<PAGE>

   As filed with the Securities and Exchange Commission on December 17, 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                    77-0523543
     (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, California 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, California 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.
    Katherine Tallman Schuda, Esq.               Jon C. Avina, Esq.
        William L. Hughes, Esq.                Brooke D. Coleman, Esq.
          FENWICK & WEST LLP              WILSON SONSINI GOODRICH & ROSATI
         Two Palo Alto Square                 Professional Corporation
      Palo Alto, California 94306                650 Page Mill Road
            (650) 494-0600                   Palo Alto, California 94304
                                                   (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

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<TABLE>
<CAPTION>
                                              Proposed          Proposed
   Title of Each Class of    Amount to be Maximum Offering Maximum Aggregate     Amount of
Securities to be Registered   Registered   Price Per Unit    Offering Price   Registration Fee
----------------------------------------------------------------------------------------------
<S>                          <C>          <C>              <C>                <C>
Common Stock
 ($0.001 par
 value).....                 3,450,000(1)    $134.00(2)    $462,300,000(1)(2)     $122,048
</TABLE>

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(1) Includes 450,000 shares which the Underwriters have the option to purchase
    to cover over-allotments of shares. See "Underwriting."
(2) Estimated solely for the purpose of calculating the amount of the
    Registration Fee in accordance with Rule 457(c) under the Securities Act
    of 1933 and based upon the average high and low sales prices on December
    15, 1999 as reported on the Nasdaq National Market.

   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 DECEMBER 17, 1999

                                3,000,000 Shares
                       [LOGO OF INTERWOVEN APPEARS HERE]
                                  Common Stock

                                   --------

  We are selling 1,000,000 shares of common stock and the selling stockholders
are selling 2,000,000 shares of common stock. We will not receive any of the
proceeds from shares of common stock sold by the selling stockholders.

  Our common stock is listed on The Nasdaq Stock Market's National Market under
the symbol "IWOV." On December 15, 1999, the reported last sale price of our
common stock was $145.00 per share.

  The underwriters have an option to purchase a maximum of 450,000 additional
shares to cover over-allotments of shares.

  Investing in our common stock involves risks. See "Risk Factors" on page 7.

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

  Delivery of the shares of common stock will be made on or about        ,
2000.

  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

        Robertson Stephens

                Dain Rauscher Wessels

                        SoundView Technology Group

                                                    Adams, Harkness & Hill, Inc.

                 The date of this prospectus is        , 2000.
<PAGE>

                                  -----------

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                      Page
                                      ----
<S>                                   <C>
Prospectus Summary..................    3
Risk Factors........................    7
Special Note Regarding Forward-
 Looking Statements.................   15
Use of Proceeds.....................   16
Price Range of Common Stock.........   16
Dividend Policy.....................   16
Capitalization......................   17
Dilution............................   18
Selected Consolidated Financial
 Data...............................   19
Management's Discussion and Analysis
 of Financial Condition and Results
 of Operations......................   20
Business............................   30
</TABLE>
<TABLE>
<CAPTION>
                                      Page
                                      ----
<S>                                   <C>
Management..........................   44
Related Party Transactions..........   55
Principal and Selling Stockholders..   57
Description of Capital Stock........   60
Shares Eligible for Future Sale.....   64
Underwriting........................   67
Notice to Canadian Residents........   69
Legal Matters.......................   70
Experts.............................   70
Where You Can Find Additional
 Information........................   70
Index to Consolidated 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.
<PAGE>

                               PROSPECTUS SUMMARY

   This summary highlights information contained elsewhere in this prospectus;
it does not contain all the information you should consider before buying
shares in this offering. You should read the entire prospectus carefully before
making a decision whether to purchase our common stock. Unless otherwise
indicated, information in this prospectus assumes that the underwriters do not
exercise their over-allotment option.

                                   Interwoven

   Interwoven is a provider of software products and services that help
businesses and other organizations manage the information that makes up the
content of their web sites. In the Internet industry, this is often referred to
as "web content management." We have designed our software products to help
companies rapidly and efficiently develop, maintain and extend large web sites
that are essential to their businesses. Our principal product, TeamSite,
incorporates widely accepted Internet industry standards and is designed with
an open architecture that allows it to support a wide variety of Internet
software products, including web authoring tools and web application servers.
Using TeamSite, our customers can manage web content, control the versions of
their web sites, manage web site contribution and content approval processes,
and develop Internet applications. TeamSite allows large numbers of
contributors across an enterprise to add web content in a carefully-managed
process. In addition, our OpenDeploy product allows customers to distribute web
content automatically from one server to one or more servers.

   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 Internet. The use of the Internet to conduct business is frequently
referred to as "Internet commerce" or "eBusiness." Companies are making
significant investments to develop and deploy these eBusiness initiatives.
International Data Corporation, or IDC, estimates that spending on software
applications and services for Internet commerce will grow from $7.8 billion in
1998 to $53.8 billion in 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 have contributed to the increasing technological
complexity involved in developing and maintaining web sites. These trends have
created a need for content management software that can accommodate the
increasing volume of web content, leverage existing investments in computers,
software and associated information technology infrastructure, and allow more
contributors to add content to a web site. IDC estimates that one of the
markets 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 software assists customers in accelerating
their time-to-web--the rate at which they can deploy new content on their web
sites--by enabling them to develop multiple eBusiness applications
simultaneously. It lowers web operating costs by reducing a customer's
dependence on highly-paid web professionals and reducing the time required to
test and approve new content for a web site or eBusiness application. 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's architecture
is non-proprietary and based on recognized industry standards, so it enables
businesses to take advantage of existing investments in technology and web
content and, at the same time, to integrate new technologies and applications
easily.

                                       3
<PAGE>


   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 125 customers, including AltaVista, AT&T/TCI, BellSouth, Best
Buy, Cisco Systems, eBay, E*Trade, FedEx, Gap, General Electric, the U.S.
Department of Education, USWeb/CKS, Viacom/Nickelodeon and Yahoo!/GeoCities,
although we have incurred losses to date resulting in an accumulated deficit of
approximately $21.3 million at September 30, 1999.

   We were incorporated in California in March 1995 and reincorporated in
Delaware in October 1999. 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 is not part of this prospectus.

                                       4
<PAGE>


                                  The Offering

<TABLE>
 <C>                                                  <S>
 Common stock offered by Interwoven.................. 1,000,000 shares
 Common stock offered by the selling stockholders.... 2,000,000 shares
 Common stock to be outstanding after this offering.. 23,681,885 shares
 Use of proceeds..................................... For general corporate
                                                      purposes, including
                                                      working capital. See "Use
                                                      of Proceeds."
 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 September 30,
1999, and includes 3,622,500 shares of common stock issued in our initial
public offering in October 1999.

   The number of shares of our common stock to be outstanding immediately after
this offering does not include:

  .  the issuance of 64,123 shares of common stock upon exercise of warrants
     in October 1999;

  .  1,030,258 shares issuable upon exercise of options outstanding as of
     September 30, 1999 under our stock option plans and 3,240,484 shares
     available for future issuance under those plans;

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

  .  45,648 shares issuable upon exercise of outstanding warrants.

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

   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
reflects:

  .  a 2-for-3 reverse stock split completed in October 1999;

  .  the conversion in October 1999 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 converted into 0.702205
     shares of common stock; and

  .  our reincorporation from California to Delaware, which was completed in
     October 1999.

                                       5
<PAGE>

                      Summary Consolidated Financial Data

                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                Nine Months
                                                              Ended September
                                Years Ended December 31,            30,
                               ----------------------------  ------------------
                                 1996      1997      1998      1998      1999
                               --------  --------  --------  --------  --------
<S>                            <C>       <C>       <C>       <C>       <C>
Consolidated Statement of
 Operations Data:
Revenues.....................  $    --   $    168  $  4,003  $  2,109  $  9,261
Gross profit.................       --         73     2,670     1,299     5,572
Total operating expenses.....       520     2,933     9,165     5,886    16,999
Loss from operations.........      (520)   (2,860)   (6,495)   (4,587)  (11,427)
Net loss.....................      (510)   (2,948)   (6,344)   (4,498)  (11,011)
Net loss per share:
  Basic and diluted..........  $  (0.22) $  (1.36) $  (2.85) $  (1.98) $  (6.51)
  Weighted average shares--
   basic and diluted.........     2,282     2,356     2,633     2,505     3,722
Pro forma net loss per share:
  Basic and diluted..........                      $  (0.74)           $  (0.74)
  Weighted average shares--
   basic and diluted.........                         8,530              14,957
</TABLE>

<TABLE>
<CAPTION>
                                                  As of September 30, 1999
                                                ------------------------------
                                                            Pro     Pro Forma
                                                 Actual    Forma   As Adjusted
                                                --------  -------- -----------
<S>                                             <C>       <C>      <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and investments......... $ 21,995  $ 78,195  $214,945
Working capital................................   18,203    74,403   211,153
Total assets...................................   29,472    85,672   222,422
Long-term debt and capital lease obligations,
 less current portion..........................      875       875       875
Manditorily redeemable convertible preferred
 stock.........................................   52,996       --        --
Total stockholders' equity (deficit)...........  (31,218)   77,978   214,728
</TABLE>

   See Note 1 of Notes to Consolidated 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 pro forma balance sheet data gives effect to the application of the net
proceeds of approximately $56.2 million from the sale of 3,622,500 shares of
our common stock in our initial public offering in October 1999.

   The pro forma as adjusted balance sheet data gives effect to the sale of the
1,000,000 shares of common stock that we are offering under this prospectus at
an assumed public offering price of $145.00 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses payable by us. See "Use of Proceeds" and "Capitalization."

                                       6
<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. These risks are the ones we consider to be significant to your
decision whether to invest in our common stock at this time. We might be wrong.
There may be risks that you in particular view differently than we do, and
there are other risks and uncertainties that are not presently known to us or
that we currently deem immaterial, but that may in fact 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.

Our operating history is limited, so it will be difficult for you to evaluate
our business in making an investment decision.

   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.

If we do not increase our license revenues significantly, we will fail to
achieve profitability.

   We have incurred net losses in each quarter since our inception, and we
expect our 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 $11.0 million
for the nine months ended September 30, 1999. As of September 30, 1999, we had
an accumulated deficit of approximately $21.3 million. To compete effectively,
we plan to continue to invest aggressively to expand our sales and marketing,
research and development, and professional services organizations. As a result,
if we are to achieve profitability we will need to increase our revenues
significantly, particularly our license revenues. We cannot predict when we
will become profitable, if at all.

Our operating results fluctuate widely and are difficult to predict, so we may
fail to satisfy the expectations of investors or market analysts and our stock
price may decline.

   Our quarterly operating results have fluctuated significantly in the past,
and we expect them to continue to fluctuate unpredictably in the future. 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.

                                       7
<PAGE>

Our quarterly results depend on a small number of large orders, so the loss of
any single large order could harm those results and cause our stock price to
drop.

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

We face significant competition, which could make it difficult to acquire and
retain customers and inhibit any future growth.

   We expect the competition in the market in which we operate to persist and
intensify in the future. Competitive pressures may seriously harm our business
and results of operations if they inhibit our future growth, or require us to
hold down or reduce prices, or increase our operating costs. Our competitors
include:

  .  potential customers that utilize in-house development efforts;

  .  developers of software that directly addresses the need for web content
     management, such as Vignette.

In addition, other enterprise software companies such as Rational Software and
Documentum have announced plans to enter our market. We also face potential
competition from companies--for example, Microsoft and IBM--that may decide in
the future to enter our market. Many of our 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 discourages users from purchasing
our products. Barriers to entering the web content management software market
are relatively low.

Because the market for our products is new, we do not know whether existing and
potential customers will purchase our products in sufficient quantity for us to
achieve profitability.

   The market for web content management software in which we sell is new and
rapidly evolving. While we have licensed our products to over 125 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. Various factors could inhibit the growth of the market, and market
acceptance of our products and services. In particular, potential customers
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. 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 makes it particularly difficult for us to forecast
revenue, requires us to incur high costs of sales, and aggravates the
variability of quarterly fluctuations.

   The time between our initial contact with a potential customer and the
ultimate sale, which we refer to as our sales cycle, typically ranges between
three and nine months depending largely on the customer. If we do not shorten
our sales cycle, it will be difficult for us to reduce sales and marketing
expenses. In addition, as a result of our lengthy sales cycle, we have only a
limited ability to forecast the timing and size of specific sales. This makes
it more difficult to predict quarterly financial performance, or to achieve it,
and any delay in completing sales in a particular quarter could harm our
business and cause our operating results to vary significantly.

We rely heavily on sales of one product, so if it does not achieve market
acceptance we are likely to experience larger losses.

   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

                                       8
<PAGE>

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 more seriously than it would
if we had several different products and services to sell. In addition, our
future financial performance will depend upon successfully developing and
selling enhanced versions of TeamSite and the products. If we fail to deliver
product enhancements or new products that customers want it will be more
difficult for us to succeed.

We depend on our direct sales force to sell our products, so future growth will
be constrained by our ability to hire and train new sales personnel.

   We sell our products primarily through our direct sales force, and we expect
to continue to do so in the future. Our ability to sell more products is
limited by our ability to hire and train direct sales personnel, and we believe
that there is significant competition for direct sales personnel with the
advanced sales skills and technical knowledge that we need. Some of our
competitors may have greater resources to hire personnel with that skill and
knowledge. If we are not able to hire experienced and competent sales
personnel, our business would be harmed. Furthermore, because we depend on our
direct sales force, any turnover in our sales force can significantly harm our
operating results. Sales force 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, which is particularly
difficult for us because we compete with other Internet-related software
companies and are located in the San Francisco Bay area where competition for
personnel is extremely intense."

If we do not develop our indirect sales channel, we will be less likely to
increase our revenues.

   If we do not develop indirect sales channels, we may miss sales
opportunities that might be available through these other channels. For
example, domestic and international resellers may be able to reach new
customers more quickly or more effectively than our direct sales force.
Although we are currently investing and plan to continue to invest significant
resources to develop these indirect sales channels, we may not succeed in
establishing a channel that can market our products effectively and 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 attract and retain qualified personnel, which is particularly difficult
for us because we compete with other Internet-related software companies and
are located in the San Francisco Bay area where competition for personnel is
extremely intense.

   Our success depends on our ability to attract and retain qualified,
experienced employees. We compete for experienced engineering, sales and
consulting personnel with Internet professional services firms, software
vendors, consulting and professional services companies. It is also
particularly difficult to recruit and retain personnel in the San Francisco Bay
area, where we are located. Although we provide compensation packages that
include incentive stock options, cash incentives and other employee benefits,
the volatility and current market price of our common stock may make it
difficult for us to attract, assimilate and retain highly qualified employees
in the future. 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 those services,
or we could experience deterioration in service levels or decreased customer
satisfaction, any of which would harm our business.

If we do not improve our operational systems on a timely basis, we will be more
likely to fail to manage our growth properly.

   We have expanded our operations rapidly in recent years. We intend to
continue to expand our operational systems for the foreseeable future to pursue
existing and potential market opportunities. This rapid growth

                                       9
<PAGE>

places a significant demand on management and operational resources. In order
to manage our growth, we need to 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.

Difficulties in introducing new products and upgrades in a timely manner will
make market acceptance of our products less likely.

   The market for our products is characterized 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 more complex than most software,
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
limit our revenues.

   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
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 popular new operating system or Internet business application, 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.

We have no significant experience conducting operations internationally, which
may make it more difficult than we expect to expand overseas and may increase
the costs of doing so.

   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.

As a result of these competitive barriers, we cannot assure you that we will be
able to market, sell and deliver our products and services in international
markets.

If we fail to establish and maintain strategic relationships, the market
acceptance of our products, and our profitablity, may suffer.

   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

                                       10
<PAGE>

maintain our existing strategic relationships or fail to enter into additional
strategic relationships, our ability to increase our sales and reduce expenses
will be harmed. 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.

If our services revenues do not grow substantially, our total revenues are
unlikely to increase.

   Our services revenues represent a significant component of our total
revenues--21% of total revenues for 1998 and 37% of total revenues for the nine
months ended September 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, a
loss of which could harm our business.

   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 we 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 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 greater losses and
harmful 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 some of our products
after their release. Although past defects have not had a material effect on
our results of operations, in the future we may experience delays or lost
revenue caused by new defects. Despite our testing, defects and errors may
still be found in new or existing products, and may result 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 the performance of our
software could also harm our business.

Defects in our products may result in customer claims against us that could
cause unanticipated losses.

   Because customers rely on our products for business critical processes,
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

                                       11
<PAGE>

contracts will 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 product liability claims like this to date, but we could in
the future. Further, although we maintain errors and omissions insurance, this
insurance coverage may not be adequate to cover us. A successful product
liability claim could harm our business. Even defending a product liability
suit, regardless of its merits, could harm our business because it entails
substantial expense and diverts the time and attention of key management
personnel.

Year 2000 concerns by our customers could cause them to defer purchases of our
products.

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

Year 2000 problems with our products may increase our costs.

   Our products are generally integrated into enterprise computer 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.

Acquisitions may harm our business by being more difficult than expected to
integrate or by diverting management's attention.

   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 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 because it depends on
growth in the use of the Internet.

   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 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

                                       12
<PAGE>

the Internet for commerce, communications and access to content, particularly
by those who have historically relied upon alternative methods, generally
requires understanding and accepting new ways 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,
these laws, rules or regulations could indirectly harm us to the extent that
they impact 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 hold a majority of our stock and will be able to
control matters requiring stockholder approval.

   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.

We have various mechanisms in place to discourage takeover attempts, which
might tend to suppress our stock price.

   Provisions of our certificate of incorporation and bylaws that may
discourage, delay or prevent a change in control include:

  .  we are authorized to issue "blank check" preferred stock, which could be
     issued by our board of directors to increase the number of outstanding
     shares and thwart a takeover attempt;

  .  we provide for the election of only one-third of our directors at each
     annual meeting of stockholders, which slows turnover on the board of
     directors;

  .  we limit who may call special meetings of stockholders;

  .  we prohibit stockholder action by written consent, so all stockholder
     actions must be taken at a meeting of our stockholders; and

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

                                       13
<PAGE>

   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."

Purchasers in this offering will incur immediate and substantial dilution.

   The 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.

If a significant number of shares become available for sale and are sold in a
short period of time, the market price of our stock could decline.

   If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Our common stock began trading on the Nasdaq National Market on
October 8, 1999; however, to date there have been a limited number of shares
trading in the public market. After this offering, a total of 6,622,500 shares
of our common stock will be available on the open market. Our current
stockholders who are not participating in this offering hold     shares that
they will be able to sell in the public market beginning on April 6, 2000, when
the lock-up agreements signed in connection with our initial public offering
expire. In addition, 90 days after this offering, our executive officers,
directors and the selling stockholders will be able to sell an additional
    shares of our common stock. If many of these shares are sold when they
become available for resale, the market price of our common stock may decline.
For a detailed discussion of the shares eligible for future sale, please see
"Shares Eligible for Future Sale."

We have broad discretion to use the offering proceeds and how we invest these
proceeds may not yield a favorable, or any, return.

   The net proceeds of this offering are not allocated for specific uses other
than working capital and general corporate purposes. Thus, our management has
broad discretion over how these proceeds are used and could spend the proceeds
in ways with which you may not agree. We cannot assure you that the proceeds
will be invested in a way that yields a favorable, or any, return for us.

                                       14
<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 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.

                                       15
<PAGE>

                                USE OF PROCEEDS

   We estimate that we will receive net proceeds of approximately $137.3
million from the sale of 1,000,000 shares of our common stock at an assumed
public offering price of $145.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses. We will
not receive any portion of the proceeds from the sale of shares of common stock
by the selling stockholders. The primary purposes of this offering are to
obtain additional working capital, create a larger public float for our common
stock and facilitate our future access to public capital markets.

   We intend to use the net proceeds of this offering primarily for additional
working capital and other general corporate purposes, including increased sales
and marketing expenditures, increased research and development expenditures and
capital expenditures. We have not yet determined our expected use of these
proceeds.

   The amounts and timing of these expenditures will vary depending on a number
of factors, including the amount of cash generated by our operations,
competitive and technological developments and the rate of growth, if any, of
our business. We may also use a portion of the net proceeds to acquire
additional businesses, products and technologies, to lease additional
facilities, or to establish joint ventures that we believe will complement our
current or future business. However, we have no specific plans, agreements or
commitments to do so and are not currently engaged in any negotiations for any
acquisition or joint venture.

   We will retain broad discretion in the allocation of the net proceeds of
this offering. Pending the uses described above, we will invest the net
proceeds of this offering in short-term to medium-term interest-bearing,
investment-grade securities. We cannot predict whether the proceeds will be
invested to yield a favorable return. We believe that our available cash,
together with the net proceeds of this offering, will be sufficient to meet our
capital requirements for at least the next 12 months.

                          PRICE RANGE OF COMMON STOCK

   Our common stock has been quoted on the Nasdaq National Market under the
symbol "IWOV" since our initial public offering on October 8, 1999. Before
then, there was no public market for our common stock. From October 8, 1999
through December 15, 1999, the low price per share of our common stock was
$36.75 and the high price per share of our common stock was $177.88.

   The closing sale price of our common stock as reported on the Nasdaq
National Market on December 15, 1999 was $145.00. As of November 30, 1999, we
had approximately 221 stockholders of record. This does not include the number
of persons whose stock is in nominee or "street name" accounts through brokers.

                                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.

                                       16
<PAGE>

                                 CAPITALIZATION

   The following table sets forth the following information, as of September
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 in
     October 1999 and the application of the net proceeds of approximately
     56.2 million from the sale of 3,622,500 shares of our common stock in
     our initial public offering; and

  .  our pro forma as adjusted capitalization after giving effect to the sale
     of 1,000,000 shares of common stock by us at an assumed public offering
     price of $145.00 per share, less the estimated underwriting discounts
     and commissions and estimated offering expenses.


<TABLE>
<CAPTION>
                                                      September 30, 1999
                                                --------------------------------
                                                                      Pro Forma
                                                 Actual   Pro Forma  As Adjusted
                                                --------  ---------  -----------
                                                 (in thousands, except share
                                                            data)
<S>                                             <C>       <C>        <C>
Debt and leases, current and long-term......... $  1,375  $  1,375    $  1,375
Mandatorily redeemable convertible preferred
 stock, 18,763,092 shares authorized,
 18,543,523 shares issued and outstanding,
 actual; no shares authorized, issued or
 outstanding, pro forma and pro forma as
 adjusted......................................   52,996       --          --
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, 6,588,846 shares issued
   and outstanding, actual; 75,000,000 shares
   authorized, 22,681,885 shares issued and
   outstanding, pro forma; 23,681,885 shares
   issued and outstanding, pro forma as
   adjusted....................................        7        23          24
  Additional paid-in capital...................   (4,590)  104,590     241,339
  Notes receivable from stockholders...........     (202)     (202)       (202)
  Deferred stock-based compensation............   (5,114)   (5,114)     (5,114)
  Accumulated deficit..........................  (21,319)  (21,319)    (21,319)
                                                --------  --------    --------
    Total stockholders' equity (deficit).......  (31,218)   77,978     214,728
                                                --------  --------    --------
      Total capitalization..................... $ 23,153  $ 79,353    $222,422
                                                ========  ========    ========
</TABLE>

   The table excludes:

  .  64,123 shares of common stock issued upon the exercise of warrants in
     October 1999;

  .  1,030,258 shares issuable upon exercise of options outstanding at
     September 30, 1999 under our stock option plans and 3,240,484 shares
     available for future issuance under those plans;

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

  .  45,648 shares issuable upon exercise of outstanding warrants.

                                       17
<PAGE>

                                    DILUTION

   The pro forma net intangible book value of our common stock as of September
30, 1999, after giving effect to the conversion of all outstanding shares of
preferred stock into common stock and the application of the net proceeds of
approximately $56.2 million from the sale of 3,622,500 shares of our common
stock in our initial public offering in October 1999, was $77.4 million, or
approximately $3.41 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 1,000,000 shares of common stock offered at an assumed public offering price
of $145.00 per share, and after deducting estimated underwriting discounts and
commissions and estimated offering expenses, our pro forma net tangible book
value as of September 30, 1999 would have been $214.2 million, or $9.04 per
share. This represents an immediate increase in pro forma net tangible book
value of $5.63 per share to existing stockholders and an immediate dilution in
net tangible book value of $135.96 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 public offering price per share........................        $ 145.00
  Pro forma net tangible book value per share as of September
   30, 1999.................................................... $ 3.41
  Increase in pro forma net tangible book value per share
   attributable to new investors...............................   5.63
                                                                ------
Pro forma net tangible book value per share after offering.....            9.04
                                                                       --------
Dilution per share to new investors............................        $ 135.96
                                                                       ========
</TABLE>

   The following table summarizes, on a pro forma basis, as of September 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 used an assumed public offering price of $145.00 per share,
and we have not deducted estimated underwriting discounts and commissions and
estimated offering expenses in our calculations.

<TABLE>
<CAPTION>
                                                                         Average
                                   Shares Purchased  Total Consideration  Price
                                  ------------------ -------------------   Per
                                    Number   Percent   Amount    Percent  Share
                                  ---------- ------- ----------- ------- -------
<S>                               <C>        <C>     <C>         <C>     <C>
Existing stockholders............ 22,681,885   95.8% 114,585,500   44.1% $  5.05
New investors....................  1,000,000    4.2  145,000,000   55.9   145.00
                                  ----------  -----  -----------  -----  -------
  Total.......................... 23,681,885  100.0% 259,585,500  100.0% $ 10.96
                                  ==========  =====  ===========  =====  =======
</TABLE>

   This discussion of dilution, and the table quantifying it, 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.


                                       18
<PAGE>

                      SELECTED CONSOLIDATED FINANCIAL DATA

   The following selected financial data should be read in conjunction with,
and is qualified by reference to, the Consolidated 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 consolidated statement of operations data for the years ended December
31, 1996, 1997 and 1998 and the nine months ended September 30, 1999 and the
consolidated balance sheet data at December 31, 1997 and 1998, and
September 30, 1999 are derived from and are qualified by reference to audited
consolidated financial statements included elsewhere in this prospectus. The
consolidated balance sheet data at December 31, 1996 is derived from audited
consolidated financial statements not included in this prospectus. The
consolidated statement of operations data for the nine months ended September
30, 1998 are derived from unaudited consolidated 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 that 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>
                                                              Nine Months
                                                                 Ended
                              Year Ended December 31,        September 30,
                             ---------------------------  --------------------
                              1996      1997      1998      1998       1999
                             -------  --------  --------  ---------  ---------
                                 (in thousands, except per share data)
<S>                          <C>      <C>       <C>       <C>        <C>
Consolidated Statement of
 Operations Data:
Revenues:
 License ................... $   --   $     84  $  3,176  $   1,570  $   5,814
 Services ..................     --         84       827        539      3,447
                             -------  --------  --------  ---------  ---------
  Total revenues............     --        168     4,003      2,109      9,261
Cost of revenues:
 License....................     --        --         59         19        147
 Services...................     --         95     1,274        791      3,542
                             -------  --------  --------  ---------  ---------
  Total cost of revenues....     --         95     1,333        810      3,689
                             -------  --------  --------  ---------  ---------
Gross profit................     --         73     2,670      1,299      5,572
Operating expenses:
 Research and development...     328       884     1,797      1,227      2,930
 Sales and marketing........     101     1,519     4,817      2,960      9,058
 General and
  administrative............      91       530     1,739      1,135      2,077
 Amortization of deferred
  stock-based compensation..     --        --        812        564      2,685
 Amortization of acquired
  intangible assets.........     --        --        --         --         249
                             -------  --------  --------  ---------  ---------
  Total operating expenses..     520     2,933     9,165      5,886     16,999
                             -------  --------  --------  ---------  ---------
Loss from operations........    (520)   (2,860)   (6,495)    (4,587)   (11,427)
Interest and other income
 (expense), net.............      10       (88)      151         89        416
                             -------  --------  --------  ---------  ---------
Net loss.................... $  (510) $ (2,948) $ (6,344) $  (4,498) $ (11,011)
                             =======  ========  ========  =========  =========
Net loss per share:
 Basic and diluted.......... $ (0.22) $  (1.36) $  (2.85) $   (1.98) $   (6.51)
 Weighted average shares--
  basic and diluted.........   2,282     2,356     2,633      2,505      3,722
Pro forma net loss per
 share:
 Basic and diluted..........                    $  (0.74)            $   (0.74)
 Weighted average shares--
  basic and diluted.........                       8,530                14,957
</TABLE>

<TABLE>
<CAPTION>
                                        December 31,
                                    -----------------------      September 30,
                                    1996    1997     1998            1999
                                    -----  -------  -------      -------------
                                         (in thousands)
<S>                                 <C>    <C>      <C>      <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and
 investments....................... $  17  $ 1,019  $ 9,022        $ 21,995
Working capital....................  (208)     792    8,844          18,203
Total assets.......................    92    1,384   13,908          29,472
Long-term debt and capital lease
 obligations, less current portion
 ..................................   --        87    1,257             875
Mandatorily redeemable convertible
 preferred stock...................   385    4,627   20,464          52,996
Total stockholders' deficit........  (525)  (3,734) (10,752)        (31,218)
</TABLE>

   See Note 1 of Notes to Consolidated 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.

                                       19
<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 Consolidated
Financial Data" and our Consolidated Financial Statements and Notes appearing
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 November 30, 1999, we had
sold our products and services to over 125 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, Dallas, Los Angeles, New
York City, 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 had 192 employees as of November 30, 1999.

   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 September 30, 1999, had an accumulated
deficit of $21.3 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.


                                       20
<PAGE>

Results of Operations

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

<TABLE>
<CAPTION>
                                         Years Ended      Nine Months Ended
                                        December 31,        September 30,
                                        ---------------   -------------------
                                         1997     1998      1998       1999
                                        ------   ------   --------   --------
<S>                                     <C>      <C>      <C>        <C>
Revenues:
  License..............................     50 %     79 %       74 %       63 %
  Services.............................     50       21         26         37
                                        ------   ------   --------   --------
    Total revenues.....................    100      100        100        100
Cost of revenues:
  License..............................    --         1          1          2
  Services.............................     57       32         37         38
                                        ------   ------   --------   --------
    Total cost of revenues.............     57       33         38         40
                                        ------   ------   --------   --------
Gross profit...........................     43       67         62         60
Operating expenses:
  Research and development.............    526       45         58         32
  Sales and marketing..................    904      120        140         98
  General and administrative...........    315       43         54         22
  Amortization of deferred stock-based
   compensation........................    --        20         27         29
  Amortization of acquired intangible
   assets..............................    --       --         --           3
                                        ------   ------   --------   --------
    Total operating expenses...........  1,745      228        279        184
                                        ------   ------   --------   --------
Loss from operations................... (1,702)    (161)      (217)      (124)
Interest and other income (expense),
 net...................................    (52)       4          4          5
                                        ------   ------   --------   --------
Net loss............................... (1,754)%   (157)%     (213)%     (119)%
                                        ======   ======   ========   ========
</TABLE>

Nine Months Ended September 30, 1998 and 1999

 Revenues

   Total revenues increased 339% from $2.1 million for the nine months ended
September 30, 1998 to $9.3 million for the nine months ended September 30,
1999. 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 270% from $1.6 million for the nine
months ended September 30, 1998 to $5.8 million for the nine months ended
September 30, 1999. License revenues represented 74% and 63% of total revenues,
respectively, in those periods. The increase in license revenues reflects
continued growth from the low level of revenue in 1998, our first full year in
which we licensed our products. The decline in the percentage of total revenues
represented by license revenues reflects the more rapid growth of services
revenues due to a growing customer base.

