement establishes the terms and conditions of the
termination of his employment with us. Under the agreement, Mr. Farber's
employment terminated as of August 1, 1998. In addition, the agreement provides
that we pay Mr. Farber $76,071. All 196,000 of Mr. Farber's options to purchase
common stock completely vested as of August 1998.

   Indemnification of Directors and Executive Officers and Limitation of
Liability

   Our certificate of incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages resulting from breach
of fiduciary duty as a director, except for liability:

  .  for any breach of the director's duty of loyalty to us or our
     stockholders;

  .  for acts or omissions not in good faith or that involve intentional
     misconduct or a knowing violation of law;

  .  under section 174 of the Delaware General Corporation Law regarding
     unlawful dividends and stock purchases; or

  .  for any transaction from which the director derived an improper personal
     benefit.

   These provisions are permitted under Delaware law.

   Our bylaws provide that:

  .  we must indemnify our directors and executive officers to the fullest
     extent permitted by Delaware law, subject to very limited exceptions;

  .  we may indemnify our other employees and agents to the same extent that
     we indemnify our directors and executive officers, unless otherwise
     required by law, our certificate of incorporation, bylaws or agreements;
     and

  .  we must advance expenses, as incurred, to our directors and executive
     officers in connection with a legal proceeding to the fullest extent
     permitted by Delaware law, subject to very limited exceptions.

                                       50
<PAGE>

   Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our current directors and executive
officers to give them additional contractual assurances regarding the scope of
the indemnification provided in our certificate of incorporation and bylaws and
to provide additional procedural protections. Presently, there is no pending
litigation or proceeding involving any of our directors, executive officers or
employees for which indemnification is sought, nor are we aware of any
threatened litigation that may result in claims for indemnification.

   We have liability insurance for our directors and officers.

                                       51
<PAGE>

                           RELATED PARTY TRANSACTIONS

   Other than the employment and severance agreements described in
"Management," and the transactions described below, since we were formed there
has not been nor is there currently proposed, any transaction or series of
similar transactions to which we were or will be a party:

  .  in which the amount involved exceeded or will exceed $60,000; and

  .  in which any director, executive officer, holder of more than 5% of our
     common stock or any member of their immediate family had or will have a
     direct or indirect material interest.

Preferred Stock Financings

   All of the share and per share purchase price numbers set forth in the
following paragraph represent actual shares sold and do not reflect the 2-for-3
reverse stock split of our common stock to be effected immediately prior to the
closing of this offering.

   In March and June 1996, we sold an aggregate of 1,800,000 shares of Series A
Preferred Stock at a purchase price of $0.20 per share. In May and June 1997,
we sold an aggregate of 3,039,505 shares of Series B Preferred Stock at a
purchase price of $1.2862 per share. In March 1998, we sold an aggregate of
6,241,619 shares of Series C Preferred Stock at a purchase price of $1.079076
per share. In October, November and December 1998, we sold an aggregate of
3,741,217 shares of Series D Preferred Stock at a purchase price of $1.87105
per share. In June 1999, we sold an aggregate of 3,394,719 shares of Series E
Preferred Stock at a purchase price of $5.66 per share.

   Purchasers of our preferred and common stock include, among others, the
following executive officers, directors and holders of more than 5% of our
outstanding stock. All of the share numbers in the following table reflect the
conversion of each outstanding share of Series A Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock into
two-thirds of a share of common stock and the conversion of each outstanding
share of Series B Preferred Stock into 0.7022705 of a share of common stock.

<TABLE>
<CAPTION>
                                             Shares of Preferred Stock
                                    -------------------------------------------
                                    Series                      Series  Series
                                       A    Series B  Series C     D       E
                                    ------- --------- --------- ------- -------
   <S>                              <C>     <C>       <C>       <C>     <C>
   Stockholder
   -----------
   Kathryn C. Gould
     Entities associated with
      Foundation Capital..........      --        --  2,480,419 613,896 146,666
   Entities associated with JK&B
    Capital.......................      --  1,310,408   650,153 485,233 132,861
   Entities associated with Draper
     Fisher Jurvetson.............  333,333   167,031   277,410 202,632   1,313
   Entities associated with Accel
    Partners......................      --        --  1,063,038 263,098  72,039
   Peng T. Ong....................   66,666       --        --      --      --
   Mark W. Saul...................   83,333    13,919       --      --      --
</TABLE>

   Ms. Gould, one of our directors, is a member of Foundation Capital and may
deemed to beneficially own the shares held by entities associated with
Foundation Capital. Mr. Ong disposed of his shares of Series A Preferred Stock
in 1997.

Warrants

   On January 9, 1997, in connection with a bridge financing, we issued
warrants to purchase shares of our Series B Preferred Stock with an exercise
price of $1.92932 per share to the following executive officers, directors and
holders of more than 5% of our outstanding stock:

<TABLE>
<CAPTION>
                                              Number of shares
   Warrant holder                            subject to warrant Expiration date
   --------------                            ------------------ ---------------
   <S>                                       <C>                <C>
   Mark W. Saul.............................        3,412       January 9, 2002
   Entities associated with Draper Fisher
    Jurvetson...............................       40,950       January 9, 2002
</TABLE>


                                       52
<PAGE>

   The number of shares of Series B Preferred Stock represented in this table
has been adjusted to reflect conversion to common stock. Each outstanding share
of Series B Preferred Stock is convertible into 1.0534057 shares of common
stock. These warrants have not been exercised but will expire upon the closing
of this offering.

   In March 1998, in connection with the Series C Preferred Stock financing, we
issued warrants to purchase shares of our Series C Preferred Stock with an
exercise price of $1.2862 per share to the following executive officers,
directors and holders of more than 5% of our outstanding stock. In October
1998, all warrants to purchase Series C Preferred Stock were exercised by their
respective holders in connection with the Series D Preferred Stock financing.

<TABLE>
<CAPTION>
                                                              Number of shares
   Warrant holder                                            subject to warrant
   --------------                                            ------------------
   <S>                                                       <C>
   Entities associated with Foundation Capital..............      317,075
   Entities associated with Accel Partners..................      204,478
   Entities associated with JK&B Capital....................      125,054
   Entities associated with Draper Fisher Jurvetson.........       53,360
</TABLE>

Loans to Executive Officers

   Martin W. Brauns. In March 1998 we loaned $240,000 to Mr. Brauns, our
President and Chief Executive Officer, secured by a promissory note and stock
pledge agreement, in connection with his purchase of 1,333,333 shares of our
common stock. The note accrued interest at a rate of 6% per year and was due
and payable on or before March 3, 2003. The note was full-recourse with respect
to 25% of the principal, plus any accrued interest. Mr. Brauns has paid the
note in full.

   Jeffrey E. Engelmann. In April 1999 we loaned an aggregate of $105,300 to
Mr. Engelmann, our Vice President of Business Development, secured by two
promissory notes and a stock pledge agreement, in connection with his purchase
of 270,000 shares of our common stock. The notes accrue interest at a rate of
6% per year and are each due and payable on or before April 19, 2004. The notes
are full-recourse with respect to 25% of the principal, plus any accrued
interest. Interest is payable annually. In the event of an initial public
offering of our common stock the principal sum of each note will become due and
payable in monthly installments over the remaining term of our right to
repurchase the shares. As of June 30, 1999, $106,504 remained outstanding under
this note.

   Jozef Ruck. In April 1999 we loaned an aggregate of $96,200 to Mr. Ruck, our
Vice President of Marketing, secured by two promissory notes and a stock pledge
agreement, in connection with his purchase of 246,666 shares of our common
stock. The notes accrue interest at a rate of 6% per year and are each due and
payable on or before April 2004. The notes are full-recourse with respect to
25% of the principal, plus any accrued interest. Interest is payable annually.
In the event of an initial public offering of our common stock the principal
sum of each note will become due and payable in monthly installments over the
remaining term of our right to repurchase the shares.. As of June 30, 1999,
$97,322 remained outstanding under this note.

                                       53
<PAGE>

                             PRINCIPAL STOCKHOLDERS

   The following table presents information as to the beneficial ownership of
our common stock as of June 30, 1999 and as adjusted to reflect the sale of the
common stock in this offering by:

  .  each stockholder known by us to be the beneficial owner of more than 5%
     of our common stock;

  .  each of our directors;

  .  each executive officer listed in the Summary Compensation Table; and

  .  all executive officers and directors as a group.

<TABLE>
<CAPTION>
                                                                Percentage of
                                                                   Shares
                                                  Number of      Outstanding
                                                    Shares    -----------------
                                                 Beneficially  Before   After
       Name of Beneficial Owner                     Owned     Offering Offering
       ------------------------                  ------------ -------- --------
<S>                                              <C>          <C>      <C>
Kathryn C. Gould (1)............................  3,240,981    17.3%        %
 Foundation Capital entities
  70 Willow Road, Suite 200
 Menlo Park, CA 94025

JK&B Capital entities (2).......................  2,578,655    13.8
 205 North Michigan Avenue, Suite 808
 Chicago, IL 60601

Peng T. Ong.....................................  1,933,333    10.3

Martin W. Brauns (3)............................  1,419,436     7.6

Accel Partners entities (4).....................  1,398,175     7.5
 One Palmer Square
 Princeton, NJ 08542-3718

Draper Fisher Jurvetson entities (5)............  1,022,668     5.5
 400 Seaport Court, Suite 250
 Redwood City, CA 94063

Michael A. Backlund (6).........................    223,332     1.2

Jack S. Jia (7).................................    173,332      *

Steven Farber...................................    186,634      *

Mark W. Saul (8)................................    123,997      *

John Chang......................................     74,166      *

Mark C. Thompson (9)............................     20,000      *

Ronald E.F. Codd (9)............................     20,000      *

All eleven directors and executive officers as a
 group (10)...................................    7,867,744    41.8%        %
</TABLE>
---------------------
(1) Includes 2,878,855 shares held by Foundation Capital, L.P., 91,960 shares
    held by Foundation Capital II Entrepreneurs Fund, L.L.C., 270,166 shares
    held by Foundation Capital II Principals Fund, L.L.C. Ms. Gould is a member
    of the Foundation Capital entities. Ms. Gould disclaims beneficial
    ownership of shares held by the Foundation Capital entities except to the
    extent of her pecuniary interest in this venture capital firm.

(2) Includes 1,800,630 shares held by JK&B Capital, L.P., and 778,026 shares
    held by JK&B Capital II, L.P.

(3) Includes 1,002,770 shares of common stock subject to our repurchase right.

(4) Includes 1,097,568 shares held by Accel V L.P., 145,410 shares held by
    Accel Internet/Strategic Technology Fund, L.P., 57,325 shares held by Accel
    Keiretsu V L.P., 67,112 held by Accel Investors "97 L.P. and 30,760 held by
    Ellmore C. Patterson Partners.

                                       54
<PAGE>

(5) Includes 1,022,668 shares held by Draper Fisher Associates Fund III and
    62,382 shares held by Draper Fisher Partners, LLC Includes 40,950 shares
    issuable upon the exercise of warrants to purchase shares of Series B
    Preferred Stock held by both entities.

(6) Includes 180,901 shares of common stock subject to our repurchase right.

(7) Includes 125,900 shares of common stock subject to our repurchase right.

(8) Includes 3,412 shares issuable upon the exercise of warrants to purchase
    shares of Series B Preferred Stock held by Mr. Saul.

(9) Represents 20,000 shares of common stock subject to our repurchase right.

(10) Includes 1,912,903 shares of common stock subject to our repurchase right.

   Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless indicated below, to our knowledge, the persons
and entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Shares of common stock subject to options and warrants that
are currently exercisable or exercisable within 60 days of June 30, 1999 are
deemed to be outstanding and to be beneficially owned by the person holding the
options or warrants for the purpose of computing the percentage ownership of
such person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Unless indicated above, the address
for each listed stockholder is c/o Interwoven, Inc., 1195 West Fremont Avenue,
Suite 2000, Sunnyvale, California 94087.

   The number of shares of common stock outstanding after this offering
includes shares of common stock being offered and does not include the shares
which are subject to the underwriters' over-allotment option. The percentage of
common stock outstanding as of June 30, 1999 is based on        shares of
common stock outstanding on that date, assuming that all outstanding preferred
stock has been converted into common stock.

                                       55
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

   Immediately following the closing of this offering, our authorized capital
stock will consist of 75,000,000 shares of common stock, $0.001 par value per
share, and 5,000,000 shares of preferred stock, $0.001 par value per share.

   Immediately before the closing of this offering, we will reincorporate in
the state of Delaware. Following the closing of this offering, we intend to
amend and restate our certificate of incorporation. Our certificate of
incorporation, bylaws and third amended and restated investors' rights
agreement, described below, are included as exhibits to the registration
statement of which this prospectus forms a part.

Common Stock

   As of June 30, 1999, there were 18,714,312 shares of common stock
outstanding held by 121 shareholders of record, including 12,420,390 shares
that will be issued upon conversion of all outstanding preferred stock and the
exercise and subsequent conversion to common stock of warrants to purchase
Series B Preferred Stock upon the closing of this offering.

   Dividend Rights. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive dividends out of assets legally available
at the times and in the amounts as our board may from time to time determine.

   Voting Rights. Each common stockholder is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election.

   No preemptive or similar rights. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.

   Right to receive liquidation distributions. Upon a liquidation, dissolution
or winding-up of Interwoven, the assets legally available for distribution to
stockholders are distributable ratably among the holders of the common stock
and any participating preferred stock outstanding at that time after payment of
liquidation preferences, if any, on any outstanding preferred stock and payment
of other claims of creditors. Each outstanding share of common stock is, and
all shares of common stock to be outstanding upon completion of this offering
will be, fully paid and nonassessable.

Preferred Stock

   Upon the closing of this offering, each outstanding share of preferred stock
will be converted into shares of common stock. See Note 6 of Notes to Financial
Statements for a description of this preferred stock.

   Following this offering, we will be authorized, subject to the limits
imposed by Delaware law, to issue preferred stock in one or more series, to
establish from time to time the number of shares to be included in each series,
to fix the rights, preferences and privileges of the shares of each wholly
unissued series and any of its qualifications, limitations or restrictions. The
board can also increase or decrease the number of shares of any series, but not
below the number of shares of such series then outstanding, without any further
vote or action by the stockholders.

   The board may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of the common stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, have the effect of delaying,
deferring or preventing a change in control and may adversely affect the market
price of our common stock and the voting and other rights of the holders of
common stock. We have no current plan to issue any shares of preferred stock.

                                       56
<PAGE>

Warrants

   As of June 30, 1999, we had outstanding the following warrants to purchase
our stock:

<TABLE>
<CAPTION>
                         Total number of
                         shares Subject  Exercise price
Type of stock              to Warrants     per share             Expiration date
-------------            --------------- -------------- ----------------------------------
<S>                      <C>             <C>            <C>
Series B Preferred
 Stock..................     96,049         $1.2862     upon consummation of this offering
Series B Preferred
 Stock..................     12,058          1.2862     September 2004
</TABLE>

   In July 1999 we issued warrants to purchase a total of 17,659 shares of
Series E Preferred Stock in connection with our acquisition of Lexington
Software Associates, Inc. The warrants are exercisable at a purchase price of
$5.66 per share after January 1, 2000 and until July 1, 2006. All holders of
warrants to purchase Series E Preferred Stock are afforded registration rights
pursuant to the Third Amended and Restated Investors Rights Agreement.

Registration Rights

   The holders of approximately 12,420,390 shares of common stock have the
right to require us to register their shares with the Securities and Exchange
Commission so that those shares may be publicly resold or to include their
shares in any registration statement we file.

 Right to demand registration

   At any time six months after this offering, these stockholders can request
that we file a registration statement so they can publicly sell their shares.
The underwriters of any underwritten offering will have the right to limit the
number of shares to be so included in a registration statement.

   Who may make a demand. At any time six months after the closing of this
offering, any holder of shares of common stock issued upon conversion of Series
B Preferred Stock immediately prior to this offering, any number of holders who
together hold an aggregate of at least 954,633 shares of common stock issued
upon conversion of Series C Preferred Stock immediately prior to this offering,
any number of holders who together hold an aggregate of at least 498,829 shares
of common stock issued upon conversion of Series D Preferred Stock immediately
prior to this offering, any number of holders who together hold an aggregate of
at least 452,628 shares of common stock issued upon conversion of Series E
Preferred Stock immediately prior to this offering, or the holders of at least
40% of the shares having registration rights, including certain holders of
Series A Preferred Stock, have the right to demand that we file a registration
statement on a form other than Form S-3, so long as the amount of securities to
be sold in that registration exceeds $5,000,000. If we are eligible to file a
registration statement on Form S-3, the same holders of the registration rights
described above will have the right to demand that we file a registration
statement on Form S-3, so long as the amount of securities to be sold in that
registration exceeds $1,000,000.

   Number of times holders can make demands. We will only be required to file
one registration statement on a form other than Form S-3 for each of two
registrations. If we are eligible to file a registration statement on Form S-3,
we are not required to file more than one registration statement during any 12
month period.

   Postponement. We may postpone the filing of a registration statement for up
to 90 days once in a 12 month period if we determine that the filing would be
seriously detrimental to us or our stockholders.

 Piggyback registration rights

   If we register any securities for public sale, the same stockholders with
registration rights described above will have the right to include their shares
in the registration statement. The underwriters of any underwritten offering
will have the right to limit the number of shares to be so included in a
registration statement.

                                       57
<PAGE>

 Expenses of registration

   We will pay all of the expenses relating to any demand or piggyback
registration. However, we will not pay for any expenses of any demand
registration if the request is subsequently withdrawn by the holders of a
majority of the shares having registration rights, subject to very limited
exceptions.

 Expiration of registration rights

   The registration rights described above will expire five years after this
offering is completed. The registration rights will terminate earlier with
respect to a particular stockholder if that holder owns less than 1% of our
outstanding securities or can resell all of its securities in a three month
period under Rule 144 of the Securities Act and we are subject to the reporting
requirements of the Securities Exchange Act of 1934.

Anti-Takeover Provisions

   The provisions of Delaware law, our certificate of incorporation and our
bylaws described below may have the effect of delaying, deferring or
discouraging another person from acquiring control of our company.

 Delaware Law

   We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents certain
Delaware corporations from engaging, under limited circumstances, in a
"business combination," which includes a merger or sale of more than 10% of the
corporation's assets, with any "interested stockholder," or a stockholder who
owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of stockholders, for three years following the date
that the stockholder became an "interested stockholder" unless:

  .  the transaction is approved by the board prior to the date the
     "interested stockholder" attained that status;

  .  upon the closing of the transaction that resulted in the stockholder's
     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; or

  .  on or subsequent to the date the "business combination" is approved by
     the board and authorized at an annual or special meeting of stockholders
     by at least two-thirds of the outstanding voting stock that is not owned
     by the "interested stockholder."

   A Delaware corporation may "opt out" of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not "opted out" of this provision. Section 203 could prohibit
or delay mergers or other takeover or change-in-control attempts and,
accordingly, may discourage attempts to acquire us.

 Charter and Bylaw Provisions

   Our amended and restated certificate of incorporation, to be filed upon the
closing of this offering, states that our board of directors is divided into
three classes. The directors in each class will serve for a three-year term,
with our stockholders electing one class each year. For more information on the
classification of our board, please see "Management--Board Composition." This
system of electing and removing directors may tend to discourage a third party
from making a tender offer or otherwise attempting to obtain control of us,
because it generally makes it more difficult for stockholders to replace a
majority of the directors.

   Our bylaws provide that any action required or permitted to be taken by our
stockholders at an annual meeting or a special meeting of the stockholders may
only be taken if it is properly brought before the meeting.

                                       58
<PAGE>

Our stockholders may not take any action by written consent instead of by a
meeting. Our certificate of incorporation provides that our board of directors
may issue preferred stock with voting or other rights without stockholder
action. Our bylaws and certificate of incorporation provide that special
meetings of the stockholders may only be called by our board, the chairman of
our board, our chief executive officer or our president.

   Our bylaws provide that we will indemnify officers and directors against
losses that they may incur in investigations and legal proceedings resulting
from their services to us, which may include services in connection with
takeover defense measures. These provisions may have the effect of preventing
changes in our management.

Indemnification of Directors and Executive Officers and Limitation of Liability

   Our certificate of incorporation limits the liability of directors to the
fullest extent permitted by Delaware law. In addition, our certificate of
incorporation and bylaws provide that we will indemnify our directors and
officers to the fullest extent permitted by Delaware law. We intend to enter
into separate indemnification agreements with our directors and executive
officers that provide them with indemnification protection in the event the
certificate of incorporation is subsequently amended.

   Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive officers against losses that they may incur in
investigations and legal proceedings resulting from their services to us, which
may include services in connection with takeover defense measures. These
provisions may have the effect of preventing changes in the management.

Transfer Agent and Registrar

   The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C., Ridgefield Park, New Jersey.

Listing

   We have applied for our common stock to be quoted on The Nasdaq Stock
Market's National Market under the symbol "IWOV."

                                       59
<PAGE>

                        SHARES ELIGIBLE FOR FUTURE SALE

   Sales of substantial amounts of our common stock, including shares issued
upon exercise of outstanding warrants or options, in the public market after
this offering could adversely affect market prices prevailing from time to time
and could impair our ability to raise capital through the sale of our equity
securities. Furthermore, as described below, no shares currently outstanding
will be available for sale immediately after this offering due to limited
contractual restrictions on resale. Sales of substantial amounts of our common
stock in the public market after these restrictions lapse could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.

   Upon completion of this offering, we will have outstanding     shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options. Of these shares, the     shares sold in
this offering will be freely tradable without restriction under the Securities
Act unless purchased by our "affiliates." The remaining shares will become
eligible for public sale as follows:

<TABLE>
<CAPTION>
                             Approximate
                              Number of
                               Shares
                              Eligible
                             for Future
           Date                 Sale                   Comment
           ----              -----------               -------
<S>                          <C>         <C>
Date of this prospectus               0  Freely tradable shares
181 days after the date of   15,690,149  Underwriters' lock-up released.
 this prospectus                         These shares may be sold under Rules
                                         144, 144(k) or 701
One year after the date of    2,484,404  These shares may be sold under Rules
 this prospectus                         144 or 701
At various times thereafter     539,759  These shares may be sold under Rules
                                         144 or 701
</TABLE>

 Lock-Up Agreements

   All of our officers and directors and substantially all of our stockholders
have signed lock-up agreements under which they agreed not to sell, dispose of,
loan, pledge or grant any rights with respect to any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock without the prior written consent of Credit Suisse First Boston
for a period of 180 days after the date of this prospectus.

   Credit Suisse First Boston may choose to release some of these shares from
these restrictions prior to the expiration of this 180-day period, though it
has no current intention to do so.

 Rule 144

   In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:

  .  1% of the number of shares of common stock then outstanding, which will
     equal approximately      shares immediately after this offering; or

  .  the average weekly trading volume of the common stock on the Nasdaq
     National Market during the four calendar weeks preceding the filing of a
     notice on Form 144 with respect to the sale.

   Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.

                                       60
<PAGE>

 Rule 144(k)

   Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, these shares may be sold immediately upon the completion of this
offering.

 Rule 701

   Any of our employees, officers, directors or consultants who purchased his
or her shares under a written compensatory plan or contract may be entitled to
sell his or her shares in reliance on Rule 701. Rule 701 permits affiliates to
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirements of Rule 144. Rule 701 further provides that non-affiliates
may sell these shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares are required to wait until 90 days
after the date of this prospectus before selling those shares. However, all
shares issued under Rule 701 are subject to lock-up agreements and will only
become eligible for sale when the 180-day lock-up agreements expire.

 Registration Rights

   Upon completion of this offering, the holders of 12,420,390 shares of common
stock, or their transferees, will be entitled to certain rights with respect to
the registration of those shares under the Securities Act. For a discussion of
these rights please see "Description of Capital Stock--Registration Rights."
After these shares are registered, they will be freely tradable without
restriction under the Securities Act.

 Stock Options

   Immediately after this offering, we intend to file a registration statement
under the Securities Act covering 3,200,000 shares of common stock reserved for
issuance under our stock option and employee stock purchase plans. As of June
30, 1999, options to purchase 944,980 shares of common stock were issued and
outstanding.

   Upon the expiration of the lock-up agreements described above, at least
      shares of common stock will be subject to vested options, based on
options outstanding as of June 30, 1999. This registration statement is
expected to be filed and become effective as soon as practicable after the
effective date of this offering. Accordingly, shares registered under this
registration statement will, subject to vesting provisions and Rule 144 volume
limitations applicable to our affiliates, be available for sale in the open
market immediately after the 180-day lock up agreements expire.

 Warrants

   As of June 30, 1999, we had outstanding warrants to purchase 72,071 shares
of common stock. When these warrants are exercised and the exercise price is
paid in cash the shares must be held for one year before they can be sold under
Rule 144. Warrants to purchase up to 72,071 shares of common stock contain "net
exercise provisions." These provisions allow a holder to exercise the warrant
for a lesser number of shares of common stock in lieu of paying cash. The
number of shares which would be issued in this case would be based upon the
market price of the common stock at the time of the net exercise. If the
warrant had been held for at least one year, the shares of common stock could
be publicly sold under Rule 144. After the lock-up agreements described above
expire, warrants to purchase 72,071 shares of our common stock, which also
contain net exercise provisions, will have been outstanding for at least one
year. On September  , 2000, and after, warrants to purchase any additional
shares of common stock on a net exercise basis will have been outstanding for
at least one year.

                                       61
<PAGE>

                                  UNDERWRITING

   Under the terms and subject to the conditions contained in the underwriting
agreement dated       , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, BancBoston Robertson
Stephens Inc. and Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated, are acting as representatives, the following respective numbers
of shares of common stock:

<TABLE>
<CAPTION>
                                                                      Number of
              Underwriter                                              Shares
              -----------                                             ---------
   <S>                                                                <C>
   Credit Suisse First Boston Corporation............................
   BancBoston Robertson Stephens Inc.................................
   Dain Rauscher Wessels.............................................
                                                                         ---
     Total...........................................................
                                                                         ===
</TABLE>

   The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

   We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to         additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.

   The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $  per share. The underwriters
and selling group members may allow a discount of $  per share on sales to
other broker/dealers. After the initial public offering, the public offering
price and concession and discount to broker/dealers may be changed by the
representatives.

   The following table summarizes the compensation and estimated expenses we
will pay.

<TABLE>
<CAPTION>
                                    Per Share                        Total
                          ------------------------------ -----------------------------
                              Without          With         Without          With
                          Over- allotment Over-allotment Over-allotment Over-allotment
                          --------------- -------------- -------------- --------------
<S>                       <C>             <C>            <C>            <C>
Underwriting Discounts
and
Commissions paid by us..        $              $              $              $
Expenses payable by us..        $              $              $              $
</TABLE>

   The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

   We, our officers and directors and our stockholders have agreed that we will
not offer, sell, contract to sell, announce our intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to any additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock without the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus, except in the case of issuances
pursuant to the exercise of employee stock options outstanding on the date
hereof.

                                       62
<PAGE>

   The underwriters have reserved for sale, at the initial public offering
price, up to     shares of common stock for employees, directors and other
persons associated with us who have expressed an interest in purchasing common
stock in the offering. The number of shares available for sale to the general
public in the offering will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the others shares.

   We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.

   We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "IWOV."

   In June 1999, we issued an aggregate of 3,394,719 shares of our Series E
Preferred Stock at a per share price of $5.66 in a private placement. Credit
Suisse First Boston Corporation acted as the placement agent for this private
placement, and it received a customary fee for its services. In addition,
Merchant Capital, Inc., an affiliate of Credit Suisse First Boston Corporation,
purchased 229,682 shares of Series E Preferred Stock. Such shares are
convertible into 153.121 shares of common stock, resulting in an effective
purchase price of $8.49 per share.

   Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include:

  . the information set forth in this prospectus and otherwise available to
    the underwriters;

  . the history and the prospects for the industry in which we will compete;

  . the ability of our management;

  . the prospects for our future earnings;

  . the present state of our development and our current financial condition;

  . the general condition of the securities markets at the time of this
    offering; and

  . the recent market prices of, and the demand for, publicly traded common
    stock of generally comparable companies.

   The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Exchange Act.

  . Over-allotment involves syndicate sales in excess of the offering size,
    which creates a syndicate short position.

  . Stabilizing transactions permit bids to purchase the underlying security
    so long as the stabilizing bids do not exceed a specified maximum.

  . Syndicate covering transactions involve purchases of the common stock in
    the open market after the distribution has been completed in order to
    cover syndicate short positions.

  . Penalty bids permit the representatives to reclaim a selling concession
    from a syndicate member when the common stock originally sold by such
    syndicate member is purchased in a syndicate covering transaction to
    cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

                                       63
<PAGE>

                          NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

   The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.

Representations of Purchasers

   Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws, (ii) where
required by law, that the purchaser is purchasing as principal and not as
agent, and (iii) the purchaser has reviewed the text above under "Resale
Restrictions."

Rights of Action (Ontario Purchasers)

   The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

Enforcement of Legal Rights

   All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or these persons. All or a substantial portion of the assets of
the issuer and these persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or these persons outside of Canada.

Notice to British Columbia Residents

   A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.

Taxation and Eligibility for Investment

   Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.

                                       64
<PAGE>

                                 LEGAL MATTERS

   Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the issuance of the shares of common stock offered by this prospectus. The
underwriters have been represented by Wilson Sonsini Goodrich & Rosati, Palo
Alto, California.

                                    EXPERTS

   The financial statement as of December 31, 1997 and 1998 and for each of the
three years in the period ended December 31, 1998 included in this Prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

                   WHERE YOU CAN FIND ADDITIONAL INFORMATION

   We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act with respect to the common
stock. This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules to the registration
statement. For further information with respect to us and our common stock, we
refer you to the registration statement and the exhibits and schedules filed as
a part of the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document are not
necessarily complete. If a contract or document has been filed as an exhibit to
the registration statement, we refer you to the copy of the contract or
document that has been filed. Each statement in this prospectus relating to a
contract or document filed as an exhibit is qualified in all respects by the
filed exhibit. The registration statement, including exhibits and schedules,
may be inspected without charge at the principal office of the Securities and
Exchange Commission in Washington, D.C., and copies of all or any part of it
may be obtained from that office after payment of fees prescribed by the
Securities and Exchange Commission. The Securities and Exchange Commission
maintains a web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Securities and Exchange Commission at http://www.sec.gov.

  We intend to provide our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports containing unaudited financial data for the first three
quarters of each year.

                                       65
<PAGE>

                                INTERWOVEN, INC.

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Report of Independent Accountants.......................................... F-2

Balance Sheet.............................................................. F-3

Statement of Operations.................................................... F-4

Statement of Changes in Stockholders' Deficit.............................. F-5

Statement of Cash Flows.................................................... F-6

Notes to Financial Statements.............................................. F-7
</TABLE>

                                      F-1
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

   The reincorporation described in Note 1 of the financial statements had not
been consummated at June 30, 1999. When it has been consummated, we will be in
a position to furnish the following report:

  "To the Board of Directors and
  Stockholders of Interwoven, Inc.

     In our opinion, the accompanying balance sheet and the related
  statements of operations, of stockholders' deficit and of cash flows
  present fairly, in all material respects, the financial position of
  Interwoven, Inc. (the "Company") at December 31, 1997 and 1998, and the
  results of its operations and its cash flows for each of the three
  years in the period ended December 31, 1998, in conformity with
  generally accepted accounting principles. 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 of these statements in accordance with
  generally accepted auditing standards, which 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, assessing the accounting
  principles used and significant estimates made by management, and
  evaluating the overall financial statement presentation. We believe
  that our audits provide a reasonable basis for the opinion expressed
  above."

  /s/ PricewaterhouseCoopers LLP

  San Jose, California
  July 15, 1999

                                      F-2
<PAGE>

                                INTERWOVEN, INC.

                                 BALANCE SHEET
               (in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                           December 31,               Pro Forma
                                         -----------------  June 30,  June 30,
                                          1997      1998      1999      1999
                                         -------  --------  --------  ---------
                                                                (unaudited)
<S>                                      <C>      <C>       <C>       <C>
                ASSETS
Current assets:
  Cash and cash equivalents............  $ 1,019  $  9,022  $ 25,203
  Accounts receivable, net.............      140     2,405     1,885
  Prepaid expenses.....................      --        179       230
  Other current assets.................       37        80       143
                                         -------  --------  --------
   Total current assets................    1,196    11,686    27,461
Property and equipment, net............      188     1,617     1,882
Restricted cash........................      --        605       605
                                         -------  --------  --------
                                         $ 1,384  $ 13,908  $ 29,948
                                         =======  ========  ========

  LIABILITIES, MANDATORILY REDEEMABLE
   CONVERTIBLE PREFERRED STOCK, AND
    STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable.....................  $   213  $    484  $  1,489
  Accrued liabilities..................      169     1,473     1,655
  Debt and leases, current.............       22       258       511
  Deferred revenue, current............       --       627     1,172
                                         -------  --------  --------
   Total current liabilities...........      404     2,842     4,827
  Debt and leases, long-term...........       87     1,257     1,000
  Deferred revenue, long-term..........      --         97       --
                                         -------  --------  --------
                                             491     4,196     5,827
                                         -------  --------  --------
Mandatorily redeemable convertible
 preferred stock 18,763,092 shares
 authorized, 18,455,184 shares issued
 and outstanding, actual; no shares
 authorized, issued or outstanding pro
 forma.................................    4,627    20,464    45,276  $    --
                                         -------  --------  --------  --------
Commitments (Note 4)
Stockholders' Equity (Deficit):
  Preferred stock, $0.001 par value, no
   shares authorized, issued or
   outstanding, actual; 5,000,000
   shares authorized, no shares issued
   or outstanding, pro forma...........      --        --        --        --
  Common Stock, 10,000,000, 16,666,667,
   26,666,667 (unaudited) and
   75,000,000 (unaudited) shares
   authorized, respectively; 2,433,333,
   4,909,232, 6,230,590 (unaudited) and
   18,642,241 (unaudited) shares,
   respectively, issued and
   outstanding.........................        3         5         6        19
  Additional paid-in capital...........       18     2,307     9,483    54,746
  Notes receivable from stockholders...       (3)     (240)     (202)     (202)
  Deferred stock-based compensation....      --     (1,090)   (6,130)   (6,130)
  Accumulated deficit..................   (3,752)  (11,734)  (24,312)  (24,312)
                                         -------  --------  --------  --------
   Total stockholders' equity
    (deficit)..........................   (3,734)  (10,752)  (21,155) $ 24,121
                                         -------  --------  --------  --------
                                         $ 1,384  $ 13,908  $ 29,948
                                         =======  ========  ========  ========
</TABLE>

                See accompanying notes to financial statements.

                                      F-3
<PAGE>

                                INTERWOVEN, INC.

                            STATEMENT OF OPERATIONS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                    Year Ended December      Six Months Ended
                                            31,                  June 30,
                                   ------------------------  -----------------
                                    1996    1997     1998     1998      1999
                                   ------  -------  -------  -------  --------
                                                               (unaudited)
<S>                                <C>     <C>      <C>      <C>      <C>
Revenues:
  License........................  $  --   $    84  $ 3,176  $   624  $  3,258
  Services.......................     --        84      827      262     1,746
                                   ------  -------  -------  -------  --------
    Total revenues...............     --       168    4,003      886     5,004
Cost of revenues:
  License........................     --       --        59      --        119
  Services.......................     --        95    1,274      350     1,429
                                   ------  -------  -------  -------  --------
    Total cost of revenues.......     --        95    1,333      350     1,548
Gross profit.....................     --        73    2,670      536     3,456
Operating expenses:
  Research and development.......     328      884    1,797      735     1,701
  Sales and marketing............     101    1,519    4,817    1,357     5,225
  General and administrative.....      91      530    1,739      572     1,244
  Amortization of deferred stock-
   based compensation............     --       --       812      347     1,668
                                   ------  -------  -------  -------  --------
    Total expenses...............     520    2,933    9,165    3,011     9,838
Loss from operations.............    (520)  (2,860)  (6,495)  (2,475)   (6,382)
Other income (expense), net......      10      (88)     151       57       154
                                   ------  -------  -------  -------  --------
Net loss.........................  $ (510) $(2,948) $(6,344) $(2,418) $ (6,228)
Accretion of mandatorily
 redeemable convertible preferred
 stock to redemption value.......     --      (261)  (1,165)    (583)   (6,350)
                                   ------  -------  -------  -------  --------
Net loss attributable to common
 stockholders....................  $ (510) $(3,209) $(7,509) $(3,001) $(12,578)
                                   ======  =======  =======  =======  ========
Basic and diluted net loss per
 share...........................  $(0.22) $ (1.36) $ (2.85) $ (1.25) $  (3.66)
                                   ======  =======  =======  =======  ========
Shares used in computing basic
 and diluted net loss per share..   2,282    2,356    2,633    2,404     3,435
                                   ======  =======  =======  =======  ========
Pro forma basic and diluted net
 loss per share..................                   $ (0.74)          $  (0.44)
                                                    =======           ========
Shares used in computing pro
 forma basic and diluted net loss
 per share.......................                     8,530             14,000
                                                    =======           ========
</TABLE>


                See accompanying notes to financial statements.

                                      F-4
<PAGE>

                                INTERWOVEN, INC.

                       STATEMENT OF STOCKHOLDERS' DEFICIT
                                 (in thousands)

<TABLE>
<CAPTION>
                                                        Note
                          Common Stock   Additional  Receivable    Deferred
                          --------------  Paid-In       from     Stock-Based  Accumulated
                          Shares  Amount  Capital   Stockholders Compensation   Deficit    Total
                          ------  ------ ---------- ------------ ------------ ----------- --------
<S>                       <C>     <C>    <C>        <C>          <C>          <C>         <C>
Balance at December 31,
 1995...................  1,933    $ 2     $   13      $ --        $   --      $    (33)  $    (18)
Issuance of Common Stock
 for cash...............    200     --          3        --            --           --           3
Issuance of Common Stock
 for notes receivable...    233     --          3         (3)          --           --         --
Net loss................    --      --        --         --            --          (510)      (510)
                          -----    ---     ------      -----       -------     --------   --------
Balance at December 31,
 1996...................  2,366      2         19         (3)          --          (543)      (525)
Repurchase of Common
 Stock..................    (33)    --         (5)       --            --           --          (5)
Issuance of Common Stock
 on exercise of stock
 options................    100      1          4        --            --           --           5
Accretion of mandatorily
 redeemable convertible
 preferred stock........    --      --        --         --            --          (261)      (261)
Net loss................    --      --        --         --            --        (2,948)    (2,948)
                          -----    ---     ------      -----       -------     --------   --------
Balance at December 31,
 1997...................  2,433      3         18         (3)          --        (3,752)    (3,734)
Issuance of Common Stock
 for notes receivable...  1,333      1        239       (240)          --           --         --
Note repayment..........    --      --        --           3           --           --           3
Repurchase shares of
 Series A mandatorily
 redeemable convertible
 preferred stock........    --      --        --         --            --          (473)      (473)
Accretion of mandatorily
 redeemable convertible
 preferred stock........    --      --        --         --            --        (1,165)    (1,165)
Issuance of Common Stock
 on exercise of stock
 options................  1,143      1        148        --            --           --         149
Deferred stock-based
 compensation...........    --      --      1,902        --         (1,902)         --         --
Amortization of stock-
 based compensation.....    --      --        --         --            812          --         812
Net loss................    --      --        --         --            --        (6,344)    (6,344)
                          -----    ---     ------      -----       -------     --------   --------
Balance at December 31,
 1998...................  4,909    $ 5     $2,307      $(240)      $(1,090)    $(11,734)  $(10,752)
                          =====    ===     ======      =====       =======     ========   ========
Issuance of Common Stock
 for services ..........      9     --         27        --            --           --          27
Issuance of Common Stock
 for
 notes receivable ......    517     --        202       (202)          --           --         --
Repurchase of Common
 Stock .................    (63)    --         (5)       --            --           --          (5)
Note repayment..........    --      --        --         240           --           --         240
Accretion of mandatorily
 redeemable convertible
 preferred stock........    --      --        --         --            --        (6,350)    (6,350)
Issuance of Common Stock
 on exercise of stock
 options ...............    859      1        244        --            --           --         245
Deferred stock-based
 compensation...........    --      --      6,708        --         (6,708)         --         --
Amortization of stock-
 based compensation ....    --      --        --         --          1,668          --       1,668
Net loss................    --      --        --         --            --        (6,228)    (6,228)
                          -----    ---     ------      -----       -------     --------   --------
Balance at June 30, 1999
 (unaudited)............  6,231    $ 6     $9,483      $(202)      $(6,130)    $(24,312)  $(21,155)
                          =====    ===     ======      =====       =======     ========   ========
</TABLE>

                See accompanying notes to financial statements.

                                      F-5
<PAGE>

                                INTERWOVEN, INC.