   Services. Services revenues increased 543% from $539,000 for the nine months
ended September 30, 1998 to $3.4 million for the nine months ended September
30, 1999. Services revenues represented 26% and 37% of total revenues,
respectively, in those periods. The increase in services revenues reflects 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 increased 674% from $19,000 for the nine

                                       21
<PAGE>

months ended September 30, 1998 to $147,000 for the nine months ended September
30, 1999. Cost of license revenues represented 1% and 3% of license revenues in
the nine months ended September 30, 1998 and 1999, respectively. The increase
in cost of license revenues, both as a percentage of license revenues and in
absolute dollars, reflects increased sales of our product.

   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 348%
from $791,000 for the nine months ended September 30, 1998 to $3.5 million for
the nine months ended September 30, 1999. Cost of services revenues represented
147% and 103% of services revenues, respectively, in those periods. This
increase in absolute dollar amounts was due to an increase in the number of in-
house staff from 10 at September 30, 1998 to 43 at September 30, 1999, and a
$370,000 increase in subcontractor expenses.

   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 in July 1999 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 the services are performed by our in-house staff or
subcontractors, and the overall utilization rates of professional services
staff.

 Gross Profit

   Gross profit increased 329% from $1.3 million for the nine months ended
September 30, 1998 to $5.6 million for the nine months ended September 30, 1999
representing 62% and 60% of total revenues, respectively, in those periods.
This increase in absolute dollars reflected increased license and services
revenues from a growing customer base. The decrease in gross profit percentage
was a result of the expansion of our professional services organization. We
have made and will continue to make investments in our professional services
organization to increase the capacity of that organization to meet the demand
for services from our customers. 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 139% from $1.2 million for the nine
months ended September 30, 1998 to $2.9 million for the nine months ended
September 30, 1999. Research and development expenses represented 58% and 32%
of total revenues, respectively, in those periods. This increase in dollar
amounts was due to an increase 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 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 206% from $3.0 million for the nine months ended September 30, 1998
to $9.1 million for the nine months ended September 30, 1999. Sales and
marketing expenses represented 140% and 98% of total revenues, respectively, in
those periods. The increase in dollar amounts reflected increased sales and
marketing personnel costs of $2.7 million, higher sales commissions and bonuses
of $1.5 million and increased marketing related costs of $300,000. 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.

                                       22
<PAGE>

   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 83% from $1.1 million
for the nine months ended September 30, 1998 to $2.1 million for the nine
months ended September 30, 1999, representing 54% and 22% of total revenues,
respectively, in those periods. This increase in absolute dollar amounts
reflected 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
nine 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 stock options granted during those periods and the deemed
fair value of our common stock at the time of the grants. Amortization of
deferred stock-based compensation was $564,000 and $2.7 million for the nine
months ended September 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, between $100,000 and $185,000 during 2002 and $50,000
in the quarter ended March 31, 2003.

   Amortization of Acquired Intangible Assets. In July of 1999, we recorded
intangible assets of approximately $800,000 in connection with the acquisition
of Lexington Software Associates Incorporated. Goodwill related to this
transaction approximated $300,000 and intangible assets related to the
workforce of Lexington Software approximated $500,000 of the purchase price.
The total purchase price for this acquisition was approximately $800,000. The
purchase price was allocated to the tangible and intangible assets acquired and
liabilities assumed based upon their respective fair values at the acquisition
date. Amortization of acquired intangible assets was $249,000 for the nine
months ended September 30, 1999.

 Interest and Other Income (Expense), Net

   Interest and other income (expense), net, increased 367% from $89,000 for
the nine months ended September 30, 1998 to $416,000 for the nine months ended
September 30, 1999. The increase was due to increased interest income earned
from higher cash balances on hand as a result of sales of our preferred stock
in June 1999, partially offset by increased interest expense.

 Income Taxes

   As of September 30, 1999, we had approximately $14.7 million of federal and
$8.6 million of state net operating loss carryforwards available to reduce
future taxable income. These net operating loss carryforwards begin to expire
in 2010 and 2003 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. 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 6 of Notes to Consolidated 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.


                                       23
<PAGE>

   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 reflects growth from the low
level of revenue in 1997, our first year in which we licensed our products.

   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 reflects an
increase in both professional services and maintenance fees generated from an
expanded number of customers who licensed our products.

 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 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 due to an increase in the number of in-
house staff from 3 to 11, and a $45,000 increase in subcontractor expenses.

 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. The increase in dollar amounts from 1996 to 1997 reflects
increases in sales and marketing personnel costs of $900,000 and increased
marketing related costs of $100,000. The increase in dollar amounts from 1997
to 1998 reflects increases in sale and marketing personnel costs of
$1.4 million, higher sales commissions and bonuses of $900,000 and increased
marketing related costs of $200,000.

   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 reflects 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.

 Interest and Other Income (Expense), Net

   Interest and other income (expense), net, decreased from $10,000 in 1996 to
a net interest expense of $88,000 in 1997 and increased to a net interest
income of $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.

                                       24
<PAGE>

Quarterly Results of Operations

   The following tables set forth our unaudited consolidated statements of
operations data in dollars and as a percentage of total revenues for each of
our last seven quarters. This data has been derived from unaudited consolidated
financial statements that have been prepared on the same basis as our annual
audited consolidated financial statements and, in our opinion, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of this information. These unaudited quarterly results should
be read in conjunction with the annual consolidated 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,   Sept. 30,
                            1998      1998       1998       1998       1999       1999       1999
                          --------- --------   ---------  --------   ---------  --------   ---------
                                                    (in thousands)
<S>                       <C>       <C>        <C>        <C>        <C>        <C>        <C>
Consolidated Statement
 of Operations Data:
Revenues:
 License................    $ 187   $   437     $   946   $ 1,606     $ 1,360   $ 1,898    $  2,556
 Services...............       44       218         277       288         742     1,004       1,701
                            -----   -------     -------   -------     -------   -------    --------
   Total revenues.......      231       655       1,223     1,894       2,102     2,902       4,257
Cost of revenues:
 License................      --        --           19        40          15       104          28
 Services...............       75       275         441       483         549       880       2,113
                            -----   -------     -------   -------     -------   -------    --------
   Total cost of
    revenues............       75       275         460       523         564       984       2,141
                            -----   -------     -------   -------     -------   -------    --------
   Gross profit.........      156       380         763     1,371       1,538     1,918       2,116
Operating expenses:
 Research and
  development...........      282       453         492       570         779       922       1,229
 Sales and marketing....      473       884       1,603     1,857       2,287     2,938       3,833
 General and
  administrative........      185       387         563       604         598       646         833
 Amortization of
  deferred stock-based
  compensation..........      151       196         217       248         640     1,028       1,017
 Amortization of
  acquired intangible
  assets................      --        --          --        --          --        --          249
                            -----   -------     -------   -------     -------   -------    --------
   Total operating
    expenses............    1,091     1,920       2,875     3,279       4,304     5,534       7,161
                            -----   -------     -------   -------     -------   -------    --------
Loss from operations....     (935)   (1,540)     (2,112)   (1,908)     (2,766)   (3,616)     (5,045)
Interest and other
 income (expense), net..        4        53          32        62          65        89         262
                            -----   -------     -------   -------     -------   -------    --------
Net loss................    $(931)  $(1,487)    $(2,080)  $(1,846)    $(2,701)  $(3,527)   $ (4,783)
                            =====   =======     =======   =======     =======   =======    ========
<CAPTION>
                                                  Three Months Ended
                          --------------------------------------------------------------------------
                          March 31, June 30,   Sept. 30,  Dec. 31,   March 31,  June 30,   Sept 30,
                            1998      1998       1998       1998       1999       1999       1999
                          --------- --------   ---------  --------   ---------  --------   ---------
<S>                       <C>       <C>        <C>        <C>        <C>        <C>        <C>
As a Percentage of Total
 Revenues:
Revenues:
 License................       81%       67%         77%       85%         65%       65%         60%
 Services...............       19        33          23        15          35        35          40
                            -----   -------     -------   -------     -------   -------    --------
   Total revenues.......      100       100         100       100         100       100         100
Cost of revenues:
 License................      --        --            2         2           1         4           1
 Services...............       32        42          36        26          26        30          49
                            -----   -------     -------   -------     -------   -------    --------
   Total cost of
    revenues............       32        42          38        28          27        34          50
                            -----   -------     -------   -------     -------   -------    --------
   Gross profit.........       68        58          62        72          73        66          50
Operating expenses:
 Research and
  development...........      122        69          40        30          37        32          29
 Sales and marketing....      205       135         131        98         109       101          90
 General and
  administrative........       80        59          46        32          28        22          19
 Amortization of
  deferred stock-based
  compensation..........       65        30          18        13          30        35          24
 Amortization of
  acquired intangible
  assets................      --        --          --        --          --        --            6
                            -----   -------     -------   -------     -------   -------    --------
   Total operating
    expenses............      472       293         235       173         204       190         168
                            -----   -------     -------   -------     -------   -------    --------
Loss from operations....     (404)     (235)       (173)     (101)       (131)     (124)       (118)
Interest and other
 income (expense), net..        2         8           3         3           3         3           6
                            -----   -------     -------   -------     -------   -------    --------
Net loss................     (402)%    (227)%      (170)%    ( 98)%      (128)%    (121)%      (112)%
                            =====   =======     =======   =======     =======   =======    ========
</TABLE>

                                       25
<PAGE>

   Our license and services revenues have grown in each of the seven quarters
in the period ended September 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 a few 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.

   As a result of our limited operating history and the emerging nature of the
market for web content management software and services in which we compete, it
is difficult for us to forecast our revenues or earnings accurately. 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. Factors that have
caused our results to fluctuate in the past, and are likely to cause
fluctuations in the future, include:

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

  .  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.

   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, at the beginning of a quarter we have no assurance about
the levels of sales in that quarter, and 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.

   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.

Liquidity and Capital Resources

   In October 1999, we completed the initial public offering of our common
stock and realized net proceeds from the offering of approximately $56.2
million. Before our initial public offering, we funded our operations

                                       26
<PAGE>

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 September 30,
1999, our sources of liquidity consisted of $22.6 million in cash, cash
equivalents and investments and $19.2 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 September 30, 1999, plus 0.25%. At September 30, 1999, the
line of credit was unused and $1.4 million was outstanding under the equipment
line of credit. The lines of credit are secured by all of our tangible and
intangible assets, and contain financial covenants including; a quick asset
ratio, excluding deferred maintenance revenue, of at least 2:1; a liquidity
ratio of unrestricted cash plus 80% of eligible accounts receivable minus
outstanding advances divided by loans outstanding of not less than 1.5:1; and a
covenant that quarterly net losses will not exceed a threshold based on
projected annual revenues. We intend to maintain both lines of credit. 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 $5.1 million in the nine months ended September 30, 1999. Net cash used in
operating activities reflected increasing net losses.

   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 $176,000, $1.7 million and $1.3 million in 1997,
1998 and the nine months ended September 30, 1999, respectively. We expect that
capital expenditures will increase with our anticipated growth in operations,
infrastructure and personnel. As of September 30, 1999 we had no material
capital expenditure commitments. We do not expect to incur significant costs to
make our products or internal information systems Year 2000 compliant because
we believe these products and information systems are designed to function
properly through and beyond year 2000.

   During the nine months ended September 30, 1999, our investing activities
have consisted of purchases of short-term investments. To date, we have not
invested in derivative securities or any other financial instruments that
involve a high level of complexity or risk. We expect that, in the future, cash
in excess of current requirements will continue to be invested in high credit
quality, interest-bearing securities.

   Net cash provided by financing activities in 1997, 1998 and the first nine
months of 1999 was $3.9 million, $15.8 million and $19.4 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 equipment loan.

   We believe that the net proceeds of this offering, together with cash, cash
equivalents, investments and funds available under existing credit facilities,
will be sufficient to meet our working capital requirements for at least the
next 24 months. Thereafter, we may require additional funds to support our
working capital requirements or for other purposes and may seek to raise
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.

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 No. 133 is effective for all fiscal quarters
beginning with the quarter ending June 30, 2000. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in

                                       27
<PAGE>

other contracts, and for hedging activities. We will adopt SFAS No. 133 in the
quarter ending June 30, 2000 and do not expect its 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 system
failures or 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 non-
     compliant product versions;

  .  validation testing; and

  .  contingency planning.

   We have 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 our products are Year 2000
compliant when configured and used in accordance with the related
documentation, and provided that the underlying operating system of the host
machine and any other software used with or in the host machine or our products
are also Year 2000 compliant.

   We define "Year 2000 compliant" as the ability to:

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

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

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

  .  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

  .  recognize year 2000 as a leap year.

   We have not tested our products on all platforms or all versions of
operating systems that our products currently support.

                                       28
<PAGE>

   We are testing licensed software, shareware and freeware obtained from
third parties that is incorporated into our products or sold in conjunction
with our products, and have assurances from our vendors that this 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;

  .  increased service and warranty costs; or

  .  liability from our customers.

   Accordingly, errors or defects in our products could seriously harm our
business.

   Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of lawsuits against other software
vendors. Because of the unprecedented nature of this litigation, it is
uncertain whether or to what extent we will be affected by it.

   Our internal systems include both our computer and network systems and
other systems. We have initiated an assessment of our most important computer
and network systems and expect to complete the assessment by December 1999. We
have not yet begun to assess the Year 2000 compliance of our other systems,
but we expect to complete this assessment by December 1999. To the extent that
we are not able to assess the technology provided by third-party vendors, we
are seeking assurances from them that their systems are Year 2000 compliant.
Although we are not currently aware of any material operational issues or
costs associated with preparing these systems for the Year 2000, we may
experience unanticipated problems and costs caused by undetected errors or
defects in the technology used in these 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 our products; and

  .  product engineering and customer satisfaction.

   We may experience material problems and costs with Year 2000 compliance
that could harm our business.

   We have not yet 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 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.

                                      29
<PAGE>

                                    BUSINESS

Overview

   Interwoven is a provider of software products and services that help
businesses and other organizations manage the information that makes up the
content of their web sites. In the Internet industry this is often referred to
as "web content management." Our flagship software product, TeamSite, is
designed to help customers develop, maintain and extend large web sites that
are essential to their businesses. TeamSite incorporates widely accepted
Internet industry standards and is designed with an open architecture that
allows it to support a wide variety of web authoring tools and web application
servers. Using TeamSite, our customers can manage web content, control the
versions of their web sites, manage web site contribution and content approval
processes, and develop eBusiness applications. TeamSite allows large numbers of
contributors across an enterprise to add web content in a carefully-managed
process. In addition, our OpenDeploy product allows customers to automate the
distribution of web content across multiple web sites. 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 licensed our software products to over 125
customers operating in a broad range of industries. Our customers include
AltaVista, AT&T/TCI, BellSouth, Best Buy, Cisco Systems, eBay, E*Trade, FedEx,
Gap, General Electric, the U.S. Department of Education, USWeb/CKS,
Viacom/Nickelodeon and Yahoo!/GeoCities.

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 Internet commerce market in the U.S. will grow from $7.8 billion in
1998 to $108.0 billion in 2003. In addition, Forrester Research estimates that
the business-to-business Internet commerce market in the U.S. will grow from
$43.1 billion in 1998 to $1.3 trillion in 2003. In this prospectus we refer to
business-to-business and business-to-consumer Internet commerce as "e-
commerce."

   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 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 Internet commerce will grow from
$7.8 billion in 1998 to $53.8 billion in 2002. In this prospectus we refer to
the use of the Internet to conduct business generally as "Internet commerce" or
"eBusiness."

   Moving Online Successfully. To compete online and to capitalize on Internet
revenue opportunities, businesses must rapidly build a differentiated presence
on the web and must 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 the time required to develop and deploy
eBusiness applications, or 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

                                       30
<PAGE>

the Internet by transforming their businesses through sophisticated eBusinesses
applications featuring content-rich web sites. In 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 and executable software, 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
solutions to content management problems. These solutions must be highly
automated to accommodate the volume, complexity and variability of this web
content. In addition, these solutions must leverage existing investments in
information technology, be highly scalable, and enable participation by
increasing numbers of content contributors. IDC estimates that one of the
markets in which we participate, which IDC refers 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 web content management needs largely through in-house solutions. In-house
solutions can be expensive and difficult to maintain, which can increase the
risk of delaying the launch of important eBusiness initiatives. For example,
in-house solutions may need to be extensively re-engineered each time a new web
authoring tool or eBusiness application is introduced. Other businesses have
used third-party solutions, typically turning to either workgroup software or
web publishing software. Workgroup software is generally designed to enable
small groups of developers to manage relatively simple web sites. They
generally do not scale to support large numbers of contributors or the
increasing complexity and volume of web content. Using workgroup software may
impair a company's ability to deliver up-to-date and accurate web content. Web
publishing software is generally designed only to collect and display
information on a web site, and because it is often proprietary, does not
accommodate many popular web authoring tools or web application servers. In
addition, other third-party solutions do not allow large numbers of
contributors to add content to a web site, do not allow web teams to work on
applications simultaneously, and do not integrate new web technologies easily,
thereby slowing the deployment of eBusiness initiatives.

   With the proliferation of eBusiness initiatives, the need has emerged for a
common infrastructure, or "platform," that can enable large and diverse groups
of content contributors, accommodate popular web authoring tools, and integrate
to leading web application servers. An open architecture for such a platform
enables customers to leverage their existing investments in information
technology and facilitates rapid adoption of new web technologies and
standards.

                                       31
<PAGE>

The Interwoven Solution

   Interwoven provides web content management software that serves as a
platform from which its customers may develop multiple eBusiness applications.
Our software products are specifically designed to help our customers rapidly
and efficiently build, maintain and extend large web sites and eBusiness
initiatives that are essential to their businesses.

            [graphic representing web software positioning (p. 32)]

  A multi-layer graphical representation of web software positioning from
development to delivery. The top layer consists of four boxes. The box on the
far left reads "Customer Relationship Management." The next box to the right
reads "Electronic Commerce." The next box to the right reads "Knowledge
Management." The next box to the right reads "Global Supply Chain." The layer
immediately below the top layer reads "Web Application Servers." The next layer
down contains the Interwoven logo and reads "Deploy," "QA" and "Develop" and a
description to the left of the layer reads "Content Management." The next layer
down reads "Web Authoring Tools." The bottom layer consists of three boxes. The
box on the far left reads "Non-Technical Contributors." The next box to the
right reads "Business Contributors." The next box to the right reads "Technical
Contributors."

   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 web content and the number of eBusiness applications continue to
grow so rapidly that it can be difficult for businesses to meet their web site
development schedules. Our products enable customers to develop and deploy
multiple eBusiness applications simultaneously. This approach allows companies
to complete their eBusiness initiatives more rapidly. In addition, our products
allow content contributors to perform quality assurance functions on content
modifications, 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
supplied by 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 by improving operating efficiency through automation of workflow
processes, such as task assignment, routing, and approval. Automated workflow
processes can reduce the time required to assemble, test and validate new web
content. In addition, our products support evolving web standards and our open
architecture is compatible with third-party web authoring tools and web
application servers. 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 introducing new web

                                       32
<PAGE>

technologies and refreshing content frequently. The open architecture of our
products facilitates rapid integration of new web technologies and simultaneous
development of multiple eBusiness applications, such as global supply chain
management, customer relationship management, knowledge management and e-
commerce applications. In addition, our products are highly
scalable, permitting the collaborative efforts of hundreds of contributors to
be coordinated as the need arises.

   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 TeamSite,
companies can create reliable, high-quality web sites. TeamSite enables our
customers to conduct comprehensive testing of the entire web site as it is
built, updated or extended. In addition, TeamSite promotes 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 using
sophisticated workflow processes to maintain quality control, TeamSite also
ensures that no unauthorized or unapproved content or application is deployed
to the customer's site.

The Interwoven Strategy

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

   Establish Position as a Leading Provider of Content Management Software
Products. We intend to establish our leadership in content management solutions
by continuing to offer comprehensive, easy-to-use software products. Our
feature-rich products address our customers' complete eBusiness life-cycle
needs as they build, maintain and extend their web sites. We intend to extend
that leadership position by introducing enhanced web content management
products 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 the
customers of industry-leading Internet technology vendors. We intend to do so
by providing a robust web development platform to complement their own
eBusiness production applications. Unlike existing closed-architecture, or
proprietary products, our products are designed to integrate easily with the
products 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 ATG, Bluestone, 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 KPMG, and Internet professional
services firms, such as USWeb/CKS and iXL. These firms provide consulting
services to assist their clients in designing and developing eBusiness
applications. 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. 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 Technology Leadership Through Adherence to Industry
Standards. Our products integrate easily and cost-effectively with web
authoring tools and web application servers offered by other Internet
technology vendors. In addition, our products have been designed to meet the
demanding openness and scalability required of Internet software products. Our
open architecture supports 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 computer files that contain web content and
enables hundreds of employees throughout the enterprise to contribute web
content. We intend to continue to invest significantly in research

                                       33
<PAGE>

and development to increase the functionality of our products while adopting
industry standards. We also intend to continue to participate actively 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 additional offices in Europe and the Pacific
Rim during the next twelve months.

Products and Services

   Our product line consists of TeamSite, our web content management product,
and OpenDeploy, our web content replication and syndication product. We
generally license our products on a per-server and per-user basis and
occasionally on an enterprise or site license basis. We also provide services,
including professional services, maintenance and support.

   The following table highlights the features of our products:

 Product                      Description                      Server Platforms

 TeamSite 4.0    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 tools and web application
                   servers
                 . SmartContext Editing allows direct
                   edits to web site content through a
                   simple browser interface
                 . supports simultaneous eBusiness
                   application development and deployment
                 . offers real-time testing capability and
                   sophisticated workflow processes
                 . offers comprehensive file versioning
                   and whole-site versioning

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

   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
                 . optional software module licensed 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
                 . optional software module licensed with
                   TeamSite

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

 OpenDeploy      Content replication and distribution        . Sun Solaris
 3.1.2           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

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

                                       34
<PAGE>

 TeamSite -- Content Management

   Our flagship product, TeamSite, is a software product that is designed to
develop, maintain and extend large web sites.

     Web Content Management. TeamSite is designed to version, manage and
  control all web content. It supports parallel, distributed content
  contribution across the enterprise. TeamSite allows large numbers of
  contributors across an enterprise to add web content in a carefully-managed
  process. TeamSite is compatible with leading web authoring 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. TeamSite captures and stores
  the history of all modifications to the web content. These content
  histories, or versions, are managed and tracked for individual web files
  and for whole web sites.

     Workflow. TeamSite is designed for a diverse group of users, including
  non-technical and technical users, participating in building and
  contributing content to the web site operations. To facilitate the
  management of these web content contributors, TeamSite automates workflow
  processes such as task assignment, resource scheduling, content routing,
  content approval and web site release.

     Web Application Development. TeamSite provides programmers with a
  software development system that accommodates their choice of software
  development tools. TeamSite's computer file versioning features allow
  programmers to track software code modifications. Using TeamSite,
  programmers can reduce the time required to build, install and test the
  developed software code by working in a copy of the running web site.

   The architecture of TeamSite enables businesses to implement it without
making significant changes to their existing web content or systems
architecture, resulting in rapid implementation. Additionally, TeamSite's open
architecture allows customers to use their preferred web content authoring
software, 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 4.0, in October 1999.

   We also license optional software modules with TeamSite that extend its
functionality. TeamSite Templating allows web content to be contributed using
customer-defined templates, thereby eliminating the need for contributors to be
familiar with HTML or client-side applications. TeamSite Global Report Center
enables TeamSite administrators to generate reports on web operations activity.

 OpenDeploy -- Content Replication and Syndication

   Our OpenDeploy software product transfers web content from development to
production web servers. OpenDeploy allows users automatically and precisely to
distribute the same web content to numerous servers that can be located in one
or multiple sites. This "synchronizes" web content so that regardless of which
server your request for a web page reaches, you view the same content. By
automating this process, businesses can maximize the availability of their web
sites and minimize the time required for users to access content offered by
those sites. 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 licensed 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
3.1.2, was first shipped in November 1999.

                                       35
<PAGE>

 Interwoven Services

   Our services organization consists of 54 professional employees who utilize
a comprehensive methodology to deliver our web content management products to
our customers. These services professionals may 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. These services include:

  .needs analysis and web operations strategy;

  .software installation and configuration support;

  .project management;

  .workflow mapping;

  .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 customers and partners a highly-
scalable web content management solution that is implemented through an open
architecture that incorporates widely accepted Internet industry standards and
supports a wide variety of web-based software applications. Our products are
specifically designed for the web. Our customers typically use our technology
as the platform to manage their enterprise-wide web content operations.

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

            [flow diagram representing web workflow process (p. 36)]

                                       36
<PAGE>

   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 Versioning. TeamSite captures the history of modifications to web
content within each contributors' work area as well as the content within the
common staging area. Our comprehensive content versioning technology allows
customers to record and manage all web content modifications and capture
complete histories of all web files. TeamSite Global Report can then be used to
audit and report on historical changes made to a company's web files and site.

   Whole-Site Versioning. An extension of our techniques for content versioning
allows TeamSite to capture editions of the entire web site. As the content for
an edition of an entire web site is approved, a full version of this site can
be captured and recorded providing a complete history of whole site editions.
This provides customers with an effective way to review and roll back to
previous editions of their web sites as necessary for audit, disaster recovery
and compliance requirements.

   Concurrent Development. TeamSite supports multiple contributors working on a
single project, and multiple teams working on many projects simultaneously, by
utilizing a technique we refer to as branching. A development branch typically
consists of many work areas connected to one staging area. Branches, for
example, might represent a company's intranet and extranet sites. When
required, the content within these independent branches can be synchronized.

 Templating

   Our TeamSite Templating module enables non-technical content contributors to
add content through customer-specific style templates, allowing a preferred
look and feel to be leveraged where desired.

 Product Features

   Open Architecture. Our architecture incorporates widely accepted Internet
industry standards and supports a wide variety of web-based software
applications to integrate into our customers' heterogeneous environments. As a
result, TeamSite also integrates with commercially available content web
authoring tools and web application servers that adhere to industry standards.
This allows our customers' content contributors to use their favorite web
authoring software. 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 automated workflow processes, such as task
assignment, resource scheduling, routing and approval. 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 feature provides non-technical 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 web sites with many
content

                                       37
<PAGE>

contributors, TeamSite offers an easy to use, sophisticated, technique for
tracking multiple content changes and merging them into a single file.

   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 deploy and run application
programs automatically as well as to replicate content from relational
databases. OpenDeploy can also be used in an encrypted mode for the secure
deployment of content over the Internet.

 Scalability, Performance and Availability

   Scalability and Performance. TeamSite uses a multi-threaded approach to
promote faster server performance through parallel software code execution. It
also uses C++ and object-oriented programming to promote scalability and
performance. 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 are
often located on geographically dispersed servers.

   Availability. Our design also promotes reliability and availability by
allowing customers to employ their normal data backup and recovery tools. In
addition, 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. Unlike proprietary, closed
implementations, our products have been developed to accommodate industry
leading Internet technologies, such as XML and Java, and other evolving
industry standards. The TeamSite server presents its content through popular
file management systems such as Unix Network File System and Microsoft Windows
Network File System.

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

                                       38
<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 November 30, 1999, over 125 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. Each of these customers had
purchased more than $50,000 in licenses and services from us. In August 1999
we entered into an enterprise license agreement with General Electric.

<TABLE>
<CAPTION>

   Technology                           Retail                          Media/Entertainment
   ----------                           ------                          -------------------
<S>                                   <C>                            <C>
   AIM Technology                        Best Buy                       Ancestry.com
   AltaVista                             Bizbuyer                       ChipCenter
   Ascend/Lucent                         BuyerZone.com                  CondeNet
   Cisco Systems                         eBay                           Discovery Online
   Consensus                             Gap                            Educational Testing Service
   Documentum                            Learning Curve                 Egreetings
   Doublebill.com                          International                HearMe.com
   Electronic Arts                       Lowes                          Hearst New Media
   Hitachi                               National Automotive            Hungry Minds
   How 2 HQ                                Parts Association            iConnect.com
   iNextv                                Paper Exchange                 Los Angeles Times
   LookSmart                             Petopia                        Monster.com
   MicroAge                              Shoplink                       myPlay
   NCR                                   VitaminShoppe.com              Netflicks.com
   NTT Data                              Walgreens                      PhotoDisc
   Network Associates                                                   Quokka Sports
   Nortel Networks                       Financial Services             SmartAge
   Novell                                ------------------             Sega
   Sun Microsystems                      ABN Amro                       Tavolo
   TechRepublic                          AG Edwards                     Viacom/Nickelodeon
   Tivoli                                AON Service                    whynotu.com
   Xerox                                 FleetBoston
   Yahoo!/GeoCities                      BancTec                        Industrial/Transportation
                                         Barclays Global                -------------------------
   Telecommunications/Utilities          Block Financial                Boeing
   ----------------------------          Channel Point                  Clorox
   Alltel                                Edward Jones & Co              General Electric
   AT&T/TCI                              E*Trade                        United Airlines
   Azurix                                First American Financial       Grainger
   BellSouth                             Ford Motor Credit              Yellow Services
   Interpath                             Frank Russell
   Pennyslvania Power & Light            John Hancock                   Government/Professional
   Salt River Project                    Minnesota Life                 -----------------------
   Sempra Energy                                                        American Bar Association
   Telia                                 Health                         Federal Bureau of Prisons
                                         ------                         U.S. Department of Justice
   Consulting Services                   Blue Cross California          U.S. Department of Education
   -------------------                   Kaiser                         U.S. Postal Service
   Dahlin, Smith & White                 PacificCare
   DynaMind
   iXL
   MacLaren McCan
   USWeb/CKS

   </TABLE>

                                      39
<PAGE>

Technology Vendors and Service Providers

 Technology Vendors

   To ensure that our products are well integrated with related web
technologies, we work with vendors of web authoring tools and web application
servers. 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 software over the Internet. We have developed
specific product interfaces for some of these companies, such as software and
service modules for BroadVision and ATG, and some companies refer customers to
us or resell our products. BroadVision, for example, resells our products.

 Service Providers

   We work with leading systems integrators, including Andersen Consulting,
Cambridge Technology Partners, Computer Sciences Corporation, EDS, Ernst &
Young and KPMG, and Internet professional services firms, including iXL, Ogilvy
Interactive and USWeb/CKS. Our prospective customers frequently retain the
services of these firms for the delivery and implementation of eBusiness
applications, and these firms may recommend a content management solution as
part of the eBusiness application they deliver. USWeb/CKS, for example, resells
our products. We intend to devote significant resources to develop these
relationships further.

   We believe that these relationships with these entities are essential as we
continue to seek to integrate our products with current and future web
technologies and deploy and implement our solution at customer sites. Our
relationships with technology providers and service providers are not binding,
however, and can be terminated by these providers at any time.

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 November 30, 1999, we had 63
professionals in our direct sales force, of which 59 were located in the United
States and 4 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.

   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, which is particularly difficult for us because we compete with other
Internet-related software companies and are located in the San Francisco Bay
area where competition for personnel is extremely intense."

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 $2.9 million for the nine months
ended September 30, 1999. We expect that we will increase our product

                                       40
<PAGE>

development expenditures substantially in the future. As of November 30, 1999,
36 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, which is particularly difficult for us because we compete
with other Internet-related software companies and are located in the San
Francisco Bay area where competition for personnel is extremely intense."

   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--Difficulties in
introducing new products and upgrades in a timely manner will make market
acceptance of our products less likely."

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.

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

                                       41
<PAGE>

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 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 these 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 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 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.
These 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, loss of which
could harm our business."

Employees

   As of November 30, 1999, we had a total of 192 employees, including 81 in
sales and marketing, 36 in research and development, 54 in professional
services and 21 in administration and finance. Of these employees, 188 were
located in the United States and 4 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 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.

                                       42
<PAGE>

Facilities

   Our principal office occupies approximately 40,000 square feet in Sunnyvale,
California, under a lease that expires in August 2003. In addition, we also
lease sales and service offices in the metropolitan areas of Atlanta, Boston,
Chicago, Dallas, London, Los Angeles, New York City, Seattle and Washington,
D.C. We believe that our existing facilities will be adequate for our current
needs.

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.

                                       43
<PAGE>

                                   MANAGEMENT

Executive Officers and Directors

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

<TABLE>
<CAPTION>
Name                         Age                     Position
----                         ---                     --------
<S>                          <C> <C>
Martin W. Brauns............ 40  President, Chief Executive Officer and Director
Peng T. Ong................. 36  Chairman of the Board and Vice President
David M. Allen.............. 41  Vice President and Chief Financial Officer
Michael A. Backlund......... 45  Senior Vice President of Worldwide Sales and
                                 Field Operations
Jeffrey E. Engelmann........ 38  Vice President of Business Development
Jack S. Jia................. 36  Vice President of Engineering
Jozef Ruck.................. 48  Vice President of Marketing
Kathryn C. Gould............ 49  Director
Mark W. Saul................ 38  Director
Mark C. Thompson............ 42  Director
Ronald E.F. Codd............ 44  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. 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 Senior Vice President of Worldwide
Sales and Field Operations since October 1999. From May 1998 to October 1999,
he served as our Vice President of Worldwide Sales. 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

                                       44
<PAGE>

Internet division of IBM. From 1991 to December 1997, he served in a number of
development, consulting and 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 managing
member since December 1995. Since 1989, Ms. Gould has been a general partner of
Merrill, Pickard, Anderson & Eyre, a venture capital firm. 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 September
1999, Mr. Saul has served as a member of Foundation Capital, a venture capital
firm. From June 1996 to September 1999, Mr. Saul 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 Producer of Schwab.com. Mr. Thompson holds a Bachelor
of Arts in international relations, and a Master of Arts in new media from
Stanford University.

   Ronald E.F. Codd has been one of our directors since July 1999. 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 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. Mr. Codd also serves on the board of
directors of Adept Technology, Inc., a robotics manufacturer and Intraware,
Inc., a provider of business-to-business e-commerce 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.

                                       45
<PAGE>

Board Composition

   We currently have six directors. Our bylaws state that our board of
directors is 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 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

   Before April 1, 1998, our board of directors did not have a compensation
committee and all compensation decisions were made by the full board of
directors. In April 1998, the Company formed a compensation committee
consisting of Mr. Brauns, Ms. Gould and Eileen Richardson, a former director.
No compensation decisions were made by this committee in 1998; rather, all
compensation decisions were made by the full board of directors. No
interlocking relationship exists between our board of directors or compensation
committee and the board of directors or compensation committee of any other
company, nor has an interlocking relationship existed in the past.

   Preferred Stock Financings. Entities associated with Foundation Capital
purchased 2,480,419 shares of Series C Preferred Stock at $1.6186 per share in
March 1998, 613,896 shares of Series D Preferred Stock at $2.80668 per share in
October 1998 and 146,666 shares of Series E Preferred Stock at $8.49 per share
in June 1999. Ms. Gould is a member of Foundation Capital and may be deemed to
own beneficially the shares held by entities associated with Foundation
Capital.

   Loan to 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 has
been paid in full.

                                       46
<PAGE>

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 will be granted an option to
purchase 20,000 shares of common stock under our 1999 Equity Incentive Plan at
the time the director first joins our board. 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. Mr. Codd and Mr. Thompson were each granted an option to purchase 20,000
shares of Common Stock under our 1998 Stock Option Plan in July 1999. Ms. Gould
and Mr. Saul were each granted an option to purchase 10,000 shares of Common
Stock under the 1999 Equity Incentive Plan in October 1999. These options have
10-year terms and terminate three months following the date the director ceases
to be one of our directors or consultants or 12 months following that date if
the termination is due to death or disability. All options granted to outside
directors under the plan are 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. The restricted stock value is calculated
based upon a $0.39 per share purchase price and assuming that the estimated
fair market value on the date of grant is equal to $17.00 per share, which was
the initial public offering price of a share of our common stock on October 8,
1999. On December 31, 1998, Mr. Brauns held 1,333,333 shares of our common
stock pursuant to a restricted stock award and subject to our right to
repurchase these shares upon termination of his employment. Our repurchase
right expires ratably over a 48 month period from March 1998. If declared by
the board, dividends will be paid on Mr. Brauns' restricted stock award. If the
value of the common stock on December 31, 1998, had been $17.00 per share, the
value of Mr. Brauns' restricted stock award at that time would have been
$22,146,661.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                               Long Term
                               Annual Compensation        Compensation Awards
                          ------------------------------ ----------------------
                                               Other                 Securities
Name and Principal                             Annual    Restricted  Underlying
Positions                  Salary   Bonus   Compensation Stock Award  Options
------------------        -------- -------- ------------ ----------- ----------
<S>                       <C>      <C>      <C>          <C>         <C>
Martin W. Brauns......... $206,119 $100,000     $320     $22,146,661      --
 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   65,450      --              --   156,666
 Vice President of
  Worldwide Sales (1)

Jack S. Jia..............  104,988   55,000      960             --    96,666
 Vice President of
  Engineering
</TABLE>

----------------
  (1) Mr. Backland was appointed Senior Vice President of Worldwide Sales and
      Field Operations in October 1999.

   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.

                                       47
<PAGE>

                             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.

  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. The potential realizable
values at 0%, 5% and 10% appreciation are calculated by assuming that the
estimated fair market value on the date of grant is equal to the initial public
offering price of $17.00 per share and appreciates at the indicated rate for
the entire term of the options and that the option is exercised at the exercise
price and sold on the last day of its term at the appreciated price.

<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     784,922  1,283,838  2,049,273
Peng T. Ong.............      --         --           --          --          --         --         --
Michael A. Backlund.....  156,666       19.0         0.21     5/26/08   2,630,422  4,305,371  6,875,071
Jack S. Jia.............   23,333        2.8         0.18      3/5/08     392,461    641,919  1,024,637
                           13,333        1.6         0.18      5/7/08     224,261    366,807    585,500
                           60,000        7.3         0.21    10/15/08   1,007,400  1,648,873  2,633,017
</TABLE>

                                       48
<PAGE>

   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 the initial public offering price of $17.00 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 36-month period thereafter. The amounts shown under the columns
"Value Realized" and "Value of Unexercised In-the-Money Options at December 31,
1998" are based on the initial public offering price of $17.00 per share, net
of the exercise price payable for these shares.

<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    2,199,162        --              --             --            --
John Chang..............       --           --      55,000         111,666        930,050     1,884,073
Peng T. Ong.............       --           --         --              --             --            --
Michael A. Backlund.....       --           --         --          156,666            --      2,630,422
Jack S. Jia.............       --           --      28,750         127,916        486,163     2,152,560
</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.

Employee Benefit Plans

   1996 Stock Option Plan. As of November 30, 1999, options to purchase 22,332
shares of common stock were outstanding under the 1996 Stock Option Plan and
options to purchase 610,994 shares had been exercised, but 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 November 30, 1999, options to purchase
1,058,673 shares of common stock were outstanding under the 1998 Stock Option
Plan and options to purchase 1,383,726 shares had been exercised, but 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. On July 22, 1999, the board adopted the 1999
Equity Incentive Plan and reserved 2,900,000 shares of common stock to be
issued under this plan. As of November 30, 1999, options to purchase 64,000
shares of common stock were outstanding under the 1999 Equity Incentive Plan,
options to purchase 2,836,000 shares remained available for issuance and no
options had been exercised. In addition, shares under the 1996 Stock Option
Plan and the 1998 Stock Option Plan not issued or subject to outstanding grants
on the effective date of the 1999 Equity Incentive Plan 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. As a result these provisions, a total of
146,403 shares from the 1998 Stock Option Plan were

                                       49
<PAGE>

available for issuance under the 1999 Equity Incentive Plan as of November 30,
1999. 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 became effective in October 1999 and will terminate on July 21,
2009, unless it is terminated earlier by our board. The plan authorizes the
award of options, restricted stock awards and stock bonuses. No person is
eligible to receive more than 1,000,000 shares in any calendar year under the
plan other than a new employee who is eligible to receive no more than
1,500,000 shares in the calendar year in which the employee commences
employment.

   The plan is 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 has 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 provides 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.

   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 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 can 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 generally terminate immediately upon termination
of employment for cause.

   The purchase price for restricted stock is 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.

                                       50
<PAGE>

   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 became effective in October 1999.
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 is administered by our compensation committee, which has the authority
to construe and interpret the plan.

   Employees generally are 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 are 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 began on October 8,
1999. Additional offering periods and purchase periods will begin on May 1 and
November 1 of each year. However, because the first offering period began on a
date other than May 1 or November 1, the length of the first offering period
will be more than two years, and the length of the first purchase period will
be more than six months.

   The plan provides that, in the event of our proposed dissolution or
liquidation, each offering period that commenced prior to the closing of the
proposed event continues 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 common stock on the first day of
the applicable offering period or the last day of the applicable purchase
period. The compensation committee has 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 are not
transferable by a participant other than by will or the laws of descent and
distribution.

   The plan will terminate on July 21, 2009, unless it is terminated earlier
under the terms of the plan. The board has 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

                                       51
<PAGE>

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' initial annual 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 some 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
from March 1998. 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 "Management--
Compensation Committee Interlocks and Insider Participation."

   Mr. Ong's offer letter, dated February 29, 1996, provided for an initial
annual 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.

   Mr. Allen's offer letter, dated February 12, 1999, provides for an initial
annual 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 relocation expenses. Mr. Allen received options to purchase 186,666 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
annual 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 relocation expenses. Mr. Backlund received options to
purchase 156,666 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 39,166
shares vested 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 66,666 shares of our common stock at an exercise price
of $0.39 per share as a result of meeting revenue objectives in 1998 and in
lieu of a portion of his cash bonus earned in 1998. In July 1999, Mr. Backlund
received options to purchase an additional 13,333 shares of our common stock at
a price of $7.64 per share under the 1998 Stock Option Plan. In October 1999,
he received options to purchase an additional 13,333 shares of our common stock
at an exercise price of $14.00 per share under the 1998 Stock Option Plan. 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 annual 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 relocation expenses. Pursuant to the offer
letter, Mr. Engelmann purchased 183,333 shares of our common stock at an
exercise 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

                                       52
<PAGE>

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 86,666 shares of our common stock at an
exercise price of $0.39 per share, subject to attainment of 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. The note bears
interest at the rate of 6% per year. The principal sum of the note will become
due and payable in eighteen equal monthly installments beginning in October
2000. The note is due earlier in the event of our acquisition or Mr.
Engelmann's termination of employment. 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
annual 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. In July 1999, Mr. Jia received options to purchase an
additional 20,000 shares of our common stock at an exercise price of $7.64 per
share under the 1998 Stock Option Plan. 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
annual 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 213,333 shares of our common stock at an exercise 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 equal to
the shares granted less 4,444 shares for each full month of employment for Mr.
Ruck after March 15, 1999. On March 18, 1999, Mr. Ruck purchased an additional
33,333 shares of our common stock at an exercise price of $0.39 per share,
subject to the attainment of 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. The note bears
interest at the rate of 6% per year. The principal sum of the note will become
due and payable in eighteen equal monthly installments beginning in October
2000. The note is due earlier in the event of our acquisition or Mr. Ruck's
termination of employment. 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
annual 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 at an exercise price of $0.39 per share,
subject to the attainment of 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.

                                       53
<PAGE>

   Mr. Farber's offer letter, dated June 14, 1997, provides for an initial
annual 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 130,666 of Mr. Farber's options to purchase
common stock at an exercise price of $0.18 per share 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.

   We have entered 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.

                                       54
<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

   In March and June 1996, we sold an aggregate of 1,199,998 shares of Series A
Preferred Stock at a purchase price of $0.30 per share. In May and June 1997,
we sold an aggregate of 2,134,548 shares of Series B Preferred Stock at a
purchase price of $1.9293 per share. In March 1998, we sold an aggregate of
4,161,082 shares of Series C Preferred Stock at a purchase price of $1.6186 per
share, and warrants to purchase 612,079 shares of Series C Preferred Stock at
an exercise price of $1.9293 per share. In October, November and December 1998,
we sold an aggregate of 2,494,142 shares of Series D Preferred Stock at a
purchase price of $2.80668 per share. In June 1999, we sold an aggregate of
2,263,136 shares of Series E Preferred Stock at a purchase price of $8.49 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 A Series B  Series C  Series D Series 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    167,030   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 managing member of Foundation Capital
and may be deemed to own beneficially the shares held by entities associated
with Foundation Capital. Mr. Ong disposed of his shares of Series A Preferred
Stock in 1997. Mr. Saul, one of our directors, is a member of Foundation
Capital but does not own beneficially the shares held by entities associated
with Foundation Capital.

                                       55
<PAGE>

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>

   In October 1999, these warrants were exercised.

   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 $1.92932 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..............      318,075
   Entities associated with Accel Partners..................      136,317
   Entities associated with JK&B Capital....................       83,371
   Entities associated with Draper Fisher Jurvetson.........       35,573
</TABLE>

Loans to Executive Officers

   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. In October 1999, the notes were amended
to adjust the repayment schedule in the event of an initial public offering of
our common stock. The notes accrue interest at a rate of 6% per year. Interest
is payable annually. The principal sum of each note will become due and payable
in eighteen equal monthly installments beginning in October 2000. If Mr.
Engelmann breaches his obligations under the notes we may enforce our right to
payment of 25% of the principal and any accrued interest out of any of Mr.
Engelmann's assets, but may enforce our right to payment of the balance due
under the notes only out of the stock subject to the stock pledge agreement. As
of November 30, 1999, $109,196 remained outstanding under the notes.

   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. In October 1999, the notes were amended to adjust the repayment
schedule in the event of an initial public offering of our common stock. The
notes accrue interest at a rate of 6% per year. Interest is payable annually.
The principal sum of each note will become due and payable in eighteen equal
monthly installments beginning in October 2000. If Mr. Ruck breaches his
obligations under the notes we may enforce our right to payment of 25% of the
principal and any accrued interest out of any of Mr. Ruck's assets, but may
enforce our right to payment of the balance due under the notes only out of the
stock subject to the stock pledge agreement. As of November 30, 1999, $99,727
remained outstanding under the notes.

   Please refer to "Management--Compensation Committee Interlocks and Insider
Participation" for a description of a loan to Mr. Brauns.

                                       56
<PAGE>

                       PRINCIPAL AND SELLING STOCKHOLDERS

   The following table presents information as to the beneficial ownership of
our common stock as of November 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;

  .  all executive officers and directors as a group; and

  .  the selling stockholders.

<TABLE>
<CAPTION>
                                                                                     Percentage of
                                                                                        Shares
                                                               Number of              Outstanding
                                                                 Shares    Shares  -----------------
                                                              Beneficially  Being   Before   After
                  Name of Beneficial Owner                       Owned     Offered Offering Offering
                  ------------------------                    ------------ ------- -------- --------
<S>                                                           <C>          <C>     <C>      <C>
Kathryn C. Gould (1)........................................   3,250,980            14.4%        %
 Foundation Capital entities
  70 Willow Road, Suite 200
 Menlo Park, CA 94025

JK&B Capital entities (2)...................................   2,578,655            11.5
 205 North Michigan Avenue, Suite 808
 Chicago, IL 60601

Peng T. Ong (3).............................................   1,933,333             8.6

Martin W. Brauns (4)........................................   1,419,436             6.3

Accel Partners entities (5).................................   1,398,175             6.2
 428 University Avenue
 Palo Alto, CA 94301

Michael A. Backlund (6).....................................     249,998             1.1

Steven Farber...............................................     204,380              *          *

Jack S. Jia (7).............................................     194,333              *          *

Mark W. Saul (8)............................................     132,602              *          *

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)
 ...........................................................   7,924,013            35.0%        %

Additional selling stockholders, each holding less than 1%
 of the
 outstanding common stock before this offering (   persons)..
</TABLE>
---------------------
(1) Represents 2,878,855 shares held by Foundation Capital II, L.P., 200,077
    shares held by Foundation Capital II Entrepreneurs Fund, L.L.C., and
    162,048 shares held by Foundation Capital II Principals Fund, L.L.C.
    Foundation Management II, L.L.C. is the general partner of Foundation
    Capital II, L.P. James C. Anderson, William B. Elmore, Paul G. Koontz,
    Kathryn Gould and Michael N. Schuh are the managing members of Foundation
    Management II, L.L.C. and share voting and investment power of the shares.
    The managing members of Foundation Management II, L.L.C. disclaim
    beneficial ownership of the shares, except to the extent of their direct
    pecuniary interest in the shares. Foundation Management II, L.L.C. is the
    managing member of both Foundation Capital II Entrepreneurs Fund, L.L.C.
    and Foundation Capital II Principals Fund, L.L.C. The managing members of
    Foundation Management II, L.L.C. are deemed to

                                       57
<PAGE>

   beneficially own the shares held by Foundation Capital II Entrepreneurs
   Fund, L.L.C. and Foundation Capital II Principals Fund, L.L.C. and have
   voting and investment power of the shares. The managing members of
   Foundation Management II, L.L.C. disclaim beneficial ownership of the
   shares, except to the extent of their direct pecuniary interest in the
   shares. Includes options to purchase 10,000 shares of common stock
   exercisable within 60 days of November 30, 1999.

(2) Represents 1,800,630 shares held by JK&B Capital, L.P., and 778,025 shares
    held by JK&B Capital II, L.P. JK&B Management, L.L.C. is the general
    partner of JK&B Capital, L.P. and JK&B Capital II, L.P. David Kronfeld is
    the sole managing member of JK&B Management, L.L.C. Mr. Kronfeld is deemed
    to beneficially own the shares held by JK&B Capital, L.P. and JK&B Capital
    II, L.P. and has voting and investment power of the shares. Mr. Kronfeld
    disclaims beneficial ownership of the shares, except to the extent of his
    direct pecuniary interest in the shares.

(3) Represents 1,933,333 shares of common stock held of record by the Ong-Leong
    Family Trust U/D/T 6/29/99, Peng Tsin Ong and Wai Ping-Leong, trustees, who
    share voting and investment control.

(4) Represents 1,419,436 shares of common stock held of record by Martin W.
    Brauns and Margaret R. Brauns, trustees U/D/T 1/9/95. Includes 836,102
    shares of common stock subject to our repurchase right.

(5) Represents 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. Accel V Associates L.L.C. is the general
    partner of Accel V L.P. and has the sole voting and investment power of the
    shares held by Accel V L.P. Arthur C. Paterson, ACP Family Partnership
    L.P., James R. Swartz, James W. Breyer, The Breyer 1995 Trust dated
    10/4/95, Eugene D. Hill, Swartz Family Partnership L.P., Luke B. Evnin, J.
    Peter Wagner, and G. Carter Sednaoui are the managing members of Accel V
    Associates L.P. and share voting and investment power of the shares. The
    managing members of Accel V Associates L.L.C. disclaim beneficial ownership
    of the shares, except to the extent of their direct pecuniary interest in
    the shares, Accel Internet/Strategic Technology Fund Associates L.L.C, is
    the general partner of Accel Internet/Strategic Technology Fund L.P. and
    therefore has the sole voting and investment power of the shares held by
    Accel Internet/Strategic Technology Fund L.P. Arthur C. Paterson, ACP
    Family Partnership L.P., James R. Swartz, James W. Breyer, Eugene D. Hill,
    Swartz Family Partnership L.P., Luke B. Evnin, J. Peter Wagner, and G.
    Carter Sednaoui are the managing members of Accel Internet/Strategic
    Technology Fund L.P. and share voting and investment power of the shares.
    The managing members of Accel Internet/Strategic Technology Fund Associates
    L.L.C. disclaim beneficial ownership of the shares, except to the extent of
    their direct pecuniary interest in the shares. Accel Keiretsu V Associates
    L.L.C. is the general partner of Accel Keiretsu V L.P. and has the sole
    voting and investment power. Arthur C. Paterson, James R. Swartz, James W.
    Breyer, Eugene D. Hill, Luke B. Evnin, J. Peter Wagner, and G. Carter
    Sednaoui are the managing members of Accel Keiretsu V L.P. and share voting
    and investment power of the shares held by Accel Keiretsu V L.P. The
    managing members of Accel Keiretsu V L.L.C. disclaim beneficial ownership
    of the shares, except to the extent of their direct pecuniary interest in
    the shares. Arthur C. Paterson, James R. Swartz, James W. Breyer, Luke B.
    Evnin, J. Peter Wagner, and G. Carter Sednaoui are the general partners of
    Accel Investors '97 L.P. and share voting and investment powers of the
    shares held by Accel Investors '97 L.P. The general partners of Accel
    Investor '97 L.P. disclaim beneficial ownership of the shares, except to
    the extent of their direct pecuniary interest in the shares. Arthur C.
    Patterson is the sole general partner of Ellmore C. Patterson Partners and
    has sole voting and investment power with respect to the shares held by
    Ellmore C. Patterson Partners. Mr. Patterson disclaims beneficial ownership
    of the shares except to the extent of his direct pecuniary interest in the
    shares.

(6) Includes 164,582 shares of common stock subject to our repurchase right and
    options to purchase 26,666 shares of common stock exercisable within 60
    days of November 30, 1999. Also includes 116,666 shares of common stock
    held of record by the Backlund Family Trust.

(7) Includes 119,581 shares of common stock subject to our repurchase right as
    of November 30, 1999. Also includes 1,000 shares of common stock held by
    family members, as to which Mr. Jia disclaims beneficial ownership.


                                       58
<PAGE>

(8) Includes options to purchase 10,000 shares of common stock exercisable
    within 60 days of November 30, 1999.

(9) Represents options to purchase 20,000 shares of common stock exercisable
    within 60 days of November 30, 1999.

(10) Includes 1,823,597 shares of common stock subject to our repurchase right
     and 96,666 shares of common stock subject to options exercisable within 60
     days of November 30, 1999. Also includes 500 shares held by a relative of
     one executive officer, as to which the officer disclaims beneficial
     ownership. Also see notes 6 and 7.

   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 above, 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 November 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 that 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. The percentage of common stock
outstanding as of November 30, 1999 is based on 22,515,645 shares of common
stock outstanding on that date.

                                       59
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

   Our authorized capital stock consists of 100,000,000 shares of common stock,
$0.001 par value per share, and 5,000,000 shares of preferred stock, $0.001 par
value per share.

Common Stock

   As of November 30, 1999, there were 22,515,645 shares of common stock
outstanding held by 221 stockholders of record. The number of stockholders does
not include persons whose stock is in nominee or "street name" accounts through
brokers.

   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

   We are 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 a given series then outstanding, without any further vote or action by the
stockholders.

   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.

Warrants

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

<TABLE>
<CAPTION>
      Total number of
      shares Subject                Exercise price                           Expiration
        to Warrants                   per share                                 date
      ---------------               --------------                           ----------
      <S>                           <C>                                    <C>
           6,552                         1.93                              September 2004
          39,096                         8.49                                July 2006
</TABLE>

In October 1999, warrants to purchase 64,123 shares of common stock were
exercised.

                                       60
<PAGE>

Registration Rights

   The holders of approximately      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. They and the holders of an
additional      shares of common stock have the right to require us to include
their shares in any registration statement we file.

 Right to demand registration

   At any time after April 7, 2000, 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 included in a registration statement.

   Who may make a demand. At any time after April 7, 2000, any holder of shares
of common stock issued upon conversion of Series B Preferred Stock, 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, 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, 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, or the holders of at least 40% of
the shares having registration rights, including some holders of common stock
issued upon conversion 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, holders of approximately
shares of common stock 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 included in a registration
statement.

 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 in October 2004. 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.

                                       61
<PAGE>

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 are 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.

 Bylaw Provisions

   Our bylaws state 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. 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.

                                       62
<PAGE>

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 have entered 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

   Our common stock is listed for quotation on The Nasdaq Stock Market's
National Market under the symbol "IWOV."

                                       63
<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, based on shares outstanding at November
30, 1999, we will have outstanding 22,515,645 shares of common stock, assuming
no exercise of outstanding options and warrants. Of these shares, the 3,622,500
shares sold in our initial public offering and the 3,000,000 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                  These shares may be sold under Rule
                                         144(k)
April 5, 2000                            Underwriters' lock-up in connection
                                         with our initial public offering
                                         released. These shares may be sold
                                         under Rules 144, 144(k), 145 or 701
April   , 2000                           Underwriters' lock-up in connection
                                         with this offering released. These
                                         shares may be sold under Rules 144,
                                         144(k), 145 or 701
October 8, 2000                          These shares may be sold under Rules
                                         144, 145 or 701
At various times thereafter              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
signed lock-up agreements in connection with our initial public offering 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 Corporation until April 6, 2000.
In addition, in connection with this offering, each executive officer, director
and selling stockholder has signed a similar lock-up agreement that extends for
a period of 90 days after the date of this prospectus.

   Credit Suisse First Boston Corporation may choose to release some of these
shares from these restrictions prior to the expiration of either lock-up
period, though it has no current intention to do so, except for the shares sold
in this offering.

                                       64
<PAGE>

 Rule 144

   In general, under Rule 144 as currently in effect, 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 236,818 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.

 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. However, all shares issued under Rule 701 are subject to lock-up
agreements and will only become eligible for sale when the applicable lock-up
agreement expires.

 Registration Rights

   Upon completion of this offering, the holders of      shares of common
stock, or their transferees, will be entitled to 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

   We have registered under the Securities Act a total of 4,444,828 shares of
common stock reserved for issuance under our stock option and employee stock
purchase plans. As of November 30, 1999, options to purchase 1,145,005 shares
of common stock were issued and outstanding. Between November 30, 1999 and the
date hereof we granted options to purchase approximately      shares of common
stock.

   Upon the expiration of the 180-day lock-up agreements described above,
124,586 shares of common stock will be subject to vested options, based on
options outstanding as of November 30, 1999. Subject to vesting provisions and
Rule 144 volume limitations applicable to our affiliates, these shares will be
available for sale in the open market immediately after the 180-day lock up
agreements expire, unless the holder is an executive officer, director or
selling stockholder, in which case the shares will be available for sale in the
open market 90 days after the date of this prospectus.

                                       65
<PAGE>

 Warrants

   As of November 30, 1999, we had outstanding warrants to purchase 45,648
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. These warrants also contain "net exercise provisions,"
which 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 Rules 144 and 145.
After the 180-day lock-up agreements described above expire, these warrants
will have been outstanding for at least one year.

                                       66
<PAGE>

                                  UNDERWRITING

   Under the terms and subject to the conditions contained in the underwriting
agreement dated    , 2000, we and the selling stockholders have agreed to sell
to the underwriters named below, for whom Credit Suisse First Boston
Corporation, FleetBoston Robertson Stephens Inc., Dain Rauscher Incorporated,
SoundView Technology Group, Inc. and Adams, Harkness & Hill, Inc. 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............................
   FleetBoston Robertson Stephens Inc................................
   Dain Rauscher Incorporated........................................
   SoundView Technology Group, Inc. .................................
   Adams, Harkness & Hill, Inc. .....................................
                                                                      ---------
     Total........................................................... 3,000,000
                                                                      =========
</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.

   Several of the selling stockholders have granted to the underwriters a 30-
day option to purchase on a pro rata basis up to 450,000 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
and the selling stockholders 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..       $              $              $              $
Underwriting discounts
 and commissions
paid by selling
 stockholders...........       $              $              $              $
Expenses payable by the
 selling stockholders...       $              $              $              $
</TABLE>

   We and our executive officers and directors and the selling stockholders
have agreed that we will not offer, sell, contract 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, or publicly
disclose the intention to make any offer, sale, pledge, disposition or filing,
without the prior

                                       67
<PAGE>

written consent of Credit Suisse First Boston Corporation for a period of 90
days after the date of this prospectus, except in our case of issuances
pursuant to the exercise of employee stock options outstanding on the date of
this prospectus.

   We and the selling stockholders 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.

   Our common stock is quoted on The Nasdaq 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. These
shares of Series E Preferred Stock are convertible into an aggregate of
2,263,136 shares of common stock at $8.49 per share. 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. These shares of Series E Preferred Stock
are convertible into 153,121 shares of common stock.

   The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and "passive" market making 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.

  . In "passive" market making, market makers in the common stock who are
    underwriters or prospective underwriters may, subject to certain
    limitations, make bids for or purchases of the common stock until the
    time, if any, at which a stabilizing bid is made.

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.

                                       68
<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 and the selling
stockholders 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, the selling stockholders 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 and the selling stockholders 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.

                                       69
<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 consolidated financial statements as of December 31, 1997 and 1998 and
September 30, 1999 and for each of the three years in the period ended
December 31, 1998 and the nine months ended September 30, 1999 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 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 file reports, proxy statements and other information with the Securities
and Exchange Commission. Copies of our reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC:

Judiciary Plaza              Citicorp Center             Seven World Trade
Room 1024                    5000 West Madison Street Center
450 Fifth Street, N.W.       Suite 1400                  13th Floor
Washington, D.C. 20549       Chicago, Illinois 60661     New York,
                                                         New York 10048

   Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a Website that contains reports, proxy statements and other
information regarding each of us. The address of the SEC Website is
http://www.sec.gov.