                            STATEMENT OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                Six Months
                                  Year Ended December 31,     Ended June 30,
                                  --------------------------  ----------------
                                   1996     1997      1998     1998     1999
                                  ------- --------  --------  -------  -------
                                                                (unaudited)
<S>                               <C>     <C>       <C>       <C>      <C>
Cash flows used in operating
 activities:
 Net loss........................ $ (510) $ (2,948) $ (6,344) $(2,418) $(6,228)
 Adjustments to reconcile net
  loss to net cash used in
  operating activities:
 Depreciation and amortization...     17        56       294       87      296
 Amortization of deferred stock-
  based compensation.............    --        --        812      347    1,668
 Issuance of common stock for
  services.......................    --        --        --       --        27
 Non-cash interest expense.......      7       135       --       --       --
 Provisions for doubtful
  accounts.......................    --        --        270      --        18
 Changes in assets and
  liabilities:
  Accounts receivable............    --       (140)   (2,535)    (435)     502
  Prepaid expenses and other
   assets........................     (1)      (30)     (222)     (31)    (114)
  Restricted cash................    --        --       (605)     --       --
  Accounts payable...............    116        96       271      583    1,005
  Accrued liabilities............     48       121     1,304      115      182
  Deferred revenue...............    --        --        724      169      448
                                  ------  --------  --------  -------  -------
   Net cash used in operating
    activities...................   (323)   (2,710)   (6,031)  (1,583)  (2,196)
                                  ------  --------  --------  -------  -------
Cash flows used in investing
 activities:
 Purchase of property and
  equipment......................    (64)     (138)   (1,723)  (1,258)    (561)
                                  ------  --------  --------  -------  -------
Cash flows from financing
 activities:
 Proceeds from (repurchases of)
  Series A Preferred Stock, net..    309       --       (632)    (632)     --
 Proceeds from Series B Preferred
  Stock, net.....................    --      3,415       --       --       --
 Proceeds from Series C Preferred
  Stock, net.....................    --        --      7,887    6,712      --
 Proceeds from Series D Preferred
  Stock, net.....................    --        --      6,944      --       --
 Proceeds from Series E Preferred
  Stock, net.....................    --        --        --       --    18,462
 Proceeds from issuance of Common
  Stock..........................      3       --        --       --       --
 Proceeds from exercise of stock
  options........................    --          5       149      123      245
 Proceeds from notes payable, net
  of discount....................     75       375       --       --       --
 Repayment (issuance) of
  stockholders loans.............     10       (11)        3      --       240
 Proceeds from bank borrowings...    --         76     1,500      --       --
 Repurchase of Common Stock......    --         (5)      --       --        (5)
 Principal payments of debt and
  leases.........................    --         (5)      (94)      (3)      (4)
                                  ------  --------  --------  -------  -------
   Net cash provided by financing
    activities...................    397     3,850    15,757    6,200   18,938
                                  ------  --------  --------  -------  -------
Net increase in cash and cash
 equivalents.....................     10     1,002     8,003    3,359   16,181
Cash and cash equivalents at
 beginning of period.............      7        17     1,019    1,019    9,022
                                  ------  --------  --------  -------  -------
Cash and cash equivalents at end
 of period....................... $   17  $  1,019  $  9,022  $ 4,378  $25,203
                                  ======  ========  ========  =======  =======
Supplemental cash flow
 disclosures:
 Cash paid for interest.......... $  --   $    --   $     41  $     9  $    64
                                  ======  ========  ========  =======  =======
Supplemental non-cash investing
 and finance activities:
 Property and equipment leases... $  --   $     38  $    --   $   --   $   --
                                  ======  ========  ========  =======  =======
 Issuance of Series A Preferred
  Stock upon conversion of
  stockholder loans.............. $   50  $    --   $    --   $   --   $   --
                                  ======  ========  ========  =======  =======
 Common Stock issued for notes
  receivable..................... $    3  $    --   $    240  $   240  $   202
                                  ======  ========  ========  =======  =======
 Common Stock issued for
  services....................... $  --   $    --   $    --   $   --   $    27
                                  ======  ========  ========  =======  =======
 Series B Preferred Stock issued
  upon conversion of convertible
  notes payable and accrued
  interest....................... $  --   $    460  $    --   $   --   $   --
                                  ======  ========  ========  =======  =======
 Issuance of warrants to purchase
  Series B Preferred Stock....... $  --   $    106  $    --   $   --   $   --
                                  ======  ========  ========  =======  =======
</TABLE>

                See accompanying notes to financial statements.

                                      F-6
<PAGE>

                                INTERWOVEN, INC.

                         NOTES TO FINANCIAL STATEMENTS
             Information as of June 30, 1999 and for the six months
                   ended June 30, 1998 and 1999 is unaudited

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 The Company

   Interwoven, Inc. (the "Company") is a provider of enterprise-scale content
management solutions. The Company's flagship product, TeamSite is specifically
designed to help companies rapidly and efficiently build, maintain and extend
mission-critical web sites and eBusiness initiatives.

 Reincorporation

   In June 1999, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware. As a result of the
reincorporation, the Company is authorized to issue 75,000,000 shares of $0.001
par value Common Stock and 5,000,000 shares of $0.001 par value Preferred
Stock. The Board of Directors has the authority to issue undesignated Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof. Share and per share information for each of the periods
presented has been retroactively adjusted to reflect the reincorporation.

 Unaudited interim results

   The accompanying interim financial statements as of June 30, 1999 and for
the six months ended June 30, 1998 and 1999 are unaudited. The unaudited
interim financial statements have been prepared on the same basis as the annual
financial statements and, in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the Company's financial position, results of operations and cash
flows for the six months ended June 30, 1998 and 1999. The financial data and
other information disclosed in these notes to financial statements related to
these periods are unaudited. The results for the six months ended June 30, 1999
are not necessarily indicative of the results to be expected for the year
ending December 31, 1999.

 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 amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.

 Revenue recognition

   In October 1997 and March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position No. 97-2, "Software Revenue
Recognition" ("SOP No. 97-2") and Statement of Position No. 98-4, "Deferral of
the Effective Date of a Provision of SOP No. 97-2" ("SOP No. 98-4"). SOP 98-4
defers for one year the application of certain provisions of SOP 97-2. In
December 1998, the AICPA issued Statement of Position No. 98-9, "Modification
of SOP No. 97-2 with Respect to Certain Transactions" ("SOP No. 98-9"), which
is effective for transactions entered into beginning April 1, 1999. SOP 98-9
extends the effective date of SOP 98-4 and provides additional interpretive
guidance. The adoption of SOP 97-2, SOP 98-4 and SOP 98-9 have not had and are
not expected to have a material impact on the Company's results of operations,
financial position or cash flows.

                                      F-7
<PAGE>

                                INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   The Company's revenues are derived from licenses of its software products
and from services the Company provides to its customers. Revenues are
recognized for the various contract elements based upon vendor-specific
objective evidence of fair value of each element.

   License revenues are recognized when persuasive evidence of an agreement
exists, the product has been delivered, no significant post-delivery
obligations remain, the license fee is fixed or determinable and collection of
the fee is probable. Provisions for sales returns are provided at the time of
revenue recognition based upon estimated returns.

   Services revenues consist of professional services and maintenance fees.
Professional services primarily consists of software installation and
integration, business process consulting and training. Professional services
are billed on a time and materials basis and revenues are recognized as the
services are performed. Maintenance agreements are typically priced based on a
percentage of the product license fee and have a one-year term, renewable
annually. Services provided to customers under maintenance agreements include
technical product support and unspecified product upgrades. Revenues from
maintenance agreements are recognized ratably over the term of the agreement,
which is typically one year.

 Cash and cash equivalents

   The Company considers all highly liquid investments with an original
maturity of three months or less at the date of acquisition to be cash
equivalents. Cash equivalents consist principally of money-market accounts that
are stated at historical cost, which approximates fair value.

 Concentration of credit risk

   Financial instruments, which potentially subject the Company to a
concentration of credit risk, consist primarily of cash and cash equivalents
and accounts receivable. The Company limits its exposure to credit loss by
placing its cash and cash equivalents with a major financial institution. The
Company's accounts receivable are derived from revenues earned from customers
located in the U.S. and are denominated in U.S. dollars. The Company performs
ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. The Company maintains an
allowance for doubtful accounts receivable based upon expected collectibility
of accounts receivable.

   The following table summarizes the revenues from customers in excess of 10%
of the total revenues.

<TABLE>
<CAPTION>
                                                                 Six Months
                                                Year ended          Ended
                                               December 31,       June 30,
                                               ---------------   -------------
                                                1997     1998    1998    1999
                                               ------   ------   -----   -----
                                                                 (unaudited)
   <S>                                         <C>      <C>      <C>     <C>
   Company A..................................     20%      --%     --%     --%
   Company B..................................     20%      --%     --%     --%
   Company C..................................     18%      --%     13%     --%
   Company D..................................     11%      --%     --%     --%
   Company E..................................     10%      --%     --%     --%
   Company F..................................     --%      13%     --%     --%
   Company G..................................     --%      --%     17%     --%
   Company H..................................     --%      --%     14%     --%
</TABLE>

   At December 31, 1997, Company A, B and C accounted for 25%, 22% and 21% of
total accounts receivable, respectively. At December 31, 1998, Company F
accounted for 10% of total accounts receivable. At June 30, 1999 (unaudited) no
customer accounted for 10% of total accounts receivable.

                                      F-8
<PAGE>

                                INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


 Fair value of instruments

   The Company's financial instruments including cash and cash equivalents,
accounts receivable, accounts payable, debt and capital lease obligations are
carried at cost, which approximate fair value due to the short-term maturity of
these instruments.

 Software development costs

   Software development costs incurred in the research and development of new
products and enhancements to existing products are charged to expense as
incurred. Software development costs are capitalized after technological
feasibility has been established. The period between achievement of
technological feasibility, which the Company defines as the establishment of a
working model, until the general availability of such software to customers,
has been short and software development costs qualifying for capitalization
have been insignificant. Accordingly, the Company has not capitalized any
software development costs since its inception.

 Capitalization of internal-use software costs

   In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use".  SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998
and provides guidance for the accounting of computer software developed or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company adopted the provisions of SOP
98-1 in its fiscal year beginning January 1, 1999.

 Property and equipment

   Property and equipment are stated at historical cost less accumulated
depreciation and amortization. Depreciation and amortization are computed using
the straight-line method over the useful lives of the assets, generally five
years or less, or the shorter of the lease term or the estimated useful lives
of the assets, if applicable.

 Impairment of long-lived assets

   The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." SFAS No. 121 requires recognition of impairment of long-
lived assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributed to such assets.

 Stock-based compensation

   The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB 25, compensation expense is based on the difference,
if any, on the date of grant between fair value of the Company's stock and the
exercise price. The Company accounts for stock issued to non-employees in
accordance with the provisions of SFAS No. 123 and the Emerging Issues Task
Force Consensus on Issue No. 96-18.

                                      F-9
<PAGE>

                                INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


 Income taxes

   Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets are
based on provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. The measurement of deferred tax assets
is reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.

 Net loss per share

   The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin ("SAB") No. 98. Under
the provisions of SFAS No. 128 and SAB No. 98, basic net loss per share is
computed by dividing the net loss attributed to common stockholders for the
period by the weighted average number of shares of Common Stock outstanding
during the period excluding shares of Common Stock subject to repurchase. Such
shares of Common Stock subject to repurchase aggregated 73,333, 1,737,435,
1,527,472 (unaudited), and 1,997,580 (unaudited) as of December 31, 1997 and
1998 and June 30, 1998 and 1999, respectively.

   The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                       Year Ended December       Six Months
                                               31,             Ended June 30,
                                       ----------------------  ---------------
                                        1996    1997    1998    1998    1999
                                       ------  ------  ------  ------  -------
                                                                (unaudited)
   <S>                                 <C>     <C>     <C>     <C>     <C>
   Numerator:
     Net loss attributable to common
      stockholders...................    (510) (3,209) (7,509) (3,001) (12,578)
   Denominator:
     Weighted average shares.........   2,282   2,405   3,949   3,360    5,549
     Weighted average unvested shares
      of Common Stock subject to
      repurchase.....................      --     (49) (1,316)   (956)  (2,114)
                                       ------  ------  ------  ------  -------
     Denominator for basic and
      diluted calculation............   2,282   2,356   2,633   2,404    3,435
   Net loss per share:
     Basic and diluted...............  ($0.22) ($1.36) ($2.85) ($1.25) ($ 3.66)
                                       ======  ======  ======  ======  =======
</TABLE>

                                      F-10
<PAGE>

                                INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   The following table sets forth potential shares of Common Stock that are not
included in the diluted net loss per share calculation above because to do so
would be anti-dilutive for the periods indicated (in thousands):

<TABLE>
<CAPTION>
                                                                    Six Months
                                                    Year Ended      Ended June
                                                   December 31,        30,
                                                 ----------------- ------------
                                                 1996  1997  1998  1998   1999
                                                 ----- ----- ----- ----- ------
                                                                   (unaudited)
<S>                                              <C>   <C>   <C>   <C>   <C>
Weighted average effect of Common Stock
 equivalents....................................
  Series A Preferred Stock......................   796 1,200   878 1,010    747
  Series B Preferred Stock......................    -- 1,235 2,107 2,079  2,135
  Series C Preferred Stock......................    --    -- 3,092 2,023  4,773
  Series D Preferred Stock......................    --    --   359    --  2,494
  Series E Preferred Stock......................    --    --    --    --    344
  Warrants to purchase mandatorily redeemable
   convertible preferred stock..................     1    66    71    70     72
  Shares of Common Stock subject to repurchase..    --    49 1,316   956  2,114
  Common Stock options..........................   250 1,480 1,870 2,148  1,074
                                                 ----- ----- ----- ----- ------
                                                 1,047 4,030 9,693 8,286 13,753
                                                 ===== ===== ===== ===== ======
</TABLE>

 Pro forma net loss per share (unaudited)

   Pro forma net loss per share is computed using the weighted average number
of shares of Common Stock outstanding, including the pro forma effects of the
exercise of warrants to purchase Series B Preferred Stock and automatic
conversion of the Company's Series A, B, C, D and E Preferred Stock into shares
of the Company's Common Stock effective upon the closing of the Company's
initial public offering as if such conversion occurred at the beginning of the
period, or at the date of issuance, if later. The resulting pro forma
adjustment for the year ended December 31, 1998 and the six months ended June
30, 1999 includes (i) an increase in the weighted average shares used to
compute the basic net loss per share of 5,896,280 and 10,564,993 (unaudited),
respectively, and (ii) a decrease in the net loss attributable to common
stockholders for the accretion of mandatorily redeemable convertible preferred
stock of $1,165,000 and $6,350,000 (unaudited), respectively. The calculation
of diluted net loss per share excludes potential shares of Common Stock as
their effect would be antidilutive. Pro forma potential Common Stock consists
of Common Stock subject to repurchase rights and incremental shares of Common
Stock issuable upon the exercise of stock options.

 Pro forma stockholders' equity (unaudited)

   Effective upon the closing of the Company's initial public offering, the
outstanding shares of Series A, B, C, D and E Preferred Stock will
automatically convert into 746,664, 2,134,548, 4,773,161, 2,494,142, and
2,263,136 shares of Common Stock, respectively. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro
forma balance sheet at June 30, 1999.

 Comprehensive income

   Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. As of December 31, 1998 and June 30,
1999, the Company had not had any transactions that are required to be reported
in comprehensive income.

                                      F-11
<PAGE>

                                INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


 Segment information

   Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosure About Segments of an Enterprise and Related Information." The
Company identifies its operating segment based on business activities,
management responsibility and geographic location. During all periods
presented, the Company operated in a single business segment.

 Reclassifications

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

NOTE 2--BALANCE SHEET COMPONENTS (in thousands):

<TABLE>
<CAPTION>
                                                         December
                                                            31,
                                                        -----------   June 30,
                                                        1997  1998      1999
                                                        ---- ------  -----------
                                                                     (unaudited)
   <S>                                                  <C>  <C>     <C>
   Accounts receivable, net:
     Accounts receivable............................... $140 $2,675    $2,173
     Less: Allowance for doubtful accounts.............  --    (270)     (288)
                                                        ---- ------    ------
                                                        $140 $2,405    $1,885
                                                        ==== ======    ======
</TABLE>

   There were no write-offs against the allowance for doubtful accounts in the
years ended December 31, 1997 and 1998 and for the six months ended June 30,
1999 (unaudited).

<TABLE>
<CAPTION>
                                                      December
                                                         31,
                                                     ------------   June 30,
                                                     1997   1998      1999
                                                     ----  ------  -----------
                                                                   (unaudited)
   <S>                                               <C>   <C>     <C>
   Property and equipment, net:
     Computer equipment and purchased software...... $254  $  952    $1,505
     Furniture and fixtures.........................   10     586       590
     Leasehold improvements.........................  --      449       453
                                                     ----  ------    ------
                                                      264   1,987     2,548
     Less: Accumulated depreciation and
      amortization..................................  (76)   (370)     (666)
                                                     ----  ------    ------
                                                     $188  $1,617    $1,882
                                                     ====  ======    ======
</TABLE>

   Property and equipment includes $38,000, $23,000 and $23,000 (unaudited) of
fixed assets under capital leases at December 31, 1997 and 1998 and June 30,
1999, respectively. Accumulated depreciation of such assets was $7,000, $8,000
and $12,000 (unaudited) at December 31, 1997 and 1998 and June 30, 1999,
respectively.

<TABLE>
<CAPTION>
                                                          December
                                                             31,
                                                         -----------  June 30,
                                                         1997  1998     1999
                                                         ---- ------ -----------
                                                                     (unaudited)
   <S>                                                   <C>  <C>    <C>
   Accrued liabilities:
     Payroll and related expenses....................... $ 59 $1,247   $1,063
     Other..............................................  110    226      592
                                                         ---- ------   ------
                                                         $169 $1,473   $1,655
                                                         ==== ======   ======
</TABLE>


                                      F-12
<PAGE>

                                INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

NOTE 3--DEBT:

   In June 1999, the Company amended a financing agreement (the "Financing
Agreement") originally entered into in June 1998, whereby the bank will loan up
to 80% of eligible accounts receivable up to a maximum of $3,000,000
(unaudited) for working capital purposes. Working capital advances accrue
interest at the bank's prime rate and are payable monthly with principal due
one year subsequent to the date of any advance. The Financing Agreement
provides for additional borrowings of up to $1,500,000 to finance equipment
purchases. Advances for equipment purchases accrue interest at the bank's prime
rate plus .25% and advances are payable monthly for one year subsequent to the
date of any advance. Thereafter, the outstanding balance will be due in 36
monthly installments. The Agreement requires the Company to comply with certain
financial covenants. The Company was in compliance with all covenants at
December 31, 1998 and for the six months ended June 30, 1999 (unaudited).

   Future minimum principal payments under the Financing Agreement are as
follows (in thousands):

<TABLE>
   <S>                                                                    <C>
   Year Ending December 31,
     1999................................................................ $  250
     2000................................................................    500
     2001................................................................    500
     2002................................................................    250
                                                                          ------
                                                                          $1,500
                                                                          ======
</TABLE>

   In January 1997, the Company issued $375,000 of convertible promissory notes
payable. The notes bore interest at 6% per year. In connection with the
issuance of the notes, the Company issued to the note holders warrants to
purchase 82,219 shares of Series B Preferred Stock at $1.29 per share. The
warrants expire at the earlier of November 2001 or upon an initial public
offering of the Company's Common Stock. The Company recorded a $94,000 discount
to the notes for the value of the warrants, which was recognized in 1997 as
additional interest expense.

   In May 1997, the principal amounts and accrued interest outstanding for the
notes were converted into 357,182 shares of Series B Preferred Stock (see Note
6).

NOTE 4--COMMITMENTS:

   The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through May 2003. Rent expense
for the year ended December 31, 1997 and 1998 and for the six months ended June
30, 1998 and 1999 totaled $52,000, $557,000, $96,000 (unaudited) and $325,000
(unaudited), respectively.

                                      F-13
<PAGE>

                                INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   Future minimum lease payments under noncancelable operating and capital
leases, as of December 31, 1998, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                    Capital Operating Sublease
                                                    Leases   Leases    Income
                                                    ------- --------- --------
   <S>                                              <C>     <C>       <C>
   Year Ending December 31,
     1999..........................................   $10    $  938     $356
     2000..........................................     7       951      211
     2001..........................................    --       979       --
     2002..........................................    --     1,009       --
     2003..........................................    --       426       --
                                                      ---    ------     ----
     Total minimum lease payments and sublease
      income.......................................    17    $4,303     $567
                                                      ===    ======     ====
     Less: Amount representing interest............     2
                                                      ---
     Present value of capital lease obligations....   $15
                                                      ===
</TABLE>

 Restricted cash

   During fiscal 1998, $605,000 of cash was pledged as collateral on an
outstanding letter of credit relating to the building lease agreement and is
classified as restricted cash on the balance sheet. The restricted cash will be
reduced by $226,875 on the 31st month after the signing of the agreement
provided no event of default has occurred. The Company was in compliance with
all such covenants at December 31, 1998 and June 30, 1999 (unaudited).

NOTE 5--INCOME TAXES:

   At December 31, 1998, the Company had approximately $7,181,000 of federal
and $1,178,000 of state net operating tax loss carryforwards available to
reduce future taxable income which expire in 2015 and 2010 for federal and
state tax purposes, respectively. Under the Tax Reform Act of 1986, the amounts
of and benefits from net operating loss carryforwards may be impaired or
limited in certain circumstances. Events which cause limitations in the amount
of net operating losses that the Company may utilize in any one year include,
but are not limited to, a cumulative ownership change of more than 50%, as
defined, over a three year period.

   Deferred tax assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                    December 31,
                                                   ----------------   June 30,
                                                    1997     1998       1999
                                                   -------  -------  -----------
                                                                     (unaudited)
   <S>                                             <C>      <C>      <C>
   Deferred tax assets:
     Net operating loss carryforwards............. $ 1,105  $ 2,882    $ 4,250
     Accruals and reserves........................      61      235        250
     Research credits.............................      40      120        150
     Depreciation.................................      60      128        150
                                                   -------  -------    -------
                                                     1,266    3,365      4,800
   Valuation allowance............................  (1,266)  (3,365)    (4,800)
                                                   -------  -------    -------
   Net deferred tax assets........................ $   --   $   --     $    --
                                                   =======  =======    =======
</TABLE>

                                      F-14
<PAGE>

                                INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   For financial reporting purposes, the Company has incurred a loss in each
year since its inception. Based on the available objective evidence, management
believes it is more likely than not that the net deferred tax assets will not
be fully realizable. Accordingly, the Company has provided for a full valuation
allowance against its net deferred tax assets at December 31, 1997 and 1998 and
June 30, 1999 (unaudited).

NOTE 6--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:

   At December 31, 1998, mandatorily redeemable convertible preferred stock
consists of the following (in thousands):

<TABLE>
<CAPTION>
                                          Shares
                                  ---------------------- Liquidation Redemption
   Series                         Authorized Outstanding   Amount      Amount
   ------                         ---------- ----------- ----------- ----------
   <S>                            <C>        <C>         <C>         <C>
   Series A Preferred Stock......    1,120      1,120      $   224    $   626
   Series B Preferred Stock......    3,142      3,040        3,909      4,756
   Series C Preferred Stock......    7,160      7,160        7,726      7,989
   Series D Preferred Stock......    3,741      3,741        7,000      7,093
                                    ------     ------      -------    -------
                                    15,163     15,061      $18,859    $20,464
                                    ======     ======      =======    =======
</TABLE>

   At June 30, 1999 (unaudited), mandatorily redeemable convertible preferred
stock consists of the following (in thousands):

<TABLE>
<CAPTION>
                                          Shares
                                  ---------------------- Liquidation Redemption
   Series                         Authorized Outstanding   Amount      Amount
   ------                         ---------- ----------- ----------- ----------
   <S>                            <C>        <C>         <C>         <C>
   Series A Preferred Stock......    1,120      1,120      $   224    $ 1,095
   Series B Preferred Stock......    3,142      3,040        3,909      6,072
   Series C Preferred Stock......    7,160      7,160        7,726     10,987
   Series D Preferred Stock......    3,741      3,741        7,000      8,660
   Series E Preferred Stock......    3,600      3,395       19,214     18,462
                                    ------     ------      -------    -------
                                    18,763     18,456      $38,073    $45,276
                                    ======     ======      =======    =======
</TABLE>


   The holders of Series A, B, C, and D Preferred Stock have certain rights and
privileges as follows:

 Warrants

   The Company issued warrants to purchase 20,409, 82,219 and 5,480 in 1996,
1997 and 1998, respectively, shares of Series B Preferred Stock at $1.29 per
share to the holders of the warrants. The warrants expire at the earlier of
November 2001 or upon an initial public offering of the Company's Common Stock.

 Voting

   Each share of Series A, B, C, and D Preferred Stock has voting rights
equivalent to Common Stock on an "as if" converted basis.

 Dividends

   Holders of Series A, B, C and D Preferred Stock are entitled to receive non-
cumulative annual dividends of $0.01, $0.10, $0.09 and $0.15 per share,
respectively, when and if declared by the Company's Board of Directors.
Dividends on the Series A, B, C and D Preferred Stock shall be payable in
preference and prior to

                                      F-15
<PAGE>

                                INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

any payment of any dividend on the Common Stock. The holders of the Series A,
B, C and D will also be entitled to participate in dividends on the Common
Stock, when and if declared by the Board of Directors, on an as-converted to
Common Stock basis. No dividends have been declared from inception through
December 31, 1998.

 Liquidation

   In the event of any liquidation, dissolution, winding up or merger where
less than 50% of the voting power is maintained by the Company, the holders of
the Series A, B, C, and D Preferred Stock shall be entitled to receive, prior
and in preference to any distribution to the holders of the Common Stock, an
amount equal to $0.20, $1.29, $1.08 and $1.87 per share, respectively, plus any
declared but unpaid dividends. Any amounts remaining after such distribution
shall be distributed among the holders of Series B, C and D Preferred Stock,
and Common Stock on an "as if" converted basis until the holders of Series B, C
and D Preferred Stock have received an aggregate liquidation payment of $2.57,
$2.16 and $2.81, thereafter any remaining amounts shall be distributed among
the holders of Common Stock.

 Redemption

   Upon the request of holders of at least 50% of the outstanding shares of
Series A, B, C or D Preferred Stock, the shares of all of the preferred stock
may be redeemed in four equal installments beginning in May 2002. The
redemption price for Series A, B, C and D Preferred Stock will be the greater
of the original issuance price for Series A, B, C and D Preferred Stock, $0.20,
$1.29, $1.08 and $1.87 per share, respectively, plus any undeclared and unpaid
dividends and an amount equal to that amount which would result in the holder
of such shares realizing an 8% annually compounded return on the purchase price
or the fair market value of Series A, B, C and D Preferred Stock on the first
redemption date.

 Conversion

   Each share of Series A, C, and D Preferred Stock is convertible at the
option of the holder into two-thirds of a share of Common Stock at any time,
subject to adjustment for antidilution. Each share of Series B Preferred Stock
is convertible at the option of the holders into .7022705 of a share of Common
Stock at any time, subject to adjustment for antidilution. Each share of Series
A, B, C and D Preferred Stock will be automatically converted upon an initial
public offering of the Company's Common Stock with aggregate proceeds in excess
of $20,000,000 and a price per share of not less than $5.79. The Company has
reserved sufficient shares of Common Stock for issuance upon conversion of the
Series A, B, C and D Preferred Stock.

 Series E Preferred Stock

   Each share of Series E Preferred Stock has voting rights equivalent to
Common Stock on an "as if" converted basis. Holders of Series E Preferred Stock
are entitled to receive non-cumulative annual dividends of $0.45 per share,
when and if declared by the Company's Board of Directors. Dividends on the
Preferred Stock shall be payable in preference and prior to any payment of any
dividend on the Common Stock. The holders of the Series E Preferred Stock will
also be entitled to participate in dividends on the Common Stock, when and if
declared by the Board of Directors, based on the number of shares of Common
Stock held on an as-converted basis. No dividends have been declared from
inception through June 30, 1999 (unaudited).

   In the event of any liquidation, dissolution, winding up or merger where
less than 50% of the voting power is maintained by the Company, the holders of
the Series E Preferred Stock shall be entitled to receive, prior and in
preference to any distribution to the holders of the Common Stock, an amount
equal to $5.66 per share, respectively, plus any declared but unpaid dividends.
Any amounts remaining after such distribution shall

                                      F-16
<PAGE>

                                INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

be distributed among the holders of Series E Preferred Stock, and Common Stock
on an "as if" converted basis until the holders of Series E have received an
aggregate liquidation payment of $8.49, thereafter any remaining amounts shall
be distributed among the holders of Common Stock (unaudited).

   Upon the request of holders of at least 50% of the outstanding shares of
Series E Preferred Stock, the shares of all of the preferred stock may be
redeemed in four equal installments beginning in May 2002. The redemption price
for Series E Preferred Stock will be the greater of the original issuance price
for Series E Preferred Stock, $5.66 per share, respectively, plus any
undeclared and unpaid dividends and an amount equal to that amount which would
result in the holder of such shares realizing an 8% annually compounded return
on the purchase price or the fair market value of Series E Preferred Stock on
the first redemption date (unaudited).

   Each share of Series E Preferred Stock is convertible at the option of the
holder into two-thirds of a share of Common Stock at any time, subject to
adjustment for antidilution. Each share of Series E Preferred Stock will be
automatically converted upon an initial public offering of the Company's Common
Stock with aggregate proceeds in excess of $20,000,000 and a price per share of
not less than $8.49. The Company has reserved sufficient shares of Common Stock
for issuance upon conversion of the Series E Preferred Stock (unaudited).

NOTE 7--COMMON STOCK:

   In March 1995, the Company issued 1,933,333 shares of Common Stock to its
founder in exchange for $14,500 in total consideration. Additionally, in March
1996, the Company issued 300,000 shares of Common Stock to an employee for
$4,500 in total consideration. Under the terms of the stock purchase
agreements, the Company has the right to repurchase up to 2,166,667 shares of
such Common Stock at the original issue price upon termination. The repurchase
rights expired as to 25% of such Common Stock in January 1997 and the remainder
expire ratably over a 36 month period thereafter with 586,667 and 315,972
(unaudited) shares of Common Stock subject to repurchase at December 31, 1998
and June 30, 1999.

   The Company had reserved shares of Common Stock for issuance as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                        As of
                                                                      June 30,
                                                                        1999
                                                                     -----------
                                                                     (unaudited)
   <S>                                                               <C>
   Mandatorily redeemable convertible preferred stock:
     Series A Preferred Stock.......................................      747
     Series B Preferred Stock.......................................    2,135
     Series C Preferred Stock.......................................    4,773
     Series D Preferred Stock.......................................    2,494
     Series E Preferred Stock.......................................    2,263
   Exercise of options under stock option plans.....................      945
                                                                       ------
                                                                       13,357
                                                                       ======
</TABLE>

 Notes receivable from stockholders

   In March 1998, the Company issued 1,666,666 shares of Common Stock to an
officer of the Company in exchange for a $240,000 note receivable. The note
bore interest at 6% per year. The note was secured by the underlying stock and
is classified as a note receivable from stockholder in the accompanying balance
sheet at December 31, 1998. Under the terms of the agreement, the Company has
the right to repurchase all of the shares of such stock at the original issue
price upon termination. The repurchase rights expire ratably over a

                                      F-17
<PAGE>

                                INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

48 month period with 1,055,555 and 888,889 (unaudited) shares of Common Stock
subject to repurchase at December 31, 1998 and June 30, 1999, respectively. In
June 1999, the note was paid.

   In April 1999 the Company issued a total 516,667 shares of Common Stock to
two officers of the Company in exchange for notes receivable totalling $201,500
(unaudited). The notes bear interest at 6% per year and are due upon the
earlier of (i) an acquisition, (ii) an initial public offering, (iii) the
employee's termination or (iv) five years. The notes are secured by the
underlying stock and are classified as notes receivable from stockholders in
the accompanying balance sheet at June 30, 1999. Under the terms of the
agreement, the Company has the right to repurchase all of the shares of such
stock at the original issue price upon termination. The repurchase rights will
expire as to 25% of such Common Stock in April 2000, and the remainder will
expire ratably over a 36 month period thereafter with 516,667 (unaudited)
shares of Common Stock subject to repurchase at June 30, 1999.

NOTE 8--EMPLOYEE STOCK OPTION PLAN:

   In August 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan") and in March 1998 it adopted the 1998 Stock Option Plan (the "1998
Plan") (collectively, the "Plans"). The Plans provide for grants of stock
options to employees and consultants of the Company. Options granted under the
Plan may be either incentive stock options or nonqualified stock options.
Incentive stock options ("ISO") may be granted only to employees (including
officers and directors who are also employees) of the Company. Nonqualified
stock options may be granted to employees and consultants of the Company.

   Options under the Plans may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO shall not be less than 100% of the estimated fair
value of the shares on the date of grant and (ii) the exercise price of an ISO
granted to a 10% stockholder shall not be less than 110% of the estimated fair
value of the shares on the date of grant and are for periods not to exceed five
years. Options are immediately exercisable but are subject to repurchase by the
Company at the original exercise price. The repurchase feature generally
expires for 25% of the shares after the first year of service and then expires
ratably over the next 36 months.

   The following table summarizes the activity under the Plans for the years
ended December 31, 1997, 1998 and the six months ended June 30, 1999 (shares in
thousands):

<TABLE>
<CAPTION>
                                 Year Ended December 31,         Six months
                             --------------------------------- ended June 30,
                                  1997             1998             1999
                             ---------------- ---------------- ----------------
                                     Weighted         Weighted         Weighted
                                     Average          Average          Average
                                     Exercise         Exercise         Exercise
                             Shares   Price   Shares   Price   Shares   Price
                             ------  -------- ------  -------- ------  --------
                                                                 (unaudited)
   <S>                       <C>     <C>      <C>     <C>      <C>     <C>
   Outstanding at beginning
    of period..............    487    $0.03    1,276   $0.11     622    $0.17
   Granted.................  1,074     0.14      824    0.21   1,333     1.09
   Canceled................   (185)    0.09     (334)   0.18    (151)    0.18
   Exercised...............   (100)    0.05   (1,144)   0.13    (859)    0.32
                             -----            ------           -----
   Outstanding at end of
    period.................  1,276     0.11      622    0.17     945     1.33
                             -----            ------           -----
   Options exercisable at
    end of period..........  1,276               622             945
                             -----            ------           -----
   Weighted average fair
    value of options
    granted during the
    period.................           $0.03            $0.05            $0.21
                                      =====            =====            =====
</TABLE>

                                      F-18
<PAGE>

                                INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   The followings table summarizes information about stock options outstanding
and exercisable at December 31, 1998 (shares in thousands):

<TABLE>
<CAPTION>
                 Options Outstanding at December        Options Exercisable
                             31, 1998                  at December 31, 1998
                -------------------------------------  -----------------------
                               Weighted
                                Average
                               Remaining    Weighted                 Weighted
    Range of                  Contractual   Average                  Average
    Exercise      Number         Life       Exercise     Number      Exercise
     Prices     Outstanding     (Years)      Price     Exercisable    Price
    --------    -----------   -----------   --------   -----------   --------
   <S>          <C>           <C>           <C>        <C>           <C>
   $0.03-0.09       206           8.0        $0.07         206        $0.07
    0.15-0.21       362           9.4         0.19         362         0.19
      0.39           54           9.9         0.39          54         0.39
                    ---                                    ---
                    622           9.0         0.17         622         0.17
                    ===                                    ===
</TABLE>

   The followings table summarizes information about stock options outstanding
and exercisable at June 30, 1999 (unaudited) (shares in thousands):

<TABLE>
<CAPTION>
                 Options Outstanding at June 30,        Options Exercisable
                               1999                      at June 30, 1999
                -------------------------------------  -----------------------
                               Weighted
                                Average
                               Remaining    Weighted                 Weighted
    Range of                  Contractual   Average                  Average
    Exercise      Number         Life       Exercise     Number      Exercise
     Prices     Outstanding     (Years)      Price     Exercisable    Price
    --------    -----------   -----------   --------   -----------   --------
   <S>          <C>           <C>           <C>        <C>           <C>
   $0.15-0.21       144           8.9        $0.19         144        $0.19
    0.39-1.20       341           9.7         0.72         341         0.72
    1.65-2.25       460          10.0         2.14         460         2.14
                    ---                                    ---
                    945           9.7         1.33         945         1.33
                    ===                                    ===
</TABLE>

 Fair value disclosures

   The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option-pricing model as prescribed by
SFAS No. 123 using the following assumptions:

<TABLE>
<CAPTION>
                                                    Year Ended       Six Months
                                                   December 31,         Ended
                                                   ---------------    June 30,
                                                    1997     1998       1999
                                                   ------   ------   -----------
                                                                     (unaudited)
   <S>                                             <C>      <C>      <C>
   Risk-free interest rates.......................    6.5%     6.5%      5.5%
   Expected lives (in years)......................    4.0      4.0       4.0
   Dividend yield.................................    0.0      0.0       0.0
   Expected volatility............................    0.0      0.0       0.0
</TABLE>

   The compensation cost associated with the Company's stock-based compensation
plans, determined using the minimum value method prescribed by SFAS No. 123,
did not result in a material difference from the reported net income for the
years ended December 31, 1997 and 1998 and for the six months ended June 30,
1998 and 1999 (unaudited).

                                      F-19
<PAGE>

                                INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


 Deferred stock-based compensation

   In connection with certain stock option grants during the year ended
December 31, 1998 and the six months ended June 30, 1999, the Company
recognized deferred stock-based compensation totaling $1.9 million and $6.7
million (unaudited), respectively, which is being amortized over the vesting
periods of the applicable options. Amortization expense recognized during the
year ended December 31, 1998 and the six months ended June 30, 1999 totaled
approximately $812,000 and $1.7 million (unaudited), respectively.

NOTE 9--SUBSEQUENT EVENTS:

 Stock Split

   Prior to the effectiveness of the Company's initial public offering, the
Company's Board of Directors intends to effect a two-for-three reverse stock
split of the outstanding shares of Common Stock. All share and per share
information included in these financial statements have been retroactively
adjusted to reflect this stock split.

 Employee Stock Purchase Plan

   In July 1999, the Board adopted, subject to stockholder approval, the 1999
Employee Stock Purchase Plan (the "Purchase Plan") and reserved 300,000 shares
of Common Stock for issuance thereunder. On each January 1, the aggregate
number of shares reserved for issuance under this plan will increase
automatically by a number of shares equal to 1% of the Company's outstanding
shares on December 31 of the preceding year. The aggregate number of shares
reserved for issuance under the Purchase Plan shall not exceed 3,000,000
shares. The Purchase Plan will become effective on the first business day on
which price quotations for the Company's Common Stock are available on the
Nasdaq National Market. Employees generally will be eligible to participate in
the Purchase Plan if they are customarily employed by the Company for more than
20 hours per week and more than five months in a calendar year and are not (and
would not become as a result of being granted an option under the Purchase
Plan) 5% stockholders of the Company. Under the Purchase Plan, eligible
employees may select a rate of payroll deduction between 2% and 10% of their W-
2 cash compensation subject to certain maximum purchase limitations. Each
offering period will have a maximum duration of two years and consists of four
six-month Purchase Periods. The first Offering Period is expected to begin on
the first business day on which price quotations for the Company's Common Stock
are available on the Nasdaq National Market. Depending on the Effective Date,
the first Purchase Period may be more or less than six months long. Offering
Periods and Purchase Periods thereafter will begin on February 1 and August 1.
The price at which the Common Stock is purchased under the Purchase Plan is 85%
of the lesser of the fair market value of the Company's Common Stock on the
first day of the applicable offering period or on the last day of that purchase
period. The Purchase Plan will terminate after a period of ten years unless
terminated earlier as permitted by the Purchase Plan.

 1999 Equity Incentive Plan

   In July 1999, the Board adopted, subject to stockholder approval, the 1999
Equity Incentive Plan (the "1999 Plan") and reserved 2,900,000 shares of Common
Stock for issuance thereunder. The 1999 Plan authorized the award of options,
restricted stock awards and stock bonuses (each an "Award"). No person will be
eligible to receive more than 1,000,000 shares in any calendar year pursuant to
Awards under the 1999 Plan other than a new employee of the Company who will be
eligible to receive no more than 1,500,000 shares in the calendar year in which
such employee commences employment. Options granted under the 1999 Plan may be
either incentive stock options ("ISO") or nonqualified stock options ("NSO").
ISOs may be granted only to Company employees (including officers and directors
who are also employees). NSOs may be granted to Company employees, officers,
directors, consultants, independent contractors and advisors of the Company.