                                      70
<PAGE>

                                INTERWOVEN, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

                                      F-1
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

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

     In our opinion, the accompanying consolidated balance sheet and the
  related consolidated statements of operations, of stockholders' deficit
  and of cash flows present fairly, in all material respects, the
  financial position of Interwoven, Inc. and its subsidiary at December
  31, 1997 and 1998 and September 30, 1999, and the results of their
  operations and their cash flows for each of the three years in the
  period ended December 31, 1998 and for the nine months ended September
  30, 1999, in conformity with accounting principles generally accepted
  in the United States. 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 auditing standards
  generally accepted in the United States, 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
  December 10, 1999

                                      F-2
<PAGE>

                                INTERWOVEN, INC.

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

<TABLE>
<CAPTION>
                                      December 31,                     Pro Forma
                                    -----------------  September 30, September 30,
                                     1997      1998        1999          1999
                                    -------  --------  ------------- -------------
 <S>                                <C>      <C>       <C>           <C>
              ASSETS
 Current assets:
   Cash and cash equivalents.....   $ 1,019  $  9,022    $ 12,576
   Short-term investments........       --        --        8,416
   Accounts receivable, net......       140     2,405       2,594
   Prepaid expenses..............       --        179       1,314
   Other current assets..........        37        80         122
                                    -------  --------    --------
    Total current assets.........     1,196    11,686      25,022
 Investments.....................       --        --        1,003
 Property and equipment, net.....       188     1,617       2,297
 Intangible assets, net..........       --        --          545
 Restricted cash.................       --        605         605
                                    -------  --------    --------
                                    $ 1,384  $ 13,908    $ 29,472
                                    =======  ========    ========

     LIABILITIES, MANDATORILY
 REDEEMABLE CONVERTIBLE PREFERRED
 STOCK, AND STOCKHOLDERS' EQUITY
            (DEFICIT)
 Current liabilities:
   Accounts payable..............   $   213  $    484    $  1,179
   Accrued liabilities...........       169     1,473       2,592
   Debt and leases, current......        22       258         500
   Deferred revenue, current.....        --       627       2,548
                                    -------  --------    --------
    Total current liabilities....       404     2,842       6,819
   Debt and leases, long-term....        87     1,257         875
   Deferred revenue, long-term...       --         97         --
                                    -------  --------    --------
                                        491     4,196       7,694
                                    -------  --------    --------
 Mandatorily redeemable
  convertible preferred stock
  4,942,133, 15,163,093 and
  18,763,092 shares authorized,
  respectively; 4,839,505,
  15,060,465 and 18,543,523
  shares issued and outstanding,
  respectively, actual; no shares
  authorized, issued or
  outstanding pro forma..........     4,627    20,464      52,996      $    --
                                    -------  --------    --------      --------
 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 and
    75,000,000 shares authorized,
    respectively; 2,433,333,
    4,909,232, 6,588,846 and
    19,059,385 shares,
    respectively, issued and
    outstanding..................         3         5           7            19
   Additional paid-in capital....      (243)      881      (4,590)       48,394
   Notes receivable from
    stockholders.................        (3)     (240)       (202)         (202)
   Deferred stock-based
    compensation.................       --     (1,090)     (5,114)       (5,114)
   Accumulated deficit...........    (3,491)  (10,308)    (21,319)      (21,319)
                                    -------  --------    --------      --------
    Total stockholders' equity
     (deficit)...................    (3,734)  (10,752)    (31,218)     $ 21,778
                                    -------  --------    --------      ========
                                    $ 1,384  $ 13,908    $ 29,472
                                    =======  ========    ========
</TABLE>

                See accompanying notes to financial statements.

                                      F-3
<PAGE>

                                INTERWOVEN, INC.

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

<TABLE>
<CAPTION>
                                                            Nine Months Ended
                               Year Ended December 31,        September 30,
                              ---------------------------  --------------------
                               1996      1997      1998       1998       1999
                              -------  --------  --------  ----------- --------
                                                           (unaudited)
<S>                           <C>      <C>       <C>       <C>         <C>
Revenues:
  License...................  $   --   $     84  $  3,176    $ 1,570   $  5,814
  Services..................      --         84       827        539      3,447
                              -------  --------  --------    -------   --------
    Total revenues..........      --        168     4,003      2,109      9,261
Cost of revenues:
  License...................      --        --         59         19        147
  Services..................      --         95     1,274        791      3,542
                              -------  --------  --------    -------   --------
    Total cost of revenues..      --         95     1,333        810      3,689
                              -------  --------  --------    -------   --------
Gross profit................      --         73     2,670      1,299      5,572
Operating expenses:
  Research and development..      328       884     1,797      1,227      2,930
  Sales and marketing.......      101     1,519     4,817      2,960      9,058
  General and
   administrative...........       91       530     1,739      1,135      2,077
  Amortization of deferred
   stock-based
   compensation.............      --        --        812        564      2,685
  Amortization of acquired
   intangible assets........      --        --        --         --         249
                              -------  --------  --------    -------   --------
    Total operating
     expenses...............      520     2,933     9,165      5,886     16,999
Loss from operations........     (520)   (2,860)   (6,495)    (4,587)   (11,427)
Interest and other income
 (expense), net.............       10       (88)      151         89        416
                              -------  --------  --------    -------   --------
Net loss....................  $  (510) $ (2,948) $ (6,344)   $(4,498)  $(11,011)
Accretion of mandatorily
 redeemable convertible
 preferred stock to
 redemption value...........      --       (261)   (1,165)      (463)   (13,227)
                              -------  --------  --------    -------   --------
Net loss attributable to
 common stockholders........  $  (510) $ (3,209) $ (7,509)   $(4,961)  $(24,238)
                              =======  ========  ========    =======   ========
Basic and diluted net loss
 per share..................  $ (0.22) $  (1.36) $  (2.85)   $ (1.98)  $  (6.51)
                              =======  ========  ========    =======   ========
Shares used in computing
 basic and diluted net loss
 per share..................    2,282     2,356     2,633      2,505      3,722
                              =======  ========  ========    =======   ========
Pro forma basic and diluted
 net loss per share.........                     $  (0.74)             $  (0.74)
                                                 ========              ========
Shares used in computing pro
 forma basic and diluted net
 loss per share.............                        8,530                14,957
                                                 ========              ========
</TABLE>


                See accompanying notes to financial statements.

                                      F-4
<PAGE>

                                INTERWOVEN, INC.

                CONSOLIDATED 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       (243)        (3)          --        (3,491)    (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    $   881      $(240)      $(1,090)    $(10,308)  $(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 .................    (98)    --        (10)       --            --           --         (10)
Note repayment..........    --      --        --         240           --           --         240
Accretion of mandatorily
 redeemable convertible
 preferred stock........    --      --    (13,227)       --            --           --     (13,227)
Issuance of Common Stock
 on exercise of stock
 options ...............  1,251      2        829        --            --           --         831
Deferred stock-based
 compensation...........    --      --      6,708        --         (6,708)         --         --
Amortization of stock-
 based compensation ....    --      --        --         --          2,684          --       2,684
Net loss................    --      --        --         --            --       (11,011)   (11,011)
                          -----    ---    -------      -----       -------     --------   --------
Balance at September 30,
 1999...................  6,588    $ 7    $(4,590)     $(202)      $(5,114)    $(21,319)  $(31,218)
                          =====    ===    =======      =====       =======     ========   ========
</TABLE>

                See accompanying notes to financial statements.

                                      F-5
<PAGE>

                                INTERWOVEN, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                            Nine Months Ended
                               Year Ended December 31,        September 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)   $(4,498)  $(11,011)
 Adjustments to reconcile net
  loss to net cash used in
  operating activities:
 Depreciation and
  amortization...............      17        56       294        194        589
 Amortization of deferred
  stock-based compensation...     --        --        812        564      2,685
 Amortization of acquired
  intangible assets..........     --        --        --         --         249
 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)    (1,192)       (34)
  Prepaid expenses and other
   assets....................      (1)      (30)     (222)       (61)    (1,177)
  Restricted cash............     --        --       (605)      (605)       --
  Accounts payable...........     116        96       271         71        695
  Accrued liabilities........      48       121     1,304        459        994
  Deferred revenue...........     --        --        724        317      1,824
                               ------  --------  --------    -------   --------
   Net cash used in operating
    activities...............    (323)   (2,710)   (6,031)    (4,751)    (5,141)
                               ------  --------  --------    -------   --------
Cash flows used in investing
 activities:
 Purchase of property and
  equipment..................     (64)     (138)   (1,723)    (1,413)    (1,269)
 Purchase of investments.....     --        --        --         --      (9,428)
 Maturities of investments...     --        --        --         --           9
                               ------  --------  --------    -------   --------
                                  (64)     (138)   (1,723)    (1,413)   (10,688)
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         68        831
 Proceeds from notes payable,
  net of discount............      75       375       --         --         --
 Repayment (issuance) of
  stockholders loans.........      10       (11)        3          3        240
 Proceeds from bank
  borrowings.................     --         76     1,500        574        --
 Repurchase of Common Stock..     --         (5)      --         --         (10)
 Principal payments of debt
  and leases.................     --         (5)      (94)       (70)      (140)
                               ------  --------  --------    -------   --------
   Net cash provided by
    financing activities.....     397     3,850    15,757      6,655     19,383
                               ------  --------  --------    -------   --------
Net increase in cash and cash
 equivalents.................      10     1,002     8,003        491      3,554
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    $ 1,510   $ 12,576
                               ======  ========  ========    =======   ========
Supplemental cash flow
 disclosures:
 Cash paid for interest......  $  --   $    --   $     41    $    19   $     94
                               ======  ========  ========    =======   ========
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 CONSOLIDATED FINANCIAL STATEMENTS
     Information for the nine months ended September 30, 1998 is unaudited

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 The Company

   Interwoven, Inc. (the "Company") is a leading provider of software products
and services that help businesses and other organizations manage the
information that makes up the content of their web sites. In the Internet
industry this is often referred to as "web content management." Our flagship
software product, TeamSite, is designed to help customers develop, maintain and
extend large web sites that are essential to their businesses. The Company also
markets and sells its software products and services through its wholly owned
subsidiary in the United Kingdom.

 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.

 Basis of Presentation

   The condensed consolidated 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 as of September 30, 1999. The results of
operations for the nine months ended September 30, 1999 are not necessarily
indicative of results that may be expected for any other interim period or for
the full fiscal year.

 Principles of consolidation

   The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary after elimination of all significant
intercompany accounts and transactions.

 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

                                      F-7
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

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.

   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. The Company does not offer product return rights to
resellers or end users.

   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. Deferred revenues
from advanced payments for maintenance agreements are recognized ratably over
the term of the agreement, which is typically one year.

 Cash, cash equivalents, and investments

   The Company considers all highly liquid investments with a maturity from
date of purchase of three months or less to be cash equivalents. Cash and cash
equivalents consist primarily of cash on deposit with banks and high quality
money market instruments. All other liquid investments are classified as either
short-term or long-term investments. Short-term investments consist of
commercial paper and corporate bonds.

   Management determines the appropriate classification of investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. At September 30, 1999, all investment securities were
designated as available-for-sale. Available-for-sale securities are carried at
fair value, using available market information and appropriate valuation
methodologies, with unrealized gains and losses reported in stockholders'
equity.

   Realized gains and losses and declines in value judged to be other-than-
temporary on available-for-sale securities are included in the statements of
income. There have been no such transactions in the nine months ended September
30, 1999. The cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available-for-sale
are included in interest income.

   At September 30, 1999, the Company's available-for-sale securities consisted
of the following: Commercial paper $11.9 million; corporate notes $2.0 million,
corporate bonds $.5 million, medium term notes $1.0 million and United States
government agencies $1.0 million and money market funds $3.8 million. Of these
securities, $10.8 million and $8.4 million was classified as cash equivalents
and short-term investments, respectively. The Company had approximately $1.0
million in corporate notes with a maturity that exceeded one year, accordingly
this note was classified as a long-term investment.

   As of September 30, 1999 the difference between the fair value and the
amortized cost of available-for-sale securities was insignificant; therefore,
no unrealized gains or losses were recorded in stockholders' equity. For the
nine months ended September 30, 1999, there were no realized gains and losses.


                                      F-8
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

 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>
                                                                  Nine Months
                                               Year ended            Ended
                                              December 31,       September 30,
                                              ---------------   ----------------
                                               1997     1998       1998     1999
                                              ------   ------   ----------- ----
                                                                (Unaudited)
   <S>                                        <C>      <C>      <C>         <C>
   Company A.................................     20%      --%       --%     --%
   Company B.................................     20%      --%       --%     --%
   Company C.................................     18%      --%       --%     --%
   Company D.................................     11%      --%       --%     --%
   Company E.................................     10%      --%       --%     --%
   Company F.................................     --%      13%       16%     --%
   Company G.................................     --%      --%       12%     --%
   Company H.................................     --%      --%       --%     --%
</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 September 30, 1999 no
customer accounted for 10% of total accounts receivable.

 Fair value of instruments

   The Company's financial instruments including cash and cash equivalents,
accounts receivable and accounts payable, are carried at cost, which
approximate fair value due to the short-term maturity of these instruments.
Debt and capital lease obligations are carried at cost, which approximates fair
value due to the proximity of the implicit rates of these financial instruments
and the prevailing market rates for similar 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.

                                      F-9
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited


 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.

 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

                                      F-10
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

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, 1,597,862
(unaudited), and 2,154,779 as of December 31, 1997 and 1998 and September 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>
                                                              Nine Months
                               Year Ended December 31,    Ended September 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)    (4,961)   (24,238)
Denominator:
  Weighted average shares...   2,282     2,405     3,949      4,614      4,900
  Weighted average unvested
   shares of Common Stock
   subject to repurchase....      --       (49)   (1,316)    (2,109)    (1,178)
                             -------  --------  --------    -------   --------
  Denominator for basic and
   diluted calculation......   2,282     2,356     2,633      2,505      3,722
Net loss per share:
  Basic and diluted......... $ (0.22) $  (1.36) $  (2.85)   $ (1.98)  $  (6.51)
                             =======  ========  ========    =======   ========

   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):

<CAPTION>
                                                              Nine Months
                              Year Ended December 31,     Ended September 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        921        747
  Series B Preferred Stock..      --     1,235     2,107      2,098      2,135
  Series C Preferred Stock..      --        --     3,092      1,791      4,773
  Series D Preferred Stock..      --        --       359         --      2,494
  Series E Preferred Stock..      --        --        --         --      1,014
  Warrants to purchase
   mandatorily redeemable
   convertible preferred
   stock....................       1        66        71         70         72
  Shares of Common Stock
   subject to repurchase....      --        49     1,316      2,109      1,178
  Common Stock options......     250     1,480     1,870        494        545
                             -------  --------  --------    -------   --------
                               1,047     4,030     9,693      7,483     12,958
                             =======  ========  ========    =======   ========
</TABLE>

 Pro forma net loss per share

   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

                                      F-11
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

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 nine months ended September 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 11,234,191, 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 $13,227,000, 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

   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
2,322,024 shares of Common Stock, respectively. The pro forma effects of these
transactions have been reflected in the accompanying pro forma balance sheet at
September 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 September
30, 1999, the Company had not had any transactions that are required to be
reported in comprehensive income.

 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.

                                      F-12
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited


NOTE 2--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. The total purchase price for this acquisition
was approximately $800,000. The purchase price was allocated to the tangible
and intangible assets acquired and liabilities assumed based upon their
respective fair values at the acquisition date. The purchase price consisted of
88,339 shares of the Company's Series E Preferred Stock (estimated fair value
of $500,000), seven-year warrants to purchase 17,668 shares of Series E
Preferred Stock at $5.66 per share (estimated fair value of $77,000) and
acquisition-related expenses (including legal and accountancy fees) of
approximately $223,000. The allocation of the purchase price was as follows:

                          Allocation of Purchase Price

<TABLE>
     <S>                                                              <C>
     Tangible Assets................................................. $ 385,000
     Intangible Assets
       Workforce.....................................................   500,000
       Goodwill......................................................   300,000
     Liabilities.....................................................  (385,000)
                                                                      ---------
                                                                      $ 800,000
                                                                      =========
</TABLE>

   The amortization of the intangible assets will occur over the estimated
periods to be benefited. The workforce asset will be amortized on the straight-
line basis over two years from the acquisition date, however, retention of the
acquired employees will be evaluated in future periods to assess whether
accelerated amortization of this asset is warranted. The goodwill is expected
to be amortized on a straight-line basis over three years from the acquisition
date. Amortization of acquired intangible asset was $249,000 for the nine
months ended September 30, 1999.

NOTE 3--BALANCE SHEET COMPONENTS (in thousands):

<TABLE>
<CAPTION>
                                                    December 31,
                                                    -------------  September 30,
                                                    1997   1998        1999
                                                    -------------  -------------
   <S>                                              <C>   <C>      <C>
   Accounts receivable, net:
     Accounts receivable........................... $ 140 $ 2,675     $2,882
     Less: Allowance for doubtful accounts.........   --     (270)      (288)
                                                    ----- -------     ------
                                                    $ 140 $ 2,405     $2,594
                                                    ===== =======     ======
</TABLE>

                                      F-13
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited


   There were no write-offs against the allowance for doubtful accounts in the
years ended December 31, 1997 and 1998 and for the nine months ended September
30, 1999.

<TABLE>
<CAPTION>
                                                  December 31,
                                                  --------------  September 30,
                                                  1997    1998        1999
                                                  ------ -------  -------------
   <S>                                            <C>    <C>      <C>
   Property and equipment, net:
     Computer equipment and purchased software..  $ 254  $   952     $2,096
     Furniture and fixtures.....................     10      586        661
     Leasehold improvements.....................    --       449        501
                                                  -----  -------     ------
                                                    264    1,987      3,258
     Less: Accumulated depreciation and
      amortization..............................    (76)    (370)      (961)
                                                  -----  -------     ------
                                                  $ 188  $ 1,617     $2,297
                                                  =====  =======     ======
</TABLE>

   Property and equipment includes $38,000, $23,000 and $0 of fixed assets
under capital leases at December 31, 1997 and 1998 and September 30, 1999,
respectively. Accumulated depreciation of such assets was $7,000, $8,000 and $0
at December 31, 1997 and 1998 and September 30, 1999, respectively.

<TABLE>
<CAPTION>
                                                     December 31,
                                                     ------------- September 30,
                                                     1997   1998       1999
                                                     ------------- -------------
   <S>                                               <C>   <C>     <C>
   Accrued liabilities:
     Payroll and related expenses................... $  59 $ 1,247    $1,787
     Other..........................................   110     226       805
                                                     ----- -------    ------
                                                     $ 169 $ 1,473    $2,592
                                                     ===== =======    ======
</TABLE>

NOTE 4--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 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 nine months ended September 30, 1999.

   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>

                                      F-14
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited


   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
7).

NOTE 5--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 nine months ended
September 30, 1998 and 1999 totaled $52,000, $557,000, $373,000 (unaudited) and
$743,000, respectively.

   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 September 30, 1999.

NOTE 6--INCOME TAXES:

   As of September 30, 1999, the Company had approximately $14,700,000 of
federal and $8,600,000 of state net operating tax loss carryforwards available
to reduce future taxable income. These net operating loss carryforwards begin
to expire in 2010 and 2003 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.

                                      F-15
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited


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

<TABLE>
<CAPTION>
                                                        December 31,
                                                        --------------
                                                                        Sept 30,
                                                         1997    1998     1999
                                                        ------  ------  --------
   <S>                                                  <C>     <C>     <C>
   Deferred tax assets:
     Net operating loss carryforwards.................. $1,105  $2,882   $5,506
     Accruals and reserves.............................     61     235      642
     Research credits..................................     40     120      414
     Depreciation......................................     60     128        0
                                                        ------  ------   ------
                                                         1,266   3,365    6,562
   Valuation allowance................................. (1,266) (3,365)  (6,436)
                                                        ------  ------   ------
   Net deferred tax assets.............................    --      --       126
   Deferred tax liabilities:
     Depreciation......................................    --      --        16
     Non-deductible intangible assets..................    --      --       110
                                                        ------  ------   ------
   Net deferred tax liabilities........................      0       0      126
   Net deferred tax assets............................. $  --   $  --    $  --
                                                        ======  ======   ======
</TABLE>

   The acquisition of Lexington Software Associates was structured as a tax-
free acquisition of stock, therefore, the differences between the recognized
fair values of acquired net assets and their historical tax bases are not
deductible for tax purposes. A deferred tax liability has been recognized for
the differences between assigned fair values of intangibles for book purposes
and the tax bases of such assets.

   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 valuation
allowance against its net deferred tax assets at December 31, 1997 and 1998 and
September 30, 1999.

NOTE 7--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>

                                      F-16
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited


   At September 30, 1999, 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    $ 1,650
   Series B Preferred Stock......    3,142      3,040        3,909      7,429
   Series C Preferred Stock......    7,160      7,160        7,726     14,132
   Series D Preferred Stock......    3,741      3,741        7,000     10,149
   Series E Preferred Stock......    3,600      3,483       19,714     19,636
                                    ------     ------      -------    -------
                                    18,763     18,544      $38,573    $52,996
                                    ======     ======      =======    =======
</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 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.

                                      F-17
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited


 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 September 30, 1999.

   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 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.

   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.

   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.

                                      F-18
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited


NOTE 8--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 233,333 shares of Common Stock to an employee in
consideration of a $3,500 promissory note. In addition, the Company issued a
further 200,000 shares of Common Stock in consideration of $3,000 in cash.
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 180,555 shares of Common Stock subject to
repurchase at December 31, 1998 and September 30, 1999.

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

<TABLE>
<CAPTION>
                                                                       As of
                                                                   September 30,
                                                                       1999
                                                                   -------------
   <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.....................................     2,400
   Exercise of options under stock option plans...................     1,030
                                                                      ------
                                                                      13,579
                                                                      ======
</TABLE>

 Notes receivable from stockholders

   In March 1998, the Company issued 1,333,333 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 48 month
period with 1,055,555 and 805,555 shares of Common Stock subject to repurchase
at December 31, 1998 and September 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. The notes bears interest at the rate of 6% per year. The principal
sum of the notes will become due and payable in eighteen equal monthly
installments beginning in October 2000. The notes are secured by the underlying
stock and are classified as notes receivable from stockholders in the
accompanying balance sheet at September 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 shares of Common
Stock subject to repurchase at September 30, 1999.

NOTE 9--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

                                      F-19
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

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 nine months ended September 30, 1999
(shares in thousands):

<TABLE>
<CAPTION>
                                 Year Ended December 31,
                             ---------------------------------  Nine Months ended
                                  1997             1998        September 30, 1999
                             ---------------- ---------------- ---------------------
                                     Weighted         Weighted             Weighted
                                     Average          Average              Average
                                     Exercise         Exercise             Exercise
                             Shares   Price   Shares   Price    Shares      Price
                             ------  -------- ------  -------- ---------  ----------
   <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       1,895       3.37
   Canceled................   (185)    0.09     (334)   0.18        (236)      0.98
   Exercised...............   (100)    0.05   (1,144)   0.13      (1,251)      0.91
                             -----            ------           ---------
   Outstanding at end of
    period.................  1,276     0.11      622    0.17       1,030       4.97
                             -----            ------           ---------
   Options exercisable at
    end of period..........  1,276               622               1,030
                             -----            ------           ---------
   Weighted average fair
    value of options
    granted during the
    period.................           $0.03            $0.05               $   0.67
                                      =====            =====               ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                 Options Exercisable
              Options Outstanding at December 31, 1998           at December 31, 1998
              ------------------------------------------------   --------------------
                                  Weighted
                                  Average        Weighted                    Weighted
   Range of                      Remaining        Average                    Average
   Exercise       Number        Contractual      Exercise          Number    Exercise
    Prices     Outstanding      Life (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>

                                      F-20
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited


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

<TABLE>
<CAPTION>
                  Options Outstanding at September       Options Exercisable
                              30, 1999                  at September 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         77          8.6        $0.19           77       $0.19
    0.39- 1.20        162          9.4         0.64          162        0.64
    1.65- 2.25        298          9.7         2.15          298        2.15
    7.64-10.01        493          9.9         8.85          493        8.85
                    -----                                  -----
                    1,030          9.7         4.97        1,030        4.97
                    =====                                  =====
</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        Nine Months
                                                 December 31,          Ended
                                                 ---------------   September 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 nine months ended September
30, 1998 and 1999.

 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.

   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.

                                      F-21
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited


   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 three 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.

 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.

 Deferred stock-based compensation

   In connection with certain stock option grants during the year ended
December 31, 1998 and the nine months ended September 30, 1999, the Company
recognized deferred stock-based compensation totaling $1.9 million and $6.7
million, 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 nine months ended September 30, 1999 totaled
approximately $812,000 and $2.7 million, respectively.

                                      F-22
<PAGE>

                                INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited


NOTE 10--SUBSEQUENT EVENTS:

 Stock Split

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

 Initial public offering

   On October 14, 1999 the Company completed its initial public offering of
Common Stock. A total of 3,622,500 shares were sold by the Company at a price
of $17.00 per share. The offering resulted in net proceeds to the Company of
approximately $56.2 million, net of an underwriting discount of $4.3 million
and estimated offering expenses of $1.2 million.

 Conversion of Preferred Stock

   Effective upon the closing of the Company's initial public offering, the
outstanding shares of Series A, B, C, D and E Preferred Stock were converted
into 746,664, 2,134,548, 4,773,161, 2,494,142, and 2,322,024 shares of Common
Stock, respectively.

 Repayment of debt

   On November 24, 1999, the Company repaid its equipment financing agreement
with Silicon Valley Bank. The amount repaid was approximately $1.3 million.

                                      F-23
<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. None of these expenses will be paid by the selling
stockholders. 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.............. $  122,048
   NASD filing fee..................................................     30,500
   Nasdaq National Market filing fee................................     17,500
   Accounting fees and expenses.....................................    100,000
   Legal fees and expenses..........................................    250,000
   Road show expenses...............................................     20,000
   Printing and engraving expenses..................................    250,000
   Blue sky fees and expenses.......................................     10,000
   Transfer agent, custodial and registrar fees and expenses........     15,000
   Miscellaneous....................................................    184,952
                                                                     ----------
     Total.......................................................... $1,000,000
                                                                     ==========
</TABLE>

Item 14. Indemnification of Directors and Officers.

   Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, 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 has entered 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 Third Amended and Restated Certificate of
    Incorporation......................................................  3.03
   Registrant's Restated Bylaws, as amended............................  3.04
   Third Amended and Restated Investors' Rights Agreement dated June
    10, 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. Through October 8, 1999, we issued and sold an aggregate of 2,620,787
shares of our common stock to employees, consultants, directors, and other
service providers at prices ranging from $0.03 to $10.01 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. The
remaining 1,120,000 shares of Series A Preferred Stock converted into 746,664
shares of common stock in October 1999.

   3. In August 1996, we issued a warrant to a certain bank in connection with
a loan agreement. The warrant was exercised in October 1999 for 6,552 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 converted into 65,519 shares
of common stock in October 1999.

   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 converted into 2,134,548 shares of common stock in October 1999.

                                     II-2
<PAGE>

   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. These shares of Series C Preferred Stock
converted into 4,773,161 shares of common stock in October 1999.

   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. These shares of
Series D Preferred Stock converted into 2,494,142 shares of common stock in
October 1999.

   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. These shares of Series E Preferred Stock
converted into 2,263,136 shares of common stock in October 1999.

   9. In July 1999, we issued 88,339 shares of Series E Preferred Stock and
warrants to purchase 17,668 shares of Series E Preferred Stock to certain
stockholders of Lexington Software Associates, Inc. in exchange for their
shares of that company. These shares of Series E Preferred Stock converted
into 58,888 shares of common stock in October 1999. These warrants are
exercisable for 11,770 shares of common stock.

   10. In July 1999, we issued a warrant to purchase 40,989 of shares of
Series E Preferred Stock to General Electric Company in connection with a
commercial transaction. This warrant is exercisable for 27,326 shares of
common stock.

   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. The conversion of the preferred stock into common stock in October
1999 was effected in reliance on the exemption provided under Section 3 (a)
(9) of the Securities Act.

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.

      2.01** Agreement and Plan of Merger, dated October 1, 1999, between
              Interwoven, Inc., a California corporation, and the Registrant.

      3.03   Registrant's Third Amended and Restated Certificate of
              Incorporation.

      3.04** Registrant's Restated Bylaws, as amended.

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

      4.02** Third Amended and Restated Investors' Rights Agreement, dated June
              10, 1999.

      4.03** Form of Consent concerning the Third Amended and Restated
              Investors' Rights Agreement dated June 10, 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.

</TABLE>


                                     II-3
<PAGE>

<TABLE>
<CAPTION>
      Number                            Exhibit Title
      ------                            -------------
     <C>      <S>
     10.02**  1996 Stock Option Plan and related agreements.

     10.03**  1998 Stock Option Plan and related agreements.

     10.04**  1999 Equity Incentive Plan and related agreements.

     10.05**  1999 Employee Stock Purchase Plan and related agreements.

     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**  Build-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.

     10.24+** Standard Sales Agreement effective as of July 28, 1999 between
               Registrant and General Electric Company.

     10.25+** Preferred Stock Warrant to Purchase Shares of Series E Preferred
               Stock of Registrant.

     10.26+** Amended and Restated Loan and Security Agreement dated June 24,
               1999, between Silicon Valley Bank and Registrant.

     10.27**  Intellectual Property Security Agreement dated June 24, 1999,
               between Silicon Valley Bank and Registrant.

     10.28**  Amendment to Secured Promissory Note between Interwoven, Inc. and
               Jeffrey E. Engelmann, dated as of October 5, 1999.

</TABLE>


                                      II-4
<PAGE>

<TABLE>
<CAPTION>
     Number                            Exhibit Title
     ------                            -------------
     <C>     <S>
     10.29** Amendment to Secured Promissory Note between Interwoven, Inc. and
              Jozef Ruck, dated as of October 5, 1999.

     21.01** Subsidiaries of the Registrant

     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)
     27.01   Financial Data Schedule

</TABLE>
---------------------
*  To be filed by amendment

** Incorporated by reference to the exhibit of the same number to the
   Registration Statement on Form S-1 (file No. 333-83779) filed July 27,
   1999, and all amendments thereto.

 + Portions of this exhibit have been omitted pursuant to an order granting
   confidential treatment

    (b) The 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.

   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 Sunnyvale, State of
California, on this 16th day of December, 1999.

                                          INTERWOVEN, INC.

                                                     /s/ David M. Allen
                                          By: _________________________________
                                             David M. Allen
                                             Vice President and Chief
                                             Financial 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
                 ----                            -----                   ----
<S>                                    <C>                        <C>
   /s/ Martin W. Brauns                President, Chief Executive  December 16, 1999
______________________________________ Officer (principal
Martin W. Brauns                       executive officer) and a
                                       director

   /s/ David M. Allen                  Vice President and Chief    December 16, 1999
______________________________________ Financial Officer
David M. Allen                         (principal financial
                                       officer and principal
                                       accounting officer)

Additional Directors:



                                       Chairman of the Board       December  , 1999
______________________________________
Peng T. Ong

   /s/ Kathryn C. Gould                Director                    December 16, 1999
______________________________________
Kathryn C. Gould

    /s/ Mark W. Saul                   Director                    December 16, 1999
______________________________________
Mark W. Saul

   /s/ Mark C. Thompson                Director                    December 16, 1999
______________________________________
Mark C. Thompson

   /s/ Ronald E.F. Codd                Director                    December 16, 1999
______________________________________
Ronald E.F. Codd
</TABLE>


                                      II-6
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
     Number                          Exhibit Title
     ------                          -------------
     <C>    <S>
      3.03  Registrant's Third Amended and Restated Certificate of
             Incorporation.
     23.02  Consent of PricewaterhouseCoopers LLP, independent accountants.

     24.01  Power of Attorney (See page II-6).

     27.01  Financial Data Schedule.
</TABLE>
[{"type": "S-1", "sequence": "1", "description": "FORM S-1", "secsgml_size_bytes": 377441}]
{"company-data": {"conformed-name": "INTERWOVEN INC", "cik": "0001042431", "assigned-sic": "7372", "irs-number": "943221352", "state-of-incorporation": "CA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-92943", "film-number": "99776232"}, "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 December 17, 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                    77-0523543
     (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, California 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, California 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.
    Katherine Tallman Schuda, Esq.               Jon C. Avina, Esq.
        William L. Hughes, Esq.                Brooke D. Coleman, Esq.
          FENWICK & WEST LLP              WILSON SONSINI GOODRICH & ROSATI
         Two Palo Alto Square                 Professional Corporation
      Palo Alto, California 94306                650 Page Mill Road
            (650) 494-0600                   Palo Alto, California 94304
                                                   (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          Proposed
   Title of Each Class of    Amount to be Maximum Offering Maximum Aggregate     Amount of
Securities to be Registered   Registered   Price Per Unit    Offering Price   Registration Fee
----------------------------------------------------------------------------------------------
Common Stock
 ($0.001 par
 value).....                 3,450,000(1)    $134.00(2)    $462,300,000(1)(2)     $122,048
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
(1) Includes 450,000 shares which the Underwriters have the option to purchase
    to cover over-allotments of shares. See "Underwriting."
(2) Estimated solely for the purpose of calculating the amount of the
    Registration Fee in accordance with Rule 457(c) under the Securities Act
    of 1933 and based upon the average high and low sales prices on December
    15, 1999 as reported on the Nasdaq National Market.

   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 DECEMBER 17, 1999

                                3,000,000 Shares
                       [LOGO OF INTERWOVEN APPEARS HERE]
                                  Common Stock

                                   --------

  We are selling 1,000,000 shares of common stock and the selling stockholders
are selling 2,000,000 shares of common stock. We will not receive any of the
proceeds from shares of common stock sold by the selling stockholders.

  Our common stock is listed on The Nasdaq Stock Market's National Market under
the symbol "IWOV." On December 15, 1999, the reported last sale price of our
common stock was $145.00 per share.

  The underwriters have an option to purchase a maximum of 450,000 additional
shares to cover over-allotments of shares.

  Investing in our common stock involves risks. See "Risk Factors" on page 7.
Price  Underwriting   Proceeds  Proceeds to
                                to    Discounts and     to       Selling
                              Public   Commissions  Interwoven Stockholders
                              ------- ------------- ---------- ------------
Per Share...................    $          $           $           $
Total.......................  $          $           $           $
Delivery of the shares of common stock will be made on or about        ,
2000.

  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

        Robertson Stephens

                Dain Rauscher Wessels

                        SoundView Technology Group

                                                    Adams, Harkness & Hill, Inc.

                 The date of this prospectus is        , 2000.
-----------

                               TABLE OF CONTENTS
Page
                                      ----
Prospectus Summary..................    3
Risk Factors........................    7
Special Note Regarding Forward-
 Looking Statements.................   15
Use of Proceeds.....................   16
Price Range of Common Stock.........   16
Dividend Policy.....................   16
Capitalization......................   17
Dilution............................   18
Selected Consolidated Financial
 Data...............................   19
Management's Discussion and Analysis
 of Financial Condition and Results
 of Operations......................   20
Business............................   30
Page
                                      ----
Management..........................   44
Related Party Transactions..........   55
Principal and Selling Stockholders..   57
Description of Capital Stock........   60
Shares Eligible for Future Sale.....   64
Underwriting........................   67
Notice to Canadian Residents........   69
Legal Matters.......................   70
Experts.............................   70
Where You Can Find Additional
 Information........................   70
Index to Consolidated 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.
PROSPECTUS SUMMARY

   This summary highlights information contained elsewhere in this prospectus;
it does not contain all the information you should consider before buying
shares in this offering. You should read the entire prospectus carefully before
making a decision whether to purchase our common stock. Unless otherwise
indicated, information in this prospectus assumes that the underwriters do not
exercise their over-allotment option.

                                   Interwoven

   Interwoven is a provider of software products and services that help
businesses and other organizations manage the information that makes up the
content of their web sites. In the Internet industry, this is often referred to
as "web content management." We have designed our software products to help
companies rapidly and efficiently develop, maintain and extend large web sites
that are essential to their businesses. Our principal product, TeamSite,
incorporates widely accepted Internet industry standards and is designed with
an open architecture that allows it to support a wide variety of Internet
software products, including web authoring tools and web application servers.
Using TeamSite, our customers can manage web content, control the versions of
their web sites, manage web site contribution and content approval processes,
and develop Internet applications. TeamSite allows large numbers of
contributors across an enterprise to add web content in a carefully-managed
process. In addition, our OpenDeploy product allows customers to distribute web
content automatically from one server to one or more servers.

   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 Internet. The use of the Internet to conduct business is frequently
referred to as "Internet commerce" or "eBusiness." Companies are making
significant investments to develop and deploy these eBusiness initiatives.
International Data Corporation, or IDC, estimates that spending on software
applications and services for Internet commerce will grow from $7.8 billion in
1998 to $53.8 billion in 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 have contributed to the increasing technological
complexity involved in developing and maintaining web sites. These trends have
created a need for content management software that can accommodate the
increasing volume of web content, leverage existing investments in computers,
software and associated information technology infrastructure, and allow more
contributors to add content to a web site. IDC estimates that one of the
markets 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 software assists customers in accelerating
their time-to-web--the rate at which they can deploy new content on their web
sites--by enabling them to develop multiple eBusiness applications
simultaneously. It lowers web operating costs by reducing a customer's
dependence on highly-paid web professionals and reducing the time required to
test and approve new content for a web site or eBusiness application. 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's architecture
is non-proprietary and based on recognized industry standards, so it enables
businesses to take advantage of existing investments in technology and web
content and, at the same time, to integrate new technologies and applications
easily.

                                       3
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 125 customers, including AltaVista, AT&T/TCI, BellSouth, Best
Buy, Cisco Systems, eBay, E*Trade, FedEx, Gap, General Electric, the U.S.
Department of Education, USWeb/CKS, Viacom/Nickelodeon and Yahoo!/GeoCities,
although we have incurred losses to date resulting in an accumulated deficit of
approximately $21.3 million at September 30, 1999.

   We were incorporated in California in March 1995 and reincorporated in
Delaware in October 1999. 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 is not part of this prospectus.

                                       4
The Offering
Common stock offered by Interwoven.................. 1,000,000 shares
 Common stock offered by the selling stockholders.... 2,000,000 shares
 Common stock to be outstanding after this offering.. 23,681,885 shares
 Use of proceeds..................................... For general corporate
                                                      purposes, including
                                                      working capital. See "Use
                                                      of Proceeds."
 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 September 30,
1999, and includes 3,622,500 shares of common stock issued in our initial
public offering in October 1999.

   The number of shares of our common stock to be outstanding immediately after
this offering does not include:

  .  the issuance of 64,123 shares of common stock upon exercise of warrants
     in October 1999;

  .  1,030,258 shares issuable upon exercise of options outstanding as of
     September 30, 1999 under our stock option plans and 3,240,484 shares
     available for future issuance under those plans;

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

  .  45,648 shares issuable upon exercise of outstanding warrants.

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

   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
reflects:

  .  a 2-for-3 reverse stock split completed in October 1999;

  .  the conversion in October 1999 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 converted into 0.702205
     shares of common stock; and

  .  our reincorporation from California to Delaware, which was completed in
     October 1999.

                                       5
Summary Consolidated Financial Data

                    (in thousands, except per share amounts)
Nine Months
                                                              Ended September
                                Years Ended December 31,            30,
                               ----------------------------  ------------------
                                 1996      1997      1998      1998      1999
                               --------  --------  --------  --------  --------
Consolidated Statement of
 Operations Data:
Revenues.....................  $    --   $    168  $  4,003  $  2,109  $  9,261
Gross profit.................       --         73     2,670     1,299     5,572
Total operating expenses.....       520     2,933     9,165     5,886    16,999
Loss from operations.........      (520)   (2,860)   (6,495)   (4,587)  (11,427)
Net loss.....................      (510)   (2,948)   (6,344)   (4,498)  (11,011)
Net loss per share:
  Basic and diluted..........  $  (0.22) $  (1.36) $  (2.85) $  (1.98) $  (6.51)
  Weighted average shares--
   basic and diluted.........     2,282     2,356     2,633     2,505     3,722
Pro forma net loss per share:
  Basic and diluted..........                      $  (0.74)           $  (0.74)
  Weighted average shares--
   basic and diluted.........                         8,530              14,957
As of September 30, 1999
                                                ------------------------------
                                                            Pro     Pro Forma
                                                 Actual    Forma   As Adjusted
                                                --------  -------- -----------
Consolidated Balance Sheet Data:
Cash, cash equivalents and investments......... $ 21,995  $ 78,195  $214,945
Working capital................................   18,203    74,403   211,153
Total assets...................................   29,472    85,672   222,422
Long-term debt and capital lease obligations,
 less current portion..........................      875       875       875
Manditorily redeemable convertible preferred
 stock.........................................   52,996       --        --
Total stockholders' equity (deficit)...........  (31,218)   77,978   214,728
See Note 1 of Notes to Consolidated 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 pro forma balance sheet data gives effect to the application of the net
proceeds of approximately $56.2 million from the sale of 3,622,500 shares of
our common stock in our initial public offering in October 1999.

   The pro forma as adjusted balance sheet data gives effect to the sale of the
1,000,000 shares of common stock that we are offering under this prospectus at
an assumed public offering price of $145.00 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses payable by us. See "Use of Proceeds" and "Capitalization."

                                       6
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. These risks are the ones we consider to be significant to your
decision whether to invest in our common stock at this time. We might be wrong.
There may be risks that you in particular view differently than we do, and
there are other risks and uncertainties that are not presently known to us or
that we currently deem immaterial, but that may in fact 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.

Our operating history is limited, so it will be difficult for you to evaluate
our business in making an investment decision.

   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.

If we do not increase our license revenues significantly, we will fail to
achieve profitability.

   We have incurred net losses in each quarter since our inception, and we
expect our 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 $11.0 million
for the nine months ended September 30, 1999. As of September 30, 1999, we had
an accumulated deficit of approximately $21.3 million. To compete effectively,
we plan to continue to invest aggressively to expand our sales and marketing,
research and development, and professional services organizations. As a result,
if we are to achieve profitability we will need to increase our revenues
significantly, particularly our license revenues. We cannot predict when we
will become profitable, if at all.

Our operating results fluctuate widely and are difficult to predict, so we may
fail to satisfy the expectations of investors or market analysts and our stock
price may decline.

   Our quarterly operating results have fluctuated significantly in the past,
and we expect them to continue to fluctuate unpredictably in the future. 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.

                                       7
Our quarterly results depend on a small number of large orders, so the loss of
any single large order could harm those results and cause our stock price to
drop.

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

We face significant competition, which could make it difficult to acquire and
retain customers and inhibit any future growth.

   We expect the competition in the market in which we operate to persist and
intensify in the future. Competitive pressures may seriously harm our business
and results of operations if they inhibit our future growth, or require us to
hold down or reduce prices, or increase our operating costs. Our competitors
include:

  .  potential customers that utilize in-house development efforts;

  .  developers of software that directly addresses the need for web content
     management, such as Vignette.

In addition, other enterprise software companies such as Rational Software and
Documentum have announced plans to enter our market. We also face potential
competition from companies--for example, Microsoft and IBM--that may decide in
the future to enter our market. Many of our 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 discourages users from purchasing
our products. Barriers to entering the web content management software market
are relatively low.

Because the market for our products is new, we do not know whether existing and
potential customers will purchase our products in sufficient quantity for us to
achieve profitability.

   The market for web content management software in which we sell is new and
rapidly evolving. While we have licensed our products to over 125 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. Various factors could inhibit the growth of the market, and market
acceptance of our products and services. In particular, potential customers
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. 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 makes it particularly difficult for us to forecast
revenue, requires us to incur high costs of sales, and aggravates the
variability of quarterly fluctuations.

   The time between our initial contact with a potential customer and the
ultimate sale, which we refer to as our sales cycle, typically ranges between
three and nine months depending largely on the customer. If we do not shorten
our sales cycle, it will be difficult for us to reduce sales and marketing
expenses. In addition, as a result of our lengthy sales cycle, we have only a
limited ability to forecast the timing and size of specific sales. This makes
it more difficult to predict quarterly financial performance, or to achieve it,
and any delay in completing sales in a particular quarter could harm our
business and cause our operating results to vary significantly.

We rely heavily on sales of one product, so if it does not achieve market
acceptance we are likely to experience larger losses.

   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

                                       8
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 more seriously than it would
if we had several different products and services to sell. In addition, our
future financial performance will depend upon successfully developing and
selling enhanced versions of TeamSite and the products. If we fail to deliver
product enhancements or new products that customers want it will be more
difficult for us to succeed.

We depend on our direct sales force to sell our products, so future growth will
be constrained by our ability to hire and train new sales personnel.

   We sell our products primarily through our direct sales force, and we expect
to continue to do so in the future. Our ability to sell more products is
limited by our ability to hire and train direct sales personnel, and we believe
that there is significant competition for direct sales personnel with the
advanced sales skills and technical knowledge that we need. Some of our
competitors may have greater resources to hire personnel with that skill and
knowledge. If we are not able to hire experienced and competent sales
personnel, our business would be harmed. Furthermore, because we depend on our
direct sales force, any turnover in our sales force can significantly harm our
operating results. Sales force 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, which is particularly
difficult for us because we compete with other Internet-related software
companies and are located in the San Francisco Bay area where competition for
personnel is extremely intense."

If we do not develop our indirect sales channel, we will be less likely to
increase our revenues.

   If we do not develop indirect sales channels, we may miss sales
opportunities that might be available through these other channels. For
example, domestic and international resellers may be able to reach new
customers more quickly or more effectively than our direct sales force.
Although we are currently investing and plan to continue to invest significant
resources to develop these indirect sales channels, we may not succeed in
establishing a channel that can market our products effectively and 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 attract and retain qualified personnel, which is particularly difficult
for us because we compete with other Internet-related software companies and
are located in the San Francisco Bay area where competition for personnel is
extremely intense.

   Our success depends on our ability to attract and retain qualified,
experienced employees. We compete for experienced engineering, sales and
consulting personnel with Internet professional services firms, software
vendors, consulting and professional services companies. It is also
particularly difficult to recruit and retain personnel in the San Francisco Bay
area, where we are located. Although we provide compensation packages that
include incentive stock options, cash incentives and other employee benefits,
the volatility and current market price of our common stock may make it
difficult for us to attract, assimilate and retain highly qualified employees
in the future. 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 those services,
or we could experience deterioration in service levels or decreased customer
satisfaction, any of which would harm our business.

If we do not improve our operational systems on a timely basis, we will be more
likely to fail to manage our growth properly.

   We have expanded our operations rapidly in recent years. We intend to
continue to expand our operational systems for the foreseeable future to pursue
existing and potential market opportunities. This rapid growth

                                       9
places a significant demand on management and operational resources. In order
to manage our growth, we need to 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.

Difficulties in introducing new products and upgrades in a timely manner will
make market acceptance of our products less likely.

   The market for our products is characterized 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 more complex than most software,
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
limit our revenues.

   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
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 popular new operating system or Internet business application, 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.

We have no significant experience conducting operations internationally, which
may make it more difficult than we expect to expand overseas and may increase
the costs of doing so.

   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.

As a result of these competitive barriers, we cannot assure you that we will be
able to market, sell and deliver our products and services in international
markets.

If we fail to establish and maintain strategic relationships, the market
acceptance of our products, and our profitablity, may suffer.

   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

                                       10
maintain our existing strategic relationships or fail to enter into additional
strategic relationships, our ability to increase our sales and reduce expenses
will be harmed. 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.

If our services revenues do not grow substantially, our total revenues are
unlikely to increase.

   Our services revenues represent a significant component of our total
revenues--21% of total revenues for 1998 and 37% of total revenues for the nine
months ended September 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, a
loss of which could harm our business.

   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 we 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 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 greater losses and
harmful 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 some of our products
after their release. Although past defects have not had a material effect on
our results of operations, in the future we may experience delays or lost
revenue caused by new defects. Despite our testing, defects and errors may
still be found in new or existing products, and may result 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 the performance of our
software could also harm our business.

Defects in our products may result in customer claims against us that could
cause unanticipated losses.

   Because customers rely on our products for business critical processes,
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

                                       11
contracts will 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 product liability claims like this to date, but we could in
the future. Further, although we maintain errors and omissions insurance, this
insurance coverage may not be adequate to cover us. A successful product
liability claim could harm our business. Even defending a product liability
suit, regardless of its merits, could harm our business because it entails
substantial expense and diverts the time and attention of key management
personnel.

Year 2000 concerns by our customers could cause them to defer purchases of our
products.

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

Year 2000 problems with our products may increase our costs.

   Our products are generally integrated into enterprise computer 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.

Acquisitions may harm our business by being more difficult than expected to
integrate or by diverting management's attention.

   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 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 because it depends on
growth in the use of the Internet.

   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 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

                                       12
the Internet for commerce, communications and access to content, particularly
by those who have historically relied upon alternative methods, generally
requires understanding and accepting new ways 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,
these laws, rules or regulations could indirectly harm us to the extent that
they impact 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 hold a majority of our stock and will be able to
control matters requiring stockholder approval.

   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.

We have various mechanisms in place to discourage takeover attempts, which
might tend to suppress our stock price.

   Provisions of our certificate of incorporation and bylaws that may
discourage, delay or prevent a change in control include:

  .  we are authorized to issue "blank check" preferred stock, which could be
     issued by our board of directors to increase the number of outstanding
     shares and thwart a takeover attempt;

  .  we provide for the election of only one-third of our directors at each
     annual meeting of stockholders, which slows turnover on the board of
     directors;

  .  we limit who may call special meetings of stockholders;

  .  we prohibit stockholder action by written consent, so all stockholder
     actions must be taken at a meeting of our stockholders; and

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

                                       13
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."

Purchasers in this offering will incur immediate and substantial dilution.

   The 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.

If a significant number of shares become available for sale and are sold in a
short period of time, the market price of our stock could decline.

   If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Our common stock began trading on the Nasdaq National Market on
October 8, 1999; however, to date there have been a limited number of shares
trading in the public market. After this offering, a total of 6,622,500 shares
of our common stock will be available on the open market. Our current
stockholders who are not participating in this offering hold     shares that
they will be able to sell in the public market beginning on April 6, 2000, when
the lock-up agreements signed in connection with our initial public offering
expire. In addition, 90 days after this offering, our executive officers,
directors and the selling stockholders will be able to sell an additional
    shares of our common stock. If many of these shares are sold when they
become available for resale, the market price of our common stock may decline.
For a detailed discussion of the shares eligible for future sale, please see
"Shares Eligible for Future Sale."

We have broad discretion to use the offering proceeds and how we invest these
proceeds may not yield a favorable, or any, return.

   The net proceeds of this offering are not allocated for specific uses other
than working capital and general corporate purposes. Thus, our management has
broad discretion over how these proceeds are used and could spend the proceeds
in ways with which you may not agree. We cannot assure you that the proceeds
will be invested in a way that yields a favorable, or any, return for us.

                                       14
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 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.

                                       15
USE OF PROCEEDS

   We estimate that we will receive net proceeds of approximately $137.3
million from the sale of 1,000,000 shares of our common stock at an assumed
public offering price of $145.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses. We will
not receive any portion of the proceeds from the sale of shares of common stock
by the selling stockholders. The primary purposes of this offering are to
obtain additional working capital, create a larger public float for our common
stock and facilitate our future access to public capital markets.

   We intend to use the net proceeds of this offering primarily for additional
working capital and other general corporate purposes, including increased sales
and marketing expenditures, increased research and development expenditures and
capital expenditures. We have not yet determined our expected use of these
proceeds.

   The amounts and timing of these expenditures will vary depending on a number
of factors, including the amount of cash generated by our operations,
competitive and technological developments and the rate of growth, if any, of
our business. We may also use a portion of the net proceeds to acquire
additional businesses, products and technologies, to lease additional
facilities, or to establish joint ventures that we believe will complement our
current or future business. However, we have no specific plans, agreements or
commitments to do so and are not currently engaged in any negotiations for any
acquisition or joint venture.

   We will retain broad discretion in the allocation of the net proceeds of
this offering. Pending the uses described above, we will invest the net
proceeds of this offering in short-term to medium-term interest-bearing,
investment-grade securities. We cannot predict whether the proceeds will be
invested to yield a favorable return. We believe that our available cash,
together with the net proceeds of this offering, will be sufficient to meet our
capital requirements for at least the next 12 months.

                          PRICE RANGE OF COMMON STOCK

   Our common stock has been quoted on the Nasdaq National Market under the
symbol "IWOV" since our initial public offering on October 8, 1999. Before
then, there was no public market for our common stock. From October 8, 1999
through December 15, 1999, the low price per share of our common stock was
$36.75 and the high price per share of our common stock was $177.88.

   The closing sale price of our common stock as reported on the Nasdaq
National Market on December 15, 1999 was $145.00. As of November 30, 1999, we
had approximately 221 stockholders of record. This does not include the number
of persons whose stock is in nominee or "street name" accounts through brokers.

                                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.

                                       16
CAPITALIZATION

   The following table sets forth the following information, as of September
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 in
     October 1999 and the application of the net proceeds of approximately
     56.2 million from the sale of 3,622,500 shares of our common stock in
     our initial public offering; and

  .  our pro forma as adjusted capitalization after giving effect to the sale
     of 1,000,000 shares of common stock by us at an assumed public offering
     price of $145.00 per share, less the estimated underwriting discounts
     and commissions and estimated offering expenses.
September 30, 1999
                                                --------------------------------
                                                                      Pro Forma
                                                 Actual   Pro Forma  As Adjusted
                                                --------  ---------  -----------
                                                 (in thousands, except share
                                                            data)
Debt and leases, current and long-term......... $  1,375  $  1,375    $  1,375
Mandatorily redeemable convertible preferred
 stock, 18,763,092 shares authorized,
 18,543,523 shares issued and outstanding,
 actual; no shares authorized, issued or
 outstanding, pro forma and pro forma as
 adjusted......................................   52,996       --          --
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, 6,588,846 shares issued
   and outstanding, actual; 75,000,000 shares
   authorized, 22,681,885 shares issued and
   outstanding, pro forma; 23,681,885 shares
   issued and outstanding, pro forma as
   adjusted....................................        7        23          24
  Additional paid-in capital...................   (4,590)  104,590     241,339
  Notes receivable from stockholders...........     (202)     (202)       (202)
  Deferred stock-based compensation............   (5,114)   (5,114)     (5,114)
  Accumulated deficit..........................  (21,319)  (21,319)    (21,319)
                                                --------  --------    --------
    Total stockholders' equity (deficit).......  (31,218)   77,978     214,728
                                                --------  --------    --------
      Total capitalization..................... $ 23,153  $ 79,353    $222,422
                                                ========  ========    ========
The table excludes:

  .  64,123 shares of common stock issued upon the exercise of warrants in
     October 1999;

  .  1,030,258 shares issuable upon exercise of options outstanding at
     September 30, 1999 under our stock option plans and 3,240,484 shares
     available for future issuance under those plans;

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

  .  45,648 shares issuable upon exercise of outstanding warrants.

                                       17
DILUTION

   The pro forma net intangible book value of our common stock as of September
30, 1999, after giving effect to the conversion of all outstanding shares of
preferred stock into common stock and the application of the net proceeds of
approximately $56.2 million from the sale of 3,622,500 shares of our common
stock in our initial public offering in October 1999, was $77.4 million, or
approximately $3.41 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 1,000,000 shares of common stock offered at an assumed public offering price
of $145.00 per share, and after deducting estimated underwriting discounts and
commissions and estimated offering expenses, our pro forma net tangible book
value as of September 30, 1999 would have been $214.2 million, or $9.04 per
share. This represents an immediate increase in pro forma net tangible book
value of $5.63 per share to existing stockholders and an immediate dilution in
net tangible book value of $135.96 per share to new investors. Investors
participating in this offering will incur immediate, substantial dilution. The
following table illustrates the per share dilution:
Assumed public offering price per share........................        $ 145.00
  Pro forma net tangible book value per share as of September
   30, 1999.................................................... $ 3.41
  Increase in pro forma net tangible book value per share
   attributable to new investors...............................   5.63
                                                                ------
Pro forma net tangible book value per share after offering.....            9.04
                                                                       --------
Dilution per share to new investors............................        $ 135.96
                                                                       ========
The following table summarizes, on a pro forma basis, as of September 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 used an assumed public offering price of $145.00 per share,
and we have not deducted estimated underwriting discounts and commissions and
estimated offering expenses in our calculations.
Average
                                   Shares Purchased  Total Consideration  Price
                                  ------------------ -------------------   Per
                                    Number   Percent   Amount    Percent  Share
                                  ---------- ------- ----------- ------- -------
Existing stockholders............ 22,681,885   95.8% 114,585,500   44.1% $  5.05
New investors....................  1,000,000    4.2  145,000,000   55.9   145.00
                                  ----------  -----  -----------  -----  -------
  Total.......................... 23,681,885  100.0% 259,585,500  100.0% $ 10.96
                                  ==========  =====  ===========  =====  =======
This discussion of dilution, and the table quantifying it, 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.

                                       18
SELECTED CONSOLIDATED FINANCIAL DATA

   The following selected financial data should be read in conjunction with,
and is qualified by reference to, the Consolidated 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 consolidated statement of operations data for the years ended December
31, 1996, 1997 and 1998 and the nine months ended September 30, 1999 and the
consolidated balance sheet data at December 31, 1997 and 1998, and
September 30, 1999 are derived from and are qualified by reference to audited
consolidated financial statements included elsewhere in this prospectus. The
consolidated balance sheet data at December 31, 1996 is derived from audited
consolidated financial statements not included in this prospectus. The
consolidated statement of operations data for the nine months ended September
30, 1998 are derived from unaudited consolidated 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 that 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.
Nine Months
                                                                 Ended
                              Year Ended December 31,        September 30,
                             ---------------------------  --------------------
                              1996      1997      1998      1998       1999
                             -------  --------  --------  ---------  ---------
                                 (in thousands, except per share data)
Consolidated Statement of
 Operations Data:
Revenues:
 License ................... $   --   $     84  $  3,176  $   1,570  $   5,814
 Services ..................     --         84       827        539      3,447
                             -------  --------  --------  ---------  ---------
  Total revenues............     --        168     4,003      2,109      9,261
Cost of revenues:
 License....................     --        --         59         19        147
 Services...................     --         95     1,274        791      3,542
                             -------  --------  --------  ---------  ---------
  Total cost of revenues....     --         95     1,333        810      3,689
                             -------  --------  --------  ---------  ---------
Gross profit................     --         73     2,670      1,299      5,572
Operating expenses:
 Research and development...     328       884     1,797      1,227      2,930
 Sales and marketing........     101     1,519     4,817      2,960      9,058
 General and
  administrative............      91       530     1,739      1,135      2,077
 Amortization of deferred
  stock-based compensation..     --        --        812        564      2,685
 Amortization of acquired
  intangible assets.........     --        --        --         --         249
                             -------  --------  --------  ---------  ---------
  Total operating expenses..     520     2,933     9,165      5,886     16,999
                             -------  --------  --------  ---------  ---------
Loss from operations........    (520)   (2,860)   (6,495)    (4,587)   (11,427)
Interest and other income
 (expense), net.............      10       (88)      151         89        416
                             -------  --------  --------  ---------  ---------
Net loss.................... $  (510) $ (2,948) $ (6,344) $  (4,498) $ (11,011)
                             =======  ========  ========  =========  =========
Net loss per share:
 Basic and diluted.......... $ (0.22) $  (1.36) $  (2.85) $   (1.98) $   (6.51)
 Weighted average shares--
  basic and diluted.........   2,282     2,356     2,633      2,505      3,722
Pro forma net loss per
 share:
 Basic and diluted..........                    $  (0.74)            $   (0.74)
 Weighted average shares--
  basic and diluted.........                       8,530                14,957
December 31,
                                    -----------------------      September 30,
                                    1996    1997     1998            1999
                                    -----  -------  -------      -------------
                                         (in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and
 investments....................... $  17  $ 1,019  $ 9,022        $ 21,995
Working capital....................  (208)     792    8,844          18,203
Total assets.......................    92    1,384   13,908          29,472
Long-term debt and capital lease
 obligations, less current portion
 ..................................   --        87    1,257             875
Mandatorily redeemable convertible
 preferred stock...................   385    4,627   20,464          52,996
Total stockholders' deficit........  (525)  (3,734) (10,752)        (31,218)
See Note 1 of Notes to Consolidated 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.

                                       19
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 Consolidated
Financial Data" and our Consolidated Financial Statements and Notes appearing
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 November 30, 1999, we had
sold our products and services to over 125 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, Dallas, Los Angeles, New
York City, 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 had 192 employees as of November 30, 1999.

   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 September 30, 1999, had an accumulated
deficit of $21.3 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.

                                       20
Results of Operations

   The following table lists, for the periods indicated, each line as a
percentage of total revenues:
Years Ended      Nine Months Ended
                                        December 31,        September 30,
                                        ---------------   -------------------
                                         1997     1998      1998       1999
                                        ------   ------   --------   --------
Revenues:
  License..............................     50 %     79 %       74 %       63 %
  Services.............................     50       21         26         37
                                        ------   ------   --------   --------
    Total revenues.....................    100      100        100        100
Cost of revenues:
  License..............................    --         1          1          2
  Services.............................     57       32         37         38
                                        ------   ------   --------   --------
    Total cost of revenues.............     57       33         38         40
                                        ------   ------   --------   --------
Gross profit...........................     43       67         62         60
Operating expenses:
  Research and development.............    526       45         58         32
  Sales and marketing..................    904      120        140         98
  General and administrative...........    315       43         54         22
  Amortization of deferred stock-based
   compensation........................    --        20         27         29
  Amortization of acquired intangible
   assets..............................    --       --         --           3
                                        ------   ------   --------   --------
    Total operating expenses...........  1,745      228        279        184
                                        ------   ------   --------   --------
Loss from operations................... (1,702)    (161)      (217)      (124)
Interest and other income (expense),
 net...................................    (52)       4          4          5
                                        ------   ------   --------   --------
Net loss............................... (1,754)%   (157)%     (213)%     (119)%
                                        ======   ======   ========   ========
Nine Months Ended September 30, 1998 and 1999

 Revenues

   Total revenues increased 339% from $2.1 million for the nine months ended
September 30, 1998 to $9.3 million for the nine months ended September 30,
1999. 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 270% from $1.6 million for the nine
months ended September 30, 1998 to $5.8 million for the nine months ended
September 30, 1999. License revenues represented 74% and 63% of total revenues,
respectively, in those periods. The increase in license revenues reflects
continued growth from the low level of revenue in 1998, our first full year in
which we licensed our products. The decline in the percentage of total revenues
represented by license revenues reflects the more rapid growth of services
revenues due to a growing customer base.