                                      F-20
<PAGE>

                                INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO may not be less than 100% of the estimated fair
value of the shares on the date of grant, and (ii) the exercise price of an ISO
granted to a 10% stockholder may not be less than 110% of the estimated fair
value of the shares on the date of grant. The maximum term of options granted
under the 1999 Plan is ten years.

   Members of the Board who are not employees of the Company, or any parent,
subsidiary or affiliate of the Company, are eligible to participate in the 1999
Plan. The option grants under the 1999 Plan are automatic and nondiscretionary,
and the exercise price of the options must be 100% of the fair market value of
the Common Stock on the date of grant. Each eligible director who first becomes
a member of the Board on or after the effective date of the Registration
Statement of which this Prospectus forms a part (the "Effective Date") will
initially be granted an option to purchase 20,000 shares (an "Initial Grant")
on the date such director first becomes a director. Immediately following each
Annual Meeting of the Company, each eligible director will automatically be
granted an additional option to purchase 10,000 shares if such director has
served continuously as a member of the Board since the date of such director's
Initial Grant or, if such director was ineligible to receive an Initial Grant,
since the Effective Date. The term of such options is ten years, provided that
they will terminate 7 months following the date the director ceases to be a
director or a consultant of the Company (twelve months if the termination is
due to death or disability). All options granted under the Directors Plan will
vest 100% of the shares upon the date of issuance.

 Acquisition

   Effective July 1, 1999, the Company acquired all the assets and liabilities
of Lexington Software Associates Incorporated, which is a provider of
configuration management solutions and development methodologies, including
consulting and education. The acquisition has been accounted for using the
purchase method of accounting and accordingly, the purchase price has been
allocated to the tangible and intangible assets acquired and liabilities
assumed on the basis of their respective fair values at the acquisition date.

   The total purchase price of approximately $769,000 consisted of 58,893
shares of the Company's Series E Preferred Stock (estimated fair value of
$500,000), seven-year warrants to purchase 11,779 shares of Series E Preferred
Stock at $8.49 per share (estimated fair value of $77,000), and other
acquisition-related expenses of approximately $192,000.

   Of the total purchase price, approximately $794,000 was allocated to
goodwill, which will be amortized over its estimated useful life of 48 months.
The remainder of the purchase price was allocated to net tangible liabilities
assumed of $25,000.

                                      F-21
<PAGE>

                       CONSENT OF INDEPENDENT ACCOUNTANTS

   We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated July 15, 1999 relating to the financial statements of
Interwoven, Inc. which appears in such Registration Statement. We also consent
to the references to us under the headings "Experts" and "Selected Financial
Data" in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

San Jose, CA
July 26, 1999

                                      F-22
<PAGE>


                       [LOGO OF INTERWOVEN 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 to be paid by the
Registrant in connection with the sale of the shares of common stock being
registered hereby. All amounts are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market filing fee.

<TABLE>
   <S>                                                                  <C>
   Securities and Exchange Commission registration fee................. $13,900
   NASD filing fee.....................................................   5,500
   Nasdaq National Market filing fee...................................  95,000
   Accounting fees and expenses........................................       *
   Legal fees and expenses.............................................       *
   Road show expenses..................................................       *
   Printing and engraving expenses.....................................       *
   Blue sky fees and expenses..........................................       *
   Transfer agent and registrar fees and expenses......................       *
   Miscellaneous.......................................................       *
                                                                        -------
     Total............................................................. $     *
                                                                        =======
</TABLE>
---------------------
* To be completed by amendment.

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, indemnity 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 (the
"Securities Act").

   As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty
as a director, except for liability:

  .  for any breach of the director's duty of loyalty to the Registrant or
     its stockholders,

  .  for acts or omissions not in good faith or that involve intentional
     misconduct or a knowing violation of law,

  .  under section 174 of the Delaware General Corporation Law (regarding
     unlawful dividends and stock purchases), or

  .  for any transaction from which the director derived an improper personal
     benefit.

   As permitted by the Delaware General Corporation Law, the Registrant's
Bylaws provide that:

  .  the Registrant is required to indemnify its directors and officers to
     the fullest extent permitted by the Delaware General Corporation Law,
     subject to certain very limited exceptions,

  .  the Registrant may indemnify its other employees and agents as set forth
     in the Delaware General Corporation Law,

  .  the Registrant is required to advance expenses, as incurred, to its
     directors and officers in connection with a legal proceeding to the
     fullest extent permitted by the Delaware General Corporation Law,
     subject to certain very limited exceptions, and

  .  the rights conferred in the Bylaws are not exclusive.

                                     II-1
<PAGE>

   The Registrant intends to enter into Indemnity Agreements with each of its
current directors and officers to give such directors and officers additional
contractual assurances regarding the scope of the indemnification set forth in
the Registrant's Amended and Restated Certificate of Incorporation and to
provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of the
Registrant regarding which indemnification is sought, nor is the Registrant
aware of any threatened litigation that may result in claims for
indemnification.

   Reference is also made to Section 7 of the draft Underwriting Agreement to
be entered into between the Registrant and the underwriters, which will
provide for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provisions
in the Registrant's Amended and Restated Certificate of Incorporation, Bylaws
and the Indemnity Agreements to be entered into between the Registrant and
each of its directors and officers may be sufficiently broad to permit
indemnification of the Registrant's directors and officers for liabilities
arising under the Securities Act.

   The Registrant maintains directors' and officers' liability insurance.

   See also the undertakings set out in response to Item 17.

   Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:

<TABLE>
<CAPTION>
   Exhibit Document                                                     Number
   ----------------                                                     ------
   <S>                                                                  <C>
   Form of Underwriting Agreement......................................  1.01
   Registrant's Amended and Restated Certificate of Incorporation......  3.01
   Registrant's Bylaws.................................................  3.03
   Third Amended and Restated Investors' Rights Agreement dated April
    26, 1999...........................................................  4.02
   Form of Indemnity Agreement......................................... 10.01
</TABLE>

Item 15. Recent Sales of Unregistered Securities.

   Since inception we have issued and sold the following securities:

   1. We granted stock options to purchase 3,718,799 shares of our common
stock at exercise prices ranging from $0.03 to $2.25 per share to our
employees, consultants, directors, and other service providers under our 1996
Stock Option Plan and 1998 Stock Option Plan. Through June 30, 1999, we issued
and sold an aggregate of 2,102,570 shares of our common stock to employees,
consultants, directors, and other service providers at prices ranging from
$0.03 to $2.25 per share under direct issuances or exercises of options
granted under our 1996 Stock Option Plan and 1998 Stock Option Plan. All
shares purchased under our 1996 Stock Option Plan and 1998 Stock Option Plan
are subject to our right to repurchase such shares at their original exercise
price. The repurchase feature generally expires for 25% of the shares after
the first year of service and then expires ratably over the next 36 months.

   2. In March and June 1996, we issued and sold an aggregate of 1,800,000
shares of our Series A Preferred Stock to private investors for an aggregate
purchase price of approximately $360,000. In March 1998, we repurchased
680,000 shares of our Series A Preferred Stock at $0.93 per share.

   3. In August 1996, we issued a warrant to a certain bank in connection with
a loan agreement. The warrant is exercisable for 9,330 shares of Series B
Preferred Stock,, which shares are convertible into 9,828 shares of common
stock.

   4. In January 1997, in connection with a bridge loan that converted into
Series B Preferred Stock, we issued warrants to private investors to purchase
93,298 shares of Series B Preferred Stock at an exercise price of $1.2862 per
share. These shares of Series B Preferred Stock are convertible into an
aggregate of up to 98,280 shares of common stock.


                                     II-2
<PAGE>

   5. In May and June 1997, we issued and sold an aggregate of 3,039,505
shares of our Series B Preferred Stock to private investors for an aggregate
purchase price of approximately $3,890,566. These shares of Series B Preferred
Stock are convertible into an aggregate of up to 3,201,831 shares of common
stock.

   6. In March 1998, we issued and sold an aggregate of 6,241,619 shares of
our Series C Preferred Stock to private investors for an aggregate purchase
price of approximately $6,375,181, and warrants to purchase 918,124 shares of
Series C Preferred Stock at an exercise price of $1.2862 per share. In
connection with the Series D Preferred Stock financing, all warrants to
purchase Series C Preferred Stock were exercised for an aggregate purchase
price of approximately $1,180,891.

   7. In October, November and December 1998, we issued and sold an aggregate
of 3,741,217 shares of our Series D Preferred Stock to private investors for
an aggregate purchase price of approximately $6,996,075.

   8. In June 1999, we issued and sold an aggregate of 3,394,719 shares of our
Series E Preferred Stock to private investors for an aggregate purchase price
of approximately $19,214,109.

   9. In July 1999, we issued 88,339 shares of Series E Preferred Stock and
warrants to purchase 17,659 shares of Series E Preferred Stock to certain
shareholders of Lexington Software Associates, Inc. in exchange for their
shares of that company.

   All sales of common stock made pursuant to the exercise of stock options
were made in reliance on Rule 701 under the Securities Act or on Section 4(2)
of the Securities Act.

   All sales of preferred stock and warrants to purchase preferred stock were
made in reliance on Section 4(2) of the Securities Act and/or Regulation D
promulgated under the Securities Act. These sales were made without general
solicitation or advertising. Each purchaser was a sophisticated investor with
access to all relevant information necessary to evaluate the investment and
represented to the Registrant that the shares were being acquired for
investment.

Item 16. Exhibits and Financial Statement Schedules.

   (a) The following exhibits are filed herewith:

<TABLE>
<CAPTION>
     Number                            Exhibit Title
     ------                            -------------
     <C>    <S>
      1.01* Form of Underwriting Agreement.

      3.01  Registrant's Certificate of Incorporation.

      3.02* Registrant's Amended and Restated Certificate of Incorporation (to
             be filed upon the closing of this offering).

      3.03* Registrant's Bylaws.

      4.01* Form of Certificate for Registrant's common stock.

      4.02* Third Amended and Restated Investors' Rights Agreement, dated April
             26, 1999.

      5.01* Opinion of Fenwick & West LLP regarding legality of the securities
             being registered.

     10.01  Form of Indemnity Agreement between Registrant and each of its
             directors and executive officers.

     10.02  1996 Stock Option Plan and related agreements.

     10.03  1998 Stock Option Plan and related agreements.

     10.04  1999 Equity Incentive Plan.

     10.05  1999 Employee Stock Purchase Plan.

     10.06  Regional Prototype Profit Sharing Plan and Trust/Account Standard
             Plan Adoption Agreement AA #001.

     10.07  Employment Agreement between Interwoven, Inc. and Martin W. Brauns
             dated February 27, 1998.
</TABLE>

                                     II-3
<PAGE>

<TABLE>
<CAPTION>
     Number                            Exhibit Title
     ------                            -------------
     <C>    <S>
     10.08  Offer Letter to David M. Allen from Interwoven, Inc. dated February
             12, 1999.

     10.09  Offer Letter to Michael A. Backlund from Interwoven, Inc. dated May
             1, 1998.

     10.10  Offer Letter to John Chang from Interwoven, Inc. dated January 20,
             1997.

     10.11  Offer Letter to Jeffrey E. Engelmann from Interwoven, Inc. dated
             December 11, 1998.

     10.12  Offer Letter to Steven Farber from Interwoven, Inc. dated June 14,
             1997.

     10.13  Offer Letter to Jack S. Jia from Interwoven, Inc. dated January 3,
             1997.

     10.14  Offer Letter to Peng T. Ong from Interwoven, Inc. dated February
             29, 1996.

     10.15  Offer Letter to Jozef Ruck from Interwoven, Inc. dated February 18,
             1999.

     10.16  Confidential Separation Agreement and Release, between Interwoven,
             Inc. and John Chang dated November 25, 1998.

     10.17  Confidential Separation Agreement and Release, between Interwoven,
             Inc. and Steven Farber dated February 12, 1998.

     10.18  Secured Promissory Notes between Interwoven, Inc. and Jeffrey E.
             Engelmann, dated as of April 19, 1999.

     10.19  Secured Promissory Notes between Interwoven, Inc. and Jozef Ruck,
             dated as of April 21, 1999.

     10.20  Built-To-Suit Lease Agreement dated March 18, 1997 between
             Sunnyvale Partners Limited Partnership and First Data Merchant
             Services Corporation.

     10.21  Sublease dated April 24, 1998 between First Data Merchant Services
             Corporation and Interwoven, Inc.

     10.22  Loan and Security Agreement, dated October 1997, as amended,
             between Interwoven, Inc. and Silicon Valley Bank.

     10.23  Agreement and Plan of Reorganization, dated June 30, 1999, by and
             among Interwoven, Inc., Lexington Software Associates, Inc. and
             certain Stockholders of Lexington Software Associates, Inc.

     23.01* Consent of Fenwick & West LLP (included in Exhibit 5.01).

     23.02  Consent of PricewaterhouseCoopers LLP, independent accountants.
     24.01  Power of Attorney (See Page II-6 of this Registration Statement).

     27.01  Financial Data Schedule.
</TABLE>
---------------------
 * To be filed by amendment.

   (b) The following financial statement schedule is filed herewith:

       Schedule II--Valuation and Qualifying Accounts

   Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or
the notes thereto.

Item 17. Undertakings.

   The undersigned 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.

                                     II-4
<PAGE>

   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 provisions described under Item 14 above, 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, 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 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 undersigned 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 upon 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-5
<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Mateo, State of
California, on this day of July 26, 1999.

                                          INTERWOVEN, INC.

                                                    /s/ Martin W. Brauns
                                          By: _________________________________
                                             Martin W. Brauns
                                             President and Chief Executive
                                             Officer

                               POWER OF ATTORNEY

   KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Martin W. Brauns and David M. Allen,
and each of them, his true and lawful attorneys-in-fact and agents with full
power of substitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by the Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act, and all post-effective amendments thereto, and to file the
same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done or by virtue hereof.

   Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on
the date indicated.

<TABLE>
<CAPTION>
                 Name                            Title                   Date
                 ----                            -----                   ----
Principal Executive Officer


<S>                                    <C>                        <C>
/s/ Martin W. Brauns                   President, Chief Executive    July 26, 1999
______________________________________ Officer and a director
Martin W. Brauns

Principal Financial Officer and Principal
Accounting Officer:


/s/ David M. Allen                     Vice President and Chief      July 26, 1999
______________________________________ Financial Officer
David M. Allen

Additional Directors:


/s/ Peng T. Ong                        Chairman of the Board         July 26, 1999
______________________________________
Peng T. Ong

/s/ Kathryn C. Gould                   Director                      July 26, 1999
______________________________________
Kathryn C. Gould


/s/ Mark W. Saul                       Director                      July 26, 1999
______________________________________
Mark W. Saul


/s/ Mark C. Thompson                   Director                      July 26, 1999
______________________________________
Mark C. Thompson
</TABLE>

                                     II-6
<PAGE>

<TABLE>
<CAPTION>
                 Name                            Title                   Date
                 ----                            -----                   ----
Additional Directors:


<S>                                    <C>                        <C>
                                       Director
______________________________________
Ronald E.F. Codd
</TABLE>


                                      II-7
<PAGE>

                                INTERWOVEN, INC.

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

      For Years Ended December 31, 1997 and Six Months Ended June 30, 1999
                                  (unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                    Amounts
                                                   Charged to
                                        Balance at  Revenue,  Write-offs Balance
                                        Beginning  Costs, or     and     at End
                                         of year    Expenses  Recoveries of Year
                                        ---------- ---------- ---------- -------
<S>                                     <C>        <C>        <C>        <C>
December 31, 1997
  Allowance for Doubtful Accounts......    $--        $--        $--      $--
December 31, 1998
  Allowance for Doubtful Accounts......    $--        $270       $  0     $270
June 30, 1999
  Allowance for Doubtful Accounts......    $270       $ 18       $  0     $288
</TABLE>

                                      S-1
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
     Number                            Exhibit Title
     ------                            -------------
     <C>    <S>
      3.01  Registrant's Certificate of Incorporation.
     10.01  Form of Indemnity Agreement between Registrant and each of its
             directors and executive officers.

     10.02  1996 Stock Option Plan and related agreements.

     10.03  1998 Stock Option Plan and related agreements.

     10.04  1999 Equity Incentive Plan.

     10.05  1999 Employee Stock Purchase Plan.

     10.06  Regional Prototype Profit Sharing Plan and Trust/Account Standard
             Plan Adoption Agreement AA #001.

     10.07  Employment Agreement between Interwoven, Inc. and Martin W. Brauns
             dated February 27, 1998.

     10.08  Offer Letter to David M. Allen from Interwoven, Inc. dated February
             12, 1999.

     10.09  Offer Letter to Michael A. Backlund from Interwoven, Inc. dated May
             1, 1998.

     10.10  Offer Letter to John Chang from Interwoven, Inc. dated January 20,
             1997.

     10.11  Offer Letter to Jeffrey E. Engelmann from Interwoven, Inc. dated
             December 11, 1998.

     10.12  Offer Letter to Steven Farber from Interwoven, Inc. dated June 14,
             1997.

     10.13  Offer Letter to Jack S. Jia from Interwoven, Inc. dated January 3,
             1997.

     10.14  Offer Letter to Peng T. Ong from Interwoven, Inc. dated February
             29, 1996.

     10.15  Offer Letter to Jozef Ruck from Interwoven, Inc. dated February 18,
             1999.

     10.16  Confidential Separation Agreement and Release, between Interwoven,
             Inc. and John Chang dated November 25, 1998.

     10.17  Confidential Separation Agreement and Release, between Interwoven,
             Inc. and Steven Farber dated February 12, 1998.

     10.18  Secured Promissory Notes between Interwoven, Inc. and Jeffrey E.
             Engelmann, dated as of April 19, 1999.

     10.19  Secured Promissory Notes between Interwoven, Inc. and Jozef Ruck,
             dated as of April 21, 1999.

     10.20  Built-To-Suit Lease Agreement dated March 18, 1997 between
             Sunnyvale Partners Limited Partnership and First Data Merchant
             Services Corporation.

     10.21  Sublease dated April 24, 1998 between First Data Merchant Services
             Corporation and Interwoven, Inc.

     10.22  Loan and Security Agreement, dated October 1997, as amended,
             between Interwoven, Inc. and Silicon Valley Bank.

     10.23  Agreement and Plan of Reorganization, dated June 30, 1999, by and
             among Interwoven, Inc., Lexington Software Associates, Inc. and
             certain Stockholders of Lexington Software Associates, Inc.

     23.02  Consent of PricewaterhouseCoopers LLP, independent accountants.

     24.01  Power of Attorney (See Page II-6 of this Registration Statement).

     27.01  Financial Data Schedule.
</TABLE>
[{"type": "S-1", "sequence": "1", "description": "FORM S-1", "secsgml_size_bytes": 356992}]
{"company-data": {"conformed-name": "INTERWOVEN INC", "cik": "0001042431", "assigned-sic": "", "irs-number": "943221352", "state-of-incorporation": "CA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-83779", "film-number": "99670615"}, "business-address": {"street1": "1195 W FREMONT AVE", "street2": "STE 2000", "city": "SUNNYVALE", "state": "CA", "zip": "94087", "phone": "4087742000"}, "mail-address": {"street1": "1195 W FREMONT AVE", "street2": "STE 2000", "city": "SUNNYVALE", "state": "CA", "zip": "94087"}}
As filed with the Securities and Exchange Commission on July 27, 1999
                                                      Registration No. 333-

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                ---------------
                                   FORM S-1
                            REGISTRATION STATEMENT

                                     Under
                          the Securities Act of 1933

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

                               INTERWOVEN, INC.
            (Exact name of Registrant as specified in its charter)

         Delaware                    7372                    94-3221352
     (State or other          (Primary standard           (I.R.S. employer
     jurisdiction of      industrial classification     identification no.)
     incorporation or            code number)
      organization)

                               Interwoven, Inc.
                     1195 West Fremont Avenue, Suite 2000
                              Sunnyvale, CA 94087
                                (408) 774-2000
  (Address, including zip code, and telephone number, including area code, of
                   Registrant's principal executive offices)
                                ---------------
                                David M. Allen
                            Chief Financial Officer
                               Interwoven, Inc.
                     1195 West Fremont Avenue, Suite 2000
                              Sunnyvale, CA 94087
                                (408) 774-2000
(Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
                                ---------------
                                  Copies to:

       Matthew P. Quilter, Esq.                Mark A. Bertelsen, Esq.
         Horace L. Nash, Esq.                   Jose F. Macias, Esq.
         Darren L. Nunn, Esq.                    Jon C. Avina, Esq.
        William L. Hughes, Esq.           WILSON SONSINI GOODRICH & ROSATI
          FENWICK & WEST LLP                  Professional Corporation
         Two Palo Alto Square                    650 Page Mill Road
      Palo Alto, California 94306            Palo Alto, California 94304
            (650) 494-0600                         (650) 493-9300
                                ---------------
   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, 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, 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 of 1933, 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. [_]
                                ---------------
                        CALCULATION OF REGISTRATION FEE

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Proposed Maximum
 Title Of Each Class Of Securities To Be    Aggregate Offering    Amount Of
                Registered                       Price(1)      Registration Fee
-------------------------------------------------------------------------------
Common Stock, $.001 par value par share..      $50,000,000         $13,900
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
    registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
                                ---------------
   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 which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 it is not soliciting offers to buy these   +
+securities in any state where the offer or sale is not permitted.             +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                   SUBJECT TO COMPLETION, DATED JULY 27, 1999

                                      Shares
                       [LOGO OF INTERWOVEN APPEARS HERE]
                                  Common Stock

                                   ---------

  Prior to this offering, there has been no public market for our common stock.
The initial public offering price is expected to be between $  and $  per
share. We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "IWOV."

  The underwriters have an option to purchase a maximum of      additional
shares to cover over-allotments of shares.

  Investing in our common stock involves risks. See "Risk Factors" on page 5.
Price  Underwriting   Proceeds
                                                     to   Discounts and     to
                                                   Public  Commissions  Interwoven
                                                   ------ ------------- ----------
Per Share.........................................  $         $            $
Total............................................. $          $           $
Delivery of the shares of common stock will be made on or about    , 1999.

  Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Credit Suisse First Boston

                             BancBoston Robertson Stephens

                                                           Dain Rauscher Wessels
                                             a division of Dain Rauscher
                                                     Incorporated

                   The date of this prospectus is     , 1999.
----------------

                               TABLE OF CONTENTS
Page
                                      ----
Prospectus Summary..................    3
Risk Factors........................    5
Special Note Regarding Forward-
 Looking Statements.................   13
Use of Proceeds.....................   14
Dividend Policy.....................   14
Capitalization......................   15
Dilution............................   16
Selected Financial Data.............   17
Management's Discussion and Analysis
 of Financial Condition and Results
 of Operations......................   18
Business............................   27
Page
                                   ----
Management.......................   41
Related Party Transactions.......   52
Principal Stockholders...........   54
Description of Capital Stock.....   56
Shares Eligible for Future Sale..   60
Underwriting.....................   62
Notice to Canadian Residents.....   64
Legal Matters....................   65
Experts..........................   65
Where You Can Find Additional
 Information.....................   65
Index to Financial Statements....  F-1
----------------

   You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.

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

   Interwoven(R), TeamSite(R), OpenDeploy(TM) and SmartContext(TM) are our
trademarks. This prospectus also contains trademarks of other companies and
organizations.

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

   Unless otherwise indicated, all information contained in this prospectus
assumes:

  .  that the underwriters will not exercise their over-allotment option;

  .  the completion of a 2-for-3 reverse stock split immediately prior to
     consummation of this offering;

  .  the conversion of each outstanding share of our preferred stock into
     two-thirds of a share of common stock, except for Series B Preferred
     Stock, each share of which shall be converted into 0.702205 shares of
     common stock;

  .  no exercise of outstanding warrants to purchase shares of our preferred
     stock prior to the consummation of this offering; and

  .  our reincorporation from California to Delaware prior to consummation of
     this offering.

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

                     Dealer Prospectus Delivery Obligation

   Until     , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
PROSPECTUS SUMMARY

   This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in the offering. You should read the
entire prospectus carefully. You should read this summary together with the
more detailed information and our financial statements and notes appearing
elsewhere in this prospectus.

                                   Interwoven

   Interwoven is a leading provider of web content management solutions. Our
products are specifically designed to help companies rapidly and efficiently
build, maintain and extend mission-critical web sites and eBusiness
applications. Our principal product, TeamSite, combines the functions of
content management, version control, workflow and application development in an
open, standards-based platform that allows large numbers of contributors across
an enterprise to add web content in a well-managed manner.

   As leading companies demonstrate success on the Internet, business leaders
are seeking to capitalize on new business opportunities, reach a broader
customer base and reduce overall operating costs by moving their businesses to
the web. To accomplish this, companies are making significant investments to
develop and deploy eBusiness initiatives. IDC estimates that spending on
software applications and services for e-commerce will grow from $7.8 billion
in 1998 and $53.8 billion 2002.

   The competitive online environment is driving companies to deploy complex
web sites that offer enhanced user experiences. These web sites can contain
hundreds of thousands of content-rich web pages, and this content has been
increasing in volume and complexity. In addition, today's web sites must be
updated frequently by numerous contributors throughout an enterprise. Web teams
find it difficult to manage the increasing complexity, volume and variability
of this content. At the same time, the large number of web authoring tools and
web application servers has contributed to the increasing technological
complexity involved in developing and maintaining web sites. These trends have
created a need for content management solutions that can accommodate this
increasing volume of web content, leverage existing information technology
investments and allow more contributors to add content to a web site. IDC
estimates that the market in which we participate, which they refer to as the
web development life-cycle management software market, will grow from $76.4
million in 1998 to $1.6 billion in 2003.

   Interwoven's content management platform assists customers in accelerating
their time-to-web by enabling multiple eBusiness applications to be developed
in parallel. Our products lower web operating costs by reducing a company's
dependence on highly paid web professionals and the time required to test and
approve new content. The scalability of our products also allows customers to
manage hundreds of thousands of web files and enables hundreds of employees
throughout the enterprise to contribute web content. In addition, our software
platform's open, standards-based architecture enables businesses to take
advantage of existing investments in information technology and web content
and, at the same time, to easily integrate new technologies and applications.

   We market and sell our software products and services primarily through a
direct sales force in North America. To date, we have licensed our software
products to over 75 customers, including AltaVista, Best Buy, Cisco Systems,
FedEx, The Gap, GeoCities, TCI, the U.S. Department of Education, USWeb/CKS and
Viacom/Nickelodeon.

   We were incorporated in California in March 1995 and intend to reincorporate
in Delaware immediately prior to this offering. Our principal executive offices
are located at 1195 West Fremont Avenue, Suite 2000, Sunnyvale, California
94087 and our telephone number is (408) 774-2000. Our World Wide Web address is
www.interwoven.com. The information on our web site does not constitute a part
of this prospectus.

                                       3
The Offering
Common stock offered................................    shares
 Common stock to be outstanding after this offering..    shares
 Use of proceeds..................................... For general corporate
                                                      purposes, including
                                                      working capital. See "Use
                                                      of Proceeds."
 Proposed Nasdaq National Market symbol.............. IWOV
The number of shares of our common stock to be outstanding immediately after
this offering is based on the number of shares outstanding as of June 30, 1999,
but does not include:

  .  944,980 shares issuable upon exercise of options outstanding at June 30,
     1999 under our stock option plans and 3,684,034 shares available for
     future issuance under those plans;

  .  300,000 shares available for future issuance under our employee stock
     purchase plan;

  .  72,071 shares issuable upon exercise of outstanding warrants; and

  .  11,772 shares issuable upon exercise of warrants issued after June 30,
     1999.

                             Summary Financial Data

                    (in thousands, except per share amounts)
Years Ended December        Six Months
                                             31,              Ended June 30,
                                   -------------------------  ----------------
                                    1996     1997     1998     1998     1999
                                   -------  -------  -------  -------  -------
Statement of Operations Data:
Revenues.......................... $   --   $   168  $ 4,003  $   886  $ 5,004
Gross profit......................     --        73    2,670      536    3,456
Total operating expenses..........     520    2,933    9,165    3,011    9,838
Loss from operations..............    (520)  (2,860)  (6,495)  (2,475)  (6,382)
Net loss..........................    (510)  (2,948)  (6,344)  (2,418)  (6,228)
Net loss per share:
  Basic and diluted............... $ (0.22) $ (1.36) $ (2.85) $ (1.25) $ (3.66)
  Weighted average shares--basic
   and diluted....................   2,282    2,356    2,633    2,404    3,435
Pro forma net loss per share:
  Basic and diluted...............                   $ (0.74)          $ (0.44)
  Weighted average shares--basic
   and diluted....................                     8,530            14,000
As of June 30, 1999
                                                           ---------------------
                                                            Actual   As Adjusted
                                                           --------  -----------
Balance Sheet Data:
Cash and cash equivalents................................. $ 25,203    $
Working capital...........................................   22,634
Total assets..............................................   29,948
Total stockholders' equity (deficit)......................  (21,155)
See Note 1 of Notes to Financial Statements for a description of the method
that we used to compute our basic and diluted net loss per share and pro forma
basic and diluted net loss per share.

   The adjusted balance sheet data gives effect to the sale of the shares of
common stock that we are offering under this prospectus at an assumed initial
public offering price of $      per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses. See
"Use of Proceeds" and "Capitalization."

                                       4
RISK FACTORS

   You should carefully consider the risks described below before buying shares
in this offering. The risks and uncertainties described below are not the only
risks we face. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may impair our business operations. If any of
the following risks actually occur, our business, results of operations and
financial condition could be seriously harmed, the trading price of our common
stock could decline and you may lose all or part of your investment.

We have a limited operating history which makes it difficult to evaluate our
business.

   We were incorporated in March 1995 and have a limited operating history. We
are still in the early stages of our development, which makes the evaluation of
our business operations and our prospects difficult. We shipped our first
product in May 1997. Since that time, we have derived substantially all of our
revenues from licensing our TeamSite product and related services. Before
buying our common stock, you should consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, particularly those companies whose businesses depend on the Internet.
These risks and difficulties, as they apply to us in particular, include:

  .  potential fluctuations in operating results and uncertain growth rates;

  .  limited market acceptance of our products;

  .  concentration of our revenues in a single product;

  .  our dependence on a small number of orders for most of our revenue;

  .  our need to expand our direct sales forces and indirect sales channels;

  .  our need to manage rapidly expanding operations; and

  .  our need to attract and train qualified personnel.

We must significantly increase our license revenues if we are to achieve
profitability.

   We have incurred net losses in each quarter since our inception and expect
net losses to increase. We incurred net losses of approximately $510,000 in
1996, $2.9 million in 1997, $6.3 million in 1998 and $6.2 million for the six
months ended June 30, 1999. As of June 30, 1999, we had an accumulated deficit
of $21.2 million. To compete effectively, we will be required to continue to
invest aggressively to expand our sales and marketing, research and
development, and professional services organizations. Therefore, we will need
to significantly increase our revenues, particularly license revenues, to
achieve profitability. We cannot predict when we will become profitable, if at
all.

Our operating results fluctuate widely and are difficult to predict.

   In the past, our quarterly operating results have fluctuated significantly,
and we expect them to continue to fluctuate in the future. Our sales cycle,
from initial evaluation to delivery of software, can vary significantly from
customer to customer, and is typically between three and nine months. In
addition, our products are typically shipped when orders are received, so
license backlog at the beginning of any quarter in the past has represented
only a small portion of expected license revenues for that quarter. Moreover,
we typically recognize a substantial percentage of revenues in the last month
of the quarter, frequently in the last week or even the last days of the
quarter. As a result, the delay or cancellation of any large orders can result
in a significant shortfall from anticipated revenues. These factors make
license revenues in any quarter difficult to forecast. Since our expenses are
relatively fixed in the near term, any shortfall from anticipated revenues,
could result in significant variations in operating results from quarter to
quarter and harm to our business. The factors that could affect our quarterly
operating results include:

  .  the size of customer orders and the timing of product and service
     deliveries;

                                       5
.  variability in the mix of products and services sold;

  .  our ability to retain our current customers and attract new customers;

  .  the amount and timing of operating costs relating to expansion of our
     business, including our planned international expansion;

  .  the announcement or introduction of new products or services by us or
     our competitors;

  .  our ability to attract and retain personnel, particularly management,
     engineering and sales personnel and technical consultants;

  .  our ability to upgrade and develop our systems and infrastructure to
     accommodate our growth; and

  .  costs related to acquisition of technologies or businesses.

   As a result of these and other factors, we believe that period-to-period
comparisons of our results of operations may not be meaningful and should not
be relied upon as indicators of our future performance. It is possible that in
some future periods our results of operations may not meet or exceed the
expectations of public market analysts and investors. If this occurs, the price
of our common stock is likely to decline.

   Our quarterly results often depend on a small number of large orders.

   We derive a significant portion of our license revenues in each quarter from
a small number of relatively large orders. For example, in the first and second
quarters of 1999, our top five customers accounted for 41% and 30%,
respectively, of the total revenue in such quarter. We expect that we will
continue to depend upon a small number of large orders for a significant
portion of our license revenues. As a result, our operating results could
suffer if any large orders are delayed or cancelled in any future period.

   We face significant competition, which could make it difficult to acquire
and retain customers now and in the future.

   The market for web content management solutions is competitive and we expect
this competition to persist and to intensify in the future. Competitive
pressures may seriously harm our business and quarterly and annual results of
operations. Our competitors include:

  .  potential customers engaged in in-house development efforts;

  .  vendors of software that directly address elements of web content
     management, such as Vignette; and

  .  developers of software that address some aspects of web content
     management.

   We face potential competition from companies such as Microsoft and IBM that
may decide in the future to enter our market. Many of existing and potential
competitors have longer operating histories greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. Many of these companies can also leverage extensive
customer bases and adopt aggressive pricing policies to gain market share.
Potential competitors may bundle their products in a manner that may discourage
users from purchasing our products. Barriers to entering the web content
management software market are relatively low.

                                       6
The market for our products is new and customers may not accept our products.

   The market for web content management software is new and rapidly evolving,
and the size and potential growth of this new market and the direction of its
development are uncertain. We have licensed our products to a small number of
customers. 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 invested substantial resources in
other methods of conducting business over the Internet may be reluctant to
adopt a new approach that may replace, limit or compete with their existing
systems. Any of these factors could inhibit the growth and market acceptance of
our products and services in particular. Accordingly, we cannot be certain that
a viable market for our products will emerge, or if it does emerge, that it
will be sustainable.

Our lengthy sales cycle could adversely affect our revenue growth.

   Because our software products impact a large number of departments within an
enterprise and are implemented in conjunction with strategic business
initiatives, our customers typically commit significant time and resources to
comparing and evaluating our products, internal solutions and other
commercially available applications. These evaluations require us to expend
substantial time, effort and money educating them about the value of our
products and services. The time between initial contact with a potential
customer and the ultimate sale typically ranges between three and nine months
and can vary significantly from customer to customer. To reduce our sales
cycle, we must establish a large number of referenceable customers. Failure to
establish a significant base of referenceable customers will significantly
inhibit our ability to shorten our sales cycle. As a result of our lengthy
sales cycle, we have only a limited ability to forecast the timing and size of
specific sales. Any delay in completing, or failure to complete, sales in a
particular quarter or fiscal year could harm our business and cause our
operating results to vary significantly.

We rely heavily on sales of one product.

   Since 1997, we have generated substantially all of our revenues from
licenses of, and services related to, our TeamSite product. We believe that
revenues generated from TeamSite will continue to account for a large portion
of our revenues for the foreseeable future. A decline in the price of TeamSite
or our inability to increase license sales of TeamSite would seriously harm our
business and operating results. In addition, our future financial performance
will depend upon the successful development, introduction and customer
acceptance of enhanced versions of TeamSite and future products. Our business
could be harmed if we fail to deliver the enhancements or products that
customers want.

We depend on our direct sales force to generate revenues.

   We sell our products primarily through our direct sales force, and we intend
to continue to invest significant resources to expand our direct sales force.
We believe that there is significant competition for direct sales personnel
with the advanced sales skills and technical knowledge we need. Some of our
competitors may have greater resources to hire such personnel. Our inability to
hire experienced and competent sales personnel, or our failure to retain them,
would harm our business. Furthermore, because we depend on our direct sales
force, any turnover in our sales force can significantly harm our operating
results. Such turnover tends to slow sales efforts until replacement personnel
can be recruited and trained to become productive. See "--We must attract and
retain qualified personnel."

We must develop our indirect sales channel.

   To date, we have sold our products principally through our direct sales
organization. By relying primarily on a direct sales model, we may miss sales
opportunities that might be available through other sales channels, such as
domestic and international resellers. Our ability to achieve revenue growth and
to increase worldwide sales in the future will depend in large part upon our
success in expanding and maintaining relationships with

                                       7
existing system integrators and Internet professional services firms and
establishing relationships with additional firms. Although we are currently
investing and plan to continue to invest significant resources to develop these
relationships, we may not be able to build an indirect channel that will be
able to market our products effectively and will be qualified to provide timely
and cost-effective customer support and services. In addition, we may not be
able to manage conflicts across our various sales channels, and our focus on
increasing sales through our indirect channel may divert management resources
and attention from direct sales.

We must implement and improve our operational systems on a timely basis to
manage our growth properly.

   We have expanded our operations rapidly since inception. We intend to
continue to expand our systems for 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 in a timely manner, our business will be seriously harmed.

We may experience difficulties in introducing new products and upgrades in a
timely manner.

   The market for our products is marked by rapid technological change,
frequent new product introductions and Internet-related technology
enhancements, uncertain product life cycles, changes in customer demands and
evolving industry standards. We expect to add new content management
functionality to our product offerings by internal development, and possibly by
acquisition. Content management technology is complex, and new products or
product enhancements can require long development and testing periods. Any
delays in developing and releasing new products could harm our business. New
products or upgrades may not be released according to schedule or may contain
defects when released. Either situation could result in adverse publicity, loss
of sales, delay in market acceptance of our products or customer claims against
us, any of which could harm our business. If we do not develop, license or
acquire new software products, or deliver enhancements to existing products on
a timely and cost-effective basis, our business will be harmed.

Our products might not be compatible with all major platforms, which could
inhibit sales.

   Our products currently operate on the Microsoft Windows NT and Sun Solaris
operating systems. In addition, our products are required to interoperate with
leading web content authoring tools and web application servers. We must,
therefore, continually modify and enhance our products to keep pace with
changes in these applications and operating systems. If our products were to be
incompatible with a new operating system or web application that achieved
sufficient market penetration, our business would be harmed. In addition,
uncertainties related to the timing and nature of new product announcements,
introductions or modifications by vendors of operating systems, browsers, back-
office applications, and other Internet-related applications, could also harm
our business.

There are risks associated with international operations.

   To date, we have derived all of our revenues from sales to North American
customers. We plan to expand our international operations in the future. There
are many barriers to competing successfully in the international arena,
including:

  .  costs of customizing products for foreign countries;

  .  restrictions on the use of software encryption technology;

  .  dependence on local vendors;

  .  compliance with multiple, conflicting and changing governmental laws and
     regulations;

  .  longer sales cycles; and

  .  import and export restrictions and tariffs.

                                       8
Due to all of the foregoing, we cannot assure you that we will be able to
market, sell and deliver our products and services in international markets.

It is important for us to establish and maintain strategic relationships.

   To offer products and services to a larger customer base our direct sales
force depends on strategic partnerships and marketing alliances to obtain
customer leads, referrals and distribution. If we are unable to maintain our
existing strategic relationships or fail to enter into additional strategic
relationships, we will have to devote substantially more resources to the sale
and marketing of our products and services. We would also lose anticipated
customer introductions and co-marketing benefits. Our success depends in part
on the success of our strategic partners and their ability to market our
products and services successfully. In addition, our strategic partners may not
regard us as significant for their own businesses. Therefore, they could reduce
their commitment to us or terminate their respective relationships with us,
pursue other partnerships or relationships, or attempt to develop or acquire
products or services that compete with our products and services. Even if we
succeed in establishing these relationships, they may not result in additional
customers or revenues.

We must attract and retain qualified personnel.

   Our success depends on our ability to attract and retain qualified,
experienced employees. We face substantial competition for experienced
engineering, sales and consulting personnel in the market in which we compete.
Many of our competitors for experienced personnel have greater financial and
other resources than we do. We compete for personnel with Internet service
companies, software vendors, consulting and professional services companies. In
addition, our customers generally purchase consulting and implementation
services. While we have recently established relationships with some third-
party service providers, we continue to be the primary provider of these
services. It is difficult and expensive to recruit, train and retain qualified
personnel to perform these services, and we may from time to time have
inadequate levels of staffing to perform these services. As a result, our
growth could be limited due to our lack of capacity to provide such services,
or we could experience deterioration in service levels or decreased customer
satisfaction, any of which would harm our business.

We depend on growth in our services revenues to increase our total revenues.

   Our services revenues represent a significant component of our total
revenues. Services revenues represented 21% of total revenues for 1998 and 35%
of total revenues for the six months ended June 30, 1999. We anticipate that
services revenues will continue to represent a significant percentage of total
revenues in the future. To a large extent, the level of services revenues
depends upon our ability to license products which generate follow-on services
revenue. Additionally, services revenues growth depends on ongoing renewals of
maintenance and service contracts. Moreover, if third-party organizations such
as systems integrators become proficient in installing or servicing our
products, our services revenues could decline. Our ability to increase services
revenues will depend in large part on our ability to increase the capacity of
our professional services organization, including our ability to recruit, train
and retain a sufficient number of qualified personnel.

We might not be able to protect and enforce our intellectual property rights.

   We depend upon our proprietary technology, and rely on a combination of
patent, copyright and trademark laws, trade secrets, confidentiality procedures
and contractual provisions to protect it. We currently do not have any issued
United States or foreign patents, but have applied for one U.S. patent. It is
possible that a patent will not issue from our currently pending patent
application or any future patent application we may file. We have also
restricted customer access to our source code and required all employees to
enter into confidentiality and invention assignment agreements. Despite our
efforts to protect our proprietary technology, unauthorized parties may attempt
to copy aspects of our products or to obtain and use information that we regard
as proprietary. In addition, the laws of some foreign countries do not protect
our proprietary rights as effectively as the laws of

                                       9
the United States, and we expect that it will become more difficult to monitor
use of our products as we increase our international presence. In addition,
third parties may claim that our products infringe theirs.

Our failure to deliver defect-free software could result in losses and negative
publicity.

   Our software products are complex and have in the past and may in the future
contain defects or failures that may be detected at any point in the product's
life. We have discovered software defects in the past in certain of our
products after their release and we may experience delays or lost revenue to
correct such defects in the future. Despite our testing, defects and errors may
still be found in new or existing products, resulting in delayed or lost
revenues, loss of market share, failure to achieve acceptance, reduced customer
satisfaction, diversion of development resources and damage to our reputation.
As has occurred in the past, new releases of products or product enhancements
may require us to provide additional services under our maintenance contracts
to ensure proper installation and implementation. Moreover, third parties may
develop and spread computer viruses that may damage the functionality of our
software products. Any damage to or interruption in performance of our software
could also harm to our business.

Defects or errors in our products may result in product liability claims.

   Because customers rely on our products for business critical processes, any
significant defects or errors in our products or services might result in tort
or warranty claims. It is possible that the limitation of liability provisions
in our contracts may not be effective as a result of existing or future
federal, state or local laws or ordinances or unfavorable judicial decisions.
We have not experienced any such product liability claims to date, but we could
in the future. Further, although we maintain errors and omissions insurance,
such insurance coverage may not be adequate to cover us. A successful product
liability claim could harm our business. Defending a product liability suit,
regardless of its merits, could entail substantial expense and require the time
and attention of key management personnel.

Potential Year 2000 problems could harm our business.

   We may experience reduced sales of products as customers and potential
customers put a priority on correcting Year 2000 problems and therefore defer
purchases of our products until later in 2000. Accordingly, demand for our
products may be particularly volatile and unpredictable for the remainder of
1999 and early 2000.

   Our products are generally integrated into enterprise systems involving
sophisticated hardware and complex software products, which may not be Year
2000 compliant. We may in the future be subject to claims based on Year 2000
problems in other parties' products, Year 2000 problems alleged to be found in
our products, Year 2000 related issues arising from the integration of multiple
products within an overall system, or other similar claims. We also need to
ensure Year 2000 compliance of our own internal computer and other systems, to
continue testing our software products, to audit the Year 2000 compliance
status of our suppliers and business partners, and to conduct a legal audit. We
have not conducted a comprehensive Year 2000 investigation of our internal
systems and do not intend to do so. The total cost of Year 2000 compliance may
be material and may harm our business.

Past and future acquisitions might harm our business.

   In July 1999, we acquired Lexington Software Associates, Inc., a software
consulting company, to help support our existing customer base and to help
attract and retain new customers. We may be unable to integrate this company
into ours successfully, and our business may not benefit as expected. As part
of our business strategy, we may seek to acquire or invest in additional
businesses, products or technologies that we feel could complement or expand
our business. If we identify an appropriate acquisition opportunity, we might
be unable to negotiate the terms of that acquisition successfully, finance it,
or integrate it into our existing business and operations. We may also be
unable to select, manage or absorb any future acquisitions successfully.
Further, the

                                       10
negotiation of potential acquisitions, as well as the integration of an
acquired business, would divert management time and other resources. We may
have to use a substantial portion of our available cash, including proceeds of
this offering, to consummate an acquisition. On the other hand, if we
consummate acquisitions through an exchange of our securities, our stockholders
could suffer significant dilution. In addition, we cannot assure you that any
particular acquisition, even if successfully completed, will ultimately benefit
our business.

If widespread Internet adoption does not continue, or if the Internet cannot
accommodate continued growth, our business will be harmed.

   Acceptance of our products depends upon continued adoption of the Internet
for commerce. As is typical in the case of an emerging industry characterized
by rapidly changing technology, evolving industry standards and frequent new
product and service introductions, demand for and acceptance of recently
introduced e-commerce enabling products and services are subject to a high
level of uncertainty. To the extent that businesses do not consider the
Internet a viable commercial medium, our customer base may not grow. In
addition, critical issues concerning the commercial use of the Internet remain
unresolved and may affect the growth of Internet use. The adoption of the
Internet for commerce, communications and access to content, particularly by
those who have historically relied upon alternative methods, generally requires
understanding and acceptance of a new way of conducting business and exchanging
information. In particular, companies that have already invested substantial
resources in other means of conducting commerce and exchanging information may
be particularly reluctant or slow to adopt a new, Internet-based strategy that
may render their existing infrastructure obsolete. If the use of the Internet
fails to develop or develops more slowly than expected, our business may be
seriously harmed.

   To the extent that there is an increase in Internet use, an increase in
frequency of use or an increase in the required bandwidth of users, the
Internet infrastructure may not be able to support the demands placed upon it.
In addition, the Internet could lose its viability as a commercial medium due
to delays in development or adoption of new standards or protocols required to
handle increased levels of Internet activity. Changes in, or insufficient
availability of, telecommunications or similar services to support the Internet
also could result in slower response times and could adversely impact use of
the Internet generally. If use of the Internet does not continue to grow or
grows more slowly than expected, or if the Internet infrastructure, standards,
protocols or complementary products, services or facilities do not effectively
support any growth that may occur, our business would be seriously harmed.

There is substantial risk that future regulations could be enacted that either
directly restrict our business or indirectly impact our business by limiting
the growth of Internet commerce.

   As Internet commerce evolves, we expect that federal, state or foreign
agencies will adopt new legislation or regulations covering issues such as user
privacy, pricing, content and quality of products and services. If enacted,
such laws, rules or regulations could indirectly harm us to the extent that it
impacts our customers and potential customers. We cannot predict if or how any
future legislation or regulations would impact our business. Although many of
these regulations may not apply to our business directly, we expect that laws
regulating or affecting commerce on the Internet could indirectly harm our
business.

Our existing stockholders control a majority of our stock.

   Immediately after the closing of this offering, approximately  % of our
outstanding capital stock will be owned by our directors and executive officers
or their affiliated entities. As a result, these stockholders, acting together,
would be able to control all matters requiring approval by the stockholders,
including the election of all directors and approval of significant corporate
transactions.

                                       11
We have various mechanisms in place to discourage takeover attempts.

   Certain provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a change in control. These provisions include:

  .  authorizing the issuance of "blank check" preferred stock that could be
     issued by our board of directors to increase the number of outstanding
     shares and thwart a takeover attempt;

  .  providing for the election of only one-third of our directors at each
     annual meeting of stockholders;

  .  limitations on who may call special meetings of stockholders;

  .  prohibiting stockholder action by written consent, thereby requiring all
     stockholder actions to be taken at a meeting of our stockholders; and

  .  establishing advance notice requirements for nominations for election to
     the board of directors or for proposing matters that can be acted upon
     by stockholders at stockholder meetings.

   In addition, Section 203 of the Delaware General Corporations Law and our
stock incentive plans may discourage, delay or prevent a change in control of
us. See "Description of Capital Stock--Anti-Takeover Provisions."

Our stock price may be volatile because our shares have not been publicly
traded before.

   There has not previously been a public market for our common stock. We
cannot predict the extent to which investor interest in Interwoven will lead to
the development of a trading market or how liquid that market might become. The
initial public offering price for our shares will be determined by negotiations
between us and the representatives of the underwriters and may not be
indicative of prices that will prevail in the trading market. The trading price
of our common stock could be subject to wide fluctuations in response to
factors such as those described in the risk factor "Our operating results
fluctuate widely and are difficult to predict."

   In addition, the stock markets generally, and the Nasdaq National Market and
technology companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. The trading prices of many technology
companies' stock are at or near historical highs and these trading prices and
multiples are substantially above historic levels. These trading prices and
multiples may not be sustained. These broad market and industry factors may
seriously impact the market price of our common stock, regardless of our actual
operating performance.

Purchasers in this offering will incur immediate and substantial dilution.

   The initial public offering price of our common stock will be substantially
higher than the book value per share of the outstanding common stock. As a
result, if we were liquidated for book value immediately following this
offering, each stockholder purchasing in this offering would receive less than
they paid for their common stock. To the extent that outstanding options to
purchase our common stock are exercised, or options or warrants reserved for
issuance are issued and exercised, each stockholder purchasing in this offering
will experience further substantial dilution.

Our stock price could be affected by more shares becoming available for sale.

   Sales of a substantial number of shares of common stock after this offering
could adversely affect the market price of our common stock and could impair
our ability to raise capital through the sale of additional equity securities.
For a description of the shares of our common stock that are eligible for
future sale, see "Shares Eligible for Future Sale."

                                       12
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. In some cases, you can identify forward-looking statements
by terms such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential," "continue" or the negative of
these terms or other comparable terminology. The forward-looking statements
contained in this prospectus involve known and unknown risks, uncertainties and
other factors that may cause industry trends or our actual results, level of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by these statements. These factors include, among others, those listed
under "Risk Factors" and elsewhere in this prospectus.

   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 these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus.

                                       13
USE OF PROCEEDS

   We estimate that we will receive net proceeds of approximately $    from the
sale of     shares of our common stock ($    if the underwriters' over-
allotment option is exercised in full) at an assumed initial public offering
price of $     per share and after deducting estimated underwriting discounts
and commissions and estimated offering expenses. 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 from this offering for working capital and
general corporate requirements. We may use the proceeds for acquisitions of
technologies, product lines or businesses that are complementary to our
business. We have no current acquisition plans. Pending such uses, we plan to
invest the net proceeds in short-term to medium-term interest-bearing,
investment grade securities. Management will have broad discretion over the
allocation of the net proceeds from this offering.

                                DIVIDEND POLICY

   We have never declared or paid cash dividends on our common stock or other
securities, and we do not anticipate paying a cash dividend in the foreseeable
future. Our lines of credit currently prohibit the payment of dividends.

                                       14
CAPITALIZATION

   The following table sets forth the following information, as of June 30,
1999:
  .  our actual capitalization;
  .  our pro forma capitalization after giving effect to the conversion of
     all outstanding shares of preferred stock into shares of common stock
     upon the closing of this offering; and
  .  our pro forma as adjusted capitalization to give effect to the sale of
         shares of common stock offered hereby at an assumed initial public
     offering price of $   per share, less the estimated underwriting
     discounts and commissions and estimated offering expenses.
June 30, 1999
                                                -------------------------------
                                                            Pro      Pro Forma
                                                 Actual    Forma    As Adjusted
                                                --------  --------  -----------
                                                 (in thousands, except share
                                                            data)
Debt and leases, long-term..................... $  1,000  $  1,000     $
Mandatorily redeemable convertible preferred
 stock, 18,763,092 shares authorized,
 18,455,184 shares issued and outstanding,
 actual; no shares authorized, issued or
 outstanding, pro forma and pro forma as
 adjusted......................................   45,276       --
Stockholders' equity (deficit):
  Preferred stock, $0.001 par value, no shares
   authorized, issued or outstanding, actual;
   5,000,000 shares authorized, no shares
   issued or outstanding, pro forma and pro
   forma as adjusted...........................      --        --       --
  Common stock, $0.001 par value, 26,666,667
   shares authorized, 6,230,590 shares issued
   and outstanding, actual; 75,000,000 shares
   authorized, 18,642,241 shares issued and
   outstanding, pro forma;     shares issued
   and outstanding, pro forma as adjusted......        6        19
  Additional paid-in capital...................    9,483    54,746
  Notes receivable for purchase of common
   stock.......................................     (202)     (202)
  Deferred stock-based compensation............   (6,130)   (6,130)
  Accumulated deficit..........................  (24,312)  (24,312)
                                                --------  --------     ----
    Total stockholders' equity (deficit).......  (21,155)   24,121
                                                --------  --------     ----
      Total capitalization..................... $ 25,121  $ 25,121     $
                                                ========  ========     ====
The table excludes:

  .  944,980 shares of issuable upon options outstanding at June 30, 1999
     under our stock option plans and 3,684,034 shares available for future
     issuance under those plans;

  .  300,000 shares available for future issuance under our employee stock
     purchase plan;

  .  72,071 shares issuable upon exercise of outstanding warrants;

  .  249,667 shares issuable upon exercise of outstanding options issued
     after June 30, 1999; and

  .  11,772 shares issuable upon exercise of outstanding warrants issued
     after June 30, 1999.

                                       15
DILUTION

   The pro forma net intangible book value of our common stock as of June 30,
1999, after giving effect to the conversion of all outstanding shares of
preferred stock into common stock, was $24.1 million, or approximately $1.94
per share. Pro forma net tangible book value per share represents the amount of
our total tangible assets less total liabilities, divided by the number of
shares of common stock outstanding. Assuming our sale of       shares of common
stock offered at an assumed initial public offering price of $   per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses, our pro forma net tangible book value as of June 30, 1999
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:
Assumed initial public offering price per share.....................       $
  Pro forma net tangible book value per share as of June 30, 1999... $1.94
  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.................................       $
                                                                           ====
The following table summarizes, on a pro forma basis, as of June 30, 1999,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by the new investors purchasing shares in this offering. We
have assumed an initial public offering price of $   per share, and we have not
deducted estimated underwriting discounts and commissions and estimated
offering expenses in our calculations.
Shares Purchased  Total Consideration  Average
                                ------------------ -------------------   Price
                                  Number   Percent   Amount    Percent Per Share
                                ---------- ------- ----------- ------- ---------
Existing stockholders.......... 18,642,291      %  $39,603,609      %    $2.12
New investors..................
                                ----------   ---   -----------   ---     -----
  Total........................              100%                100%
                                ==========   ===   ===========   ===     =====
The foregoing discussion and table assume no exercise of any outstanding
stock options. The exercise of stock options outstanding under our stock option
plans having an exercise price less than the offering price would increase the
dilutive effect to new investors.

                                       16
SELECTED FINANCIAL DATA

   The following selected financial data should be read in conjunction with,
and is qualified by reference to, the Financial Statements and Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial data included elsewhere in this prospectus.

   The statement of operations data for the years ended December 31, 1996, 1997
and 1998 and the balance sheet data at December 31, 1997 and 1998, are derived
from and are qualified by reference to audited financial statements included
elsewhere in this prospectus. The balance sheet data at December 31, 1996 is
derived from audited financial statements not included in this prospectus. The
statement of operations data for the six months ended June 30, 1998 and 1999,
and the balance sheet data at June 30, 1999 are derived from unaudited
financial statements included elsewhere in this prospectus and, in the 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.
Year Ended            Six Months
                                          December 31,         Ended June 30,
                                     ------------------------  ----------------
                                      1996    1997     1998     1998     1999
                                     ------  -------  -------  -------  -------
                                     (in thousands, except per share data)
Statement of Operations Data:
Revenues:
 License ..........................  $  --   $    84  $ 3,176  $   624  $ 3,258
 Services .........................     --        84      827      262    1,746
                                     ------  -------  -------  -------  -------
 Total revenues....................     --       168    4,003      886    5,004
                                     ------  -------  -------  -------  -------
Cost of revenues:
 License...........................     --       --        59      --       119
 Services..........................     --        95    1,274      350    1,429
                                     ------  -------  -------  -------  -------
 Total cost of revenues............     --        95    1,333      350    1,548
                                     ------  -------  -------  -------  -------
Gross profit.......................     --        73    2,670      536    3,456
Operating expenses:
 Research and development..........     328      884    1,797      735    1,701
 Sales and marketing...............     101    1,519    4,817    1,357    5,225
 General and administrative........      91      530    1,739      572    1,244
 Amortization of deferred stock-
  based compensation...............     --       --       812      347    1,668
                                     ------  -------  -------  -------  -------
 Total operating expenses..........     520    2,933    9,165    3,011    9,838
                                     ------  -------  -------  -------  -------
Loss from operations...............    (520)  (2,860)  (6,495)  (2,475)  (6,382)
Other income (expense), net........      10      (88)     151       57      154
                                     ------  -------  -------  -------  -------
Net loss...........................  $ (510) $(2,948) $(6,344) $(2,418) $(6,228)
                                     ======  =======  =======  =======  =======
Net loss per share:
 Basic and diluted.................  $(0.22) $ (1.36) $ (2.85) $ (1.25) $ (3.66)
 Weighted average shares--basic and
  diluted..........................   2,282    2,356    2,633    2,404    3,435
Pro forma net loss per share:
 Basic and diluted.................                   $ (0.74)          $ (0.44)
 Weighted average shares--basic and
  diluted..........................                     8,530            14,000
December 31,
                                                ---------------------  June 30,
                                                1996   1997    1998      1999
                                                ----  ------  -------  --------
                                                       (in thousands)
Balance Sheet Data:
Cash and cash equivalents...................... $ 17  $1,019  $ 9,022  $25,203
Working capital................................ (208)    792    8,844   22,634
Total assets...................................   92   1,384   13,908   29,948
Total stockholders' deficit.................... (525) (3,734) (10,752) (21,155)
See Note 1 of Notes to Financial Statements for a discussion regarding
computation and presentation of pro forma basic and diluted net loss per share
and shares used in computing pro forma basic and diluted net loss per share.

                                       17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

   The following discussion and analysis of the financial condition and results
of operations should be read in conjunction with "Selected Financial Data" and
our Financial Statements and Notes appearing elsewhere in this prospectus. This
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. The actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including, but not limited to, those set forth under "Risk Factors"
and elsewhere in this prospectus.

OVERVIEW

   Interwoven was incorporated in March 1995 to provide software products and
services for web content management. Designed specifically for the web, our
products allow large teams of people across an enterprise to contribute and
edit web content on a collaborative basis, reducing the time-to-web for
critical eBusiness initiatives. From March 1995 through March 1997, we were a
development stage company conducting research and development for our initial
products. In May 1997, we shipped the first version of our principal product,
TeamSite. We have subsequently developed and released enhanced versions of
TeamSite and have introduced related products. As of June 30, 1999, we had sold
our products and services to over 75 customers. We market and sell our products
primarily through a direct sales force and augment our sales efforts through
relationships with systems integrators and other strategic partners. We are
headquartered in Sunnyvale, California and maintain additional offices in the
metropolitan areas of Atlanta, Boston, Chicago, Los Angeles, Seattle and
Washington, D.C. Our revenues to date have been derived exclusively from
accounts in North America. In May 1999, we opened an office in the United
Kingdom.

   We derive revenues from the license of our software products and from
services we provide to our customers. To date, we have derived virtually all of
our license revenues from licenses of TeamSite. License revenues are recognized
when persuasive evidence of an agreement exists, the product has been
delivered, no significant post-delivery obligations remain, the license fee is
fixed or determinable and collection of the fee is probable. Services revenues
consist of professional services and maintenance fees. Professional services
primarily consist of software installation and integration, business process
consulting and training. We generally bill our professional services customers
on a time and materials basis and recognize revenues as the services are
performed. Maintenance agreements are typically priced based on a percentage of
the product license fee, and typically have a one-year term that is renewable
annually. Services provided to customers under maintenance agreements include
technical product support and an unspecified number of product upgrades as
released by us during the term of a maintenance agreement. Revenues from
maintenance support agreements are recognized ratably over the term of the
agreement.

   Since inception, we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our engineering,
sales and marketing and services organizations, and to establish an
administrative organization. As a result, we have incurred net losses in each
quarter since inception and, as of June 30, 1999, had an accumulated deficit of
$21.2 million. We anticipate that our cost of services revenues and operating
expenses will increase substantially in future quarters as we grow our services
organization to support an increased level and expanded number of services
offered, increase our sales and marketing operations, develop new distribution
channels, fund greater levels of research and development, and improve
operational and financial systems. Accordingly, we expect to incur additional
losses for the foreseeable future as we continue to expand our operations. 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 profitability.

   On July 1, 1999, we acquired Lexington Software Associates, Inc. As a result
of this acquisition, we have substantially increased our professional services
organization. The Lexington Software acquisition added 18 employees to the 118
employees we had as of June 30, 1999. See Note 9 of Notes to Financial
Statements.

                                       18
Results of Operations

   The following table lists, for the periods indicated, each line as a
percentage of total revenues:
Years Ended      Six Months Ended
                                        December 31,          June 30,
                                        ----------------  -------------------
                                         1997     1998      1998       1999
                                        -------   ------  --------   --------
Revenues:
  License..............................      50%     79%        70%        65%
  Services.............................      50      21         30         35
                                        -------   -----   --------   --------
    Total revenues.....................     100     100        100        100
                                        -------   -----   --------   --------
Cost of revenues:
  License..............................     --        1        --           2
  Services.............................      57      32         40         29
                                        -------   -----   --------   --------
    Total cost of revenues.............      57      33         40         31
                                        -------   -----   --------   --------
Gross profit...........................      43      67         60         69
                                        -------   -----   --------   --------
Operating expenses:
  Research and development.............     526      45         83         34
  Sales and marketing..................     904     120        153        104
  General and administrative...........     315      43         65         25
  Amortization of deferred stock-based
   compensation........................     --       20         39         33
                                        -------   -----   --------   --------
    Total operating expenses...........   1,745     228        340        196
                                        -------   -----   --------   --------
Loss from operations...................  (1,702)   (161)      (280)      (127)
Other income (expense), net............     (52)      4          6          3
                                        -------   -----   --------   --------
Net loss...............................  (1,754)%  (157)%     (274)%     (124)%
                                        =======   =====   ========   ========
Six Months Ended June 30, 1998 and 1999

 Revenues

   Total revenues increased 456% from $900,000 for the six months ended June
30, 1998 to $5.0 million for the six months ended June 30, 1999. This increase
was attributable to greater market acceptance of our products and services
after their introduction in 1997 and an increase in the number of sales and
marketing staff, resulting in an increased number of customers.

   License. License revenues increased 429% from $624,000 for the six months
ended June 30, 1998 to $3.3 million for the six months ended June 30, 1999.
License revenues represented 70% and 65% of total revenues, respectively, in
those periods. The increase in license revenues reflected growing market
acceptance of our products, an expanded direct sales force, and an increase in
average size of new customer contracts.

   Services. Services revenues increased 549% from $262,000 for the six months
ended June 30, 1998 to $1.7 million for the six months ended June 30, 1999.
Services revenues represented 30% and 35% of total revenues, respectively, in
those periods. The increase in services revenues reflected an increase in both
professional services and maintenance fees generated from an expanded number of
customers who licensed our products.

 Cost of Revenues

   License. Cost of license revenues includes expenses incurred to manufacture,
package and distribute software products and related documentation, as well as
costs of licensing third-party software sold in conjunction with our software
products. Cost of license revenues was not significant for the six months ended
June 30, 1998 and increased to $119,000 for the six months ended June 30, 1999.
Cost of license revenues

                                       19
represented 4% of license revenues in the six months ended June 30, 1999. The
increase in cost of license revenues primarily reflected increased sales of
third-party products sold in conjunction with our software products. Cost of
license revenues may fluctuate from period to period as we sell higher or lower
numbers of third-party products.

   Services. Cost of services revenues consists primarily of salary and related
costs of our professional services, training, maintenance and support staffs,
as well as subcontractor expenses. Cost of services revenues increased 300%
from $350,000 for the six months ended June 30, 1998 to $1.4 million for the
six months ended June 30, 1999. Cost of services revenues represented 134% and
82% of services revenues, respectively, in those periods. This increase in
dollar amounts was primarily due to an increase in the number of staff and
subcontractors used to provide services to our expanded customer base.

   We expect our cost of services revenues to increase in dollar amounts as a
result of the increased staffing of our professional services organization due
to our acquisition of Lexington Software and through our continued expansion of
our services staff and consulting organizations. Since services revenues have
substantially lower margins than license revenues, this expansion would reduce
our gross margins if our license revenues were not to increase significantly.
We expect cost of services revenues as a percentage of services revenues to
vary from period to period depending on the mix of services we provide, whether
such services are performed by our staff or subcontractors, and the overall
utilization rates of professional services staff.

 Gross Profit

   Gross profit increased 553% from $536,000 for the six months ended June 30,
1998 to $3.5 million for the six months ended June 30, 1999. Gross profit
represented 60% and 69% of total revenues, respectively, in those periods. This
increase in dollar amounts reflects increased license and services revenues
from a growing customer base. We expect gross profit as a percentage of total
revenues to fluctuate from period to period as a result of changes in the
relative proportion of license and services revenues.

 Operating Expenses

   Research and Development. Research and development expenses consist
primarily of personnel and related costs to support product development.
Research and development expenses increased 131% from $735,000 for the six
months ended June 30, 1998 to $1.7 million for the six months ended June 30,
1999, representing 83% and 34% of total revenues, respectively, in those
periods. This increase in dollar amounts was due to increases in the number of
product development personnel. We believe that continued investment in research
and development is critical to our strategic objectives, and we expect that the
dollar amounts of research and development expenses will increase significantly
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 related costs for sales and marketing personnel, sales
commissions, travel and marketing programs. Sales and marketing expenses
increased 271% from $1.4 million for the six months ended June 30, 1998 to $5.2
million for the six months ended June 30, 1999, representing 153% and 104% of
total revenues, respectively, in those periods. This increase in dollar amounts
was due to increases in the number of our sales and marketing personnel, higher
sales commissions and increased marketing activities. We expect to continue to
invest heavily in sales and marketing in order to expand our customer base and
increase brand awareness. We also anticipate that the percentage of total
revenues represented by sales and marketing expenses will fluctuate from period
to period primarily depending on when we hire new sales personnel, the timing
of new marketing programs and the levels of revenues in each period.

   General and Administrative. General and administrative expenses consist
primarily of salaries and related costs for accounting, human resources, legal
and other administrative functions, as well as provisions for doubtful
accounts. General and administrative expenses increased 110% from $572,000 for
the six months

                                       20
ended June 30, 1998 to $1.2 million for the six months ended June 30, 1999,
representing 65% and 25% of total revenues, respectively. This increase in
dollar amounts was due to additional staffing of these functions to support
expanded operations during this same period. We expect general and
administrative expenses to increase in dollar amounts in 1999 as we add
personnel to support expanding operations, incur additional costs related to
the growth of our business, and assume the reporting requirements of a public
company.

   Amortization of Deferred Stock-Based Compensation. In 1998 and the first six
months of 1999, we recorded deferred stock-based compensation of $1.9 million
and $6.7 million in connection with stock options granted during 1998 and 1999,
respectively. 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. Amortization of deferred stock-based compensation was
$347,000 and $1.7 million for the six months ended June 30, 1998 and 1999,
respectively. We expect per quarter amortization related to these options of
approximately $1.0 million during the remainder of 1999, between $500,000 and
$750,000 during 2000, between $270,000 and $400,000 during 2001 and between
$130,000 and $250,000 during 2002.

 Other Income (Expense), Net

   Other income (expense), net, consists of primarily interest income and
expenses. Other income (expense), net, increased from $57,000 for the six
months ended June 30, 1998 to $154,000 for the six months ended June 30, 1999
due to higher average cash balances.

 Income Taxes

   As of June 30, 1999, we had approximately $10.8 million of federal and $1.7
million of state net operating loss carryforwards available to reduce future
taxable income, expiring in 2015 and 2010 for federal and state tax purposes,
respectively. Under the Tax Reform Act of 1986, the amounts of and benefits
from net operating loss carryforwards may be impaired or limited in certain
circumstances. Events which cause limitation in the amount of net operating
losses that we may utilize in any one year include, but are not limited to, a
cumulative ownership change of more than 50%, as defined, over a three year
period. 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 factors such as our history of
operating losses and expected future losses and the nature of our deferred tax
assets. See Note 5 of Notes to Financial Statements.

Years Ended December 31, 1996, 1997 and 1998

 Revenues

   We had no revenues in 1996. Total revenues increased from $168,000 in 1997
to $4.0 million in 1998. This increase was attributable to greater market
acceptance of our software products after their introduction in 1997 and an
increase in the number of sales and marketing staff, resulting in an increased
number of customers.

   License. License revenues increased from $84,000 in 1997 to $3.2 million in
1998. License revenues represented 50% and 79% of total revenues, respectively,
in those periods. The increase in license revenues reflected a growing market
acceptance of our software products, an expanded direct sales force, and an
increase in average size of new customer contracts.

   Services. Services revenues increased from $84,000 in 1997 to $827,000 in
1998. Services revenues represented 50% and 21% of total revenues,
respectively, in those periods. The increase in services revenues reflected an
increase in both professional services and maintenance fees generated from an
expanded number of customers who licensed our products.

                                       21
Cost of Revenues

   License. We had no cost of license revenues in 1996 or 1997. Cost of license
revenues in 1998 was $59,000 and represented 2% of license revenues in 1998.
The increase in cost of license revenues primarily reflects increased sales of
third-party products sold in conjunction with our software products.

   Services. We had no cost of services revenues in 1996. Cost of services
revenues increased from $95,000 in 1997 to $1.3 million in 1998. Cost of
services revenues represented 113% and 154% of services revenues, respectively,
in those periods. This increase was primarily due to an increase in the number
of services personnel and subcontractors used to provide services to our
expanded customer base.

 Gross Profit

   Gross profit increased from $73,000 in 1997 to $2.7 million in 1998,
representing 43% and 67% of total revenues, respectively, in those periods.
This increase reflected increased license and services revenues from a growing
customer base.

 Operating Expenses

   Research and Development. Research and development expenses increased from
$328,000 in 1996 to $884,000 in 1997 and $1.8 million in 1998. Research and
development expenses represented 526% and 45% of total revenues in 1997 and
1998, respectively. This increase in dollar amounts was due to increases in the
number of product development personnel.

   Sales and Marketing. Sales and marketing expenses increased from $101,000 in
1996 to $1.5 million in 1997 and $4.8 million in 1998. Sales and marketing
expenses represented 904% and 120% of total revenues in 1997 and 1998,
respectively. This increase in dollar amounts was due to increases in sales and
marketing personnel, higher sales commissions and increased marketing
activities.

   General and Administrative. General and administrative expenses increased
from $91,000 in 1996 to $530,000 in 1997 and $1.7 million in 1998, representing
315% and 43% of total revenues in 1997 and 1998, respectively. This increase in
dollar amounts was due to additional staffing of these functions to support
expanded operations during this same period.

   Amortization of Deferred Stock-Based Compensation. In 1998 we recorded
deferred stock-based compensation of $1.9 million, $812,000 of which was
amortized in 1998.

 Other Income (Expense), Net

   Other income (expense), net, decreased from $10,000 in 1996 to ($88,000) in
1997 and increased to $151,000 in 1998. The decrease from 1996 to 1997
reflected increased interest expense on promissory notes issued in conjunction
with the sale of our preferred stock. The increase from 1997 to 1998 was due to
increased interest income earned from cash balances on hand as a result of
sales of our preferred stock in March, October, November and December 1998,
partially offset by increased interest expense.

                                       22
Quarterly Results of Operations

   The following tables set forth our unaudited statements of operations data
in dollars and as a percentage of total revenues for each of our last six
quarters. This data has been derived from unaudited financial statements that
have been prepared on the same basis as our annual audited financial statements
and, in our opinion, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such information.
These unaudited quarterly results should be read in conjunction with the annual
audited financial statements and notes thereto appearing elsewhere in this
prospectus. The results of operations for any quarter are not necessarily
indicative of the results for any future period.
Three Months Ended
                          ----------------------------------------------------------
                          March 31, June 30,  Sept. 30, Dec. 31,  March 31, June 30,
                            1998      1998      1998      1998      1999      1999
                          --------- --------  --------- --------  --------- --------
                                               (in thousands)
Statement of Operations
 Data:
Revenues:
  License...............    $ 187   $   437    $   946  $ 1,606    $ 1,360  $ 1,898
  Services..............       44       218        277      288        742    1,004
                            -----   -------    -------  -------    -------  -------
   Total revenues.......      231       655      1,223    1,894      2,102    2,902
                            -----   -------    -------  -------    -------  -------
Cost of revenues:
  License...............      --        --          19       40         15      104
  Services..............       75       275        441      483        549      880
                            -----   -------    -------  -------    -------  -------
   Total cost of
    revenues............       75       275        460      523        564      984
                            -----   -------    -------  -------    -------  -------
   Gross profit.........      156       380        763    1,371      1,538    1,918
                            -----   -------    -------  -------    -------  -------
Operating expenses:
  Research and
   development..........      282       453        492      570        779      922
  Sales and marketing...      473       884      1,603    1,857      2,287    2,938
  General and
   administrative.......      185       387        563      604        598      646
  Amortization of
   deferred stock-based
   compensation.........      151       196        217      248        640    1,028
                            -----   -------    -------  -------    -------  -------
   Total operating
    expenses............    1,091     1,920      2,875    3,279      4,304    5,534
                            -----   -------    -------  -------    -------  -------
Loss from operations....     (935)   (1,540)    (2,112)  (1,908)    (2,766)  (3,616)
Other income, net.......        4        53         32       62         65       89
Net loss................    $(931)  $(1,487)   $(2,080) $(1,846)   $(2,701) $(3,527)
                            =====   =======    =======  =======    =======  =======
Three Months Ended
                          --------------------------------------------------------
                          March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
                            1998      1998     1998      1998     1999      1999
                          --------- -------- --------- -------- --------- --------
As a Percentage of Total
 Revenues:
Revenues:
  License...............      81%       67%      77%       85%      65%       65%
  Services..............      19        33       23        15       35        35
                            ----      ----     ----      ----     ----      ----
   Total revenues.......     100       100      100       100      100       100
                            ----      ----     ----      ----     ----      ----
Cost of revenues:
  License...............     --        --         2         2        1         4
  Services..............      32        42       36        26       26        30
                            ----      ----     ----      ----     ----      ----
   Total cost of
    revenues............      32        42       38        28       27        34
                            ----      ----     ----      ----     ----      ----
   Gross profit.........      68        58       62        72       73        66
                            ----      ----     ----      ----     ----      ----
Operating expenses:
  Research and
   development..........     122        69       40        30       37        32
  Sales and marketing...     205       135      131        98      109       101
  General and
   administrative.......      80        59       46        32       28        22
  Amortization of
   deferred stock-based
   compensation.........      65        30       18        13       30        35
                            ----      ----     ----      ----     ----      ----
   Total operating
    expenses............     472       293      235       173      204       190
                            ----      ----     ----      ----     ----      ----
Loss from operations....    (404)     (235)    (173)     (101)    (131)     (124)
Other income, net.......       2         8        3         3        3         3
Net loss................    (402)%    (227)%   (170)%    ( 98)%   (128)%    (121)%
                            ====      ====     ====      ====     ====      ====
23
Our license and services revenues have grown in each of the six quarters in
the period ended June 30, 1999, except that our license revenues declined in
the three month period ended March 31, 1999 from that in the three month period
ended December 31, 1998. This decline reflected the unusually high revenues in
the prior period, due in part to certain large license sales in that period. In
addition, many companies that license enterprise-scale software products to
large customers experience seasonal declines in the first fiscal quarter
following the end of their fiscal year. Because of our limited operating
history, we do not know whether this pattern was responsible for the declines
in the three months ended March 31, 1999, or whether it will apply to future
quarterly results. As a general matter, we depend on sales to a relatively few
large customers. As a result, our revenues are subject to period-to-period
fluctuations reflecting the impact of a few large sales.

   Increased services revenues beginning in the three month period ended March
31, 1999 reflect an increase in both professional services and maintenance fees
generated from an expanded number of customers which had licensed our products
in prior periods, and an increase in the number of professional services staff
and a higher effective staff utilization rate.

Liquidity and Capital Resources

   Since inception, we have funded our operations through private sales of
equity securities. We raised a total of $37.0 million, net of offering costs,
from the issuance of preferred stock. At June 30, 1999, our sources of
liquidity consisted of $25.2 million in cash and cash equivalents and $22.6
million in working capital. We have a $3.0 million line of credit and a $1.5
million equipment line of credit with Silicon Valley Bank, each of which bear
interest at the bank's prime rate, which was 7.75% at June 30, 1999, plus
0.25%. At June 30, 1999, the line of credit was unused and $1.5 million was
outstanding under the equipment line of credit. The lines of credit are secured
by all of our tangible and intangible assets. We are currently in compliance
with all related financial covenants and restrictions.

   Net cash used in operating activities was $2.7 million in 1997 and $6.0
million in 1998. Net cash used in operating activities in 1997 and 1998
reflected net losses and, to a lesser extent, accounts receivable, offset in
part by increases in accrued liabilities. Net cash used in operating activities
was $2.2 million in the six months ended June 30, 1999. Net cash used in
operating activities reflected increasing net losses offset in part by
reductions in accounts receivable and increases in accounts payable.

   From inception, our investing activities have consisted primarily of
purchases of property and equipment, principally computer hardware and software
for our growing number of employees. Capital expenditures, including those
under capital leases, totaled $138,000, $1.7 million and $561,000 in 1997, 1998
and the six months ended June 30, 1999, respectively. We expect that capital
expenditures will increase with our anticipated growth in operations,
infrastructure and personnel. We do not expect to incur significant costs to
make our products or internal information systems Year 2000 compliant because
we believe such products and information systems are designed to function
properly through and beyond year 2000.

   Net cash provided by financing activities in 1997, 1998 and the first six
months of 1999 was $3.9 million, $15.8 million and $18.9 million, respectively.
Net cash provided by financing activities reflected primarily the proceeds of
issuances of preferred stock in each of these periods, and, in 1998, included
proceeds from a bank line of credit.

   We believe that the net proceeds of this offering, together with cash and
cash equivalents, and funds available under existing 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 financing or from other
sources. There can be no assurance that additional financing will be available
on acceptable terms, if at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable 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, financial condition and operating results.

                                       24
Recent Accounting Pronouncements

   In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities" ("SFAS No. 133"). SFAS 133 is effective for all fiscal quarters
beginning with the quarter ending June 30, 2000. SFAS 133 establishes
accounting and reporting standards of derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
We will adopt SFAS No. 133 in the quarter ending June 30, 2000 and do not
expect such adoption to have an impact on our results of operations, financial
position or cash flows.

Qualitative and Quantitative Disclosures About Market Risk

   We develop products in the United States and market our products in North
America, and, to a lesser extent in Europe. As a result, our financial results
could be affected by factors such as changes in foreign currency exchange rates
or weak economic conditions in foreign markets. Since all of our revenue is
currently denominated in U.S. Dollars, a strengthening of the Dollar could make
our products less competitive in foreign markets. Our interest income and
expense is sensitive to changes in the general level of U.S. interest rates,
particularly since the majority of our financial investments are short-term.
Due to the short-term nature of our financial investments, we believe that
there is not a material risk exposure.

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 a Year 2000 readiness review for the current and prior
versions of our products. The review includes assessment, implementation
(including remediation, upgrading and replacement of certain product versions),
validation testing and contingency planning.

   We have largely completed all phases of our plan, except for contingency
planning, with respect to the current and prior versions of all of our
products. As a result, the current and prior versions of each of its 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 the Company's products are also Year 2000 compliant.

   We define "Year 2000 compliant" as the ability to: (i) correctly handle date
information needed for the December 31, 1999 to January 1, 2000 date change;
(ii) 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; (iii) 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; (iv) store and provide output of
date information in ways that are unambiguous as to century if the date
elements in interfaces and data storage specify the century; and (v) recognize
year 2000 as a leap year. We have not tested our products on all platforms or
all versions of operating systems that it currently supports.

   We are testing software obtained from third parties (licensed software,
shareware, and freeware) that is incorporated into our products or sold in
conjunction with our products, and have assurances from our vendors that
licensed software is Year 2000 compliant. Despite our testing, 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, or liability from our customers, any
of which could seriously harm our business.

   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.

                                       25
Our internal systems include both its information technology ("IT") and non-
IT systems. We have initiated an assessment of our business critical internal
IT systems (including both our own software products and third party software
and hardware technology) but have not initiated an assessment of our non-IT
systems. We expect to complete testing of our IT systems in 1999. 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 unanticipated problems and costs caused by
undetected errors or defects in the technology used in our internal IT and non-
IT systems.