   Services. Services revenues increased 543% from $539,000 for the nine months
ended September 30, 1998 to $3.4 million for the nine months ended September
30, 1999. Services revenues represented 26% and 37% of total revenues,
respectively, in those periods. The increase in services revenues reflects 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 increased 674% from $19,000 for the nine

                                       21
months ended September 30, 1998 to $147,000 for the nine months ended September
30, 1999. Cost of license revenues represented 1% and 3% of license revenues in
the nine months ended September 30, 1998 and 1999, respectively. The increase
in cost of license revenues, both as a percentage of license revenues and in
absolute dollars, reflects increased sales of our product.

   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 348%
from $791,000 for the nine months ended September 30, 1998 to $3.5 million for
the nine months ended September 30, 1999. Cost of services revenues represented
147% and 103% of services revenues, respectively, in those periods. This
increase in absolute dollar amounts was due to an increase in the number of in-
house staff from 10 at September 30, 1998 to 43 at September 30, 1999, and a
$370,000 increase in subcontractor expenses.

   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 in July 1999 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 the services are performed by our in-house staff or
subcontractors, and the overall utilization rates of professional services
staff.

 Gross Profit

   Gross profit increased 329% from $1.3 million for the nine months ended
September 30, 1998 to $5.6 million for the nine months ended September 30, 1999
representing 62% and 60% of total revenues, respectively, in those periods.
This increase in absolute dollars reflected increased license and services
revenues from a growing customer base. The decrease in gross profit percentage
was a result of the expansion of our professional services organization. We
have made and will continue to make investments in our professional services
organization to increase the capacity of that organization to meet the demand
for services from our customers. 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 139% from $1.2 million for the nine
months ended September 30, 1998 to $2.9 million for the nine months ended
September 30, 1999. Research and development expenses represented 58% and 32%
of total revenues, respectively, in those periods. This increase in dollar
amounts was due to an increase 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 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 206% from $3.0 million for the nine months ended September 30, 1998
to $9.1 million for the nine months ended September 30, 1999. Sales and
marketing expenses represented 140% and 98% of total revenues, respectively, in
those periods. The increase in dollar amounts reflected increased sales and
marketing personnel costs of $2.7 million, higher sales commissions and bonuses
of $1.5 million and increased marketing related costs of $300,000. 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.

                                       22
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 83% from $1.1 million
for the nine months ended September 30, 1998 to $2.1 million for the nine
months ended September 30, 1999, representing 54% and 22% of total revenues,
respectively, in those periods. This increase in absolute dollar amounts
reflected 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
nine 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 stock options granted during those periods and the deemed
fair value of our common stock at the time of the grants. Amortization of
deferred stock-based compensation was $564,000 and $2.7 million for the nine
months ended September 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, between $100,000 and $185,000 during 2002 and $50,000
in the quarter ended March 31, 2003.

   Amortization of Acquired Intangible Assets. In July of 1999, we recorded
intangible assets of approximately $800,000 in connection with the acquisition
of Lexington Software Associates Incorporated. Goodwill related to this
transaction approximated $300,000 and intangible assets related to the
workforce of Lexington Software approximated $500,000 of the purchase price.
The total purchase price for this acquisition was approximately $800,000. The
purchase price was allocated to the tangible and intangible assets acquired and
liabilities assumed based upon their respective fair values at the acquisition
date. Amortization of acquired intangible assets was $249,000 for the nine
months ended September 30, 1999.

 Interest and Other Income (Expense), Net

   Interest and other income (expense), net, increased 367% from $89,000 for
the nine months ended September 30, 1998 to $416,000 for the nine months ended
September 30, 1999. The increase was due to increased interest income earned
from higher cash balances on hand as a result of sales of our preferred stock
in June 1999, partially offset by increased interest expense.

 Income Taxes

   As of September 30, 1999, we had approximately $14.7 million of federal and
$8.6 million of state net operating loss carryforwards available to reduce
future taxable income. These net operating loss carryforwards begin to expire
in 2010 and 2003 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. 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 6 of Notes to Consolidated 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.

                                       23
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 reflects growth from the low
level of revenue in 1997, our first year in which we licensed our products.

   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 reflects an
increase in both professional services and maintenance fees generated from an
expanded number of customers who licensed our products.

 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 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 due to an increase in the number of in-
house staff from 3 to 11, and a $45,000 increase in subcontractor expenses.

 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. The increase in dollar amounts from 1996 to 1997 reflects
increases in sales and marketing personnel costs of $900,000 and increased
marketing related costs of $100,000. The increase in dollar amounts from 1997
to 1998 reflects increases in sale and marketing personnel costs of
$1.4 million, higher sales commissions and bonuses of $900,000 and increased
marketing related costs of $200,000.

   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 reflects 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.

 Interest and Other Income (Expense), Net

   Interest and other income (expense), net, decreased from $10,000 in 1996 to
a net interest expense of $88,000 in 1997 and increased to a net interest
income of $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.

                                       24
Quarterly Results of Operations

   The following tables set forth our unaudited consolidated statements of
operations data in dollars and as a percentage of total revenues for each of
our last seven quarters. This data has been derived from unaudited consolidated
financial statements that have been prepared on the same basis as our annual
audited consolidated financial statements and, in our opinion, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of this information. These unaudited quarterly results should
be read in conjunction with the annual consolidated 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,   Sept. 30,
                            1998      1998       1998       1998       1999       1999       1999
                          --------- --------   ---------  --------   ---------  --------   ---------
                                                    (in thousands)
Consolidated Statement
 of Operations Data:
Revenues:
 License................    $ 187   $   437     $   946   $ 1,606     $ 1,360   $ 1,898    $  2,556
 Services...............       44       218         277       288         742     1,004       1,701
                            -----   -------     -------   -------     -------   -------    --------
   Total revenues.......      231       655       1,223     1,894       2,102     2,902       4,257
Cost of revenues:
 License................      --        --           19        40          15       104          28
 Services...............       75       275         441       483         549       880       2,113
                            -----   -------     -------   -------     -------   -------    --------
   Total cost of
    revenues............       75       275         460       523         564       984       2,141
                            -----   -------     -------   -------     -------   -------    --------
   Gross profit.........      156       380         763     1,371       1,538     1,918       2,116
Operating expenses:
 Research and
  development...........      282       453         492       570         779       922       1,229
 Sales and marketing....      473       884       1,603     1,857       2,287     2,938       3,833
 General and
  administrative........      185       387         563       604         598       646         833
 Amortization of
  deferred stock-based
  compensation..........      151       196         217       248         640     1,028       1,017
 Amortization of
  acquired intangible
  assets................      --        --          --        --          --        --          249
                            -----   -------     -------   -------     -------   -------    --------
   Total operating
    expenses............    1,091     1,920       2,875     3,279       4,304     5,534       7,161
                            -----   -------     -------   -------     -------   -------    --------
Loss from operations....     (935)   (1,540)     (2,112)   (1,908)     (2,766)   (3,616)     (5,045)
Interest and other
 income (expense), net..        4        53          32        62          65        89         262
                            -----   -------     -------   -------     -------   -------    --------
Net loss................    $(931)  $(1,487)    $(2,080)  $(1,846)    $(2,701)  $(3,527)   $ (4,783)
                            =====   =======     =======   =======     =======   =======    ========
Three Months Ended
                          --------------------------------------------------------------------------
                          March 31, June 30,   Sept. 30,  Dec. 31,   March 31,  June 30,   Sept 30,
                            1998      1998       1998       1998       1999       1999       1999
                          --------- --------   ---------  --------   ---------  --------   ---------
As a Percentage of Total
 Revenues:
Revenues:
 License................       81%       67%         77%       85%         65%       65%         60%
 Services...............       19        33          23        15          35        35          40
                            -----   -------     -------   -------     -------   -------    --------
   Total revenues.......      100       100         100       100         100       100         100
Cost of revenues:
 License................      --        --            2         2           1         4           1
 Services...............       32        42          36        26          26        30          49
                            -----   -------     -------   -------     -------   -------    --------
   Total cost of
    revenues............       32        42          38        28          27        34          50
                            -----   -------     -------   -------     -------   -------    --------
   Gross profit.........       68        58          62        72          73        66          50
Operating expenses:
 Research and
  development...........      122        69          40        30          37        32          29
 Sales and marketing....      205       135         131        98         109       101          90
 General and
  administrative........       80        59          46        32          28        22          19
 Amortization of
  deferred stock-based
  compensation..........       65        30          18        13          30        35          24
 Amortization of
  acquired intangible
  assets................      --        --          --        --          --        --            6
                            -----   -------     -------   -------     -------   -------    --------
   Total operating
    expenses............      472       293         235       173         204       190         168
                            -----   -------     -------   -------     -------   -------    --------
Loss from operations....     (404)     (235)       (173)     (101)       (131)     (124)       (118)
Interest and other
 income (expense), net..        2         8           3         3           3         3           6
                            -----   -------     -------   -------     -------   -------    --------
Net loss................     (402)%    (227)%      (170)%    ( 98)%      (128)%    (121)%      (112)%
                            =====   =======     =======   =======     =======   =======    ========
25
Our license and services revenues have grown in each of the seven quarters
in the period ended September 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 a few 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.

   As a result of our limited operating history and the emerging nature of the
market for web content management software and services in which we compete, it
is difficult for us to forecast our revenues or earnings accurately. 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. Factors that have
caused our results to fluctuate in the past, and are likely to cause
fluctuations in the future, include:

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

  .  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.

   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, at the beginning of a quarter we have no assurance about
the levels of sales in that quarter, and 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.

   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.

Liquidity and Capital Resources

   In October 1999, we completed the initial public offering of our common
stock and realized net proceeds from the offering of approximately $56.2
million. Before our initial public offering, we funded our operations

                                       26
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 September 30,
1999, our sources of liquidity consisted of $22.6 million in cash, cash
equivalents and investments and $19.2 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 September 30, 1999, plus 0.25%. At September 30, 1999, the
line of credit was unused and $1.4 million was outstanding under the equipment
line of credit. The lines of credit are secured by all of our tangible and
intangible assets, and contain financial covenants including; a quick asset
ratio, excluding deferred maintenance revenue, of at least 2:1; a liquidity
ratio of unrestricted cash plus 80% of eligible accounts receivable minus
outstanding advances divided by loans outstanding of not less than 1.5:1; and a
covenant that quarterly net losses will not exceed a threshold based on
projected annual revenues. We intend to maintain both lines of credit. 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 $5.1 million in the nine months ended September 30, 1999. Net cash used in
operating activities reflected increasing net losses.

   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 $176,000, $1.7 million and $1.3 million in 1997,
1998 and the nine months ended September 30, 1999, respectively. We expect that
capital expenditures will increase with our anticipated growth in operations,
infrastructure and personnel. As of September 30, 1999 we had no material
capital expenditure commitments. We do not expect to incur significant costs to
make our products or internal information systems Year 2000 compliant because
we believe these products and information systems are designed to function
properly through and beyond year 2000.

   During the nine months ended September 30, 1999, our investing activities
have consisted of purchases of short-term investments. To date, we have not
invested in derivative securities or any other financial instruments that
involve a high level of complexity or risk. We expect that, in the future, cash
in excess of current requirements will continue to be invested in high credit
quality, interest-bearing securities.

   Net cash provided by financing activities in 1997, 1998 and the first nine
months of 1999 was $3.9 million, $15.8 million and $19.4 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 equipment loan.

   We believe that the net proceeds of this offering, together with cash, cash
equivalents, investments and funds available under existing credit facilities,
will be sufficient to meet our working capital requirements for at least the
next 24 months. Thereafter, we may require additional funds to support our
working capital requirements or for other purposes and may seek to raise
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.

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 No. 133 is effective for all fiscal quarters
beginning with the quarter ending June 30, 2000. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in

                                       27
other contracts, and for hedging activities. We will adopt SFAS No. 133 in the
quarter ending June 30, 2000 and do not expect its 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 system
failures or 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 non-
     compliant product versions;

  .  validation testing; and

  .  contingency planning.

   We have 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 our products are Year 2000
compliant when configured and used in accordance with the related
documentation, and provided that the underlying operating system of the host
machine and any other software used with or in the host machine or our products
are also Year 2000 compliant.

   We define "Year 2000 compliant" as the ability to:

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

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

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

  .  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

  .  recognize year 2000 as a leap year.

   We have not tested our products on all platforms or all versions of
operating systems that our products currently support.

                                       28
We are testing licensed software, shareware and freeware obtained from
third parties that is incorporated into our products or sold in conjunction
with our products, and have assurances from our vendors that this 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;

  .  increased service and warranty costs; or

  .  liability from our customers.

   Accordingly, errors or defects in our products could seriously harm our
business.

   Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of lawsuits against other software
vendors. Because of the unprecedented nature of this litigation, it is
uncertain whether or to what extent we will be affected by it.

   Our internal systems include both our computer and network systems and
other systems. We have initiated an assessment of our most important computer
and network systems and expect to complete the assessment by December 1999. We
have not yet begun to assess the Year 2000 compliance of our other systems,
but we expect to complete this assessment by December 1999. To the extent that
we are not able to assess the technology provided by third-party vendors, we
are seeking assurances from them that their systems are Year 2000 compliant.
Although we are not currently aware of any material operational issues or
costs associated with preparing these systems for the Year 2000, we may
experience unanticipated problems and costs caused by undetected errors or
defects in the technology used in these 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 our products; and

  .  product engineering and customer satisfaction.

   We may experience material problems and costs with Year 2000 compliance
that could harm our business.

   We have not yet 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 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.

                                      29
BUSINESS

Overview

   Interwoven is a provider of software products and services that help
businesses and other organizations manage the information that makes up the
content of their web sites. In the Internet industry this is often referred to
as "web content management." Our flagship software product, TeamSite, is
designed to help customers develop, maintain and extend large web sites that
are essential to their businesses. TeamSite incorporates widely accepted
Internet industry standards and is designed with an open architecture that
allows it to support a wide variety of web authoring tools and web application
servers. Using TeamSite, our customers can manage web content, control the
versions of their web sites, manage web site contribution and content approval
processes, and develop eBusiness applications. TeamSite allows large numbers of
contributors across an enterprise to add web content in a carefully-managed
process. In addition, our OpenDeploy product allows customers to automate the
distribution of web content across multiple web sites. 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 licensed our software products to over 125
customers operating in a broad range of industries. Our customers include
AltaVista, AT&T/TCI, BellSouth, Best Buy, Cisco Systems, eBay, E*Trade, FedEx,
Gap, General Electric, the U.S. Department of Education, USWeb/CKS,
Viacom/Nickelodeon and Yahoo!/GeoCities.

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 Internet commerce market in the U.S. will grow from $7.8 billion in
1998 to $108.0 billion in 2003. In addition, Forrester Research estimates that
the business-to-business Internet commerce market in the U.S. will grow from
$43.1 billion in 1998 to $1.3 trillion in 2003. In this prospectus we refer to
business-to-business and business-to-consumer Internet commerce as "e-
commerce."

   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 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 Internet commerce will grow from
$7.8 billion in 1998 to $53.8 billion in 2002. In this prospectus we refer to
the use of the Internet to conduct business generally as "Internet commerce" or
"eBusiness."

   Moving Online Successfully. To compete online and to capitalize on Internet
revenue opportunities, businesses must rapidly build a differentiated presence
on the web and must 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 the time required to develop and deploy
eBusiness applications, or 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

                                       30
the Internet by transforming their businesses through sophisticated eBusinesses
applications featuring content-rich web sites. In 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 and executable software, 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
solutions to content management problems. These solutions must be highly
automated to accommodate the volume, complexity and variability of this web
content. In addition, these solutions must leverage existing investments in
information technology, be highly scalable, and enable participation by
increasing numbers of content contributors. IDC estimates that one of the
markets in which we participate, which IDC refers 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 web content management needs largely through in-house solutions. In-house
solutions can be expensive and difficult to maintain, which can increase the
risk of delaying the launch of important eBusiness initiatives. For example,
in-house solutions may need to be extensively re-engineered each time a new web
authoring tool or eBusiness application is introduced. Other businesses have
used third-party solutions, typically turning to either workgroup software or
web publishing software. Workgroup software is generally designed to enable
small groups of developers to manage relatively simple web sites. They
generally do not scale to support large numbers of contributors or the
increasing complexity and volume of web content. Using workgroup software may
impair a company's ability to deliver up-to-date and accurate web content. Web
publishing software is generally designed only to collect and display
information on a web site, and because it is often proprietary, does not
accommodate many popular web authoring tools or web application servers. In
addition, other third-party solutions do not allow large numbers of
contributors to add content to a web site, do not allow web teams to work on
applications simultaneously, and do not integrate new web technologies easily,
thereby slowing the deployment of eBusiness initiatives.

   With the proliferation of eBusiness initiatives, the need has emerged for a
common infrastructure, or "platform," that can enable large and diverse groups
of content contributors, accommodate popular web authoring tools, and integrate
to leading web application servers. An open architecture for such a platform
enables customers to leverage their existing investments in information
technology and facilitates rapid adoption of new web technologies and
standards.

                                       31
The Interwoven Solution

   Interwoven provides web content management software that serves as a
platform from which its customers may develop multiple eBusiness applications.
Our software products are specifically designed to help our customers rapidly
and efficiently build, maintain and extend large web sites and eBusiness
initiatives that are essential to their businesses.

            [graphic representing web software positioning (p. 32)]

  A multi-layer graphical representation of web software positioning from
development to delivery. The top layer consists of four boxes. The box on the
far left reads "Customer Relationship Management." The next box to the right
reads "Electronic Commerce." The next box to the right reads "Knowledge
Management." The next box to the right reads "Global Supply Chain." The layer
immediately below the top layer reads "Web Application Servers." The next layer
down contains the Interwoven logo and reads "Deploy," "QA" and "Develop" and a
description to the left of the layer reads "Content Management." The next layer
down reads "Web Authoring Tools." The bottom layer consists of three boxes. The
box on the far left reads "Non-Technical Contributors." The next box to the
right reads "Business Contributors." The next box to the right reads "Technical
Contributors."

   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 web content and the number of eBusiness applications continue to
grow so rapidly that it can be difficult for businesses to meet their web site
development schedules. Our products enable customers to develop and deploy
multiple eBusiness applications simultaneously. This approach allows companies
to complete their eBusiness initiatives more rapidly. In addition, our products
allow content contributors to perform quality assurance functions on content
modifications, 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
supplied by 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 by improving operating efficiency through automation of workflow
processes, such as task assignment, routing, and approval. Automated workflow
processes can reduce the time required to assemble, test and validate new web
content. In addition, our products support evolving web standards and our open
architecture is compatible with third-party web authoring tools and web
application servers. 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 introducing new web

                                       32
technologies and refreshing content frequently. The open architecture of our
products facilitates rapid integration of new web technologies and simultaneous
development of multiple eBusiness applications, such as global supply chain
management, customer relationship management, knowledge management and e-
commerce applications. In addition, our products are highly
scalable, permitting the collaborative efforts of hundreds of contributors to
be coordinated as the need arises.

   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 TeamSite,
companies can create reliable, high-quality web sites. TeamSite enables our
customers to conduct comprehensive testing of the entire web site as it is
built, updated or extended. In addition, TeamSite promotes 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 using
sophisticated workflow processes to maintain quality control, TeamSite also
ensures that no unauthorized or unapproved content or application is deployed
to the customer's site.

The Interwoven Strategy

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

   Establish Position as a Leading Provider of Content Management Software
Products. We intend to establish our leadership in content management solutions
by continuing to offer comprehensive, easy-to-use software products. Our
feature-rich products address our customers' complete eBusiness life-cycle
needs as they build, maintain and extend their web sites. We intend to extend
that leadership position by introducing enhanced web content management
products 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 the
customers of industry-leading Internet technology vendors. We intend to do so
by providing a robust web development platform to complement their own
eBusiness production applications. Unlike existing closed-architecture, or
proprietary products, our products are designed to integrate easily with the
products 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 ATG, Bluestone, 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 KPMG, and Internet professional
services firms, such as USWeb/CKS and iXL. These firms provide consulting
services to assist their clients in designing and developing eBusiness
applications. 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. 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 Technology Leadership Through Adherence to Industry
Standards. Our products integrate easily and cost-effectively with web
authoring tools and web application servers offered by other Internet
technology vendors. In addition, our products have been designed to meet the
demanding openness and scalability required of Internet software products. Our
open architecture supports 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 computer files that contain web content and
enables hundreds of employees throughout the enterprise to contribute web
content. We intend to continue to invest significantly in research

                                       33
and development to increase the functionality of our products while adopting
industry standards. We also intend to continue to participate actively 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 additional offices in Europe and the Pacific
Rim during the next twelve months.

Products and Services

   Our product line consists of TeamSite, our web content management product,
and OpenDeploy, our web content replication and syndication product. We
generally license our products on a per-server and per-user basis and
occasionally on an enterprise or site license basis. We also provide services,
including professional services, maintenance and support.

   The following table highlights the features of our products:

 Product                      Description                      Server Platforms

 TeamSite 4.0    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 tools and web application
                   servers
                 . SmartContext Editing allows direct
                   edits to web site content through a
                   simple browser interface
                 . supports simultaneous eBusiness
                   application development and deployment
                 . offers real-time testing capability and
                   sophisticated workflow processes
                 . offers comprehensive file versioning
                   and whole-site versioning

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

   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
                 . optional software module licensed 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
                 . optional software module licensed with
                   TeamSite

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

 OpenDeploy      Content replication and distribution        . Sun Solaris
 3.1.2           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

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

                                       34
TeamSite -- Content Management

   Our flagship product, TeamSite, is a software product that is designed to
develop, maintain and extend large web sites.

     Web Content Management. TeamSite is designed to version, manage and
  control all web content. It supports parallel, distributed content
  contribution across the enterprise. TeamSite allows large numbers of
  contributors across an enterprise to add web content in a carefully-managed
  process. TeamSite is compatible with leading web authoring 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. TeamSite captures and stores
  the history of all modifications to the web content. These content
  histories, or versions, are managed and tracked for individual web files
  and for whole web sites.

     Workflow. TeamSite is designed for a diverse group of users, including
  non-technical and technical users, participating in building and
  contributing content to the web site operations. To facilitate the
  management of these web content contributors, TeamSite automates workflow
  processes such as task assignment, resource scheduling, content routing,
  content approval and web site release.

     Web Application Development. TeamSite provides programmers with a
  software development system that accommodates their choice of software
  development tools. TeamSite's computer file versioning features allow
  programmers to track software code modifications. Using TeamSite,
  programmers can reduce the time required to build, install and test the
  developed software code by working in a copy of the running web site.

   The architecture of TeamSite enables businesses to implement it without
making significant changes to their existing web content or systems
architecture, resulting in rapid implementation. Additionally, TeamSite's open
architecture allows customers to use their preferred web content authoring
software, 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 4.0, in October 1999.

   We also license optional software modules with TeamSite that extend its
functionality. TeamSite Templating allows web content to be contributed using
customer-defined templates, thereby eliminating the need for contributors to be
familiar with HTML or client-side applications. TeamSite Global Report Center
enables TeamSite administrators to generate reports on web operations activity.

 OpenDeploy -- Content Replication and Syndication

   Our OpenDeploy software product transfers web content from development to
production web servers. OpenDeploy allows users automatically and precisely to
distribute the same web content to numerous servers that can be located in one
or multiple sites. This "synchronizes" web content so that regardless of which
server your request for a web page reaches, you view the same content. By
automating this process, businesses can maximize the availability of their web
sites and minimize the time required for users to access content offered by
those sites. 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 licensed 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
3.1.2, was first shipped in November 1999.

                                       35
Interwoven Services

   Our services organization consists of 54 professional employees who utilize
a comprehensive methodology to deliver our web content management products to
our customers. These services professionals may 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. These services include:

  .needs analysis and web operations strategy;

  .software installation and configuration support;

  .project management;

  .workflow mapping;

  .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 customers and partners a highly-
scalable web content management solution that is implemented through an open
architecture that incorporates widely accepted Internet industry standards and
supports a wide variety of web-based software applications. Our products are
specifically designed for the web. Our customers typically use our technology
as the platform to manage their enterprise-wide web content operations.

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

            [flow diagram representing web workflow process (p. 36)]

                                       36
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 Versioning. TeamSite captures the history of modifications to web
content within each contributors' work area as well as the content within the
common staging area. Our comprehensive content versioning technology allows
customers to record and manage all web content modifications and capture
complete histories of all web files. TeamSite Global Report can then be used to
audit and report on historical changes made to a company's web files and site.

   Whole-Site Versioning. An extension of our techniques for content versioning
allows TeamSite to capture editions of the entire web site. As the content for
an edition of an entire web site is approved, a full version of this site can
be captured and recorded providing a complete history of whole site editions.
This provides customers with an effective way to review and roll back to
previous editions of their web sites as necessary for audit, disaster recovery
and compliance requirements.

   Concurrent Development. TeamSite supports multiple contributors working on a
single project, and multiple teams working on many projects simultaneously, by
utilizing a technique we refer to as branching. A development branch typically
consists of many work areas connected to one staging area. Branches, for
example, might represent a company's intranet and extranet sites. When
required, the content within these independent branches can be synchronized.

 Templating

   Our TeamSite Templating module enables non-technical content contributors to
add content through customer-specific style templates, allowing a preferred
look and feel to be leveraged where desired.

 Product Features

   Open Architecture. Our architecture incorporates widely accepted Internet
industry standards and supports a wide variety of web-based software
applications to integrate into our customers' heterogeneous environments. As a
result, TeamSite also integrates with commercially available content web
authoring tools and web application servers that adhere to industry standards.
This allows our customers' content contributors to use their favorite web
authoring software. 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 automated workflow processes, such as task
assignment, resource scheduling, routing and approval. 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 feature provides non-technical 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 web sites with many
content

                                       37
contributors, TeamSite offers an easy to use, sophisticated, technique for
tracking multiple content changes and merging them into a single file.

   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 deploy and run application
programs automatically as well as to replicate content from relational
databases. OpenDeploy can also be used in an encrypted mode for the secure
deployment of content over the Internet.

 Scalability, Performance and Availability

   Scalability and Performance. TeamSite uses a multi-threaded approach to
promote faster server performance through parallel software code execution. It
also uses C++ and object-oriented programming to promote scalability and
performance. 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 are
often located on geographically dispersed servers.

   Availability. Our design also promotes reliability and availability by
allowing customers to employ their normal data backup and recovery tools. In
addition, 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. Unlike proprietary, closed
implementations, our products have been developed to accommodate industry
leading Internet technologies, such as XML and Java, and other evolving
industry standards. The TeamSite server presents its content through popular
file management systems such as Unix Network File System and Microsoft Windows
Network File System.

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

                                       38
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 November 30, 1999, over 125 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. Each of these customers had
purchased more than $50,000 in licenses and services from us. In August 1999
we entered into an enterprise license agreement with General Electric.
Technology                           Retail                          Media/Entertainment
   ----------                           ------                          -------------------
AIM Technology                        Best Buy                       Ancestry.com
   AltaVista                             Bizbuyer                       ChipCenter
   Ascend/Lucent                         BuyerZone.com                  CondeNet
   Cisco Systems                         eBay                           Discovery Online
   Consensus                             Gap                            Educational Testing Service
   Documentum                            Learning Curve                 Egreetings
   Doublebill.com                          International                HearMe.com
   Electronic Arts                       Lowes                          Hearst New Media
   Hitachi                               National Automotive            Hungry Minds
   How 2 HQ                                Parts Association            iConnect.com
   iNextv                                Paper Exchange                 Los Angeles Times
   LookSmart                             Petopia                        Monster.com
   MicroAge                              Shoplink                       myPlay
   NCR                                   VitaminShoppe.com              Netflicks.com
   NTT Data                              Walgreens                      PhotoDisc
   Network Associates                                                   Quokka Sports
   Nortel Networks                       Financial Services             SmartAge
   Novell                                ------------------             Sega
   Sun Microsystems                      ABN Amro                       Tavolo
   TechRepublic                          AG Edwards                     Viacom/Nickelodeon
   Tivoli                                AON Service                    whynotu.com
   Xerox                                 FleetBoston
   Yahoo!/GeoCities                      BancTec                        Industrial/Transportation
                                         Barclays Global                -------------------------
   Telecommunications/Utilities          Block Financial                Boeing
   ----------------------------          Channel Point                  Clorox
   Alltel                                Edward Jones & Co              General Electric
   AT&T/TCI                              E*Trade                        United Airlines
   Azurix                                First American Financial       Grainger
   BellSouth                             Ford Motor Credit              Yellow Services
   Interpath                             Frank Russell
   Pennyslvania Power & Light            John Hancock                   Government/Professional
   Salt River Project                    Minnesota Life                 -----------------------
   Sempra Energy                                                        American Bar Association
   Telia                                 Health                         Federal Bureau of Prisons
                                         ------                         U.S. Department of Justice
   Consulting Services                   Blue Cross California          U.S. Department of Education
   -------------------                   Kaiser                         U.S. Postal Service
   Dahlin, Smith & White                 PacificCare
   DynaMind
   iXL
   MacLaren McCan
   USWeb/CKS
39
Technology Vendors and Service Providers

 Technology Vendors

   To ensure that our products are well integrated with related web
technologies, we work with vendors of web authoring tools and web application
servers. 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 software over the Internet. We have developed
specific product interfaces for some of these companies, such as software and
service modules for BroadVision and ATG, and some companies refer customers to
us or resell our products. BroadVision, for example, resells our products.

 Service Providers

   We work with leading systems integrators, including Andersen Consulting,
Cambridge Technology Partners, Computer Sciences Corporation, EDS, Ernst &
Young and KPMG, and Internet professional services firms, including iXL, Ogilvy
Interactive and USWeb/CKS. Our prospective customers frequently retain the
services of these firms for the delivery and implementation of eBusiness
applications, and these firms may recommend a content management solution as
part of the eBusiness application they deliver. USWeb/CKS, for example, resells
our products. We intend to devote significant resources to develop these
relationships further.