   We currently have only limited information concerning the Year 2000
compliance status of our customers. As is the case with other similarly
situated software companies, if our current or future customers fail to achieve
Year 2000 compliance or if they divert technology expenditures (especially
technology expenditures that were reserved for enterprise software) to address
Year 2000 compliance problems, our business could be harmed.

   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 expect to 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 harm its business.

   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 and do not anticipate the need to do so. 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.

                                       26
BUSINESS

   The following discussion contains forward-looking statements that involve
assumptions, uncertainties and risks. Actual outcomes may differ from those
anticipated in these forward-looking statements in significant ways, as a
result of factors such as those set forth under "Risk Factors" and elsewhere in
this prospectus.

Overview

   Interwoven is a leading provider of web content management solutions. Our
flagship product, TeamSite, is an open, standards-based enterprise platform
designed to help customers develop, maintain and extend large, mission-critical
web sites. TeamSite combines the functions of content management, version
control, workflow and application development in a single platform that allows
large numbers of contributors across an enterprise to add web content in a
well-managed manner. By using our products, businesses can accelerate their
time-to-web, lower web operating costs, establish a differentiated presence on
the web and attract and retain customers. Currently, we have over 75 customers
operating in a broad range of industries. Our customers include AltaVista, Best
Buy, Cisco Systems, FedEx, The Gap, GeoCities, TCI, the U.S. Department of
Education, USWeb/CKS and Viacom/Nickelodeon.

Industry Background

   The use of the Internet to communicate and conduct business is increasing
rapidly. Companies are accelerating their movement to the Internet to
capitalize on new business opportunities, reach broader consumer audiences and
reduce operational costs. Forrester Research estimates that the business-to-
consumer e-commerce market will grow from $7.8 billion in 1998 to $108 billion
in 2003. In addition, International Data Corporation, or IDC, estimates that
the business-to-business e-commerce market will grow from $24.9 billion in 1998
to $632.9 billion in 2003.

   Migrating to the Web. As leading companies demonstrate revenue growth and
achieve competitive advantage by using the Internet, chief executives and other
senior corporate decision makers are realizing that web-based business
applications, or eBusiness initiatives, are critical for the success of their
businesses. As a result, many companies are developing eBusiness applications
to enable them to market and sell products and services to consumers online,
offer web-based customer self-service programs, implement business-to-business
supply chain management solutions and migrate other operational functions
online. IDC estimates that spending on software applications and services for
e-commerce alone will grow from $7.8 billion in 1998 to $53.8 billion by 2002.

   Moving Online Successfully. To compete online and to capitalize on Internet
revenue opportunities, businesses must rapidly build a differentiated presence
on the web and continuously maintain and extend that presence. Since first-
mover advantage is amplified on the web, companies must deploy high quality
eBusiness applications quickly to create an online brand and establish a loyal
base of customers. Accelerating time-to-web is essential to attracting
customers and generating revenue opportunities. In addition, to retain
customers, a company must differentiate its web site from competing sites by
offering rich, accurate and relevant content. Once customers discover value in
a web site, they may be less likely to visit competing web sites. Web site
reliability is also important since customers are only a click away from
competitors' sites and may lose patience with an incomplete or non-functioning
web site. Moreover, poor quality web sites can easily damage a business' online
brand.

   Evolving Web Sites. As a result of this competitive environment and the
available online business opportunities, web sites have rapidly evolved from
simple online corporate brochures to complex online storefronts. Early web
sites contained relatively limited content, consisting primarily of static text
and simple graphics. This content was infrequently updated and web sites
required only a few developers to build and maintain them. Today, companies are
seeking to differentiate their online presence and to become leaders on the
Internet by transforming their businesses into sophisticated eBusinesses
featuring content-rich web sites. In

                                       27
many cases, the content on these web sites must be updated on a daily or hourly
basis to meet consumer expectations and to exploit emerging business
opportunities. For example, a large online retailer may need to showcase tens
of thousands of products through the use of graphic images and product
descriptions. All of this information must be continuously refreshed as
products are introduced or discontinued and as descriptive product information
is revised. As the volume of web content has grown and sophisticated eBusiness
applications have emerged, the responsibility for the development and
management of web content has shifted from a few developers in small web teams
to many contributors working in different departments across the enterprise.
Furthermore, the large number of web authoring tools and web application
servers required by these applications have contributed to the increasing
technological complexity involved in developing these web sites.

   Managing Web Content. Web content, such as high-resolution graphics, audio
segments, video clips, hyperlinked text, embedded applets and executable code,
is the basis for every web page and most eBusiness applications. IDC estimates
that the number of web pages will grow from 925 million in 1998 to 13.1 billion
in 2003. In addition, complex eBusiness initiatives may contain hundreds of
thousands of web pages. This dramatic growth in content has created a strong
need for content management solutions. These solutions must be highly automated
to accommodate the volume, complexity and variability of this web content. In
addition, such solutions must leverage existing investments in information
technology, be highly scalable, and enable the participation of increasing
numbers of content contributors. IDC estimates that the market in which we
participate, which they refer to as the web development life-cycle management
software market, will grow from $76.4 million in 1998 to $1.6 billion in 2003.

   Market Opportunity. Until recently, businesses have attempted to satisfy
their content management needs through in-house or third-party solutions. In-
house solutions are proprietary, expensive and can be difficult to maintain,
which can increase the risk of delaying the launch of important eBusiness
initiatives. For example, in-house solutions can require extensive re-
engineering each time a new web authoring tool or eBusiness application is
introduced. Businesses that have utilized third-party solutions have typically
turned to workgroup or publishing applications. Workgroup applications are
typically designed for simple sites supported by small groups of developers.
They generally do not scale to support large numbers of contributors or the
increasing complexity and volume of web content. Using these solutions may also
impair a company's ability to deliver up-to-date and accurate web content.
Similarly, publishing applications effectively address the needs of only a
limited segment of the eBusiness community. Publishing applications are often
proprietary, and therefore do not accommodate many popular industry web tools
or delivery systems. In addition to not allowing large numbers of contributors
to add content, many current third-party solutions do not allow web teams to
work on applications in parallel or easily integrate new web technologies,
thereby slowing the deployment of eBusiness initiatives.

                                       28
The Interwoven Solution

   Interwoven provides a leading, open content management platform for enabling
eBusiness applications across the enterprise. Our products are specifically
designed to help customers rapidly and efficiently build, maintain and extend
mission-critical web sites and eBusiness initiatives.

   [chart appears here]
          [TEAMSITE GRAPHIC UNDER INTERWOVEN SOLUTION HEADING (p. 29)]
  A four-layer graphical representation of TeamSite. The top layer consists of
five rectangles. The rectangle on the far left reads "Corporate Web Sites." The
next rectangle to the right reads "Customer Relationship Management." The next
rectangle to the right reads "Electronic Commerce." The next rectangle to the
right reads "Knowledge Management." The next rectangle to the right reads
"Global Supply Chain." The layer immediately below the top layer reads "Web
Servers/Web Application Servers/1:1 & eCommerce," and a description to the left
of the layer reads "Delivery Systems." The next layer down reads "TeamSite,"
and a description to the left of the layer reads "Content Management." The
bottom layer reads "Web Contributors/Content Creation Tools/Repositories," and
a description to the left of the layer reads "Knowledge Sources."

   Our products offer customers the following primary benefits:

   Accelerate eBusiness Revenue Opportunities. Our products enable customers to
migrate their businesses to the web rapidly, thereby increasing their ability
to generate more revenues and compete more effectively. Today, the volume and
complexity of content and the number of eBusiness applications continue to grow
so rapidly that it can be difficult for web teams to meet web site development
schedules. Our products enable customers to develop and deploy multiple
eBusiness applications in parallel. This approach allows companies to complete
their eBusiness initiatives more rapidly than alternative methods that require
companies to develop eBusiness applications sequentially. In addition, our
products allow content contributors to quality assure modifications as new
content is added or code is developed, which significantly reduces testing
time.

   Reduce Cost of Web Operations. Complex web sites can consist of up to
hundreds of thousands of pages containing both static and dynamic content from
departments throughout the enterprise. As a result, these sites can be
expensive to deploy and manage. Our products lower the costs of web operations
primarily by reducing the dependency on specialized web development personnel
and improving web operating efficiency through automated web development
workflow processes. This reduces the time required to assemble, test and
validate new content. In addition, our open, standards-based products support
evolving web standards and are compatible with third-party web authoring tools
and web application servers that adhere to open standards. As a result,
businesses can productively leverage their existing information technology
infrastructure.

   Create Highly Differentiated Web Sites. To attract and retain online
customers, today's leading web sites continuously enhance their users' online
experience. Businesses seek to achieve this by integrating new web technologies
and refreshing content frequently. The open, standards-based architecture of
our products facilitates the rapid integration of new web technologies and the
parallel development of multiple eBusiness applications, such as global supply
chain management, customer relationship management, knowledge management and e-
commerce applications. In addition, our highly scalable solution promotes
accurate and relevant content by coordinating the collaborative efforts of
hundreds of contributors.

   Improve Web Site Quality. Protecting brand and image online has become
critical for companies doing business on the Internet. Non-functioning or poor
quality sites can significantly harm a business' online brand. With our
solution, companies can create reliable, high-quality web sites. Our
development platform offers comprehensive testing of the entire web site as a
site is built, updated or extended. In addition, our products promote
individual accountability, and faster and more accurate authoring, by enabling
all web developers and content contributors to control their own portion of the
quality assurance and test process. This improves a site's overall quality. By
maintaining quality control through sophisticated workflow processes, our
solution also ensures that no unauthorized or unapproved content or application
is deployed to the site.

                                       29
The Interwoven Strategy

   Our goal is to establish our solution as the platform of choice for web
content management across the enterprise. To achieve this goal, we intend to
pursue the following key strategies:

   Extend Our Position as a Leading Provider of Content Management
Solutions. We intend to extend our leadership in content management solutions
by continuing to offer a comprehensive, easy-to-use web development platform.
Our feature-rich platform addresses our customers' complete eBusiness life-
cycle needs as they build, maintain and extend their web sites. We intend to
expand our leadership position by introducing enhanced web content management
solutions that assist our customers in accelerating their eBusiness
initiatives, and aggressively increasing our sales and marketing efforts.

   Become the Preferred Web Development Platform for Industry-Leading Internet
Technology Vendors. We intend to increase demand for our products among
industry-leading Internet technology vendors by providing a robust web
development platform to complement their own eBusiness production applications.
Unlike existing closed-architecture or proprietary solutions, the open,
standards-based architecture of our products allows us to easily integrate our
products with those of industry-leading technology providers. This is
attractive to Internet technology vendors because it expands their markets and
eliminates costly integration and customization. We intend to continue to
strengthen our existing relationships with vendors such as Allaire, ATG,
BroadVision, IBM, InterWorld, Microsoft and Netscape. We also intend to enter
into additional relationships with other leading technology providers,
including additional reseller relationships. We believe our products can become
widely adopted as a standard web development platform across Internet
technology vendors.

   Expand Relationships with Systems Integrators and Internet Professional
Services Firms. We have begun establishing relationships with leading systems
integrators, such as Andersen Consulting, and Internet professional services
firms, such as USWeb/CKS Group. Our existing relationships with the leading
systems integrators and Internet professional services firms have allowed us to
expand our market reach and increase our access to senior decision makers.
Companies often leverage the expertise of systems integrators and Internet
professional services firms to deliver and implement eBusiness applications.
These firms have significant influence on a customer's technology selection,
and their recommendations represent significant endorsements. We intend to
continue to expand and build additional relationships with key systems
integrators and Internet professional services firms.

   Extend our Standards-Based Technology Leadership. Our products can be
integrated rapidly and cost-effectively by our customers, Internet technology
vendors and Internet professional services providers. In addition, our products
have been designed to meet the demanding openness and scalability required for
Internet software platforms. Our open architecture enables support for web
authoring tools and web application servers that adhere to industry standards.
The scalability of our products allows customers to manage hundreds of
thousands of web files as well as enable hundreds of employees throughout the
enterprise to contribute web content. We intend to continue to invest
significantly in research and development to increase the functionality of our
products. We also intend to continue to actively participate in the promotion
of industry standards, such as XML.

   Increase International Sales. As the Internet adoption rate accelerates
overseas, we believe that significant international market demand will exist
for content management solutions, especially in Europe and Asia. We intend to
devote significant resources to penetrate international markets. To that end,
we have begun expanding our overseas direct and indirect sales channels and our
international marketing presence. We have recently opened an office in the
United Kingdom, and intend to open offices in Asia during the next twelve
months.

                                       30
Products and Services

   Our product line consists of TeamSite, our web content management platform,
and OpenDeploy, our web content replication and syndication solution. We
license our products on a per-server and per-user basis. We also provide
services that include professional services, maintenance and support.
Product Description   Server Platforms
TeamSite 3.1    Server-based content management             . Sun Solaris
                 application                                 . Windows NT
                 . allows numerous developers and
                   contributors to add content to a web
                   site
                 . interoperates with leading web
                   authoring and web application servers
                 . supports parallel eBusiness application
                   development and deployment
                 . offers real-time testing capability and
                   sophisticated workflow processes
                 . offers comprehensive file and whole-
                   site versioning scheme

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

   TeamSite      Server-based content templating             . Sun Solaris
   Templating    application                                 . Windows NT
                 . allows content contribution using
                   standard templates
                 . promotes participation from non-
                   technical contributors
                 . allows contribution through standard
                   web browsers
                 . licensed in conjunction with TeamSite

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

   TeamSite      Reporting and auditing application          . Sun Solaris
   Global        . allows administrators to monitor system   . Windows NT
   Report          activity
   Center        . delivers sophisticated reporting and
                   auditing functionality
                 . licensed in conjunction with TeamSite

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

 OpenDeploy 3.0  Content replication and distribution        . Sun Solaris
                 application                                 . Windows NT
                 . transfers content among multiple web      . IBM AIX
                   servers simultaneously                    . Silicon
                 . enables automated scheduling of web         Graphics IRIX
                   site updates
                 . ensures conformity of web site roll-out
                 . offers secure and transactional content
                   deployment over the Internet

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

 TeamSite -- Content Management

   Our flagship product, TeamSite, is an enterprise platform designed to
develop, maintain and extend large, mission-critical web sites. TeamSite
combines the functions of web content management, version control, workflow and
application development in a single platform. TeamSite allows large numbers of
contributors across the enterprise to add web content in a well-managed manner.

     Web Content Management. TeamSite is designed to version, manage and
  control all web content. It provides a scalable platform that supports
  parallel, distributed content contribution across the enterprise. TeamSite
  is an open, standards-based platform that is compatible with leading web
  authoring creation tools and web application servers, allowing businesses
  to leverage existing investments in information technology systems, content
  and expertise. This enables a faster time-to-web for eBusiness initiatives.

                                       31
Workflow. Increasing the number of contributors and developers who can
  contribute to a company's web site is challenging. TeamSite is designed for
  a diverse group of users, including non-technical and technical
  contributors. TeamSite extends the number of web contributors that can
  easily participate in building and contributing content to the web site
  through robust workflow solutions to guide overall web operations, approval
  and site release management processes.

     Web Application Development. TeamSite provides programmers with a
  software development platform that accommodates their choice of development
  tools. TeamSite's versioning features also allow programmers to track code
  modifications. Using TeamSite, programmers can also build, install and test
  the developed code in real-time within the context of the entire web site.

   The open, standards-based architecture of TeamSite enables businesses to
implement TeamSite without significant changes to existing web content or
systems architecture, resulting in rapid implementation. Additionally,
TeamSite's file-system structure and server-based design enable businesses to
use complementary best-of-breed solutions, such as their preferred web
authoring tools, web application servers and other web-based technologies.
TeamSite currently operates on Sun Solaris and Microsoft Windows NT operating
systems. TeamSite was first shipped in May 1997. We first shipped the current
version of TeamSite, TeamSite 3.1, in May 1999.

   We also sell products in conjunction with TeamSite that extend TeamSite's
functionality. TeamSite Templating is a server-based application that allows
TeamSite contributors to contribute web content using standard templates,
thereby eliminating the need for contributors to be familiar with HTML or
client-side applications. Global Report Center enables TeamSite administrators
to generate reports on web operations activity.

 OpenDeploy -- Content Replication and Syndication

   Our OpenDeploy application transfers content from development to production
web servers. OpenDeploy offers content replication and syndication capability
across distributed networks of web production servers. OpenDeploy automates the
process of synchronizing web sites through the precise replication of content
and enables companies to distribute web content to web hosting facilities
within the company, or across the extended enterprise, for maximum
availability, reduced latency and failover support. Customers using OpenDeploy
can also automate the scheduled deployment of content. We believe that
OpenDeploy provides the most effective method for distribution and integration
of dynamic content across web sites.

   OpenDeploy is typically integrated with TeamSite by our customers, but it
may be used on a stand-alone basis. OpenDeploy encrypts content for secure
transfer over TCP/IP. The version of OpenDeploy shipped within the United
States uses 128-bit SSL encryption. Due to U.S. export regulations, the
international version does not utilize encryption. OpenDeploy operates on Sun
Solaris, Microsoft Windows NT, IBM AIX and Silicon Graphics IRIX operating
systems. We first shipped OpenDeploy in January 1998. The current version of
OpenDeploy 3.0, was first shipped in May 1999.

 Interwoven Services

   Our services organization consists of 41 professional employees who utilize
a comprehensive methodology to deliver our content management solutions to
customers. These services professionals configure each solution they deliver to
meet the specific needs of the customer. We sell our services in conjunction
with licenses of our software products and include:

  .needs analysis and web operations strategy;

  .software installation and configuration support;

  .project management;

  .workflow mapping;

                                       32
.content and web site release management; and

  .education and training.

   In addition to professional services, we offer various levels of product
maintenance to our customers. Maintenance services are typically subject to an
annual, renewable contract and are typically priced as a percentage of product
license fees. Customers under maintenance contracts receive technical product
support and product upgrades as they are released throughout the life of the
maintenance contracts.

Technology

   We believe that our technology offers our clients and partners a highly
scalable web content management solution that is implemented through an open,
standards-based architecture. Our products are specifically designed for the
web. Our customers typically use our technology as the platform for their
enterprise-wide web operations.

 Content Management Process. The following graph illustrates how TeamSite
 manages content:

                                  [Insert Graph]
                [FLOW DIAGRAM UNDER TECHNOLOGY HEADING (p. 33)]
  A flow chart representing the Content Management Process. The flow chart
consists of several icons, each containing a graphic of cascading pages of
paper. The icon on the far left is rectangular and reads "Initial Edition." The
next icon to the right is rectangular and reads "Edition 1." The next icon to
the right is rectangular and reads "Edition 2." Three arrows lead to the right
from this icon to three vertically aligned circular icons labeled "Workareas."
Three arrows lead to the right from these circular icons to a rectangular icon
which reads "Staging Area." The next icon to the right is rectangular and reads
"Edition 3."

   Collaboration Through Work Areas, Staging Areas and Editions. TeamSite
provides a virtual work area for each contributor. A virtual work area is a
local, desktop web site representation that appears to a contributor as a
complete, fully-functioning web site. This provides web developers and
contributors the ability to see changes instantaneously in the development
environment as they would appear in the actual production site. This approach
improves quality by promoting individual accountability, allowing web
developers to discover costly bugs and helping web contributors prevent
deployment of inaccurate content to the production site. Users submit revised
content from work areas to a common staging area, a pre-production version of
the web site which consolidates web site changes. After the consolidated
changes in the staging area are approved, the next edition of the production
site can be authorized and deployed. This content management process makes
site-level rollbacks, site recovery and site audits possible.

   Content and Whole Site Versioning. TeamSite not only allows versioning of
all files from each contributor's work area, but also allows versioning of all
content within each staging area and whole-site edition. This comprehensive
versioning scheme allows customers to record all file modifications and capture
complete histories of all web files and whole-site editions. TeamSite Global
Report can then be used to audit and report on all historical changes made to a
company's web files and sites.

   Concurrent Development and Templating. Through its branching technology,
TeamSite supports multiple contributors working on a single project, as well as
multiple teams working on many projects simultaneously. A development branch
typically consists of many work areas connected to one staging area. These
branches, for

                                       33
example, might separately represent a company's intranet and extranet sites.
When required, the content within these independent branches can be
synchronized. Our TeamSite Templating product enables non-technical content
contributors to add content through pre-approved style templates. This allows a
corporate look and feel policy to be enforced.

 Product Features

   Open Architecture. Our architecture is based on open industry standards to
support our customers' heterogeneous environments. As a result, TeamSite also
integrates with best-of-breed content authoring and delivery systems. This
approach allows content contributors to use their favorite web authoring tools.
For example, a graphics designer may use Adobe Photoshop, a layout expert may
use Macromedia Dreamweaver, and a non-technical contributor may use Microsoft
Office 2000 to add content to a site. In addition, TeamSite's browser interface
has been developed primarily in Java and JavaScript.

   Project Management and Workflow. TeamSite allows customers to manage web
development tasks through workflow processes, such as task assignment, resource
scheduling, routing and approval and other customer tasks. This enables
TeamSite users to build, enforce and automate the business processes necessary
to maintain high-quality web sites.

   Ease of Use. Our SmartContext Editing component provides non-technical
business users with a simple and efficient interface for contributing content
as they browse through the web site. With SmartContext Editing, non-technical
contributors are only required to be familiar with a web browser. For technical
contributors, TeamSite offers an easy to use, but sophisticated, file version
comparison and merging tool.

   Deployment and Content Syndication. OpenDeploy allows customers to deploy
content to numerous web sites through a single transaction to ensure consistent
site roll-outs. In addition, it can be used to automatically deploy and run
application programs as well as replicate content from relational databases.
OpenDeploy can also be used in a fully encrypted mode for the secure deployment
of content over the Internet.

 Scalability, Performance and Availability

   Scalability and Performance. The TeamSite server uses multi-threaded object-
oriented technology for user and file management requirements. The TeamSite
server has been shown to deliver performance and scalability comparable to
native network file systems. For scalability and performance, our server
programs are generally programmed in C++. In addition, OpenDeploy can
distribute content to a single or to multiple production web servers
simultaneously. This content replication functionality meets the requirements
for the most demanding web sites that often located in geographically dispersed
servers.

   Availability. Our open design also promotes reliability and availability by
allowing customers to employ their normal data backup, transport and recovery
tools. In addition, our back-end repository is designed to provide fault-
tolerance, error detection and data recovery. Critical data is duplicated,
providing the necessary redundancy for data recovery to minimize the potential
for data loss.

 Industry Standards

   Open to All Files, Tools and Applications. TeamSite's hybrid design, which
uses file system and database interfaces, enables TeamSite to manage file
content, application code and relational metadata. Unlike proprietary, closed
implementations, our products are developed to accommodate the industry leading
Internet technologies through industry standards, such as XML, Java and other
evolving industry standards. The TeamSite server presents its content through
popular file volume management systems such as Unix Network File System and
Microsoft Windows Network File System. The server implementation consists of
layered services, including low level operating system kernel drivers, through
high level application layers.

   eXtensible Markup Language. XML provides customers the ability to integrate
new applications and data with other XML-compliant technologies and legacy
applications. Together with such companies as Microsoft

                                       34
and IBM, we are a sponsoring member of OASIS, an industry association promoting
XML standards. Our products use and support XML, and promote XML for data and
content exchange.

Strategic Alliances

   To extend our market reach and increase our sales opportunities, we have
established relationships with leading technology partners and IT service
providers.

   Technology Partners. We work closely with two types of Internet technology
vendors: web authoring tool and web application server providers. Web authoring
tools, such as Macromedia's Dreamweaver, Microsoft's Office 2000, and Adobe's
Photoshop, provide the content that we manage. Web application servers, such as
Allaire's ColdFusion, ATG's Dynamo, BroadVision's One-to-One Commerce, IBM's
Net.Commerce and Microsoft's SiteServer, distribute the content managed by our
platform over the Internet. By combining our development platform with these
and other leading web authoring tools and web application servers, our partners
can offer their customers an end-to-end web solution. In some instances, we
further increase the value of our partners' products to their customers by
developing specific product interfaces. For example, we have developed
interface offerings for products offered by BroadVision and ATG. In turn, we
benefit from our partners' market reach and extensive customer relationships.
Our partners sometimes refer their customers to us or resell our products
directly.

   IT Service Providers. We have worked with a number of leading systems
integrators, including Andersen Consulting, Computer Sciences Corporation, EDS
and Ernst & Young, and Internet professional services firms, including iXL,
Ogilvy Interactive and USWeb/CKS. These firms are strategic to our business
because of their knowledgeable technical resources and extensive customer
relationships across many industries. Our prospective customers frequently
retain the services of systems integrator and Internet professional services
firms for the delivery and implementation of eBusiness applications. In many
cases, these services firms will recommend a content management solution as
part of the eBusiness application they deliver. We intend to devote significant
resources to develop these relationships further.

                                       35
Customers

   Our products and services are marketed and sold to a diverse group of
customers operating in a broad range of industries. Our customers include both
established companies migrating their operations online and new companies
formed specifically to deliver products and services over the Internet. These
customers typically consider the web and their web operations to be critical
to their future success.

   As of June 30, 1999, over 75 companies had licensed our products. In 1998
Cisco Systems accounted for 13% of our total revenues. The following table is
a representative list of our customers:

   Technology                                    Consulting Services                 Media/Entertainment
   ----------                                    -------------------                 -------------------
AltaVista                                     Dahlin, Smith & White               AIM Technologies, Inc.
   Cisco Systems                                 DynaMind                            CondeNet
   Documentum                                    Hill Holiday                        Discovery
   Doublebill.com                                iXL                                 Educational Testing
   Electronic Arts                               USWeb/CKS                              Services
   GeoCities                                                                         Los Angeles Times
   Hitachi                                       Retail                              Mpath
   How 2 HQ                                      ------                              Quokka Sports
   TechRepublic                                  Best Buy                            Sega
   Nortel Networks                               The Gap                             Viacom/Nickelodeon
   Sun Microsystems                              Walgreens
   Tivoli                                                                            Industrial/Transportation
   Xerox                                         Financial Services                  -------------------------
                                                 ------------------                  Boeing
   Telecommunications/Utilities                  AG Edwards                          Clorox
   ----------------------------                  BancTec                             FedEx
   Alltel                                        Barclays Global                     Ford Motor
   Interpath                                     John Hancock                        United Air Lines
   Salt River                                    First American Financial            Yellow Services
   Telia                                          Corporation                        W.W. Grainger
   TCI                                           Minnesota Mutual

   Government                                    Health
   ----------                                    ------
   U.S. Department of Education                  Blue Cross California
   U.S. Postal Service                           Kaiser
                                                 Pacific Care
Customer Case Studies

   The following case studies exemplify eBusiness initiatives that have
utilized our products:

   Educational Testing Service. Educational Testing Service, the world's
largest private educational measurement organization, annually administers
almost 11 million tests in 180 countries worldwide. Since 1996, ETS has been
using the Internet to provide a cost-effective, self-service source of updated
information for its international customer base. ETS has moved much of its
traditional business to the web in order to reduce operating costs and improve
customer service. Its multiple web sites provide information on admission to
colleges and universities, test registration and preparation, financial aid
planning and services, to hundreds of thousands of students, parents and
educators each year.

   Educational Testing Service uses TeamSite to support its online business
initiatives, such as online registration for exams, free online practice exams
and preparatory information, as well as direct sales of its products.

                                      36
Nortel Networks. Nortel Networks, with 1998 revenues of $17.6 billion and
75,000 employees worldwide, is a leader in telephony and IP-based data,
[wireline and] wireless networking equipment. Nortel has been using TeamSite
for over 18 months to manage and control globally dispersed content
contributors for six different web sites. Nortel's customers include public and
private enterprises and institutions, Internet service providers, local, long-
distance, cellular and PCS communications companies, cable television carriers,
and utilities. Nortel uses TeamSite to deploy content to its corporate web
site, e-commerce systems, and a dynamic personalized customer portal. The
content for these sites is developed and managed by Nortel Networks marketing
teams, service teams, and external agencies but is centrally controlled and
supported through TeamSite. The staff required to manage this initiative is
kept to a minimum by leveraging TeamSite's ability to distribute web publishing
responsibilities to many contributors. Nortel also uses TeamSite to control and
support the web operations of its international divisions.

   Today, web contributors from four continents participate in the development
of six multilingual web sites for Nortel, which translates content into many
languages including Chinese, Japanese, French, Spanish and others.

   AltaVista. AltaVista is a leading media and commerce network that integrates
unique technology, products and services. AltaVista seeks to deliver best-of-
breed results by integrating content and functionality from both within the
AltaVista network and through external partners. AltaVista has chosen
Interwoven TeamSite as its global content management platform.

   Since its foundation four years ago, AltaVista has provided its loyal base
of web users a broad range of Internet services. As part of its infrastructure
requirement, AltaVista required a robust scalable platform to support its
dynamic environment. AltaVista chose TeamSite as its content management
platform. Demonstrating its ease of implementation, AltaVista installed and
implemented TeamSite in less than one week.

   TechRepublic. TechRepublic offers a free web service that provides career
insight, community interaction and customized information to information
technology executives and strategists, network administrators, support training
and other enterprise computing professionals. Its web site provides ready
access to critical information through personalized news, analysis and original
content written by outstanding contributors from throughout the profession.
TechRepublic selected TeamSite to develop and manage its rapidly changing web
site.

   Since TechRepublic offers articles and information which must be published
and frequently updated by contributors who work remotely. This content is
routed through a series of editors for revision and approval before the content
is finally deployed to the site. With near-constant updates, TechRepublic
required a content management solution with intuitive and robust workflow
functionality and as easy remote access. TeamSite provided TechRepublic with an
ideal solution to its workflow problem. TeamSite also uses our OpenDeploy to
provide secure, rules-based web content replication across multiple servers and
distribution over the Internet.

Sales and Marketing

   To date, we have sold our products and services primarily through our direct
sales force in North America and Europe. As of June 30, 1999, we had 30
professionals in our direct sales force, of which 28 were located in the United
States and 2 were in Europe. We intend to increase the size of our direct sales
force and establish additional sales offices domestically and internationally.
In May 1999, we opened our first international sales office in the United
Kingdom to support the management of direct and indirect sales channels in
Europe.

   We are also aggressively developing our indirect sales channel by expanding
our relationships with leading Internet technology vendors, Internet
professional services firms and systems integrators that recommend and, when
appropriate, resell our products. For example, BroadVision and USWeb/CKS
currently resell our products.

                                       37
We believe that demand is increasing for content management solutions such
as those we sell. We may not be able to expand our sales and marketing staff,
either domestically or internationally, to take advantage of any increase in
demand for those solutions. Our failure to expand our sales and marketing
organization or other distribution channels could materially adversely affect
our business. See "Risk Factors--We must attract and retain qualified
personnel."

Research and Development

   We invest significantly in research and development to enhance our current
products, and develop new products. Our research and development expenses were
$884,000 in 1997, $1.8 million in 1998 and $1.7 million for the six months
ended June 30, 1999. We expect that we will increase our product development
expenditures substantially in the future. As of June 30, 1999, approximately 25
employees were engaged in research and development activities and we plan to
continue to hire additional engineers to further our research and development
activities. Our business could be harmed if we were not able to hire and retain
the required number of engineers. See "Risk Factors--We must attract and retain
qualified personnel."

   We may fail to complete our product development efforts within our
anticipated schedules, and even if completed, the products developed may not
have the features necessary to make them successful in the marketplace. Future
delays or problems in the development or marketing of product enhancements or
new products could harm our business. See "Risk Factors--We may experience
difficulties in introducing new products and upgrades in a timely manner."

Competition

   The market for content management solutions is rapidly emerging and is
characterized by intense competition. We expect existing competition and
competition from new market entrants to increase dramatically. A growing number
of companies are vying to provide web content management solutions. In this
market, new products are frequently introduced and existing products are often
enhanced. In addition, new companies, or alliances among existing companies,
may be formed that may rapidly achieve a significant market position.

   Potential customers may have developed in-house solutions which might make
it more difficult for us to sell products to them. We compete with third-party
content management solution providers, primarily Vignette, and, to a lesser
extent, with workgroup solutions, and content publishing application providers.
We may face increased competition from these providers in the future. Other
potential competitors include client/server software vendors which are
developing or extending existing products which address our market. In
addition, although we currently partner with a number of companies that provide
complementary products such as web tools, enterprise document repositories and
web servers, they may introduce competitive products in the future. Other large
software companies, such as Microsoft and IBM, may also introduce competitive
products. Many of our existing and potential competitors have greater
technical, marketing and financial resources than we do.

   We believe that competitive factors in the web content management industry
include:

  .  the quality, scalability and reliability of software;

  .  functionality that enables a broad base of contributors to add and
     modify web content;

  .  interoperability with all leading web authoring tools and web
     application servers based on industry standards;

  .  ability to provide advanced workflow functionality;

  .  the ability to leverage existing information technology infrastructure;
     and

  .  adherence to emerging industry standards, including XML.

   We believe our products compete favorably on each of these factors.

                                       38
Proprietary Rights and Licensing

   Our success depends upon our ability to maintain the proprietary aspects of
our technology and operate without infringing 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. We seek to protect our source code for our software, documentation
and other written materials under trade secret and copyright laws. We currently
do not have any issued United States or foreign patents, but we have applied
for one U.S. patent. It is possible that a patent will not issue from our
currently pending patent application. These legal protections afford only
limited protection for our technology. Our license agreements impose certain
restrictions on our customers' ability to utilize our software. We also seek to
protect 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. There can be no assurance
that all employees or consultants have signed or could sign such agreements.
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 equally as important as 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 seriously harm 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 seriously harm 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 by us with respect to our current or future
products. We expect that developers of web-based commerce software products
will increasingly be subject to infringement claims as the number of products
and competitors in our industry segment grows and as the functionality of
products in different segments of the software industry increasingly overlaps.
Any such claims, with or without merit, could be time-consuming to defend,
result in costly litigation, divert management's attention and resources, cause
product shipment delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to us or at all. A successful infringement claim
against us and our inability to license the infringed technology or develop or
license technology with comparable functionality could seriously harm our
business, financial condition and operating results. See "Risk Factors--We
might not be able to protect and enforce our intellectual property rights."

Employees

   As of July 23, 1999, we had a total of 145 employees, including 60 in sales
and marketing, 28 in research and development, 41 in professional services and
16 in administration and finance. Of these employees, 143 were located in the
United States and 2 were located in the United Kingdom. None of our employees
is represented by a collective bargaining agreement, nor have we experienced
any work stoppage. We consider our relations with our employees to be good.

   Our future operating results depend in significant part on the continued
service of our key technical, sales and senior management personnel. Other than
as described in "Management--Employment and Severance

                                       39
Agreements," none of these individuals is bound by an employment agreement. Our
future success also depends on our continuing ability to attract and retain
highly qualified technical, sales and senior management personnel. Competition
for these personnel is intense, and we may not be able to retain our key
technical, sales and senior management personnel or attract these personnel in
the future. We have experienced difficulty in recruiting qualified technical,
sales and senior management personnel, and we expect to experience these
difficulties in the future. If we are unable to hire and retain qualified
personnel in the future, this inability could seriously harm our business.

Facilities

   Our principal office occupies approximately 27,500 square feet in Sunnyvale,
California, under a lease that expires in May 2003. In addition, we also lease
sales and service offices in the metropolitan areas of Atlanta, Boston,
Chicago, London, Los Angeles, Seattle and Washington, D.C. In July, we moved
our services organization to expanded facilities located in approximately
12,600 square feet in Sunnyvale, California. Our lease for this facility
expires in December 2000. We believe that our existing facilities will not be
adequate for our current needs. We are currently in the process of locating
additional office space for expansion or relocation of our principal offices.
There can be no assurance that suitable additional or alternative space will be
available in the future on commercially reasonable terms.

Legal Proceedings

   We are not a party to any material legal proceedings. We could become
involved in litigation from time to time relating to claims arising out of our
ordinary course of business.

                                       40
MANAGEMENT

Executive Officers and Directors

   The following table presents information regarding our executive officers
and directors as of June 30, 1999.
Name                         Age                     Position
----                         ---                     --------
Martin W. Brauns............ 39  President, Chief Executive Officer and Director
Peng T. Ong................. 36  Chairman of the Board and Vice President of
                                 Professional Services
David M. Allen.............. 40  Vice President and Chief Financial Officer
Michael A. Backlund......... 44  Vice President of Sales
Jeffrey E. Engelmann........ 37  Vice President of Business Development
Jack S. Jia................. 36  Vice President of Engineering
Jozef Ruck.................. 47  Vice President of Marketing
Kathryn C. Gould............ 49  Director
Mark W. Saul................ 37  Director
Mark C. Thompson............ 41  Director
Ronald E.F. Codd............ 43  Director
Martin W. Brauns has served as our President, Chief Executive Officer and
member of the Board of Directors since March 1998. Before joining Interwoven
Mr. Brauns served as President and Chief Operating Officer of Sqribe
Technologies, Inc., a software company from July 1997 to November 1997. From
March 1996 to June 1997 Mr. Brauns served in a number of positions, including
most recently as Vice President of North American Sales, at Informix Software,
Inc., a software company. From 1992 to January 1996, Mr. Brauns served as Vice
President of Worldwide Sales of Adaptec Inc., a hardware and software
manufacturer. Mr. Brauns holds a Bachelor of Science in international business
and a Master of Business Administration from San Jose State University.

   Peng T. Ong is our founder, Chairman of our Board of Directors and Vice
President of Professional Services. Prior to founding Interwoven, Mr. Ong was a
founder of Electric Classifieds, Inc., an Internet classifieds company, and its
Chief Architect from March 1994 to May 1995. From 1994 to December 1995, he
served as a consultant to Illustra Information Technologies, Inc., a software
company. Mr. Ong holds a Bachelor of Science in electrical engineering from the
University of Texas at Austin and a Master of Science in computer science from
the University of Illinois at Urbana-Champaign.

   David M. Allen has served as our Vice President and Chief Financial Officer
since joining Interwoven in March 1999. Before joining Interwoven Mr. Allen
served as Vice President and Chief Financial Officer of Object Systems
Integrators, Inc., a telecommunications network management company, from July
1996 to March 1999. From 1985 to July 1996, he served in a number of positions,
including most recently as Vice President and Chief Financial Officer, at
Telecommunications Techniques Corporation, a communications test equipment
manufacturing company. Mr. Allen holds a Bachelor of Science in accounting from
the University of Maryland.

   Michael A. Backlund has served as our Vice President of Worldwide Sales
since joining Interwoven in May 1998. From January 1997 to May 1998, Mr.
Backlund served in a number of positions at Computer Associates International,
a software company, including most recently as Vice President of Divisional
Sales. Prior to joining Interwoven, he was a founder of CMS Communications,
Inc., a telecommunications equipment company, and served in a number of
capacities from August 1986 to December 1996, including most recently as Vice
President of Sales and Marketing. Mr. Backlund holds a Bachelor of Arts and a
Master of Arts in economics from the University of Southern California.

   Jeffrey E. Engelmann has served as our Vice President of Business
Development since joining Interwoven in January 1999. Before joining Interwoven
Mr. Engelmann served as Executive Operations Officer of the Internet division
of IBM. From 1991 to December 1997, he served in a number of development,
consulting and

                                       41
sales positions within IBM, including most recently as Business Unit Executive
of eBusiness Solution Sales. Mr. Engelmann holds a Bachelor of Science in
chemical engineering and an Bachelor of Arts in computer science from the
University of Wisconsin at Madison.

   Jack S. Jia has served in a variety of positions, including most recently as
our Vice President of Engineering, since joining Interwoven in January 1997.
Prior to joining Interwoven, Mr. Jia was a founder of V-Max America, Inc., a
computer distribution company, and served as the Chief Executive Officer from
June 1993 to October 1998. From May 1995 to January 1997, he served as a
Project Manager at Silicon Graphics, Inc., a computer systems company, and from
January 1993 to May 1995, he served in a number of senior engineering positions
at Sun Microsystems, Inc., a computer systems company. Mr. Jia holds a Bachelor
of Science in electrical engineering and a Master of Science in computer
science from the Northern Jiao-Tong University, Beijing, a Master of Science in
electrical engineering from Polytechnic University of New York, and a Master of
Business Administration from Santa Clara University.

   Jozef Ruck has served as our Vice President of Marketing since joining
Interwoven in March 1999. From April 1997 to April 1999, Mr. Ruck served in a
number of positions at Genesys Telecommunications Laboratories, a call center
software company, including most recently as Vice President of Customer
Marketing. From September 1994 to March 1997, he served in a number of
positions, including most recently as Western Region Sales Director, at Network
Appliance, Inc., a data storage company. Mr. Ruck holds a Bachelor of Science
in mechanical engineering from Oregon State University and a Master of Business
Administration from Santa Clara University.

   Kathryn C. Gould has been one of our directors since March 1998. She is a
founder of Foundation Capital, a venture capital firm, and has been a member
since December 1995. Since 1989, Ms. Gould has been a general partner of
Merrill, Pickard, Anderson & Eyre, a venture capital firm. Ms. Gould also
serves as a director of Documentum, Inc., a publicly held web-based software
application developer. Ms. Gould holds a Bachelor of Science in physics from
the University of Toronto and a Master of Business Administration from the
University of Chicago.

   Mark W. Saul has been one of our directors since July 1997. Since June 1996,
Mr. Saul has served as President and Chief Executive Officer and Chairman of
the Board of Acuity Corporation, a web-based customer interaction solutions
company. From May 1995 to May 1996, Mr. Saul was Vice President of Marketing
for Network Appliance, Inc. From March 1994 to May 1995, he served as Vice
President of World Wide Field Operations of Minerva Systems, Inc., a video
technology company. Mr. Saul holds a Bachelor of Arts in history and a Bachelor
of Science in engineering from Stanford University and a Master of Business
Administration from the Harvard Business School.

   Mark C. Thompson has been one of our directors since July 1999. Since 1988,
Mr. Thompson has served in a number of positions with Charles Schwab since
1988, a financial services center, including most recently Senior Vice
President and Executive Purchaser. Mr. Thompson holds a Master of Arts in media
from Stanford University.

   Ronald E.F. Codd is expected to begin serving as a member of our Board of
Directors after the completion of this offering. Mr. Codd has served as
President, Chief Executive Officer and a director of Momentum Business
Applications, Inc., a publicly held software company, since January 1999. From
September 1991 to December 1998, he served as Senior Vice President, Finance
and Administration, Chief Financial Officer and Secretary of PeopleSoft, Inc.,
an enterprise software developer and marketer. Mr. Codd also serves on the
board of directors of each of Adept Technology, Inc., a publicly held robotics
manufacturer, Information Advantage, Inc., a publicly held enterprise software
developer and marketer, and Intraware, Inc., a publicly held provider of
business to business ecommerce-based services. Mr. Codd holds a Bachelor of
Science in accounting from the University of California at Berkeley and a
Master of Management from the J.L. Kellogg Graduate School of Management
(Northwestern University).

     There are no family relationships among any of our directors or officers.

                                       42
Board Composition

   We currently have six directors. Our amended and restated certificate of
incorporation, which will become effective upon the closing of this offering,
states that our board of directors will be divided into three classes: Class I,
the term for which will expire at the annual meeting of stockholders to be held
in 2000, Class II, the term for which will expire at the annual meeting of
stockholders to be held in 2001, and Class III, the term for which will expire
at the annual meeting of stockholders to be held in 2002. At each annual
meeting of stockholders after the initial classification, the successors to
directors whose terms have expired will be elected to serve from the time of
election and qualification until the third annual meeting following election.
The Class I directors are Messrs. Brauns and Saul; the Class II directors are
Mr. Peng and Ms. Gould; and the Class III directors will be Messrs. Thompson
and Codd.

   In addition, our bylaws, as they will be effective upon the closing of this
offering, provide that the authorized number of directors may be changed only
by resolution of the board of directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the total number of directors.

   This classification of the board of directors may have the effect of
delaying or preventing a change in control. See "Description of Capital Stock--
Anti-Takeover Provisions."

Board Committees

   Our board of directors has a compensation committee and an audit committee.

   Compensation Committee. The current members of our compensation committee
are Mr. Saul and Ms. Gould. The compensation committee reviews and makes
recommendations to our board concerning salaries and incentive compensation for
our officers and employees. The compensation committee also administers our
stock plans.

   Audit Committee. The current members of our audit committee are Messrs. Codd
and Thompson. Our audit committee reviews and monitors our financial statements
and accounting practices, makes recommendations to our board regarding the
selection of independent auditors and reviews the results and scope of the
audit and other services provided by our independent auditors.

Compensation Committee Interlocks and Insider Participation

   Except for Mr. Brauns' participation on the compensation committee from May
1998 to July 1999, none of the members of the compensation committee has at any
time since our formation been an officer or employee of Interwoven. No
executive officer of Interwoven currently serves, or in the past has served, as
a member of the board of directors or compensation committee of any entity that
has one or more executive officers serving on our board or compensation
committee. Prior to the creation of our compensation committee, all
compensation decisions were made by our full board. Neither Mr. Brauns nor Mr.
Peng participated in discussions by our board with respect to decisions bearing
on this respective compensation.

Director Compensation

   Our directors receive no cash compensation for their services as directors
but are reimbursed for their reasonable expenses in attending board and board
committee meetings.

   Each eligible director who is not our employee and who becomes a member of
our board on or after the completion of this offering will be granted an option
to purchase 20,000 shares of common stock under our 1999 Equity Incentive Plan,
unless that director has previously received an option grant before the
effective date. Mr. Codd and Mr. Thompson will each be granted an option to
purchase 20,000 shares of Common Stock under our 1998 Stock Option Plan before
the effective date. Ms. Gould and Mr. Saul will each be granted an option to
purchase 10,000 shares of Common Stock under the 1999 Equity Incentive Plan on
the effective date

                                       43
of this offering. Immediately following each annual meeting of our
stockholders, each eligible director will automatically be granted an
additional option to purchase 10,000 shares under the plan if the director has
served continuously as a member of the board for at least one year. The options
will have 10-year terms and will terminate three months following the date the
director ceases to be one of our directors or consultants or 12 months if the
termination is due to death or disability. All options granted under the plan
will be fully vested and immediately exercisable as of the date of grant.

Executive Compensation

   The following table presents compensation information for 1998 paid to or
accrued by each person serving as our chief executive officer in 1998 and each
of our four other most highly compensated executive officers whose salary and
bonus for 1998 was more than $100,000.

                           Summary Compensation Table
Long Term
                                 Annual Compensation        Compensation Awards
                            ------------------------------ ---------------------
                                                 Other     Restricted Securities
Name and Principal                               Annual      Stock    Underlying
Positions                    Salary   Bonus   Compensation   Award     Options
------------------          -------- -------- ------------ ---------- ----------
Martin W. Brauns........... $206,119 $100,000     $320     1,333,333       --
 President and Chief
  Executive Officer

Steven Farber..............   93,060      --       --            --        --
 President and Chief
  Executive Officer

John Chang.................  134,186   67,167      960           --     46,666
 Vice President of
  Marketing

Peng T. Ong................  114,315  125,000      --            --        --
 Chairman and Vice
  President of Professional
  Services

Michael A. Backlund........   80,826  100,000      --            --    156,666
 Vice President of Sales

Jack S. Jia................  104,988    3,000      960           --     96,666
 Vice President of
  Engineering
Mr. Farber's employment with us terminated as of August 1, 1998. Mr. Chang's
employment with us terminated as of March 31, 1999. The amounts listed under
the column captioned "Other Annual Compensation" represent payments in lieu of
health insurance premiums paid by us.

                             Option Grants in 1998

   The following table presents the grants of stock options under our 1996
Stock Option Plan and 1998 Stock Option Plan during 1998 to each person serving
as our chief executive officer and each of the persons listed in the Summary
Compensation Table.

   All options granted under the 1996 plan and 1998 plan are immediately
exercisable and are either incentive stock options or nonqualified stock
options. We have a right to repurchase the shares issued upon exercise of these
options at the original purchase price if they are unvested at the time the
grantee terminates employment with us. This repurchase right generally lapses
as to 25% of the shares on the first anniversary of the date of grant and the
remainder expire ratably over a 36-month period thereafter. We have also
granted nonqualified stock options that do not contain a repurchase right or
contain repurchase terms that are negotiated between the optionee and us.
Options expire 10 years from the first date of employment. Options were granted
at an exercise price equal to the fair market value of our common stock, as
determined by our board, on the date of grant. In 1998, we granted to our
employees and consultants options to purchase a total of 824,425 shares of our
common stock.

                                       44
Potential realizable values in the following table are computed by

  .  multiplying the number of shares of common stock subject to a given
     option by $    per share;

  .  assuming that the aggregate stock value derived from that calculation
     compounds at the annual 0%, 5% or 10% rates shown in the table for the
     entire 10 year term of the option; and

  .  subtracting from that result the aggregate option exercise price.

The 5% and 10% assumed annual rates of stock price appreciation are required by
the rules of the Securities and Exchange Commission and do not represent our
estimate or projection of future common stock prices.
Individual Grants
                         ---------------------------------------------
                                                                        Potential Realizable
                                                                          Value at Assumed
                         Number of   Percent of                         Annual Rates of Stock
                         Securities Total Options                        Price Appreciation
                         Underlying  Granted to   Exercise                 for Option Term
                          Options     Employees     Price   Expiration -----------------------
Name                      Granted      in 1998    Per Share    Date      0%      5%      10%
----                     ---------- ------------- --------- ---------- ------- ------- -------
Martin W. Brauns........      --         -- %       $ --          --      $       $       $
Steven Farber...........      --         --           --          --
John Chang..............   46,666        5.7         0.18      3/5/08
Peng T. Ong.............      --         --           --          --
Michael A. Backlund.....  156,666       19.0         0.21     5/26/08
Jack S. Jia.............   23,333        2.8         0.18      3/5/08
                           13,333        1.6         0.18      5/7/08
                           60,000        7.3         0.21    10/15/08
Aggregate Option Exercises in 1998 and Option Values at December 31, 1998

   The following table presents the number of shares acquired and the value
realized upon exercise of stock options during 1998 and the number of shares of
common stock subject to "exercisable" and "unexercisable" stock options held as
of December 31, 1998 by each of the persons listed in the Summary Compensation
Table. Also presented are values of "in-the-money" options, which represent the
positive difference between the exercise price of each outstanding stock option
and an assumed initial public offering price of $  per share. Each of these
options was exercisable immediately upon grant, subject to our right to
repurchase the option shares at the exercise price upon termination of the
optionee's employment. The repurchase right generally expires as to 25% of the
shares on the first anniversary of the date of grant and the remainder expires
ratably over a 30-month period thereafter.
Number of Securities         Value of Unexercised
                          Number of               Underlying Unexercised       In-the-Money Options at
                           Shares              Options at December 31, 1998       December 31, 1998
                         Acquired on  Value   ------------------------------- -------------------------
Name                      Exercise   Realized Exercisable(1) Unexercisable(1) Exercisable Unexercisable
----                     ----------- -------- -------------- ---------------- ----------- -------------
Martin W. Brauns........       --      $--           --              --          $            $
Steven Farber...........   130,666                   --              --
John Chang..............       --
Peng T. Ong.............       --       --           --              --
Michael A. Backlund.....       --       --       156,666             --
Jack S. Jia.............                --        28,747         130,919
---------------------
(1) Options granted under our stock option plans are generally exercisable
    immediately but the shares acquired upon exercise are subject to lapsing
    rights of repurchase at the exercise price. The heading "exercisable"
    refers to shares as to which our right of repurchase has lapsed. The
    heading "unexercisable" refers to shares that we still have the right to
    repurchase upon termination of the optionee's employment.

                                       45
Employee Benefit Plans

   1996 Stock Option Plan. As of June 30, 1999, options to purchase 25,000
shares of common stock were outstanding under the 1996 Stock Option Plan and
options to purchase 616,574 shares had been exercised and remain subject to our
repurchase right. No additional options may be granted under this plan. Options
granted under the stock option plan are subject to terms substantially similar
to those described below with respect to options granted under the 1999 Equity
Incentive Plan.
   1998 Stock Option Plan. As of June 30, 1999, options to purchase 919,980
shares of common stock were outstanding under the 1998 Stock Option Plan,
options to purchase 784,034 shares remained available for issuance and options
to purchase 1,001,119 shares had been exercised and remain subject to our
repurchase right. No additional options may be granted under this plan. Options
granted under the stock option plan are subject to terms substantially similar
to those described below with respect to options granted under the 1999 Equity
Incentive Plan.

   1999 Equity Incentive Plan. The board has adopted the 1999 Equity Incentive
Plan and reserved 2,900,000 shares of common stock to be issued under this
plan. In addition, shares under the 1998 Stock Option Plan not issued or
subject to outstanding grants on the date of this prospectus and any shares
issued under these plans that are forfeited or repurchased by us or that are
issuable upon exercise of options that expire or become unexercisable for any
reason without having been exercised in full will be available for grant and
issuance under the equity incentive plan. Shares will again be available for
grant and issuance under the equity incentive plan that:

  .  are subject to issuance upon exercise of an option granted under the
     equity incentive plan that cease to be subject to the option for any
     reason other than exercise of the option;

  .  have been issued upon the exercise of an option granted under the equity
     incentive plan that are subsequently forfeited or repurchased by us at
     the original purchase price;

  .  are subject to an award granted pursuant to a restricted stock purchase
     agreement under the equity incentive plan that are subsequently
     forfeited or repurchased by us at the original issue price; or

  .  are subject to stock bonuses granted under the equity incentive plan
     that terminates without shares being issued.

   This plan will become effective on the consummation of this offering and
will terminate after 10 years, unless it is terminated earlier by our board.
The plan will authorize the award of options, restricted stock awards and stock
bonuses. No person will be eligible to receive more than 1,000,000 shares in
any calendar year under the plan other than a new employee who will be eligible
to receive no more than 1,500,000 shares in the calendar year in which the
employee commences employment.

   The plan will be administered by our compensation committee, all of the
members of which are "non-employee directors" under applicable federal
securities laws and "outside directors" as defined under applicable federal tax
laws. The compensation committee will have the authority to construe and
interpret the plan, grant awards and make all other determinations necessary or
advisable for the administration of the plan. Also, our non-employee directors
are entitled to receive automatic annual grants of fully vested options to
purchase shares of our common stock, as described under "Management--Director
Compensation."

   The plan will provide for the grant of both incentive stock options that
qualify under Section 422 of the Internal Revenue Code and nonqualified stock
options. Incentive stock options may be granted only to our employees or
employees of our parent or subsidiary, if any. All other awards other than
incentive stock options may be granted to employees, officers, directors,
consultants, independent contractors and advisors of ours or of our parent or
subsidiary, if any, provided the consultants, independent contractors and
advisors render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction. The exercise price of incentive
stock options must be at least equal to the fair market value of our common
stock on the date of grant. The exercise price of incentive stock options
granted to 10% stockholders must be at least equal to 110% of that value. The
exercise price of nonqualified stock options must be at least equal to 85% of
the fair market value of our common stock on the date of grant.

                                       46
Options may be exercisable only as they vest or may be immediately
exercisable with the shares issued subject to our right of repurchase that
lapses as the shares vest. In general, options will vest over a four-year
period. The maximum term of options granted under the plan is 10 years.

   Awards granted under the plan may not be transferred in any manner other
than by will or by the laws of descent and distribution. They may be exercised
during the lifetime of the optionee only by the optionee. The compensation
committee could determine otherwise and provide for these provisions in the
award agreement, but only with respect to awards that are not incentive stock
options. Options granted under the plan generally may be exercised for a period
of time after the termination of the optionee's service to us or to our parent
or subsidiary, if any. Options will generally terminate immediately upon
termination of employment for cause.

   The purchase price for restricted stock will be determined by our
compensation committee. Stock bonuses may be issued for past services or may be
awarded upon the completion of certain services or performance goals.

   If we are dissolved or liquidated or have a "change in control" transaction,
outstanding awards may be assumed or substituted by the successor corporation,
if any. In the discretion of the compensation committee the vesting of these
awards may accelerate upon one of these transactions.

   1999 Employee Stock Purchase Plan. The board has adopted the 1999 Employee
Stock Purchase Plan and has reserved 300,000 shares for issuance under this
plan.This plan will become effective one business day after consummation of
this offering. On each January 1, the aggregate number of shares reserved for
issuance under this plan will increase automatically by a number of shares
equal to 1% of our outstanding shares on December 31 of the preceding year. The
aggregate number of shares reserved for issuance under the plan may not exceed
3,000,000 shares. The plan will be administered by our compensation committee,
which will have the authority to construe and interpret the plan.

   Employees generally will be eligible to participate in the plan if they are
employed ten days before the beginning of an offering period and they are
customarily employed by us, or our parent or any subsidiaries that we
designate, for more than 20 hours per week and more than five months in a
calendar year and are not, and would not become as a result of being granted an
option under the plan, 5% stockholders of us or our designated parent or
subsidiaries.

   Under the plan, eligible employees will be permitted to acquire shares of
our common stock through payroll deductions. Eligible employees may select a
rate of payroll deduction between 2% and 15% of their compensation and are
subject to maximum purchase limitations. Participation in the plan will end
automatically upon termination of employment for any reason.

   Each offering period under the plan will be for two years and consist of
four six-month purchase periods. The first offering period is expected to begin
on the first business day on which price quotations for our common stock are
available on the Nasdaq National Market. Offering periods and purchase periods
will begin on February 1 and August 1 of each year. However, because the first
day on which price quotations for our common stock will be available on the
Nasdaq National Market may not be February 1 or August 1, the length of the
first offering period may be more or less than two years, and the length of the
first purchase period may be more or less than six months.

   The plan will provide that, in the event of our proposed dissolution or
liquidation, each offering period that commenced prior to the closing of the
proposed event shall continue for the duration of the offering period, provided
that the compensation committee may fix a different date for termination of the
plan. The purchase price for our common stock purchased under the plan is 85%
of the lesser of the fair market value of our

                                       47
common stock on the first day of the applicable offering period or the last day
of the applicable purchase period. The compensation committee will have the
power to change the duration of offering periods without stockholder approval,
if the change is announced at least 15 days prior to the beginning of the
affected offering period.

   The plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code. Rights granted under the plan will
not be transferable by a participant other than by will or the laws of descent
and distribution.

   The plan will terminate 10 years from its inception, unless it is terminated
earlier under the terms of the plan. The board will have the authority to
amend, terminate or extend the term of the plan, except that no action may
adversely affect any outstanding shares previously purchased under the plan.
Except for the automatic annual increase of shares described above, stockholder
approval is required to increase the number of shares that may be issued or to
change the terms of eligibility under the plan. The board may make amendments
to the plan as it determines to be advisable if the financial accounting
treatment for the plan is different from the financial accounting treatment in
effect on the date the plan was adopted by the board.

   401(k) Plan. We sponsor a defined contribution plan intended to qualify
under Section 401 of the Internal Revenue Code, or a 401(k) plan. All employees
are generally eligible to participate and may enter the plan as of the first
day of each calendar month. Participants may make pre-tax contributions to the
plan of up to 15% of their eligible earnings, subject to a statutorily
prescribed annual limit. Each participant is fully vested in his or her
contributions and the investment earnings. Contributions to the plan by the
participants or by us, and the income earned on these contributions, are
generally not taxable to the participants until withdrawn. Contributions by us,
if any, are generally deductible by us when made. Participant and company
contributions are held in trust as required by law. Individual participants may
direct the trustee to invest their accounts in authorized investment
alternatives.

Employment and Severance Agreements

   Mr. Brauns, our President and Chief Executive Officer, entered into an
employment agreement with us in February 1998. This agreement establishes Mr.
Brauns' annual base salary of $250,000 and eligibility for benefits and bonuses
tied to our revenues. This agreement also provides for his election to the
Board of Directors as a condition of employment. This agreement continues until
it is terminated upon written notice by Mr. Brauns or by us. If his employment
is terminated by us for cause or if he voluntarily elects to terminate his
employment, we must pay his salary and other benefits through the date of his
termination. If his employment is terminated by us without cause or if he
terminates his employment under certain circumstances, we must pay his benefits
through the date of his termination and his salary for up to 12 additional
months after this date, unless Mr. Brauns is employed full-time by another
employer.

   Under this agreement, Mr. Brauns agreed to purchase 1,333,333 shares of
common stock at an exercise price of $0.18 per share. The shares purchased by
Mr. Brauns are subject to our right to repurchase the shares upon termination
of his employment. Our repurchase right expires ratably over a 48 month period.
Our repurchase right also expires as to all of the shares in the event that we
merge or consolidate with another entity or sell all or substantially all of
our assets.

   In connection with this stock purchase, we agreed to loan Mr. Brauns the
entire purchase price. This loan has been repaid in full. See "Related Party
Transactions--Loans to Executive Officers."

   Mr. Ong's offer letter, dated February 29, 1996, provided for an salary of
$48,000 commencing on March 1, 1996. Mr. Ong's employment is at will and may be
terminated at any time, with or without formal cause.

                                       48
Mr. Allen's offer letter, dated February 12, 1999, provides for an initial
salary of $140,000 commencing on March 3, 1999 and eligibility for an incentive
bonus of $35,000. The offer letter also provides for reimbursement for certain
relocation expenses. Mr. Allen received options to purchase 186,667 shares of
our common stock at an exercise price of $0.39 per share under the 1998 Stock
Option Plan, of which options to purchase 46,667 shares vest on March 3, 2000
and the remainder will vest ratably over a 36 month period thereafter. Half of
the unvested portion of these options will vest if we sell the company. Mr.
Allen's employment is at will and may be terminated at any time, with or
without formal cause.

   Mr. Backlund's offer letter, dated May 1, 1998, provides for an initial
salary of $135,000 commencing on May 26, 1999 and eligibility for an incentive
bonus of up to $100,000. The offer letter also provides for reimbursement for
certain relocation expenses. Mr. Backlund received options to purchase 156,667
shares of our common stock at an exercise price of $0.21 per share under the
1996 Stock Option Plan, of which options to purchase 39,167 shares vest on May
26, 1999 and the remainder will vest ratably over a 36 month period thereafter.
On January 28, 1999, Mr. Backlund received options to purchase an additional
66,667 shares of our common stock as a result of meeting certain revenue
objectives in 1998. Mr. Backlund's employment is at will and may be terminated
at any time, with or without formal cause.

   Mr. Engelmann's offer letter, dated December 11, 1998, provides for an
initial salary of $130,000 commencing on January 18, 1999 and eligibility for
an incentive bonus of up to $40,000. The offer letter also provides for
reimbursement for certain relocation expenses. Pursuant to the offer letter,
Mr. Engelmann purchased 183,333 shares of our common stock at the price of
$0.39 per share. The shares purchased by Mr. Engelmann are subject to our right
to repurchase all of the shares of common stock upon termination of his
employment. Our right to repurchase his shares at the original purchase price
upon termination lapses with respect to 45,833 shares on January 18, 2000, and
expires ratably as to the remaining shares over a 36 month period. The
repurchase right will expire as to half of the shares of common stock subject
to repurchase at any given time if we are acquired. If we terminate Mr.
Engelmann's employment without cause, we must pay him an amount equal to two
months base salary. Pursuant to the offer letter, on January 28, 1999, Mr.
Engelmann purchased an additional 86,667 shares of our common stock, subject to
attainment of certain individual and corporate objectives, and subject to the
same repurchase rights as described above. We loaned Mr. Engelmann $105,300
pursuant to a partial recourse secured promissory note representing the
purchase price for his shares, due in five years or earlier in the event of our
initial public offering, acquisition or Mr. Engelmann's termination of
employment, and bearing interest at the rate of 6% per year. Mr. Engelmann's
employment is at will and may be terminated at any time, with or without formal
cause.

   Mr. Jia's offer letter, dated January 6, 1997, provides for an initial
salary of $70,000 commencing January 27, 1997. Mr. Jia received options to
purchase 60,000 shares of our common stock at an exercise price of $0.09 per
share under the 1996 Stock Option Plan, of which options to purchase 15,000
shares vested on January 28, 1998 and the remainder will vest ratably over a 36
month period thereafter. Mr. Jia's employment is at will and may be terminated
at any time, with or without formal cause.

   Mr. Ruck's offer letter, dated February 18, 1999, provides for an initial
salary of $140,000 commencing March 15, 1999 and eligibility for an incentive
bonus of up to $60,000. Pursuant to the offer letter, Mr. Ruck purchased
320,000 shares of our common stock at the price of $0.39 per share. The shares
purchased by Mr. Ruck are subject to our right to repurchase all of the shares
of common stock upon termination of his employment. Our right to repurchase his
shares upon termination lapses with respect to 53,333 on March 15, 2000, and
expires ratably as to the remaining shares over a 36 month period. If we
terminate Mr. Ruck's employment without cause, within his first year of
employment, our right to repurchase his common stock will be limited to 160,000
shares. If we do not exercise our right to repurchase unvested shares, Mr. Ruck
may purchase the unvested shares at cost. On March 18, 1999, Mr. Ruck purchased
an additional 50,000 shares of our common stock, subject to the attainment of
certain individual and corporate objectives, and subject to the same repurchase
rights as described above. Also, pursuant to his offer letter, we loaned Mr.
Ruck $96,200 pursuant to a partial recourse secured promissory note
representing the purchase price for his shares, due in five

                                       49
years or earlier in the event of our initial public offering, acquisition, or
Mr. Ruck's termination of employment, and bearing interest at the rate of 6%
per year. The loan will be recourse with respect to interest and a combination,
as determined by mutual agreement between the parties, of recourse and non-
recourse for the principal. Mr. Ruck's employment is at will and may be
terminated at any time, with or without formal cause.

   Mr. Chang's offer letter, dated January 20, 1997, provides for an initial
salary of $125,000 commencing February 3, 1997 and eligibility for incentive
bonus of up to $125,000. Mr. Chang received options to purchase 120,000 shares
of our common stock at an exercise price of $0.09 per share under the 1996
Stock Option Plan, of which 30,000 shares vested upon February 10, 1998 and the
remainder will vest ratably over a 36 month period thereafter. On April 13,
1998, we granted to Mr. Chang options to purchase an additional 46,667 shares
of our common stock, subject to the attainment of certain individual and
corporate objectives.

   Mr. Chang entered into a Confidential Separation Agreement and Release with
us in November 1998. This agreement establishes the terms and conditions of the
termination of his employment with us. Under the agreement, Mr. Chang's
employment was terminated as of March 31, 1999. In addition, the agreement
provides that we pay Mr. Chang $11,500 per month, plus a bonus of $64,167. Mr.
Chang's options to purchase common stock continued to vest through March 31,
1999.

   Mr. Farber's offer letter, dated June 14, 1997, provides for an initial
salary of $120,000. Mr. Farber received options to purchase 320,000 shares of
our common stock at an exercise price of $0.18 per share under the 1996 Stock
Option Plan, of which 80,000 shares vested on June 16, 1998 and the remainder
will vest ratably over a 36 month period thereafter.

   Mr. Farber entered into a Confidential Separation Agreement and Release with
us in February 1998. This agreement establishes the terms and conditions of the
termination of his employment with us. Under the agreement, Mr. Farber's
employment terminated as of August 1, 1998. In addition, the agreement provides
that we pay Mr. Farber $76,071. All 196,000 of Mr. Farber's options to purchase
common stock completely vested as of August 1998.

   Indemnification of Directors and Executive Officers and Limitation of
Liability

   Our certificate of incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages resulting from breach
of fiduciary duty as a director, except for liability:

  .  for any breach of the director's duty of loyalty to us or our
     stockholders;

  .  for acts or omissions not in good faith or that involve intentional
     misconduct or a knowing violation of law;

  .  under section 174 of the Delaware General Corporation Law regarding
     unlawful dividends and stock purchases; or

  .  for any transaction from which the director derived an improper personal
     benefit.

   These provisions are permitted under Delaware law.

   Our bylaws provide that:

  .  we must indemnify our directors and executive officers to the fullest
     extent permitted by Delaware law, subject to very limited exceptions;

  .  we may indemnify our other employees and agents to the same extent that
     we indemnify our directors and executive officers, unless otherwise
     required by law, our certificate of incorporation, bylaws or agreements;
     and

  .  we must advance expenses, as incurred, to our directors and executive
     officers in connection with a legal proceeding to the fullest extent
     permitted by Delaware law, subject to very limited exceptions.

                                       50
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our current directors and executive
officers to give them additional contractual assurances regarding the scope of
the indemnification provided in our certificate of incorporation and bylaws and
to provide additional procedural protections. Presently, there is no pending
litigation or proceeding involving any of our directors, executive officers or
employees for which indemnification is sought, nor are we aware of any
threatened litigation that may result in claims for indemnification.

   We have liability insurance for our directors and officers.

                                       51
RELATED PARTY TRANSACTIONS

   Other than the employment and severance agreements described in
"Management," and the transactions described below, since we were formed there
has not been nor is there currently proposed, any transaction or series of
similar transactions to which we were or will be a party:

  .  in which the amount involved exceeded or will exceed $60,000; and

  .  in which any director, executive officer, holder of more than 5% of our
     common stock or any member of their immediate family had or will have a
     direct or indirect material interest.

Preferred Stock Financings

   All of the share and per share purchase price numbers set forth in the
following paragraph represent actual shares sold and do not reflect the 2-for-3
reverse stock split of our common stock to be effected immediately prior to the
closing of this offering.

   In March and June 1996, we sold an aggregate of 1,800,000 shares of Series A
Preferred Stock at a purchase price of $0.20 per share. In May and June 1997,
we sold an aggregate of 3,039,505 shares of Series B Preferred Stock at a
purchase price of $1.2862 per share. In March 1998, we sold an aggregate of
6,241,619 shares of Series C Preferred Stock at a purchase price of $1.079076
per share. In October, November and December 1998, we sold an aggregate of
3,741,217 shares of Series D Preferred Stock at a purchase price of $1.87105
per share. In June 1999, we sold an aggregate of 3,394,719 shares of Series E
Preferred Stock at a purchase price of $5.66 per share.

   Purchasers of our preferred and common stock include, among others, the
following executive officers, directors and holders of more than 5% of our
outstanding stock. All of the share numbers in the following table reflect the
conversion of each outstanding share of Series A Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock into
two-thirds of a share of common stock and the conversion of each outstanding
share of Series B Preferred Stock into 0.7022705 of a share of common stock.
Shares of Preferred Stock
                                    -------------------------------------------
                                    Series                      Series  Series
                                       A    Series B  Series C     D       E
                                    ------- --------- --------- ------- -------
Stockholder
   -----------
   Kathryn C. Gould
     Entities associated with
      Foundation Capital..........      --        --  2,480,419 613,896 146,666
   Entities associated with JK&B
    Capital.......................      --  1,310,408   650,153 485,233 132,861
   Entities associated with Draper
     Fisher Jurvetson.............  333,333   167,031   277,410 202,632   1,313
   Entities associated with Accel
    Partners......................      --        --  1,063,038 263,098  72,039
   Peng T. Ong....................   66,666       --        --      --      --
   Mark W. Saul...................   83,333    13,919       --      --      --
Ms. Gould, one of our directors, is a member of Foundation Capital and may
deemed to beneficially own the shares held by entities associated with
Foundation Capital. Mr. Ong disposed of his shares of Series A Preferred Stock
in 1997.

Warrants

   On January 9, 1997, in connection with a bridge financing, we issued
warrants to purchase shares of our Series B Preferred Stock with an exercise
price of $1.92932 per share to the following executive officers, directors and
holders of more than 5% of our outstanding stock:
Number of shares
   Warrant holder                            subject to warrant Expiration date
   --------------                            ------------------ ---------------
Mark W. Saul.............................        3,412       January 9, 2002
   Entities associated with Draper Fisher
    Jurvetson...............................       40,950       January 9, 2002
52
The number of shares of Series B Preferred Stock represented in this table
has been adjusted to reflect conversion to common stock. Each outstanding share
of Series B Preferred Stock is convertible into 1.0534057 shares of common
stock. These warrants have not been exercised but will expire upon the closing
of this offering.

   In March 1998, in connection with the Series C Preferred Stock financing, we
issued warrants to purchase shares of our Series C Preferred Stock with an
exercise price of $1.2862 per share to the following executive officers,
directors and holders of more than 5% of our outstanding stock. In October
1998, all warrants to purchase Series C Preferred Stock were exercised by their
respective holders in connection with the Series D Preferred Stock financing.
Number of shares
   Warrant holder                                            subject to warrant
   --------------                                            ------------------
Entities associated with Foundation Capital..............      317,075
   Entities associated with Accel Partners..................      204,478
   Entities associated with JK&B Capital....................      125,054
   Entities associated with Draper Fisher Jurvetson.........       53,360
Loans to Executive Officers

   Martin W. Brauns. In March 1998 we loaned $240,000 to Mr. Brauns, our
President and Chief Executive Officer, secured by a promissory note and stock
pledge agreement, in connection with his purchase of 1,333,333 shares of our
common stock. The note accrued interest at a rate of 6% per year and was due
and payable on or before March 3, 2003. The note was full-recourse with respect
to 25% of the principal, plus any accrued interest. Mr. Brauns has paid the
note in full.

   Jeffrey E. Engelmann. In April 1999 we loaned an aggregate of $105,300 to
Mr. Engelmann, our Vice President of Business Development, secured by two
promissory notes and a stock pledge agreement, in connection with his purchase
of 270,000 shares of our common stock. The notes accrue interest at a rate of
6% per year and are each due and payable on or before April 19, 2004. The notes
are full-recourse with respect to 25% of the principal, plus any accrued
interest. Interest is payable annually. In the event of an initial public
offering of our common stock the principal sum of each note will become due and
payable in monthly installments over the remaining term of our right to
repurchase the shares. As of June 30, 1999, $106,504 remained outstanding under
this note.

   Jozef Ruck. In April 1999 we loaned an aggregate of $96,200 to Mr. Ruck, our
Vice President of Marketing, secured by two promissory notes and a stock pledge
agreement, in connection with his purchase of 246,666 shares of our common
stock. The notes accrue interest at a rate of 6% per year and are each due and
payable on or before April 2004. The notes are full-recourse with respect to
25% of the principal, plus any accrued interest. Interest is payable annually.
In the event of an initial public offering of our common stock the principal
sum of each note will become due and payable in monthly installments over the
remaining term of our right to repurchase the shares.. As of June 30, 1999,
$97,322 remained outstanding under this note.

                                       53
PRINCIPAL STOCKHOLDERS

   The following table presents information as to the beneficial ownership of
our common stock as of June 30, 1999 and as adjusted to reflect the sale of the
common stock in this offering by:

  .  each stockholder known by us to be the beneficial owner of more than 5%
     of our common stock;

  .  each of our directors;

  .  each executive officer listed in the Summary Compensation Table; and

  .  all executive officers and directors as a group.
Percentage of
                                                                   Shares
                                                  Number of      Outstanding
                                                    Shares    -----------------
                                                 Beneficially  Before   After
       Name of Beneficial Owner                     Owned     Offering Offering
       ------------------------                  ------------ -------- --------
Kathryn C. Gould (1)............................  3,240,981    17.3%        %
 Foundation Capital entities
  70 Willow Road, Suite 200
 Menlo Park, CA 94025

JK&B Capital entities (2).......................  2,578,655    13.8
 205 North Michigan Avenue, Suite 808
 Chicago, IL 60601

Peng T. Ong.....................................  1,933,333    10.3

Martin W. Brauns (3)............................  1,419,436     7.6

Accel Partners entities (4).....................  1,398,175     7.5
 One Palmer Square
 Princeton, NJ 08542-3718

Draper Fisher Jurvetson entities (5)............  1,022,668     5.5
 400 Seaport Court, Suite 250
 Redwood City, CA 94063

Michael A. Backlund (6).........................    223,332     1.2

Jack S. Jia (7).................................    173,332      *

Steven Farber...................................    186,634      *

Mark W. Saul (8)................................    123,997      *

John Chang......................................     74,166      *

Mark C. Thompson (9)............................     20,000      *

Ronald E.F. Codd (9)............................     20,000      *

All eleven directors and executive officers as a
 group (10)...................................    7,867,744    41.8%        %
---------------------
(1) Includes 2,878,855 shares held by Foundation Capital, L.P., 91,960 shares
    held by Foundation Capital II Entrepreneurs Fund, L.L.C., 270,166 shares
    held by Foundation Capital II Principals Fund, L.L.C. Ms. Gould is a member
    of the Foundation Capital entities. Ms. Gould disclaims beneficial
    ownership of shares held by the Foundation Capital entities except to the
    extent of her pecuniary interest in this venture capital firm.

(2) Includes 1,800,630 shares held by JK&B Capital, L.P., and 778,026 shares
    held by JK&B Capital II, L.P.

(3) Includes 1,002,770 shares of common stock subject to our repurchase right.

(4) Includes 1,097,568 shares held by Accel V L.P., 145,410 shares held by
    Accel Internet/Strategic Technology Fund, L.P., 57,325 shares held by Accel
    Keiretsu V L.P., 67,112 held by Accel Investors "97 L.P. and 30,760 held by
    Ellmore C. Patterson Partners.

                                       54
(5) Includes 1,022,668 shares held by Draper Fisher Associates Fund III and
    62,382 shares held by Draper Fisher Partners, LLC Includes 40,950 shares
    issuable upon the exercise of warrants to purchase shares of Series B
    Preferred Stock held by both entities.

(6) Includes 180,901 shares of common stock subject to our repurchase right.

(7) Includes 125,900 shares of common stock subject to our repurchase right.

(8) Includes 3,412 shares issuable upon the exercise of warrants to purchase
    shares of Series B Preferred Stock held by Mr. Saul.

(9) Represents 20,000 shares of common stock subject to our repurchase right.

(10) Includes 1,912,903 shares of common stock subject to our repurchase right.

   Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless indicated below, to our knowledge, the persons
and entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Shares of common stock subject to options and warrants that
are currently exercisable or exercisable within 60 days of June 30, 1999 are
deemed to be outstanding and to be beneficially owned by the person holding the
options or warrants for the purpose of computing the percentage ownership of
such person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Unless indicated above, the address
for each listed stockholder is c/o Interwoven, Inc., 1195 West Fremont Avenue,
Suite 2000, Sunnyvale, California 94087.

   The number of shares of common stock outstanding after this offering
includes shares of common stock being offered and does not include the shares
which are subject to the underwriters' over-allotment option. The percentage of
common stock outstanding as of June 30, 1999 is based on        shares of
common stock outstanding on that date, assuming that all outstanding preferred
stock has been converted into common stock.

                                       55
DESCRIPTION OF CAPITAL STOCK

   Immediately following the closing of this offering, our authorized capital
stock will consist of 75,000,000 shares of common stock, $0.001 par value per
share, and 5,000,000 shares of preferred stock, $0.001 par value per share.

   Immediately before the closing of this offering, we will reincorporate in
the state of Delaware. Following the closing of this offering, we intend to
amend and restate our certificate of incorporation. Our certificate of
incorporation, bylaws and third amended and restated investors' rights
agreement, described below, are included as exhibits to the registration
statement of which this prospectus forms a part.

Common Stock

   As of June 30, 1999, there were 18,714,312 shares of common stock
outstanding held by 121 shareholders of record, including 12,420,390 shares
that will be issued upon conversion of all outstanding preferred stock and the
exercise and subsequent conversion to common stock of warrants to purchase
Series B Preferred Stock upon the closing of this offering.

   Dividend Rights. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive dividends out of assets legally available
at the times and in the amounts as our board may from time to time determine.

   Voting Rights. Each common stockholder is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election.

   No preemptive or similar rights. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.

   Right to receive liquidation distributions. Upon a liquidation, dissolution
or winding-up of Interwoven, the assets legally available for distribution to
stockholders are distributable ratably among the holders of the common stock
and any participating preferred stock outstanding at that time after payment of
liquidation preferences, if any, on any outstanding preferred stock and payment
of other claims of creditors. Each outstanding share of common stock is, and
all shares of common stock to be outstanding upon completion of this offering
will be, fully paid and nonassessable.

Preferred Stock

   Upon the closing of this offering, each outstanding share of preferred stock
will be converted into shares of common stock. See Note 6 of Notes to Financial
Statements for a description of this preferred stock.

   Following this offering, we will be authorized, subject to the limits
imposed by Delaware law, to issue preferred stock in one or more series, to
establish from time to time the number of shares to be included in each series,
to fix the rights, preferences and privileges of the shares of each wholly
unissued series and any of its qualifications, limitations or restrictions. The
board can also increase or decrease the number of shares of any series, but not
below the number of shares of such series then outstanding, without any further
vote or action by the stockholders.

   The board may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of the common stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, have the effect of delaying,
deferring or preventing a change in control and may adversely affect the market
price of our common stock and the voting and other rights of the holders of
common stock. We have no current plan to issue any shares of preferred stock.

                                       56
Warrants

   As of June 30, 1999, we had outstanding the following warrants to purchase
our stock:
Total number of
                         shares Subject  Exercise price
Type of stock              to Warrants     per share             Expiration date
-------------            --------------- -------------- ----------------------------------
Series B Preferred
 Stock..................     96,049         $1.2862     upon consummation of this offering
Series B Preferred
 Stock..................     12,058          1.2862     September 2004
In July 1999 we issued warrants to purchase a total of 17,659 shares of
Series E Preferred Stock in connection with our acquisition of Lexington
Software Associates, Inc. The warrants are exercisable at a purchase price of
$5.66 per share after January 1, 2000 and until July 1, 2006. All holders of
warrants to purchase Series E Preferred Stock are afforded registration rights
pursuant to the Third Amended and Restated Investors Rights Agreement.