   We believe that these relationships with these entities are essential as we
continue to seek to integrate our products with current and future web
technologies and deploy and implement our solution at customer sites. Our
relationships with technology providers and service providers are not binding,
however, and can be terminated by these providers at any time.

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 November 30, 1999, we had 63
professionals in our direct sales force, of which 59 were located in the United
States and 4 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.

   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, which is particularly difficult for us because we compete with other
Internet-related software companies and are located in the San Francisco Bay
area where competition for personnel is extremely intense."

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 $2.9 million for the nine months
ended September 30, 1999. We expect that we will increase our product

                                       40
development expenditures substantially in the future. As of November 30, 1999,
36 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, which is particularly difficult for us because we compete
with other Internet-related software companies and are located in the San
Francisco Bay area where competition for personnel is extremely intense."

   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--Difficulties in
introducing new products and upgrades in a timely manner will make market
acceptance of our products less likely."

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.

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

                                       41
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 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 these 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 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 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.
These 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, loss of which
could harm our business."

Employees

   As of November 30, 1999, we had a total of 192 employees, including 81 in
sales and marketing, 36 in research and development, 54 in professional
services and 21 in administration and finance. Of these employees, 188 were
located in the United States and 4 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 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.

                                       42
Facilities

   Our principal office occupies approximately 40,000 square feet in Sunnyvale,
California, under a lease that expires in August 2003. In addition, we also
lease sales and service offices in the metropolitan areas of Atlanta, Boston,
Chicago, Dallas, London, Los Angeles, New York City, Seattle and Washington,
D.C. We believe that our existing facilities will be adequate for our current
needs.

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.

                                       43
MANAGEMENT

Executive Officers and Directors

   The following table presents information regarding our executive officers
and directors as of November 30, 1999.
Name                         Age                     Position
----                         ---                     --------
Martin W. Brauns............ 40  President, Chief Executive Officer and Director
Peng T. Ong................. 36  Chairman of the Board and Vice President
David M. Allen.............. 41  Vice President and Chief Financial Officer
Michael A. Backlund......... 45  Senior Vice President of Worldwide Sales and
                                 Field Operations
Jeffrey E. Engelmann........ 38  Vice President of Business Development
Jack S. Jia................. 36  Vice President of Engineering
Jozef Ruck.................. 48  Vice President of Marketing
Kathryn C. Gould............ 49  Director
Mark W. Saul................ 38  Director
Mark C. Thompson............ 42  Director
Ronald E.F. Codd............ 44  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. 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 Senior Vice President of Worldwide
Sales and Field Operations since October 1999. From May 1998 to October 1999,
he served as our Vice President of Worldwide Sales. 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

                                       44
Internet division of IBM. From 1991 to December 1997, he served in a number of
development, consulting and 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 managing
member since December 1995. Since 1989, Ms. Gould has been a general partner of
Merrill, Pickard, Anderson & Eyre, a venture capital firm. 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 September
1999, Mr. Saul has served as a member of Foundation Capital, a venture capital
firm. From June 1996 to September 1999, Mr. Saul 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 Producer of Schwab.com. Mr. Thompson holds a Bachelor
of Arts in international relations, and a Master of Arts in new media from
Stanford University.

   Ronald E.F. Codd has been one of our directors since July 1999. 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 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. Mr. Codd also serves on the board of
directors of Adept Technology, Inc., a robotics manufacturer and Intraware,
Inc., a provider of business-to-business e-commerce 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.

                                       45
Board Composition

   We currently have six directors. Our bylaws state that our board of
directors is 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 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

   Before April 1, 1998, our board of directors did not have a compensation
committee and all compensation decisions were made by the full board of
directors. In April 1998, the Company formed a compensation committee
consisting of Mr. Brauns, Ms. Gould and Eileen Richardson, a former director.
No compensation decisions were made by this committee in 1998; rather, all
compensation decisions were made by the full board of directors. No
interlocking relationship exists between our board of directors or compensation
committee and the board of directors or compensation committee of any other
company, nor has an interlocking relationship existed in the past.

   Preferred Stock Financings. Entities associated with Foundation Capital
purchased 2,480,419 shares of Series C Preferred Stock at $1.6186 per share in
March 1998, 613,896 shares of Series D Preferred Stock at $2.80668 per share in
October 1998 and 146,666 shares of Series E Preferred Stock at $8.49 per share
in June 1999. Ms. Gould is a member of Foundation Capital and may be deemed to
own beneficially the shares held by entities associated with Foundation
Capital.

   Loan to 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 has
been paid in full.

                                       46
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 will be granted an option to
purchase 20,000 shares of common stock under our 1999 Equity Incentive Plan at
the time the director first joins our board. 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. Mr. Codd and Mr. Thompson were each granted an option to purchase 20,000
shares of Common Stock under our 1998 Stock Option Plan in July 1999. Ms. Gould
and Mr. Saul were each granted an option to purchase 10,000 shares of Common
Stock under the 1999 Equity Incentive Plan in October 1999. These options have
10-year terms and terminate three months following the date the director ceases
to be one of our directors or consultants or 12 months following that date if
the termination is due to death or disability. All options granted to outside
directors under the plan are 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. The restricted stock value is calculated
based upon a $0.39 per share purchase price and assuming that the estimated
fair market value on the date of grant is equal to $17.00 per share, which was
the initial public offering price of a share of our common stock on October 8,
1999. On December 31, 1998, Mr. Brauns held 1,333,333 shares of our common
stock pursuant to a restricted stock award and subject to our right to
repurchase these shares upon termination of his employment. Our repurchase
right expires ratably over a 48 month period from March 1998. If declared by
the board, dividends will be paid on Mr. Brauns' restricted stock award. If the
value of the common stock on December 31, 1998, had been $17.00 per share, the
value of Mr. Brauns' restricted stock award at that time would have been
$22,146,661.

                           Summary Compensation Table
Long Term
                               Annual Compensation        Compensation Awards
                          ------------------------------ ----------------------
                                               Other                 Securities
Name and Principal                             Annual    Restricted  Underlying
Positions                  Salary   Bonus   Compensation Stock Award  Options
------------------        -------- -------- ------------ ----------- ----------
Martin W. Brauns......... $206,119 $100,000     $320     $22,146,661      --
 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   65,450      --              --   156,666
 Vice President of
  Worldwide Sales (1)

Jack S. Jia..............  104,988   55,000      960             --    96,666
 Vice President of
  Engineering
----------------
  (1) Mr. Backland was appointed Senior Vice President of Worldwide Sales and
      Field Operations in October 1999.

   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.

                                       47
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.

  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. The potential realizable
values at 0%, 5% and 10% appreciation are calculated by assuming that the
estimated fair market value on the date of grant is equal to the initial public
offering price of $17.00 per share and appreciates at the indicated rate for
the entire term of the options and that the option is exercised at the exercise
price and sold on the last day of its term at the appreciated price.
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     784,922  1,283,838  2,049,273
Peng T. Ong.............      --         --           --          --          --         --         --
Michael A. Backlund.....  156,666       19.0         0.21     5/26/08   2,630,422  4,305,371  6,875,071
Jack S. Jia.............   23,333        2.8         0.18      3/5/08     392,461    641,919  1,024,637
                           13,333        1.6         0.18      5/7/08     224,261    366,807    585,500
                           60,000        7.3         0.21    10/15/08   1,007,400  1,648,873  2,633,017
48
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 the initial public offering price of $17.00 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 36-month period thereafter. The amounts shown under the columns
"Value Realized" and "Value of Unexercised In-the-Money Options at December 31,
1998" are based on the initial public offering price of $17.00 per share, net
of the exercise price payable for these shares.
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    2,199,162        --              --             --            --
John Chang..............       --           --      55,000         111,666        930,050     1,884,073
Peng T. Ong.............       --           --         --              --             --            --
Michael A. Backlund.....       --           --         --          156,666            --      2,630,422
Jack S. Jia.............       --           --      28,750         127,916        486,163     2,152,560
---------------------
(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.

Employee Benefit Plans

   1996 Stock Option Plan. As of November 30, 1999, options to purchase 22,332
shares of common stock were outstanding under the 1996 Stock Option Plan and
options to purchase 610,994 shares had been exercised, but 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 November 30, 1999, options to purchase
1,058,673 shares of common stock were outstanding under the 1998 Stock Option
Plan and options to purchase 1,383,726 shares had been exercised, but 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. On July 22, 1999, the board adopted the 1999
Equity Incentive Plan and reserved 2,900,000 shares of common stock to be
issued under this plan. As of November 30, 1999, options to purchase 64,000
shares of common stock were outstanding under the 1999 Equity Incentive Plan,
options to purchase 2,836,000 shares remained available for issuance and no
options had been exercised. In addition, shares under the 1996 Stock Option
Plan and the 1998 Stock Option Plan not issued or subject to outstanding grants
on the effective date of the 1999 Equity Incentive Plan 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. As a result these provisions, a total of
146,403 shares from the 1998 Stock Option Plan were

                                       49
available for issuance under the 1999 Equity Incentive Plan as of November 30,
1999. 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 became effective in October 1999 and will terminate on July 21,
2009, unless it is terminated earlier by our board. The plan authorizes the
award of options, restricted stock awards and stock bonuses. No person is
eligible to receive more than 1,000,000 shares in any calendar year under the
plan other than a new employee who is eligible to receive no more than
1,500,000 shares in the calendar year in which the employee commences
employment.

   The plan is 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 has 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 provides 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.

   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 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 can 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 generally terminate immediately upon termination
of employment for cause.

   The purchase price for restricted stock is 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.

                                       50
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 became effective in October 1999.
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 is administered by our compensation committee, which has the authority
to construe and interpret the plan.

   Employees generally are 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 are 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 began on October 8,
1999. Additional offering periods and purchase periods will begin on May 1 and
November 1 of each year. However, because the first offering period began on a
date other than May 1 or November 1, the length of the first offering period
will be more than two years, and the length of the first purchase period will
be more than six months.

   The plan provides that, in the event of our proposed dissolution or
liquidation, each offering period that commenced prior to the closing of the
proposed event continues 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 common stock on the first day of
the applicable offering period or the last day of the applicable purchase
period. The compensation committee has 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 are not
transferable by a participant other than by will or the laws of descent and
distribution.

   The plan will terminate on July 21, 2009, unless it is terminated earlier
under the terms of the plan. The board has 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

                                       51
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' initial annual 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 some 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
from March 1998. 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 "Management--
Compensation Committee Interlocks and Insider Participation."

   Mr. Ong's offer letter, dated February 29, 1996, provided for an initial
annual 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.

   Mr. Allen's offer letter, dated February 12, 1999, provides for an initial
annual 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 relocation expenses. Mr. Allen received options to purchase 186,666 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
annual 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 relocation expenses. Mr. Backlund received options to
purchase 156,666 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 39,166
shares vested 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 66,666 shares of our common stock at an exercise price
of $0.39 per share as a result of meeting revenue objectives in 1998 and in
lieu of a portion of his cash bonus earned in 1998. In July 1999, Mr. Backlund
received options to purchase an additional 13,333 shares of our common stock at
a price of $7.64 per share under the 1998 Stock Option Plan. In October 1999,
he received options to purchase an additional 13,333 shares of our common stock
at an exercise price of $14.00 per share under the 1998 Stock Option Plan. 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 annual 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 relocation expenses. Pursuant to the offer
letter, Mr. Engelmann purchased 183,333 shares of our common stock at an
exercise 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

                                       52
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 86,666 shares of our common stock at an
exercise price of $0.39 per share, subject to attainment of 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. The note bears
interest at the rate of 6% per year. The principal sum of the note will become
due and payable in eighteen equal monthly installments beginning in October
2000. The note is due earlier in the event of our acquisition or Mr.
Engelmann's termination of employment. 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
annual 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. In July 1999, Mr. Jia received options to purchase an
additional 20,000 shares of our common stock at an exercise price of $7.64 per
share under the 1998 Stock Option Plan. 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
annual 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 213,333 shares of our common stock at an exercise 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 equal to
the shares granted less 4,444 shares for each full month of employment for Mr.
Ruck after March 15, 1999. On March 18, 1999, Mr. Ruck purchased an additional
33,333 shares of our common stock at an exercise price of $0.39 per share,
subject to the attainment of 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. The note bears
interest at the rate of 6% per year. The principal sum of the note will become
due and payable in eighteen equal monthly installments beginning in October
2000. The note is due earlier in the event of our acquisition or Mr. Ruck's
termination of employment. 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
annual 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 at an exercise price of $0.39 per share,
subject to the attainment of 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.

                                       53
Mr. Farber's offer letter, dated June 14, 1997, provides for an initial
annual 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 130,666 of Mr. Farber's options to purchase
common stock at an exercise price of $0.18 per share 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.

   We have entered 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.

                                       54
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

   In March and June 1996, we sold an aggregate of 1,199,998 shares of Series A
Preferred Stock at a purchase price of $0.30 per share. In May and June 1997,
we sold an aggregate of 2,134,548 shares of Series B Preferred Stock at a
purchase price of $1.9293 per share. In March 1998, we sold an aggregate of
4,161,082 shares of Series C Preferred Stock at a purchase price of $1.6186 per
share, and warrants to purchase 612,079 shares of Series C Preferred Stock at
an exercise price of $1.9293 per share. In October, November and December 1998,
we sold an aggregate of 2,494,142 shares of Series D Preferred Stock at a
purchase price of $2.80668 per share. In June 1999, we sold an aggregate of
2,263,136 shares of Series E Preferred Stock at a purchase price of $8.49 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 A Series B  Series C  Series D Series 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    167,030   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 managing member of Foundation Capital
and may be deemed to own beneficially the shares held by entities associated
with Foundation Capital. Mr. Ong disposed of his shares of Series A Preferred
Stock in 1997. Mr. Saul, one of our directors, is a member of Foundation
Capital but does not own beneficially the shares held by entities associated
with Foundation Capital.

                                       55
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
In October 1999, these warrants were exercised.

   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 $1.92932 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..............      318,075
   Entities associated with Accel Partners..................      136,317
   Entities associated with JK&B Capital....................       83,371
   Entities associated with Draper Fisher Jurvetson.........       35,573
Loans to Executive Officers

   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. In October 1999, the notes were amended
to adjust the repayment schedule in the event of an initial public offering of
our common stock. The notes accrue interest at a rate of 6% per year. Interest
is payable annually. The principal sum of each note will become due and payable
in eighteen equal monthly installments beginning in October 2000. If Mr.
Engelmann breaches his obligations under the notes we may enforce our right to
payment of 25% of the principal and any accrued interest out of any of Mr.
Engelmann's assets, but may enforce our right to payment of the balance due
under the notes only out of the stock subject to the stock pledge agreement. As
of November 30, 1999, $109,196 remained outstanding under the notes.

   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. In October 1999, the notes were amended to adjust the repayment
schedule in the event of an initial public offering of our common stock. The
notes accrue interest at a rate of 6% per year. Interest is payable annually.
The principal sum of each note will become due and payable in eighteen equal
monthly installments beginning in October 2000. If Mr. Ruck breaches his
obligations under the notes we may enforce our right to payment of 25% of the
principal and any accrued interest out of any of Mr. Ruck's assets, but may
enforce our right to payment of the balance due under the notes only out of the
stock subject to the stock pledge agreement. As of November 30, 1999, $99,727
remained outstanding under the notes.

   Please refer to "Management--Compensation Committee Interlocks and Insider
Participation" for a description of a loan to Mr. Brauns.

                                       56
PRINCIPAL AND SELLING STOCKHOLDERS

   The following table presents information as to the beneficial ownership of
our common stock as of November 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;

  .  all executive officers and directors as a group; and

  .  the selling stockholders.
Percentage of
                                                                                        Shares
                                                               Number of              Outstanding
                                                                 Shares    Shares  -----------------
                                                              Beneficially  Being   Before   After
                  Name of Beneficial Owner                       Owned     Offered Offering Offering
                  ------------------------                    ------------ ------- -------- --------
Kathryn C. Gould (1)........................................   3,250,980            14.4%        %
 Foundation Capital entities
  70 Willow Road, Suite 200
 Menlo Park, CA 94025

JK&B Capital entities (2)...................................   2,578,655            11.5
 205 North Michigan Avenue, Suite 808
 Chicago, IL 60601

Peng T. Ong (3).............................................   1,933,333             8.6

Martin W. Brauns (4)........................................   1,419,436             6.3

Accel Partners entities (5).................................   1,398,175             6.2
 428 University Avenue
 Palo Alto, CA 94301

Michael A. Backlund (6).....................................     249,998             1.1

Steven Farber...............................................     204,380              *          *

Jack S. Jia (7).............................................     194,333              *          *

Mark W. Saul (8)............................................     132,602              *          *

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)
 ...........................................................   7,924,013            35.0%        %

Additional selling stockholders, each holding less than 1%
 of the
 outstanding common stock before this offering (   persons)..
---------------------
(1) Represents 2,878,855 shares held by Foundation Capital II, L.P., 200,077
    shares held by Foundation Capital II Entrepreneurs Fund, L.L.C., and
    162,048 shares held by Foundation Capital II Principals Fund, L.L.C.
    Foundation Management II, L.L.C. is the general partner of Foundation
    Capital II, L.P. James C. Anderson, William B. Elmore, Paul G. Koontz,
    Kathryn Gould and Michael N. Schuh are the managing members of Foundation
    Management II, L.L.C. and share voting and investment power of the shares.
    The managing members of Foundation Management II, L.L.C. disclaim
    beneficial ownership of the shares, except to the extent of their direct
    pecuniary interest in the shares. Foundation Management II, L.L.C. is the
    managing member of both Foundation Capital II Entrepreneurs Fund, L.L.C.
    and Foundation Capital II Principals Fund, L.L.C. The managing members of
    Foundation Management II, L.L.C. are deemed to

                                       57
beneficially own the shares held by Foundation Capital II Entrepreneurs
   Fund, L.L.C. and Foundation Capital II Principals Fund, L.L.C. and have
   voting and investment power of the shares. The managing members of
   Foundation Management II, L.L.C. disclaim beneficial ownership of the
   shares, except to the extent of their direct pecuniary interest in the
   shares. Includes options to purchase 10,000 shares of common stock
   exercisable within 60 days of November 30, 1999.

(2) Represents 1,800,630 shares held by JK&B Capital, L.P., and 778,025 shares
    held by JK&B Capital II, L.P. JK&B Management, L.L.C. is the general
    partner of JK&B Capital, L.P. and JK&B Capital II, L.P. David Kronfeld is
    the sole managing member of JK&B Management, L.L.C. Mr. Kronfeld is deemed
    to beneficially own the shares held by JK&B Capital, L.P. and JK&B Capital
    II, L.P. and has voting and investment power of the shares. Mr. Kronfeld
    disclaims beneficial ownership of the shares, except to the extent of his
    direct pecuniary interest in the shares.

(3) Represents 1,933,333 shares of common stock held of record by the Ong-Leong
    Family Trust U/D/T 6/29/99, Peng Tsin Ong and Wai Ping-Leong, trustees, who
    share voting and investment control.

(4) Represents 1,419,436 shares of common stock held of record by Martin W.
    Brauns and Margaret R. Brauns, trustees U/D/T 1/9/95. Includes 836,102
    shares of common stock subject to our repurchase right.

(5) Represents 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. Accel V Associates L.L.C. is the general
    partner of Accel V L.P. and has the sole voting and investment power of the
    shares held by Accel V L.P. Arthur C. Paterson, ACP Family Partnership
    L.P., James R. Swartz, James W. Breyer, The Breyer 1995 Trust dated
    10/4/95, Eugene D. Hill, Swartz Family Partnership L.P., Luke B. Evnin, J.
    Peter Wagner, and G. Carter Sednaoui are the managing members of Accel V
    Associates L.P. and share voting and investment power of the shares. The
    managing members of Accel V Associates L.L.C. disclaim beneficial ownership
    of the shares, except to the extent of their direct pecuniary interest in
    the shares, Accel Internet/Strategic Technology Fund Associates L.L.C, is
    the general partner of Accel Internet/Strategic Technology Fund L.P. and
    therefore has the sole voting and investment power of the shares held by
    Accel Internet/Strategic Technology Fund L.P. Arthur C. Paterson, ACP
    Family Partnership L.P., James R. Swartz, James W. Breyer, Eugene D. Hill,
    Swartz Family Partnership L.P., Luke B. Evnin, J. Peter Wagner, and G.
    Carter Sednaoui are the managing members of Accel Internet/Strategic
    Technology Fund L.P. and share voting and investment power of the shares.
    The managing members of Accel Internet/Strategic Technology Fund Associates
    L.L.C. disclaim beneficial ownership of the shares, except to the extent of
    their direct pecuniary interest in the shares. Accel Keiretsu V Associates
    L.L.C. is the general partner of Accel Keiretsu V L.P. and has the sole
    voting and investment power. Arthur C. Paterson, James R. Swartz, James W.
    Breyer, Eugene D. Hill, Luke B. Evnin, J. Peter Wagner, and G. Carter
    Sednaoui are the managing members of Accel Keiretsu V L.P. and share voting
    and investment power of the shares held by Accel Keiretsu V L.P. The
    managing members of Accel Keiretsu V L.L.C. disclaim beneficial ownership
    of the shares, except to the extent of their direct pecuniary interest in
    the shares. Arthur C. Paterson, James R. Swartz, James W. Breyer, Luke B.
    Evnin, J. Peter Wagner, and G. Carter Sednaoui are the general partners of
    Accel Investors '97 L.P. and share voting and investment powers of the
    shares held by Accel Investors '97 L.P. The general partners of Accel
    Investor '97 L.P. disclaim beneficial ownership of the shares, except to
    the extent of their direct pecuniary interest in the shares. Arthur C.
    Patterson is the sole general partner of Ellmore C. Patterson Partners and
    has sole voting and investment power with respect to the shares held by
    Ellmore C. Patterson Partners. Mr. Patterson disclaims beneficial ownership
    of the shares except to the extent of his direct pecuniary interest in the
    shares.

(6) Includes 164,582 shares of common stock subject to our repurchase right and
    options to purchase 26,666 shares of common stock exercisable within 60
    days of November 30, 1999. Also includes 116,666 shares of common stock
    held of record by the Backlund Family Trust.

(7) Includes 119,581 shares of common stock subject to our repurchase right as
    of November 30, 1999. Also includes 1,000 shares of common stock held by
    family members, as to which Mr. Jia disclaims beneficial ownership.

                                       58
(8) Includes options to purchase 10,000 shares of common stock exercisable
    within 60 days of November 30, 1999.

(9) Represents options to purchase 20,000 shares of common stock exercisable
    within 60 days of November 30, 1999.

(10) Includes 1,823,597 shares of common stock subject to our repurchase right
     and 96,666 shares of common stock subject to options exercisable within 60
     days of November 30, 1999. Also includes 500 shares held by a relative of
     one executive officer, as to which the officer disclaims beneficial
     ownership. Also see notes 6 and 7.

   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 above, 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 November 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 that 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. The percentage of common stock
outstanding as of November 30, 1999 is based on 22,515,645 shares of common
stock outstanding on that date.

                                       59
DESCRIPTION OF CAPITAL STOCK

   Our authorized capital stock consists of 100,000,000 shares of common stock,
$0.001 par value per share, and 5,000,000 shares of preferred stock, $0.001 par
value per share.

Common Stock

   As of November 30, 1999, there were 22,515,645 shares of common stock
outstanding held by 221 stockholders of record. The number of stockholders does
not include persons whose stock is in nominee or "street name" accounts through
brokers.

   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

   We are 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 a given series then outstanding, without any further vote or action by the
stockholders.

   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.

Warrants

   As of November 30, 1999, we had outstanding the following warrants to
purchase our common stock:
Total number of
      shares Subject                Exercise price                           Expiration
        to Warrants                   per share                                 date
      ---------------               --------------                           ----------
6,552                         1.93                              September 2004
          39,096                         8.49                                July 2006
In October 1999, warrants to purchase 64,123 shares of common stock were
exercised.

                                       60
Registration Rights

   The holders of approximately      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. They and the holders of an
additional      shares of common stock have the right to require us to include
their shares in any registration statement we file.

 Right to demand registration

   At any time after April 7, 2000, 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 included in a registration statement.

   Who may make a demand. At any time after April 7, 2000, any holder of shares
of common stock issued upon conversion of Series B Preferred Stock, 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, 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, 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, or the holders of at least 40% of
the shares having registration rights, including some holders of common stock
issued upon conversion 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, holders of approximately
shares of common stock 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 included in a registration
statement.

 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 in October 2004. 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.

                                       61
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 are 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.

 Bylaw Provisions

   Our bylaws state 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. 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.

                                       62
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 have entered 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

   Our common stock is listed for quotation on The Nasdaq Stock Market's
National Market under the symbol "IWOV."

                                       63
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, based on shares outstanding at November
30, 1999, we will have outstanding 22,515,645 shares of common stock, assuming
no exercise of outstanding options and warrants. Of these shares, the 3,622,500
shares sold in our initial public offering and the 3,000,000 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                  These shares may be sold under Rule
                                         144(k)
April 5, 2000                            Underwriters' lock-up in connection
                                         with our initial public offering
                                         released. These shares may be sold
                                         under Rules 144, 144(k), 145 or 701
April   , 2000                           Underwriters' lock-up in connection
                                         with this offering released. These
                                         shares may be sold under Rules 144,
                                         144(k), 145 or 701
October 8, 2000                          These shares may be sold under Rules
                                         144, 145 or 701
At various times thereafter              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
signed lock-up agreements in connection with our initial public offering 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 Corporation until April 6, 2000.
In addition, in connection with this offering, each executive officer, director
and selling stockholder has signed a similar lock-up agreement that extends for
a period of 90 days after the date of this prospectus.

   Credit Suisse First Boston Corporation may choose to release some of these
shares from these restrictions prior to the expiration of either lock-up
period, though it has no current intention to do so, except for the shares sold
in this offering.

                                       64
Rule 144

   In general, under Rule 144 as currently in effect, 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 236,818 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.

 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. However, all shares issued under Rule 701 are subject to lock-up
agreements and will only become eligible for sale when the applicable lock-up
agreement expires.

 Registration Rights

   Upon completion of this offering, the holders of      shares of common
stock, or their transferees, will be entitled to 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

   We have registered under the Securities Act a total of 4,444,828 shares of
common stock reserved for issuance under our stock option and employee stock
purchase plans. As of November 30, 1999, options to purchase 1,145,005 shares
of common stock were issued and outstanding. Between November 30, 1999 and the
date hereof we granted options to purchase approximately      shares of common
stock.

   Upon the expiration of the 180-day lock-up agreements described above,
124,586 shares of common stock will be subject to vested options, based on
options outstanding as of November 30, 1999. Subject to vesting provisions and
Rule 144 volume limitations applicable to our affiliates, these shares will be
available for sale in the open market immediately after the 180-day lock up
agreements expire, unless the holder is an executive officer, director or
selling stockholder, in which case the shares will be available for sale in the
open market 90 days after the date of this prospectus.

                                       65
Warrants

   As of November 30, 1999, we had outstanding warrants to purchase 45,648
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. These warrants also contain "net exercise provisions,"
which 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 Rules 144 and 145.
After the 180-day lock-up agreements described above expire, these warrants
will have been outstanding for at least one year.

                                       66
UNDERWRITING

   Under the terms and subject to the conditions contained in the underwriting
agreement dated    , 2000, we and the selling stockholders have agreed to sell
to the underwriters named below, for whom Credit Suisse First Boston
Corporation, FleetBoston Robertson Stephens Inc., Dain Rauscher Incorporated,
SoundView Technology Group, Inc. and Adams, Harkness & Hill, Inc. are acting as
representatives, the following respective numbers of shares of common stock:
Number of
              Underwriter                                              Shares
              -----------                                             ---------
Credit Suisse First Boston Corporation............................
   FleetBoston Robertson Stephens Inc................................
   Dain Rauscher Incorporated........................................
   SoundView Technology Group, Inc. .................................
   Adams, Harkness & Hill, Inc. .....................................
                                                                      ---------
     Total........................................................... 3,000,000
                                                                      =========
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.

   Several of the selling stockholders have granted to the underwriters a 30-
day option to purchase on a pro rata basis up to 450,000 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
and the selling stockholders 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..       $              $              $              $
Underwriting discounts
 and commissions
paid by selling
 stockholders...........       $              $              $              $
Expenses payable by the
 selling stockholders...       $              $              $              $
We and our executive officers and directors and the selling stockholders
have agreed that we will not offer, sell, contract 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, or publicly
disclose the intention to make any offer, sale, pledge, disposition or filing,
without the prior

                                       67
written consent of Credit Suisse First Boston Corporation for a period of 90
days after the date of this prospectus, except in our case of issuances
pursuant to the exercise of employee stock options outstanding on the date of
this prospectus.

   We and the selling stockholders 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.

   Our common stock is quoted on The Nasdaq 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. These
shares of Series E Preferred Stock are convertible into an aggregate of
2,263,136 shares of common stock at $8.49 per share. 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. These shares of Series E Preferred Stock
are convertible into 153,121 shares of common stock.

   The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and "passive" market making 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.

  . In "passive" market making, market makers in the common stock who are
    underwriters or prospective underwriters may, subject to certain
    limitations, make bids for or purchases of the common stock until the
    time, if any, at which a stabilizing bid is made.

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.

                                       68
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 and the selling
stockholders 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, the selling stockholders 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 and the selling stockholders 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.

                                       69
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 consolidated financial statements as of December 31, 1997 and 1998 and
September 30, 1999 and for each of the three years in the period ended
December 31, 1998 and the nine months ended September 30, 1999 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 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 file reports, proxy statements and other information with the Securities
and Exchange Commission. Copies of our reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC:

Judiciary Plaza              Citicorp Center             Seven World Trade
Room 1024                    5000 West Madison Street Center
450 Fifth Street, N.W.       Suite 1400                  13th Floor
Washington, D.C. 20549       Chicago, Illinois 60661     New York,
                                                         New York 10048

   Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a Website that contains reports, proxy statements and other
information regarding each of us. The address of the SEC Website is
http://www.sec.gov.

                                      70
INTERWOVEN, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
                                                                            ----
Report of Independent Accountants.......................................... F-2

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

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

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

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

Notes to Consolidated Financial Statements................................. F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS

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

     In our opinion, the accompanying consolidated balance sheet and the
  related consolidated statements of operations, of stockholders' deficit
  and of cash flows present fairly, in all material respects, the
  financial position of Interwoven, Inc. and its subsidiary at December
  31, 1997 and 1998 and September 30, 1999, and the results of their
  operations and their cash flows for each of the three years in the
  period ended December 31, 1998 and for the nine months ended September
  30, 1999, in conformity with accounting principles generally accepted
  in the United States. 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 auditing standards
  generally accepted in the United States, 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
  December 10, 1999

                                      F-2
INTERWOVEN, INC.