Registration Rights

   The holders of approximately 12,420,390 shares of common stock have the
right to require us to register their shares with the Securities and Exchange
Commission so that those shares may be publicly resold or to include their
shares in any registration statement we file.

 Right to demand registration

   At any time six months after this offering, these stockholders can request
that we file a registration statement so they can publicly sell their shares.
The underwriters of any underwritten offering will have the right to limit the
number of shares to be so included in a registration statement.

   Who may make a demand. At any time six months after the closing of this
offering, any holder of shares of common stock issued upon conversion of Series
B Preferred Stock immediately prior to this offering, any number of holders who
together hold an aggregate of at least 954,633 shares of common stock issued
upon conversion of Series C Preferred Stock immediately prior to this offering,
any number of holders who together hold an aggregate of at least 498,829 shares
of common stock issued upon conversion of Series D Preferred Stock immediately
prior to this offering, any number of holders who together hold an aggregate of
at least 452,628 shares of common stock issued upon conversion of Series E
Preferred Stock immediately prior to this offering, or the holders of at least
40% of the shares having registration rights, including certain holders of
Series A Preferred Stock, have the right to demand that we file a registration
statement on a form other than Form S-3, so long as the amount of securities to
be sold in that registration exceeds $5,000,000. If we are eligible to file a
registration statement on Form S-3, the same holders of the registration rights
described above will have the right to demand that we file a registration
statement on Form S-3, so long as the amount of securities to be sold in that
registration exceeds $1,000,000.

   Number of times holders can make demands. We will only be required to file
one registration statement on a form other than Form S-3 for each of two
registrations. If we are eligible to file a registration statement on Form S-3,
we are not required to file more than one registration statement during any 12
month period.

   Postponement. We may postpone the filing of a registration statement for up
to 90 days once in a 12 month period if we determine that the filing would be
seriously detrimental to us or our stockholders.

 Piggyback registration rights

   If we register any securities for public sale, the same stockholders with
registration rights described above will have the right to include their shares
in the registration statement. The underwriters of any underwritten offering
will have the right to limit the number of shares to be so included in a
registration statement.

                                       57
Expenses of registration

   We will pay all of the expenses relating to any demand or piggyback
registration. However, we will not pay for any expenses of any demand
registration if the request is subsequently withdrawn by the holders of a
majority of the shares having registration rights, subject to very limited
exceptions.

 Expiration of registration rights

   The registration rights described above will expire five years after this
offering is completed. The registration rights will terminate earlier with
respect to a particular stockholder if that holder owns less than 1% of our
outstanding securities or can resell all of its securities in a three month
period under Rule 144 of the Securities Act and we are subject to the reporting
requirements of the Securities Exchange Act of 1934.

Anti-Takeover Provisions

   The provisions of Delaware law, our certificate of incorporation and our
bylaws described below may have the effect of delaying, deferring or
discouraging another person from acquiring control of our company.

 Delaware Law

   We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents certain
Delaware corporations from engaging, under limited circumstances, in a
"business combination," which includes a merger or sale of more than 10% of the
corporation's assets, with any "interested stockholder," or a stockholder who
owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of stockholders, for three years following the date
that the stockholder became an "interested stockholder" unless:

  .  the transaction is approved by the board prior to the date the
     "interested stockholder" attained that status;

  .  upon the closing of the transaction that resulted in the stockholder's
     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; or

  .  on or subsequent to the date the "business combination" is approved by
     the board and authorized at an annual or special meeting of stockholders
     by at least two-thirds of the outstanding voting stock that is not owned
     by the "interested stockholder."

   A Delaware corporation may "opt out" of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not "opted out" of this provision. Section 203 could prohibit
or delay mergers or other takeover or change-in-control attempts and,
accordingly, may discourage attempts to acquire us.

 Charter and Bylaw Provisions

   Our amended and restated certificate of incorporation, to be filed upon the
closing of this offering, states that our board of directors is divided into
three classes. The directors in each class will serve for a three-year term,
with our stockholders electing one class each year. For more information on the
classification of our board, please see "Management--Board Composition." This
system of electing and removing directors may tend to discourage a third party
from making a tender offer or otherwise attempting to obtain control of us,
because it generally makes it more difficult for stockholders to replace a
majority of the directors.

   Our bylaws provide that any action required or permitted to be taken by our
stockholders at an annual meeting or a special meeting of the stockholders may
only be taken if it is properly brought before the meeting.

                                       58
Our stockholders may not take any action by written consent instead of by a
meeting. Our certificate of incorporation provides that our board of directors
may issue preferred stock with voting or other rights without stockholder
action. Our bylaws and certificate of incorporation provide that special
meetings of the stockholders may only be called by our board, the chairman of
our board, our chief executive officer or our president.

   Our bylaws provide that we will indemnify officers and directors against
losses that they may incur in investigations and legal proceedings resulting
from their services to us, which may include services in connection with
takeover defense measures. These provisions may have the effect of preventing
changes in our management.

Indemnification of Directors and Executive Officers and Limitation of Liability

   Our certificate of incorporation limits the liability of directors to the
fullest extent permitted by Delaware law. In addition, our certificate of
incorporation and bylaws provide that we will indemnify our directors and
officers to the fullest extent permitted by Delaware law. We intend to enter
into separate indemnification agreements with our directors and executive
officers that provide them with indemnification protection in the event the
certificate of incorporation is subsequently amended.

   Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive officers against losses that they may incur in
investigations and legal proceedings resulting from their services to us, which
may include services in connection with takeover defense measures. These
provisions may have the effect of preventing changes in the management.

Transfer Agent and Registrar

   The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C., Ridgefield Park, New Jersey.

Listing

   We have applied for our common stock to be quoted on The Nasdaq Stock
Market's National Market under the symbol "IWOV."

                                       59
SHARES ELIGIBLE FOR FUTURE SALE

   Sales of substantial amounts of our common stock, including shares issued
upon exercise of outstanding warrants or options, in the public market after
this offering could adversely affect market prices prevailing from time to time
and could impair our ability to raise capital through the sale of our equity
securities. Furthermore, as described below, no shares currently outstanding
will be available for sale immediately after this offering due to limited
contractual restrictions on resale. Sales of substantial amounts of our common
stock in the public market after these restrictions lapse could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.

   Upon completion of this offering, we will have outstanding     shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options. Of these shares, the     shares sold in
this offering will be freely tradable without restriction under the Securities
Act unless purchased by our "affiliates." The remaining shares will become
eligible for public sale as follows:
Approximate
                              Number of
                               Shares
                              Eligible
                             for Future
           Date                 Sale                   Comment
           ----              -----------               -------
Date of this prospectus               0  Freely tradable shares
181 days after the date of   15,690,149  Underwriters' lock-up released.
 this prospectus                         These shares may be sold under Rules
                                         144, 144(k) or 701
One year after the date of    2,484,404  These shares may be sold under Rules
 this prospectus                         144 or 701
At various times thereafter     539,759  These shares may be sold under Rules
                                         144 or 701
Lock-Up Agreements

   All of our officers and directors and substantially all of our stockholders
have signed lock-up agreements under which they agreed not to sell, dispose of,
loan, pledge or grant any rights with respect to any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock without the prior written consent of Credit Suisse First Boston
for a period of 180 days after the date of this prospectus.

   Credit Suisse First Boston may choose to release some of these shares from
these restrictions prior to the expiration of this 180-day period, though it
has no current intention to do so.

 Rule 144

   In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:

  .  1% of the number of shares of common stock then outstanding, which will
     equal approximately      shares immediately after this offering; or

  .  the average weekly trading volume of the common stock on the Nasdaq
     National Market during the four calendar weeks preceding the filing of a
     notice on Form 144 with respect to the sale.

   Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.

                                       60
Rule 144(k)

   Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, these shares may be sold immediately upon the completion of this
offering.

 Rule 701

   Any of our employees, officers, directors or consultants who purchased his
or her shares under a written compensatory plan or contract may be entitled to
sell his or her shares in reliance on Rule 701. Rule 701 permits affiliates to
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirements of Rule 144. Rule 701 further provides that non-affiliates
may sell these shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares are required to wait until 90 days
after the date of this prospectus before selling those shares. However, all
shares issued under Rule 701 are subject to lock-up agreements and will only
become eligible for sale when the 180-day lock-up agreements expire.

 Registration Rights

   Upon completion of this offering, the holders of 12,420,390 shares of common
stock, or their transferees, will be entitled to certain rights with respect to
the registration of those shares under the Securities Act. For a discussion of
these rights please see "Description of Capital Stock--Registration Rights."
After these shares are registered, they will be freely tradable without
restriction under the Securities Act.

 Stock Options

   Immediately after this offering, we intend to file a registration statement
under the Securities Act covering 3,200,000 shares of common stock reserved for
issuance under our stock option and employee stock purchase plans. As of June
30, 1999, options to purchase 944,980 shares of common stock were issued and
outstanding.

   Upon the expiration of the lock-up agreements described above, at least
      shares of common stock will be subject to vested options, based on
options outstanding as of June 30, 1999. This registration statement is
expected to be filed and become effective as soon as practicable after the
effective date of this offering. Accordingly, shares registered under this
registration statement will, subject to vesting provisions and Rule 144 volume
limitations applicable to our affiliates, be available for sale in the open
market immediately after the 180-day lock up agreements expire.

 Warrants

   As of June 30, 1999, we had outstanding warrants to purchase 72,071 shares
of common stock. When these warrants are exercised and the exercise price is
paid in cash the shares must be held for one year before they can be sold under
Rule 144. Warrants to purchase up to 72,071 shares of common stock contain "net
exercise provisions." These provisions allow a holder to exercise the warrant
for a lesser number of shares of common stock in lieu of paying cash. The
number of shares which would be issued in this case would be based upon the
market price of the common stock at the time of the net exercise. If the
warrant had been held for at least one year, the shares of common stock could
be publicly sold under Rule 144. After the lock-up agreements described above
expire, warrants to purchase 72,071 shares of our common stock, which also
contain net exercise provisions, will have been outstanding for at least one
year. On September  , 2000, and after, warrants to purchase any additional
shares of common stock on a net exercise basis will have been outstanding for
at least one year.

                                       61
UNDERWRITING

   Under the terms and subject to the conditions contained in the underwriting
agreement dated       , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, BancBoston Robertson
Stephens Inc. and Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated, are acting as representatives, the following respective numbers
of shares of common stock:
Number of
              Underwriter                                              Shares
              -----------                                             ---------
Credit Suisse First Boston Corporation............................
   BancBoston Robertson Stephens Inc.................................
   Dain Rauscher Wessels.............................................
                                                                         ---
     Total...........................................................
                                                                         ===
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

   We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to         additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.

   The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $  per share. The underwriters
and selling group members may allow a discount of $  per share on sales to
other broker/dealers. After the initial public offering, the public offering
price and concession and discount to broker/dealers may be changed by the
representatives.

   The following table summarizes the compensation and estimated expenses we
will pay.
Per Share                        Total
                          ------------------------------ -----------------------------
                              Without          With         Without          With
                          Over- allotment Over-allotment Over-allotment Over-allotment
                          --------------- -------------- -------------- --------------
Underwriting Discounts
and
Commissions paid by us..        $              $              $              $
Expenses payable by us..        $              $              $              $
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

   We, our officers and directors and our stockholders have agreed that we will
not offer, sell, contract to sell, announce our intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to any additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock without the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus, except in the case of issuances
pursuant to the exercise of employee stock options outstanding on the date
hereof.

                                       62
The underwriters have reserved for sale, at the initial public offering
price, up to     shares of common stock for employees, directors and other
persons associated with us who have expressed an interest in purchasing common
stock in the offering. The number of shares available for sale to the general
public in the offering will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the others shares.

   We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.

   We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "IWOV."

   In June 1999, we issued an aggregate of 3,394,719 shares of our Series E
Preferred Stock at a per share price of $5.66 in a private placement. Credit
Suisse First Boston Corporation acted as the placement agent for this private
placement, and it received a customary fee for its services. In addition,
Merchant Capital, Inc., an affiliate of Credit Suisse First Boston Corporation,
purchased 229,682 shares of Series E Preferred Stock. Such shares are
convertible into 153.121 shares of common stock, resulting in an effective
purchase price of $8.49 per share.

   Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include:

  . the information set forth in this prospectus and otherwise available to
    the underwriters;

  . the history and the prospects for the industry in which we will compete;

  . the ability of our management;

  . the prospects for our future earnings;

  . the present state of our development and our current financial condition;

  . the general condition of the securities markets at the time of this
    offering; and

  . the recent market prices of, and the demand for, publicly traded common
    stock of generally comparable companies.

   The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Exchange Act.

  . Over-allotment involves syndicate sales in excess of the offering size,
    which creates a syndicate short position.

  . Stabilizing transactions permit bids to purchase the underlying security
    so long as the stabilizing bids do not exceed a specified maximum.

  . Syndicate covering transactions involve purchases of the common stock in
    the open market after the distribution has been completed in order to
    cover syndicate short positions.

  . Penalty bids permit the representatives to reclaim a selling concession
    from a syndicate member when the common stock originally sold by such
    syndicate member is purchased in a syndicate covering transaction to
    cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

                                       63
NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

   The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.

Representations of Purchasers

   Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws, (ii) where
required by law, that the purchaser is purchasing as principal and not as
agent, and (iii) the purchaser has reviewed the text above under "Resale
Restrictions."

Rights of Action (Ontario Purchasers)

   The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

Enforcement of Legal Rights

   All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or these persons. All or a substantial portion of the assets of
the issuer and these persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or these persons outside of Canada.

Notice to British Columbia Residents

   A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.

Taxation and Eligibility for Investment

   Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.

                                       64
LEGAL MATTERS

   Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the issuance of the shares of common stock offered by this prospectus. The
underwriters have been represented by Wilson Sonsini Goodrich & Rosati, Palo
Alto, California.

                                    EXPERTS

   The financial statement as of December 31, 1997 and 1998 and for each of the
three years in the period ended December 31, 1998 included in this Prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

                   WHERE YOU CAN FIND ADDITIONAL INFORMATION

   We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act with respect to the common
stock. This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules to the registration
statement. For further information with respect to us and our common stock, we
refer you to the registration statement and the exhibits and schedules filed as
a part of the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document are not
necessarily complete. If a contract or document has been filed as an exhibit to
the registration statement, we refer you to the copy of the contract or
document that has been filed. Each statement in this prospectus relating to a
contract or document filed as an exhibit is qualified in all respects by the
filed exhibit. The registration statement, including exhibits and schedules,
may be inspected without charge at the principal office of the Securities and
Exchange Commission in Washington, D.C., and copies of all or any part of it
may be obtained from that office after payment of fees prescribed by the
Securities and Exchange Commission. The Securities and Exchange Commission
maintains a web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Securities and Exchange Commission at http://www.sec.gov.

  We intend to provide our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports containing unaudited financial data for the first three
quarters of each year.

                                       65
INTERWOVEN, INC.

                         INDEX TO FINANCIAL STATEMENTS
Page
                                                                            ----
Report of Independent Accountants.......................................... F-2

Balance Sheet.............................................................. F-3

Statement of Operations.................................................... F-4

Statement of Changes in Stockholders' Deficit.............................. F-5

Statement of Cash Flows.................................................... F-6

Notes to Financial Statements.............................................. F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS

   The reincorporation described in Note 1 of the financial statements had not
been consummated at June 30, 1999. When it has been consummated, we will be in
a position to furnish the following report:

  "To the Board of Directors and
  Stockholders of Interwoven, Inc.

     In our opinion, the accompanying balance sheet and the related
  statements of operations, of stockholders' deficit and of cash flows
  present fairly, in all material respects, the financial position of
  Interwoven, Inc. (the "Company") at December 31, 1997 and 1998, and the
  results of its operations and its cash flows for each of the three
  years in the period ended December 31, 1998, in conformity with
  generally accepted accounting principles. 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 of these statements in accordance with
  generally accepted auditing standards, which 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, assessing the accounting
  principles used and significant estimates made by management, and
  evaluating the overall financial statement presentation. We believe
  that our audits provide a reasonable basis for the opinion expressed
  above."

  /s/ PricewaterhouseCoopers LLP

  San Jose, California
  July 15, 1999

                                      F-2
INTERWOVEN, INC.

                                 BALANCE SHEET
               (in thousands, except share and per share amounts)
December 31,               Pro Forma
                                         -----------------  June 30,  June 30,
                                          1997      1998      1999      1999
                                         -------  --------  --------  ---------
                                                                (unaudited)
ASSETS
Current assets:
  Cash and cash equivalents............  $ 1,019  $  9,022  $ 25,203
  Accounts receivable, net.............      140     2,405     1,885
  Prepaid expenses.....................      --        179       230
  Other current assets.................       37        80       143
                                         -------  --------  --------
   Total current assets................    1,196    11,686    27,461
Property and equipment, net............      188     1,617     1,882
Restricted cash........................      --        605       605
                                         -------  --------  --------
                                         $ 1,384  $ 13,908  $ 29,948
                                         =======  ========  ========

  LIABILITIES, MANDATORILY REDEEMABLE
   CONVERTIBLE PREFERRED STOCK, AND
    STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable.....................  $   213  $    484  $  1,489
  Accrued liabilities..................      169     1,473     1,655
  Debt and leases, current.............       22       258       511
  Deferred revenue, current............       --       627     1,172
                                         -------  --------  --------
   Total current liabilities...........      404     2,842     4,827
  Debt and leases, long-term...........       87     1,257     1,000
  Deferred revenue, long-term..........      --         97       --
                                         -------  --------  --------
                                             491     4,196     5,827
                                         -------  --------  --------
Mandatorily redeemable convertible
 preferred stock 18,763,092 shares
 authorized, 18,455,184 shares issued
 and outstanding, actual; no shares
 authorized, issued or outstanding pro
 forma.................................    4,627    20,464    45,276  $    --
                                         -------  --------  --------  --------
Commitments (Note 4)
Stockholders' Equity (Deficit):
  Preferred stock, $0.001 par value, no
   shares authorized, issued or
   outstanding, actual; 5,000,000
   shares authorized, no shares issued
   or outstanding, pro forma...........      --        --        --        --
  Common Stock, 10,000,000, 16,666,667,
   26,666,667 (unaudited) and
   75,000,000 (unaudited) shares
   authorized, respectively; 2,433,333,
   4,909,232, 6,230,590 (unaudited) and
   18,642,241 (unaudited) shares,
   respectively, issued and
   outstanding.........................        3         5         6        19
  Additional paid-in capital...........       18     2,307     9,483    54,746
  Notes receivable from stockholders...       (3)     (240)     (202)     (202)
  Deferred stock-based compensation....      --     (1,090)   (6,130)   (6,130)
  Accumulated deficit..................   (3,752)  (11,734)  (24,312)  (24,312)
                                         -------  --------  --------  --------
   Total stockholders' equity
    (deficit)..........................   (3,734)  (10,752)  (21,155) $ 24,121
                                         -------  --------  --------  --------
                                         $ 1,384  $ 13,908  $ 29,948
                                         =======  ========  ========  ========
See accompanying notes to financial statements.

                                      F-3
INTERWOVEN, INC.

                            STATEMENT OF OPERATIONS
                    (in thousands, except per share amounts)
Year Ended December      Six Months Ended
                                            31,                  June 30,
                                   ------------------------  -----------------
                                    1996    1997     1998     1998      1999
                                   ------  -------  -------  -------  --------
                                                               (unaudited)
Revenues:
  License........................  $  --   $    84  $ 3,176  $   624  $  3,258
  Services.......................     --        84      827      262     1,746
                                   ------  -------  -------  -------  --------
    Total revenues...............     --       168    4,003      886     5,004
Cost of revenues:
  License........................     --       --        59      --        119
  Services.......................     --        95    1,274      350     1,429
                                   ------  -------  -------  -------  --------
    Total cost of revenues.......     --        95    1,333      350     1,548
Gross profit.....................     --        73    2,670      536     3,456
Operating expenses:
  Research and development.......     328      884    1,797      735     1,701
  Sales and marketing............     101    1,519    4,817    1,357     5,225
  General and administrative.....      91      530    1,739      572     1,244
  Amortization of deferred stock-
   based compensation............     --       --       812      347     1,668
                                   ------  -------  -------  -------  --------
    Total expenses...............     520    2,933    9,165    3,011     9,838
Loss from operations.............    (520)  (2,860)  (6,495)  (2,475)   (6,382)
Other income (expense), net......      10      (88)     151       57       154
                                   ------  -------  -------  -------  --------
Net loss.........................  $ (510) $(2,948) $(6,344) $(2,418) $ (6,228)
Accretion of mandatorily
 redeemable convertible preferred
 stock to redemption value.......     --      (261)  (1,165)    (583)   (6,350)
                                   ------  -------  -------  -------  --------
Net loss attributable to common
 stockholders....................  $ (510) $(3,209) $(7,509) $(3,001) $(12,578)
                                   ======  =======  =======  =======  ========
Basic and diluted net loss per
 share...........................  $(0.22) $ (1.36) $ (2.85) $ (1.25) $  (3.66)
                                   ======  =======  =======  =======  ========
Shares used in computing basic
 and diluted net loss per share..   2,282    2,356    2,633    2,404     3,435
                                   ======  =======  =======  =======  ========
Pro forma basic and diluted net
 loss per share..................                   $ (0.74)          $  (0.44)
                                                    =======           ========
Shares used in computing pro
 forma basic and diluted net loss
 per share.......................                     8,530             14,000
                                                    =======           ========
See accompanying notes to financial statements.

                                      F-4
INTERWOVEN, INC.

                       STATEMENT OF STOCKHOLDERS' DEFICIT
                                 (in thousands)
Note
                          Common Stock   Additional  Receivable    Deferred
                          --------------  Paid-In       from     Stock-Based  Accumulated
                          Shares  Amount  Capital   Stockholders Compensation   Deficit    Total
                          ------  ------ ---------- ------------ ------------ ----------- --------
Balance at December 31,
 1995...................  1,933    $ 2     $   13      $ --        $   --      $    (33)  $    (18)
Issuance of Common Stock
 for cash...............    200     --          3        --            --           --           3
Issuance of Common Stock
 for notes receivable...    233     --          3         (3)          --           --         --
Net loss................    --      --        --         --            --          (510)      (510)
                          -----    ---     ------      -----       -------     --------   --------
Balance at December 31,
 1996...................  2,366      2         19         (3)          --          (543)      (525)
Repurchase of Common
 Stock..................    (33)    --         (5)       --            --           --          (5)
Issuance of Common Stock
 on exercise of stock
 options................    100      1          4        --            --           --           5
Accretion of mandatorily
 redeemable convertible
 preferred stock........    --      --        --         --            --          (261)      (261)
Net loss................    --      --        --         --            --        (2,948)    (2,948)
                          -----    ---     ------      -----       -------     --------   --------
Balance at December 31,
 1997...................  2,433      3         18         (3)          --        (3,752)    (3,734)
Issuance of Common Stock
 for notes receivable...  1,333      1        239       (240)          --           --         --
Note repayment..........    --      --        --           3           --           --           3
Repurchase shares of
 Series A mandatorily
 redeemable convertible
 preferred stock........    --      --        --         --            --          (473)      (473)
Accretion of mandatorily
 redeemable convertible
 preferred stock........    --      --        --         --            --        (1,165)    (1,165)
Issuance of Common Stock
 on exercise of stock
 options................  1,143      1        148        --            --           --         149
Deferred stock-based
 compensation...........    --      --      1,902        --         (1,902)         --         --
Amortization of stock-
 based compensation.....    --      --        --         --            812          --         812
Net loss................    --      --        --         --            --        (6,344)    (6,344)
                          -----    ---     ------      -----       -------     --------   --------
Balance at December 31,
 1998...................  4,909    $ 5     $2,307      $(240)      $(1,090)    $(11,734)  $(10,752)
                          =====    ===     ======      =====       =======     ========   ========
Issuance of Common Stock
 for services ..........      9     --         27        --            --           --          27
Issuance of Common Stock
 for
 notes receivable ......    517     --        202       (202)          --           --         --
Repurchase of Common
 Stock .................    (63)    --         (5)       --            --           --          (5)
Note repayment..........    --      --        --         240           --           --         240
Accretion of mandatorily
 redeemable convertible
 preferred stock........    --      --        --         --            --        (6,350)    (6,350)
Issuance of Common Stock
 on exercise of stock
 options ...............    859      1        244        --            --           --         245
Deferred stock-based
 compensation...........    --      --      6,708        --         (6,708)         --         --
Amortization of stock-
 based compensation ....    --      --        --         --          1,668          --       1,668
Net loss................    --      --        --         --            --        (6,228)    (6,228)
                          -----    ---     ------      -----       -------     --------   --------
Balance at June 30, 1999
 (unaudited)............  6,231    $ 6     $9,483      $(202)      $(6,130)    $(24,312)  $(21,155)
                          =====    ===     ======      =====       =======     ========   ========
See accompanying notes to financial statements.

                                      F-5
INTERWOVEN, INC.

                            STATEMENT OF CASH FLOWS
                                 (in thousands)
Six Months
                                  Year Ended December 31,     Ended June 30,
                                  --------------------------  ----------------
                                   1996     1997      1998     1998     1999
                                  ------- --------  --------  -------  -------
                                                                (unaudited)
Cash flows used in operating
 activities:
 Net loss........................ $ (510) $ (2,948) $ (6,344) $(2,418) $(6,228)
 Adjustments to reconcile net
  loss to net cash used in
  operating activities:
 Depreciation and amortization...     17        56       294       87      296
 Amortization of deferred stock-
  based compensation.............    --        --        812      347    1,668
 Issuance of common stock for
  services.......................    --        --        --       --        27
 Non-cash interest expense.......      7       135       --       --       --
 Provisions for doubtful
  accounts.......................    --        --        270      --        18
 Changes in assets and
  liabilities:
  Accounts receivable............    --       (140)   (2,535)    (435)     502
  Prepaid expenses and other
   assets........................     (1)      (30)     (222)     (31)    (114)
  Restricted cash................    --        --       (605)     --       --
  Accounts payable...............    116        96       271      583    1,005
  Accrued liabilities............     48       121     1,304      115      182
  Deferred revenue...............    --        --        724      169      448
                                  ------  --------  --------  -------  -------
   Net cash used in operating
    activities...................   (323)   (2,710)   (6,031)  (1,583)  (2,196)
                                  ------  --------  --------  -------  -------
Cash flows used in investing
 activities:
 Purchase of property and
  equipment......................    (64)     (138)   (1,723)  (1,258)    (561)
                                  ------  --------  --------  -------  -------
Cash flows from financing
 activities:
 Proceeds from (repurchases of)
  Series A Preferred Stock, net..    309       --       (632)    (632)     --
 Proceeds from Series B Preferred
  Stock, net.....................    --      3,415       --       --       --
 Proceeds from Series C Preferred
  Stock, net.....................    --        --      7,887    6,712      --
 Proceeds from Series D Preferred
  Stock, net.....................    --        --      6,944      --       --
 Proceeds from Series E Preferred
  Stock, net.....................    --        --        --       --    18,462
 Proceeds from issuance of Common
  Stock..........................      3       --        --       --       --
 Proceeds from exercise of stock
  options........................    --          5       149      123      245
 Proceeds from notes payable, net
  of discount....................     75       375       --       --       --
 Repayment (issuance) of
  stockholders loans.............     10       (11)        3      --       240
 Proceeds from bank borrowings...    --         76     1,500      --       --
 Repurchase of Common Stock......    --         (5)      --       --        (5)
 Principal payments of debt and
  leases.........................    --         (5)      (94)      (3)      (4)
                                  ------  --------  --------  -------  -------
   Net cash provided by financing
    activities...................    397     3,850    15,757    6,200   18,938
                                  ------  --------  --------  -------  -------
Net increase in cash and cash
 equivalents.....................     10     1,002     8,003    3,359   16,181
Cash and cash equivalents at
 beginning of period.............      7        17     1,019    1,019    9,022
                                  ------  --------  --------  -------  -------
Cash and cash equivalents at end
 of period....................... $   17  $  1,019  $  9,022  $ 4,378  $25,203
                                  ======  ========  ========  =======  =======
Supplemental cash flow
 disclosures:
 Cash paid for interest.......... $  --   $    --   $     41  $     9  $    64
                                  ======  ========  ========  =======  =======
Supplemental non-cash investing
 and finance activities:
 Property and equipment leases... $  --   $     38  $    --   $   --   $   --
                                  ======  ========  ========  =======  =======
 Issuance of Series A Preferred
  Stock upon conversion of
  stockholder loans.............. $   50  $    --   $    --   $   --   $   --
                                  ======  ========  ========  =======  =======
 Common Stock issued for notes
  receivable..................... $    3  $    --   $    240  $   240  $   202
                                  ======  ========  ========  =======  =======
 Common Stock issued for
  services....................... $  --   $    --   $    --   $   --   $    27
                                  ======  ========  ========  =======  =======
 Series B Preferred Stock issued
  upon conversion of convertible
  notes payable and accrued
  interest....................... $  --   $    460  $    --   $   --   $   --
                                  ======  ========  ========  =======  =======
 Issuance of warrants to purchase
  Series B Preferred Stock....... $  --   $    106  $    --   $   --   $   --
                                  ======  ========  ========  =======  =======
See accompanying notes to financial statements.

                                      F-6
INTERWOVEN, INC.

                         NOTES TO FINANCIAL STATEMENTS
             Information as of June 30, 1999 and for the six months
                   ended June 30, 1998 and 1999 is unaudited

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 The Company

   Interwoven, Inc. (the "Company") is a provider of enterprise-scale content
management solutions. The Company's flagship product, TeamSite is specifically
designed to help companies rapidly and efficiently build, maintain and extend
mission-critical web sites and eBusiness initiatives.

 Reincorporation

   In June 1999, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware. As a result of the
reincorporation, the Company is authorized to issue 75,000,000 shares of $0.001
par value Common Stock and 5,000,000 shares of $0.001 par value Preferred
Stock. The Board of Directors has the authority to issue undesignated Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof. Share and per share information for each of the periods
presented has been retroactively adjusted to reflect the reincorporation.

 Unaudited interim results

   The accompanying interim financial statements as of June 30, 1999 and for
the six months ended June 30, 1998 and 1999 are unaudited. The unaudited
interim financial statements have been prepared on the same basis as the annual
financial statements and, in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the Company's financial position, results of operations and cash
flows for the six months ended June 30, 1998 and 1999. The financial data and
other information disclosed in these notes to financial statements related to
these periods are unaudited. The results for the six months ended June 30, 1999
are not necessarily indicative of the results to be expected for the year
ending December 31, 1999.

 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 amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.

 Revenue recognition

   In October 1997 and March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position No. 97-2, "Software Revenue
Recognition" ("SOP No. 97-2") and Statement of Position No. 98-4, "Deferral of
the Effective Date of a Provision of SOP No. 97-2" ("SOP No. 98-4"). SOP 98-4
defers for one year the application of certain provisions of SOP 97-2. In
December 1998, the AICPA issued Statement of Position No. 98-9, "Modification
of SOP No. 97-2 with Respect to Certain Transactions" ("SOP No. 98-9"), which
is effective for transactions entered into beginning April 1, 1999. SOP 98-9
extends the effective date of SOP 98-4 and provides additional interpretive
guidance. The adoption of SOP 97-2, SOP 98-4 and SOP 98-9 have not had and are
not expected to have a material impact on the Company's results of operations,
financial position or cash flows.

                                      F-7
INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

   The Company's revenues are derived from licenses of its software products
and from services the Company provides to its customers. Revenues are
recognized for the various contract elements based upon vendor-specific
objective evidence of fair value of each element.

   License revenues are recognized when persuasive evidence of an agreement
exists, the product has been delivered, no significant post-delivery
obligations remain, the license fee is fixed or determinable and collection of
the fee is probable. Provisions for sales returns are provided at the time of
revenue recognition based upon estimated returns.

   Services revenues consist of professional services and maintenance fees.
Professional services primarily consists of software installation and
integration, business process consulting and training. Professional services
are billed on a time and materials basis and revenues are recognized as the
services are performed. Maintenance agreements are typically priced based on a
percentage of the product license fee and have a one-year term, renewable
annually. Services provided to customers under maintenance agreements include
technical product support and unspecified product upgrades. Revenues from
maintenance agreements are recognized ratably over the term of the agreement,
which is typically one year.

 Cash and cash equivalents

   The Company considers all highly liquid investments with an original
maturity of three months or less at the date of acquisition to be cash
equivalents. Cash equivalents consist principally of money-market accounts that
are stated at historical cost, which approximates fair value.

 Concentration of credit risk

   Financial instruments, which potentially subject the Company to a
concentration of credit risk, consist primarily of cash and cash equivalents
and accounts receivable. The Company limits its exposure to credit loss by
placing its cash and cash equivalents with a major financial institution. The
Company's accounts receivable are derived from revenues earned from customers
located in the U.S. and are denominated in U.S. dollars. The Company performs
ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. The Company maintains an
allowance for doubtful accounts receivable based upon expected collectibility
of accounts receivable.

   The following table summarizes the revenues from customers in excess of 10%
of the total revenues.
Six Months
                                                Year ended          Ended
                                               December 31,       June 30,
                                               ---------------   -------------
                                                1997     1998    1998    1999
                                               ------   ------   -----   -----
                                                                 (unaudited)
Company A..................................     20%      --%     --%     --%
   Company B..................................     20%      --%     --%     --%
   Company C..................................     18%      --%     13%     --%
   Company D..................................     11%      --%     --%     --%
   Company E..................................     10%      --%     --%     --%
   Company F..................................     --%      13%     --%     --%
   Company G..................................     --%      --%     17%     --%
   Company H..................................     --%      --%     14%     --%
At December 31, 1997, Company A, B and C accounted for 25%, 22% and 21% of
total accounts receivable, respectively. At December 31, 1998, Company F
accounted for 10% of total accounts receivable. At June 30, 1999 (unaudited) no
customer accounted for 10% of total accounts receivable.

                                      F-8
INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

 Fair value of instruments

   The Company's financial instruments including cash and cash equivalents,
accounts receivable, accounts payable, debt and capital lease obligations are
carried at cost, which approximate fair value due to the short-term maturity of
these instruments.

 Software development costs

   Software development costs incurred in the research and development of new
products and enhancements to existing products are charged to expense as
incurred. Software development costs are capitalized after technological
feasibility has been established. The period between achievement of
technological feasibility, which the Company defines as the establishment of a
working model, until the general availability of such software to customers,
has been short and software development costs qualifying for capitalization
have been insignificant. Accordingly, the Company has not capitalized any
software development costs since its inception.

 Capitalization of internal-use software costs

   In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use".  SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998
and provides guidance for the accounting of computer software developed or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company adopted the provisions of SOP
98-1 in its fiscal year beginning January 1, 1999.

 Property and equipment

   Property and equipment are stated at historical cost less accumulated
depreciation and amortization. Depreciation and amortization are computed using
the straight-line method over the useful lives of the assets, generally five
years or less, or the shorter of the lease term or the estimated useful lives
of the assets, if applicable.

 Impairment of long-lived assets

   The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." SFAS No. 121 requires recognition of impairment of long-
lived assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributed to such assets.

 Stock-based compensation

   The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB 25, compensation expense is based on the difference,
if any, on the date of grant between fair value of the Company's stock and the
exercise price. The Company accounts for stock issued to non-employees in
accordance with the provisions of SFAS No. 123 and the Emerging Issues Task
Force Consensus on Issue No. 96-18.

                                      F-9
INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

 Income taxes

   Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets are
based on provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. The measurement of deferred tax assets
is reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.

 Net loss per share

   The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin ("SAB") No. 98. Under
the provisions of SFAS No. 128 and SAB No. 98, basic net loss per share is
computed by dividing the net loss attributed to common stockholders for the
period by the weighted average number of shares of Common Stock outstanding
during the period excluding shares of Common Stock subject to repurchase. Such
shares of Common Stock subject to repurchase aggregated 73,333, 1,737,435,
1,527,472 (unaudited), and 1,997,580 (unaudited) as of December 31, 1997 and
1998 and June 30, 1998 and 1999, respectively.

   The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated (in thousands, except per share amounts):
Year Ended December       Six Months
                                               31,             Ended June 30,
                                       ----------------------  ---------------
                                        1996    1997    1998    1998    1999
                                       ------  ------  ------  ------  -------
                                                                (unaudited)
Numerator:
     Net loss attributable to common
      stockholders...................    (510) (3,209) (7,509) (3,001) (12,578)
   Denominator:
     Weighted average shares.........   2,282   2,405   3,949   3,360    5,549
     Weighted average unvested shares
      of Common Stock subject to
      repurchase.....................      --     (49) (1,316)   (956)  (2,114)
                                       ------  ------  ------  ------  -------
     Denominator for basic and
      diluted calculation............   2,282   2,356   2,633   2,404    3,435
   Net loss per share:
     Basic and diluted...............  ($0.22) ($1.36) ($2.85) ($1.25) ($ 3.66)
                                       ======  ======  ======  ======  =======
F-10
INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

   The following table sets forth potential shares of Common Stock that are not
included in the diluted net loss per share calculation above because to do so
would be anti-dilutive for the periods indicated (in thousands):
Six Months
                                                    Year Ended      Ended June
                                                   December 31,        30,
                                                 ----------------- ------------
                                                 1996  1997  1998  1998   1999
                                                 ----- ----- ----- ----- ------
                                                                   (unaudited)
Weighted average effect of Common Stock
 equivalents....................................
  Series A Preferred Stock......................   796 1,200   878 1,010    747
  Series B Preferred Stock......................    -- 1,235 2,107 2,079  2,135
  Series C Preferred Stock......................    --    -- 3,092 2,023  4,773
  Series D Preferred Stock......................    --    --   359    --  2,494
  Series E Preferred Stock......................    --    --    --    --    344
  Warrants to purchase mandatorily redeemable
   convertible preferred stock..................     1    66    71    70     72
  Shares of Common Stock subject to repurchase..    --    49 1,316   956  2,114
  Common Stock options..........................   250 1,480 1,870 2,148  1,074
                                                 ----- ----- ----- ----- ------
                                                 1,047 4,030 9,693 8,286 13,753
                                                 ===== ===== ===== ===== ======
Pro forma net loss per share (unaudited)

   Pro forma net loss per share is computed using the weighted average number
of shares of Common Stock outstanding, including the pro forma effects of the
exercise of warrants to purchase Series B Preferred Stock and automatic
conversion of the Company's Series A, B, C, D and E Preferred Stock into shares
of the Company's Common Stock effective upon the closing of the Company's
initial public offering as if such conversion occurred at the beginning of the
period, or at the date of issuance, if later. The resulting pro forma
adjustment for the year ended December 31, 1998 and the six months ended June
30, 1999 includes (i) an increase in the weighted average shares used to
compute the basic net loss per share of 5,896,280 and 10,564,993 (unaudited),
respectively, and (ii) a decrease in the net loss attributable to common
stockholders for the accretion of mandatorily redeemable convertible preferred
stock of $1,165,000 and $6,350,000 (unaudited), respectively. The calculation
of diluted net loss per share excludes potential shares of Common Stock as
their effect would be antidilutive. Pro forma potential Common Stock consists
of Common Stock subject to repurchase rights and incremental shares of Common
Stock issuable upon the exercise of stock options.

 Pro forma stockholders' equity (unaudited)

   Effective upon the closing of the Company's initial public offering, the
outstanding shares of Series A, B, C, D and E Preferred Stock will
automatically convert into 746,664, 2,134,548, 4,773,161, 2,494,142, and
2,263,136 shares of Common Stock, respectively. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro
forma balance sheet at June 30, 1999.

 Comprehensive income

   Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. As of December 31, 1998 and June 30,
1999, the Company had not had any transactions that are required to be reported
in comprehensive income.

                                      F-11
INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

 Segment information

   Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosure About Segments of an Enterprise and Related Information." The
Company identifies its operating segment based on business activities,
management responsibility and geographic location. During all periods
presented, the Company operated in a single business segment.

 Reclassifications

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

NOTE 2--BALANCE SHEET COMPONENTS (in thousands):
December
                                                            31,
                                                        -----------   June 30,
                                                        1997  1998      1999
                                                        ---- ------  -----------
                                                                     (unaudited)
Accounts receivable, net:
     Accounts receivable............................... $140 $2,675    $2,173
     Less: Allowance for doubtful accounts.............  --    (270)     (288)
                                                        ---- ------    ------
                                                        $140 $2,405    $1,885
                                                        ==== ======    ======
There were no write-offs against the allowance for doubtful accounts in the
years ended December 31, 1997 and 1998 and for the six months ended June 30,
1999 (unaudited).
December
                                                         31,
                                                     ------------   June 30,
                                                     1997   1998      1999
                                                     ----  ------  -----------
                                                                   (unaudited)
Property and equipment, net:
     Computer equipment and purchased software...... $254  $  952    $1,505
     Furniture and fixtures.........................   10     586       590
     Leasehold improvements.........................  --      449       453
                                                     ----  ------    ------
                                                      264   1,987     2,548
     Less: Accumulated depreciation and
      amortization..................................  (76)   (370)     (666)
                                                     ----  ------    ------
                                                     $188  $1,617    $1,882
                                                     ====  ======    ======
Property and equipment includes $38,000, $23,000 and $23,000 (unaudited) of
fixed assets under capital leases at December 31, 1997 and 1998 and June 30,
1999, respectively. Accumulated depreciation of such assets was $7,000, $8,000
and $12,000 (unaudited) at December 31, 1997 and 1998 and June 30, 1999,
respectively.
December
                                                             31,
                                                         -----------  June 30,
                                                         1997  1998     1999
                                                         ---- ------ -----------
                                                                     (unaudited)
Accrued liabilities:
     Payroll and related expenses....................... $ 59 $1,247   $1,063
     Other..............................................  110    226      592
                                                         ---- ------   ------
                                                         $169 $1,473   $1,655
                                                         ==== ======   ======
F-12
INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

NOTE 3--DEBT:

   In June 1999, the Company amended a financing agreement (the "Financing
Agreement") originally entered into in June 1998, whereby the bank will loan up
to 80% of eligible accounts receivable up to a maximum of $3,000,000
(unaudited) for working capital purposes. Working capital advances accrue
interest at the bank's prime rate and are payable monthly with principal due
one year subsequent to the date of any advance. The Financing Agreement
provides for additional borrowings of up to $1,500,000 to finance equipment
purchases. Advances for equipment purchases accrue interest at the bank's prime
rate plus .25% and advances are payable monthly for one year subsequent to the
date of any advance. Thereafter, the outstanding balance will be due in 36
monthly installments. The Agreement requires the Company to comply with certain
financial covenants. The Company was in compliance with all covenants at
December 31, 1998 and for the six months ended June 30, 1999 (unaudited).

   Future minimum principal payments under the Financing Agreement are as
follows (in thousands):
Year Ending December 31,
     1999................................................................ $  250
     2000................................................................    500
     2001................................................................    500
     2002................................................................    250
                                                                          ------
                                                                          $1,500
                                                                          ======
In January 1997, the Company issued $375,000 of convertible promissory notes
payable. The notes bore interest at 6% per year. In connection with the
issuance of the notes, the Company issued to the note holders warrants to
purchase 82,219 shares of Series B Preferred Stock at $1.29 per share. The
warrants expire at the earlier of November 2001 or upon an initial public
offering of the Company's Common Stock. The Company recorded a $94,000 discount
to the notes for the value of the warrants, which was recognized in 1997 as
additional interest expense.

   In May 1997, the principal amounts and accrued interest outstanding for the
notes were converted into 357,182 shares of Series B Preferred Stock (see Note
6).

NOTE 4--COMMITMENTS:

   The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through May 2003. Rent expense
for the year ended December 31, 1997 and 1998 and for the six months ended June
30, 1998 and 1999 totaled $52,000, $557,000, $96,000 (unaudited) and $325,000
(unaudited), respectively.

                                      F-13
INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

   Future minimum lease payments under noncancelable operating and capital
leases, as of December 31, 1998, are as follows (in thousands):
Capital Operating Sublease
                                                    Leases   Leases    Income
                                                    ------- --------- --------
Year Ending December 31,
     1999..........................................   $10    $  938     $356
     2000..........................................     7       951      211
     2001..........................................    --       979       --
     2002..........................................    --     1,009       --
     2003..........................................    --       426       --
                                                      ---    ------     ----
     Total minimum lease payments and sublease
      income.......................................    17    $4,303     $567
                                                      ===    ======     ====
     Less: Amount representing interest............     2
                                                      ---
     Present value of capital lease obligations....   $15
                                                      ===
Restricted cash

   During fiscal 1998, $605,000 of cash was pledged as collateral on an
outstanding letter of credit relating to the building lease agreement and is
classified as restricted cash on the balance sheet. The restricted cash will be
reduced by $226,875 on the 31st month after the signing of the agreement
provided no event of default has occurred. The Company was in compliance with
all such covenants at December 31, 1998 and June 30, 1999 (unaudited).

NOTE 5--INCOME TAXES:

   At December 31, 1998, the Company had approximately $7,181,000 of federal
and $1,178,000 of state net operating tax loss carryforwards available to
reduce future taxable income which expire in 2015 and 2010 for federal and
state tax purposes, respectively. Under the Tax Reform Act of 1986, the amounts
of and benefits from net operating loss carryforwards may be impaired or
limited in certain circumstances. Events which cause limitations in the amount
of net operating losses that the Company may utilize in any one year include,
but are not limited to, a cumulative ownership change of more than 50%, as
defined, over a three year period.

   Deferred tax assets consist of the following (in thousands):
December 31,
                                                   ----------------   June 30,
                                                    1997     1998       1999
                                                   -------  -------  -----------
                                                                     (unaudited)
Deferred tax assets:
     Net operating loss carryforwards............. $ 1,105  $ 2,882    $ 4,250
     Accruals and reserves........................      61      235        250
     Research credits.............................      40      120        150
     Depreciation.................................      60      128        150
                                                   -------  -------    -------
                                                     1,266    3,365      4,800
   Valuation allowance............................  (1,266)  (3,365)    (4,800)
                                                   -------  -------    -------
   Net deferred tax assets........................ $   --   $   --     $    --
                                                   =======  =======    =======
F-14
INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

   For financial reporting purposes, the Company has incurred a loss in each
year since its inception. Based on the available objective evidence, management
believes it is more likely than not that the net deferred tax assets will not
be fully realizable. Accordingly, the Company has provided for a full valuation
allowance against its net deferred tax assets at December 31, 1997 and 1998 and
June 30, 1999 (unaudited).

NOTE 6--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:

   At December 31, 1998, mandatorily redeemable convertible preferred stock
consists of the following (in thousands):
Shares
                                  ---------------------- Liquidation Redemption
   Series                         Authorized Outstanding   Amount      Amount
   ------                         ---------- ----------- ----------- ----------
Series A Preferred Stock......    1,120      1,120      $   224    $   626
   Series B Preferred Stock......    3,142      3,040        3,909      4,756
   Series C Preferred Stock......    7,160      7,160        7,726      7,989
   Series D Preferred Stock......    3,741      3,741        7,000      7,093
                                    ------     ------      -------    -------
                                    15,163     15,061      $18,859    $20,464
                                    ======     ======      =======    =======
At June 30, 1999 (unaudited), mandatorily redeemable convertible preferred
stock consists of the following (in thousands):
Shares
                                  ---------------------- Liquidation Redemption
   Series                         Authorized Outstanding   Amount      Amount
   ------                         ---------- ----------- ----------- ----------
Series A Preferred Stock......    1,120      1,120      $   224    $ 1,095
   Series B Preferred Stock......    3,142      3,040        3,909      6,072
   Series C Preferred Stock......    7,160      7,160        7,726     10,987
   Series D Preferred Stock......    3,741      3,741        7,000      8,660
   Series E Preferred Stock......    3,600      3,395       19,214     18,462
                                    ------     ------      -------    -------
                                    18,763     18,456      $38,073    $45,276
                                    ======     ======      =======    =======
The holders of Series A, B, C, and D Preferred Stock have certain rights and
privileges as follows:

 Warrants

   The Company issued warrants to purchase 20,409, 82,219 and 5,480 in 1996,
1997 and 1998, respectively, shares of Series B Preferred Stock at $1.29 per
share to the holders of the warrants. The warrants expire at the earlier of
November 2001 or upon an initial public offering of the Company's Common Stock.

 Voting

   Each share of Series A, B, C, and D Preferred Stock has voting rights
equivalent to Common Stock on an "as if" converted basis.

 Dividends

   Holders of Series A, B, C and D Preferred Stock are entitled to receive non-
cumulative annual dividends of $0.01, $0.10, $0.09 and $0.15 per share,
respectively, when and if declared by the Company's Board of Directors.
Dividends on the Series A, B, C and D Preferred Stock shall be payable in
preference and prior to

                                      F-15
INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

any payment of any dividend on the Common Stock. The holders of the Series A,
B, C and D will also be entitled to participate in dividends on the Common
Stock, when and if declared by the Board of Directors, on an as-converted to
Common Stock basis. No dividends have been declared from inception through
December 31, 1998.

 Liquidation

   In the event of any liquidation, dissolution, winding up or merger where
less than 50% of the voting power is maintained by the Company, the holders of
the Series A, B, C, and D Preferred Stock shall be entitled to receive, prior
and in preference to any distribution to the holders of the Common Stock, an
amount equal to $0.20, $1.29, $1.08 and $1.87 per share, respectively, plus any
declared but unpaid dividends. Any amounts remaining after such distribution
shall be distributed among the holders of Series B, C and D Preferred Stock,
and Common Stock on an "as if" converted basis until the holders of Series B, C
and D Preferred Stock have received an aggregate liquidation payment of $2.57,
$2.16 and $2.81, thereafter any remaining amounts shall be distributed among
the holders of Common Stock.

 Redemption

   Upon the request of holders of at least 50% of the outstanding shares of
Series A, B, C or D Preferred Stock, the shares of all of the preferred stock
may be redeemed in four equal installments beginning in May 2002. The
redemption price for Series A, B, C and D Preferred Stock will be the greater
of the original issuance price for Series A, B, C and D Preferred Stock, $0.20,
$1.29, $1.08 and $1.87 per share, respectively, plus any undeclared and unpaid
dividends and an amount equal to that amount which would result in the holder
of such shares realizing an 8% annually compounded return on the purchase price
or the fair market value of Series A, B, C and D Preferred Stock on the first
redemption date.

 Conversion

   Each share of Series A, C, and D Preferred Stock is convertible at the
option of the holder into two-thirds of a share of Common Stock at any time,
subject to adjustment for antidilution. Each share of Series B Preferred Stock
is convertible at the option of the holders into .7022705 of a share of Common
Stock at any time, subject to adjustment for antidilution. Each share of Series
A, B, C and D Preferred Stock will be automatically converted upon an initial
public offering of the Company's Common Stock with aggregate proceeds in excess
of $20,000,000 and a price per share of not less than $5.79. The Company has
reserved sufficient shares of Common Stock for issuance upon conversion of the
Series A, B, C and D Preferred Stock.

 Series E Preferred Stock

   Each share of Series E Preferred Stock has voting rights equivalent to
Common Stock on an "as if" converted basis. Holders of Series E Preferred Stock
are entitled to receive non-cumulative annual dividends of $0.45 per share,
when and if declared by the Company's Board of Directors. Dividends on the
Preferred Stock shall be payable in preference and prior to any payment of any
dividend on the Common Stock. The holders of the Series E Preferred Stock will
also be entitled to participate in dividends on the Common Stock, when and if
declared by the Board of Directors, based on the number of shares of Common
Stock held on an as-converted basis. No dividends have been declared from
inception through June 30, 1999 (unaudited).

   In the event of any liquidation, dissolution, winding up or merger where
less than 50% of the voting power is maintained by the Company, the holders of
the Series E Preferred Stock shall be entitled to receive, prior and in
preference to any distribution to the holders of the Common Stock, an amount
equal to $5.66 per share, respectively, plus any declared but unpaid dividends.
Any amounts remaining after such distribution shall

                                      F-16
INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

be distributed among the holders of Series E Preferred Stock, and Common Stock
on an "as if" converted basis until the holders of Series E have received an
aggregate liquidation payment of $8.49, thereafter any remaining amounts shall
be distributed among the holders of Common Stock (unaudited).

   Upon the request of holders of at least 50% of the outstanding shares of
Series E Preferred Stock, the shares of all of the preferred stock may be
redeemed in four equal installments beginning in May 2002. The redemption price
for Series E Preferred Stock will be the greater of the original issuance price
for Series E Preferred Stock, $5.66 per share, respectively, plus any
undeclared and unpaid dividends and an amount equal to that amount which would
result in the holder of such shares realizing an 8% annually compounded return
on the purchase price or the fair market value of Series E Preferred Stock on
the first redemption date (unaudited).

   Each share of Series E Preferred Stock is convertible at the option of the
holder into two-thirds of a share of Common Stock at any time, subject to
adjustment for antidilution. Each share of Series E Preferred Stock will be
automatically converted upon an initial public offering of the Company's Common
Stock with aggregate proceeds in excess of $20,000,000 and a price per share of
not less than $8.49. The Company has reserved sufficient shares of Common Stock
for issuance upon conversion of the Series E Preferred Stock (unaudited).

NOTE 7--COMMON STOCK:

   In March 1995, the Company issued 1,933,333 shares of Common Stock to its
founder in exchange for $14,500 in total consideration. Additionally, in March
1996, the Company issued 300,000 shares of Common Stock to an employee for
$4,500 in total consideration. Under the terms of the stock purchase
agreements, the Company has the right to repurchase up to 2,166,667 shares of
such Common Stock at the original issue price upon termination. The repurchase
rights expired as to 25% of such Common Stock in January 1997 and the remainder
expire ratably over a 36 month period thereafter with 586,667 and 315,972
(unaudited) shares of Common Stock subject to repurchase at December 31, 1998
and June 30, 1999.

   The Company had reserved shares of Common Stock for issuance as follows (in
thousands):
As of
                                                                      June 30,
                                                                        1999
                                                                     -----------
                                                                     (unaudited)
Mandatorily redeemable convertible preferred stock:
     Series A Preferred Stock.......................................      747
     Series B Preferred Stock.......................................    2,135
     Series C Preferred Stock.......................................    4,773
     Series D Preferred Stock.......................................    2,494
     Series E Preferred Stock.......................................    2,263
   Exercise of options under stock option plans.....................      945
                                                                       ------
                                                                       13,357
                                                                       ======
Notes receivable from stockholders

   In March 1998, the Company issued 1,666,666 shares of Common Stock to an
officer of the Company in exchange for a $240,000 note receivable. The note
bore interest at 6% per year. The note was secured by the underlying stock and
is classified as a note receivable from stockholder in the accompanying balance
sheet at December 31, 1998. Under the terms of the agreement, the Company has
the right to repurchase all of the shares of such stock at the original issue
price upon termination. The repurchase rights expire ratably over a

                                      F-17
INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

48 month period with 1,055,555 and 888,889 (unaudited) shares of Common Stock
subject to repurchase at December 31, 1998 and June 30, 1999, respectively. In
June 1999, the note was paid.

   In April 1999 the Company issued a total 516,667 shares of Common Stock to
two officers of the Company in exchange for notes receivable totalling $201,500
(unaudited). The notes bear interest at 6% per year and are due upon the
earlier of (i) an acquisition, (ii) an initial public offering, (iii) the
employee's termination or (iv) five years. The notes are secured by the
underlying stock and are classified as notes receivable from stockholders in
the accompanying balance sheet at June 30, 1999. Under the terms of the
agreement, the Company has the right to repurchase all of the shares of such
stock at the original issue price upon termination. The repurchase rights will
expire as to 25% of such Common Stock in April 2000, and the remainder will
expire ratably over a 36 month period thereafter with 516,667 (unaudited)
shares of Common Stock subject to repurchase at June 30, 1999.

NOTE 8--EMPLOYEE STOCK OPTION PLAN:

   In August 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan") and in March 1998 it adopted the 1998 Stock Option Plan (the "1998
Plan") (collectively, the "Plans"). The Plans provide for grants of stock
options to employees and consultants of the Company. Options granted under the
Plan may be either incentive stock options or nonqualified stock options.
Incentive stock options ("ISO") may be granted only to employees (including
officers and directors who are also employees) of the Company. Nonqualified
stock options may be granted to employees and consultants of the Company.

   Options under the Plans may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO shall not be less than 100% of the estimated fair
value of the shares on the date of grant and (ii) the exercise price of an ISO
granted to a 10% stockholder shall not be less than 110% of the estimated fair
value of the shares on the date of grant and are for periods not to exceed five
years. Options are immediately exercisable but are subject to repurchase by the
Company at the original exercise price. The repurchase feature generally
expires for 25% of the shares after the first year of service and then expires
ratably over the next 36 months.

   The following table summarizes the activity under the Plans for the years
ended December 31, 1997, 1998 and the six months ended June 30, 1999 (shares in
thousands):
Year Ended December 31,         Six months
                             --------------------------------- ended June 30,
                                  1997             1998             1999
                             ---------------- ---------------- ----------------
                                     Weighted         Weighted         Weighted
                                     Average          Average          Average
                                     Exercise         Exercise         Exercise
                             Shares   Price   Shares   Price   Shares   Price
                             ------  -------- ------  -------- ------  --------
                                                                 (unaudited)
Outstanding at beginning
    of period..............    487    $0.03    1,276   $0.11     622    $0.17
   Granted.................  1,074     0.14      824    0.21   1,333     1.09
   Canceled................   (185)    0.09     (334)   0.18    (151)    0.18
   Exercised...............   (100)    0.05   (1,144)   0.13    (859)    0.32
                             -----            ------           -----
   Outstanding at end of
    period.................  1,276     0.11      622    0.17     945     1.33
                             -----            ------           -----
   Options exercisable at
    end of period..........  1,276               622             945
                             -----            ------           -----
   Weighted average fair
    value of options
    granted during the
    period.................           $0.03            $0.05            $0.21
                                      =====            =====            =====
F-18
INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

   The followings table summarizes information about stock options outstanding
and exercisable at December 31, 1998 (shares in thousands):
Options Outstanding at December        Options Exercisable
                             31, 1998                  at December 31, 1998
                -------------------------------------  -----------------------
                               Weighted
                                Average
                               Remaining    Weighted                 Weighted
    Range of                  Contractual   Average                  Average
    Exercise      Number         Life       Exercise     Number      Exercise
     Prices     Outstanding     (Years)      Price     Exercisable    Price
    --------    -----------   -----------   --------   -----------   --------
$0.03-0.09       206           8.0        $0.07         206        $0.07
    0.15-0.21       362           9.4         0.19         362         0.19
      0.39           54           9.9         0.39          54         0.39
                    ---                                    ---
                    622           9.0         0.17         622         0.17
                    ===                                    ===
The followings table summarizes information about stock options outstanding
and exercisable at June 30, 1999 (unaudited) (shares in thousands):
Options Outstanding at June 30,        Options Exercisable
                               1999                      at June 30, 1999
                -------------------------------------  -----------------------
                               Weighted
                                Average
                               Remaining    Weighted                 Weighted
    Range of                  Contractual   Average                  Average
    Exercise      Number         Life       Exercise     Number      Exercise
     Prices     Outstanding     (Years)      Price     Exercisable    Price
    --------    -----------   -----------   --------   -----------   --------
$0.15-0.21       144           8.9        $0.19         144        $0.19
    0.39-1.20       341           9.7         0.72         341         0.72
    1.65-2.25       460          10.0         2.14         460         2.14
                    ---                                    ---
                    945           9.7         1.33         945         1.33
                    ===                                    ===
Fair value disclosures

   The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option-pricing model as prescribed by
SFAS No. 123 using the following assumptions:
Year Ended       Six Months
                                                   December 31,         Ended
                                                   ---------------    June 30,
                                                    1997     1998       1999
                                                   ------   ------   -----------
                                                                     (unaudited)
Risk-free interest rates.......................    6.5%     6.5%      5.5%
   Expected lives (in years)......................    4.0      4.0       4.0
   Dividend yield.................................    0.0      0.0       0.0
   Expected volatility............................    0.0      0.0       0.0
The compensation cost associated with the Company's stock-based compensation
plans, determined using the minimum value method prescribed by SFAS No. 123,
did not result in a material difference from the reported net income for the
years ended December 31, 1997 and 1998 and for the six months ended June 30,
1998 and 1999 (unaudited).

                                      F-19
INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

 Deferred stock-based compensation

   In connection with certain stock option grants during the year ended
December 31, 1998 and the six months ended June 30, 1999, the Company
recognized deferred stock-based compensation totaling $1.9 million and $6.7
million (unaudited), respectively, which is being amortized over the vesting
periods of the applicable options. Amortization expense recognized during the
year ended December 31, 1998 and the six months ended June 30, 1999 totaled
approximately $812,000 and $1.7 million (unaudited), respectively.

NOTE 9--SUBSEQUENT EVENTS:

 Stock Split

   Prior to the effectiveness of the Company's initial public offering, the
Company's Board of Directors intends to effect a two-for-three reverse stock
split of the outstanding shares of Common Stock. All share and per share
information included in these financial statements have been retroactively
adjusted to reflect this stock split.

 Employee Stock Purchase Plan

   In July 1999, the Board adopted, subject to stockholder approval, the 1999
Employee Stock Purchase Plan (the "Purchase Plan") and reserved 300,000 shares
of Common Stock for issuance thereunder. On each January 1, the aggregate
number of shares reserved for issuance under this plan will increase
automatically by a number of shares equal to 1% of the Company's outstanding
shares on December 31 of the preceding year. The aggregate number of shares
reserved for issuance under the Purchase Plan shall not exceed 3,000,000
shares. The Purchase Plan will become effective on the first business day on
which price quotations for the Company's Common Stock are available on the
Nasdaq National Market. Employees generally will be eligible to participate in
the Purchase Plan if they are customarily employed by the Company for more than
20 hours per week and more than five months in a calendar year and are not (and
would not become as a result of being granted an option under the Purchase
Plan) 5% stockholders of the Company. Under the Purchase Plan, eligible
employees may select a rate of payroll deduction between 2% and 10% of their W-
2 cash compensation subject to certain maximum purchase limitations. Each
offering period will have a maximum duration of two years and consists of four
six-month Purchase Periods. The first Offering Period is expected to begin on
the first business day on which price quotations for the Company's Common Stock
are available on the Nasdaq National Market. Depending on the Effective Date,
the first Purchase Period may be more or less than six months long. Offering
Periods and Purchase Periods thereafter will begin on February 1 and August 1.
The price at which the Common Stock is purchased under the Purchase Plan is 85%
of the lesser of the fair market value of the Company's Common Stock on the
first day of the applicable offering period or on the last day of that purchase
period. The Purchase Plan will terminate after a period of ten years unless
terminated earlier as permitted by the Purchase Plan.

 1999 Equity Incentive Plan

   In July 1999, the Board adopted, subject to stockholder approval, the 1999
Equity Incentive Plan (the "1999 Plan") and reserved 2,900,000 shares of Common
Stock for issuance thereunder. The 1999 Plan authorized the award of options,
restricted stock awards and stock bonuses (each an "Award"). No person will be
eligible to receive more than 1,000,000 shares in any calendar year pursuant to
Awards under the 1999 Plan other than a new employee of the Company who will be
eligible to receive no more than 1,500,000 shares in the calendar year in which
such employee commences employment. Options granted under the 1999 Plan may be
either incentive stock options ("ISO") or nonqualified stock options ("NSO").
ISOs may be granted only to Company employees (including officers and directors
who are also employees). NSOs may be granted to Company employees, officers,
directors, consultants, independent contractors and advisors of the Company.

                                      F-20
INTERWOVEN, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

   Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO may not be less than 100% of the estimated fair
value of the shares on the date of grant, and (ii) the exercise price of an ISO
granted to a 10% stockholder may not be less than 110% of the estimated fair
value of the shares on the date of grant. The maximum term of options granted
under the 1999 Plan is ten years.

   Members of the Board who are not employees of the Company, or any parent,
subsidiary or affiliate of the Company, are eligible to participate in the 1999
Plan. The option grants under the 1999 Plan are automatic and nondiscretionary,
and the exercise price of the options must be 100% of the fair market value of
the Common Stock on the date of grant. Each eligible director who first becomes
a member of the Board on or after the effective date of the Registration
Statement of which this Prospectus forms a part (the "Effective Date") will
initially be granted an option to purchase 20,000 shares (an "Initial Grant")
on the date such director first becomes a director. Immediately following each
Annual Meeting of the Company, each eligible director will automatically be
granted an additional option to purchase 10,000 shares if such director has
served continuously as a member of the Board since the date of such director's
Initial Grant or, if such director was ineligible to receive an Initial Grant,
since the Effective Date. The term of such options is ten years, provided that
they will terminate 7 months following the date the director ceases to be a
director or a consultant of the Company (twelve months if the termination is
due to death or disability). All options granted under the Directors Plan will
vest 100% of the shares upon the date of issuance.

 Acquisition

   Effective July 1, 1999, the Company acquired all the assets and liabilities
of Lexington Software Associates Incorporated, which is a provider of
configuration management solutions and development methodologies, including
consulting and education. The acquisition has been accounted for using the
purchase method of accounting and accordingly, the purchase price has been
allocated to the tangible and intangible assets acquired and liabilities
assumed on the basis of their respective fair values at the acquisition date.

   The total purchase price of approximately $769,000 consisted of 58,893
shares of the Company's Series E Preferred Stock (estimated fair value of
$500,000), seven-year warrants to purchase 11,779 shares of Series E Preferred
Stock at $8.49 per share (estimated fair value of $77,000), and other
acquisition-related expenses of approximately $192,000.

   Of the total purchase price, approximately $794,000 was allocated to
goodwill, which will be amortized over its estimated useful life of 48 months.
The remainder of the purchase price was allocated to net tangible liabilities
assumed of $25,000.

                                      F-21
CONSENT OF INDEPENDENT ACCOUNTANTS

   We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated July 15, 1999 relating to the financial statements of
Interwoven, Inc. which appears in such Registration Statement. We also consent
to the references to us under the headings "Experts" and "Selected Financial
Data" in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

San Jose, CA
July 26, 1999

                                      F-22
[LOGO OF INTERWOVEN APPEARS HERE]
PART II

                    INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

   The following table sets forth the costs and expenses to be paid by the
Registrant in connection with the sale of the shares of common stock being
registered hereby. All amounts are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market filing fee.
Securities and Exchange Commission registration fee................. $13,900
   NASD filing fee.....................................................   5,500
   Nasdaq National Market filing fee...................................  95,000
   Accounting fees and expenses........................................       *
   Legal fees and expenses.............................................       *
   Road show expenses..................................................       *
   Printing and engraving expenses.....................................       *
   Blue sky fees and expenses..........................................       *
   Transfer agent and registrar fees and expenses......................       *
   Miscellaneous.......................................................       *
                                                                        -------
     Total............................................................. $     *
                                                                        =======
---------------------
* To be completed by amendment.

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, indemnity 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 (the
"Securities Act").

   As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty
as a director, except for liability:

  .  for any breach of the director's duty of loyalty to the Registrant or
     its stockholders,

  .  for acts or omissions not in good faith or that involve intentional
     misconduct or a knowing violation of law,

  .  under section 174 of the Delaware General Corporation Law (regarding
     unlawful dividends and stock purchases), or

  .  for any transaction from which the director derived an improper personal
     benefit.

   As permitted by the Delaware General Corporation Law, the Registrant's
Bylaws provide that:

  .  the Registrant is required to indemnify its directors and officers to
     the fullest extent permitted by the Delaware General Corporation Law,
     subject to certain very limited exceptions,

  .  the Registrant may indemnify its other employees and agents as set forth
     in the Delaware General Corporation Law,

  .  the Registrant is required to advance expenses, as incurred, to its
     directors and officers in connection with a legal proceeding to the
     fullest extent permitted by the Delaware General Corporation Law,
     subject to certain very limited exceptions, and

  .  the rights conferred in the Bylaws are not exclusive.

                                     II-1
The Registrant intends to enter into Indemnity Agreements with each of its
current directors and officers to give such directors and officers additional
contractual assurances regarding the scope of the indemnification set forth in
the Registrant's Amended and Restated Certificate of Incorporation and to
provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of the
Registrant regarding which indemnification is sought, nor is the Registrant
aware of any threatened litigation that may result in claims for
indemnification.

   Reference is also made to Section 7 of the draft Underwriting Agreement to
be entered into between the Registrant and the underwriters, which will
provide for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provisions
in the Registrant's Amended and Restated Certificate of Incorporation, Bylaws
and the Indemnity Agreements to be entered into between the Registrant and
each of its directors and officers may be sufficiently broad to permit
indemnification of the Registrant's directors and officers for liabilities
arising under the Securities Act.

   The Registrant maintains directors' and officers' liability insurance.

   See also the undertakings set out in response to Item 17.

   Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
Exhibit Document                                                     Number
   ----------------                                                     ------
Form of Underwriting Agreement......................................  1.01
   Registrant's Amended and Restated Certificate of Incorporation......  3.01
   Registrant's Bylaws.................................................  3.03
   Third Amended and Restated Investors' Rights Agreement dated April
    26, 1999...........................................................  4.02
   Form of Indemnity Agreement......................................... 10.01
Item 15. Recent Sales of Unregistered Securities.

   Since inception we have issued and sold the following securities:

   1. We granted stock options to purchase 3,718,799 shares of our common
stock at exercise prices ranging from $0.03 to $2.25 per share to our
employees, consultants, directors, and other service providers under our 1996
Stock Option Plan and 1998 Stock Option Plan. Through June 30, 1999, we issued
and sold an aggregate of 2,102,570 shares of our common stock to employees,
consultants, directors, and other service providers at prices ranging from
$0.03 to $2.25 per share under direct issuances or exercises of options
granted under our 1996 Stock Option Plan and 1998 Stock Option Plan. All
shares purchased under our 1996 Stock Option Plan and 1998 Stock Option Plan
are subject to our right to repurchase such shares at their original exercise
price. The repurchase feature generally expires for 25% of the shares after
the first year of service and then expires ratably over the next 36 months.

   2. In March and June 1996, we issued and sold an aggregate of 1,800,000
shares of our Series A Preferred Stock to private investors for an aggregate
purchase price of approximately $360,000. In March 1998, we repurchased
680,000 shares of our Series A Preferred Stock at $0.93 per share.

   3. In August 1996, we issued a warrant to a certain bank in connection with
a loan agreement. The warrant is exercisable for 9,330 shares of Series B
Preferred Stock,, which shares are convertible into 9,828 shares of common
stock.

   4. In January 1997, in connection with a bridge loan that converted into
Series B Preferred Stock, we issued warrants to private investors to purchase
93,298 shares of Series B Preferred Stock at an exercise price of $1.2862 per
share. These shares of Series B Preferred Stock are convertible into an
aggregate of up to 98,280 shares of common stock.

                                     II-2
5. In May and June 1997, we issued and sold an aggregate of 3,039,505
shares of our Series B Preferred Stock to private investors for an aggregate
purchase price of approximately $3,890,566. These shares of Series B Preferred
Stock are convertible into an aggregate of up to 3,201,831 shares of common
stock.

   6. In March 1998, we issued and sold an aggregate of 6,241,619 shares of
our Series C Preferred Stock to private investors for an aggregate purchase
price of approximately $6,375,181, and warrants to purchase 918,124 shares of
Series C Preferred Stock at an exercise price of $1.2862 per share. In
connection with the Series D Preferred Stock financing, all warrants to
purchase Series C Preferred Stock were exercised for an aggregate purchase
price of approximately $1,180,891.

   7. In October, November and December 1998, we issued and sold an aggregate
of 3,741,217 shares of our Series D Preferred Stock to private investors for
an aggregate purchase price of approximately $6,996,075.

   8. In June 1999, we issued and sold an aggregate of 3,394,719 shares of our
Series E Preferred Stock to private investors for an aggregate purchase price
of approximately $19,214,109.

   9. In July 1999, we issued 88,339 shares of Series E Preferred Stock and
warrants to purchase 17,659 shares of Series E Preferred Stock to certain
shareholders of Lexington Software Associates, Inc. in exchange for their
shares of that company.

   All sales of common stock made pursuant to the exercise of stock options
were made in reliance on Rule 701 under the Securities Act or on Section 4(2)
of the Securities Act.

   All sales of preferred stock and warrants to purchase preferred stock were
made in reliance on Section 4(2) of the Securities Act and/or Regulation D
promulgated under the Securities Act. These sales were made without general
solicitation or advertising. Each purchaser was a sophisticated investor with
access to all relevant information necessary to evaluate the investment and
represented to the Registrant that the shares were being acquired for
investment.

Item 16. Exhibits and Financial Statement Schedules.

   (a) The following exhibits are filed herewith:
Number                            Exhibit Title
     ------                            -------------
1.01* Form of Underwriting Agreement.

      3.01  Registrant's Certificate of Incorporation.

      3.02* Registrant's Amended and Restated Certificate of Incorporation (to
             be filed upon the closing of this offering).

      3.03* Registrant's Bylaws.

      4.01* Form of Certificate for Registrant's common stock.

      4.02* Third Amended and Restated Investors' Rights Agreement, dated April
             26, 1999.

      5.01* Opinion of Fenwick & West LLP regarding legality of the securities
             being registered.

     10.01  Form of Indemnity Agreement between Registrant and each of its
             directors and executive officers.

     10.02  1996 Stock Option Plan and related agreements.

     10.03  1998 Stock Option Plan and related agreements.

     10.04  1999 Equity Incentive Plan.

     10.05  1999 Employee Stock Purchase Plan.

     10.06  Regional Prototype Profit Sharing Plan and Trust/Account Standard
             Plan Adoption Agreement AA #001.

     10.07  Employment Agreement between Interwoven, Inc. and Martin W. Brauns
             dated February 27, 1998.
II-3
Number                            Exhibit Title
     ------                            -------------
10.08  Offer Letter to David M. Allen from Interwoven, Inc. dated February
             12, 1999.

     10.09  Offer Letter to Michael A. Backlund from Interwoven, Inc. dated May
             1, 1998.

     10.10  Offer Letter to John Chang from Interwoven, Inc. dated January 20,
             1997.

     10.11  Offer Letter to Jeffrey E. Engelmann from Interwoven, Inc. dated
             December 11, 1998.

     10.12  Offer Letter to Steven Farber from Interwoven, Inc. dated June 14,
             1997.

     10.13  Offer Letter to Jack S. Jia from Interwoven, Inc. dated January 3,
             1997.

     10.14  Offer Letter to Peng T. Ong from Interwoven, Inc. dated February
             29, 1996.

     10.15  Offer Letter to Jozef Ruck from Interwoven, Inc. dated February 18,
             1999.

     10.16  Confidential Separation Agreement and Release, between Interwoven,
             Inc. and John Chang dated November 25, 1998.

     10.17  Confidential Separation Agreement and Release, between Interwoven,
             Inc. and Steven Farber dated February 12, 1998.

     10.18  Secured Promissory Notes between Interwoven, Inc. and Jeffrey E.
             Engelmann, dated as of April 19, 1999.

     10.19  Secured Promissory Notes between Interwoven, Inc. and Jozef Ruck,
             dated as of April 21, 1999.

     10.20  Built-To-Suit Lease Agreement dated March 18, 1997 between
             Sunnyvale Partners Limited Partnership and First Data Merchant
             Services Corporation.

     10.21  Sublease dated April 24, 1998 between First Data Merchant Services
             Corporation and Interwoven, Inc.

     10.22  Loan and Security Agreement, dated October 1997, as amended,
             between Interwoven, Inc. and Silicon Valley Bank.

     10.23  Agreement and Plan of Reorganization, dated June 30, 1999, by and
             among Interwoven, Inc., Lexington Software Associates, Inc. and
             certain Stockholders of Lexington Software Associates, Inc.

     23.01* Consent of Fenwick & West LLP (included in Exhibit 5.01).

     23.02  Consent of PricewaterhouseCoopers LLP, independent accountants.
     24.01  Power of Attorney (See Page II-6 of this Registration Statement).

     27.01  Financial Data Schedule.
---------------------
 * To be filed by amendment.

   (b) The following financial statement schedule is filed herewith:

       Schedule II--Valuation and Qualifying Accounts

   Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or
the notes thereto.

Item 17. Undertakings.

   The undersigned 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.

                                     II-4
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 provisions described under Item 14 above, 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, 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 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 undersigned 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 upon 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-5
SIGNATURES

   Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Mateo, State of
California, on this day of July 26, 1999.

                                          INTERWOVEN, INC.

                                                    /s/ Martin W. Brauns
                                          By: _________________________________
                                             Martin W. Brauns
                                             President and Chief Executive
                                             Officer

                               POWER OF ATTORNEY

   KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Martin W. Brauns and David M. Allen,
and each of them, his true and lawful attorneys-in-fact and agents with full
power of substitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by the Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act, and all post-effective amendments thereto, and to file the
same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done or by virtue hereof.

   Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on
the date indicated.
Name                            Title                   Date
                 ----                            -----                   ----
Principal Executive Officer
/s/ Martin W. Brauns                   President, Chief Executive    July 26, 1999
______________________________________ Officer and a director
Martin W. Brauns

Principal Financial Officer and Principal
Accounting Officer:

/s/ David M. Allen                     Vice President and Chief      July 26, 1999
______________________________________ Financial Officer
David M. Allen

Additional Directors:

/s/ Peng T. Ong                        Chairman of the Board         July 26, 1999
______________________________________
Peng T. Ong

/s/ Kathryn C. Gould                   Director                      July 26, 1999
______________________________________
Kathryn C. Gould

/s/ Mark W. Saul                       Director                      July 26, 1999
______________________________________
Mark W. Saul

/s/ Mark C. Thompson                   Director                      July 26, 1999
______________________________________
Mark C. Thompson
II-6
Name                            Title                   Date
                 ----                            -----                   ----
Additional Directors:
Director
______________________________________
Ronald E.F. Codd
II-7
INTERWOVEN, INC.

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

      For Years Ended December 31, 1997 and Six Months Ended June 30, 1999
                                  (unaudited)
                                 (In thousands)
Amounts
                                                   Charged to
                                        Balance at  Revenue,  Write-offs Balance
                                        Beginning  Costs, or     and     at End
                                         of year    Expenses  Recoveries of Year
                                        ---------- ---------- ---------- -------
December 31, 1997
  Allowance for Doubtful Accounts......    $--        $--        $--      $--
December 31, 1998
  Allowance for Doubtful Accounts......    $--        $270       $  0     $270
June 30, 1999
  Allowance for Doubtful Accounts......    $270       $ 18       $  0     $288
S-1
EXHIBIT INDEX
Number                            Exhibit Title
     ------                            -------------
3.01  Registrant's Certificate of Incorporation.
     10.01  Form of Indemnity Agreement between Registrant and each of its
             directors and executive officers.

     10.02  1996 Stock Option Plan and related agreements.

     10.03  1998 Stock Option Plan and related agreements.

     10.04  1999 Equity Incentive Plan.

     10.05  1999 Employee Stock Purchase Plan.

     10.06  Regional Prototype Profit Sharing Plan and Trust/Account Standard
             Plan Adoption Agreement AA #001.

     10.07  Employment Agreement between Interwoven, Inc. and Martin W. Brauns
             dated February 27, 1998.

     10.08  Offer Letter to David M. Allen from Interwoven, Inc. dated February
             12, 1999.

     10.09  Offer Letter to Michael A. Backlund from Interwoven, Inc. dated May
             1, 1998.

     10.10  Offer Letter to John Chang from Interwoven, Inc. dated January 20,
             1997.

     10.11  Offer Letter to Jeffrey E. Engelmann from Interwoven, Inc. dated
             December 11, 1998.

     10.12  Offer Letter to Steven Farber from Interwoven, Inc. dated June 14,
             1997.

     10.13  Offer Letter to Jack S. Jia from Interwoven, Inc. dated January 3,
             1997.

     10.14  Offer Letter to Peng T. Ong from Interwoven, Inc. dated February
             29, 1996.

     10.15  Offer Letter to Jozef Ruck from Interwoven, Inc. dated February 18,
             1999.

     10.16  Confidential Separation Agreement and Release, between Interwoven,
             Inc. and John Chang dated November 25, 1998.

     10.17  Confidential Separation Agreement and Release, between Interwoven,
             Inc. and Steven Farber dated February 12, 1998.

     10.18  Secured Promissory Notes between Interwoven, Inc. and Jeffrey E.
             Engelmann, dated as of April 19, 1999.

     10.19  Secured Promissory Notes between Interwoven, Inc. and Jozef Ruck,
             dated as of April 21, 1999.

     10.20  Built-To-Suit Lease Agreement dated March 18, 1997 between
             Sunnyvale Partners Limited Partnership and First Data Merchant
             Services Corporation.

     10.21  Sublease dated April 24, 1998 between First Data Merchant Services
             Corporation and Interwoven, Inc.

     10.22  Loan and Security Agreement, dated October 1997, as amended,
             between Interwoven, Inc. and Silicon Valley Bank.

     10.23  Agreement and Plan of Reorganization, dated June 30, 1999, by and
             among Interwoven, Inc., Lexington Software Associates, Inc. and
             certain Stockholders of Lexington Software Associates, Inc.

     23.02  Consent of PricewaterhouseCoopers LLP, independent accountants.

     24.01  Power of Attorney (See Page II-6 of this Registration Statement).

     27.01  Financial Data Schedule.