                           CONSOLIDATED BALANCE SHEET
               (in thousands, except share and per share amounts)
December 31,                     Pro Forma
                                    -----------------  September 30, September 30,
                                     1997      1998        1999          1999
                                    -------  --------  ------------- -------------
ASSETS
 Current assets:
   Cash and cash equivalents.....   $ 1,019  $  9,022    $ 12,576
   Short-term investments........       --        --        8,416
   Accounts receivable, net......       140     2,405       2,594
   Prepaid expenses..............       --        179       1,314
   Other current assets..........        37        80         122
                                    -------  --------    --------
    Total current assets.........     1,196    11,686      25,022
 Investments.....................       --        --        1,003
 Property and equipment, net.....       188     1,617       2,297
 Intangible assets, net..........       --        --          545
 Restricted cash.................       --        605         605
                                    -------  --------    --------
                                    $ 1,384  $ 13,908    $ 29,472
                                    =======  ========    ========

     LIABILITIES, MANDATORILY
 REDEEMABLE CONVERTIBLE PREFERRED
 STOCK, AND STOCKHOLDERS' EQUITY
            (DEFICIT)
 Current liabilities:
   Accounts payable..............   $   213  $    484    $  1,179
   Accrued liabilities...........       169     1,473       2,592
   Debt and leases, current......        22       258         500
   Deferred revenue, current.....        --       627       2,548
                                    -------  --------    --------
    Total current liabilities....       404     2,842       6,819
   Debt and leases, long-term....        87     1,257         875
   Deferred revenue, long-term...       --         97         --
                                    -------  --------    --------
                                        491     4,196       7,694
                                    -------  --------    --------
 Mandatorily redeemable
  convertible preferred stock
  4,942,133, 15,163,093 and
  18,763,092 shares authorized,
  respectively; 4,839,505,
  15,060,465 and 18,543,523
  shares issued and outstanding,
  respectively, actual; no shares
  authorized, issued or
  outstanding pro forma..........     4,627    20,464      52,996      $    --
                                    -------  --------    --------      --------
 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 and
    75,000,000 shares authorized,
    respectively; 2,433,333,
    4,909,232, 6,588,846 and
    19,059,385 shares,
    respectively, issued and
    outstanding..................         3         5           7            19
   Additional paid-in capital....      (243)      881      (4,590)       48,394
   Notes receivable from
    stockholders.................        (3)     (240)       (202)         (202)
   Deferred stock-based
    compensation.................       --     (1,090)     (5,114)       (5,114)
   Accumulated deficit...........    (3,491)  (10,308)    (21,319)      (21,319)
                                    -------  --------    --------      --------
    Total stockholders' equity
     (deficit)...................    (3,734)  (10,752)    (31,218)     $ 21,778
                                    -------  --------    --------      ========
                                    $ 1,384  $ 13,908    $ 29,472
                                    =======  ========    ========
See accompanying notes to financial statements.

                                      F-3
INTERWOVEN, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS
                    (in thousands, except per share amounts)
Nine Months Ended
                               Year Ended December 31,        September 30,
                              ---------------------------  --------------------
                               1996      1997      1998       1998       1999
                              -------  --------  --------  ----------- --------
                                                           (unaudited)
Revenues:
  License...................  $   --   $     84  $  3,176    $ 1,570   $  5,814
  Services..................      --         84       827        539      3,447
                              -------  --------  --------    -------   --------
    Total revenues..........      --        168     4,003      2,109      9,261
Cost of revenues:
  License...................      --        --         59         19        147
  Services..................      --         95     1,274        791      3,542
                              -------  --------  --------    -------   --------
    Total cost of revenues..      --         95     1,333        810      3,689
                              -------  --------  --------    -------   --------
Gross profit................      --         73     2,670      1,299      5,572
Operating expenses:
  Research and development..      328       884     1,797      1,227      2,930
  Sales and marketing.......      101     1,519     4,817      2,960      9,058
  General and
   administrative...........       91       530     1,739      1,135      2,077
  Amortization of deferred
   stock-based
   compensation.............      --        --        812        564      2,685
  Amortization of acquired
   intangible assets........      --        --        --         --         249
                              -------  --------  --------    -------   --------
    Total operating
     expenses...............      520     2,933     9,165      5,886     16,999
Loss from operations........     (520)   (2,860)   (6,495)    (4,587)   (11,427)
Interest and other income
 (expense), net.............       10       (88)      151         89        416
                              -------  --------  --------    -------   --------
Net loss....................  $  (510) $ (2,948) $ (6,344)   $(4,498)  $(11,011)
Accretion of mandatorily
 redeemable convertible
 preferred stock to
 redemption value...........      --       (261)   (1,165)      (463)   (13,227)
                              -------  --------  --------    -------   --------
Net loss attributable to
 common stockholders........  $  (510) $ (3,209) $ (7,509)   $(4,961)  $(24,238)
                              =======  ========  ========    =======   ========
Basic and diluted net loss
 per share..................  $ (0.22) $  (1.36) $  (2.85)   $ (1.98)  $  (6.51)
                              =======  ========  ========    =======   ========
Shares used in computing
 basic and diluted net loss
 per share..................    2,282     2,356     2,633      2,505      3,722
                              =======  ========  ========    =======   ========
Pro forma basic and diluted
 net loss per share.........                     $  (0.74)             $  (0.74)
                                                 ========              ========
Shares used in computing pro
 forma basic and diluted net
 loss per share.............                        8,530                14,957
                                                 ========              ========
See accompanying notes to financial statements.

                                      F-4
INTERWOVEN, INC.

                CONSOLIDATED 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       (243)        (3)          --        (3,491)    (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    $   881      $(240)      $(1,090)    $(10,308)  $(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 .................    (98)    --        (10)       --            --           --         (10)
Note repayment..........    --      --        --         240           --           --         240
Accretion of mandatorily
 redeemable convertible
 preferred stock........    --      --    (13,227)       --            --           --     (13,227)
Issuance of Common Stock
 on exercise of stock
 options ...............  1,251      2        829        --            --           --         831
Deferred stock-based
 compensation...........    --      --      6,708        --         (6,708)         --         --
Amortization of stock-
 based compensation ....    --      --        --         --          2,684          --       2,684
Net loss................    --      --        --         --            --       (11,011)   (11,011)
                          -----    ---    -------      -----       -------     --------   --------
Balance at September 30,
 1999...................  6,588    $ 7    $(4,590)     $(202)      $(5,114)    $(21,319)  $(31,218)
                          =====    ===    =======      =====       =======     ========   ========
See accompanying notes to financial statements.

                                      F-5
INTERWOVEN, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)
Nine Months Ended
                               Year Ended December 31,        September 30,
                               --------------------------  --------------------
                                1996     1997      1998       1998       1999
                               ------- --------  --------  ----------- --------
                                                           (unaudited)
Cash flows used in operating
 activities:
 Net loss....................  $ (510) $ (2,948) $ (6,344)   $(4,498)  $(11,011)
 Adjustments to reconcile net
  loss to net cash used in
  operating activities:
 Depreciation and
  amortization...............      17        56       294        194        589
 Amortization of deferred
  stock-based compensation...     --        --        812        564      2,685
 Amortization of acquired
  intangible assets..........     --        --        --         --         249
 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)    (1,192)       (34)
  Prepaid expenses and other
   assets....................      (1)      (30)     (222)       (61)    (1,177)
  Restricted cash............     --        --       (605)      (605)       --
  Accounts payable...........     116        96       271         71        695
  Accrued liabilities........      48       121     1,304        459        994
  Deferred revenue...........     --        --        724        317      1,824
                               ------  --------  --------    -------   --------
   Net cash used in operating
    activities...............    (323)   (2,710)   (6,031)    (4,751)    (5,141)
                               ------  --------  --------    -------   --------
Cash flows used in investing
 activities:
 Purchase of property and
  equipment..................     (64)     (138)   (1,723)    (1,413)    (1,269)
 Purchase of investments.....     --        --        --         --      (9,428)
 Maturities of investments...     --        --        --         --           9
                               ------  --------  --------    -------   --------
                                  (64)     (138)   (1,723)    (1,413)   (10,688)
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         68        831
 Proceeds from notes payable,
  net of discount............      75       375       --         --         --
 Repayment (issuance) of
  stockholders loans.........      10       (11)        3          3        240
 Proceeds from bank
  borrowings.................     --         76     1,500        574        --
 Repurchase of Common Stock..     --         (5)      --         --         (10)
 Principal payments of debt
  and leases.................     --         (5)      (94)       (70)      (140)
                               ------  --------  --------    -------   --------
   Net cash provided by
    financing activities.....     397     3,850    15,757      6,655     19,383
                               ------  --------  --------    -------   --------
Net increase in cash and cash
 equivalents.................      10     1,002     8,003        491      3,554
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    $ 1,510   $ 12,576
                               ======  ========  ========    =======   ========
Supplemental cash flow
 disclosures:
 Cash paid for interest......  $  --   $    --   $     41    $    19   $     94
                               ======  ========  ========    =======   ========
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 CONSOLIDATED FINANCIAL STATEMENTS
     Information for the nine months ended September 30, 1998 is unaudited

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 The Company

   Interwoven, Inc. (the "Company") is a leading provider of software products
and services that help businesses and other organizations manage the
information that makes up the content of their web sites. In the Internet
industry this is often referred to as "web content management." Our flagship
software product, TeamSite, is designed to help customers develop, maintain and
extend large web sites that are essential to their businesses. The Company also
markets and sells its software products and services through its wholly owned
subsidiary in the United Kingdom.

 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.

 Basis of Presentation

   The condensed consolidated 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 as of September 30, 1999. The results of
operations for the nine months ended September 30, 1999 are not necessarily
indicative of results that may be expected for any other interim period or for
the full fiscal year.

 Principles of consolidation

   The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary after elimination of all significant
intercompany accounts and transactions.

 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

                                      F-7
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

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.

   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. The Company does not offer product return rights to
resellers or end users.

   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. Deferred revenues
from advanced payments for maintenance agreements are recognized ratably over
the term of the agreement, which is typically one year.

 Cash, cash equivalents, and investments

   The Company considers all highly liquid investments with a maturity from
date of purchase of three months or less to be cash equivalents. Cash and cash
equivalents consist primarily of cash on deposit with banks and high quality
money market instruments. All other liquid investments are classified as either
short-term or long-term investments. Short-term investments consist of
commercial paper and corporate bonds.

   Management determines the appropriate classification of investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. At September 30, 1999, all investment securities were
designated as available-for-sale. Available-for-sale securities are carried at
fair value, using available market information and appropriate valuation
methodologies, with unrealized gains and losses reported in stockholders'
equity.

   Realized gains and losses and declines in value judged to be other-than-
temporary on available-for-sale securities are included in the statements of
income. There have been no such transactions in the nine months ended September
30, 1999. The cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available-for-sale
are included in interest income.

   At September 30, 1999, the Company's available-for-sale securities consisted
of the following: Commercial paper $11.9 million; corporate notes $2.0 million,
corporate bonds $.5 million, medium term notes $1.0 million and United States
government agencies $1.0 million and money market funds $3.8 million. Of these
securities, $10.8 million and $8.4 million was classified as cash equivalents
and short-term investments, respectively. The Company had approximately $1.0
million in corporate notes with a maturity that exceeded one year, accordingly
this note was classified as a long-term investment.

   As of September 30, 1999 the difference between the fair value and the
amortized cost of available-for-sale securities was insignificant; therefore,
no unrealized gains or losses were recorded in stockholders' equity. For the
nine months ended September 30, 1999, there were no realized gains and losses.

                                      F-8
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

 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.
Nine Months
                                               Year ended            Ended
                                              December 31,       September 30,
                                              ---------------   ----------------
                                               1997     1998       1998     1999
                                              ------   ------   ----------- ----
                                                                (Unaudited)
Company A.................................     20%      --%       --%     --%
   Company B.................................     20%      --%       --%     --%
   Company C.................................     18%      --%       --%     --%
   Company D.................................     11%      --%       --%     --%
   Company E.................................     10%      --%       --%     --%
   Company F.................................     --%      13%       16%     --%
   Company G.................................     --%      --%       12%     --%
   Company H.................................     --%      --%       --%     --%
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 September 30, 1999 no
customer accounted for 10% of total accounts receivable.

 Fair value of instruments

   The Company's financial instruments including cash and cash equivalents,
accounts receivable and accounts payable, are carried at cost, which
approximate fair value due to the short-term maturity of these instruments.
Debt and capital lease obligations are carried at cost, which approximates fair
value due to the proximity of the implicit rates of these financial instruments
and the prevailing market rates for similar 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.

                                      F-9
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

 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.

 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

                                      F-10
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

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, 1,597,862
(unaudited), and 2,154,779 as of December 31, 1997 and 1998 and September 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):
Nine Months
                               Year Ended December 31,    Ended September 30,
                             ---------------------------  --------------------
                              1996      1997      1998       1998       1999
                             -------  --------  --------  ----------- --------
                                                          (unaudited)
Numerator:
  Net loss attributable to
   common stockholders......    (510)   (3,209)   (7,509)    (4,961)   (24,238)
Denominator:
  Weighted average shares...   2,282     2,405     3,949      4,614      4,900
  Weighted average unvested
   shares of Common Stock
   subject to repurchase....      --       (49)   (1,316)    (2,109)    (1,178)
                             -------  --------  --------    -------   --------
  Denominator for basic and
   diluted calculation......   2,282     2,356     2,633      2,505      3,722
Net loss per share:
  Basic and diluted......... $ (0.22) $  (1.36) $  (2.85)   $ (1.98)  $  (6.51)
                             =======  ========  ========    =======   ========

   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):
Nine Months
                              Year Ended December 31,     Ended September 30,
                             ---------------------------  --------------------
                              1996      1997      1998       1998       1999
                             -------  --------  --------  ----------- --------
                                                          (unaudited)
Weighted average effect of
 Common Stock equivalents...
  Series A Preferred Stock..     796     1,200       878        921        747
  Series B Preferred Stock..      --     1,235     2,107      2,098      2,135
  Series C Preferred Stock..      --        --     3,092      1,791      4,773
  Series D Preferred Stock..      --        --       359         --      2,494
  Series E Preferred Stock..      --        --        --         --      1,014
  Warrants to purchase
   mandatorily redeemable
   convertible preferred
   stock....................       1        66        71         70         72
  Shares of Common Stock
   subject to repurchase....      --        49     1,316      2,109      1,178
  Common Stock options......     250     1,480     1,870        494        545
                             -------  --------  --------    -------   --------
                               1,047     4,030     9,693      7,483     12,958
                             =======  ========  ========    =======   ========
Pro forma net loss per share

   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

                                      F-11
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

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 nine months ended September 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 11,234,191, 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 $13,227,000, 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

   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
2,322,024 shares of Common Stock, respectively. The pro forma effects of these
transactions have been reflected in the accompanying pro forma balance sheet at
September 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 September
30, 1999, the Company had not had any transactions that are required to be
reported in comprehensive income.

 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.

                                      F-12
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

NOTE 2--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. The total purchase price for this acquisition
was approximately $800,000. The purchase price was allocated to the tangible
and intangible assets acquired and liabilities assumed based upon their
respective fair values at the acquisition date. The purchase price consisted of
88,339 shares of the Company's Series E Preferred Stock (estimated fair value
of $500,000), seven-year warrants to purchase 17,668 shares of Series E
Preferred Stock at $5.66 per share (estimated fair value of $77,000) and
acquisition-related expenses (including legal and accountancy fees) of
approximately $223,000. The allocation of the purchase price was as follows:

                          Allocation of Purchase Price
Tangible Assets................................................. $ 385,000
     Intangible Assets
       Workforce.....................................................   500,000
       Goodwill......................................................   300,000
     Liabilities.....................................................  (385,000)
                                                                      ---------
                                                                      $ 800,000
                                                                      =========
The amortization of the intangible assets will occur over the estimated
periods to be benefited. The workforce asset will be amortized on the straight-
line basis over two years from the acquisition date, however, retention of the
acquired employees will be evaluated in future periods to assess whether
accelerated amortization of this asset is warranted. The goodwill is expected
to be amortized on a straight-line basis over three years from the acquisition
date. Amortization of acquired intangible asset was $249,000 for the nine
months ended September 30, 1999.

NOTE 3--BALANCE SHEET COMPONENTS (in thousands):
December 31,
                                                    -------------  September 30,
                                                    1997   1998        1999
                                                    -------------  -------------
Accounts receivable, net:
     Accounts receivable........................... $ 140 $ 2,675     $2,882
     Less: Allowance for doubtful accounts.........   --     (270)      (288)
                                                    ----- -------     ------
                                                    $ 140 $ 2,405     $2,594
                                                    ===== =======     ======
F-13
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

   There were no write-offs against the allowance for doubtful accounts in the
years ended December 31, 1997 and 1998 and for the nine months ended September
30, 1999.
December 31,
                                                  --------------  September 30,
                                                  1997    1998        1999
                                                  ------ -------  -------------
Property and equipment, net:
     Computer equipment and purchased software..  $ 254  $   952     $2,096
     Furniture and fixtures.....................     10      586        661
     Leasehold improvements.....................    --       449        501
                                                  -----  -------     ------
                                                    264    1,987      3,258
     Less: Accumulated depreciation and
      amortization..............................    (76)    (370)      (961)
                                                  -----  -------     ------
                                                  $ 188  $ 1,617     $2,297
                                                  =====  =======     ======
Property and equipment includes $38,000, $23,000 and $0 of fixed assets
under capital leases at December 31, 1997 and 1998 and September 30, 1999,
respectively. Accumulated depreciation of such assets was $7,000, $8,000 and $0
at December 31, 1997 and 1998 and September 30, 1999, respectively.
December 31,
                                                     ------------- September 30,
                                                     1997   1998       1999
                                                     ------------- -------------
Accrued liabilities:
     Payroll and related expenses................... $  59 $ 1,247    $1,787
     Other..........................................   110     226       805
                                                     ----- -------    ------
                                                     $ 169 $ 1,473    $2,592
                                                     ===== =======    ======
NOTE 4--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 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 nine months ended September 30, 1999.

   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
                                                                          ======
F-14
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

   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
7).

NOTE 5--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 nine months ended
September 30, 1998 and 1999 totaled $52,000, $557,000, $373,000 (unaudited) and
$743,000, respectively.

   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 September 30, 1999.

NOTE 6--INCOME TAXES:

   As of September 30, 1999, the Company had approximately $14,700,000 of
federal and $8,600,000 of state net operating tax loss carryforwards available
to reduce future taxable income. These net operating loss carryforwards begin
to expire in 2010 and 2003 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.

                                      F-15
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

   Deferred tax assets consists of the following (in thousands):
December 31,
                                                        --------------
                                                                        Sept 30,
                                                         1997    1998     1999
                                                        ------  ------  --------
Deferred tax assets:
     Net operating loss carryforwards.................. $1,105  $2,882   $5,506
     Accruals and reserves.............................     61     235      642
     Research credits..................................     40     120      414
     Depreciation......................................     60     128        0
                                                        ------  ------   ------
                                                         1,266   3,365    6,562
   Valuation allowance................................. (1,266) (3,365)  (6,436)
                                                        ------  ------   ------
   Net deferred tax assets.............................    --      --       126
   Deferred tax liabilities:
     Depreciation......................................    --      --        16
     Non-deductible intangible assets..................    --      --       110
                                                        ------  ------   ------
   Net deferred tax liabilities........................      0       0      126
   Net deferred tax assets............................. $  --   $  --    $  --
                                                        ======  ======   ======
The acquisition of Lexington Software Associates was structured as a tax-
free acquisition of stock, therefore, the differences between the recognized
fair values of acquired net assets and their historical tax bases are not
deductible for tax purposes. A deferred tax liability has been recognized for
the differences between assigned fair values of intangibles for book purposes
and the tax bases of such assets.

   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 valuation
allowance against its net deferred tax assets at December 31, 1997 and 1998 and
September 30, 1999.

NOTE 7--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
                                    ======     ======      =======    =======
F-16
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

   At September 30, 1999, 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    $ 1,650
   Series B Preferred Stock......    3,142      3,040        3,909      7,429
   Series C Preferred Stock......    7,160      7,160        7,726     14,132
   Series D Preferred Stock......    3,741      3,741        7,000     10,149
   Series E Preferred Stock......    3,600      3,483       19,714     19,636
                                    ------     ------      -------    -------
                                    18,763     18,544      $38,573    $52,996
                                    ======     ======      =======    =======
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 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.

                                      F-17
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

 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 September 30, 1999.

   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 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.

   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.

   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.

                                      F-18
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

NOTE 8--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 233,333 shares of Common Stock to an employee in
consideration of a $3,500 promissory note. In addition, the Company issued a
further 200,000 shares of Common Stock in consideration of $3,000 in cash.
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 180,555 shares of Common Stock subject to
repurchase at December 31, 1998 and September 30, 1999.

   The Company had reserved shares of Common Stock for issuance as follows (in
thousands):
As of
                                                                   September 30,
                                                                       1999
                                                                   -------------
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.....................................     2,400
   Exercise of options under stock option plans...................     1,030
                                                                      ------
                                                                      13,579
                                                                      ======
Notes receivable from stockholders

   In March 1998, the Company issued 1,333,333 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 48 month
period with 1,055,555 and 805,555 shares of Common Stock subject to repurchase
at December 31, 1998 and September 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. The notes bears interest at the rate of 6% per year. The principal
sum of the notes will become due and payable in eighteen equal monthly
installments beginning in October 2000. The notes are secured by the underlying
stock and are classified as notes receivable from stockholders in the
accompanying balance sheet at September 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 shares of Common
Stock subject to repurchase at September 30, 1999.

NOTE 9--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

                                      F-19
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

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 nine months ended September 30, 1999
(shares in thousands):
Year Ended December 31,
                             ---------------------------------  Nine Months ended
                                  1997             1998        September 30, 1999
                             ---------------- ---------------- ---------------------
                                     Weighted         Weighted             Weighted
                                     Average          Average              Average
                                     Exercise         Exercise             Exercise
                             Shares   Price   Shares   Price    Shares      Price
                             ------  -------- ------  -------- ---------  ----------
Outstanding at beginning
    of period..............    487    $0.03    1,276   $0.11         622   $   0.17
   Granted.................  1,074     0.14      824    0.21       1,895       3.37
   Canceled................   (185)    0.09     (334)   0.18        (236)      0.98
   Exercised...............   (100)    0.05   (1,144)   0.13      (1,251)      0.91
                             -----            ------           ---------
   Outstanding at end of
    period.................  1,276     0.11      622    0.17       1,030       4.97
                             -----            ------           ---------
   Options exercisable at
    end of period..........  1,276               622               1,030
                             -----            ------           ---------
   Weighted average fair
    value of options
    granted during the
    period.................           $0.03            $0.05               $   0.67
                                      =====            =====               ========
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998 (shares in thousands):
Options Exercisable
              Options Outstanding at December 31, 1998           at December 31, 1998
              ------------------------------------------------   --------------------
                                  Weighted
                                  Average        Weighted                    Weighted
   Range of                      Remaining        Average                    Average
   Exercise       Number        Contractual      Exercise          Number    Exercise
    Prices     Outstanding      Life (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
                  ============                                       ===
F-20
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

   The following table summarizes information about stock options outstanding
and exercisable at September 30, 1999 (shares in thousands):
Options Outstanding at September       Options Exercisable
                              30, 1999                  at September 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         77          8.6        $0.19           77       $0.19
    0.39- 1.20        162          9.4         0.64          162        0.64
    1.65- 2.25        298          9.7         2.15          298        2.15
    7.64-10.01        493          9.9         8.85          493        8.85
                    -----                                  -----
                    1,030          9.7         4.97        1,030        4.97
                    =====                                  =====
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        Nine Months
                                                 December 31,          Ended
                                                 ---------------   September 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 nine months ended September
30, 1998 and 1999.

 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.

   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.

                                      F-21
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

   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 three 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.

 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.

 Deferred stock-based compensation

   In connection with certain stock option grants during the year ended
December 31, 1998 and the nine months ended September 30, 1999, the Company
recognized deferred stock-based compensation totaling $1.9 million and $6.7
million, 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 nine months ended September 30, 1999 totaled
approximately $812,000 and $2.7 million, respectively.

                                      F-22
INTERWOVEN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
     Information for the nine months ended September 30, 1998 is unaudited

NOTE 10--SUBSEQUENT EVENTS:

 Stock Split

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

 Initial public offering

   On October 14, 1999 the Company completed its initial public offering of
Common Stock. A total of 3,622,500 shares were sold by the Company at a price
of $17.00 per share. The offering resulted in net proceeds to the Company of
approximately $56.2 million, net of an underwriting discount of $4.3 million
and estimated offering expenses of $1.2 million.

 Conversion of Preferred Stock

   Effective upon the closing of the Company's initial public offering, the
outstanding shares of Series A, B, C, D and E Preferred Stock were converted
into 746,664, 2,134,548, 4,773,161, 2,494,142, and 2,322,024 shares of Common
Stock, respectively.

 Repayment of debt

   On November 24, 1999, the Company repaid its equipment financing agreement
with Silicon Valley Bank. The amount repaid was approximately $1.3 million.

                                      F-23
[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. None of these expenses will be paid by the selling
stockholders. 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.............. $  122,048
   NASD filing fee..................................................     30,500
   Nasdaq National Market filing fee................................     17,500
   Accounting fees and expenses.....................................    100,000
   Legal fees and expenses..........................................    250,000
   Road show expenses...............................................     20,000
   Printing and engraving expenses..................................    250,000
   Blue sky fees and expenses.......................................     10,000
   Transfer agent, custodial and registrar fees and expenses........     15,000
   Miscellaneous....................................................    184,952
                                                                     ----------
     Total.......................................................... $1,000,000
                                                                     ==========
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 has entered 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 Third Amended and Restated Certificate of
    Incorporation......................................................  3.03
   Registrant's Restated Bylaws, as amended............................  3.04
   Third Amended and Restated Investors' Rights Agreement dated June
    10, 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. Through October 8, 1999, we issued and sold an aggregate of 2,620,787
shares of our common stock to employees, consultants, directors, and other
service providers at prices ranging from $0.03 to $10.01 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. The
remaining 1,120,000 shares of Series A Preferred Stock converted into 746,664
shares of common stock in October 1999.

   3. In August 1996, we issued a warrant to a certain bank in connection with
a loan agreement. The warrant was exercised in October 1999 for 6,552 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 converted into 65,519 shares
of common stock in October 1999.

   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 converted into 2,134,548 shares of common stock in October 1999.

                                     II-2
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. These shares of Series C Preferred Stock
converted into 4,773,161 shares of common stock in October 1999.

   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. These shares of
Series D Preferred Stock converted into 2,494,142 shares of common stock in
October 1999.

   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. These shares of Series E Preferred Stock
converted into 2,263,136 shares of common stock in October 1999.

   9. In July 1999, we issued 88,339 shares of Series E Preferred Stock and
warrants to purchase 17,668 shares of Series E Preferred Stock to certain
stockholders of Lexington Software Associates, Inc. in exchange for their
shares of that company. These shares of Series E Preferred Stock converted
into 58,888 shares of common stock in October 1999. These warrants are
exercisable for 11,770 shares of common stock.

   10. In July 1999, we issued a warrant to purchase 40,989 of shares of
Series E Preferred Stock to General Electric Company in connection with a
commercial transaction. This warrant is exercisable for 27,326 shares of
common stock.

   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. The conversion of the preferred stock into common stock in October
1999 was effected in reliance on the exemption provided under Section 3 (a)
(9) of the Securities Act.

Item 16. Exhibits and Financial Statement Schedules.

   (a) The following exhibits are filed herewith:
Number                             Exhibit Title
     ------                             -------------
1.01*  Form of Underwriting Agreement.

      2.01** Agreement and Plan of Merger, dated October 1, 1999, between
              Interwoven, Inc., a California corporation, and the Registrant.

      3.03   Registrant's Third Amended and Restated Certificate of
              Incorporation.

      3.04** Registrant's Restated Bylaws, as amended.

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

      4.02** Third Amended and Restated Investors' Rights Agreement, dated June
              10, 1999.

      4.03** Form of Consent concerning the Third Amended and Restated
              Investors' Rights Agreement dated June 10, 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.
II-3
Number                            Exhibit Title
      ------                            -------------
10.02**  1996 Stock Option Plan and related agreements.

     10.03**  1998 Stock Option Plan and related agreements.

     10.04**  1999 Equity Incentive Plan and related agreements.

     10.05**  1999 Employee Stock Purchase Plan and related agreements.

     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**  Build-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.

     10.24+** Standard Sales Agreement effective as of July 28, 1999 between
               Registrant and General Electric Company.

     10.25+** Preferred Stock Warrant to Purchase Shares of Series E Preferred
               Stock of Registrant.

     10.26+** Amended and Restated Loan and Security Agreement dated June 24,
               1999, between Silicon Valley Bank and Registrant.

     10.27**  Intellectual Property Security Agreement dated June 24, 1999,
               between Silicon Valley Bank and Registrant.

     10.28**  Amendment to Secured Promissory Note between Interwoven, Inc. and
               Jeffrey E. Engelmann, dated as of October 5, 1999.
II-4
Number                            Exhibit Title
     ------                            -------------
10.29** Amendment to Secured Promissory Note between Interwoven, Inc. and
              Jozef Ruck, dated as of October 5, 1999.

     21.01** Subsidiaries of the Registrant

     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)
     27.01   Financial Data Schedule
---------------------
*  To be filed by amendment

** Incorporated by reference to the exhibit of the same number to the
   Registration Statement on Form S-1 (file No. 333-83779) filed July 27,
   1999, and all amendments thereto.

 + Portions of this exhibit have been omitted pursuant to an order granting
   confidential treatment

    (b) The 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.

   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 Sunnyvale, State of
California, on this 16th day of December, 1999.

                                          INTERWOVEN, INC.

                                                     /s/ David M. Allen
                                          By: _________________________________
                                             David M. Allen
                                             Vice President and Chief
                                             Financial 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
                 ----                            -----                   ----
/s/ Martin W. Brauns                President, Chief Executive  December 16, 1999
______________________________________ Officer (principal
Martin W. Brauns                       executive officer) and a
                                       director

   /s/ David M. Allen                  Vice President and Chief    December 16, 1999
______________________________________ Financial Officer
David M. Allen                         (principal financial
                                       officer and principal
                                       accounting officer)

Additional Directors:

                                       Chairman of the Board       December  , 1999
______________________________________
Peng T. Ong

   /s/ Kathryn C. Gould                Director                    December 16, 1999
______________________________________
Kathryn C. Gould

    /s/ Mark W. Saul                   Director                    December 16, 1999
______________________________________
Mark W. Saul

   /s/ Mark C. Thompson                Director                    December 16, 1999
______________________________________
Mark C. Thompson

   /s/ Ronald E.F. Codd                Director                    December 16, 1999
______________________________________
Ronald E.F. Codd
II-6
EXHIBIT INDEX
Number                          Exhibit Title
     ------                          -------------
3.03  Registrant's Third Amended and Restated Certificate of
             Incorporation.
     23.02  Consent of PricewaterhouseCoopers LLP, independent accountants.

     24.01  Power of Attorney (See page II-6).

     27.01  Financial Data Schedule.